February 2024 Legal Intelligencer article by Lamb McErlane PC attorneys Vasilios J. Kalogredis, Esq. and Sonal Parekh, Esq.

The HHS Office of Inspector General (“OIG”) issued Advisory Opinion No. 23-10 (“Opinion”) on December 15, 2023 regarding a proposal to incentivize policyholders of a Medigap Plan, as described below, to seek inpatient care from a hospital within a preferred hospital organization’s (“PHO”) network (the “Proposed Arrangement”). Specifically, the “Requestor” (i.e., collectively, the Medigap Plan and PHO) inquired as to whether the Proposed Arrangement would warrant sanctions under Sections 1128A(a)(7), 1128A(a)(5), 1128(b)(7) of the Social Security Act (“SSA”), as they relate to the federal Anti-Kickback Statute[1] (“AKS”) and the Beneficiary Inducements civil monetary penalties (“CMP”).

The Opinion concludes that although the Proposed Arrangement, if undertaken, would generate prohibited remuneration under the AKS (if the requisite intent were present), as well as the Beneficiary Inducements CMP, the OIG would not impose administrative sanctions on the Medigap Plan or PHO.

Factual Background & Proposed Arrangement

The Medigap Plan is a licensed offeror of Medicare Supplemental Health Insurance policies. The Medigap Plan’s policies cover, without limitation, the Medicare Part A deductible that may be incurred by its Medigap policyholders (“Policyholders”) during an inpatient hospital stay. The Medigap Plan intends to take part in the Proposed Arrangement with the PHO, which contracts with hospitals throughout the U.S. (“Network Hospitals”).

Under the Proposed Arrangement, each Network Hospital[2] would provide an agreed-upon discount[3] on the Medicare Part A inpatient deductible that the Medigap Plan would usually cover for any Policyholder (the “Discount”). There would be no financial arrangement between the PHO and Network Hospitals, and nothing else of value would be provided to the Medigap Plan by the PHO or Network Hospitals.

Through the Proposed Arrangement, the Medigap Plan would offer a $100 premium credit (“Premium Credit”) to each Policyholder who selects a Network Hospital for a Medicare Part A-covered inpatient stay, subject to certain frequency limits. The Premium Credit would be applied to reduce the following premium payment due to the Medigap Plan after the Policyholder’s applicable inpatient stay.[4] Policyholders would be eligible to receive only one $100 Premium Credit per Medicare Part A benefit period[5].

The Proposed Arrangement would not affect the liability of any Policyholder for payment obligations stemming from Medicare Part A-covered inpatient services, whether it was provided by a Network Hospital or any other hospital. Additionally, the Policyholder would not be responsible for paying any part of the Part A inpatient deductible or subject to any financial penalty for not selecting a Network Hospital for such services. Information about the Network Hospitals and Premium Credits would be made available to Policyholders upon enrollment and through subsequent periodic mailings. The PHO certified that it would not, acting by itself or in conjunction with the Network Hospitals, advertise any aspect of the Proposed Arrangement to Policyholders or potential enrollees of the Medigap Plan.

Pursuant to an agreement between the PHO and Medigap Plan, the Medigap Plan would pay the PHO a monthly percentage-based administrative fee as compensation for establishing the hospital network and arranging for the Network hospitals to discount the Medicare Part A inpatient deductible. Specifically, the PHO would receive a percentage of the aggregate savings that the Medigap Plan would realize from the Network Hospitals’ Discounts on Policyholders’ Medicare Part A inpatient deductibles in a given month. This fee would vary by: (i) the number of Policyholder claims for which Network Hospitals provided a Discount on the deductible; and (ii) the amount of Discount provided by the Network Hospitals. Additionally, the fee would be consistent with fair market value and would not, in any way, be shifted to any Federal health care program.

The Law

Federal Anti-Kickback Statute

The AKS[6] 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… any item or service reimbursable under a Federal health care program.” The prohibition extends to remuneration to induce, or in return for, the purchasing, leasing, or ordering of, or arranging for or recommending the purchasing, leasing, or ordering of, any good, facility, service, or item reimbursable by a Federal health care program. Here, remuneration includes the transfer of anything of value. The statute applies to any arrangement where at least one purpose of the remuneration is to induce referrals for items or services reimbursable by a Federal health care program. Violations of the AKS constitute a felony punishable by a maximum fine of $100,000 and/or up to 10 years of jail time, as well as exclusion from Federal health care programs and potential imposition of fines by the OIG.

Beneficiary Inducements CMP

The Beneficiary Inducements CMP imposes CMPs against any person who offers or transfers remuneration (i.e., items or services for free or less than fair market value) 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 by such health care programs.

Legal Analysis

According to the OIG, the Proposed Arrangement would involve three streams of remuneration requiring legal analysis: (i) the Network Hospitals’ Discounts to the Medigap Plan on Policyholders’ Medicare Part A inpatient deductibles; (ii) the Premium Credit offered by the Medigap Plan to Policyholders; and (iii) the administrative fee paid by the Medigap Plan to the PHO. As discussed further below, the OIG ultimately found that, though it would not impose administrative sanctions under the Beneficiary Inducements CMP, the Proposed Arrangement poses a sufficiently low risk of fraud and abuse under the AKS for the OIG to issue a favorable advisory opinion.

1. Discount on Policyholders’ Deductibles and the Premium Credit

Both the Discount and Premium Credit would constitute remuneration to the Medigap Plan and Policyholders, respectively, and could influence the referrals of Federal health care program business. The Discount would be designed to induce the Medigap Plan to arrange for or recommend the provision of federally reimbursable items and services by the Network Hospitals on behalf of its Policyholders. The Premium Credit could influence: (i) potential enrollees to select the Medigap Plan; (ii) Policyholders to re-enroll in the Medigap Plan; and (iii) Policyholders to select a Network Hospital as their inpatient hospital provider. Accordingly, both the Discount and Premium Credit implicate the AKS. Because each of the applicable requirements are not met with the facts provided under the Proposed Arrangement, no safe harbor under the AKS would apply to the Discount or Premium Credit. Despite the aforementioned statements, the OIG determined the Discount and Premium Credit pose a minimal risk of fraud and abuse under the AKS for the reasons stated below.

First, the OIG reasoned that the Discount and Premium Credit would not likely result in overutilization of health care items or services or pose a risk of increased costs to Federal health care programs. It is in the Medigap Plan’s financial interest to ensure appropriate utilization and costs. Further, the Network Hospitals’ Discount would not affect Medicare Part A payments for inpatient care since Medicare payments are unaffected by beneficiary cost sharing. Likewise, the Premium Credit would not likely serve as an improper inducement to Policyholders to utilize inpatient care considering: (i) patients generally do not control whether they are admitted as an inpatient since this is a clinical decision; and (ii) the form of the Premium Credit (i.e., the Premium Credit would reduce the amount the Policyholder would owe the Medigap Plan rather than being an affirmative payment to the Policyholder).

Second, the potential for patient harm that may be posed by the Discount and Premium Credit would be minimal since it would apply to Policyholders universally. Additionally, patient choice would not be impacted as Policyholders could elect to receive care at a hospital that is not a Network Hospital without any increase in cost-sharing obligations or premiums by the Medigap Plan.

Last, the OIG determined that the remuneration would not likely significantly impact competition. The Proposed Arrangement would not be advertised to potential enrollees. Any potential for the Premium Credit to induce Policyholders to re-enroll in a policy offered by the Medigap Plan would be mitigated because Policyholders would receive the Premium Credit only if: (i) they required one or more inpatient stays in a policy year; and (ii) they selected a Network Hospital for their inpatient stays. The OIG further emphasized the fact that the Proposed Arrangement would not limit Policyholders’ choice of inpatient hospitals to the Network Hospitals. Additionally, any interested hospital that is eligible to join the PHO’s network would be able to as long as it met the applicable requirements.

The Premium Credit would also implicate the Beneficiary Inducements CMP since it could influence a Policyholder to select a Network Hospital for federally reimbursable items and services. However, for the aforementioned reasons, the OIG stated it would not impose administrative sanctions under the Beneficiary Inducements CMP in connection with the Medigap Plan’s offer of the Premium Credit to its Policyholders.

1. The PHO’s Administrative Fee

The administrative fee paid to the PHO under the Proposed Arrangement would implicate the AKS because such payment would be in exchange for the PHO arranging for the provision of federally reimbursable inpatient services furnished by its Network Hospitals to Policyholders at a reduced rate. No safe harbor would protect the administrative fee because the methodology for determining the PHO’s compensation would be determined in a manner that directly considers the volume or value of business otherwise generated between the parties for which payment may be made in whole or in part under Medicare.[7]

Notwithstanding the previous sentence, the OIG found that the Medigap Plan’s payment of the administrative fee to the PHO would be sufficiently low risk under the AKS for the OIG to issue a favorable advisory opinion. Specifically, the PHO’s administrative fee would be consistent with fair market value. Additionally, there is low risk that the methodology for calculating the administrative fee would drive overutilization of Federal health care items or services or result in increased costs to any Federal health care program. The OIG relied on the fact that: (i) the administrative fee, while tied to the volume or value of referrals between the Medigap Plan and Network Hospitals, ultimately reflects a percentage of the savings realized by the Medigap Plan, not revenue generated by the Network Hospitals; (ii) it would be contrary to the Medigap Plan’s financial interest to drive overutilization of inpatient hospital services paid for by Medicare Part A; (iii) the Medigap Plan certified that it would not pass on or otherwise shift the cost of the administrative fee to any Federal health care program; and (iv) the PHO certified that it would not advertise the Proposed Arrangement, thereby limiting the potential for the PHO or Network Hospitals to impact Policyholder referrals to the Network Hospitals and, therefore, the PHO’s administrative fee.

Conclusion and Limitations

The OIG concluded that although the Proposed Arrangement, if undertaken, would generate prohibited remuneration under the AKS (if the requisite intent were present), as well as the Beneficiary Inducements CMP, the OIG would not impose administrative sanctions on the Medigap Plan or the PHO under sections 1128A(a)(7) or 1128(b)(7) of the SSA.

It is important to note that the Opinion is limited in scope to the specific Proposed Arrangement and is not to be relied upon by any person other than the Requestor. While the Opinion may not be specifically relied upon for other arrangements, the reasoning stated therein is useful to keep in mind when considering different marketable avenues in which to provide products and services.

 

[1] See Section 1128B(b) of the SSA.

[2] The PHO certified that any accredited, Medicare-certified, hospital is eligible to become a Network Hospital if it: (i) meets the licensing and other requirements of applicable State law; and (ii) agrees to the Medicare Part A inpatient deductible costs on behalf of all licensed offerors of Medigap policies that contract with the PHO, including the Medigap Plan.

[3] The discount would be agreed to pursuant to an agreement between the Network Hospital and PHO, and separately documented in an agreement between the Medigap Plan and PHO. While the discount offered by a Network Hospital to the Medigap Plan could be as high as 100 percent, it would not be based on the volume of Policyholder claims.

[4] If the Policyholder has no future premium payment and cancels the policy, the Policyholder would be issued a check for the remaining balance of the premium credit.

[5] The benefit period would start on the first day on which a Medicare beneficiary is provided with inpatient hospital or extended care services by a hospital or skilled nursing facility (“SNF”), and ends after 60 consecutive days where the beneficiary was not an inpatient of a hospital or SNF. See Section 1861(a) of the SSA.

[6] 42 U.S.C. § 1320a-7b(b).

[7] See 42 C.F.R. § 1001.952(d)(1).

Read the article online on Law.com/Legal Intelligencer here.

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*This alert is for educational purposes only and is not intended to be legal advice. Should you require legal advice on this topic or have any questions or concerns, please contact Vasilios J. (Bill) Kalogredis, Esq. or Sonal Parekh, Esq.

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

Sonal Parekh, Esq., who contributed to this article, is a practicing attorney at Lamb McErlane PC who focuses on healthcare transactional matters and a broad range of healthcare regulatory-related issues on behalf of healthcare systems, physicians, dentists, and other healthcare providers, and is a pharmacist by education and training. Sonal can be reached by email at sparekh@lambmcerlane.com or by phone at 610-701-4416.