Executive Summary
On June 27, 2013, the Department of Health and Human Services Office of Inspector General (“OIG”) posted advisory opinion 13-06 (“AO”) in which it considered whether a proposal by a licensed offeror of Medigap policies to indirectly contract with hospitals for discounts on otherwise applicable Medicare inpatient deductibles for its policyholders and provide a premium credit ranging from $100 to $150 to those policyholders who use a contracted (network) hospital for an inpatient stay (the “Proposed Arrangement”), potentially violated the Anti-Kickback Statute (“AKS”) or the Civil Monetary Penalties Law (“CMPL”) prohibiting inducements to beneficiaries. The OIG opined that, while the Proposed Arrangement could potentially violate the AKS if the requisite intent to induce or reward referrals of federal health care program business were present, it would decline to impose penalties in this case. Further, after considering all the facts and circumstances presented, the OIG concluded that the Proposed Arrangement would not violate the CMPL or pose a high risk of fraud and abuse.
Proposed Arrangement
Under the Proposed Arrangement, a licensed offeror of Medigap plans (the “Requestor”) would contract with a network management organization (“NMO”) that has agreements with hospitals (“Network Hospitals”) under which the Network Hospitals would give discounts of up to 100% on Medicare inpatient deductibles incurred by the Requestor’s Medigap plan policyholders (the “Policyholders”). The discounts would not apply to any other cost-sharing amounts, and the Network Hospitals would provide no other benefit to the Requestor or to any of the Requestor’s Policyholders. Each time a Network Hospital would issue a discount, the Requestor would pay the NMO an administrative services fee and would be relieved of having to pay some percentage (up to 100%) of the inpatient deductible. In turn, the Requestor would share a portion of its NMO-bargained for discount with the Policyholder in the form of a premium credit of between $100 and $150. The premium credit feature would be disclosed to Policyholders post-enrollment via an introductory cover letter and membership identification card.
If a Policyholder were to be admitted to a non-Network Hospital, the Requestor would pay the applicable inpatient hospital deductible pursuant to the Policyholder’s Medigap plan. The Proposed Arrangement would not affect the Policyholder’s liability for payment of any covered services, regardless of whether the Policyholder was admitted to a Network Hospital or non-Network Hospital. Any accredited, Medicare-certified hospital meeting state law requirements and agreeing to the NMO’s discount terms would be eligible to join the network. Savings from the Proposed Arrangement would be reflected in the Requestor’s “annual experience exhibits” submitted to state insurance departments. State insurance departments use this type of information to set future insurance rates.
Analysis
First, the OIG considered whether the Proposed Arrangement implicated the AKS, which prohibits the intentional payment of compensation to induce or reward federal health care program referrals. It reiterated that waivers of Medicare cost-sharing amounts as well as premium credits to beneficiaries could potentially constitute prohibited remuneration under the AKS. The OIG concluded that the arrangement would not qualify for protection under either of two relevant safe harbors. The safe harbor for waivers of beneficiary coinsurance and deductible amounts is inapplicable here because that safe harbor specifically excludes such waivers when they are part of an agreement with an insurer. Likewise, the safe harbor for reduced premium amounts offered by health plans does not apply because the Requestor does not offer the same reduced cost-sharing or premium amounts to all Policyholders; the Policyholder must select a Network Hospital to be eligible for this benefit.
Notwithstanding, the OIG concluded the Proposed Arrangement posed a low risk of fraud and abuse under the AKS because:
- The discounts and premium credits would not increase costs to the Medicare Part A program;
- Utilization of Medicare services would not increase (the discounts would be “invisible” to beneficiaries because, under no circumstances, would they have any inpatient deductible out-of-pocket costs as these costs are covered under the terms of the Medigap policy issued by the Requestor);
- The NMO’s hospital network is open to all qualifying hospitals so there is no unfair competition among hospitals; and
- Medical decision-making would not be affected because the Policyholders’ physicians would receive no remuneration.
Second, the OIG analyzed whether the premium credit issued by the Requestor might be an illegal inducement to choose a Network Hospital in violation of the CMPL. While the premium credit is not a “differential in coinsurance and deductible amount part of a benefit plan design” (one exception to the definition of remuneration under the CMPL), the premium credit would “have substantially the same purpose and effect as such a differential.” Accordingly, the OIG concluded that the premium credit posed a low risk of fraud and abuse under the CMPL.
Finally, the OIG recognized that the Proposed Arrangement would lower Medigap costs for Policyholders who select Network Hospitals and could lower costs overall insofar as cost savings data submitted to the state could have the effect of lowering insurance rates established by state regulators. For all of the above reasons, the OIG exercised its discretion to protect the Proposed Arrangement.
Conclusion and Practical Takeaway
Providers and insurers extending waivers of Medicare cost-sharing amounts or premium credits to beneficiaries without the benefit of any safe harbor or exception protections should proceed with great caution. While this AO offers valuable insight into what the OIG’s position might be under similar facts and circumstances, only the Requestor may rely on the AO.
If you have any questions or would like additional information about this topic, please contact Adele Merenstein at 317-752-4427 or amerenst@hallrender.com, Rene Savarise at 502-568-9365 or rsavarise@hallrender.com or your regular Hall Render attorney.
Special thanks to Aaron Marcus, Law Clerk, for his assistance with the preparation of this article.
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