OIG Allows Hospital to “Warranty” Its Joint Replacements

The Department of Health and Human Services Office of Inspector General (OIG) has issued an advisory opinion indicating that it would not impose sanctions for a rural hospital’s proposed warranty program for patients undergoing joint replacement procedures.

Per the advisory opinion, the not-for-profit critical access hospital serves a “rural, eight-county region across two states, and the next nearest hospital is more than 40 miles away.” The hospital is proposing an arrangement that is similar to a warranty for certain joint replacement procedures performed by its two orthopedic surgeons.

Under the proposed arrangement, the hospital would not bill the patient or its insurer for “certain items and services [worth up to $50,000] provided to treat complications that occur within 90 days of a qualifying joint replacement procedure.” The hospital would advertise the warranty program to prospective patients.

The proposed arrangement has several limitations which the advisory opinion highlighted. First, the proposed arrangement would only apply to patients undergoing primary total knee, total hip, or partial knee arthroplasty procedures. Second, the proposed arrangement would only apply to certain complications occurring within 90 days of the procedure. Third, patients would have to meet certain eligibility criteria to be eligible for the proposed arrangement.

In its advisory opinion, the OIG indicated that the warranty program would “implicate both the Federal anti-kickback statute and the Beneficiary Inducements CMP [civil monetary penalty].” Under the warranty program, the hospital would be offering patients free items and services that could induce them to have a surgery performed at the hospital. Additionally, the warranty program involves renumeration to payors (the $50,000 worth of free items and services) that could induce payors to refer beneficiaries to the hospital.

The OIG then examined whether the warranty program would be covered under a safe harbor provision. The warranty safe harbor provision of the anti-kickback statute only “protects certain remuneration provided by manufacturers and suppliers.” Its restriction to “manufacturer or supplier” means that it could not apply to the proposed arrangement.

Nonetheless, the OIG found that the warranty program would “present a minimal risk of fraud and abuse under the Federal anti-kickback statute.” Additionally, the OIG indicated that it would use its discretion to “not impose sanctions under the Beneficiary Inducements CMP.”

The OIG listed four reasons in its analysis supporting its opinion. First, the proposed arrangement is designed to incentivize better outcomes.

Second, the proposed arrangement does not provide financial incentives to skew clinical decision making. The salaried surgeons exercise their independent medical judgment relating to patients. They do not have a “financial stake in the program.”

Third, the program is “unlikely to lead to overutilization or inappropriate utilization of items or services reimbursable by Federal health care programs.” This is because patients are only eligible for surgery under the program based on the surgeon’s independent medical judgment.

Finally, the program is unlikely to inappropriately influence a patient’s choice of provider. The OIG highlighted that the hospital serves a rural area where patients already have limited options for care.