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By Deborah J. Juneau

The OIG issued Advisory Opinion 15-3 to address an arrangement proposed by a licensed offeror of Medicare Supplemental Health Insurance (“Medigap”) policies (the “Requestor”), in which the Requestor would indirectly contract with a preferred hospital organization (“PPO”) having contracts with a national network of hospitals (the “Network Hospitals”) for discounts on otherwise-applicable Medicare inpatient deductibles for its policyholders.  Under the proposed arrangement, the Network Hospitals would provide 100% discounts on Medicare inpatient deductibles incurred by the Requestor’s Medigap policyholders that would otherwise be covered by the Requestor.  The discounts would apply only to Medicare Part A inpatient hospital deductibles covered by the Medigap plans and not to any other cost-sharing amounts.  The Network Hospitals would provide no other benefit to the Requestor or the Medigap policyholders.  The Requestor would pay the PPO a fee for administrative services each time the Requestor received the discount from a Network Hospital. If the policyholder was admitted to a hospital other than a Network Hospital, the Requestor would pay the full Part A hospital deductible under the applicable Medigap plan.  The Medigap policyholders would receive information biannually about the participation of Network Hospitals, would retain freedom of choice to use any hospital, and would not be penalized in any way for the use of a non-network hospital.

The PPO’s hospital network would be open to any accredited, Medicare-certified hospital that meets the requirements of applicable state laws and that contractually agreed to the PPO discount of the Part A hospital deductible for the Medigap policyholders.  If the policyholder used a Network Hospital, the Requestor would provide the policyholder with a $100 credit toward the next renewal premium. The savings realized by the Requestor under the proposed arrangement would be reflected in the documents filed with the various state insurance departments that regulate the premium rates charged by the Medigap insurers.

The OIG considered the discount of the Medicare deductible to be prohibited remuneration under the anti-kickback statute because it involved the waiver of Medicare cost-sharing amounts and the relief of a financial obligation.  The policyholder would be provided a premium credit, which would implicate the anti-kickback statute as remuneration for selecting a Network Hospital.  The proposed arrangement did not meet an anti-kickback safe harbor for waiver of beneficiary coinsurance and deductible amounts, since the safe harbor specifically excluded such waivers when they were part of an agreement with an insurer, such as the Requestor.  Furthermore, the safe harbor for reduced premium amounts offered by health plans could not be met, because the same reduced cost-sharing or premium amounts would not be offered to all enrollees—it would be offered only to those enrollees who choose a Network Hospital.

Nevertheless, the OIG found the proposed arrangement presented a sufficiently low risk of fraud and abuse under the anti-kickback statute because:  1) the discounts and premium credits would not increase or affect per-service Medicare payments, as Part A payments for inpatient services are fixed and unaffected by beneficiary cost-sharing; 2) the arrangement would be unlikely to increase utilization because the discounts would be “invisible” to beneficiaries and would apply only to the portion of the beneficiary’s cost-sharing obligations that the Medigap policy would cover; 3) the arrangement would not unfairly affect competition among hospitals because membership in the PPO’s hospital network would be open to any accredited, Medicare-certified hospital that meets the requirements of applicable state laws; 4) the arrangement would be unlikely to affect professional medical judgment as the physicians and surgeons would receive no remuneration and the policyholders would be free to go to any hospital without incurring any additional out-of-pocket expense; and 5) the policyholders would maintain freedom to choose any hospital without incurring a penalty for additional liability.

The proposed arrangement would also implicate the prohibition on inducements to beneficiaries because the premium credits would be offered to induce policyholders to select a particular provider (the Network Hospital).  The OIG noted the definition of remuneration included an exception for differentials in coinsurance and deductible amounts as part of a benefit plan design whereby an enrollee may pay a different cost-sharing amount depending on whether he used a network or non-network provider.  The OIG found the premium waiver was analogous to this type of differential and presented a sufficiently low risk of fraud or abuse under the prohibition on inducements to beneficiaries.

The OIG noted that the proposed arrangement had the potential to lower Medigap costs to all policyholders who selected the Network Hospitals, without increasing costs to those who did not.  Because the savings realized from the proposed arrangement would be reported to state insurance rate-setting regulators, the proposed arrangement had the potential to lower costs for all policyholders.

The OIG concluded that it would not impose administrative sanctions on the Requestor under the anti-kickback statute or the prohibition on inducements to beneficiaries in relation to the proposed arrangement.  The OIG’s opinion did not extend to analysis of the proposed arrangement under any other Federal laws and regulations, including the Stark law, or with any state laws, including state insurance laws.

Although the Advisory Opinion is limited to the specific facts presented in arrangement proposed by the identified parties, the opinion provides guidance on how the OIG might view other similar arrangements involving a targeted waiver of Medicare beneficiary deductibles.