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Minding the Gap: OIG Green Light of Medigap Arrangements with PHOs Continues

OIG Monitor David Blank, Laura D. Pone

On June 7, 2018, the Office of the Inspector General for the U.S. Department of Health and Human Services (OIG) issued a favorable Advisory Opinion regarding a proposed arrangement by a Medicare Supplemental Health Insurance ("Medigap") Company to provide policyholders with deductible discounts and premium credits for using a preferred hospital for inpatient stays. The OIG concluded that the arrangement presented a low risk of fraud and abuse and the insurer would not be subject to administrative sanctions under the federal Anti-Kickback Statute (AKS) or the civil monetary penalties law (CMP).

The Arrangement

Under the proposal, the Medigap Company (“Insurer”) would enter into an agreement with a Preferred Hospital Organization (PHO) to create a hospital network that would provide discounts on inpatient deductibles for the Insurer’s Medigap policyholders. The network hospitals would provide discounts of up to 100 percent on covered Medicare Part A inpatient deductibles incurred by the policyholders that would traditionally be paid for by the Insurer. The network hospital would receive an administrative service fee from the Insurer each time a discount was applied. The Insurer and its policyholders would receive no other benefits from the network hospitals. Any accredited, Medicare-certified hospital would be eligible to join the PHO's hospital network provided it complied with all state laws and agreed to discount eligible inpatient deductible for the Insurer’s policyholders.

The Insurer would provide policyholders with a $100 "premium credit" for using a network hospital for an inpatient stay to be applied towards their next renewal premium. The premium credit would represent a portion of the Insurer’s realized savings from the discount and is intended to incentivize policyholders to use network hospitals. Policyholders would not be penalized for using a non-network hospital and the Insurer would cover all inpatient deductibles applicable to hospitals outside of the PHO's network. The Insurer would report all realized savings to the applicable state insurance departments that regulate Medigap premium rates as part of their annual experience exhibits.

The Analysis

The OIG concluded the federal AKS was implicated by the proposed arrangement because the remuneration, in the form of discounts to the Insurer and premium credits to policyholders, could serve as an inducement for the referral of federally reimbursable items or services. The OIG also concluded the CMP beneficiary inducement prohibition was also implicated by the proposed arrangement because the remuneration could influence a beneficiary to select a network hospital over a broader group of eligible providers.

The OIG first analyzed whether the proposed arrangement was afforded regulatory protection under the AKS’s waiver of beneficiary coinsurance and deductible safe harbor or reduced premium safe harbor. The OIG concluded the arrangement did not qualify for safe harbor protection under either provision. Specifically, the proposed arrangement did not meet the copayment and deductible waiver safe harbor because the regulation expressly excludes waivers that are part of an agreement between a hospital and an insurer. Further, the arrangement did not meet the reduced premium safe harbor because the Insurer did not offer the same reduced cost-sharing or premium amounts to all enrollees, but rather, only policyholders that used network hospitals.

Absent safe harbor protection, the OIG examined the proposed arrangements risk of fraud and abuse under the AKS, concluding that the arrangement presented a “sufficiently low” risk for the following reasons:

  1. The discounts and premium credits were unlikely to lead to increased program costs because Part A payments for inpatient services are fixed (with minimal exceptions).

  1. The arrangement was unlikely to lead to overutilization of services because the discount was essentially “invisible” to the policyholder and is consistent with the OIG’s long held belief that waiver of fees for inpatient services does not increase utilization.

  1. The arrangement would not adversely impact marketplace competition because any eligible hospital could become a PHO member/network hospital.

  1. The arrangement was unlikely to affect professional medical judgment because physicians and surgeons would not receive any remuneration under the proposal and the policyholder could receive services from any hospital without incurring any additional out-of-pocket expense.

  1. The arrangement was transparent because the Insurer certified it would inform policyholders that they were free to choose any hospital without penalty or incurring additional liabilities.

Lastly, the OIG examined the proposed arrangement under the CMP beneficiary inducement prohibition and analyzed whether the premium credits fit within the statutory exception to the definition of remuneration. Under the exception, remuneration does not include differentials in coinsurance and deductible amounts as part of a benefit plan so long as they are disclosed to the appropriate parties and meet all applicable requirements. The OIG determined that although the premium credit offered to beneficiaries did not explicitly meet the definition of a differential in deductible amount, the credit would have "substantially the same purpose and effect" and therefore would present a low risk of fraud or abuse under the CMPL beneficiary inducement prohibition.

The Takeaway

The OIG continues to look favorably on arrangements involving waivers or discounts of beneficiary deductibles and the use of preferred hospital organizations where specific safeguards are implemented. The OIG noted this arrangement had the potential to lower costs for Medigap coverage without penalizing policy holders who did not choose a network hospital. Further, the arrangement had the ability to reduce the costs for all of the Insurers’ policyholders because the realized savings are reported to state insurance rate-setting regulators.

The risk profile of an arrangement under the AKS will always include an examination of the impact on program costs, utilization of services, competition, and medical judgment. Favorable arrangements generally have no adverse impact on any of these specific factors. Organizations in the health care sector should strive to understand and apply the OIG’s analytic approach to identifying the fraud and abuse risks created by a particular arrangement. Understanding the risk is a critical and necessary first step that should be completed prior to entering into any arrangement where remuneration has the ability to induce program referrals.

For additional information or to learn more about this or other OIG advisory opinions and enforcement initiatives, please contact David Blank at (202) 780-2643/[email protected], Laura Pone at (312) 715-5090/[email protected], or your Quarles & Brady attorney.