OIG Advisory Opinion Approves Medigap Insurer’s Plan to Use Preferred Hospital Network

King & Spalding

On August 25, 2014, the OIG released an advisory opinion declining to impose civil monetary penalties on a Medicare Supplemental Health Insurance – or Medigap – insurer that planned to discount inpatient hospital deductibles through a preferred hospital network. Specifically, the insurer proposed an arrangement whereby it would contract with certain hospitals for discounts on Medicare inpatient deductibles that would otherwise be covered by the insurer. In turn, the insurer would then provide insurance premium credits to policyholders using the network hospitals for inpatient stays.

Although the OIG acknowledged that the proposed arrangement could possibly produce prohibited remunerations  under the federal Anti-Kickback Statute if the required intent were present, the OIG declined to impose administrative sanctions. The OIG reasoned that the proposed arrangement posed a relatively low risk of fraud or abuse. Among other reasons, the OIG noted that the discounts and credits would not impact Medicare payments, and otherwise the proposed arrangement:

  • would be unlikely to increase utilization,
  • would be unlikely to impact professional medical judgment,
  • should not unfairly affect competition among hospitals, and
  • would operate transparently with respect to policyholders.

The OIG also opined on application to the proposed arrangement of the civil monetary provision of the Social Security Act at section 1128A(a)(5), which prohibits inducements to beneficiaries. The OIG noted that the definition of remuneration under section 1128A(a)(5) includes an exception for differentials in coinsurance and deductible amounts as part of a benefit plan design, as long as the differentials are properly disclosed to affected parties and meet other requirements. The OIG determined that although the premium credit is not a differential in a coinsurance or deductible amount, it would have substantially the same purpose and effect as a differential. Accordingly, the OIG concluded that the premium credit presents a sufficiently low risk of fraud or abuse under the prohibition on inducements to beneficiaries such that administrative sanctions need not be imposed.

To read the advisory opinion, click here.

Reporter, Lauren Gennett, Atlanta, + 1 404 572 3592, lgennett@kslaw.com.

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