Department of Health & Human Service Office of Inspector General Cracks Down on Discounts: Is your Practice at Risk?

Heath care providers have grown increasingly concerned about governmental scrutiny of health care transactions in recent years. Particularly concerned, are physicians practicing individually or in small groups. Running a busy practice can be hectic enough, as physicians struggle with insurance red tape and frivolous malpractice claims, while trying to provide the best care to their patients. Now more and more physicians are finding themselves having to justify their billing practices; and worse, defend against false accusations of health care fraud. The best defense, however, is a prudent office management approach designed to avoid allegations of misconduct before they arise. 

In October of 2001 health care fraud gained national attention when TAP Pharmaceutical Products Inc. ("TAP") paid the Government $875 million to resolve allegations that the company had bribed physicians in violation of the Medicaid Anti-Kickback Statute, conspired to submit false billing claims to Medicare and Medicaid, and conspired with providers to violate the Prescription Drug Marketing Act. 

The United States Attorney General recently stated that the detection and prevention of health care fraud is one of the Government’s top priorities. There are various Federal and State law enforcement agencies involved with this pursuit and an array of remedies available to discipline providers accused of misconduct. These remedies range from large fines or prison sentences to civil lawsuits or exclusion from federal funded health care programs.
While the Tap settlement made national headlines, what was not reported was the massive fallout, which resulted in the investigation of hundreds of independent and small groups of physicians across the country. 

The Department of Health and Human Services Office of Inspector General (OIG) has aggressively pursued illegal contacts that physicians may have with companies like Tap and others who have allegedly violated federal or state health care laws. Last year the Department of Justice (DOJ) issued subpoenas to physicians in Texas and across the country in connection with ongoing investigations into pharmaceutical marketing practices. These investigations are ongoing.

The American Medical Association (AMA) Ethical Opinion E-8.061 on gifts to physicians from industry is simple and straight forward. Essentially, the AMA advises that physicians should only accept gifts of minimum value and that primarily benefit patients, such as textbooks and other educational materials. Physicians should not accept cash gifts or free drug samples for personal use. Conferences or meetings should be primarily dedicated to scientific and educational activities and faculty should only accept reasonable honoraria and reimbursement for expenses for participation in industry sponsored educational expenses. Physicians attending conferences should not accept payments or reimbursement for the cost of travel, lodging or other personal expenses. 
While adherence to the AMA guidelines is relatively simple and sufficient to avoid many legal problems, the voluminous provisions of health care laws that govern the practice of medicine are anything but simple and sometimes even the well-meaning can run afoul. 

Physicians who have regular business dealings with pharmaceutical companies, especially those who stock and dispense pharmaceuticals in-house, such as injectables like Lupron or Zoladex, should take extra caution. The OIG has recently warned that even discounts on products are potentially illegal kickbacks. 

Discounts are not necessarily prohibited by law, but a prudent health care provider should take extreme care to be sure that any discounts they receive are in compliance with very strict legal requirements. In addition, all physicians should take causation in accepting gifts, forgiveness of debt, or anything of value from pharmaceutical companies. 
Why is this so? In the Balanced Budget Act of 1997 (BBA), Congress set Medicare’s payment for drugs at the lesser of the billed charges or the reimbursement amount based on the Average Wholesale Price (AWP). Over the last several years this has resulted in an increased tendency for manufactures to report an inflated AWP to the government to get a high reimbursement through federal health care programs, while offering “discounts” to providers and marketing the “spread” to induce providers to switch to their product.

On October 3, 2002, the Office of Inspector General (OIG) addressed this issue of how this so-called “marketing of the spread” by pharmaceutical companies can violate the federal anti-kickback statute. The anti-kickback statute prohibits knowingly and willfully paying or receiving any remuneration directly or indirectly, overtly or covertly, in cash or kind, in exchange for prescribing, purchasing or recommending any service, treatment or item for which payment will be made by Medicare, Medicaid or any other federally funded healthcare program. In the October 3, 2002 “Draft OIG Compliance Program Guidance for Pharmaceutical Manufacturers”, the OIG states that "manipulation of the AWP to induce customers to purchase a product, coupled with active marketing of the spread is evidence of unlawful intent necessary to trigger the anti-kickback statute."
While the OIG intended this guidance as a warning to the pharmaceutical industry, it is certainly applicable to physicians as well. Thus, on the provider side, any increase in a providers utilization of certain drugs coupled with an increased spread due to a manufacturer’s discount would likely be viewed as evidence of illegal inducements violating the anti-kickback statute. 
While the OIG opinion does not prohibit manufactures from offering discounts to physicians, it does caution manufacturers to “review their AWP reporting practices and methodology to confirm that marketing considerations do not influence the process.” Similarly, physicians should review their prescribing practices to confirm that their profit on a certain product is not influencing their prescribing patterns. Even the appearance of such influence can cause major legal problems. 

Perhaps most applicable to providers, the OIG opinion speaks specifically about discounts offered to providers in "switching" arrangements, in which a provider receives a discount on a product in exchange for switching patients over to a particular product. Obviously, a provider would want to avoid even the appearance that such an arrangement had taken place. 

Although the AWP reimbursement system (which allows providers an opportunity to derive profits from certain drugs) appears to be seriously flawed and viewed in contempt by many critics, many physicians rely on these profits from pharmaceuticals to cross-subsidize inadequate reimbursements for services. Nevertheless, providers should take extra caution to avoid allegations of illegal activities. Providers who receive discounts should take great care to ensure that any discounts are properly offered, disclosed, and reported in accordance with federal and state regulations. 

In addition, providers should document and clinically justify all prescriptions, especially when prescribing for a higher priced innovator drugs in cases where cheaper alternatives are available. Doing so can help avoid later allegations that certain prescriptions were made for pecuniary or otherwise unethical reasons. Also, providers should pay all debts to pharmaceutical companies on a regular basis so as to avoid allegations that a company has provided illegal remuneration in the form of an interest free loan or forgiveness of debt. 
Because the laws are constantly changing, providers should stay abreast of these changes by paying careful attention to any legal bulletins or notices received by governmental entities or contractors. It is likely that the current reimbursement system will be overhauled in the near future given the current pressures to reduce drug expenditures. It is also likely that scrutiny of health care costs will continue to increase. The OIG has particularly emphasized that the Government will pressure manufactures to either curtail discounting to physicians or lower AWP so that reimbursements are more in-step with actual market prices.