A watchdog agency says a Medicare supplement insurer can use a $100 premium credit to reward enrollees who stay at hospitals in a preferred hospital network.

Officials in the Office of the Inspector (OIG) for the U.S. Department of Health and Human Services (HHS) have issued OIG Advisory Opinion Number 10-21, which was triggered by a request from a Medicare supplement insurer that wanted to steer patients toward hospitals that had agreed to give patients discounts of up to 100% on Medicare Part A in-patient hospitalization insurance deductibles.

The PPO hospital networks would be open to any accredited, Medicare-certified hospitals that met state-law requirements.

Normally, the federal laws governing Medicare ban kickbacks, the definition of “kickbacks” could include waivers of Medicare cost-sharing amounts, officials say.

But the specific arrangement described appears to have a low potential for fraud or abuse and, if reported to state insurance rate-setting regulators, could help lower costs for all policyholders, officials say.