Is it Illegal for a Drug Co. to Waive Copays or Offer Free Medical Supplies?

It certainly can be. Any type of “remuneration” (or payment) to a Medicare patient can be an illegal kickback when it violates the federal Anti-Kickback Statute. Normally, people think of kickbacks as involving money or gifts. But kickbacks can include just about anything of value that induces a Medicare beneficiary to use a company that bills Medicare (such as waiving the beneficiary’s copay).

While the Anti-Kickback Statute is a powerful criminal statute, the Government often uses the False Claims Act to punish healthcare companies who engage in illegal kickbacks. A violation of the False Claims Act occurs when a company submits a claim for payment to Medicare that is false. With every claim sent to Medicare, the company must certify that it complied with the Anti-Kickback Statute. If the company gave illegal kickbacks to Medicare beneficiaries and certifies otherwise, it has committed a false claim.

The False Claims Act is a powerful tool for the Government, because it incentivizes whistleblowers to report illegal kickbacks by filing whistleblower lawsuits which entitles them to substantial awards. Without whistleblowers and the False Claims Act, many illegal kickbacks would go undetected.

In a recent whistleblower case, Arriva Medical LLC, a mail-order diabetic testing supplier, settled allegations that it provided illegal kickbacks to Medicare patients by waiving copays and offering free glucometers. The $160 million settlement is the largest False Claims Act settlement to date in the Middle District of Tennessee.

The Arriva settlement is a reminder that the Department of Justice is vigorously pursuing healthcare companies around the country that routinely waive copays and provide free products to Medicare beneficiaries. The Department of Justice became aware of Arriva’s kickbacks when an employee blew the whistle by filing a False Claims Act lawsuit. For having the courage to come forward, the employee will receive a whistleblower award of nearly $30 million.

How do I know if waived copays are illegal kickbacks?

The Anti-Kickback Statute generally requires healthcare companies to collect copays from Medicare patients, but as with many laws, there are plenty of exceptions to the rule. For this reason, you should always consult with an experienced False Claims Act attorney if you suspect that a company is violating the law by not collecting copays.

The Arriva case is a good example of red flags when it comes to illegally waiving copays for Medicare beneficiaries. Arriva routinely waived copayments for its meters and diabetic testing supplies. In addition to the routine practice of waiving copays, the company failed to make reasonable efforts to collect payments (i.e., it failed to send invoices, collection letters, or even making phone calls to beneficiaries). In fact, in many cases, Arriva did not even inform the beneficiaries that they had an obligation to pay the copays.

Below is a list of other red flags which may be indicative of healthcare companies illegally waiving copays:

  • Advertisements such as “No Out-of-Pocket Expenses”, “Medicare Accepted as Payment in Full”, or “Insurance Accepted as Payment in Full
  • Using “financial hardship” forms on a routine basis to circumvent collecting copays
  • Advertisements promising discounts for Medicare beneficiaries
  • Failing to collect copays for a specific group of Medicare patient (g., in order to obtain referrals from hospital)
  • Collection of copays only where the beneficiary has Medicare supplemental insurance coverage

One of the bullet points above mentions “financial hardship” forms. Perhaps the most common exceptions to the rule requiring healthcare companies to collect copays from Medicare patients is the “financial hardship” exception. This exception allows companies to waive copays after determining in good faith that the person is in financial need. This exception is designed to protect and help patients who truly need financial assistance. This exception, however, is often abused by unscrupulous businesses seeking to circumvent the Anti-Kickback Statute. If the company fails to make a good faith attempt to determine a beneficiary’s financial state, the waiver may in fact be an illegal kickback.

Is it illegal to provide free medical supplies?

As with waiving copays, providing a Medicare beneficiary with free medical supplies can be an illegal kickback. In the Arriva case, for example, the company advertised that the glucometers would be free, and during intake calls, it offered a “no cost guarantee” whereby the company would pay for the glucometer if Medicare denied payment (which often occurred as many people were not entitled to a new glucometer). Under the Anti-Kickback Statute, the act of providing beneficiaries with free medical supplies is no different than bribing the potential customers with cash.

It is important to remember that it is not just Medicare beneficiaries who receive kickbacks in the form of free medical supplies and that the type of medical supply can come in many forms. In one of the more unusual cases, Millennium Health paid out $256 million to settle allegations that it provided free urine drug test cups to physicians. In exchange for the free urine test cups, the physicians promised to return the specimens for additional testing at Millennium Health labs.

While this was a clear violation of the Anti-Kickback Statute, the Millennium Health case also involved a violation of the Stark Law which prevents a physician from ordering clinical lab services from a company with which the physician has a financial relationship. Anytime a lab company, or similar entity, provides free medical supplies to a physician, both the Anti-Kickback Statute and the Stark Law should be examined to determine whether a violation of the law has occurred.

What should I do if my company is waiving copays or offering free medical supplies?

In many whistleblower cases, the Government is entirely dependent on employees or customers of healthcare companies to report fraud. The best way to do this is often by taking advantage of the False Claims Act. This federal law is designed to incentivize whistleblowers to step forward, because it entitles whistleblower to 15% to 30% of the money that the Government recovers and protects whistleblowers from retaliation by their employers.

As with the Arriva case discussed above, whistleblower cases often involve complex laws and regulations. For this reason, an individual who thinks a company might be committing fraud should contact an experienced False Claims Act attorney to determine if they have a good whistleblower case and to ensure that he or she is not retaliated against for blowing the whistle.

Our firm has successfully handled large, complex whistleblower cases across the country, including a $108 million settlement against a pharmaceutical company for illegal kickbacks under the Anti-Kickback Statute. If you believe you have knowledge of healthcare fraud, call our firm today for a free consultation with one of our experienced whistleblower attorneys.


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