The Office of Inspector General of the Department of Health and Human Services (OIG) has published an unfavorable advisory opinion involving a proposal by a Medicare Advantage Organization (MAO) offering Employer Group Waiver Plans (EGWPs) to share a percentage of its savings with certain groups to which it provides coverage.

With this advisory opinion (AO 24-08) OIG highlighted how it analyzes certain risk-sharing arrangements for managed care organizations and found that this particular arrangement did not present a sufficiently low enough fraud and abuse risk under the federal Anti-Kickback Statute (AKS).

Factual Background

The MAO contracts with the Centers for Medicare & Medicaid Services (CMS) to offer Medicare Advantage (MA) plans, MA-Prescription Drug plans, and MA/MA-PD EGWPs. The MAO provides health insurance coverage and administrative services to group health plans consistent with 42 C.F.R. §422.106(d)(6). That regulation governs the coordination of benefits with employer or union group health plans and Medicaid, and specifically covers employer-sponsored MA plans and group health plans (including but not limited to: federal or state governmental plans; collectively bargained plans; church plans; health flexible spending arrangements; and health savings accounts; among others).

The MAO’s contracts with groups would give it the opportunity to earn a negotiated percentage of organization’s savings as a “gainshare payment” and the MAO could modify or terminate the gainsharing arrangements under certain conditions. One such condition was that termination could be triggered by the number of enrollees in a group falling below a specific negotiated threshold. 

The MAO certified the following facts relevant to OIG’s advisory opinion and highlight key differences among MAOs offering plans in the individual market and those offering EGWPs:

  • MAOs offering EGWPs do not submit bids to CMS reflecting anticipated cost of providing benefits to enrollees. Instead, CMS granted a waiver from MA bidding requirements for EGWPs beginning with contract year 2017. The EGWP’s capitated amount is based on the average bids and benchmarks in the individual MA market, across all plans at the county level. This differs from an MA organization offering plans in the individual market that must submit a bid and present its anticipated cost of providing basic benefits to a Medicare enrollee in that payment area with an average risk profile. CMS then compares that bid to an annually calculated benchmark amount.
  • While MAOs offering MA plans in the individual market are subject to uniform premium requirements for members enrolled in the same plan, MAOs offering EGWPs may negotiate with groups with respect to the scope of benefits and any additional premium amounts to be paid by the group or its enrollees. Moreover, MAOs offering EGWPs may – but are not required to – charge a group an additional premium for each enrollee in the EGWP, which the group may collect, in whole or in part, from its enrollees.
  • This particular MAO asked CMS to clarify whether MAOs offering EGWPs may use any funds that qualify as a rebate under CMS’s definition to make “gainshare” payments to groups. In response, CMS explained they receive a monthly payment for each enrollee that consists of two components: a base county payment rate and a rebate. Those two components are then added together and multiplied by the enrollee’s risk score to produce a single payment amount. CMS explained that MAOs offering EGWPs are unable to identify the amount of their total payment that is a rebate payment because the two components are combined and not broken out. Therefore, CMS has waived the requirement for MAOs to inform CMS how the EGWPs will distribute amounts paid as rebates among the options at 42 C.F.R. §422.266(b). In contrast, MAOs offering plans in the individual market must use rebates for specified purposes.
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Under the proposed arrangement, the MAO would give groups the opportunity to share in a percentage of the organization’s savings and then would enter into agreements with the groups to provide coverage to said group’s enrollees for the basic benefits under Medicare Parts A and B, and if applicable, prescription drug coverage under Medicare Part D through an MA-PD plan, plus any supplemental benefits negotiated between the MAO and each group. The MAO and group would include conditions in their contract that would govern when a group would be eligible to share a percentage of the MAO’s savings as a gainshare payment – which would be based on a negotiated medical loss ratio.

This arrangement differs from the medical loss ratio for purposes of the MA program as set forth in 42 C.F.R. §422, Subpart X “Requirement For A Minimum Medical Loss Ratio”.  In this arrangement the MAO would make the final calculations and conduct final reconciliation of these payments following a one- or two-year settlement period after the plan concluded. 

OIG Analysis and Conclusions

Despite the MAO’s certification that the proposed arrangement would be covered under CMS’s waiver and policies, OIG concluded that the proposed arrangement would implicate the AKS, given that the MAO would offer remuneration to a group in the form of sharing a percentage of its savings. This practice, according to OIG, could induce the group to refer its enrollees to the MAO, wherein the organization, through its EGWP, would then arrange for provision of items or services that are reimbursable by a Federal health care program. OIG concluded that no safe harbor would apply, and the risk of fraud and abuse is not sufficiently low under the AKS. 

In its analysis, OIG noted the following:

  • The proposed arrangement presents a risk of patient steering, as it could give groups the opportunity to receive an incentive – in the form of a gainshare payment – to choose a particular plan that would arrange for federally reimbursable items and services to the enrollees. OIG said that the ability of the group to use the gainshare payment for purposes other than benefitting enrollees could steer the group to choose the MAO’s plan over other plans unable or unwilling to provide such incentives. 
  • The proposed arrangement’s steering concern is not offset by any guaranteed benefits to enrollees. According to OIG that it would be against a group’s financial interest to negotiate for enhanced benefits for EGWP enrollees because if a group does not contract for enhanced benefits, then the group’s enrollees may generate fewer costs and increase their chance of receiving the gainshare payment. OIG concluded that the proposed arrangement could result in financial gain for groups while resulting in fewer benefits for enrollees. 

CMS’s statement that it does not regard Federal regulation 42 C.F.R. §422.266(b), as restricting how the EGWP can use the entire payment it receives from CMS does not expressly permit gainshare payments as part of the program. OIG found the statement from CMS does not insulate such payments from implicating the AKS.

Key Takeaways

MAOs offering EGWPs are afforded a number of flexibilities as part of the group design and OIG in its analysis noted that it is possible that a particular arrangement between an MAO offering an EGWP and a group could be sufficiently low risk under the AKS. However, when an arrangement incentivizes patient steering – especially through gainshare payments — it is likely to be viewed as implicating the AKS.

Although OIG advisory opinions bind only the requesting party, it is possible that the MAO in this instance sought OIG’s guidance knowing that it may lead to an unfavorable opinion and scrutiny of its competitors. Although this advisory opinion may draw future scrutiny of comparable arrangements, companies who have entered into similar arrangements may present defenses and/or mitigating factors that were neither presented by the MAO nor analyzed by OIG in issuing the advisory opinion. The opinion thus serves as a good reminder to anyone considering similar arrangements to carefully structure those arrangements and seek advice of counsel.

Reed Smith will continue to follow developments with regard to the AKS and advisory opinions. If you have any questions about this opinion or its implications, please contact the health care lawyers at Reed Smith.