Have you ever come home from a long day at work after deciphering HCPCS codes and warning your employees (for the thousandth time) about the penalties under HIPAA for not protecting patient health information? All you want to do is sit in your favorite chair and not be disturbed. But suddenly you hear pounding at the front door. When you answer, you discover people from the office of inspector general (OIG).

You may think: Why is this happening? Why didn’t I go to a few Medtrade educational sessions instead of just the cocktail parties? What is this talk of unlawfully inducing patients to select my company as their provider? I thought I was doing everything right!

Providers think they are safe because their bases are covered on the high-profile issues. However, the less prominent issue of beneficiary inducement can bite you as well. But never fear, it is not too late to update, or begin your education on how to avoid beneficiary inducement.

Statutory Handcuffs
The line between effective advertising/promotion and beneficiary inducement is defined by two principle statutes. The first is a section of the Medicare statute that specifically addresses inducements to beneficiaries. The other is the Medicare anti-kickback statute, every health care provider’s version of Jason from “Friday the 13th” because it just keeps coming back to haunt you.

A legal reading of these laws makes it clear that anything of value—anything that may induce a Medicare beneficiary to purchase or rent a Medicare-covered item or service from you rather than from one of your competitors—is potentially an inducement, and possibly a kickback as well. Violations of these statutes can lead to civil monetary penalties and exclusion from the Medicare and Medicaid programs, as well as criminal fines and imprisonment.

Devil in the Details
When applying the inducement statute and the anti-kickback statute, the legality of certain promotional activities directed to Medicare beneficiaries is often clear-cut. Inevitably, however, there are those tricky gray areas. The following are the most common categories of inducements offered to attract or maintain customers:

• Free goods. Drumming up business through free giveaways would seem to be a plainly prohibited activity. But, we often see advertisements for free glucose monitors, hams, turkeys, restaurant gift certificates, and free portable oxygen systems with a covered home unit. Are all of these things prohibited? Not necessarily, because there is one significant exception to this category.

The OIG does not prohibit the giving of incentives that are of “nominal” value. The OIG plainly states this in its preamble to regulations issued under the inducement statute. Based on these OIG statements, it is safe to assume that incentives that are only nominal in value are not prohibited by the statute, and therefore, no exception is necessary. The OIG also defined nominal value to be no more than $10 per item or $50 in the aggregate to any one beneficiary on an annual basis. The OIG further specified that the $10 limitation is to be based on the retail purchase price of the item. Suppliers may give away small promotional items of less than a $10 retail value (and no more than $50 in the annual aggregate to any one beneficiary) due to this exception.

• Waivers of copayments and deductibles. There is a specific exception for waivers of copayment and deductible amounts under the inducement statute. This exception is subject to the condition that a supplier may not routinely waive copayments and deductibles. A supplier also may not advertise that it will waive these payments. If after appropriate investigation the supplier determines that a beneficiary truly is in financial need, the copayment and deductible amounts may then be waived.

Waiving copayment and deductible amounts may potentially violate the anti-kickback statute as well. Almost 15 years ago, the OIG issued a Special Fraud Alert specifically on this subject. The Special Fraud Alert stated that routine waiver of Medicare copayments and deductibles could subject providers to liability under the anti-kickback statute and the False Claims Act. The alert listed examples of suspect marketing practices, such as advertisements which state: Medicare accepted as payment in full, insurance accepted as payment in full, or no out-of-pocket expense.

• Advertisements that promise discounts will be given to Medicare beneficiaries.

• Routine use of financial hardship forms, which state that the beneficiary is unable to pay the coinsurance/deductible (there is no good faith attempt to determine the beneficiary’s actual financial condition).

• Charges to Medicare beneficiaries that are higher than those made to other persons for similar services and items (the higher charges offset the waiver of coinsurance).

• Failure to collect copayments or deductibles for a specific group of Medicare patients for reasons unrelated to indigency (a supplier waives coinsurance or deductibles for all patients from a particular hospital to get referrals).

Therefore, for a supplier to waive a copayment or deductible amount, it cannot merely accept a statement from a beneficiary that he or she cannot afford to pay the amount. The provider must take good faith, documented steps to inquire into and determine the beneficiary’s actual financial status. Failure to do so risks liability under the inducement statute and the anti-kickback statute. The attention of enforcement authorities is almost guaranteed if a provider widely advertises his willingness to waive copayment and deductible amounts.

Free Upgrades?
CMS issued a Medicare Program memorandum in October 2001 addressing the provision of free DME upgrades. The Memorandum notes that stocking only higher-level models of certain items may be a way for providers to reduce their cost of maintaining inventory and/or reduce their costs for replacement parts and repairs.

Even though the cost savings of a streamlined inventory are the only reason noted, the program memorandum language appears to permit a supplier to provide a free upgrade for any reason. Tread lightly, though. The inducement statute is a law that may not be pre-empted or replaced by the guidance of CMS contained within a program memorandum. Therefore, a supplier still may not use the offer of a free upgrade to induce a beneficiary to choose it over another supplier.

Where a supplier is most likely to get into hot water is advertising that it will provide upgraded equipment to beneficiaries at no charge. This act of promotion will expose a provider to liability under the inducement statute.

Preventive Care
There is an inducement exception for “incentives given to individuals to promote the delivery of preventive care as determined by the Secretary in regulations.” Unfortunately, the OIG has adopted a restrictive definition of “preventive care” in its regulations, which curtails any creative programs structured around the exception.

Many activities related to general health and wellness that could be considered “preventive” under an expansive definition are not included in the exception. The definition limits “preventive services” to those listed in the Guide to Clinical Preventive Services, and further limits it to those preventive services reimbursed by Medicare and state health programs. This wide basis for exclusion is further restricted by the OIG’s statements that the preventive services exception may not be used as a means of marketing other kinds of services. These restrictions make the preventive services exception an unlikely source for significant marketing opportunities.

Ultimately, it is not impossible for DME suppliers to effectively promote themselves to Medicare beneficiaries. What is necessary, however, is a commitment to understanding and following the details of the beneficiary inducement and anti-kickback rules, especially in advertising. The implications of not following those rules are formidable enough to make the intricacies of the applicable laws worth remembering.

The industry is full of providers who are willing to bend or break these rules to gain a competitive advantage. It may be tempting to step off the edge and walk on the dark side of the law when a competitor advertises “Medicare accepted as payment in full,” or when a potential customer wants the same free upgrades or free products that the provider down the street is offering. Keep in mind, though, that your deviant competitor may soon be put out of business. Extreme monetary penalties, jail time, and exclusion from the Medicare and Medicaid programs make it hard to keep the doors open.

Brandi A. Lang, JD, is an attorney with the Health Care Group of Brown & Fortunato PC, an Amarillo, Texas-based law firm. She represents DME companies, pharmacies, and other health care providers throughout the United States. Lang can be reached via email: blang@bf-law.com.