Reed Smith Client Alerts

The Office of Inspector General (OIG) recently approved a medical device manufacturer’s innovative proposed warranty program, under which the company would provide a refund to the hospital at which a patient underwent joint replacement surgery using the company’s knee or hip implant and related products, if the patient was readmitted within 90 days because of a surgical site infection or need for implant replacement surgery. Advisory Opinion No. 18-10 concluded that although the proposed arrangement did not meet the specific criteria of the warranty safe harbor to the Anti-Kickback Statute (AKS), it nonetheless posed an acceptably low risk of fraud and abuse. 

This is the latest in a series of recent signals from OIG of its willingness to support innovative risk-sharing models and value-based arrangements, even when the strict requirements of a potentially applicable safe harbor are not technically met.

The warranty program

The warranty program related to a Product Suite consisting of (1) a total knee or total hip implant, (2) a wound therapy system, and (3) an antimicrobial dressing. The company proposed to give a refund to hospitals, in the amount of the aggregate purchase price of the Product Suite, if:

  • All three products were used together on the patient in a manner consistent with their instructions for use and other labeling. 
  • The patient was readmitted within 90 days as an inpatient to the same hospital where the initial surgery was performed because of a subsequent surgical site infection or need for a surgical procedure to replace the implanted knee or hip system.
  • The readmission resulted from a failure of one of the three products to perform as expected (to which the hospital must certify).

The refund would include the full aggregate purchase price of all three products in the Product Suite, regardless of which, or how many, failed. The program also would not take into account the patient’s insurance status or, if covered, the particular third-party payor. The proposed warranty program included a variety of other features and safeguards, further discussed below with respect to OIG’s analysis.