Kusserow on Compliance: OIG Advisory Opinion: proposed use of preferred hospital network in connection with Medigap plan

The HHS Office of Inspector General (OIG) issued a new Advisory Opinion regarding the proposed use of a preferred hospital network in connection with a Medicare Supplemental Health Insurance (Medigap) plan. The Requestor, “a licensed offeror of Medigap policies and other insurance products,” asked for an Advisory Opinion regarding the use of a preferred hospital network as part of Medigap policies, whereby it would indirectly contract with hospitals for discounts on the otherwise-applicable Medicare inpatient deductibles for its policyholders and, in turn, would provide a premium credit of $100 off the next renewal premium to policyholders who use a network hospital for an inpatient stay (the “Proposed Arrangement”).

Under the Proposed Arrangement, 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. 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.

Based on the totality of the facts and circumstances, and given the sufficiently low risk of fraud or abuse and the potential for savings for beneficiaries, the OIG stated it would not impose administrative sanctions on the Requestor under the Anti-Kickback Statute (AKS) or the prohibition on inducements to beneficiaries in connection with the Proposed Arrangement 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 Proposed 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 Proposed Arrangement should not unfairly affect competition among hospitals, because membership in the contracting preferred hospital organization’s (PHO’s) hospital network would be open to any accredited, Medicare-certified hospital that meets the requirements of applicable state laws.
  • The Proposed 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 Proposed 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.

Connect with Richard Kusserow on Google+ or LinkedIn.

Subscribe to the Kusserow on Compliance Newsletter

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