Kusserow on Compliance: OIG Advisory Opinion approves preferred hospital network in Medigap policies

The HHS Office of Inspector General (OIG) released Advisory Opinion No. 16-01, which gave approval to the use of a preferred hospital network as part of Medicare Supplemental Health Insurance (Medigap) policies. The requestors in this opinion would indirectly contract with hospitals for discounts on the otherwise-applicable Medicare inpatient deductibles for their policyholders and, in turn, would provide a premium credit of $100 to policyholders who use a network hospital for an inpatient stay. The OIG stated that upon review of the totality of the facts and circumstances, and given the sufficiently low risk of fraud or abuse and the potential for savings for beneficiaries, it would not impose administrative sanctions on the requestors under the Anti-Kickback Statute (AKS) or the prohibition on inducements to beneficiaries in connection with the proposed arrangement.

The Requestors proposed to participate in an arrangement with a preferred hospital organization (PHO), 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 OIG reasoned 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. Additionally, the OIG noted:

  • Neither the discounts nor the premium credits would increase or affect per-service Medicare payments.
  • The arrangement would be unlikely to increase utilization, because it would apply only to the portion of the individual’s cost-sharing obligations that the individual’s supplemental insurance otherwise would cover.
  • The arrangement should not unfairly affect competition among hospitals, because membership in the contracting PHO’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 policyholders would remain free to go to any hospital without incurring any additional out-of-pocket expense.
  • The arrangement would operate transparently in that policyholders would have the freedom to choose any hospital without incurring additional liability or a penalty.

Further: (a) the requestors would return a portion of the savings resulting from the proposed arrangement directly to any policyholder; and (b) the proposed arrangement has the potential to lower Medigap costs for policyholders who select network hospitals, without increasing costs to those who do not.

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 © 2016 Strategic Management Services, LLC. Published with permission.