OIG Blesses Medigap Discount Policy for In-Network Hospitals

By: Jackie Bain

On February 20, 2014, the Office of the Inspector General posted Advisory Opinion 14-02.  The Advisory Opinion reviews the following scenario for compliance with the Federal Anti-Kickback Statute, 42 USC § 1320a-7b.  Under the proposed scenario, a Medigap insurance provider participates with a preferred provider organization (“PPO”) which contracts with hospitals (“Network Hospitals”).  The Network Hospitals discount Medigap policy-holders’ inpatient deductibles up to 100%.  In exchange for each discount, the Medigap plan pays an administrative fee to the PPO.  The Medigap plan also pays a portion of the discounted savings directly to the policy-holder who stayed at the Network Hospital.

Under the Federal Anti-Kickback Statute, it is a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce or reward referrals of items or services reimbursable by a Federal health care program, including Medicare, Medicaid and CHAMPUS/TRICARE.  The Statute does provide certain for safe-harbors from criminal prosecution.  These safe harbors command strict compliance in exchange for their protections.   The OIG determined that no statutory safe-harbor applies in the scenario presented.

With no safe harbor protection, the OIG scrutinized whether the scenario presents more than a slight risk for fraud and abuse.  The OIG concluded that, although the scenario could potentially generate prohibited referrals, it would not impose sanctions on the scenario in the absence of the intent to induce or reward referrals.  Five key factors were determinative in the OIG’s review of the scenario:

1. The scenario does not increase or affect per-service Medicare payments.
2. The scenario would be unlikely to increase utilization.
3. Membership in a contracting PPO’s hospital network would be open to any accredited, Medicare-certified hospital that meets the requirements of applicable state laws.
4. The scenario would not affect professional medical judgment because it does not offer any remuneration to policy-holder’s physicians and surgeons.
5. The Medigap plan would clearly communicate to policy-holders that they are free to choose any hospital for inpatient services.

In short, absent evidence that the proposed scenario is being used as an inducement for healthcare referrals, the scenario is permissible under the Federal Anti-Kickback Statute.