New Patient Incentives: When a Small Gift Card Brings Big Legal Trouble

Are you a healthcare practice aiming to generate new patients with offers like a $20 Starbucks card after the completion of a new appointment? Here’s what you might not have considered.

Starbucks gift card being held over table with coffee and a laptop.

(Originally published November 2019, updated February 2022.)

Have you seen those social media ads offering a Starbucks gift card to any new patients at a medical or dental practice? They likely break the law. To many, this just seems like any other marketing scheme – “buy our products or services, and you’ll get a free gift!”  For most businesses, incentivizing potential customers with perks is a fairly common business practice. However, in the heavily regulated sphere of healthcare, patient incentives must be analyzed to ensure they don’t violate healthcare laws. And while violations can lead to exceedingly expensive fines, they can also land you in federal prison.

The (Confusing) Regulatory Scheme  

The Anti-Kickback Statute

The Anti-Kickback Statute makes it a crime for a practice to use offers or rewards of anything of value to lure federal healthcare program beneficiaries to their practices. “Anything of value” includes products or services such as gift cards, shuttle services, or waived copays. Under this law, illegal payments to lure federal healthcare program beneficiaries can be as overt as bribes or rebates, or it can be more covert in-kind inducements, such as luxury travel to the practice’s office. This essentially means that you, as a healthcare practice, cannot offer rewards to patients who will use products or obtain services for which a Federal healthcare program will pay.

However, the law has legitimate transaction exceptions. One important exception is based upon the existence of an employment relationship. The employment relationship exception means that the salary paid by an employer to an employee (who has a real employment relationship with the employer) for providing services that may be reimbursable by a Federal healthcare program is acceptable and does not constitute an illegal payment.

This, of course, makes logical sense. How can hospitals enter into payment arrangements with physicians if they cannot pay physicians a salary, for fear of violating the Anti-Kickback Statute? This is also true in other employment settings, such as physicians needing to hire nurses and other medical staff.

The Anti-Kickback Statute is quite broad, which created some concern that the law inadvertently included some innocuous commercial transactions among healthcare practices. The Department of Health and Human Services created a list of legitimate transaction exceptions that would not be considered criminal.

There are steep punishments if there is no legitimate transaction exception to the offers or rewards that a practice uses to lure federal healthcare program beneficiaries to obtain services at their practice.  Violating the Anti-Kickback Statute is a felony and is punishable by fines of up to $100,000 and up to 10 years in prison.

The Civil Monetary Penalties Law

Another law that is frequently implicated in advertising arrangements is the Civil Monetary Penalties (CMP) law. CMP seeks to combat fraud, waste, and abuse within Medicare and Medicaid. It prohibits practices from offering anything of value to federal and state healthcare beneficiaries in order to influence or induce those patients into using the practice’s services.

For example, if you advertise and offer free massages by a licensed massage therapist to all patients at your practice, it will likely influence more patients to come to your practice, including patients without legitimate medical concerns, because they would like a free massage. This type of activity is prohibited by the CMP law. Moreover, violations of the CMP law are quite costly, ranging from $15,000 for each claim or bill for a designated health service, $100,000 for each arrangement or scheme, and $50,000 for each offer or receipt of any kind of benefit that would influence patients to use your practice.

Under the CMP law, dollar values matter. If your practice wanted to provide new patients with a $5 gas card to use at a gas station, this would be allowed as long as your practice does not give a gift worth more than $15 per item or provide more than $75 worth of gifts to any single patient per year. If the incentive you offer patients, whether for new patients to come into your practice or existing patients to come get annual screenings, is below that threshold, then it is legal.  

If you’re considering an incentive program, giving nominal gifts to patients who use federal or state healthcare requires your practice to keep an accurate accounting of what the value of the gifts are and when they were given, so that your practice does not pass that $15 per item or $75 per patient within a given year. Compliance is possible but it does require your practice to be diligent.

When Gift Cards Become Problematic

Let’s say your healthcare practice, in an attempt to generate an increase of new patients giving your location a visit, advertises that new patients who make and complete an appointment will receive a $20 Starbucks gift card. Fancy coffee at Starbucks can be pricey and you want to offer a bit more than a $10 card, which can barely purchase one of the more expensive coffee beverages. While this offer is well-intended, it carries certain risks if you provide any services which are payable by Federal or state healthcare programs.

There are several issues with a $20 Starbucks gift card for completing a new patient appointment. By definition, this is an offer used to influence potential new patients to encourage them to use your healthcare services which are payable by Federal and state healthcare programs.  Furthermore, it is outside of the nominal value safe harbor to the CMP law, which requires gifts to be of a very minimalistic financial value of up to $15 per item or $75 per patient annually.

A 2020 update — has anything changed? 

The Department of Health and Human Services’ Office of the Inspector General (OIG) issues “advisory opinions” that examine certain healthcare business arrangements to determine whether or not the arrangement violates fraud, waste, and abuse laws. 

In a 2020 advisory opinion, OIG shared that a health facility’s policy of giving $20 gift cards as one-time incentives for pediatric patients who have previously missed at least two care appointments to reschedule and attend their appointments was a permissible incentive.

This opinion departed from the standard for gift card incentives described above. 

In this arrangement, gift card incentives were made available to patients younger than 19 years old that missed two or more previously scheduled preventive or early intervention care appointments in the previous six months. If eligible, the facility in question would contact the patient by telephone to notify them of the opportunity to receive a gift card upon rescheduling and attending a care appointment.

What made this program an exception? OIG cited a few reasons.

  1. The pool of applicants was carefully tailored- only existing patients under age 19 who had missed previous appointments were eligible.
  2. The gift card was a one-time incentive. If a patient missed more appointments in the future, they weren’t eligible for more gift card incentives.
  3. The incentive wasn’t advertised, it was only after the patient missed their appointments and became eligible when they were told about the potential to receive a gift card upon rescheduling.
  4. The gift card program focused on necessary preventive and early intervention items and services for low-income pediatric patients.

Overall, OIG decided that (A) this incentive program had a worthy goal of aiming to improve attendance rates for pediatric care appointments, and (B) there was low risk that the program would be used to influence patients to visit the practice even if they had no legitimate need for medical care.

Important to note, though —  an advisory opinion is a legal opinion, but it is nonbinding, meaning that the opinion is only applicable to the party that requested it.

While the advisory opinion does not apply to any other healthcare arrangements, it is possible that it could signal a shift towards leniency for certain gift card incentive arrangements, especially if designed to target vulnerable populations like minors or the elderly. 

Expand Your Healthcare Practice in a Compliant Manner

If you’re wanting to implement a gift card incentive program,  you must carefully analyze how a plan to offer gifts or services will be looked at by OIG and the Department of Health and Human Services. Are you starting or expanding your healthcare practice, and need guidance on which types of advertising practices and patient incentives comply with the law? If you operate in one of the states where we a licensed, please contact an experienced lawyer at Jackson LLP Healthcare Lawyers to learn how we can help you.

This blog is made for educational purposes and is not intended to be specific legal advice to any particular person. It does not create an attorney-client relationship between our firm and the reader and should not be used as a substitute for competent legal advice from a licensed attorney in your jurisdiction.

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