Kusserow on Compliance: Breaking News: OIG issues Advisory Opinion on hospital discounts

The Office of Inspector General (OIG) issued an advisory opinion regarding the use of a preferred hospital network as part of Medicare Supplemental Health Insurance (“Medigap”) policies, whereby the requestors would indirectly contract with hospitals for discounts on the otherwise-applicable Medicare inpatient deductibles for their policyholders. In turn, the requestors would provide a premium credit of $100 off the next renewal premium to policyholders who use a network hospital for an inpatient stay (“Proposed Arrangement”).

The requestors wanted to know whether the Proposed Arrangement would constitute grounds for the imposition of sanctions or other enforcement actions. The OIG concluded that, although the Proposed Arrangement could potentially generate prohibited remuneration under the Anti-Kickback Statute (AKS) if the requisite intent to induce or reward referrals of federal health care program business were present, it would not impose sanctions in connection with the Proposed Arrangement.

The requestors are licensed offerors of Medigap policies and other insurance products. The Proposed Arrangement would apply to the requestors’ Medigap plans other than: (1) Medigap plans that fall under the category of Medicare SELECT policies described in section 1882(t)(1) of the Social Security Act; and (2) Medigap plans that may not fully cover the Part A deductible. The requestors proposed to participate in an arrangement with a preferred hospital organization, which has contracts with hospitals throughout the country (“network hospitals”). Under these contracts, network hospitals would provide discounts of up to 100 percent on Medicare inpatient deductibles incurred by the requestors’ Medigap plan policyholders (the “policyholders”) that otherwise would be covered by the requestors. The 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. The network hospitals would provide no other benefit to the requestors or their policyholders as part of the Proposed Arrangement. Each time the requestors receive this discount from a network hospital, the requestors would pay the physician hospital organization (PHO) a fee for administrative services. If a policyholder were to be admitted to a hospital other than a network hospital, the requestors would pay the full Part A hospital deductible, as provided under the applicable Medigap plan.

The Proposed Arrangement would not affect the liability of any policyholder for payments of covered services, whether provided by a network hospital or any other hospital. The PHO’s hospital network would be open to any Medicare-certified hospital that agrees to discount all or a portion of the Part A deductible for policyholders. Further, requestors certified that policyholders’ physicians and surgeons would not receive any remuneration under the Proposed Arrangement in return for referring patients to a network hospital.

A portion of the savings resulting from the Proposed Arrangement would be returned directly to any policyholder who has an inpatient stay at a network hospital. The savings would be shared with the policyholder in the form of a $100 credit towards the policyholder’s next renewal premium owed to the requestors. This feature would be announced to policyholders in an initial notification letter and a program identification card containing an icon indicating the participation of the plan in the network. Policyholders would also receive information biannually regarding the participation of network hospitals. These materials 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. Savings realized under the Proposed Arrangement would be reflected in the requestors’ annual experience exhibits filed with the various state insurance departments that regulate the premium rates charged by Medigap insurers, so as to be taken into account when state insurance departments review and approve the rates.

The OIG concluded that, in combination with Medigap coverage, the discounts offered on inpatient deductibles by the network hospitals, and the premium credits offered by the requestors to policyholders who have inpatient stays at network hospitals, would present a sufficiently low risk of fraud or abuse under the AKS for five reasons:

  • Neither the discounts nor premium credits would increase or affect per-service Medicare payments.
  • It would be unlikely to increase utilization.
  • It should not unfairly affect competition among hospitals.
  • It would be unlikely to affect professional medical judgment.
  • It would operate transparently in that policyholders 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.