Department of Health and Human Services Office of Inspector General (“OIG”)
Advisory Opinion 22-13
Issued:  June 23, 2022

This opinion addresses a durable medical equipment (“DME”) manufacturer’s arrangements with two financial institutions to make zero-interest financing available to the manufacturer’s qualified customers.

Read the full text of Advisory Opinion 22-13 including a statement of the facts considered by the OIG.

OIG determines that it will not impose administrative sanctions on the Requestor[1] in connection with the Arrangement.[2]

It is our view that OIG’s conclusion is based upon the existence of all the factors in the Arrangement.  We expect that a different conclusion may be reached by OIG if one or more of factors did not exist. 

The following summarizes OIG’s legal analysis:

The Arrangement makes zero-interest financing available to Customers[3] which OIG determines constitutes remuneration under the Federal AKS.  OIG concludes that the Arrangement poses a sufficiently low risk of fraud and abuse so that no sanctions will be applied. 

  1. Customers do not receive a discount or other price concession from Requestor (although arranging for zero-interest financing is remuneration and is a benefit to Customers).
    • Customers pay Requestor’s charge for the equipment
    • The Arrangement provides a method for Customers to pay for the DME over time, typically 12 payment over the course of a year.
    • In a reportedly low percentage of cases, Requestor may repurchase DME that was the subject of a payment default.
  2. Lenders[4] bear the financing risk.
    • Lenders make and collect on loans, make independent creditworthiness decisions, and are responsible for collecting payments.
    • In cases of Customer default on the loans, Lenders and Requestor use a three layer system for addressing default.  Lenders bear the first and third layers, while Requestor’s liability is capped at the second layer.
    • OIG determines that the Lenders’ involvement reduces the risk associated with providers, suppliers, or manufacturers that might offer, subsidize, or forgive loans to secure future referrals.
  3. Lenders pay Requestor for the balance of the Customer’s purchase price less a finance charge.
    • OIG determines that the Requestor’s receipt of less than the amount due  does not increase the risk of fraud and abuse under Federal AKS. 
    • The acceptability of the amount of the finance charge is not part of the Advisory Opinion, but does not appear to create any immediate concerns for OIG because it is arrived at through arms-length negotiations and Lenders are not healthcare providers or suppliers or in a position to refer Federal healthcare business to Requestor. 
  4. OIG determines the Arrangement creates low risk related to many other fraud and abuse concerns it usually examines in arrangements under the Federal AKS.  The Advisory Opinion enumerates some of those areas normally identified as a problem areas, but not in this Opinion.  
  5. OIG determines that although Requestor assumes partial liability in the event that Customers default, Lenders decide whether to extend zero-interest financing to Customers, Lenders have the first and last layer of responsibility for the default amount
    • The Requestor’s incentive to initiate zero-interest financing is limited because of the Requestor’s shared responsibility on default and the Lenders’ (and Requestor’s) risk in extending the Arrangement to Customers who are unlikely to pay their obligations.
    • Customer has no reason to know if Requestor subsidized part of the default through the loss pool.

OIG Advisory Opinions are very fact-specific and by their terms are limited to the facts presented, to the specific Requestors, and are subject to specific limitations set out in the Advisory Opinions. The above is a high level summary and consultation with counsel is recommended for a fuller review and discussion of the Advisory Opinion.

[1] “Requestor” is a Durable Medical Equipment (“DME”) manufacturer that sells DME to suppliers. 

[2] “Arrangement” refers to the Requestor’s contracts with two financial institutes to make zero-interest financing available to Requestor’s qualified customers. 

[3] “Customers” are the Requestor’s DME supplier-customers.   Customers dispense Requestor’s DME, some of whom are to beneficiaries under Federal healthcare programs. 

[4] “Lenders are the financial institutions that have a contract with Requestor to provide zero-interest financing to qualified Customers.