The Centers for Medicare & Medicaid Services (“CMS”) has “blessed” the use of hemp products through the guidance of healthcare providers. Earlier last month, the CMS Innovation Center (“CMMI”) announced the launch of multiple hemp policy initiatives, which started April 1, 2026. The Substance Access Beneficiary Engagement Incentive (“BEI”) created a federal pathway for patients to access hemp products within certain Medicare value-based care models, accountable care organizations (“ACOs”), and hemp businesses.
Overview of the BEI:
The BEI is available to healthcare organizations participating in specific CMMI models. CMS implemented the BEI under Section 1115A of the Social Security Act, which grants CMMI broad discretion to test new payment and service delivery models aimed at cost control and quality of care.
The BEI is provided through three models:
- ACO REACH Model (effective April 1, 2026)
- Enhancing Oncology Model (EOM) (effective April 1, 2026).
- Long-Term Enhanced ACO Design (LEAD) Model (effective January 1, 2027).
Under the BEI, model participants, at its own expense may consult with and advise eligible Medicare beneficiaries about using federally legal hemp products to address medical conditions and its symptoms. Participants may provide eligible hemp products to certain beneficiaries up to $500 per year, per eligible beneficiary in states where eligible hemp products are considered legal, subject to safeguards and regulatory requirements.
Participation is optional, and only model participants that elect the BEI and receive CMS approval may offer it to eligible beneficiaries. Implementing the BEI, model participants must submit and maintain a CMS‑approved implementation plan. The plan must address multiple features about the plan, including: i.) distribution amount and frequency; ii.) eligible hemp products to be offered and dosing information; iii.) safeguards, oversight, and monitoring mechanisms; iv.) beneficiary eligibility criteria; v.) other requirements in applicable participation agreements. Quarterly reports are required to be submitted by model participants about the BEI, along with information requested by CMS.
Hemp Products Allowed:
The BEI defines eligible hemp products as federally legal hemp-derived products that:
- Contain no more than 0.3% delta-9 tetrahydrocannabinols (“THC”), as required with the 2018 Farm Bill);
- Contain no more than 3 mg per serving of total THC, including THC acid, delta-8 THC and delta-10 THC), in orally administered form;
- Any products containing cannabinoids not naturally produced or capable of being produced by or in the cannabis plant during its cultivation;
The burden to procure eligible hemp products rests on model participants and must full comply with applicable state and federal laws. The BEI requires eligible hemp products be provided directly by a qualified physician affiliated with the model participant, as specified by the model participation agreements.
The hemp products used by model participants must meet certain quality and safety requirements. The hemp products must meet federal, state, and local production, quality and safety laws and mandated standards and be tested by a third party for potency, contaminates and microbial hazards.
Beneficiary Eligibility:
Only Medicare beneficiaries currently aligned to an approved model participant may receive the BEI. Beneficiary eligibility criteria include alignment to an approved organization. Beneficiaries are prohibited from participation due to pregnancy or breastfeeding. Specific criteria are defined within each model’s participation documentation.
Physicians and Qualified Clinicians:
CMS has made clear that a physician or other qualified clinician must determine that the approach is safe and appropriate and must document shared decision-making with the beneficiary. The physician or clinician must show the discussion included potential benefits and risks, beneficiary goals and preferences and a review of current medications and possible drug interactions. Physicians must ensure their recommendation of hemp products is within their licensure and scope of practice under applicable state law. While hemp CBD products are not controlled substances under federal law, states laws and medical board guidance vary state to state on how healthcare providers may make recommendations of hemp products.
The shared decision-making documentation is deemed a medical record obligation. Physicians should demonstrate the consultation as an encounter that reflects an individually tailored evaluation of whether hemp product use is clinically appropriate, consistent with the patient’s plano of care and meets patient goals. Failure to document adequately exposes the physician and the ACO to program integrity scrutiny and potential False Claims Act (“FCA”) liability if the CMS approved implementation plan is not followed as represented.
Dispensing and Supply Chain Obligations:
Under the BEI, hemp products must be furnished directly by qualified physicians or other clinical staff affiliated with the participant organization. Beneficiaries cannot be directed to retail stores. As such, physicians and ACOs, in effect, act as distributors of hemp products — requiring procurement, storage, inventory control, and chain-of-custody workflows that most clinical practices are not structured to handle. Robust internal policies governing product sourcing, storage conditions, and patient dispensing documentation should be developed by a legal or compliance expert.
Anti-Inducement Prohibitions and Fraud and Abuse Issues:
CMS has imposed anti-inducement safeguards within the BEI framework which requires the following:
- The BEI and product availability must not be marketed to induce beneficiaries to select or remain aligned to a participant organization;
- Participants may not enter into arrangements that provide remuneration to induce selection of a particular manufacturer or seller; and
- Payments to manufacturers or sellers must be consistent with fair market value (“FMV”) and not tied to the volume or value of referrals or business otherwise generated.
The intersection of hemp product distribution and the federal healthcare program framework creates a complex fraud and abuse landscape that both physicians and hemp businesses must carefully navigate. The federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b) prohibits the knowing and willful exchange of anything of value to induce or reward referrals of items or services reimbursable by a federal healthcare program. Violations are felonies carrying up to five years imprisonment and $25,000 fines per violation, as well as exclusion from federal healthcare programs.
The AKS presents two critical risk areas within the BEI context:
- Physician–Supplier Arrangements – if a hemp supplier enters into an arrangement with a participating ACO or its affiliated physicians that provides value beyond FMV — whether in the form of discounted pricing, consulting fees, speaking arrangements, or other benefits — such an arrangement could be characterized as a kickback if one purpose is to induce the ACO to select that supplier’s products for the BEI program. CMS’s own program integrity requirements explicitly prohibit payments tied to the volume or value of referrals, mirroring AKS principles.
- Beneficiary Inducement – the AKS’s beneficiary inducement provisions (42 U.S.C. § 1320a-7a(a)(5)) prohibit offering or transferring remuneration to a Medicare beneficiary that the offering party knows or should know is likely to influence the beneficiary’s decision to select a particular provider. Given that the BEI expressly prohibits marketing the hemp products to retain beneficiary alignment, organizations must ensure that all patient communications and outreach are clinically driven rather than enrollment-driven.
The Physician Self-Referral Law (“Stark”) (42 U.S.C. § 1395nn) prohibits physicians from referring Medicare patients for certain designated health services (“DHS”) to entities with which the physician or an immediate family member has a financial relationship, unless a specific exception applies. Importantly, Stark is a strict liability statute — intent is not required for a violation to occur. Hemp products distributed under the BEI are not themselves a DHS, as DHS. However, if a physician has a financial interest in a hemp supplier participating in the BEI program — even an indirect ownership interest — the Stark Law’s referral restrictions and financial relationship analysis must be carefully evaluated. Organizations establishing supply chain arrangements with affiliated entities should conduct a Stark analysis before finalizing any such arrangements. In addition, certain states have “Stark-like” statutes that may limit a physician’s ability to have a financial relationship in a venture receiving the physician’s referral.
Any misrepresentation in an implementation plan submitted to CMS — whether regarding product specifications, clinical oversight protocols, or beneficiary eligibility determinations — could give rise to False Claims Act (“FCA”) (31 U.S.C. §§ 3729–3733) liability. The FCA imposes treble damages and per-claim penalties on those who knowingly submit false or fraudulent claims to the federal government. Because the implementation plan is a CMS-required submission that forms the basis for program approval and ongoing participation, organizations must ensure that all representations made therein are accurate, complete, and updated as circumstances change. The FCA’s qui tam provisions further expose organizations to whistleblower suits brought by disgruntled employees or competitors.
Impact on Hemp Businesses:
The BEI represents the first federal pathway into the Medicare-adjacent market for hemp businesses. The pilot program could generate substantial new revenue for compliant hemp CBD product manufacturers, depending on the amount of ACO participation. However, realizing this opportunity requires hemp businesses to satisfy demanding eligibility, quality, and documentation standards, which include:
- Third-party testing for potency and contaminants is mandatory and test results must conform to federal and state standards;
- Products must comply with applicable federal, state, and local laws — including state hemp regulations that vary significantly across jurisdictions;
- Supplier arrangements with participating ACOs must be structured at FMV and must not be conditioned on the volume or value of referrals.
Several states impose hemp regulations more restrictive than the federal BEI definition. Some states impose a zero-THC standard for certain hemp-derived products, effectively blocking most products that would otherwise be BEI-eligible from the market. Hemp businesses seeking to supply ACOs in restrictive states must conduct a state-specific legal analysis before entering into supply arrangements. Because participating ACOs must procure, store, and directly furnish eligible hemp products to beneficiaries, hemp businesses should anticipate that their ACO customers will require contractual commitments regarding the following – i.) product specifications and THC compliance; ii.) chain-of-custody documentation; iii.) quality control and recall procedures; iv.) representations regarding regulatory status; and v.) indemnification for product liability.
Practical Recommendations For Healthcare Providers and ACOs:
- Verify Model Eligibility – confirm that the organization is an active participant in ACO REACH, EOM, or LEAD for the applicable performance period before electing the BEI.
- Develop a Rigorous Implementation Plan – treat the CMS implementation plan as a compliance document. It is highly recommended to engage a competent healthcare regulatory counsel to ensure it addresses all required elements and can withstand a program integrity review.
- Conduct a State Law Assessment – evaluate whether the contemplated hemp products are legal under applicable state and local law before program launch in each state where the organization operates.
- Establish Clinical Governance Protocols – implement policies requiring individualized physician assessment and detailed shared decision-making documentation for each beneficiary considered for the BEI. Integrate BEI-related documentation into the EHR workflow.
- Structure Supplier Arrangements Carefully – all supplier contracts must reflect FMV, must not be conditioned on volume or value of referrals, or business otherwise generated, and must include regulatory change provisions addressing the November 2026 statutory changes. Conduct AKS and Stark analysis of any financial relationships with suppliers.
- Monitor the Litigation – the outcome of Smart Approaches to Marijuana v. Kennedy et , Case No. 1:26-cv-01081 (D.D.C.) could materially affect the BEI’s continued availability.
Practical Recommendations For Hemp Businesses:
- Invest in Compliance Infrastructure – third-party testing, accurate labeling, and robust quality management systems to maximize BEI eligibility. These efforts protect against both regulatory liability and product liability claims.
- Engage Healthcare Regulatory Counsel Early – supply arrangements with CMMI participants to protect against exposure to federal fraud and abuse laws. Efforts to comply with anti-inducement and FMV requirements embedded in the BEI framework is paramount.
- Account for Regulatory Uncertainty in Contracts – supply agreements should include provisions addressing the November 2026 statutory change, state law changes and regulatory definition shifts.
- Monitor Congressional and Regulatory Developments – the legal definition of hemp — and eligible BEI products — may shift before the end of 2026. Active monitoring of both the litigation and the legislative effort is critical.
Conclusion:
The BEI represents a trailblazing federal policy effort by CMS. In fact, it is the first time a federal health program has created a pathway for access to hemp-derived products within the Medicare framework. This pilot program will help the healthcare industry and our communities to determine whether patients managing chronic or oncologic conditions is a viable tools within the value-based care models. In addition, hemp businesses may be well positioned to seek a federally recognized market pathway.
Concurrently, the BEI is filled with legal complexity. The program operates at the intersection of unsettled hemp law, federal fraud and abuse prohibitions, Administrative Procedure Act’s procedural requirements and a regulatory change that could fundamentally alter the eligible product landscape by November 12, 2026. Healthcare providers and hemp businesses that approach the BEI as a simple add-on to existing operations do so at significant legal risk. Those that approach it with rigorous compliance planning, experienced counsel and realistic contingency frameworks will be best positioned to benefit from what could be a transformative shift in federal health policy.
Ritter Spencer Cheng, PLLC (“RSC”) regularly advises clients on healthcare transactions, healthcare regulatory issues and compliance matters involving alternative substances in Texas and throughout the country. The RSC healthcare and alternative substances teams will continue to monitor the BEI and its associated rules, while advising clients on regulatory, corporate and transactional matters. Our clients benefit from informed strategic advice, while being counseled on the regulatory burdens associated with healthcare and hemp related transactions. For questions, reach out to Richard Y. Cheng, Esq., CHC at rcheng@ritterspencercheng.com.
