WAIVING OR DISCOUNTING PATIENT COINSURANCE BY 
OUT-OF-NETWORK PROVIDERS: A SLIPPERY SLOPE

Sheryl Tatar Dacso, J.D., Dr.P.H.

Most physicians at some time in his/her career have been presented with the situation where they find themselves providing services to patients who are covered by managed care plans in which the particular physician does not participate as a contracted “in network” provider. In order to avoid imposing significant financial hardship on these patients, some of these physicians offer to discount or waive those amounts that are the personal responsibility of the patient. This is to be distinguished from the situation where the physician makes a conscious decision to treat each patient as “private pay” where there is greater flexibility in structuring payment arrangements without creating legal liability. As discussed in this article, the routine waiver or discounting of a patient’s coinsurance may violate state and federal law.

There are two principles that should be considered when assessing the situation related to discounting or waiving coinsurance. The first situation concerns the appropriateness of waiving or discounting patient copays and deductibles, where the provider is “out” of network. The second concerns the effect of private pay arrangements on government program billing and reimbursement.

Discounting or Waiving Patient Copayments and Deductibles

As a general rule, a provider should not generally waive co-payments or deductibles. In the context of Medicare and Medicaid patients, this is prohibited in the absence of demonstrating financial hardship of the patient.

Waiver of co-payments and deductibles by an “out-of-network” provider may be viewed as a potential kickback, insurance fraud or grounds for disciplinary action against the physician who waives the co-payments, co-insurance or deductible. In fact, the provider’s waiver of co-payments or deductibles may also affect the provider’s rights to collect insurance from the payor based on State law related to acceptance of assignment.  In Texas, the Attorney General has made it clear that “the payment of benefits under an assignment does not relieve the covered person of contractual responsibility for the payment of deductibles and copayments. A physician or other health care provider may not waive copayments or deductibles by acceptance of an assignment.” [Emphasis added][1] This means that when the physician accepts assignment from the patient, he is not relieved from seeking payment from the patient of the applicable co-payments and deductibles. Although the Opinion does not impose a mandatory obligation on the collection of co-payments and deductibles, it does suggest that telling the prospective patient that these will be waived may be interpreted as an “inducement” for the patient to use the facility. In cases cited by the Attorney General, these may be deemed an unfair trade practice or violate Texas illegal remuneration laws.

Under the legislation creating the Health Insurance Portability and Accountability Act (HIPAA,) it is considered mail fraud, to have a scheme intended to “defraud any health care benefit program” which is a crime under federal law.[2]  This interpretation was corroborated in an OIG Advisory Opinion in 1997 with the finding that the proposed non-collection of co-payments from patients with employer-sponsored Medicare complementary coverage by an ASC would constitute grounds for sanctions under section 231 (h) of HIPAA (42 USC §1320a-7a(a)(5) or under Section 1128B (b) (relating to payment of kickbacks) under the Social Security Act (42 USC §§ 1320a-7b(b) and 1320a-7(b)(7))

Some providers take the position that there is a difference between writing off and discounting the patient portion of the payment. We believe that the same exposure exists for the provider who consistently discounts the patient portion of the payment as it does for writing off that portion.

Provider Strategies for Minimizing Legal Exposure 

For commercial payor contracts, the following list represents a range of approaches that have been used by providers for handling patient discounts on co-payment and deductibles. It should be noted that the common theme is to not “game the system” by charging at the higher level (usual and customary) and then discounting the patient portion of the payment to “in-network” levels. It also includes an element of disclosure to the payor and patient of this practice. These approaches include:

1.         Not waiving or discounting co-payments or deductible amounts at all;

2.            Discounting patient co-payments and deductibles to the same extent that the provider offers a discount to insurers/payors. This should be disclosed to the payor or with the claim;[3]

3.            Reducing the co-payment or deductible amount so it is based on the total payment that the provider expects to receive and not based on usual and customary charges[4];

4.             Discounting co-payments and deductibles should be available to only a very small percentage of patients or on an individual case-by-case basis based on some showing of financial hardship;

5.         To avoid the risk of insurance fraud and tortuous interference of contract between the payor and the enrollee, the provider may want to notify the payor regarding the discount offered to the patient. The payor may seek a similar discount on its payment to the provider. To refuse may place the provider at risk for illegal pricing allegations based on charging different amounts to the patient and the insurer;

6.            Determining an “in-network” charge and agreeing with the payor on that amount while disclosing the practice to the patient.

There is one other area of exposure to providers who discount or waive co-payments and deductibles that may not be readily apparent. This concerns the potential interpretation by Medicare that the amount being charged to it is higher than that being charged to other payors. This implicates the Medicare billing rules and may be deemed a violation of Medicare.

Summary and Considerations

There is no dispute that physicians who participate in managed care plans must comply with the terms of the provider agreements. Waivers or discounts of copayments or deductibles by in-network providers should be made only on the basis of demonstrated patient financial need. Medicare prohibits the routine waiver of copayments and coinsurance to Medicare beneficiaries.  Medicare views discounts and coinsurance waivers as inducement to patients to choose a particular provider, especially if the discounts are offered at or before the time of service.[5]    The only way to offer discounts to Medicare beneficiaries without incurring increased risk is to meet the following criteria.

1.         The waiver is not offered as part of any advertisement or solicitation;

2.            Waivers are not routinely offered to patients;

3.         The waiver occurs after determining in good faith that the individual is in financial need; or

4.         The waiver occurs after reasonable collection efforts have failed.[6]

Recent guidance from the Office of the Inspector General indicates that discounts to patient with no insurance are permissible and encouraged.  However, discounts to insured patients, including Medicare patients, may be suspect unless they are non-routine and related to genuine hardship.  The OIG specified that “we do not believe it is appropriate to apply inflated income guidelines that result in waivers for beneficiaries who are not in genuine financial need.[7]”  

Where a physician is not a participating provider and engages in routine waiver of copayments or deductibles but accepts assignment of benefits for direct payment from the payer, both the patient (who made the assignment) and the physician (who accepts the assignment) are expected to follow the terms of the policy. Disclosure of your proposed discount program to the payor could mitigate against this, but it will depend on the payor’s appetite for seeking legal action.

There is always a risk that a payor will complain to the State Attorney General or to the OIG regarding the practice of waiving or discounting co-payments. This is an area that has not yet been fully explored in caselaw since it also implicates that patient as a co-conspirator in the process.

The following are added as additional considerations:

1.         When informing a payor of a discount to a patient’s co-payment or deductible, request that it contact the provider if it objects to the discount.

2.         The provider should carefully track receivables from any payors to whom a discount is applied to determine if there is a delay in payment.

3.         If there is a delay in payment, follow-up with the payor to assure that the delay is not a result of the payor’s refusal to pay bills due to any discounts provided.

4.            Understand that if the provider later brings a claim against a payor for refusal to pay or for some other reason, there is a risk that the payor will attempt to use the discount as an excuse to bring a counterclaim against the provider (e.g. recoupment.)

5.         The provider should not advertise to patients that it will waive or discount co-payments or deductibles.

6.         The provider should keep up with legal developments related to discounts and waivers of co-payments and deductibles.