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OIG Allows Prompt-Pay Discounts

A recent advisory opinion issued by the Office of Inspector General of the Department of Health and Human Services indicates that health-care entities, including ambulance services, may provide prompt-pay discounts on Medicare coinsurance and deductible amounts, without violating the Anti-Kickback Statute (AKS) or a related statute (the Beneficiary Inducement Statute ) that prohibits inducements to Medicare and other federal program patients.

The OIG issued Advisory Opinion No. 08-03 Feb. 8 in response to an inquiry from a health system that wanted to offer discounts to its patients including Medicare beneficiaries for prompt payment of their deductibles and coinsurance (referred to as cost-sharing amounts ). The health system proposed to offer the discounts to all patients who paid within specified time frames, regardless of the patient s financial status or ability to pay. The amount of the discount would range from 5 15%, depending on the amount paid early by the patient and the timing of that payment. The discounts would be offered to both outpatients and inpatients and would cover non-covered charges as well as cost-sharing amounts.

In its analysis, the OIG noted that the practice raises issues under the AKS and the Beneficiary Inducement Statute. The AKS prohibits providing anything of value, in cash or in kind, as an inducement for the referral of patients, including patient self-referrals. The Beneficiary Inducement Statute is a more specific provision, which overlaps with the AKS in also prohibiting cash or in-kind inducements to Medicare patients to select a particular provider, subject to some limited exceptions.

Based on statutory language, the OIG has long held that the complete or partial forgiveness or waiver of beneficiary cost-sharing amounts for Medicare beneficiaries violates both statues, unless the waiver is based on a bona fide demonstration of financial hardship or similar extenuating circumstances. (Properly structured subscription programs are not viewed as waivers of cost-sharing amounts, but instead are considered to be prepayments of such amounts.) In addition, the OIG promulgated a safe harbor under the AKS for waivers of cost-sharing amounts for hospital inpatients, if certain conditions are met. However, the OIG had never addressed the issue of whether prompt-pay discounts could be provided to outpatients without violating these statutes.

In AO 08-03, the OIG approved the proposed prompt-pay discounts for both inpatients and outpatients, based

  • The provider would not advertise the prompt-pay discount to patients. Instead, patients would be notified of the discount during the course of the actual billing process. This would eliminate the likelihood that the discount would constitute an inducement for patients to utilize the provider.
  • The prompt-pay discount would be reasonably related to the amount of collection costs that would be avoided. In other words, the program would be commercially reasonable in that the provider would forgive amounts commensurate with the reduction in costs it would otherwise incur in collecting the accounts, including bad debt.
    Third-party payers would be notified of the prompt-pay discount.
  • All costs associated with the arrangement would be borne by the provider.

Based on the foregoing factors, the OIG concluded prompt-pay discounts were unlikely to be used to encourage referrals, but rather were implemented for the purpose of improving collections and reducing collection costs.

The opinion is an interesting contrast to another OIG opinion issued approximately one year ago that also addressed the issue of patient cost-sharing amounts in a different context. In Advisory Opinion No. 07-02, the OIG reviewed a hospital s proposal to pay an air ambulance provider s cost-sharing amounts and charges for non-covered services for patients transported to its facility from outside its locality. (See OIG Denies Hospital Request to Pay Patient Mileage for Interfacility Transports, April 2007 EMS Insider.) The amounts to be paid by the hospital would have included coinsurance, deductibles, non-covered mileage and any other amounts not paid by the patient s insurance company.

In contrast to AO 08-03, the OIG disapproved of the proposed arrangement in AO 07-02. The OIG concluded that subsidizing an expense that ordinarily would be borne by the patient was remuneration for the self-referral of the patient, in violation of the AKS. In reaching that conclusion, the OIG observed that the proposed subsidy would have likely influenced patients to receive services from the hospital and its ambulance vendor. Although the proposed subsidy program would not have been advertised directly to patients, the OIG found that this was not a meaningful safeguard because the availability of reduced cost services would have been known to the patient s physician, who might have served as an indirect information channel. Under these circumstances, the OIG was concerned that the proposed arrangement would have been likely to generate business for the hospital, including federal health care program business. Indeed, the OIG observed, that is the point of the proposed arrangement.

Although these opinions, like all OIG Advisory Opinions, are binding only on the parties who request them, they provide an interesting view of the OIG s position with respect to patient cost-sharing amounts. On the one hand, ambulance services will have a reasonable degree of safety in implementing prompt-payment programs that forgive or waive a part of patient cost-sharing amounts, as long as the program is not advertised and the service includes the other safeguards described in AO 08-03. On the other hand, services may not routinely accept payment of cost-sharing amounts from a receiving facility on a patient s behalf without risking violation of the AKS and the Beneficiary Inducement Statute.

Advisory Opinion No. 08-03 can be found at

Advisory Opinion No. 07-02 can be found a