In advisory opinion (15-03) earlier this month, the U.S. Department of Health and Human Services (HHS) Office of the Inspector General (OIG) found that a Medigap insurer’s arrangement allowing discounts on deductibles at certain preferred hospitals  – with a portion of the resulting savings going to the insurer’s policyholders  – would not result in penalties under the Anti-Kickback Statute (AKS) or Civil Monetary Penalties (CMP) Law prohibition on inducements to beneficiaries, because the likelihood of fraud and abuse under the proposal is minimal.

The requestor was an offeror of Medigap insurance, a supplemental insurance policy sold by private companies to pay some costs that Medicare does not cover. For its Medigap plans, the insurer proposed an arrangement with certain network hospitals through a preferred provider organization (PPO) where the PPO hospitals would provide discounts of up to 100 percent of the Part A inpatient deductibles, for which the requestor would otherwise be liable. Policyholders who were admitted for an inpatient stay at a network hospital would receive a $100 premium credit from the requestor towards the policyholder’s next renewal premium. If the policyholder was admitted to a non-network hospital, the requestor would pay the full deductible.

OIG stated that the AKS safe harbor for (1) waivers of beneficiary coinsurance and deductible amounts and (2) for reduced premium amounts offered by health plans would not protect the requestor’s proposal. First, the safe harbor for waivers of beneficiary coinsurance and deductible amounts “specifically excludes such waivers when they are part of an agreement with an insurer.” Second, the safe harbor for reduced premium amounts offered by health plans “requires health plans to offer the same reduced cost-sharing or premium amounts to all enrollees.” But under the requestor’s plan, the discounts would be available only to policyholders who opted for network hospitals.

Nevertheless, OIG found the risk of fraud and abuse under the AKS to be minimal, for several reasons:

  1. Neither the discounts nor the premium credits would increase or affect per-service Medicare payments, as Part A payments are fixed and not affected by cost-sharing;
  2. The arrangement would not likely increase utilization, as the discounts effectively would be invisible to the policyholders since they “would apply only to the portion of the individual’s cost-sharing obligations that the individual’s supplemental insurance otherwise would cover”;
  3. The arrangement would not unfairly affect competition among hospitals, since the PPO’s hospital network would be open to any accredited, Medicare-certified hospital that meets the requirements of applicable state laws and that contractually agrees with the PPO to discount all or a portion of the Part A deductible for policyholders;
  4. The arrangement was not likely to affect professional judgment, as the providers for the policyholders would not receive remuneration, and policyholders could go to any hospital without additional expense; and
  5. The requestor made clear to policyholders that they have the ability to go to any hospital without additional liabilities or penalties, thereby operating transparently.

OIG also said that the premium credits implicated the CMP prohibition on inducements to beneficiaries, because the credits are offered to induce policyholders to select certain network hospitals. OIG, however, found that the exception to the definition of remuneration for differentials in coinsurance and deductible amounts as part of a benefit plan design, in section 1128A(a)(i)(6)(C) of the Social Security Act, instructive for its analysis.  While the premium credits do not technically fit the exception, OIG viewed the premium credits as having “substantially the same purpose and effect” as differentials in coinsurance and deductibles, thus presenting a low risk of fraud or abuse.

OIG’s advisory opinion is consistent with similar opinions (e.g., 14-02, 14-04, 14-07, 14-10) issued in the past year approving discounts to Medigap insurers by preferred hospitals and credits to Medigap policyholders who use preferred hospitals.