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The OIG Publishes an Unfavorable Advisory Opinion Involving a Manufacturer’s Proposal to Compensate Providers for Warranty-Covered Services

A manufacturer of cochlear implants (“Requestor”) inquired whether a Proposed Arrangement would violate the Anti-Kickback Statute and result in civil monetary penalties.  The Office of the Inspector General for the Department of Health and Human Services (OIG) concluded that the Proposed Arrangement presents more than a minimal risk of violation of the Anti-Kickback Statute.

Cochlear implants are devices, covered by the Medicare and Medicaid programs, which assist patients’ ability to hear.  The implants consist of both internal and external components.  The internal component of the device is surgically implanted and following the implantation an audiologist must program the external sound processor.  Patients may choose the cochlear implant device and this choice may be influenced by the patient’s audiologist or surgeon.  The Requestor warranties the external component and operates a toll-free telephone line for customer’s questions and concerns about their product.  However, since customers often contact the Clinics for assistance with their devices, Clinics will provide troubleshooting services (Services) pursuant to the Requestor’s established process.

The Proposed Arrangement would operate pursuant to a written agreement between the Requestor and the Clinics.  The Requestor would compensate the Clinics $37 per occurrence for the Services.  The compensated Services would include those provided the Requestor under the customer’s warranty.  The Requestor affirmed that the fee was consistent with the fair market value and that Clinics would be prohibited from billing third-party payors or patients for the services.  These services would not be marketed to the patients. 

The OIG determined that the Proposed Arrangement posed a more than minimal risk of fraud because (1) the Requestor failed to implement safeguards to dissuade improper patient steering that could result as the incentives tied to the selection of the Requestor’s device; (2) the Requestor did not demonstrate a compelling need for the Requestor to pay the Clinics for providing the Services for which the Requestor already has processes in place to perform; and (3) the OIG questioned the methodology the Requestor utilized to determine that the fee for the services represented the fair market value.

The OIG ultimately concluded that the Proposed Arrangement would not create grounds for civil monetary penalties, but that it could result in prohibited remuneration under the Anti-Kickback Statute and OIG could impose administrative sanctions as a result. 

If you would like any of your financial arrangements analyzed for Stark or Anti-Kickback violations, please visit or contact a Wachler & Associates attorney at 248-544-0888.   

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