OIG Okays Medigap Insurer’s Arrangement for Discount on Inpatient Deductibles

by Faegre Baker Daniels
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Last Monday the Office of Inspector General (OIG) of Health & Human Services posted an advisory opinion (No. 14-07) allowing a Medigap insurance company to strike a deal with hospitals for discounts—even waivers—of the deductibles owed by Medicare beneficiaries for inpatient stays.  The opinion indicates that the arrangement will in fact violate the statute (maybe even two of them), but the OIG will wink at the violation.

The insurance company sells Medigap policies—policies that cover the deductibles incurred by Medicare beneficiaries.  Under the arrangement, the insurer contracts with a network of hospitals (the PPO) for a discount of up to 100% of the deductible that a policyholder incurs for an inpatient stay in one of the PPO hospitals.  The deductible that’s being discounted is an amount owed by the insurer under its Medigap policy with the patient.  Each time the insurer gets a discount for an inpatient stay it (a) pays the PPO an administrative fee and (b) gives the patient a $100 credit toward the next policy renewal.

If a policyholder goes to a hospital outside the network, there is no discount on the deductible. The insurer has to pay it in full.  And the patient doesn’t get a premium credit.

The OIG analysis indicates that both the Anti-Kickback Statute and the statute prohibiting inducements to Medicare beneficiaries would be violated, at least technically.  But it concludes that the practical risks of fraud and increased hospital utilization are minimal and that the insurer can proceed with the arrangement.

Curiously, the opinion says that one reason for blessing the arrangement is that policyholders would “have the freedom to choose any hospital without incurring additional liability or a penalty.”  [Italics added.]  But is that really true?  A policyholder who stays in-network gets a $100 premium credit for each inpatient visit.  One who goes out of network doesn’t get a credit.  Isn’t it a penalty to have to pay an extra $100 for every out-of-network admission?  Or, even if it’s technically not a penalty, isn’t it at least “additional liability”?

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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