Hall Render Killian Heath and Lyman : Health Law Is Our Business

March 12, 2010

OIG Issues First Advisory Opinions of 2010

Executive Summary

On February 23, 2010, the Department of Health and Human Services Office of the Inspector General ("OIG") posted its first three advisory opinions ("AO") of the year. In AO No. 10-01, AO No. 10-02 and AO No. 10-03, offerors of Medicare Supplemental Health Insurance policies ("Medigap Insurers") asked the OIG whether they violate the Anti-kickback Statue ("AKS") and the Civil Monetary Penalties Law ("CMPL") when they indirectly contract with hospitals for discounts on otherwise applicable Medicare inpatient deductibles for their policyholders, and also share a portion of the savings with such policyholders who utilize a "network" hospital for inpatient stays (the "Arrangements").

In all three opinions, the OIG found that the Arrangements do not violate the CMPL prohibition on offering inducements to Medicare and Medicaid beneficiaries. Further, while the Arrangements could potentially generate prohibited remuneration under the AKS if the requisite intent to induce referral of federal health care program business were present, the OIG would decline to impose administrative sanctions against the Medigap Insurers because the Arrangements present a low risk of fraud and abuse and promote substantial savings for beneficiaries.

Facts

The facts of all three AOs are virtually the same. Each of the three Medigap Insurers requesting advisory opinions participates in an arrangement with a managed care organization ("MCO") that has contracts with hospitals comprising the MCO's hospital network. Under the contracts, network hospitals provide discounts of up to 100% on Medicare Part A inpatient deductibles ("Discount") that would otherwise be paid under the terms of the respective Medigap policies. If a policyholder is admitted to a network hospital, the Medigap Insurer, on behalf of the policyholder, receives the Discount from the hospital and pays a fee for "administrative services". If a policyholder is admitted to a non-network hospital, the Medigap Insurer pays for the Part A inpatient deductible under the terms of the applicable Medigap policy. Any accredited Medicare-certified hospital is eligible to join the MCO hospital network.

In each case where the Medigap Insurer receives the Discount, it shares a portion of the resultant savings with the policyholder. In AO No. 10-01, the Medigap Insurer issues a premium credit in the form of a $100 check to any individual who has been admitted to a network hospital and has been insured under the Medigap policy for at least three months. In AO No. 10-02, the Medigap Insurer issues to any individual who has been admitted to a network hospital, a $100 credit in the form of a certificate which may be redeemed against the policyholder's next premium payment or, in the case of death, may be paid to the family or estate as a refund of the policyholder's intended renewal premium. In AO No. 10-03, the Medigap Insurer issues to any individual who has been admitted to a network hospital a $100 credit in the form of a certificate toward the policyholder's next premium payment and if premiums are paid by automatic bank draft, $100 is automatically deducted from the next premium statement.

In all three Arrangements, the Medigap Insurers report to state insurance departments the savings resulting from the Discounts, and these savings are considered in rate-setting.

Analysis

In considering the three Arrangements, the OIG determined that the Discounts implicate the AKS which makes it a felony for any person to knowingly and willfully offer, pay, solicit or receive any remuneration of any type to induce or reward referrals of items and services payable, in whole or in part, under a federal health care program. A potentially applicable "safe harbor" for "waiver[s] of beneficiary coinsurance and deductible amounts" set forth at 42 C.F.R. 1001.952(k) offers no protection because this safe harbor excludes waivers when they are part of an agreement with an insurer such as the Medigap Insurers. Notwithstanding, the OIG took the position that the Discounts present "a low risk of fraud and abuse" for the following reasons:

the waivers do not increase or affect per service Medicare payments because payments to hospitals for inpatient services are fixed and unaffected by beneficiary cost-sharing;
the Discounts do not increase utilization; the Medicare beneficiary's deductible would otherwise be covered under the Medigap policy even without the Discount;
the Arrangement does not unfairly affect competition amongst hospitals since all accredited and certified hospitals are eligible to join the MCO network;
the Arrangement is not likely to affect "professional medical judgment" of physicians since they receive no remuneration and policyholders can choose any hospital (in- or out-of-network) without incurring the cost of paying the inpatient deductible.

The OIG also found that the Arrangements implicate the AKS to the extent policyholders receive the premium credit described above. The potentially applicable AKS safe harbor for "reduced premium amounts offered by health plans" at 42 C.F.R. 1001.952(l) cannot be met because that safe harbor requires that the reduced premium be offered to all enrollees and in the Arrangements, the reduced premium is offered only to those policyholders who choose inpatient admissions at network hospitals.

Again, the OIG found that the premium credit aspect of the Arrangements poses a low risk of fraud and abuse for all the reasons stated above.

The OIG analyzed the premium credits under the CMPL which provides for "the imposition of civil monetary penalties against any person who gives something of value to a Medicare or [Medicaid] beneficiary that the benefactor knows or should know is likely to influence the beneficiary's selection of a particular provider, practitioner, or supplier of any item or service for which payment may be made, in whole or in part, by Medicare or [Medicaid]". The premium credit is given to those that choose a network hospital, thus the CMPL is implicated.

The OIG disposed of the CMPL issue by analogizing the premium credit to a "differential in a coinsurance or deductible amount as part of a benefit plan design" for which there is a statutory exception under the Social Security Act. The exception permits benefit plan designs under which enrollees pay different cost-sharing amounts depending on whether they use network or non-network providers.

Finally, since the Arrangements have the effect of lowering Medigap costs for policyholders who select network hospitals, and for all policyholders to the extent the Medigap Insurers report their savings to state insurance departments that regulate rates, the OIG declined to impose administrative sanctions on the Medigap Insurers.

Conclusion

As is the case with any AO, only the party requesting the opinion can rely on a favorable opinion for protection against the imposition of penalties and sanctions by the OIG. Nonetheless, the AOs discussed here provide helpful guidance for Medigap Insurers and for hospitals desiring to join MCO networks.

Should you have any questions, please do not hesitate to contact Adele Merenstein at 317-752-4427 or your regular Hall Render attorney at 317-633-4884.