OIG Issues Favorable Advisory Opinions Regarding Medigap Plan and Preferred Hospital Organization Arrangements

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Last week, OIG posted Advisory Opinions Nos. 21-03, 21-04, and 21-05 relating to three near-identical arrangements between Medigap plans and Preferred Hospital Organizations (PHOs). The arrangements involve (i) a discount on a policyholder’s Medicare Part A deductible, (ii) a policyholder premium credit, and (iii) a monthly administrative fee to the PHOs. The arrangements are designed to incentivize the Medigap plans’ respective policyholders to seek inpatient care from a hospital within the applicable PHO network. Although OIG determined that the arrangements would generate prohibited remuneration under the federal Anti-Kickback Statute and the Beneficiary Inducements Civil Monetary Penalties (CMP) law, OIG concluded that the arrangements pose a sufficiently low risk of fraud and abuse and that OIG would not impose administrative sanctions under those laws in connection with the proposed arrangements.

With respect to the deductible discounts, for each arrangement, the PHO’s network hospitals would provide a discount on the Medicare Part A inpatient deductible that the Medigap plan otherwise would cover for any policyholder. The discount would be established in advance, pursuant to a written agreement between the applicable PHO and each of its network hospitals, and also documented in a separate written agreement between the PHO and the Medigap plan(s). The discount on the Medicare Part A inpatient deductible offered by individual network hospitals would vary and could be as high as 100 percent. However, the discount would not vary based on the volume of policyholder claims. Additionally, each network hospital’s discount would be applied uniformly to all policyholders for a term of at least one year. Any accredited, Medicare-certified hospital is eligible to participate in the PHO networks if the hospital: (i) meets the licensing and other requirements of applicable state law and (ii) agrees to discount the Medicare Part A inpatient deductible costs on behalf of all licensed offerors of Medigap policies that contract with the PHO, including the Medigap plans.

For the premium credit, the Medigap plans would offer a $100 premium credit to each policyholder who selects a network hospital for a Medicare Part A-covered inpatient stay. The premium credit would be applied to the next premium payment and would reduce the amount the policyholder would owe. In nearly all circumstances, the premium credit would not be in the form of a check, deposit, or other affirmative payment. Policyholders would be eligible to receive only one $100 premium credit per Medicare Part A benefit period. The Medigap plans would also not advertise the proposed arrangement, in whole or in part, to potential enrollees but would provide information about network hospitals and the premium credit to policyholders on enrollment and through periodic mailings.

For the PHO administrative fee, the applicable PHO would enter into a written agreement with each Medigap plan pursuant to which the Medigap plan would pay the PHO a monthly administrative fee as compensation for establishing the hospital network and arranging for the network hospitals to discount the Medicare Part A inpatient deductible. The administrative fee would be a percentage-based fee—the PHO would receive a percentage of the aggregate savings that each Medigap plan would realize from the network hospital’s discounts on each Medigap plan’s respective policyholders’ Medicare Part A inpatient deductibles in a given month. Accordingly, the monthly fee would vary by: (i) the number of policyholder claims for which the network hospitals provided a discount on the Medicare Part A inpatient deductible, and (ii) the amount of the discount on the Medicare Part A inpatient deductible provided by the network hospitals, as established in their respective written agreements with the PHO.

OIG concluded that all three streams of renumeration (the deductible discount, the premium credit, and the administrative fee) would implicate the federal Anti-Kickback Statute and the premium credit would also implicate the Beneficiary Inducements CMP but, ultimately, the proposed arrangements would provide a sufficiently low risk of fraud and abuse.

In reaching this conclusion, OIG relied on several factors, including:

  • For both the deductible discounts and the premium credits, OIG believed it was unlikely that those two streams of remuneration would result in overutilization or pose a risk of increased costs to federal healthcare programs. OIG reasoned that, because it is generally in a Medigap plan’s financial interest to ensure appropriate utilization and costs (because the Medigap plan has financial responsibility for all costs their policies may cover), it is unlikely that the Medigap plans would promote inappropriate utilization by their policyholders. OIG also considered it unlikely that the premium credit would be an improper inducement to policyholders to use inpatient care because, among other things, the credit would reduce the amount the policyholder would owe, rather than being an affirmative payment such as cash or check.

  • Additionally, OIG concluded the deductible discounts and premium credits posed minimal potential for patient harm. The discounts would apply universally to all policyholders. Additionally, patient choice would not be impacted because policyholders could elect to receive care at a hospital that is not a network hospital.

  • The deductible discounts and premium credits would be unlikely to significantly impact competition because, among other things, the Medigap plans would not advertise any aspect of the proposed arrangement to potential enrollees, and any interested hospital would be eligible to join the PHO network provided the hospital meets the criteria.

  • Although no safe harbor would protect the PHO administrative fee, OIG concluded the PHO administrative fee would be sufficiently low risk under the federal Anti-Kickback Statute. The Medigap plans and the PHOs certified that the administrative fee would be consistent with fair market value. Additionally, although the administrative fee would be determined in a manner that takes into account the volume or value of federal healthcare program business, OIG concluded there was a low risk that the methodology for calculating the administrative fee would drive overutilization or result in increased costs to any federal healthcare program because:

    • The PHO administrative fee, while tied to the volume or value of referrals between each Medigap Plan and the network hospitals, ultimately reflects a percentage of the savings realized by the applicable Medigap plan, not revenue generated by the network hospitals;

    • It would be contrary to the Medigap plans’ financial interest, as offerors of Medigap policies with financial responsibility for the cost of certain items and services furnished to their policyholders, to drive overutilization of inpatient hospital services paid for by Medicare Part A; and

    • The Medigap plans certified that they would not pass on or otherwise shift the cost of the PHO’s administrative fee to any federal health care program.

OIG Advisory Opinion 21-03 is available here, Advisory Opinion 21-04 is available here, and Advisory Opinion 21-05 is available here.

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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