8-31-21, Legal Intelligencer article by Lamb McErlane PC Health Law partner Vasilios J. Kalogredis*.

On July 14, 2021, the Office of Inspector General for the United States Department of Health and Human Services (“OIG”) issued Advisory Opinion 21-09 approving an arrangement between a private licensed offeror of Medicare Supplemental Health Insurance policies (“Medigap”) and a preferred hospital organization (“PHO”).

The Proposal

Under the proposed arrangement, the PHO contracts with hospitals to form a network.  Each network hospital makes an agreement in writing with the PHO to discount the Medicare Part A inpatient deductibles payable by the Medigap Plan.  Accredited, Medicare certified, hospitals which satisfy licensing requirements, state laws, and agree to discount Medigap’s Medicare Part A deductible costs can join the network.  Each network hospital’s discount on the Medicare Part A inpatient deductible would be applied uniformly to all policyholders for a term of at least one year.

Medigap Plan credits $100 to each of their policyholders’ premiums when they use a network hospital for a Medicare Part A-covered inpatient stay. If a policyholder’s premium is less than $100, the credit is applied to the current premium and the balance is applied to the next premium.  A check is issued for the balance if there are no future payments.  Policyholders can only receive one credit during each Medicare Part A benefit period and up to five credits per year.  The benefit period begins on the first inpatient day and ends when the beneficiary is not an inpatient for 60 consecutive days. There are no penalties if a policyholder chooses an out-of-network hospital for Medicare Part A inpatient care.

Neither Medigap Plan nor the PHO will advertise the plan to potential policyholders. However, enrollees will receive information about network hospitals and the premium credit at enrollment and through mailings after enrollment.  The information will explain that policyholders can choose out-of-network hospitals without penalty.

Medigap Plan will pay the PHO a monthly administrative fee in exchange for the PHO establishing the hospital network and discount arrangements with individual hospitals.  The fee will be a percentage of Medigap Plan’s aggregate savings from the network hospital’s discounts, consistent with fair market value, with no costs passed on or shifted to any Federal health care program.

OIG’s Analysis

OIG explained the proposal includes three different streams of remuneration: first, discounts from the network hospitals to Medigap Plan for their policyholders’ Medicare Part A inpatient deductibles; second, the premium credit from Medigap Plan to their policyholders; and third, the administrative fee paid by Medigap Plan to the PHO.  All three implicate the Federal anti-kickback statute (“AKS”) and the second also implicates the Beneficiary Inducements Civil Monetary Penalties (“CMP”).

The AKS “makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce, or in return for, the referral of an individual to a person for the furnishing of, or arranging for the furnishing of any item or service reimbursable under a Federal health care program.”  “’Remuneration’ includes the transfer of anything of value, directly or indirectly, overtly or covertly, in cash or in kind.”

CMPs are imposed on any person who “offers or transfers remuneration to a Medicare or State health care program beneficiary that the person knows or should know is likely to influence the beneficiary’s selection of a particular provider, practitioner, or supplier for the order or receipt of any item or service for which payment may be made, in whole or in part, by Medicare or a State health care program.” “Remuneration” includes “transfers of items or services for free or for other than fair market value.”

The discount received by Medigap Plan and the premium credit are both considered remuneration and implicate AKS.  The discount induces Medigap Plan to recommend its policyholders use network hospitals for federally reimbursable items or services. The credit may induce potential policyholders to select the Medigap Plan and induce current policyholders to re-enroll and use network hospitals. No safe-harbors apply to the discount or the credit. However, OIG explained that the discounts and credits only “pose a minimal risk of fraud and abuse under the Federal anti-kickback statute.”

First, increased Federal Health care program costs or overutilization of heath care items or services is unlikely. Medigap Plan is not likely to encourage its policyholders to over-utilize health care items or services because as the payor, Medigap Plan’s costs would increase.  The Medigap Plan would have financial responsibility for all policyholder costs covered by its policies.  Therefore, it is generally in Medigap Plan’s financial interest to ensure appropriate utilization and costs.  Additionally, inpatient admittance is a clinical decision not a patient decision.  Finally, the credit is not an affirmative payment like a “deposit into the policyholder’s bank account,” it reduces the amount a policyholder owes.

Second, the potential for patient harm is minimal because the discounts have no discretionary eligibility requirements; they apply universally to all policyholders. Additionally, policyholders can still choose a non-network hospital and receive no increase in premium amounts or cost-sharing.

Third, the discounts and credits are not likely to significantly impact competition.  Neither the PHO nor Medigap Plan will advertise the proposed arrangement to potential enrollees.  While there is a risk that the credits will induce policyholders to re-enroll, the risk is mitigated because a credit is only received if the policyholder uses a network hospital for at least one inpatient stay per year.  The Plan’s effect on inpatient provider competition is also minimized. Policyholders have no limit on their choice of hospitals.  They can choose an out-of-network hospital with no financial penalty or impact on their Part A deductible.  Finally, non-network hospitals can become part of the network if they are licensed, Medicare-certified, meet state law requirements and agree to discount Medicare Part A inpatient deductible costs.

The premium credit also implicates the Beneficiary Inducements CMP.  The credit could “influence a policyholder to select a network hospital for federally reimbursable items and services.”  No CMP exceptions apply.  However, OIG stated that they would not impose sanctions for the same reasons as above.

Medigap Plan’s undertaking to pay administrative fees to the PHO implicates the AKS. The fees are given by Medigap in exchange for the PHO arranging their hospital network to provide federally reimbursable inpatient services to Medigap Plan’s policyholders at a reduced rate to Medigap Plan.  No safe-harbor protects the fees because they are determined “in a manner that directly takes into account the volume or value of business . . . between the parties for which payment may be made in whole or in part under Medicare.”

OIG decided “based on the totality of the facts and circumstances” the administrative fee is a sufficiently low risk under the AKS.  First, the fee will be consistent with fair market value.  Next, the risk of the fee causing overutilization of Federal health care items or services, or resulting in increased costs to Federal health care programs is low.  The fee is a percentage of Medigap Plan’s savings and not revenue generated by the network hospitals.  Medigap Plan is responsible financially so overutilization is against their financial interests, and Medigap Plan will not “pass on or otherwise shift the costs.”  Finally, the proposal will not be advertised, which limits the impact the PHO and their network hospitals will have on policyholder referrals to network hospitals, and the PHO’s administrative fees.

Conclusion

Even though the proposal includes remuneration prohibited under the AKS (if the requisite intent is present), the proposed arrangement has a “sufficiently low risk of fraud and abuse.” Additionally, OIG will “not impose administrative sanctions under the Beneficiary Inducements CMP in connection w/the Proposed Arrangement.”

As always, OIG advisory opinions only apply to the specific parties that requested the opinion and only the requesting parties can rely on this opinion.

Click here to read the article in the Legal Intelligencer.

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Vasilios J. (Bill) Kalogredis, Esq. has been exclusively advising physicians, dentists, and other health care professionals and their businesses as to contractual, regulatory, transactional and other matters for over 45 years. He is Chairman of Lamb McErlane PC’s Health Law Department. bkalogredis@lambmcerlane.com. 610-701-4402.

*Lamb McErlane PC Summer Associate Terisa Shoremount contributed to this article. Terisa is a third-year J.D. candidate at Widener University Delaware Law School.

 

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