OIG Advisory Opinion on Hospital Incentives

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The Office of Inspector General (“OIG”) issued an advisory opinion regarding a proposed arrangement between a licensed offeror of Medicare Supplemental Health Insurance (“Medigap”) policies (the “Medigap Plan”), and a preferred hospital organization (“PHO”), to incentivize the Medigap Plan policyholders to seek inpatient care from a hospital within the PHO’s network (the “Proposed Arrangement”). 

Under the Proposed Arrangement between the PHO and Medigap Plan, each Network Hospital affiliated with the PHO (the “Network Hospitals”) would provide a discount on the Medicare Part A inpatient deductibles that the Medigap Plan otherwise would cover for any Policyholder. The PHO and the Medicap Plan would enter into a written agreement in advance with respect to the PHO establishing the hospital network and arranging for the discounts from the Network Hospitals which would include a fair market value percentage administrative fee based on a percentage of the savings the Medigap Plan would experience per month as a result of the discounts being offered by the Network Hospitals. Furthermore, the Medigap Plan would offer a $100 premium credit to each Policyholder who selects a Network Hospital for a Medicare Part A-covered inpatient stay, subject to certain limitations. 

The OIG concluded that although the Proposed Arrangement would result in the payment of prohibited remuneration under the federal Anti-Kickback Statute, the OIG would not impose sanctions or adverse enforcement action against the PHO or Medigap Plan under the federal Anti-Kickback Statue or the Civil Monetary Penalty Law provision prohibiting inducements to beneficiaries (the “Beneficiary Inducements CMP”).

The federal anti-kickback statute 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, including 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.

The Beneficiary Inducements CMP provides for the imposition of civil monetary penalties against any person who offers or transfers remuneration to a Medicare or Stat 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. 

Violations of these statutes, in addition to substantial fines and imprisonment, could also result in the exclusion of providers from federal health care programs. 

Although this Proposed Arrangement would clearly constitute prohibited remuneration under the federal Anti-Kickback Statute and the Beneficiary Inducement CMP, the OIG found that:

  1. It is unlikely that these two streams of remuneration would result in overutilization of health care items or services or pose a risk of increased costs to federal health care programs.
  2. It is unlikely the premium credit would serve as an improper inducement to Policyholders to utilize inpatient care considering: (i) that, as the Medigap Plan represented, patients generally do not control whether they are admitted as an inpatient because this is a clinical decision; and (ii) the form of the premium credit.
  3. The potential for patient harm that may be posed by the Network Hospitals’ discounts on Policyholders’ Medicare Part A inpatient deductibles and the Medigap Plan’s offer of a premium credit is minimal; and
  4. These two streams of remuneration would be unlikely to significantly impact competition.

Accordingly, based on the facts of this specific Proposed Arrangement, the OIG determined that there is a sufficiently low risk of fraud and abuse under the federal anti-kickback statute, and thus the OIG would not impose administrative sanctions under the Beneficiary Inducements CMP in connection with the Proposed Arrangement.