The Office of Inspector General (OIG) recently issued a new favorable OIG Advisory Opinion, concluding that, although the proposed arrangement (“Proposed Arrangement”) between a Medicare Supplement insurer (“MediGap Plan”) and a Preferred Hospital Organization (“PHO”) would constitute grounds for imposing sanctions under the federal Anti-Kickback Statute and Beneficiary Inducements Civil Monetary Penalties (“CMP”), OIG will not impose administrative sanctions on the Medigap Plan or the PHO under either the Anti-Kickback Statute or the Beneficiary Inducement CMP.

The Facts and the Analysis for Advisory Opinion 2024-01 (posed on February 26, 2024) are substantially identical to the Facts and Analysis advanced for the Advisory Opinions 2023-09 and 2023-10, 2023-13 and 2023-14 that were posed in December 2023 and January 2024. In earlier inquiries we made to OIG on the question of why there are multiple Advisory Opinions issued on the same facts with the same outcome, we were advised there were multiple parties to the fact pattern and each requested an Opinion specific to that party.

High-level summary of the Proposed Arrangements outlined in Advisory Opinion 2024-01 reveal three distinct streams of remuneration:

(i) Network Hospitals’ discount the Medicare Part A inpatient deductibles that would be paid by the Medigap Plan on behalf of its policyholders –

  • Network Hospitals are members of the PHO and Network Hospitals do not have a direct contract with the Medigap Plan,
  • the amount of the discount is established in advance under a written agreement between the PHO and each Network Hospital, and
  • the discounts are documented in a separate written agreement between the Medigap Plan and the PHO;

(ii) Medigap Plan provides a premium credit of $100 to each policyholder who selects a Network Hospital for a Medicare Part A-covered inpatient stay –

  • premium credits generally are applied to the next premium payment due by the policyholder to the Medigap Plan,
  • if the premium credit exceeds the next premium payment, the excess of the credit rolls over to the policyholder’s following premium payment,
  • policyholders who use Network Hospitals for their inpatient stay receive a premium credit, which is limited to one per Medicare Part A Benefit Period, and
  • Medigap Plan would not advertise the Proposed Arrangement to potential enrollees, but it would provide information on Network Hospitals and the premium credit on policyholder enrollment materials and through periodic mailings thereafter;

(iii) Medigap Plan pays an administrative fee to the PHO as compensation for establishing the hospital network and arranging for the Network Hospitals to discount the Medicare Part A inpatient deductible-

  • administrative fee paid to the PHO would be a percentage-based fee based on the aggregate savings the Medigap Plan realizes from Network Hospitals’ discounts on the policyholder’s inpatient deductibles in a given month,
  • the monthly fee would vary by the number of policyholder claims for which Network Hospitals provided a discount and the amount of the discount on Medicare Part A inpatient deductibles established in the written agreements between the PHO and the Network Hospitals and the PHO and the Medigap Plan,
  • administrative fee would be consistent with fair market value, and
  • the Medigap Plan certified that it would not pass on or otherwise shift the cost of the PHO’s administrative fee to any federal health care program.

The full text of Advisory Opinion 24-01 includes a statement of the facts considered by the Office of Inspector General. Our review reflects the facts and analysis are the same for both Advisory Opinions.

It is our view that OIG’s conclusion is based upon the existence of all the factors in the Proposed Arrangement. We expect that OIG may reach a different conclusion if one or more of those factors did not exist.

The following summarizes OIG’s legal analysis:

OIG concludes:

  1. It is unlikely the Network Hospitals’ deductibles and the policyholders’ premium credit would result in overutilization or pose a risk of increased costs to federal health care programs. It is in the Medigap Plan’s financial interest to ensure appropriate utilization and costs, rather than use the discount to drive use of more services. Since policyholders do not control whether they are admitted as an inpatient (inpatient admissions are clinical decisions) and the payment will be as a premium credit, rather than an affirmative payment, policyholders will not likely be induced to utilize inpatient services they would not clinically need.
  2. The Network Hospital’s discount under the Proposed Arrangement would apply to all policyholders and not be limited to “discriminatory eligibility criteria,” and patient choice would not be impacted because coverage by the Medigap Plan inpatient deductibles is not impacted by the choice of a Network Hospital or a non-Network Hospital.
  3. The two streams of remuneration would be unlikely to significantly impact competition between Medigap Plans or inpatient hospitals.
  4. The administrative fee paid by the Medigap Plan to the PHO, although based on the volume or value of business otherwise generated between the parties, is of sufficiently low risk under the federal Anti-Kickback Statute for a favorable opinion. OIG provides (a number of reasons are cited in the Opinion) that the administrative fee under the Proposed Arrangement is distinguishable from other arrangements since the Proposed Arrangement has a low risk of driving overutilization of a federal health care program.

Note: OIG Advisory Opinions are very fact specific and, by their terms, limited to the facts presented by the specific requestors, and are subject to specific limitations set out in the Advisory Opinions. The above is a high-level summary and consultation with counsel is recommended for a fuller review and discussion of the Advisory Opinion.

Should you need anything else on this topic or if you have a matter you wish to pursue with the Department of Health and Human Services’ Office of Inspector General for an Advisory Opinion, please feel free to reach out to Matthew Babcock at mbabcock@harrisbeach.com to discuss an engagement.

This alert is not a substitute for advice of counsel on specific legal issues.

Harris Beach has offices throughout New York state, including Albany, Buffalo, Ithaca, Long Island, New York City, Rochester, Saratoga Springs, Syracuse and White Plains, as well as Washington D.C., New Haven, Connecticut and Newark, New Jersey.