Health Law Daily Medigap policy offeror’s proposal to discount inpatient deductibles cleared
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Monday, November 7, 2016

Medigap policy offeror’s proposal to discount inpatient deductibles cleared

By Susan Smith, J.D., M.A.

The HHS Office of Inspector General (OIG) would not impose administrative sanctions on a proposed arrangement by a licensed offeror of Medicare Supplemental Health Insurance ("Medigap") policies for the use of a "preferred hospital" network that would provide discounts on inpatient deductibles and premium credits for policyholders. Under the proposal, an insurance company would indirectly contract with hospitals for discounts on inpatient deductibles for its policyholders and would provide a premium credit of $100 to Medigap plan policyholders who use a network hospital for an inpatient stay (OIG Advisory Opinion, No. 16-11, November 3, 2016.).

Although the OIG found that the premium credits would implicate the anti-kickback statute (AKS) (Social Security Act sec. 1128B(b)) and the civil money penalty (CMP) prohibition on inducements to beneficiaries (Social Security Act sec. 1128A(a)(5)), based on the facts presented, the OIG would not impose administrative sanctions because the discounts offered on inpatient deductibles and premium credits present a sufficiently low risk of fraud or abuse under the AKS and the prohibition on inducements to beneficiaries in connection with the proposed arrangement.

The proposed arrangement. The proposal involves the use of a preferred hospital organization (PHO), which has contracts with hospitals throughout the country (Network Hospitals). Network Hospitals would provide discounts of up to 100 percent on Medicare inpatient deductibles incurred by policyholders that otherwise would be covered by insurers. The discounts would not apply to any other cost-sharing amounts. The Medigap policy offeror would pay the PHO a fee for administrative services for each discount received. A portion of the savings resulting from the proposed arrangement would go directly to any policyholder who has an inpatient stay at a Network Hospital in the form of a $100 credit off the policyholder’s next renewal premium.

Policyholders would receive notification in an initial letter, a program identification card indicating participation of the plan in the network, and information biannually regarding the participation of Network Hospitals. In addition, policyholders would receive written notice that (1) use of a non-network hospital would have no effect on a policyholder’s liability for any costs covered under the plan and (2) the policyholder would not be penalized in any other way for the use of a non-network hospital.

Savings realized from the proposed arrangement would be taken into account when state insurance departments review and approve the rates because such savings would be reflected in the Medigap policy offeror’s annual experience exhibits (which reflect loss ratios) filed with the various state insurance departments that regulate the premium rates charged by Medigap insurers.

OIG’s AKS analysis. The OIG concluded that neither the discounts nor the premium credits would increase or affect per-service Medicare payments. Further, the OIG found that the proposal (1) would be unlikely to increase utilization because the discount only applies to the portion of the policyholder’s cost-sharing obligations that the Medigap policy normally would cover; (2) should not affect competition between hospitals because membership in the PHO’s hospital network would be open to other accredited Medicare certified hospitals; (3) would unlikely affect professional medical judgment and policyholders would be free to go to any hospital without additional out-of-pocket expense; and (4) would operate transparently.

OIG’s CMP analysis. The premium credits under the proposal would be offered to induce policyholders to select a particular provider from a broader group of eligible providers, however, an exception under the CMP law (Social Security Act sec. 1128A(i)(6)(C)) includes an exception for differentials in coinsurance and deductible amounts as part of a benefit plan design as long as the differentials are properly disclosed to affected parties. This exception permits benefit plan designs to allow enrollees to pay different cost-sharing amounts, depending on whether they use network or non-network providers. Noting that the premium credit is not technically a differential in a coinsurance or deductible amount, the OIG determined that it essentially would have the same purpose and effect. In addition, the proposal (1) has the potential to lower Medigap costs for policyholders who select a Network Hospital without increasing costs to those who do not, (2) would be reported to state insurance rate-setting regulators, and (3) has the potential to lower costs for all policyholders.

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