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Consider legal implications of cash discounts to patients
Cash discounts can run the risk of violating federal and state laws. Here are tips for navigating the legal minefield.
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Whether and to what extent cash discounts to patients are permissible continues to be a source of frustration for ophthalmologists 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. Among the critical issues are Medicare reimbursement limitations, state anti-kickback laws, the provision against beneficiary inducement in 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 discount” 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 involved in billing and collections when a claim does not need to be submitted to a third-party payer, with all the time and expense this so frequently requires.
Sometimes, however, rather than an effort to reflect lower billing costs, the term is used incorrectly to describe improperly waiving an out-of-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.
Federal False Claims Act
A clear problem with a cash discount in connection with a Medicare patient is that the Medicare program pays, under the physician fee schedule, the lesser of either the applicable percentage of the fee schedule allowable or the actual charge for the service. If a cash discount is offered in connection with a Medicare-covered service, then the effect of this will typically be to take the actual charge below the Medicare 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. 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 within the United States, including 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 that follows the Medicare payment rules with regard to 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 situations, providers are well advised to notify payers, in writing, of the providers’ cash discount policy.
Anti-inducement and other laws
Several cash discount issues arise in connection with Medicare and non-Medicare services. A potential problem with cash discounts in a Medicare context revolves around the HIPAA’s provision against patient inducements. This provision makes it unlawful to offer any benefit (including a discount) to a patient that the offerer knew, or should have known, was likely to affect the choice of provider.
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 routinely charges others for the same service. This provision will be triggered in situations in which discounts below the Medicare allowable occur for more than 50% of all of the services provided by a practice, if the discount is substantially below the Medicare allowable.
When “cash discounts” are shams really designed to deal with out-of-network penalty issues, other violations can result under state laws. A number of states, for instance, have provisions of law that specifically forbid waivers of out-of-network penalties and other patient responsibilities, no matter how those waivers are described, unless they reflect a good-faith financial need for a waiver on the part of the patient.
“Most-favored nations” clauses
A somewhat similar issue can arise under a variety of private-payer provider agreements that contain what are often referred to as “most-favored nations” clauses. Those clauses require a provider to automatically give to the private insurance company the lowest price it has offered to anyone else, regardless of what the insurer would otherwise pay.
Finally, many states have anti-discrimination provisions that do not permit either providing lower charges to one or a subset of insurance payers or 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.
For Your Information:
- William A. Sarraille, JD, and Allison Weber Shuren, MSN, JD, can be reached at Arent Fox Kintner Plotkin & Kahn, PLLC, 1050 Connecticut Ave. NW, Washington, DC 20036; (202) 857-6359; fax: (202) 857-6395; e-mail: sarrailw@arentfox.com; shurena@arentfox.com.