Issued July 14, 2011, and posted July 21, 2011
Written by Joe Kahn, Reviewed by Catherine Martin*
On July 14, 2011, the Department of Health and Human Services Office of Inspector General (OIG) issued Advisory Opinion 11-09, a favorable opinion relating to the use of a preferred hospital network by Medigap insurers and the sharing of savings resulting from the use of such network with policy beneficiaries (Proposed Arrangement). Consistent with prior favorable opinions addressing this topic (such as Advisory Opinions 08-13, 10-01, 10-02, 10-03, and 10-21), OIG concluded that the Proposed Arrangement does not constitute grounds for the imposition of civil monetary penalties, and that it would not impose administrative sanctions in connection with the Anti-Kickback Statute (AKS) with respect to the Proposed Arrangement.
The advisory opinion requestors (Requestors) are each licensed as an offeror of Medicare Supplemental Health Insurance (Medigap) policies. Under the Proposed Arrangement, the Requestors would participate in an arrangement with a preferred provider organization (PPO) through which the Requestors would achieve discounts on the services provided by hospitals comprising the PPO's network. Specifically, the Requestors would receive up to a 100% discount on the Medicare inpatient deductibles for which the Requestors would otherwise be responsible for paying under the Medigap policies. The hospitals would provide no other benefits to the Requestors or policyholders. If a policyholder was admitted to a non-network hospital, the Requestor would pay the full deductible as required by the policy. PPO hospital network would be open to any accredited, Medicare-certified hospital meeting state law requirements.
Under the Proposed Arrangement, the Requestors would provide policyholders utilizing a network hospital with a $100 premium credit. This credit opportunity would be disclosed in the plan materials, which would also include a list of the participating PPO hospitals. Additionally, the Requestors would identify the savings realized under the Proposed Arrangement in the reports filed with the state insurance departments responsible for regulating premium rates charged by Medigap insurers.
In reviewing the Proposed Arrangement, OIG noted that while neither offered protection for the Proposed Arrangement, the safe harbor for waivers of beneficiary coinsurance and deductible amounts for reduced premium amounts offered by health plans, at least have analogous applicability to the facts involved.
After noting that the Proposed Arrangement implicates both the civil monetary penalty (CMP) provisions and AKS, OIG then analyzed both components of the Proposed Arrangement:
Discounts on Inpatient Deductibles
OIG found that the risk that the proposed discounts on inpatient deductibles provided by network hospitals represented a low risk of fraud or abuse for the following reasons:
The waivers would not affect per service Medicare payments, which are fixed under Part A.
The discounts would be effectively invisible to patients, and therefore should not impact utilization.
Competition should not be affected, because of the open network feature.
Professional judgment should not be affected, because the physicians receive no remuneration and patients are free to choose their hospital without incurring any additional expense based on their choice.
With respect to the premium credits to be offered to beneficiaries by the Requestors, OIG held that the same AKS analysis also applies to the premium credit component of the Proposed Arrangement. In addition—with respect to the CMP analysis of the premium credit feature—OIG reasoned that the premium credits would have substantially the same purpose and effect would be the case under an arrangement which included a differential in a coinsurance or deductible amount as part of a benefit plan design, which would be permitted under the CMP laws. Consequently, OIG found the feature to represent a low risk of fraud and abuse.
Finally, OIG found that the Proposed Arrangement had the potential to lower Medigap costs, as well as to result in lower rates charged to policyholders.
*The Practice Group Leadership would like to thank Advisory Opinions Task Force members Joseph Kahn, Esquire (Nexsen Pruet PLLC, Raleigh, NC) and Catherine Martin, Esquire (Adelman Sheff & Smith LLC, Annapolis, MD), for respectively writing and reviewing this summary.