On February 4, 2022, the Department of Health & Human Services Office of Inspector General (“OIG”) issued Advisory Opinion 22-02 protecting a children’s hospital’s donor-funded charity program (“Proposed Arrangement”). Under the Proposed Arrangement, the requestor (“Children’s Hospital”) would use funds from two individual donors to establish a restricted endowment fund that would subsidize patient bills for certain qualified families with children who have an established treatment relationship with physicians at the Hospital and who receive services there (the “Fund”). Under the Donors’ agreement with the Children’s Hospital (“Agreement”), the Hospital and the Fund would pay all out-of-pocket costs incurred by qualified families for their child’s medical care in the cancer, cardiac or neurosurgical programs, referred to as the “Initial Supported Programs.” Any money remaining in the Fund after allocation to all qualified families who receive services through the Initial Supported Programs would go to pay for qualified families’ out-of-pocket expenses for other services provided at Children’s Hospital, referred to as the “Supported Programs.” OIG found that the Proposed Arrangement would not constitute grounds for the imposition of civil monetary penalties (“CMP”), and although the Proposed Arrangement could potentially generate prohibited remuneration under the Anti-Kickback Statute (“AKS”), OIG would not impose administrative sanctions.
For any patient who received services from the Children’s Hospital through the Initial Supported Programs or Supported Programs, the Children’s Hospital would determine the family’s cumulative bill and submit a claim for reimbursement to the appropriate payor. After payment by the appropriate payor, the Children’s Hospital would then calculate the remaining balance on the patient’s bill. Qualified families who satisfied the criteria of the Children’s Hospital financial assistance policy would receive a financial need reduction, and then all bills, regardless of financial need, would receive a percentage reduction from Children’s Hospital. Finally, the Children’s Hospital would use money from the Fund to pay any balance remaining on the bill.
Although only a small minority of Children’s Hospital patients would be subject to cost-sharing under government health care programs, the OIG noted that the arrangement could implicate the AKS and Civil Monetary Penalties Law Beneficiary Inducement prohibition because the removal of cost‑sharing obligations of patients through the reduction and subsidy in their bills would be considered remuneration. Additionally, the arrangement could influence Medicare or CHIP beneficiaries to select the Children’s Hospital for services, thus violating the beneficiary inducement prohibition under the Civil Monetary Penalties Law. The OIG noted that although the arrangement would not fit squarely under any AKS safe harbor or Civil Monetary Penalties Law exception, there was a low risk of fraud and abuse based on the following safeguards:
- The Agreement would cover care-related expenses incurred by all qualified families regardless of payor and would not apply only to cost‑sharing for federal health care program beneficiaries. Also, the reduction and the subsidy would cover cost-sharing amounts for a few federal health care program beneficiaries.
- The Children’s Hospital certified that it would not advertise the Proposed Arrangement and would inform families only after their children already were established as inpatients or outpatients in one of the Initial Supported Programs or Supported Programs.
- The Children’s Hospital certified that it would not report unbilled cost-sharing amounts under bad debt on cost reports or shift those amounts to third-party payors, including federal health care programs.
- The Children’s Hospital certified that the usual clinical criteria for inpatient or outpatient care would not change.
- The Children’s Hospital would not consider insurance coverage, type of insurance or a patient’s diagnosis or medical condition (provided the patient would receive treatment from an Initial Supported Program or Supported Program) when determining whether a patient is eligible to receive cost-sharing support.
- Finally, neither of the donors are health care providers or suppliers and are not involved in health care aside from other charitable endeavors and consequently are not in the position to make or receive referrals for federal health care items or services.
Notably absent from this list is any mention of the source of funds—that the Initial Supported Program or the Supported Program were funded by donations. In evaluating the potential AKS or Beneficiary Inducement risk posed by these programs, providers sometimes assert that the source of funds (i.e., charitable donations) is a positive factor that would weigh against enforcement risk as some providers establish patient assistance programs using donated funds. There is some authority to support this position: In Advisory Opinion 11-01 the OIG indicated that the requesting hospitals’ need to rely on charitable donations and an endowment fund for income as a positive factor in determining that it would not impose sanctions on a proposed patient assistance arrangement. Similarly, in Advisory Opinion 11-16, the OIG noted that most of the requesting hospital’s remaining costs for care were funded by philanthropic sources, which reduced the risk of the proposed arrangement. However, despite these prior statements, OIG did not address the source of funds as a positive or negative factor in analyzing the risk of the Proposed Arrangement. The lack of comment from OIG on this topic could be interpreted as limiting the persuasiveness of Advisory Opinions 11-01 and 11-16.
Practical Takeaways
If providers were previously considering the use of donated funds as a mitigating factor in providing patient assistance, they should be cautious. Where OIG had an opportunity to make a distinction of the source of the funds (e.g., operating funds vs. donations), it did not. As such, providers should ensure that any proposed patient assistance activities meet an appropriate AKS safe harbor and/or CMP exception regardless of the source of the money used to fund the patient assistance activities.
If you have any questions or would like additional information about this topic, please contact:
- Ritu Kaur Cooper at (202) 370-9584 or rcooper@wp.hallrender.com;
- James Junger at (414) 721-0922 or jjunger@wp.hallrender.com;
- Margaret McAlpin at (202) 370-9583 or mmcalpin@wp.hallrender.com; or
- Your primary Hall Render contact.
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot—outside of an attorney-client relationship—answer specific questions that would be legal advice.
