Earlier this month, certain preferred hospital arrangements received a "green light" from the Department of Health & Human Services' Office of Inspector General (OIG). It issued an advisory opinion that, although very fact-sensitive, allowed for the use of a "preferred hospital" network as part of Medicare Supplemental Health Insurance (Medigap) policies.

The arrangement allowed for the requestor to indirectly contract with hospitals for discounts on otherwise-applicable Medicare inpatient deductibles for the requestor's policyholders. Additionally, the requestor was allowed to provide policyholders with a $100 premium credit off of the next renewal premium if the policyholders used a network hospital for an inpatient stay,

OIG's analysis first compared the arrangement to the anti-kickback statute's prohibited remuneration and, more specifically, certain "safe harbor" provisions (42 C.F.R. § 1001.952(k) and (l)). Although OIG found that the arrangement did not qualify for safe harbor protection, OIG nevertheless concluded that – in combination with Medigap coverage – the discounts offered on inpatient deductibles and the premium credits presented a sufficiently low risk of fraud or abuse under the anti-kickback statute. It gave specific reasons behind this conclusion:

  • neither the discounts nor the premium credits would increase or affect per-service Medicare payments
  • the arrangement would be unlikely to increase utilization
  • the arrangement should not unfairly affect competition among hospitals,
  • the arrangement would be unlikely to affect professional medical judgment
  • the arrangement would be transparent

Finally, OIG examined the premium credit in the context of a prohibition (found in the civil penalty law) on inducements to beneficiaries. It allowed the arrangement because there is an exception for differentials in coinsurance and deductible amounts, as part of a benefit plan design, when the differentials are properly disclosed to affected parties and meet other requirements.

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