Medicaid Provider Freebies Create Risk Per OIG

Health care providers may want to offer free or discounted services to help patients, and that instinct may be good. Most providers, however, don’t think of “free care” as a kickback issue in the same way they might think about gifts or rewards as a kickback issue. They should, because the Office of Inspector General of the U.S. Department of Health and Human Services (OIG) does.

Under health care fraud and abuse laws, a free benefit or service can influence where a patient goes for care that is paid for by federal health care programs like Medicare or Medicaid. This can create exposure under the federal Anti‑Kickback Statute (AKS) and the beneficiary‑inducement civil monetary penalty (CMP) rules.

A recent advisory opinion from OIG (Advisory Opinion No. 26‑09)[1] is a helpful reminder, and a practical roadmap, for how to design these programs with guardrails.

AO 26‑09

The requestor in AO 26-09 was a pediatric dental and orthodontic provider with three practice locations. It proposed giving free orthodontic treatment (the “Free Services”) to one existing patient, per location, per year. The requestor certified that treatment typically lasts 12 to 24 months and would be worth about $4,725 per patient. Only existing patients could be nominated by the practice’s treating providers, and the program was not open to the public. The requestor would not bill any federal health care program for the Free Services.

While this all sounds good, and gratuitous, regulators can view free or discounted services as an inducement for patients to order more or additional services, in the same way that not collecting required cost-sharing may. This is what raises the compliance concerns that we discuss below.

The requestor in AO 26-09 built the patient selection process around objective criteria. The patients had to: (1) be within a defined age range; (2) have clinical need; and (3) show financial need. Patients with all types of insurance could be chosen. If a patient had insurance, the provider required proof that orthodontic coverage had been denied by the insurer.

To choose recipients, the requestor used a consistent, weighted scoring system based on clinical need, financial hardship, and community impact. It also certified that it would keep thorough records and periodically audit the selection process.

Finally, there were strict limits on marketing. The requestor certified that it would not promote the program as a way to bring in new patients — e.g., no in‑office advertising, no targeted messages, and no public messaging that suggested a “chance to be chosen.” It would, however, mention the program publicly only in a limited way to highlight community impact, without promotional language.

OIG’s Analysis

OIG concluded that the Free Services would be “remuneration,” and that, if the required intent were present, the arrangement could implicate the AKS. OIG also concluded that it would generate prohibited remuneration under the Beneficiary Inducements CMP. “Remuneration” is broad: it includes anything of value, and the AKS can apply if one purpose of the benefit is to induce referrals or purchases of federally reimbursable items or services.

However, based on the safeguards certified in the Advisory Opinion, OIG said it would elect not to impose administrative sanctions on the requestor for this specific arrangement.

While giving the nod of approval, OIG reiterated that it has “longstanding and continuing concerns regarding the provision of free items or services by individuals and entities, including dentists and orthodontists, to patients that could lead to the ordering and provision of an item or service payable by Federal health care programs.” On the flip side, it has also been OIG’s longstanding position that the AKS and CMP rules do not strictly prohibit a provider from providing discounted items or services to uninsured patients who have legitimate financial hardship, and further that hospitals, pharmacies, and/or ambulance service providers may provide non-routine waivers of cost sharing for federal health care beneficiaries under appropriate circumstances.[2]

Finally, we note that the arrangement in AO 26-09 did not implicate, and therefore OIG did not analyze, the exception for items/services of “nominal value,” certain preventive care exceptions, the AKS Safe Harbors for discounted local transportation, or other discount and value-based Safe Harbors, which have their own specific requirements and applications.

Guardrails from AO 26-09

According to OIG, the arrangement in AO 26-09 had several well-thought-out parameters and guardrails. For example:

1. OIG recognized the bona fide nature of the Free Services program, as certified by the requestor and presented facts, and emphasized that eligibility was tied to real need (g., clinical, financial), and not “anyone who shows up.”
2. OIG emphasized that the program was modest in scope. As such, providers should consider capping the size of the program to reduce the risk it is viewed as a marketing or recruitment effort.
3. The requestor certified that it would not bill federal programs for the Free Services.
4. The requestor would not market or advertise the program in any way that could be construed as a promotion or a patient recruitment effort. In fact, in this opinion OIG specifically cautioned: “We likely would reach a different conclusion for an arrangement where a provider publicizes the fact that it selects from among its patient population to receive free services or that it selects recipients for free services on an ongoing basis, as such actions would present a higher risk of patient steering and unfair competition.”
5. The requestor was cautious about requiring other services as a precondition to being considered for the Free Services. Providers should consider allowing any “prerequisite” services, if any are actually required, to be completed with any provider.
6. The OIG emphasized consistent scoring, documented decision making, and periodic auditing of the selection process
7. The requestor certified that recipients were not expected or required to obtain future services from the requestor. However, this does raise the question of what this arrangement’s purpose was, if beyond charitable.

While OIG Advisory Opinion No. 26‑09 clearly is not a blanket approval for “free care” or “free services” type programs, it is a useful guide to what OIG tends to view as lower risk in this context. If providers want to do something generous for patients, AO 26‑09 is a reminder that the safest programs are often the ones that look the least like marketing and are built with strong guardrails and great consideration of the attendant compliance risks.

[1] https://oig.hhs.gov/documents/advisory-opinions/11590/AO-26-09.pdf

[2] https://oig.hhs.gov/documents/other-guidance/908/FA021904hospitaldiscounts.pdf