Moving the HME Industry Forward

General Healthcare

Offering Free Services to Medicare Beneficiaries

September 14, 2015

AMARILLO, TX – Congress passed the Health Insurance Portability and Accountability Act of 1996, § 205, which allows the OIG to provide case specific formal guidance on the application of the anti-kickback statute and safe harbor provisions and other OIG health care fraud and abuse sanctions.1 The OIG is required to make opinions available to the public and all the AOs issued since the passing of HIPAA are posted on the OIG website.2 The first AO was published in 1997.3 To date, over 320 AOs have been published.

Each AO is specific to the party requesting it. Therefore, each AO addresses an issue raised by a specific provider: hospital, physician, lab, DME supplier, pharmacy, etc. Often, the legal principles addressed in an AO for one type of provider (lab) are applicable to a similar arrangement proposal by a different provider (DME supplier).

An ongoing challenge for the DME supplier is when it is legally acceptable for the supplier to provide a free gift or service to a Medicare beneficiary. In making such a determination, the supplier must be mindful of the Medicare anti-kickback statute which prohibits the offering or paying of anything of value to any person as an inducement to purchase, lease, or order an item or service covered by a federal health care program.

The supplier needs to also be mindful of the federal beneficiary inducement statute which prohibits transferring anything of value to a Medicare beneficiary when it is likely to influence the beneficiary to order or receive a Medicare covered item or service from a particular provider, practitioner or supplier. There is a “nominal value” exception to the beneficiary inducement statute that states that the statute does not prohibit the giving of incentives that are of “nominal value.” The OIG defines “nominal value” as no more than $10 per item or $50 in the aggregate to any one beneficiary on an annual basis. “Nominal value” is based on the retail purchase price of the item.

In AO 06-20 (November 8, 2006), the OIG set out a restrictive view towards two business practices pertaining to home oximetry testing. Pursuant to the first practice, the DME supplier would provide Medicare beneficiaries with free home oxygen until the beneficiaries qualify for Medicare coverage for oxygen. Under the second practice, the supplier would pre-screen beneficiaries by running overnight pulse oximetry tests on them and then reporting the test results to the physician.

The OIG stated that the practices would implicate both the Civil Monetary Penalties (“CMP”) statute and the Medicare anti-kickback statute. In making this statement, the OIG offered its opinion that (i) both programs would constitute remuneration to the beneficiaries who receive them; (ii) the remuneration provided under the practices would be likely to influence beneficiaries to select the DME supplier (providing the free services) as their supplier of oxygen or other Medicare – payable goods and services; and (iii) the supplier (providing the free services) would know, or should know, that the provision of items and services under the two practices would be likely to influence beneficiaries’ selection of the company for oxygen or other Medicare-payable supplies.  

Interestingly, in AO 12-13 (October 5, 2012)4, the OIG subsequently provided a more lenient analysis of a proposed arrangement that involved offering a free service to Medicare beneficiaries. The legal principles discussed in AO 12-13 (October 5, 2012) are applicable to similar programs that DME suppliers may want to implement.

In AO 12-13, the Requestor operates a chain of hearing aid supply and service locations in [state name redacted]. The Requestor’s staff, which includes Medicare-qualified audiologists, regularly fit and dispenses hearing aids and also administers tests of ear functions such as hearing and balance. Both hearing aids and examinations for the purpose of prescribing, fitting, or changing hearing aids are excluded from Medicare coverage. However, certain types of air, bone, and speech audiometric tests (the “Audiometric Testing”) may be covered by Medicare Part B, if performed according to applicable coverage rules. One of the coverage rules requires that the Audiometric Testing be performed on the basis of a physician’s or other prescribing provider’s prescription or order. Despite the availability of coverage for properly performed Audiometric Testing, the Requestor certified that to date it has never billed Medicare for such testing.

The Requestor sought an AO regarding a proposal by a hearing aid supplier to begin billing Medicare for Audiometric Testing, while continuing to offer free hearing tests to prospective hearing aid customers (the “Proposed Arrangement”). The Requestor inquired into whether the Proposed Arrangement would constitute grounds for the imposition of sanctions under the civil monetary penalty provision prohibiting inducements to beneficiaries, section 1128A(a)(5) of the Social Security Act (the “Act”), or under the exclusion authority at section 1128(b)(7) of the Act, or the civil monetary penalty provision at section 1128A(a)(7) of the Act, as those sections relate to the commission of acts described in section 1128B(b) of the Act, the Federal anti-kickback statute.

Under the Proposed Arrangement, the Requestor would begin billing Medicare for the Audiometric Testing when permitted by applicable coverage rules. The Requestor would also continue to offer walk-in customers free hearing tests to promote the sale of hearing aids (the “Free Hearing Exam”).

The Requestor certified that it does not and would not recommend that a customer receiving the Free Hearing Exam subsequently undergo the Audiometric Testing paid for by the Medicare program. Neither would the Requestor attempt to obtain on behalf of that customer the physician prescription or order that would be required for Medicare coverage of the Audiometric Testing. The Requestor certified that it would only bill Medicare for the Audiometric Testing when that testing was performed on the basis of the prescription or order of the customer’s own physician or other prescribing provider and in accordance with applicable coverage rules.

The OIG found that the Proposed Arrangement, under which the Requestor would start to bill Medicare for Audiometric Testing while continuing to provide the Free Hearing Exam to walk-in customers (including Medicare beneficiaries), implicates both the civil monetary penalty prohibiting beneficiary inducements and the anti-kickback statute. According to the OIG, arrangements whereby a prospective provider or supplier of Federally payable items and services offers beneficiaries a non-covered item or service free of charge implicate these fraud and abuse laws and must be closely scrutinized. However, the OIG concluded that the Proposed Arrangement presented a minimal risk of Federal health care program abuse, and the OIG would not seek to impose administrative sanctions in connection with the statutes discussed.

The OIG came to its conclusion by determining whether the offer of the Requestor’s Free Hearing Exam would constitute remuneration offered or transferred to Medicare or Medicaid beneficiaries, and, specifically, whether that remuneration would be more than nominal in value. The OIG noted that the Requestor stated that the four procedures that comprise the Free Hearing Exam have a combined retail value of greater than $10. Therefore, the Free Hearing Exam has economic value, and that value is more than nominal.

Next, the OIG addressed, under the CMP, whether the continued offer of the Free Hearing Exam would be likely to influence beneficiaries to select the Requestor as their provider of Audiometric Testing services payable by Medicare. The OIG concluded that the continued offer of the Free Hearing Exam would not influence beneficiaries to select the Requestor because the Free Hearing Exam is not used to market Audiometric Testing and does not otherwise lead to Audiometric Testing. Also, the Audiometric Testing is payable by Federal health care programs only on a physician’s or other prescribing provider’s prescription or order.

For these reasons, the OIG found that the offer of the Free Hearing Exam exercises minimal influence over beneficiaries’ selection of the Requestor as their provider of Audiometric Testing. Thus, the OIG stated that it would not impose sanctions on Requestor under the CMP. Also, for the reasons discussed in the AO, the OIG would not impose administrative sanctions on the Requestor in connection with the anti-kickback statute.

The “take away” is that if the offer of a free service will not influence the Medicare beneficiary to select the DME supplier for a Medicare-covered item or service, then the risk of violation of the anti-kickback statute and/or beneficiary inducement statute is reduced.

Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato PC, a law firm based in Amarillo, Tex. He represents pharmacies, infusion companies, HME companies and other health care providers throughout the United States. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization, and can be reached at (806) 345-6320 or