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How Broad is the Managed Care Safe Harbor?

In Advisory Opinion No. 18-11, the Department of Health and Human Services Office of the Inspector General (the “OIG”) addressed a Medicaid managed care organization’s (“MCO”) proposal to pay its contracted providers and clinics (“Network Providers”) to increase the amount of Early and Periodic Screening, Diagnostic, and Treatment (“EPSDT”) services they provide to the MCO’s Medicaid members. Under the State’s MCO program, MCOs are required to provide EPSDT services and face liquidated damages for failing to do so. Under the proposed arrangement, the MCO would provide per member incentive payments (“Incentive Payments”) to Network Providers that meet certain benchmarks for increasing the amount of EPSDT services they provide to MCO members. The amount of the Incentive Payments would be determined based on the percentage increase of EPSDT services provided to the MCO’s existing members from one year to the next.

According to the Advisory Opinion, the proposed arrangement implicates the Federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b) because the MCO proposes to pay remuneration to Network Providers to increase healthcare services provided to Medicaid beneficiaries for which payment may be made in part under a federal healthcare program. The OIG notes that the safe harbor for eligible managed care organizations (“EMCOs”), which protects payments between EMCOs and first tier contractors that satisfy certain criteria, potentially applies to the proposed arrangement. See 42 C.F.R. § 1001.952(t).

The OIG quickly concluded that the proposed arrangement satisfied the first two requirements of the safe harbor: (1) the MCO is an “eligible managed care organization” and the network providers are “first tier contractors” as those terms are defined in the EMCO safe harbor, and (2) the Incentive Payments would be provided for providing or arranging items or services, i.e., EPSDT services.

The OIG next examined whether the proposed arrangement would satisfy the standards for arrangements under the EMCO safe harbor: 

First, the parties must have an agreement that: is written and signed by the parties; specifies the items and services covered by the agreement; is for a period of at least one year; and specifies that the party providing the items or services cannot claim payment in any form from a Federal healthcare program for items or services covered under the agreement. This standard would be met based on the MCO’s certification to the OIG.

Second, the parties, in establishing the terms of the agreement, may neither give nor receive remuneration in return for or to induce the provision or acceptance of business (other than the business covered by the agreement) for which payment may be made in whole or in part by a Federal healthcare program on a fee-for-service or cost basis. The proposed arrangement would meet this requirement because the Incentive Payments would be based solely on the provision of Medicaid services to the MCO’s existing enrollees. The MCO certified that it would not offer the Incentive Payments to induce providers to participate in Requestor’s other lines of Federal healthcare program business, i.e., Medicare Advantage and Children’s Health Insurance Program plans.

Third, neither party to the agreement may shift the financial burden of the agreement to the extent that increased payments are claimed from a Federal healthcare program. Here, the OIG concluded that the proposed arrangement would not increase costs to Federal healthcare programs in the year in which the MCO would implement the proposed arrangement because the MCO is at financial risk for all costs related to EPSDT services under its State MCO contract. With respect to future costs, the OIG concluded that “[a]lthough it is possible that the increase in The MCO’s costs of providing EPSDT services could lead to an increase in Federal healthcare program costs through higher Capitated Payment rates and an overall increase to the State’s Medicaid managed care expenditures in future years,” the proposed arrangement would increase the likelihood that the MCO’s members requiring EPSDT services would actually receive them and that result was consistent with the State’s goal. “Consequently, it is likely that any increase in Capitation Payment rates would appropriately reflect increases in the cost of care.” Separately, the OIG noted that the proposed arrangement could also result in higher capitation payment rates for the MCO in future years through the State’s risk adjustment process. However, the State’s risk adjustment process is budget neutral and, standing alone, would not necessarily result in an increase to the State’s Medicaid managed care expenditures.

Despite the favorable advisory opinion in this situation, Medicare Advantage and Medicaid managed care organizations might consider taking another look at the their provider incentive programs in light of the OIG’s analysis.

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Copyright © 2020, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume VIII, Number 299
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About this Author

Christine Clements, Sheppard Mullin Law Firm, Washington DC, Corporate and Health Care Law Attorney
Partner

Christine M. Clements is a partner in the Healthcare Team in the firm's Washington, D.C. office with 25 years of experience on managed care law issues. Ms. Clements focuses her practice on federal healthcare government contract programs, with particular focus on the Medicare Advantage Program, the Medicare Prescription Drug Benefit, the Federal Employees Health Benefits Program, Medicaid managed care, and the Medicare-Medicaid Plans. Ms. Clements advises clients on the issues most important to them, including contract applications and service area expansions, responses...

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