OIG: No upfront rebates

Fraud and abuse concerns raised

The Department of Health and Human Servi-ces’ Office of the Inspector General (OIG) has issued an opinion letter outlining its position on the legality of upfront and percentage payments connected with medical supply contracts.

The short answer: Don’t do it.

The situation the OIG addressed involved when a manufacturer or distributor of medical products and services enters into contracts with group purchasing organizations and end users of those products, agreeing to make substantial upfront payments to the providers once the contract is executed — along with possible additional advance payments at various times during the length of the contracts.

Problem areas

The contracts did not provide for any refunds to the sellers if the providers failed to met any minimum purchase requirements. They also could have created an exclusive purchasing relationship between the parties.

The OIG thought this kind of arrangement raised several anti-kickback issues since the "payments (i.e., remuneration) are obviously incentives to induce the purchase of items or services, some of which are federally reimbursable."

Such payments would not be covered by the discount safe harbor, which applies to certain discounts and rebates, because they are made prior to any purchase and are not attributable to identifiable purchases of items or services, declared the OIG. "Simply put, discounts are price reductions at the time of sale of goods, and rebates are discounts subsequent to the sale."

OIG: Practices raise fraud and abuse risk

The OIG also said such practices raise a significant risk for fraud and abuse. "Not only are such payments difficult to trace to ensure proper disclosure, but they also have the practical effects of "locking in" the purchasers for an extended period of time, increasing the potential for over utilization, and interfering with a purchaser’s normal cost/quality considerations in ordering specific goods or services."

To read the full text of the letter on the Internet, go to www.hhs.gov/oig/ak/prebate.htm.