OIG: Use Of “Preferred Hospital Network” With Medigap Policies Would Not Draw Sanctions

Posted On Tuesday, March 22, 2016
By: John A. Schwab

On Friday, HHS-OIG issued an advisory opinion (No. 16-3) regarding the use of a “preferred hospital network” as part of Medicare Supplemental Health Insurance (“Medigap”) policies.  At issue in the requested opinion was a proposed arrangement for two insurance companies (owned by the same parent) to indirectly contract with hospitals for discounts on Medicare inpatient deductibles for their policyholders. OIG determined that the proposed arrangement would not constitute grounds for sanctions under the civil monetary penalty provision of the Social Security Act, and that the arrangement would not provide a basis for sanctions under the Federal Anti-Kickback Statute.

The insurers making the request indicated that they planned to start offering Medigap policies in several states.  As part of that plan, they proposed to participate in an arrangement with a preferred hospital organization (“PHO”) that has contracts with hospitals throughout the country (“network hospitals”).  Under the proposal, the network hospitals would provide discounts of up to 100% on Medicare inpatient deductibles incurred by the insurers’ Medigap policyholders that otherwise would be covered by the insurers.  Each time the insurers received this discount from a network hospital, the insurers would pay the PHO a fee for administrative services.  If a policyholder were to be admitted to a hospital other than a network hospital, the insurers would pay the full Part A hospital deductible, as provided under the applicable Medigap plan.  The insurers indicated that they would return a portion of the savings resulting from the proposed arrangement by issuing a $100 premium credit directly to any policyholder who has an inpatient stay at a network hospital.  

OIG ultimately concluded that, although the proposed arrangement could potentially generate prohibited remuneration under the Anti-Kickback Statute if the requisite intent to induce referrals were present, the OIG would not impose administrative sanctions.  Moreover, although the OIG did not find that the proposed arrangement qualified for “safe harbor” protection, it did find that the proposed arrangement presented a sufficiently low risk of fraud or abuse under the anti-kickback statute.  Specifically, it noted that neither the discounts nor premium credits would increase or affect per-service Medicare payments.  It also found, among other things, that the proposed arrangements would operate transparently, and would be unlikely to increase utilization, affect competition or impact professional medical judgment.

OIG also found a sufficiently low risk of fraud or abuse under its civil monetary penalty analysis.  Based on that and the totality of facts and circumstances that it reviewed, it found that it would not impose administrative sanctions.

A complete copy of the advisory opinion can be found here.