OIG Provides Guidance on Internet Advertising Under the Anti-Kickback Law

NUMBER 230 FROM THE LATHAM & WATKINS HEALTH CARE PRACTICE GROUP BULLETIN NO. 230 OCTOBER 25, 2002 OIG Provides Guidance on Internet Advertising Under the Anti-Kickback Law This Advisory Opinion offers a first glimpse at the OIG s view of the practices of Internet health care businesses as such businesses become increasingly widespread. On August 30 the Office of Inspector General (OIG) of the U.S. Department of Health and Human Services (HHS) released an Advisory Opinion approving an Internet company s (the Company) plan to contract with managed care entities to enroll their members in an online disease management compliance program and sell advertising on its Web site to paying advertisers, including pharmacies and pharmaceutical companies (the Proposed Arrangement). 1 The OIG found that the Proposed Arrangement could potentially generate prohibited remuneration under the federal anti-kickback statute and implicate the prohibition on beneficiary inducement statute, but declined to impose administrative sanctions or civil monetary penalties because the proposed behavior modification program did not involve items or services reimbursable by federal health care programs and because the proposed advertising arrangements contained sufficient safeguards (e.g., such as paid advertising labels) to ensure that patients would not confuse the advertising with substantive information on the Company Web site, or consider such advertising to be the Company s endorsement of particular products. The Advisory Opinion was limited solely to analysis under the federal anti-kickback and beneficiary inducement statutes and did not address privacy, FDA or other laws. The OIG also relied on Company certifications that all fees were fair market value and that beneficiaries would have to affirmatively act to view or make purchases on advertiser Web sites in reaching its decision. Recommendations for Health Care Entities This Advisory Opinion offers a first glimpse at the OIG s view of the practices of Internet health care businesses as such businesses become increasingly widespread. Although the OIG approved of this particular arrangement, primarily based on the strong safeguards permitting patients to distinguish between advertising and substantive health care content on the Web site and ensuring that patients had to affirmatively act to view or make purchases on advertiser sites, the OIG made clear that all Internet businesses will be closely scrutinized and that certain practices are deemed suspect, such as the tracking of member purchases, the tailoring of chat room topics to coincide with buying habits, or the use or misuse of patient or viewer information for marketing using direct email or other technologies. Health care entities wishing to engage in business on or through the Internet should consult with counsel to determine how

activities may be structured to limit anti-kickback, beneficiary inducement and other regulatory scrutiny. The Proposed Arrangement Here, the Company, a closely-held, Internet-based behavior modification and drug regimen compliance company, requested an Advisory Opinion regarding a Proposed Arrangement whereby the Company would contract with managed care organizations and employerbased health plans (MCOs) to provide their members with a drug and behavior compliance program through the Internet (the Program). 2 Members and their primary care physicians would receive incentives to reward their use of the Program. The Company would also solicit marketing and advertising by other health care companies, including pharmacies and pharmaceutical companies, on the Company s Web site. The two components of the Proposed Arrangement a behavior modification program and three advertising arrangements are discussed below. 3 Behavior Modification Program Under the behavior modification program, the Company would use Internet-based methods to remind and encourage MCO members to take medications, refill prescriptions and comply with behavior modification regimens prescribed by their physicians. Participation in the Program by members would be strictly voluntary. 4 If a member chose to participate, the Company would direct the member to the Company Web site and to his/her own secure, personal page (which would contain no advertising). The Program relies on an incentive system that rewards both members and their physicians for participating in the Program. Members are awarded points (Points) for compliance with individual pharmacological and behavior modification programs. Physicians (if members elect to involve them) also earn Points for participating in specific Program activities (e.g., reviewing monthly compliance information and providing feedback under pre-existing medical orders), but not for ordering, recommending or arranging for the purchase or ordering of any item or service. Points are redeemable only for goods and services that are not reimbursable, in whole or in part, by any federal health care program. Aside from the Points, neither members nor their physicians would receive any remuneration, in cash or in kind, directly or indirectly from the Company or any other party involved in the Program. The Company would advise members that they would not receive extra Points or other rewards for the purchase of any product from a pharmacy under the Program (e.g., through hyperlinks, as discussed below), and the advertising contract between the Company and any pharmacy would prohibit such pharmacy from providing any such benefit based on a member s participation in the Program or purchases from the pharmacy under the Program. MCOs would pay the entire cost of enrollment of their members either as a per member per month fee, or a fee that represents a share of the savings to the MCO resulting from improved compliance of members, measured by predetermined benchmarks. The Program does not affect member cost-sharing obligations for drug purchases under MCO plans. With respect to the Program, the Company certified to the OIG that: MCO paid enrollment fees would be consistent with fair market value in an arms-length transaction; and Members would be free to fill or refill prescriptions at any pharmacy. Advertising For additional revenue, the Company also plans to offer advertising opportunities to health care and non-health care companies under the Proposed Arrangement in three forms: 5 1. Banner Advertising. The Company would sell banner advertising on its Web site and other marketing opportunities to both health care and non-health care advertisers (except that pharmacy advertisers would be limited to those who participate in MCO provider networks) for a fixed, pre-determined fee. The advertiser would supply the design and content of the advertisement, and could also purchase a hyperlink (see below) embedded in the advertisement. BULLETIN NO. 230 2 OCTOBER 25, 2002

2. Hyperlinks. The Company would charge pharmacies a per click fee 6 for the privilege of including hyperlinks to the pharmacies own Web sites within banner advertisements, permitting them to sell their products directly to members. With respect to hyperlinks, the Company certified to the OIG that: No Web site visitor would be sent to a pharmacy s Web site without affirmatively clicking on the hyperlink and pharmacies would be prohibited from impeding visitors from returning to the Company s Web site (e.g., by disabling the back button). The pharmacies Web sites must require that a visitor take affirmative action to effect a purchase and be able to review a pending purchase prior to execution of the sale, to ensure only knowing and informed decisions related to purchases are made. The Company would also provide, free of charge and as a convenience to members, a listing (complete with hyperlinks) of all pharmacy companies participating in the MCO s network for the given member, regardless of whether such pharmacies were also paid advertisers. 3. Chat Room Sponsorships. The Company would charge pharmaceutical companies a fixed, pre-determined fee to sponsor interactive discussions (e.g., chat rooms) related to particular diseases on the Company s Web site. Pharmaceutical companies would be prominently identified as the sponsor and would purchase banner advertising (subject to all the requirements above) to run concurrently with the chat room discussion. The Company would have sole responsibility for operation of the chat room, and the pharmaceutical company sponsor would have no interaction with members in the chat room other than the banner advertising. Under all three arrangements, the Company would enter into written contracts with all advertisers specifying the type and terms of the advertising, as well as the precise amount of the fee. The fee would be a flat or per click fee and, as certified by the Company, would be consistent with fair market value in an arms-length transaction for the services provided by the Company. 7 Importantly, all paid advertising would be clearly identified as such. A disclaimer would affirmatively state that the inclusion of such advertisements does not constitute a guarantee, endorsement, or recommendation of the products, services, or companies appearing in such advertisements or accessible through such hyperlinks. In addition, the Company would not enter exclusive arrangements with any one advertiser, but rather would seek to contract with all interested parties (except for pharmacies not participating in MCO networks). Finally, the Company certified to the OIG that it would comply with the Health on the Net Foundation Code of Conduct for medical and health care Web sites. 8 OIG Approval The broad language of the federal anti-kickback statute prohibits any remuneration offered, paid, solicited or received for the purpose of inducing or rewarding referrals of items or services reimbursable under federal health care programs. 9 Federal law also prohibits a person from offering or transferring remuneration (including items or services provided for free) to Medicare/Medicaid beneficiaries that such person knows or should know is likely to influence the beneficiary to order items or services from a particular provider or supplier for which payment may be made by Medicare or Medicaid. 10 Here, the OIG concluded that the behavior modification program did not implicate the anti-kickback statute because it did not involve items or services reimbursable by federal health care programs, and that the proposed advertising arrangements presented minimal risk due to safeguards that ensured that members would not confuse advertisements with substantive information on the Company Web site or unwittingly view or make purchases on advertiser Web sites. Behavior Modification Program First, the OIG determined that MCO payments to the Company for behavior modification and drug compliance services 11 and the Company s award of Points to members and their physicians under the Program 12 did not implicate the anti-kickback or beneficiary inducement statutes because they involved services not generally reimbursable by Medicare or Medicaid. The OIG also BULLETIN NO. 230 3 OCTOBER 25, 2002

noted that risk of pull through business (remuneration paid for non-federal health care program business used to obtain federal business) would be non-existent here. In addition, the OIG concluded that the listing by the Company of MCO participating providers (including hyperlinks) on members secure, personal pages also did not implicate the statute because the Company would not receive remuneration from pharmacies for the listing; rather, the listing is a feature of the behavior modification program purchased by the MCOs and designed as a convenience for members and to promote online prescription refilling for effective drug regimen compliance. Advertising The OIG generally scrutinizes advertising by health care companies because such advertising may create the implication that a provider is recommending the advertiser s products to its customers, including Medicare and Medicaid beneficiaries, in potential violation of the anti-kickback statute. Here, the OIG found minimal risk where the Company s proposed advertising is: comparable to print media advertising (accurate and non-deceptive print advertising in general circulation media generally does not raise antikickback concerns); essentially passive (the member must initiate contact with the Web site advertisers); clearly identified as paid advertising and separated from substantive content on the Company s Web site. Advertising Test: The OIG identified the following factors it would review with respect to advertising: (i) the identity of the party engaged in the marketing activity and the party s relationship with its target audience; (ii) the nature of the marketing activity; (iii) the item or service being marketed; (iv) the target population; and (v) any safeguards to prevent fraud and abuse. Under these factors, the OIG determined that because the proposed advertising would be aimed at MCOs and their members, and the Company is generally willing to sell advertising to health care and non-health care companies, the advertising is not materially different from print advertising in a health-care related publication, nor is it more targeted to federal health care program beneficiaries. As such, the OIG declined to impose administrative sanctions here. White Coat Marketing: The OIG identified some risk of white coat marketing under the Proposed Arrangement because the Company is a health care provider within the networks of the MCOs whose members would be subject to the proposed advertising. Marketing by health care providers, so-called white coat marketing, is subject to higher scrutiny because of the trust relationship between a patient and his/her health care provider that results in the patient believing that his/her provider is recommending health care items and services based on medical, not financial, concerns. The anti-kickback statute helps ensure that the provider s independent medical judgement is not influenced by financial considerations. Here, the OIG concluded that the proposed advertising is permissible because the various safeguards (e.g., advertising would be clearly marked as paid advertising) made it unlikely that an MCO member would confuse the Company s role as the member s health care provider with its role as a seller of advertising space on its Web site or would view such advertisements on the Web site as the Company s endorsements of advertised products. The OIG also viewed the chat room sponsorship in the same manner as banner advertising a brought to you by acknowledgement of a sponsor and concurrent banner advertising without the sponsor having control over the content of the chat room would not likely be viewed by the beneficiary as the Company s endorsement of any product, and would be clearly identified on the Web site as paid advertising. FMV Fees Not Subject to Sanction: Based on the above analysis, the OIG declined to impose administrative sanctions for the advertising fees, provided such fees were consistent with fair market value and did not vary based on the volume or value of business generated from the advertising. BULLETIN NO. 230 4 OCTOBER 25, 2002

Suspect Internet Advertising: Despite its conclusion here, the OIG nevertheless emphasized that Internet advertising and marketing relationships and the substantive content of Web sites raise serious concerns. Suspect practices include: manipulation of chat room discussions toward sponsor or advertiser products, or criticism of competitor products; tracking of member purchases and tailoring of chat room topics to coincide with buying habits; and use or misuse of patient or viewer information for marketing using direct email or other technologies. Conclusion Given the absence of items or services reimbursable by federal health care programs and the safeguards inherent in the advertising arrangements, the OIG determined that the Proposed Arrangement presented low antikickback and beneficiary inducement risk. As such, it declined to impose civil monetary penalties or exclusion sanctions on the Internet company pursuing the Proposed Arrangement. Endnotes 1 Advisory Opinion No. 02-12, Office of Inspector General, U.S. Department of Health and Human Services, issued August 21, 2002. 2 None of its owners is a supplier or manufacturer of drugs. 3 The Proposed Arrangement is also the subject of a pending patent application filed with the U.S. Patent Office. 5 The Advisory Opinion only addresses hyperlink and chat room sponsorships between the Company and pharmacies and/or pharmaceutical companies, and not arrangements with any other entities. 6 The Company plans to charge a per click fee for each use of a pharmacy s hyperlink, regardless of whether a purchase is made. Market conditions, however, may require that the Company only receive a fixed fee per actual purchase that would not vary with the value or type of purchase made. 7 The fee would also not fluctuate based on the value, quality, quantity or content of any sales transaction. 8 The OIG noted that it does not endorse any particular code of conduct. This particular voluntary code of conduct contains advertising provisions that require that the visitor-web site relationship not replace the physicianpatient one, that the Web site clearly identify entities that contribute funding or resources for the site, and that the Web site clearly differentiate between advertising and substantive content. 9 42 USC 1320a-7b(b). 10 See Social Security Act section 1128(A)(a)(5). 11 In the Advisory Opinion, the OIG assumes that prescription and dispensing of medication to members complies with all federal and state law, and that all physicians and pharmacies involved are properly licensed. 12 The OIG determined that the awarding of Points posed minimal risk to federal health care programs because neither member nor physician compliance activities nor the items or services for which Points are redeemable are paid for by federal health care programs, the Company does not supply or profit directly from any goods or services reimbursable by federal health care programs, and the Company has no other financial relationship with members or physicians involving federal health care program business. 4 MCOs would identify members who could benefit from the Program (e.g., persons with chronic diseases, long-term users of pharmaceuticals, persons with behavior modification regimens such as smoking or weight loss programs), and the Company would contact them by mail, email or telephone to inform them of their eligibility. The OIG did not opine on the application of privacy laws to the Proposed Arrangement. BULLETIN NO. 230 5 OCTOBER 25, 2002

Client Alert is published by Latham & Watkins as a news reporting service to clients and other friends. The information contained in this publication should not be construed as legal advice. Should further analysis or explanation of the subject matter be required, please contact the attorneys listed to the right or the attorney whom you normally consult. 2002 Latham & Watkins. All Rights Reserved. BOSTON BRUSSELS CHICAGO FRANKFURT HAMBURG HONG KONG LONDON LOS ANGELES MILAN MOSCOW NEW JERSEY NEW YORK NORTHERN VIRGINIA ORANGE COUNTY PARIS SAN DIEGO SAN FRANCISCO SILICON VALLEY SINGAPORE TOKYO WASHINGTON, D.C. If you have any questions about this Client Alert, please contact any of the following attorneys. BULLETIN NO. 230 6 OCTOBER 25, 2002 CHICAGO James A. Cherney (312) 876-7700 LOS ANGELES Daniel K. Settelmayer L. Susan McGinnis (213) 485-1234 SAN DIEGO Katherine A. Lauer (619) 236-1234 SAN FRANCISCO/ SILICON VALLEY Paul R. DeMuro Jerry Peters (415) 391-0600 WASHINGTON, D.C. Stuart S. Kurlander (202) 637-2200