Summary of OIG Advisory Opinion 09-10 

On July 24, 2009, the Department of Health and Human Services Office of Inspector General (OIG) issued Advisory Opinion 09-10 , favorably addressing the use of a "preferred hospital" network by Medicare Supplemental Health Insurance (Medigap) insurers in order to obtain discounts on otherwise applicable Medicare inpatient deductibles for the insurers' policyholders (Proposed Arrangement). OIG found that the Proposed Arrangement (i) would not constitute grounds for the imposition of civil monetary penalties (CMP) under 42 U.S.C. 1320a-7a, and
(ii) could implicate the anti-kickback statute, but would not result in civil monetary penalties or administrative sanctions under 42 U.S.C. 1320a-7b.

The requestors of Opinion 09-10 are insurers licensed to provide Medigap policies in forty-five or more states throughout the country (Requestors). The Requestors propose to participate in an arrangement with one or more preferred provider organizations (PPOs) with contractual networks of hospitals throughout the country. Under the PPO contracts, the network hospitals would provide up to 100% discounts to the Requestors' Medigap policyholders on their Medicare inpatient deductibles, for which the Requestors' would otherwise be responsible under the Medigap policies. The discounts would only apply to the Part A in-patient hospital deductibles. The hospitals would provide no other benefits to the policyholders or Requestors. If the policyholder is treated at a non-network hospital, the Requestors would pay the full deductible on behalf of the policyholder, per the terms of the Medigap policy. The Requestors would pay a fee to the PPO for administrative services each time one of the Requestor's insureds received a discount.

Also as part of the Proposed Arrangement, the Requestors would return a portion of the savings achieved from the discounts directly to the policyholders in the form of $100 credits against their next renewal premiums. This feature will be included in all marketing and plan materials provided to insureds. The Requestors will also report the savings realized under the Proposed Arrangement in their filings with the state insurance agencies regulating the Medigap premium rates.

In its analysis, OIG looked first at the deductible discount provided by the network hospitals and then at the premium credit provided by the Requestors. The OIG noted that the reduced premium safe harbor would not provide protection to the Proposed Arrangement because of the fact that the discount is not available to new enrollees (and therefore is not offered to all enrollees as required under the safe harbor).

With respect to the deductible discount, OIG found the discounts constitute a waiver of a Medicare cost-sharing amount, and noted that the safe harbor for waivers of inpatient deductibles specifically excludes waivers that are part of an agreement with an insurer. Nevertheless, OIG found the discounts to present a low risk of fraud or abuse for the following reasons:

1. The waivers will not increase or affect per service Medicare payments;
   
   
2. The discounts should not increase utilization;
   
   
3. Competition among hospitals should not be unfairly affected; and
   
   
4. Professional medical judgment is unlikely to be affected.

For the same reasons set forth above, OIG also found the premium credits to present a low risk of fraud or abuse. OIG noted, though, that the premium credits also implicate the prohibition on inducements to beneficiaries. OIG found, however, that the statutory exception for differentials in co-insurance and deductible amounts as part of a benefit plan design likely applies. Although technically not a differential, OIG noted that the premium credit would have substantially the same effect.

Finally, OIG found that the Proposed Arrangement, taken as a whole, has the potential to lower Medigap costs for Requestor's policyholders using network hospitals, and could result in lower premiums for all policyholders as a result of the savings the Requestors report to the state insurance rate-setting regulators. Based on the "totality of facts and circumstances," the OIG found that it would not impose administrative sanctions on the Requestors as a result of the Proposed Arrangement.

*The Fraud and Abuse Practice Group Leadership would like to thank Advisory Opinions Task Force members Joseph Kahn, Esquire (Nexsen Pruet PLLC, Greensboro, NC), and Catherine A. Martin, Esquire (Adelman Sheff & Smith LLC, Annapolis, MD), for drafting and reviewing this summary, respectively.