HHS-OIG Approves Provision of Zero-Rate Financing to Medical Device Customers | Jones Day

0

In short

The situation: The practice of manufacturers making available to their customers favorable or even interest-free financing for large purchases of medical devices is considered common and often expected by customers managing cash flow in capital-intensive businesses, particularly where reimbursement for items may be delayed. In a recent advisory opinion, the Office of the Inspector General of the Department of Health and Human Services (“HHS-OIG”) asked whether such arrangements could violate anti-bribery law.

The result: HHS-OIG has approved a zero-interest financing agreement between a medical device manufacturer, third-party lenders, and durable medical equipment supplier (“DME”) customers for the purchase of the manufacturer’s durable medical equipment. The HHS-OIG has found that although the interest-free loan constitutes compensation for the client, it nevertheless presents a low risk of fraud and abuse due to a number of safeguards.

Look forward: The advisory reiterates HHS-OIG’s position on the broad definition of compensation and warns that HHS-OIG considers the facilitation of zero-rate financing by manufacturers to constitute compensation that engages anti-bribery law. . At the same time, the advisory signals a willingness by the agency to accept commonly used funding terms that pose a low risk of inducing overuse of federally reimbursed medical products and have a favorable impact on competition. between small and large suppliers of medical equipment.

On June 23, 2022, HHS-OIG issued Advisory Opinion No. 22-13, approving a financing agreement between an EMR manufacturer and two third-party financial institutions (“lenders”) to provide interest-free loans to customers eligible EMR vendors. Although the agency has taken the position that the funding arrangement provides compensation under federal anti-kickback law (42 USC §1320a-7b(b)), the HHS-OIG has stated that it does not would not impose penalties as the arrangement presents a low risk of fraud and abuse. .

Proposed arrangement

As part of this agreement, the manufacturer has entered into agreements with two fully independent third-party financial institutions to make available zero-interest financing to customers that meets general credit requirements and other conditions imposed by lenders. Before or after a Customer’s payment is due to the Manufacturer, the Customer may contact or be contacted by the Manufacturer’s credit and collections staff to discuss payment. If the customer at that time cannot or prefers not (for example, for cash flow management) to pay the amount he owes, he can request the possibility of seeking zero-interest financing from a lender.

It is also possible that the manufacturer’s credit and collections department offers this potential option to the customer. To be eligible for referral to the lender, the customer must be in good standing with the manufacturer and owe them at least $10,000. Independent of the manufacturer, the Lender makes its own assessment of the customer’s creditworthiness. If the lender approves the financing, the customer is required to make payments to the lender in monthly installments, usually over 12 months. Once financing is approved, the lender pays the manufacturer the full amount invoiced, less the negotiated financing fee. While the lender retains the exclusive right to enforce the customer’s payment obligations, the risk of customer default is shared between the lender and the manufacturer according to a “loss pool” structure. Under this loss pool structure, the lender assumes the first layer of liability from customer defaults up to a specified threshold, and then the manufacturer is liable for defaults between that point and up to another specified threshold. , and the lender is then liable for any further default. .

Analysis

Federal anti-kickback law prohibits anyone from knowingly and willingly offering or accepting compensation to induce or in exchange for ordering or purchasing any item reimbursable by a federal healthcare program . Because some customers under the arrangement distribute purchased equipment to federal health care program recipients and submit claims to federal health care programs for that equipment, HHS-OIG asserted that the funding rate zero provided to these customers constituted a financial benefit and therefore remuneration under the law which, if the requisite intent is present, may trigger liability.

Nonetheless, HHS-OIG has determined that it will not impose penalties because the facilitation of zero-rate manufacturer financing poses a low risk of fraud and abuse due to the following safeguards:

  • Customers would not receive a rebate from the manufacturer as part of the financing agreement – ​​they would simply pay the full amount of the purchase over a longer period.
  • Independence from third-party lenders and bearing the majority of the financial risk, notwithstanding the loss pool structure, reduces the risk of the manufacturer offering or forgoing loans to secure future referrals.
  • The finance charge is the product of independent and arm’s length negotiations between the manufacturer and the third-party lender to compensate the lender for the administration of the loan. Since the lenders are neither healthcare providers nor suppliers, they are unable to refer federally reimbursed companies to the manufacturer.
  • The equipment is reimbursed according to a price list, regardless of the amount paid by the customer.
  • Customers don’t prescribe the equipment, reducing the risk of overuse.
  • The arrangement can have a favorable impact on the competitiveness of small suppliers who otherwise might not have access to financing opportunities.
  • Shared financial risk limits the manufacturer’s incentive to initiate zero-rate financing on behalf of the customer and also limits the lender’s incentive to approve such requests from customers who may default on their obligations.
  • The manufacturer does not advertise or guarantee the zero rate loan; its sales representatives cannot offer financing; and its sales representatives’ commissions are reduced if a customer receives zero-rate financing.
Share.

About Author

Comments are closed.