On March 24, 2023, the Department of Health and Human Services’ Office of Inspector General (“OIG”) issued an advisory opinion in response to a proposal by a laboratory test kit company to provide prepaid gift cards to individuals, including federal health care program beneficiaries, to encourage use of its colorectal cancer screening test. The company specifically requested the opinion to determine whether the proposed gift card arrangement would constitute grounds for sanctions under federal Anti-Kickback Statute (“AKS”) and other sections of the Social Security Act. The OIG concluded that while proposed arrangement would generate prohibited remuneration under the AKS if the requisite intent were present, it would not impose administrative sanctions if the company implemented the gift card arrangement.

The company’s parent entity manufactures a non-invasive colorectal cancer screening test that has been approved by the U.S. Food and Drug Administration. The screening test is covered by Medicare Part B every three years for beneficiaries aged 45 and older, if the beneficiary meets certain criteria. It may be ordered for a patient only by a health care provider with prescribing authority. After an order is placed, the company ships its sample collection kit directly to a patient’s home. The patient then collects a stool sample and ships it back to the company in a prepaid, preaddressed package. The sample is subsequently analyzed by a laboratory for presence of colorectal cancer or other indicators of disease.

Testing company trying to combat fail rate

The company estimated that about 30 percent of patient fail to return the testing kit back at all. To fight that fail rate, the company sends a series of prompts to patients reminding them to return their sample if they have not done so in a timely manner. To further encourage the return of the sample kits, the company is proposing to provide patients with gift cards upon return of a completed screening test.

Patients would only learn of the opportunity to receive a gift card in a written letter that constitutes the third reminder from the company to return the sample for analysis. Patients would be offered gift cards such as a prepaid MasterCard or Visa card with a value of up to $75. The company said that the gift cards would be mailed only to those patients who returned their testing kits by a specified deadline, could not be applied toward services provided by the company, and would not be advertised or marketed outside of that written letter. A patient would be eligible to receive a gift card only once in a 36-month period.

Arrangement potentially violates CMP and AKS

The OIG noted that the proposed gift card arrangement would implicate the Beneficiary Inducement Civil Monetary Penalty (CMP) provision of the Social Security Act. The provision prohibits a person or entity from offering remuneration to a Medicare or State health care program beneficiary that is known to or is likely to induce the beneficiary’s selection of a particular provider or supplier of health care services for which payment may be made by Medicare or a State health care program. Remuneration is defined as “transfer of items or services for free or for other than fair market value.” According to the OIG, gift cards from the testing company to encourage patients to complete a screening test would violate the CMP because the gift cards represent remuneration to patients if their completed screening tests could be reimbursed by federal health care program.

The OIG also found that the company’s proposed arrangement would violate the federal AKS, which makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce or solicit referral of an individual for the furnishing or arranging of any item or service reimbursable under a federal health care program. Similarly, the gift cards would violate the AKS because they would constitute remuneration from the testing company in an attempt to induce patients to return their testing kits for analysis, which may be paid for by a federal health care program.

OIG finds minimal risk of fraud and abuse

Despite concluding that the company’s proposed gift card arrangement could generate prohibited remuneration under federal law, the OIG said that it would not impose sanctions on the company for implementing the arrangement because of a minimal risk for fraud and abuse. To reach this level of risk assessment, the OIG cited the following:

• The arrangement is unlikely to lead to improper increased costs or overutilization of federally reimbursable services because Medicare covers the test only by prescription order and only once every 36 months. Further, patients are eligible to receive the gift card only once every 36 months.
• Since a prescribing health care provider cannot anticipate whether the company will offer or provide a gift card to a patient, the arrangement is unlikely to influence the provider to order the test as opposed to not ordering the test or ordering another screening test entirely. 
• Providing gift cards to patients would promote compliance with a screening test that is recommended by the U.S. Preventive Services Task Force and the American Cancer Society to screen for colon cancer and which CMS has said would benefit patients and the Medicare program as a whole.
• The company would not market or advertise the gift card arrangement to patients broadly through direct-to-consumer advertisements, in newspapers, on television or radio, or in magazines.
• Patients who receive the test upon a health care provider’s order obtained through the company’s website would not be eligible to receive a gift card.  

The OIG reasoned that the limited applicability of gift cards under the company’s proposed arrangement and the other factors described above provide adequate safeguards to the potential for fraud and abuse presented by the arrangement. Further, the potential negative consequences posed by the arrangement are likely outweighed by the positive implications of increasing the likelihood patients will complete colorectal cancer screenings. As such, the OIG provided the particular test kit company in question with a greenlight to move forward with its proposed gift card arrangement.

Reed Smith will continue to monitor developments with regard to OIG advisory opinions and fraud and abuse enforcement in general. If you have questions or would like to seek an advisory opinion for your company, please reach out to the health care attorneys at Reed Smith.