Recent Criminal Convictions Highlight Risks in Offering Gift Cards to Patients

In a cautionary tale for health care entities, the U.S. Attorney’s Office for the Eastern District of North Carolina recently announced the convictions of two health care executives who admitted to orchestrating a multi-year kickback scheme involving the use of gift cards to incentivize Medicaid patients to attend counseling sessions and submit urine drug tests. Although the Department of Health and Human Services’ Office of Inspector General (OIG) has issued multiple Advisory Opinions green-lighting other programs that include gift card distributions, these convictions underscore the importance of structuring patient incentives in strict accordance with OIG guidance.

Background & Company Conduct

Life Touch, LLC (Life Touch), a Medicaid-enrolled provider of substance use disorder (SUD) treatment services, distributed over $1 million in gift cards to patients between 2018 and 2023. Patients received weekly Visa gift cards based on their attendance at outpatient SUD treatment: $60 for attending treatment five times in a week, $50 for attending treatment four times in a week, and $45 for attending three times in a week.

Notably, auditors explicitly warned Life Touch that the weekly gift cards violated the federal Anti-Kickback Statute (AKS) and provided relevant OIG guidance following a 2018 audit of the business by a Medicaid managed care organization. Life Touch nonetheless continued the scheme and attempted to conceal its conduct by falsely attributing the gift cards to third-party nonprofit organizations that were in fact created by the executives’ family members for the sole purpose of concealing the unlawful gift card scheme. Life Touch also fabricated consent forms and incentive policies to mislead investigators.

The company’s scheme also extended to laboratory services. Life Touch referred urine samples to 1st Choice Healthcare Services, a lab owned by a co-conspirator, and billed Medicaid over $2.5 million for drug testing services. Kickbacks from these lab proceeds were paid to the Life Touch executives, who received over $400,000 each. These payments were concealed from Medicaid and omitted from tax filings.

Compliance Takeaways

The government’s scrutiny of Life Touch and ultimate conviction of its executives is a textbook example of what not to do when offering direct incentives aimed at inducing patients to obtain health care services and items. Patient incentives can be an effective part of an evidence-based treatment program, but they must be carefully structured to avoid violating both the AKS and the Eliminating Kickbacks in Recovery Act.

Fortunately, the OIG has issued a handful of favorable advisory opinions on the use of patient incentives to motivate patients to receive medically necessary treatment and/or adhere to a treatment plan, including two advisory opinions specific to SUD treatment. 

• In OIG Advisory Opinion 22-04, the OIG approved a program in which a digital health company used smartphone and smart debit card technology to operate a patient incentive program for individuals with SUD. Of note, the digital health company did not bill federal health care programs and instead was typically paid monthly per-patient fees by its customers, which included health plans, employee assistance programs, and SUD providers. Patients enrolled in the program received $2 per successful breathalyzer test and $5 for attending therapy sessions. The incentives were capped at $200 per month and $599 per year per patient. The OIG concluded that the program presented a minimal level of risk because: (i) the incentives were part of a protocol-driven, evidence-based treatment program; and (ii) the incentives were sufficiently low in value that they were unlikely to encourage overutilization of services.
• In OIG Advisory Opinion 08-14, an outpatient SUD treatment provider proposed to offer grocery stores and gas station gift cards to patients as motivational incentives as part of their treatment plans. Patients earned the incentives by achieving specific pre-defined goals such as attendance at planned events, active participation in counseling sessions, and submission of drug-free urine samples. Here, again, the OIG noted several factors in the program that minimized the risk of abuse: (i) incentives never took the form of cash and were only $5-10 in value; (ii) typically the incentives did not exceed $200 per month in the aggregate or last for more than 3 months; (iii) the incentives were only introduced into patients’ treatment plans on the basis of a clinical determination that the incentives were clinically indicated; and (iv) less than 25% of patients at the provider received the motivational incentives, which were not advertised or discussed with new patients.

The OIG has also implemented an AKS safe harbor, called the Patient Engagement Tool and Support Safe Harbor, that can be used to offer patients incentives that advance adherence to a treatment regimen or follow-up care plan if certain conditions are satisfied. One of the safe harbor’s many requirements is that the tool or support must be an in-kind item or service and not cash or a cash equivalent. In an FAQ the OIG categorizes general purpose gift cards (such as Visa or Mastercard gift cards) and gift cards offered by large retailers or online vendors as cash equivalents and thus not permissible under the safe harbor. In contrast, gift cards that can only be redeemed for limited categories of services and items (such as gasoline gift cards, meal delivery services gift cards, and travel vouchers) are considered in-kind items that can be offered in reliance of the safe harbor.

Health care entities, particularly providers or suppliers of health care goods (e.g., testing kits, durable medical equipment) that bill Federal health care programs, should use caution before adopting patient incentive programs. Best practices for such arrangements include:

• limiting the dollar value of any incentives to relatively modest amounts;
• utilizing an evidence-based, protocol-driven treatment program;
• refraining from advertising the incentives to the general public; and
• offering gift cards that can only be used for limited categories of services and items.

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