In advisory opinion, OIG-HHS refuses to endorse cochlear implant maker's plan to reimburse providers for warranty-related services

by Ben Vernia | September 11th, 2010

In an Advisory Opinion issued on September 10, the OIG-HHS found “more than a minimal risk of fraud and abuse under the anti-kickback statute” in a cochlear implant manufacturer’s proposal to reimburse audiologists and other providers for services related to warranty claims on defective external components of the devices.

The manufacturer argued that although it provided patients with a warranty return process, many opted instead to return to their healthcare provider to address the problem. After performing some tests, these healthcare providers typically used the same warranty return process available to patients, but they received no reimbursement for their time spent on these services. The device maker surveyed providers for estimates of time spent and reviewed salaries in the field, and proposed paying providers $37 for each patient whose warranty issue they handle.

The OIG-HHS found two problems with the proposal, under the anti-kickback statute:

First, several Clinics have expressly sought remuneration from Requestor for RMA Services that Requestor already makes available to its customers through the warranty process. If Requestor were to pay the Clinics for warranty-related services, including RMA Services, the Clinics could be influenced to recommend Requestor’s product over a competitor’s product. One purpose of the anti-kickback statute is to protect patients from inappropriate referrals (or recommendations) by providers and suppliers that may be unduly influenced by financial incentives. The statute seeks to ensure that referrals will be based on sound medical judgment and that providers and suppliers will compete for business based on quality and convenience, instead of paying for it. Requestor has not proposed any safeguards to deter such steering of patients arising from the financial incentives built into the Proposed Arrangement. Moreover, there appears to be no compelling need to pay the Clinics to perform these services, because Requestor has taken measures to ensure that it has a process in place for customers to complete this transaction directly with Requestor, including establishing a toll-free line for troubleshooting services and for assisting customers with the RMA process.

Second, under the Proposed Arrangement, Requestor would pay the Clinics for RMA Services on a per-occurrence basis at a rate that Requestor certified to be fair market value. We are not confident that, in these circumstances, Requestor’s survey method for establishing fair market value is sufficient to ensure that Requestor will not be overpaying a referral source for the RMA Services. Requestor’s survey only took into account time spent by and average salaries for audiologists, technicians, and administrative staff of the Clinics, who are actual or potential referral sources. It is not clear that the survey captures amounts commensurate with what it would cost the Requestor to obtain comparable services from individuals or entities that are not potential referral sources.

The OIG-HHS noted, however, that liability under the anti-kickback statute required a determination of the parties’ intent, which was beyond the scope of the Advisory Opinion.

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