The Office of Inspector General (OIG) of the U.S. Department of Health and Human Services reaffirms, in Advisory Opinion 08-13 (issued September 23, 2008), the permissibility under the federal anti-kickback and anti-influencing statutes of an insurer’s $100 premium credit for its Medigap policyholders on their annual renewal to induce the policyholders to use preferred hospitals that discount the insurer’s payment obligations. OIG cleared a similar arrangement in Advisory Opinion 07-15 (issued December 3, 2007). See NGE Health Law Alert, “Medigap Premium Credits to Induce Enrollee Use of Preferred Hospitals Passes OIG Scrutiny” (Dec. 17, 2007), available at http://www.ngelaw.com/news/pubs_detail.aspx?ID=793.[1]

The Arrangement

Affiliated insurance subsidiaries, which collectively offer Medigap coverage in nearly every state (the Medigap Plans), contract with a managed care organization (MCO) that furnishes the Medigap Plans with a national contracted hospital network. The MCO accepts any accredited, Medicare-certified hospital into its network.

The Medigap Plans receive discounts from the network hospitals of up to 100% of the Medicare Part A inpatient deductible. This results in little to no payments by the Medigap Plans to these hospitals for inpatient services furnished to the Medigap Plans’ policyholders. The Medigap Plans pay an administrative fee to the MCO each time one of their policyholders uses a network hospital. The Medigap Plans pay the full amount of the Medicare Part A inpatient deductible for their policyholders using non-network hospitals, to the extent of the Medigap policy benefits.

The Medigap Plans issue a $100 premium credit on renewal of their Medigap policies to each of their policyholders who used network hospitals in the prior year. The Medigap Plans inform their policyholders and prospects of the $100 premium credit for use of the network hospitals through their Medigap coverage descriptions and their marketing materials. The savings to the Medigap Plans resulting from the arrangement are reflected in their annual experience data, which state insurance departments use for Medigap rate-setting.

The Arrangement under Federal Health Care Anti-Fraud Laws

OIG once again warns that “prohibited remuneration under the anti-kickback statute may include waivers of Medicare cost-sharing amounts,” as does “relief of a financial obligation.” That is because the anti-kickback statute (Social Security Act § 1128B(b)) makes it a federal felony to intentionally offer, pay, solicit or receive anything of value, no matter how small, to induce or reward referrals of items or services for which a federal health care program, such as Medicare, may pay.

OIG further observes that the arrangement implicates the anti-influencing statute (Social Security Act § 1128A(a)(5)) because the premium credit is an inducement to Medicare beneficiaries to choose the network hospitals over non-network hospitals. OIG also points out that no safe harbor or exception from either the anti-kickback or the anti-influencing statute is available because the arrangement fails to satisfy every element of any of the safe harbors or exceptions.

Nonetheless, OIG again clears the arrangement under the facts and circumstances test. It found, first, that the hospitals’ discounts and the $100 premium credit “will not increase or affect per service Medicare payments,” because Medicare Part A payments are “fixed and unaffected by beneficiary cost-sharing.”

Second, OIG found that the hospitals’ discounts and the $100 premium credit “should not increase utilization,” because “the discounts effectively will be invisible to patients, since the patients have already purchased supplemental insurance to cover such obligations.” 

Third, OIG found that the hospitals’ discounts and the $100 premium credit “should not unfairly affect competition among hospitals,” because “membership in the [MCO’s] networks will be open to any accredited, Medicare-certified hospital that meets the requirements of applicable state laws.”

Fourth, OIG found that the hospitals’ discounts and the $100 premium credit are “unlikely to affect professional medical judgment,” because “the patient’s physician or surgeon will receive no remuneration, and the patient remains free to go to any hospital without incurring any additional out-of-pocket expense.”

Fifth, OIG found that the $100 premium credit “presents a low risk of fraud or abuse,” because “the premium credit will have substantially the same purpose and effect” as the statutory exception that “permits benefit plan designs under which plan enrollees pay different cost-sharing amounts depending on whether . . . they use network or non-network providers.”

Finally, OIG found that the arrangement “as a whole has the potential to lower Medigap costs for the [Medigap Plans’] policyholders who select network hospitals (without increasing costs for those who do not),” as well as “the potential to lower costs for all policyholders” because the savings through the hospitals’ discounts “will be reported to state insurance rate-setting regulators.”

Effect of Advisory Opinions 08-13 and 07-15

OIG has twice now cleared arrangements in which Medigap insurers induce their policyholders with premium renewal credits to use hospitals that discount Medicare Part A inpatient cost-sharing obligations payable by the Medigap insurers. OIG’s analysis underscores that arrangements that implicate the anti-kickback and anti-influencing statutes are not thereby illegal; rather, such arrangements can pass OIG scrutiny if they demonstrably benefit Medicare beneficiaries without threatening federal funds, competition or professional medical judgment.

Because the law that authorizes OIG to issue advisory opinions limits their immunizing impact to only those who request them, neither Advisory Opinion 08-13 nor 07-15 may be used by other Medigap insurers as evidence that similar arrangements they implement are legal under the anti-kickback or anti-influencing statute. Nonetheless, both furnish useful guidance to Medigap insurers for properly structuring premium incentives for their Medigap policyholders to use preferred providers.