On October 14, 2014, the Office of the Inspector General ("OIG") issued an advisory opinion that analyzed whether a proposed arrangement violated the Civil Monetary Penalties provision that prohibits inducements to beneficiaries (i.e., policyholders) and the federal Anti-Kickback Statute related to illegal kickbacks, fraud and other prohibited activities. The OIG concluded that the proposed arrangement posed a low risk for fraud and abuse and it would not give rise to the imposition of administrative sanctions under the Civil Monetary Penalties Law or the Anti-Kickback Statute.

Background: An insurance company (the "Company") that sells Medigap policies to individuals ("policyholders") for Medicare Part A sought an advisory opinion questioning whether it could enter into an arrangement with a preferred hospital organization ("PPO") that has contracts with certain hospitals ("Network Hospitals") whereby the Company would not pay inpatient hospital deductibles on behalf of its policyholders who received their inpatient hospital care from a Network Hospital. In this situation, the Network Hospital would give up to a 100% discount to the Company for the inpatient hospital deductible amount, thus absorbing the cost, and the Company would not pay that deductible amount for the particular policyholder who received care from a Network Hospital. 

Further, each time the Company did not have to pay the inpatient hospital deductible for its policyholders who received treatment from a Network Hospital, the Company paid the PPO an administrative fee. Also, if the policyholder received inpatient hospital care from a non-network hospital, the Company would still pay the full inpatient hospital deductible amount as required under the Medigap policy.

As a result of the cost savings to the Company, it would return a portion of these savings to its policyholders by giving them a $100.00 credit towards the policyholders' next renewal premium that would otherwise be owed to the Company. The policyholders were notified of this benefit in an initial notification letter, a program identification card and biannual information and also that the policyholder would not be penalized for using a non-network hospital.

Federal Anti-Kickback Statute: The OIG analyzed the above-referenced arrangement under this federal law because relief of a financial obligation (the Company does not pay the inpatient hospital deductible amount for patients who receive treatment at a Network Hospital) may constitute a prohibited kickback. The OIG concluded the proposed arrangement posed a low risk of fraud and abuse because (i) neither the premium credits offered to policyholders or the deductible discounts offered by the Network Hospitals would increase or affect per-service Medicare payments, (ii) the proposed arrangement was unlikely to increase utilization, (iii) hospital competition would not be affected, (iv) physician professional judgment would not be affected and (v) the Company communicated the proposed arrangement clearly to policyholders in written documentation.

Federal Civil Monetary Penalties Law: The premium discount offered to policyholders who receive care from a Network Hospital implicates the civil monetary penalty prohibition on inducement to beneficiaries, as the policyholders are induced to select Network Hospitals. The OIG opined the proposed arrangement posed a low risk for fraud and abuse because (i) while the proposed arrangement lowered costs for policyholders who used Network Hospitals, Medigap costs were not increased for policyholders who used non-network hospitals and (ii) the cost savings realized by the Company were reported to state insurance rate-setting regulators, which had the potential to actually lower costs for all policyholders.