Cash Discounts for Patients: Navigating the Legal Minefield
Whether and to what extent cash discounts to patients are permissible continues to be a source of frustration for physicians, ambulatory surgery centers, and other providers of health care services across the country. Although cash discount arrangements are permitted in many situations, they may also run afoul of a number of federal and state prohibitions depending on the circumstances. Among the limitations on cash discounts are Medicare reimbursement limitations, state anti-kickback laws, the anti-beneficiary inducement provision of the Health Insurance Portability and Accountability Act (“HIPAA”), the Medicare exclusion provision that relates to Medicare and non-Medicare charges, and state insurance anti-discrimination provisions.
The term “cash discounts” tends to be used in a variety of circumstances. With self-pay patients, the cash discount often represents a means of acknowledging the lower cost in billing and collections, and the time and expense these functions require, when a claim does not need to be submitted to a third party payer by health care providers.
Sometimes, however, the term “cash discount” is used to incorrectly suggest an appropriate reason for improperly waiving an “out of the network” penalty required by a patient’s managed care insurance. In these situations the providers are looking for a means of eliminating the “out of network” penalties that would otherwise apply, without reducing the amount that the insurance company pays. This is done under the guise of a “cash discount.”
In this article, we discuss patient cash discount issues that arise in connection with Medicare and non-Medicare services. One potential problem with cash discounts in a Medicare context revolves around the HIPAA anti-patient inducement civil monetary penalty provision. That provision makes it unlawful to offer any benefit (including a discount) to a patient that the offeror knew, or should have known, was likely to affect the choice of provider.
Another problem with cash discounts in connection with Medicare payments is that the Medicare program pays, under the physician fee schedule, the LESSER of (1) the applicable percentage of the fee schedule allowable, OR (2) the actual charge for the service. If a cash discount is offered in connection with a Medicare covered service, the effect of this discount typically will be to take the actual charge below the Medicare fee allowable. If that fact is not reported on the claim form submitted to the Medicare program, the practice will receive a payment based on the higher fee schedule and not the lower actual charge–meaning that the practice will receive an overpayment.
This potential overpayment will place the practice at risk under the Federal False Claims Act (“FCA”). That statute makes it a violation of federal law for any person to file a false claim or to cause a false claim to be filed with the United States, including claims originating under the Medicare and Medicaid programs. Violations of the False Claims Act are punishable by three times the amount of the claims at issue, plus up to $11,000 in civil monetary penalties per claim.
Similar issues may be raised with respect to patients covered by private insurance. Some commercial payer provider agreements have language which follows the Medicare payment rules regarding the distinction between fee schedule allowables and actual charges. State insurance fraud and state false claims acts, which generally apply to all payers, can have the same effect on discounts in a private pay context as the Federal False Claims Act has in a federal program situation. In these instances, providers are well-advised to notify payers, in writing, of the providers’ cash discount policy.
Another potential issue for cash discounts can occur under state anti-kickback laws, where the discount is really a means of inducing the patient to come to a particular provider of services, despite an out-of-network penalty. Although state anti-kickback laws vary from jurisdiction to jurisdiction, generally it is a violation of law for any person to offer, pay, solicit, or receive anything of value, in cash or in kind, directly or indirectly, overtly or covertly, to reward or to induce a referral of patient, regardless of the nature of any applicable insurance coverage. Anti-kickback statutes may sometimes be applied to a patient, not just another provider, under a number of state laws. Accordingly, if the cash discount is designed to reward or induce the patient’s self-referral, then a state anti-kickback prohibition may be implicated. If, on the other hand, the cash discount is a good faith effort to reflect the lower billing and collection costs that are presented when there is a cash payment from the patient, the anti-kickback laws should not be violated.
A number of states have provisions of law that specifically forbid waivers of “out of network” penalties and other “patient responsibilities,” no matter how those waivers are described. Colorado’s law is one example. These laws generally deal with cash discounts involving commercial payers. An additional Medicare problem can result from discounts, even discounts that are only provided to private pay patients. A Medicare civil monetary penalty provision prohibits a Medicare provider from charging Medicare “substantially in excess” of what it charges others for the same service. This provision will be triggered where discounts below the Medicare allowable occur for more than fifty percent of all of the services provided by a practice and if the discount is substantially below the Medicare allowable.
A somewhat similar issue can arise under a variety of private payer provider agreements that contain what is often referred to as “most favored nations” clauses. Those clauses require a provider to give the lowest price it has offered to anyone else automatically to the private insurance company, regardless of what the insurer would otherwise pay.
Finally, many states have anti-discrimination provisions that do not permit either (1) providing lower charges to one or a subset of insurance payers or (2) providing a lower charge to any non-insurance payer than to any insurance payer. These laws operate, essentially, as a statutory “most favored nations” provision. Although some states have recognized an exception to the anti-discrimination laws in the case of bona fide cash discounts, some others have not.
Cash discounts, unfortunately, raise a host of potential issues. Accordingly, a proposed discount program needs to be reviewed carefully under federal and state law before it is implemented.