The Federal Anti-Kickback Statute, Promotional Discount Programs, Discounts and Rebates FAQ

Does a dental practice's participation in a federal healthcare program, such as Medicaid, TRICARE, or Medicare Advantage, affect its ability to participate in a discount or rebate program with a manufacturer or other supplier? What about a manufacturer or supplier program that offers points, gifts, or other special awards?

Discount or rebate programs, including those that offer points, gifts, or special awards, may be found to violate the federal Anti-Kickback Statute (AKS) when they can be seen as a means of providing compensation to induce the referral of federal healthcare program business. A discount or rebate program might fit within a "safe harbor" to the AKS if certain requirements are met, but many will not qualify for this protection. Accordingly, careful scrutiny should be given to any program offered by a manufacturer or supplier that offers points, gifts or other awards.

What is the AKS, and what are the penalties for violation?

The AKS is a federal law designed to prohibit the exchange of any remuneration to induce the referral of business covered by a federal health care program.1 The AKS even applies if remuneration is merely offered or solicited, but not exchanged. It imposes both criminal and civil sanctions. A violation of the AKS can result in a fine of up to $25,000 per claim submitted, imprisonment for up to five years, and exclusion from participation in federal healthcare programs. Civil monetary penalties are provided in cases of "reckless disregard," or "deliberate ignorance." For a court to find a violation of the AKS with regard to remuneration outside the safe harbors, each of the elements of a kickback arrangement must be found: (a) a referral(s); (b) an inducement; and (c) proof of prohibited intent.

The government has strengthened its efforts to enforce fraud and abuse laws such as the AKS.2 The Affordable Care Act has made it easier for the Department of Health and Human Services' Office of Inspector General (OIG) to prosecute AKS violations; for example, by making it easier for the government to prove that a defendant intended to violate the law. The Physician Payment Sunshine Act requires certain manufacturers to publicly report various kinds of gifts and payments to practitioners, which could lead to an increase in investigations. AKS violations are often alleged by whistleblowers, who have a financial incentive because they can participate in any recoupment.

What is a "safe harbor" to the AKS?

A "safe harbor" is traditionally a defined set of permissible conduct that will not be viewed as violating a particular law or regulation. The Department of Health and Human Services' Office of Inspector General (OIG) has published safe harbor regulations (safe harbors) that specify payments that will not provide a basis for criminal prosecution, civil monetary penalties or exclusion from Medicare or state health programs under the AKS. To come within the safe harbors, an arrangement must meet all the requirements of each applicable safe harbor.

Because the safe harbors are narrow, many arrangements do not meet safe harbor requirements. Failure to meet a safe harbor does not automatically make a transaction illegal. Instead, arrangements outside the safe harbors must be reviewed on a "facts and circumstances" basis, i.e., by reviewing the facts of a particular arrangement in light of the AKS and the cases and administrative rulings interpreting the AKS.

How can a dental practice benefit from the safe harbor that applies to discounts and rebates?

The AKS includes a safe harbor applicable to certain discount and rebate arrangements.3 Specifically, the discount safe harbor applicable to most dental practices requires that the arrangement meet all of the following criteria:

As applied to the dental practice (i.e., the buyer):

The discount must be made at the time of the sale of the good or service, or the terms of the rebate must be fixed and disclosed in writing to the buyer at the time of the initial sale of the good or service;
The discount must be on the same type of goods and services (and not tied to the purchase of another good or service);
The buyer (if submitting the claim) must provide, upon request by the Secretary of the U.S. Department of Health and Human Services or a state agency, information provided by the seller as specified below.

As applied to manufacturer or supplier (i.e., the seller):

Where the seller submits a claim or request for payment on behalf of the buyer and the item or service is separately claimed, the seller must fully and accurately report the discount on the claim or request for payment to Medicare or a state health care program and the seller must provide, upon request by the Secretary of the U.S. Department of Health and Human Services or a state agency, information provided by the offeror of the seller's obligation to report the discount and to provide information as requested; or
Where the buyer submits a claim, the seller must: (i) fully and accurately report such discount on the invoice, coupon or statement submitted to the buyer; (ii) inform the buyer in an effective manner of its obligations to report such discount; and (iii) refrain from doing anything that would impede the buyer from meeting its reporting obligations.

Might a manufacturer or supplier restrict participation in a promotional discount program to items or services that are not covered by federal healthcare programs?

Because the AKS imposes liability on both sides of a prohibited transaction, certain manufacturers or suppliers may attempt to minimize the risk of an AKS violation by restricting participation in promotional discount programs to items or services that are not covered by federal healthcare programs. One way of accomplishing this is to require the participating practices to certify or otherwise assure that the items or services received through the reward program will not be provided to federal healthcare program beneficiaries.

How can a dental practice minimize the risk of violating the AKS?

Dental practices that bill federal healthcare programs should review their participation in discount programs and develop policies on gifts and other remuneration not only from manufacturers and suppliers, but also from individuals, businesses and professionals with whom the practice has a referral relationship. Doing so will help minimize risk under the AKS and other laws designed to protect federal healthcare programs from fraud and abuse. It is also prudent for dental practices to keep informed about state and federal fraud and abuse laws, and to develop and adhere to compliance programs. For more information about federal fraud and abuse programs, visit the Physician Education area of the OIG website. For information about developing a fraud and abuse compliance program for a small practice, see the General OIG Compliance Program for Individual and Small Group Physician Practices (PDF).

Footnotes

¹The AKS imposes criminal and civil penalties against any individual or entity that:

[K]nowingly and willfully offers or pays any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind to any person to induce such person

To refer an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in Part under [Medicare or a state health care program],
To purchase, lease, order or arrange for or recommend purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in Part under [Medicare or a state health care program]. 42 U.S.C. §1320a-7b; Social Security Act §1128B.

The AKS also contains a reciprocal provision making it illegal to solicit or receive remuneration in return for a prohibited referral or for purchasing, leasing, ordering or arranging for or recommending purchasing, leasing or ordering any good, facility, service or item for which payment may be made in whole or in Part under Medicare or a state health program.

56 Fed. Reg. 35,952 (1991); 42 C.F.R. § 1001.952 et seq.

²"Efforts to combat fraud were consolidated and strengthened under Public Law 104-191, the Health Insurance Portability and Accountability Act of 1996 (HIPAA). The Act established a comprehensive program to combat fraud committed against all health plans, both public and private. The legislation required the establishment of a national Health Care Fraud and Abuse Control Program (HCFAC), under the joint direction of the Attorney General and the Secretary of the Department of Health and Human Services (HHS) acting through the Department's Inspector General (HHS/OIG). The HCFAC program is designed to coordinate Federal, State and local law enforcement activities with respect to health care fraud and abuse. The Act requires HHS and Department of Justice (DOJ) detail in an Annual Report the amounts deposited and appropriated to the Medicare Trust Fund, and the source of such deposits." Website of the Office of the Inspector General. Accessed on November 2023.

³The OIG defines "discount" as a reduction in the amount a buyer (who buys either directly or through a wholesaler or a group purchasing organization) is charged for an item or service based on an arms-length transaction. The term discount does not include (and thus the safe harbor does not protect): (i) cash payments; (ii) furnishing one good or service without charge or at a reduced charge to induce the purchase of a different good or service; (iii) a reduction in price applicable to one payer but not to Medicare or a State health care program; (iv) a routine reduction or waiver of any coinsurance or deductible amount owned by a program beneficiary; (v) warranties; (vi) services provided in accordance with a personal or management services contract; or (vii) other remuneration, in cash or in kind, not explicitly described above. Rebates are defined as any discount which is not given at the time of sale.

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