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Office of Inspector General Approves Warranty Program for Medical Device Manufacturer

Posted on: November 5th, 2018

By: Ali Sabzevari

The Department of Health and Human Services Office of Inspector General recently approved a medical device manufacturer’s proposed warranty program, which provides a refund to the hospital at which a patient underwent joint replacement surgery using the manufacturer’s knee or hip implant and related products, if the patient was readmitted within 90 days because of a surgical site infection or need for implant replacement surgery. The proposed model could serve as a road map for these kinds of risk sharing arrangements.

Advisory Opinion No. 18-10, which can be accessed here, set forth that although the suggested warranty implicates the safe harbor regulations to the anti-kickback statute, 42 C.F.R. § 1001.952, the “Proposed Arrangement poses a sufficiently low risk of fraud and abuse under the anti-kickback statute.”

The anti-kickback statute makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce or reward referrals of items or services reimbursable by a Federal health care program. See section 1128B(b) of the Act. Where remuneration is paid purposefully to induce or reward referrals of items or services payable by a Federal health care program, the anti-kickback statute is violated. By its terms, the statute ascribes criminal liability to parties on both sides of an impermissible “kickback” transaction. For purposes of the anti-kickback statute, “remuneration” includes the transfer of anything of value, directly or indirectly, overtly or covertly, in cash or in kind. The statute has been interpreted by several federal courts to cover any arrangement where one purpose of the remuneration was to obtain money for the referral of services or to induce further referrals.

The U.S. Department of Health and Human Services has promulgated safe harbor regulations that define practices that are not subject to the anti-kickback statute because such practices would be unlikely to result in fraud or abuse. See 42 C.F.R. § 1001.952. The safe harbors set forth specific conditions that, if met, assure entities involved of not being prosecuted or sanctioned for the arrangement qualifying for the safe harbor. However, safe harbor protection is afforded only to those arrangements that precisely meet all of the conditions set forth in the safe harbor.

The Advisory Opinion concludes that the Proposed Arrangement would not generate prohibited remuneration under the anti-kickback statute. Value-based care and risk sharing models continue to gain appeal, and the Office’s approval of this warranty program shows that the era of value-based care is here to stay.

If you have any questions or would like more information, please contact Ali Sabzevari at [email protected].

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