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OIG Approves Manufacturer’s Offer of Free Genetic Testing

The Office of Inspector General for the Department of Health and Human Services (OIG) recently published an Advisory Opinion in which it concluded that the provision of free genetic testing and counseling services by a pharmaceutical manufacturer would not result in the imposition of sanctions under the federal Anti-Kickback Statute (AKS) and the beneficiary inducements civil monetary penalty provision (Beneficiary Inducements CMP).  This Advisory Opinion is the first to address this type of arrangement and thus provides useful insight for the health care and life sciences industries.

Proposed Arrangement

The requestor, a biopharmaceutical company (Requestor), manufactures drug products (Medications) used to treat adults with a certain disorder that can lead to heart failure and death (Disease).  The Disease can be an inherited condition due to gene mutations (Gene Mutations) or can occur spontaneously.  The Medications reduce cardiovascular mortality and cardiovascular-related hospitalization in connection with the Disease.  Diagnostic tests such as heart biopsies or non-invasive testing, are required to properly diagnose the Disease.  The presence of Gene Mutations alone without a diagnosis of the Disease does not serve as an adequate basis for prescribing the Medications.

Requestor offers a free genetic test (Arrangement) to screen for the Gene Mutations (Genetic Test) and free genetic counseling services (Counseling Services) to certain eligible individuals (Eligible Patients).  Eligible Patients must be (i) diagnosed with the Disease; (ii) suspected by a physician to have the Disease based on clinical evidence without a diagnosis; or (iii) have a family member with the hereditary form of the Disease but no diagnosis.  Physicians who order the Genetic Test under the Arrangement must attest to clinical need.

While the Genetic Test alone cannot be used to diagnose the Disease, it can (i) be beneficial to determine whether patients diagnosed with the Disease have it in the hereditary form; (ii) assist physicians in determining the Disease variant type following a Disease diagnosis; or (iii) inform relatives of patients with the hereditary form of the Disease that they have one of the Gene Mutations.  Because the Disease is rare and symptoms may be non-specific, patients often do not receive a correct diagnosis for many years and may be erroneously treated with ineffective or harmful treatments.

Requestor contracted with a third-party laboratory company (Testing Vendor) to develop Genetic Test collection kits and to conduct Genetic Tests only for the purposes of the Arrangement and pursuant to a physician order.  Under the terms of its contract with Requestor, the Testing Vendor cannot (i) market its other services to physicians when they order a Genetic Test through the Arrangement or to any patient who receives a free Genetic Test as part of the Arrangement; (ii) promote the Arrangement to providers or patients; or (iii) bill any third-party aside from the Requestor, including any insurer or patient, for Genetic Tests conducted under the Arrangement.

Requestor has a separate contract with licensed genetic counselors (Counseling Vendor) for Counseling Services.  Under the Arrangement, the Counseling Vendor reports results directly to Patients’ physicians and it is prohibited from communicating with patients or their family members regarding treatment options.  The Counseling Vendor also does not provide Requestor with any individually identifiable health information of patients who have received the Genetic Test.  The OIG was not asked to opine on the arrangement between Requestor and the Counseling Vendor.

Additionally, Requestor certified that its sales and marketing teams do not factor in physician use of the Arrangement or prescribing history related to the Medications when distributing materials and Genetic Test collection kits.  Requestor receives de-identified health information through monthly reporting from the Testing Vendor and from the Counseling Vendor, but does not share this information with its sales team.  It certified that it does not know which patients receive Genetic Tests or which providers order Genetic Tests under the Arrangement and that it does not proactively inform patients of the existence of the Arrangement.

OIG Analysis

The OIG stated that the Arrangement implicates the AKS and the Beneficiary Inducements CMP because it would result in Eligible Patients and their physicians receiving remuneration that has the potential to induce Eligible Patients to purchase, or their physicians to prescribe, the Medications or other products manufactured by Requestor.  The OIG nonetheless concluded that the Arrangement presents a low risk of fraud and abuse under the circumstances and thus declined to impose sanctions against the Requestor.

Overutilization or Inappropriate Utilization – The OIG concluded that the Arrangement would not result in overutilization or inappropriate utilization of Medications or other health care items or services based on a variety of factors.

  • The Genetic Test only specifies whether a patient carries one of the Gene Mutations and is not determinative of whether a patient has or will develop the Disease.  In other words, the results of the Genetic Test alone would not make it medically appropriate to prescribe the Medications.  The OIG also added that Requestor does not market the Medications to patients who do not have a diagnosis of the Disease, nor does it promote or have a financial interest in any other items or services that are used to treat or diagnose the Disease.  The OIG did note that it likely would have reached a different conclusion if there were a more direct nexus between the free Genetic Test and the ordering or purchasing of Requestor’s products.
  • The OIG noted that even where a patient has a diagnosis of the Disease, the Genetic Test has no bearing on whether a physician will prescribe one of the Medications because the Medications are indicated for both the hereditary and the other form of the Disease.
  • The Arrangement incorporates safeguards with respect to Patient eligibility criteria, physician attestation of patient eligibility, and clinical appropriateness, and both vendors agree not to bill payors for the testing and counseling services provided pursuant to the Arrangement.
  • The OIG acknowledged that the Arrangement may increase costs to federal health care programs because it will lead to certain covered services that otherwise might not have been furnished, such as patient monitoring.  However, the OIG concluded that the potential for increased utilization does not raise significant fraud and abuse concerns due to (i) the safeguards in place to prevent use of the Arrangement as a marketing and sales tool to induce physicians to order additional items and services, (ii) the fact that the Arrangement only covers genetic testing for the Gene Mutation and does not test for a broader range of potential genetic mutations, and (iii) the fact that Requestor does not have a financial interest in items or services used to diagnose or monitor the Disease.  The OIG did note that free genetic testing that covers a wider range of genetic mutations may present a higher risk of overutilization.

Clinical Decision Making, Patient Safety and Care Quality – Because the Requestor certified that it has mechanisms in place to prohibit its sales and marketing teams from encouraging providers to recommend, prescribe, or administer Requestor’s products, the OIG expressed little concern related to clinical decision making.  The OIG observed that the Genetic Test may improve patient safety and quality of care by ensuring early diagnosis and treatment of the Disease.

Arrangement Safeguards – As part of its analysis, the OIG also noted the objective parameters and safeguards under the Arrangement with respect to patient eligibility, physician determination of clinical appropriateness, and Requestor’s Testing Vendor contract.  The OIG highlighted the Arrangement’s data exchange limitations that prevent Requestor from using the Arrangement to market to specific providers or patients.  In addition, Requestor prohibits the Testing Vendor and Counseling Vendor from promoting the Arrangement to providers or patients, and Requestor does not proactively provider information about the Arrangement directly to patients.


In the last several years, the health care industry has seen a rapid increase in the development of pharmaceutical products targeting genetic disorders and genetic tests that can assist in identifying patients at risk for those disorders.  At the same time, the industry has experienced the exponential growth of digital health services and digital health providers seeking to make health care screening, diagnosis, and treatment convenient and accessible for patients.  Within that context, widely available patient screening services are a valuable diagnostic tool.  The OIG’s favorable analysis in this Advisory Opinion is welcome recognition of the circumstances under which genetic testing may be offered to patients for free.  Nevertheless, we caution that the Advisory Opinion presents a unique set of facts and that the OIG specifically noted that its conclusion may have been different if (i) there was a more direct nexus between the free testing and physician ordering or patient purchasing of the manufacturer’s products, or (ii) the free testing covered a wider range of genetic mutations with broader applicability to the patient’s health.  After describing the Free Genetic Test and Counseling Services as being “inherently valuable,” the OIG observed that the Arrangement “confers value by enabling [physicians] to offer a service, at no cost to them or their patients, that may create an opportunity for physicians to bill for other services….”  Manufacturers, testing laboratories, and other participants in such arrangements thus should continue to proceed carefully when participating in business arrangements that involve subsidizing screening and diagnostic services for patients and consider implementing appropriate compliance safeguards, such as those discussed in the Advisory Opinion.

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Karen S. Lovitch

Chair, Health Law Practice & Co-Chair, Health Care Enforcement Defense Practice

Karen advises industry clients on regulatory, transactional, operational, and enforcement matters. She has deep experience handling FCA investigations and qui tam litigation for laboratories and diagnostics companies.
Theresa advises clients on all aspects of the pharmaceutical supply chain, including counseling industry stakeholders on a range of business, legal, transactional, and compliance matters. She provides clients with strategic counseling and creative business modeling that considers legal restrictions and regulatory risk in light of innovation and business goals.
Pat focuses his practice on advising health care organizations on regulatory, compliance, data privacy, and transactional matters. He is also a Certified Information Privacy Professional–US (CIPP–US).