On Monday, October 21, 2014, the Office of the Inspector General of the U.S. Department of Health and Human Services (“OIG”) issued a favorable advisory opinion regarding the use of a “preferred hospital” network as part of the Medicare Supplemental Health Insurance (“Medigap”) policies. Under the arrangement, an insurer issuing Medigap policies would contract with hospitals for discounts on the otherwise-applicable Medicare inpatient deductibles for its policyholders and provide a premium credit of $100 off the next renewal premium to policyholders who used a network hospital for an inpatient stay (the “Proposed Arrangement”). The Proposed Arrangement would not affect the policyholder’s obligation to pay for covered services, whether provided by a within the preferred network or any other hospital.
Other key factors regarding the Proposed Arrangement include:
- the preferred hospital organization’s hospital network would be open to any accredited, Medicare-certified hospital and contractually agrees to discount all or a portion of the Part A deductible for policyholders; and
- the premium discount feature of the Medigap plans would be announced both in a letter and on the policyholder’s insurance card (these materials would make it clear that the use of the a hospital outside of the preferred network would have no effect on a policyholder’s liability for any costs covered under the plan, nor would the policyholder be penalized in any other way for the use of such a hospital).
In analyzing this arrangement under the Federal anti-kickback statute (the “AKS”), 42 U.S.C. § 1320a-7b(b), OIG recognized that the waiver of Medicare cost-sharing amounts could constitute prohibited remuneration under the AKS. In addition, the savings passed back to the policyholder in the form of premium credits could implicate both the AKS and the civil monetary penalty (“CMP”) prohibition on inducements to beneficiaries.
OIG found that the Proposed Arrangement would not qualify for protection under either the safe harbor waivers of beneficiary coinsurance and deductible amounts or the safe harbor for reduced premium amounts offered by health plans. OIG concluded, however, that the Proposed Arrangement would present a sufficiently low risk of fraud or abuse under the AKS because:
- neither the discounts nor the premium credits would increase or affect per service Medicare payments;
- the Proposed Arrangement would be unlikely to increase utilization;
- the Proposed Arrangement would likely not unfairly affect competition among hospitals;
- the Proposed Arrangement would be unlikely to affect professional medical judgment; and
- the Proposed Arrangement would operate transparently in that the insurance provider would make clear to policyholders that they have the freedom to choose any hospital without penalty or liability.
In addition, OIG found that the exception to the definition of remuneration under the beneficiary inducement CMP for differentials in coinsurance and deductible amounts as part of a benefit plan would apply. OIG reasoned that, although the premium credits technically are not a differential in a coinsurance or deductible amount, they would have substantially the same purpose and effect, and therefore fall under the exception. OIG also determined that the Proposed Arrangement has the potential to lower costs by decreasing Medigap obligations for policyholders who select in-network hospitals, without increasing costs to those who do not. Further, the Proposed Arrangement could result in lower costs for all policyholders because the savings realized from the Proposed Arrangement would be reported to the state insurance rate-setting regulators.