No. 01-15: OIG Approves Subsidy for Dually Eligible Medicare+Choice Beneficiaries
In Advisory Opinion 01-15, issued September 19, 2001, the OIG analyzed a proposal by certain managed care organizations (MCOs) to subsidize the Medicare+Choice (M+C) premiums and copayments of dually eligible beneficiaries under the antikickback statute, 42 U.S.C. § 1320a-7b(b), and the civil monetary penalty provision against inducements to beneficiaries, 42 U.S.C. § 1320a-7a(a)(5). The OIG found that the proposed arrangement could potentially generate prohibited remuneration, but concluded that it would not impose administrative sanctions.

The MCOs requesting the advisory opinion are nonprofit corporations with a shared management structure for limited centralized functions and separate management structures for operations. Under a group model structure, the MCOs deliver health care services through affiliated medical groups under bilaterally exclusive Medical Service Agreements (MSAs), which are based on a capitation rate. The affiliated medical groups provide virtually no medical services other than those provided pursuant to the MSAs.

Until recently, most of the MCOs' M+C plans had been offered as zero-premium plans. However, reflecting an industry trend, the MCOs have begun charging premiums that range from $10 to $115 per month. The MCOs currently cover approximately 650,000 M+C members, approximately 36,000 of whom are dually eligible for some level of Medicaid benefits. CMS pays a higher capitation rate for such dually eligible beneficiaries due to their generally higher level of health care utilization.

Under the proposed arrangement, the MCOs would subsidize the M+C premiums and copayments on behalf of all current dually eligible beneficiaries using funds that the MCOs annually allocate from their revenues to Direct Community Benefits Investment (DCBI). The MCOs will not advertise the existence of the premium and copayment subsidy, nor promote it in any marketing materials.

The OIG warned that the proposed arrangement to protect dually eligible beneficiaries from increased cost-sharing obligations under its M+C plans implicates both the antikickback statute and the prohibition against inducements to beneficiaries. The OIG expressed concern that the financial benefit could induce dually eligible beneficiaries to self-refer to the MCOs' plans.

In reviewing the proposed arrangement, the OIG reiterated its concern that payment of insurance premiums by a provider or supplier who is paid on a fee-for-service basis significantly increases the risk of overutilization. The OIG also noted that it was irrelevant that the patients in this particular arrangement had already chosen the MCOs because the payments could influence their future choice of provider. In contrast, in the present situation involving group model MCOs, the insurer and provider are essentially one and the same. Thus, the MCOs are simply forgoing money that they might otherwise have collected from beneficiaries, rather than seeking to tap into a third-party source of reimbursement.

Finally, the OIG notes that providers are generally free to waive Medicare beneficiaries' cost sharing obligations based on individualized determinations of financial need. In this particular case, the MCOs are relying on the determination of the Medicaid agencies. The OIG found that the monthly determination of Medicaid eligibility served as "a reasonable and reliable substitute for individualized determinations of financial need." The OIG therefore chose not to impose administrative sanctions under either the antikickback statute or the prohibition against inducements to beneficiaries.

The OIG's finding that a Medicaid eligibility determination was an adequate substitute for a determination of financial need is the most important aspect of Advisory Opinion 01-15. This decision potentially gives providers more flexibility in providing benefits to Medicaid eligible beneficiaries.

No. 01-16: OIG Allows HMO to Employ Excluded Physician
On September 28, 2001, the OIG issued Advisory Opinion 01-16, analyzing whether an HMO could employ an excluded physician to conduct certain non-medical training activities. The OIG allowed the plan to employ the excluded physician based on the fact that the physician's duties were so far removed from the provision of items and services that there was minimal risk to federal health care programs and beneficiaries.

In September 1996, a physician had his license to practice as a psychologist revoked. Based on the license revocation, he was also excluded from participation in federal health care programs. The physician is currently employed by an HMO as a Senior Program Developer. The physician's employment responsibilities include: (1) leadership development; (2) performance improvement consulting; (3) diversity training; and (4) nonprofessional course development. The physician focuses on the personal growth and attributes of employees. He is not involved in developing or providing any training, education, or consulting related to medical or administrative matters. He is under the supervision of the Human Resources Department. He does not work in utilization review or medical social work.

The OIG began with a discussion of the legal authorities applicable in light of the exclusion. First, no payment may be made under any federal health care program for any item or service furnished by an excluded individual or entity during a period of exclusion. 42 C.F.R. § 1001.1901. Second, any state that receives payment for medical assistance is required to exclude from Medicaid participation any managed care organization that employs or contracts with an excluded party for utilization review, medical social work, or administrative services. 42 U.S.C. § 1396a(p)(2)(c). Third, civil monetary penalties may be imposed against any health care provider that employs or contract with an excluded party to provide items or services reimbursed by any federal health care program. 42 U.S.C. § 1320a-7a(a)(6).

Based on these authorities, federal health care programs do not pay for any items or services furnished by an excluded party. These prohibitions extend to administrative and management services that are not directly related to patient care. The OIG goes on to state that the prohibition applies if the excluded party "is paid with non-Federal funds, is paid by an unrelated third party, or provides items or services on an unpaid basis." The OIG notes that there are very limited circumstances under which an excluded party can be employed, such as when the provider uses exclusively private funds and the services relate solely to non-Federal health care programs or patients.

In analyzing the particular facts of the situation presented in Advisory Opinion 01-16, the OIG concluded that the arrangement posed a risk of sanctions because the physician's salary would be reimbursed, at least in some part, through the capitation payments made by Medicare and Medicaid. Nevertheless, the OIG concluded that the employment of the excluded physician in this particular case posed minimal risk to the federal health care programs, citing several factors. First, the physician's duties were far removed from the provision of items to beneficiaries. Second, the physician's duties were not an ordinary or necessary component of providing services to beneficiaries. Finally, the physician's duties were not the subject of any identifiable federal funding or regulatory mandates.

The health care industry should be careful not to read too much into Advisory Opinion 01-16, as it is a very narrow advisory opinion dealing with a very unique situation. Few providers are likely to have positions that are as far removed from the provision of care to beneficiaries as this position. Providers should be hesitant to employ or contract with any excluded party absent express approval from the OIG through an advisory opinion.

Another aspect of Advisory Opinion 01-16 that should be highlighted is the OIG's suggestion that the prohibitions against employing or contracting with excluded parties extends to individuals or entities that provide items or services on an unpaid basis. Query whether the OIG really means to suggest that health care providers must screen the ranks of their volunteers to make sure none of them have been excluded from participation in federal health care programs.