OIG Approves EMR Manufacturer Loan Program in Latest Advisory Opinion | Bass, Berry & Sims APIs
On June 23, the Office of Inspector General (OIG) of the U.S. Department of Health and Human Services issued Advisory Opinion 22-13, approving an agreement under which a manufacturer of durable medical equipment (DME) (Applicant) maintains agreements with financial institutions to provide interest-free financing to Applicant’s qualified customers.
This favorable opinion is noteworthy because it reinforces OIG’s skepticism of loans between the parties being able to generate repayable business at the federal level and outlines various safeguards that the parties can put in place to protect these loans against the risks of fraud and abuse.
Applicant manufactures and sells EMR to EMR vendors (customers) who, in turn, distribute the products to patients, including federal health program recipients. As part of this agreement, the Applicant has entered into agreements with two third-party financial institutions (Lenders) to make zero interest financing available to certain Clients who apply for or are offered financing because they do not want or cannot pay the full amounts billed to the Claimant.
To be eligible, a Customer must meet all of the following criteria:
- You owe the plaintiff at least $10,000.
- Be in good standing with the applicant.
- Be an acceptable credit risk, as reasonably determined by the applicant.
Upon learning that a customer wants interest-free financing and meets the criteria, the applicant’s credit and collections staff contacts one of the lenders, who then performs a credit analysis. If the Lender approves the Client for zero rate financing, the Lender signs a financing agreement with the Client under which the Client makes payments to the Lender in 12 equal monthly installments. The lender then returns the amount charged to the applicant, less a finance charge at fair market value.
Under the arrangement, the lenders have the exclusive right to demand payment from customers and to administer, enforce, collect, pursue, settle, waive or compromise on any defaulted transaction. However, the agreements between the plaintiff and each lender establish “loss pools” that allocate liability between the lender and the plaintiff in the event of a customer default.
Applicant has certified that it does not advertise the potential for zero rate financing or guarantee zero rate financing to any customer or potential customer.
The OIG concluded that the arrangement engages federal anti-bribery law, 42 USC 1320a-7b(b), because zero-rate financing constitutes a “clear benefit” to the plaintiff’s customers. Nevertheless, the OIG has concluded that the arrangement includes several safeguards that warrant a favorable opinion.
The OIG first noted that, while the zero-rate financing constitutes compensation for the requester’s customers, the customers do not receive any other discounts or price concessions as part of the arrangement. In other words, in the absence of default, Customers end up paying the same amount they would have paid, somewhat over a longer period.
Second, the OIG found that the involvement of lenders reduced the risks that the applicant would inappropriately use interest-free loans to secure future referrals, as lender credit analyzes and decisions on whether to enter into loan agreements funding were independent of the applicant.
Additional safeguards relied upon by the OIG include:
- Neither lender is a health care provider or supplier able to refer Federal health care program activities to the applicant.
- The arrangement is unlikely to increase the costs of federal health care programs, because the EMR is reimbursed based on fee schedule amounts, regardless of how much customers pay for these products, and because customers do not prescribe EMRs, which limits the potential for overuse.
- Applicant does not market the opportunity or guarantee access to zero interest loans.
- Since the applicant bears some financial risk due to loss pooling agreements with lenders, the applicant’s incentive to initiate zero rate financing on behalf of a client is limited.
Take away food
While this ruling is not groundbreaking, it does serve as a reminder that loans constitute compensation under anti-bribery law and that the OIG will carefully review the facts and circumstances surrounding loans between parties able to generate reimbursable business at the federal level.
The separation of the applicant from the party granting and administering the loan appears to have been essential to the analysis and approval of the arrangement by the OIG. Given the OIG’s statement that interest-free loans offer a “clear benefit” to customers, EMR manufacturers and others selling federally reimbursable items or services should carefully evaluate any ready.