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Not Everything is a Kickback OIG Advisory Opinion 17-06

On November 16, 2017, the Office of Inspector General (OIG) posted Advisory Opinion 17-06 discussing whether a Medicare Supplemental Health Insurance (Medigap) provider could (1) indirectly contract with a preferred hospital network to discount or eliminate Medicare Part A deductibles for its policyholders, and (2) provide policyholders with a $100 premium credit for obtaining Medicare Part A services from a provider within the preferred hospital's network without triggering sanctions or violating the Federal anti-kickback statute.

Proposed Arrangement

A Medigap insurer proposed to enter into an agreement with a preferred hospital network (PHN), which has multiple locations throughout a county. Under the agreement, the PHN hospitals would provide discounts, up to 100 percent, on Medicare Part A deductibles incurred by the insurer's Medigap policyholders (Policyholders) that would otherwise be paid by the insurer. The PHN would not provide any additional benefits to the insurer or Policyholders. However, each time the insurer received a discount from the PHN, the insurer would have to pay the PHN an administrative services fee.

Policyholders were not required to obtain Part A services from only PHN hospitals. If Policyholders received Part A services from a hospital outside of the PHN, the insurer would pay the full Part A deductible to the hospital. The PHN was open to any accredited, Medicare-certified hospital meeting the requirements of applicable state laws and agreeing to discount all or a portion of the Part A deductible for Policyholders. The insurer certified that Policyholders' physicians and surgeons would not receive any remuneration under the agreement in return for referring patients to PHN hospitals.

As a part of the proposed arrangement, the insurer would pass some of the savings resulting from the discounted Part A deductibles to its Policyholders in the form of a $100 credit towards their next renewal premium (Premium Credit). Additionally, the insurer certified that it would provide Policyholders with written notice that using non-network hospitals would have no effect on Policyholders' liability for any costs covered under their Medigap plan, nor would they be otherwise penalized in any way for choosing to obtain services from hospitals outside of the PHN. Finally, any savings realized by the insurer would be reported in the insurer's annual experience exhibits filed with the applicable state insurance department. Thus, the savings realized under the agreement would be considered when the state insurance department reviewed and approved Medigap premium rates.

OIG Analysis

The OIG indicated that both the discounted deductibles and the Premium Credit raised potential anti-kickback and civil monetary penalty concerns. Specifically, the discounted deductibles could constitute a waiver of Medicare cost-sharing amounts, resulting in a prohibited remuneration, and the Premium Credit could constitute a prohibited inducement of beneficiaries and a prohibited remuneration for selecting a PHN hospital. However, the OIG ultimately concluded that neither the discounted deductibles nor the Premium Credit violated the anti-kickback statute nor the civil monetary penalties law.

The OIG noted that while the proposed arrangement raised anti-kickback concerns and did not qualify for any safe harbor protection, the proposed arrangement "present[ed] a sufficiently low risk of fraud or abuse under the anti-kickback statute" for five reasons:

(1) Neither the discounted deductibles nor the Premium Credit would "increase or affect per-service Medicare payments;"
(2) it was unlikely that the proposed arrangement would increase utilization, noting that the discounts would "effectively be invisible to Policyholders" and OIG has "long held that waiver of fees for inpatient services is unlikely to result in significant increases in utilization;"
(3) the proposed arrangement would not lead to unfair competition among hospitals because all hospitals were eligible for membership in the PHN so long as they were accredited and Medicare-certified hospitals;
(4) it was unlikely to affect professional medical judgment because physicians and surgeons would not receive any type of remuneration; and
(5) the proposed arrangement would operate transparently as the insurer certified that it would provide Policyholders with written notice informing Policyholders of their freedom to choose any hospital to receive Part A services without incurring any penalty or liability.

Similarly, the OIG concluded the Premium Credit did not constitute a prohibited inducement because it qualified under the exception for differentials in coinsurance and deductible amounts as part of a benefit plan design." This exception permits benefit plan designs under which members enrolled in the plan pay different cost-sharing amounts according to whether they use in-network or out-of-network providers. Also, while the OIG recognized the Premium Credit is not identical to a differential in coinsurance or deductible amount, the purpose and effect was substantially the same as a differential. Thus, the OIG concluded that "the [P]remium [C]redit would present a sufficiently low risk of fraud or abuse under the prohibition on inducements to beneficiaries."

Conclusion and Takeaways

This advisory opinion is important because it sheds light on the variable OIG considers when evaluating whether arrangements violate the anti-kickback statute or the civil monetary penalties law. The advisory opinion serves as a helpful reminder that not every mutually beneficial business arrangement violates anti-kickback or prohibited inducement concerns, provided that appropriate safeguards are implemented (i.e., transparent disclosure of Policyholders' rights). Finally, while advisory opinions are fact specific only binding as to the requesting party, they may serve as guidance or a starting point for other providers contemplating entering into similar arrangements.


Sean T. Nakamoto

1700 Farnam Street | Suite 1500 | Omaha, NE 68102 | 402.344.0500