OIG Approves Arrangement Incentivizing Medigap Policyholders to Seek Treatment From PHO Network Hospitals

Footnotes for this article are available at the end of this page.

The Department of Health and Human Services, Office of Inspector General (“OIG”) recently released a favorable advisory opinion, OIG Advisory Opinion No. 24-01 (the “Opinion”), to a Medicare Supplemental Health Insurance (“Medigap”) Plan issuer and a Preferred Hospital Organization (“PHO”; collectively, the “Requestors” of the advisory opinion). In the Opinion, the OIG analyzes the proposed structuring of a program incentivizing Medigap policyholders to seek inpatient care from a hospital within the PHO’s network. The Requestors inquired whether the contemplated incentive program (the “Proposed Arrangement”) would constitute grounds for sanctions under the civil monetary penalty provisions at section 1128A(a)(5) and (7) of the Social Security Act (the “Act”), as those sections relate to the commission of acts described in section 1128B(b) of the Act (the “federal Anti-Kickback Statute” or “AKS”) or prohibition of inducements to beneficiaries (the “Beneficiary Inducements CMP”). The Requestors also sought confirmation that the Proposed Arrangement would not expose them to sanctions under the exclusion authority at section 1128(b)(7) of the Act. The OIG concluded that though the Proposed Arrangement would generate prohibited remuneration if the requisite intent were present, the OIG would not impose sanctions under the Act in connection with the Proposed Arrangement.

The Advisory Opinion

Medigap policies are issued by private insurance companies. In exchange for a premium payment, these policies provide various benefits to Medicare beneficiaries, like covering all or part of the Medicare Part A deductible that might be incurred during an inpatient hospital stay. The Medigap Plan indicated its intent to take part in the Proposed Arrangement with the PHO, which contracts with hospitals throughout the United States (“Network Hospitals”).

Under the Proposed Arrangement, each Network Hospital would provide a discount on the Medicare Part A inpatient deductible that the Medigap Plan otherwise would cover for a policyholder. The Medigap Plan would offer a $100 premium credit to each policyholder who selected a Network Hospital for a Medicare Part A-covered inpatient stay, subject to certain limitations. The PHO and the Medigap Plan would enter into a written agreement providing that the Medigap Plan would pay the PHO a monthly administrative fee as compensation for establishing the hospital network and arranging for the Network Hospitals to discount the Medicare Part A inpatient deductible.

The OIG concluded that while all three streams of remuneration would implicate the AKS and one — the premium credit offered to the Medigap Plan policyholders — would implicate the Beneficiary Inducements CMP, the Proposed Arrangement posed a sufficiently low risk of fraud and abuse that the OIG would not impose administrative sanctions under the AKS or the Beneficiary Inducements CMP in connection with the Proposed Arrangement.

The OIG observed that the Medicare Part A inpatient deductible discount and the premium credit would constitute remuneration. The deductible discount could induce the Medigap Plan to recommend provision of federally reimbursable items and services on behalf of its policyholders. The premium credit could influence Medicare beneficiaries’ selection or re-enrollment in the Medigap Plan, as well as Medigap Plan policyholders’ selection of a Network Hospital as their inpatient hospital provider. The administrative fee that the Medigap Plan would pay to the PHO also would implicate the AKS because such payment would be in exchange for the PHO arranging for the provision of federally reimbursable inpatient services furnished by its Network Hospitals to policyholders at a reduced rate. No safe harbor under the AKS exists for any of these remuneration streams.

Nonetheless, the OIG found that the Proposed Arrangement posed a sufficiently low risk of fraud and abuse under the AKS or Beneficiary Inducements CMP for a combination of reasons.

First, because it is in the Medigap Plan’s best financial interest to ensure appropriate utilization and costs, it is unlikely that it would use either the deductible discount or premium credit to promote inappropriate utilization by its policyholders. Moreover, because policyholders’ hospital admissions are a clinical decision generally out of their control, and the payment would be as a premium credit (as opposed to a deposit in the policyholders’ bank account) policyholders will not likely be induced to utilize unnecessary inpatient services.

Second, the risk of patient harm posed by the deductible discount and the premium credit is minimal because (1) the discount would apply to all policyholders, unlimited by discriminatory eligibility criteria; and (2) policyholders could elect to receive care at non-network hospitals without any increase in cost-sharing obligations or premiums, preserving patient choice.

Third, the deductible discount and premium credit would be unlikely to significantly impact competition between insurers offering Medigap plans or inpatient hospitals. Risk of unfair competition is mitigated because neither the Medigap Plan nor the PHO would advertise any aspect of the Proposed Arrangement. Potential risk of the premium credit to induce policyholders’ re-enrollment is mitigated because policyholders would receive the premium credit only if: (1) they required one or more inpatient stays in a policy year; and (2) they selected a Network Hospital for their inpatient stays. The OIG further pointed out that the Proposed Arrangement would not limit policyholders’ choice of inpatient hospitals to the Network Hospitals. Additionally, any interested hospital that is eligible to join the Hospital Network would be able to as long as it met applicable requirements.

Fourth, OIG noted that the premium credit would also implicate the Beneficiary Inducements CMP by influencing a policyholder to select a Network Hospital for federally reimbursable items and services. Finding no applicable exception, OIG nonetheless would not impose sanctions for the reasons detailed above.

Finally, turning to the administrative fee paid by the Medigap Plan to the PHO, the OIG identified no applicable safe harbor because the PHO’s compensation would be derived with reference to the volume or value of business otherwise generated between the parties. The OIG nonetheless found a sufficiently low risk under the AKS for a multitude of reasons, including: (1) the PHO’s administrative fee would be consistent with fair market value; (2) there would be a low risk that the fee calculation methodology would drive overutilization of federal healthcare items or services; (3) it would be contrary to the Medigap Plan’s financial incentives to drive overutilization of inpatient hospital services paid for by Medicare Part A; and (4) the Medigap Plan certified that it would not pass on, or otherwise shift, the cost of the PHO’s administrative fee to any federal healthcare program.

The OIG concluded that, based on the facts certified by the Requestors, it would not impose sanctions under the AKS or the Beneficiary Inducements CMP on the Requestors’ implementation of the Proposed Arrangement. The OIG concluded by reciting limitations inhering in any of its advisory opinions, including that the opinion is limited in scope to the Proposed Arrangement and cannot be relied upon by any person other than the requesting Medigap Plan and PHO.


This Opinion is the latest in a series that analyzes substantially similar fact patterns involving discounted Medicare Part A deductibles, premium credits, and administrative fees to a preferred hospital organization.1 OIG continues to signal acceptance of incentive programs that, like the one presented in Opinion 24-01, do not promote federal healthcare program overutilization or cost increases.

While healthcare industry stakeholders may look to published advisory opinions to understand OIG’s views of particular arrangements, each arrangement is different and should be evaluated on its own merits. Moreover, only the party requesting an advisory opinion may rely on it. An OIG advisory opinion is legally binding on the Department of Health & Human Services and the requesting party or parties, protecting them from OIG administrative sanctions, so long as the arrangement at issue is conducted in accordance with the facts submitted to the OIG. But an OIG advisory opinion may not be introduced into evidence by an individual or entity that was not its requestor to prove compliance with any law, including the AKS. The plethora of advisory opinions addressing identical or analogous scenarios likely reflects each healthcare industry stakeholder securing the protections of an advisory opinion for itself when implementing an arrangement that has already garnered OIG approval for another requestor.


[1] The OIG has addressed similar fact patterns in several advisory opinions, including Advisory Opinion Nos. 23-14, 23-13, 23-10, 23-09, 22-11, 21-09, 21-07, 21-05, and 21-04.