The OIG released an advisory opinion April 29th stating that a Medigap plan would not face administrative sanctions for discounting up to 100% of policyholders’ inpatient deductibles at network hospitals for which it otherwise would be liable and then passing on a part of those savings to policyholders in the form of premium credits.

Under the proposed arrangement, the Medigap plan would contract with a preferred provider organization’s  (“PPO”) network of hospitals to provide  discounts of up to 100% on the otherwise-applicable Medicare inpatient deductibles for its policyholders and then provide a premium credit of $100 off the next renewal premium to policyholders who use the PPO’s network hospital for an inpatient stay. The Medigap plan would continue to pay full deductibles when policyholders were admitted to non-network hospitals, and the arrangement would not affect policyholders’ payment liability for any covered costs under the plan. 

The OIG advised that, although the proposed arrangement would generate potentially prohibited remuneration under the anti-kickback statute and constitute inducement to federal healthcare beneficiaries under the Civil Monetary Penalties (CMP) law, the OIG would not impose administrative sanctions for the arrangement because it posed a low risk of fraud and abuse.  

The OIG gave five rationales for its decision related to the anti-kickback statute analysis:

  1. The discounts and premium credits contemplated under the arrangement would not increase or affect per-service Medicare payments, because, with very few exceptions, inpatient services are fixed.
  2. The proposed arrangement would be unlikely to increase utilization, particularly because the discounts would only apply to the portion of the policyholder’s cost-sharing obligations that the Medigap plan would otherwise cover.
  3. Competition among hospitals should not be unfairly affected by the proposed arrangement because membership in the contracting PPO’s hospital network would be open to any accredited, Medicare-certified hospital that meets the requirements of applicable state laws.
  4. Because physicians would receive no remuneration for referring a policyholder to a network hospital, the proposed arrangement would be unlikely to affect professional medical judgment.
  5. The Medigap plan certified that it would make clear to policyholders that they have the freedom to choose any hospital without incurring additional out-of-pocket expenses or any penalties.

With regard to the CMP law governing beneficiary inducements, the OIG explained that under this arrangement the potential to lower Medigap  plan costs for policyholders who select network hospitals would not increase costs for those who did not, and because the savings realized from this arrangement would be reported to state insurance rate-setting regulators, the arrangement would potentially lower costs for all policyholders.

The OIG’s analysis was consistent with March 2, 2015 advisory opinion addressing a similar proposed arrangement whereby Medigap enrollees would receive discounts of up to 100% on their Medicare inpatient deductible from the hospital network.

*Savannah Wiseman is admitted only in Texas. Practice supervised by principals of the firm admitted in the District of Columbia.