Kusserow on Compliance: OIG issues advisory opinion regarding use of preferred hospital network as part of Medigap policies

The HHS Office of Inspector General (OIG) issued an Advisory Opinion (No. 15-5) wherein a requestor, a licensed offeror of Medigap policies and other insurance products, which does not fall under the category of Medicare SELECT policies proposed to participate in an arrangement with a preferred provider organization (PPO) that has contracts with hospitals throughout the country. The OIG concluded that under the facts provided, it would not impose administrative sanctions in connection with the Proposed Arrangement, although it could potentially generate prohibited remuneration under the Anti-Kickback Statute if the requisite intent to induce or reward referrals of federal health care program business were present. The facts taken into consideration by the OIG included the following:

  1. Hospitals would provide discounts of up to 100 percent on Medicare inpatient deductibles incurred by the Requestor’s Medigap plan “Policyholders” that otherwise would be covered by the Requestor.
  2. Discounts would apply only to the Medicare Part A inpatient hospital deductibles covered by the Medigap plans, and not to any other cost sharing amounts.
  3. Hospitals would provide no other benefit to the Requestor or its Policyholders as part of the Proposed Arrangement. Each time the Requestor receives this discount from a Network Hospital, the Requestor would pay the PPO a fee for administrative services.
  4. If a Policyholder is admitted to a hospital other than a Network Hospital, the Requestor would pay the full Part A hospital deductible, as provided under the applicable Medigap plan.
  5. There would be no affect on the liability of any Policyholder for payments for covered services, whether provided by a Network Hospital or any other hospital.
  6. 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 agrees to discount all or a portion of the Part A deductible for Policyholders.
  7. Policyholders’ physicians and surgeons would not receive any remuneration under the Proposed Arrangement in return for referring patients to a Network Hospital.
  8. Requestor would return a portion of the savings resulting from the Proposed Arrangement directly to any Policyholder who has an inpatient stay at a Network Hospital in the form of a $100 credit towards the Policyholder’s next renewal premium owed to the Requestor.
  9. Benefits would be announced to Policyholders in plan and Requestor’s marketing materials, as well as through a program identification card containing an icon indicating the participation of the plan in the network.
  10. Materials provided to Policyholder would make it clear that use of a non-network hospital would have no effect on a Policyholder’s liability for any costs covered under the plan, nor would the Policyholder be penalized in any other way for the use of a non-network hospital.
  11. Savings realized by the Requestor under the Proposed Arrangement would be reflected in the Requestor’s annual experience exhibits (which reflect loss ratios) filed with the various state insurance departments that regulate the premium rates charged by Medigap insurers. Thus, the savings realized from the Proposed Arrangement would be taken into account when state insurance departments review and approve the rates.

The OIG found the Proposed Arrangement to be a straightforward agreement by the Network Hospitals to discount the Medicare inpatient deductible for the Requestor’s Policyholders—an amount for which the Requestor otherwise would be liable. It also concluded that, in combination with Medigap coverage, the discounts offered on inpatient deductibles by the Network Hospitals, and the premium credits offered by the Requestor to Policyholders who have inpatient stays at Network Hospitals, the Proposed Arrangement would present a sufficiently low risk of fraud or abuse under the Anti-Kickback Statute for the following reasons:

  • Neither the discounts nor the premium credits would increase or affect per-service Medicare payments. With the exception of certain pass-through payments and outlier payments, Part A payments for inpatient services are fixed; they are unaffected by beneficiary cost-sharing.
  • The Arrangement would be unlikely to increase utilization. In particular, the discounts effectively would be invisible to Policyholders, because they would apply only to the portion of the individual’s cost-sharing obligations that the individual’s supplemental insurance otherwise would cover. In addition, the OIG has long held that the waiver of fees for inpatient services is unlikely to result in significant increases in utilization.
  • The Arrangement should not unfairly affect competition among hospitals, because membership in the contracting PPO’s hospital network would be open to any accredited, Medicare-certified hospital that meets the requirements of applicable state laws.
  • The Arrangement would be unlikely to affect professional medical judgment, because the Policyholders’ physicians and surgeons would receive no remuneration, and the Policyholder would remain free to go to any hospital without incurring any additional out-of-pocket expense.
  • The Arrangement would operate transparently in that the Requestor certified that it would make clear to Policyholders that they have the freedom to choose any hospital without incurring additional liability or a penalty.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

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Copyright © 2015 Strategic Management Services, LLC. Published with permission.