On August 18, 2014, the U.S. Department of Health & Human Services, Office of Inspector General (OIG) issued another advisory opinion approving a licensed insurance broker’s proposal to establish a preferred hospital network as part of Medicare Supplemental Health Insurance policies (Medigap) and to offer premium credits to its policyholders. Advisory Opinion 14-07 [PDF]  is consistent with the recently issued Advisory Opinion 14-02 [PDF] and Advisory Opinion 14-04 [PDF], and other prior opinions related to similar arrangements. Following its previous analyses, the OIG concluded that this proposed arrangement would not warrant the imposition of sanctions under the civil monetary prohibition against inducements to beneficiaries or the antikickback statute.

The Advisory Opinion’s requestor is a licensed insurance broker of health insurance products, including Medigap policies. The requestor proposed to implement its Medigap plans through indirect arrangements with hospitals via a preferred provider organization (the PPO) that has contracts with hospitals throughout the country (Network Hospitals). Pursuant to these contracts, the Network Hospitals would discount the Medicare inpatient deductibles incurred by the requestor’s Medigap plan policyholders (the Policyholders), which the requester would otherwise cover, by up to 100 percent. Such discounts would not be applied to any cost-sharing amount other than the Medicare Part A inpatient hospital deductibles covered by the requestor’s Medigap plans. Upon receipt of the discounts, the requestor would pay the corresponding PPO a fee for administrative services. No other benefit would be provided by the Network Hospitals to the requestor or its Policyholders as part of the proposed arrangement.

The requestor also proposed to share the resulting savings with any Policyholder who had an inpatient stay at a Network Hospital by issuing a $100 credit towards the Policyholder’s policy renewal premium. The requestor would pay the full Medicare Part A inpatient hospital deductible for each Policyholder admitted into a non-Network Hospital, and the Policyholder would not receive a credit. Policyholders would not be penalized for using non-Network Hospitals, and the proposed arrangement would not affect Policyholders’ liability for payments of covered services.

The requestor would provide Policyholders with membership cards and documents bearing an icon that would indicate the Medigap Plan’s participation in the network. Policyholders would receive biannual updates regarding Network Hospital participation. All materials provided to Policyholders would clearly indicate that the use of a non-Network Hospital would have no effect on them. The opportunity to participate in the proposed arrangement would be open to any accredited, Medicare-certified hospital appropriately licensed under state law. Finally, the requestor would report its savings to the state insurance departments on an annual basis through annual experience exhibits, such that the state insurance departments could take into account the cost savings when reviewing and approving premium rates.

Analysis Under the Antikickback Statute

The OIG analyzed the proposed arrangement under the antikickback statute and found that the premium credits given to the requestor’s Policyholders would implicate the antikickback statute because they were remuneration for selecting the Network Hospital. The OIG also found that safe harbor protection would not extend to the proposed arrangement. The safe harbor for waivers of beneficiary coinsurance and deductible amounts offers no protection because it specifically excludes such waivers when they are built into agreements with insurers. 42 C.F.R. § 1001.952(k)(l)(iii). Additionally, the safe harbor for reduced premium amounts offered by health plans would offer no protection to this arrangement because the premium discounts would be offered only to enrollees who choose Network Hospitals, not to all enrollees as is required by the safe harbor. 42 C.F.R. § 1001.952(l)(1).

Nonetheless, the OIG concluded that the discounts and premium credits offered would present a sufficiently low risk of fraud or abuse under the antikickback statute for the following five reasons:

• Part A payments for inpatient services are mostly fixed, so waivers or reductions in beneficiary cost sharing would not impact or affect per-service Medicare payments.
• Utilization is unlikely to be influenced because beneficiaries would not be directly aware of the discounts to be provided. The OIG repeated its long-held view that the waiver of fees for inpatient services is unlikely to result in significant increases in utilization.
• Hospital competition would not be unfairly impacted because participation in networks would essentially be open to all Medicare-certified hospitals.
• The remuneration is unlikely to affect professional medical judgment because physicians and surgeons would not receive remuneration under the arrangement.
• The Policyholders would be informed that they may choose any hospital without being penalized or incurring increased costs.

Analysis Under the Civil Monetary Penalties Law

The OIG analyzed the proposed arrangement under the Civil Monetary Penalties Law, and found that the premium credits implicate the prohibition on beneficiary inducements. The requestor would offer the premium credits to induce Policyholders to select a particular Network Hospital from a larger group of eligible providers. Nevertheless, the OIG concluded that the premium credit would present a sufficiently low risk of fraud or abuse under the Civil Monetary Penalties Law. The OIG stated that the definition of remuneration includes an exception for differentials in coinsurance and deductible amounts as part of a benefit design so long as the differentials are properly disclosed to affected parties and meet certain requirements. Section 1128A(i)(6)(C). The OIG concluded that premium credits are sufficiently similar in purpose and effect to differentials in coinsurance or deductible amounts, which are excepted from the definition of remuneration.

In addition, the OIG noted that the arrangement had the potential to reduce costs to certain Medigap Policyholders, and emphasized that because the savings would be reported to state insurance rate-setting regulators, the proposed arrangement could lower costs for all Policyholders, not just those utilizing Network Hospitals.