Coinsurance Waivers

Under the 1987 Medicare and Medicaid Patient and Program Protection Act, which amended the anti-kickback statute,¹ Congress mandated that the Office of Inspector General ("OIG") of the Department of Health and Human Services ("HHS") promulgate regulations specifying permissive practices under that law. OIG promulgated the first set of final "safe harbor" regulations on July 29,1991.²

One of the initial eleven safe harbor regulations covers "Waiver of Beneficiary Coinsurance and Deductible Amounts" for Part A inpatient hospital services paid under the Prospective Payment System and certain federally funded health centers and health care facilities receiving Public Health Service and Title V grants.³ Here, waivers of coinsurance and deductibles⁴ are permitted for indigent persons⁵ by hospitals that meet all of the following criteria:

• *the hospital does not claim the amount waived as a bad debt;
  
• *the hospital's offer to waive insurance is without regard to the reason for admission, length of stay or diagnosis related group ("DRG") of the patient; and
  
• *the offer to waive is not pursuant to an agreement between the hospital and a third party payor.

HHS has concluded that, with such restrictions, abuses such as cost-shifting or increasing patient demand for inpatient hospital services would be unlikely.⁶

Importantly, the hospital waiver of coinsurance safe harbor does not apply to waivers with respect to physician and supplier services paid under Medicare Part B. The preamble to the safe harbor regulations specifically states that the OIG will "continue to consider routine waivers of coinsurance and deductibles under Part B of Medicare to be an area of potential abuse. Any provider that routinely waives coinsurance and deductibles under Part B is subject to criminal liability and civil and administrative sanctions under federal false claims and false statements statutes as well as the anti-kickback statute...."

Medicare Part B waivers have been the subject of a special OIG Medicare Fraud Alert.⁷ Essentially, the Fraud Alert states that routine waiver of coinsurance is unlawful for three reasons:

• *the provider is misstating its actual charge;
  
• *it constitutes an illegal inducement under the anti-kickback statute; and
  
• *waivers will lead to a beneficiary's obtaining items or services not because they are really needed, but because they are free.

According to the Fraud Alert, "when providers, practitioners or suppliers forgive financial obligations for reasons other than genuine financial hardship of the particular patient, they may be unlawfully inducing that patient to purchase items or services from them" in violation of the anti-kickback statute. While waivers may appear to help Medicare beneficiaries, the Fraud Alert takes the position that coinsurance makes patients "better health consumers" who "select items and services because they are medically needed, rather than simply because they are free."

The Fraud Alert does except copayment forgiveness in consideration of a particular patient's financial hardship, but only when "used occasionally to address the special financial needs of a particular patient." Routine use of financial hardship forms, with no "good faith attempt to determine the beneficiary's actual financial condition," is impermissible. A reasonable collection effort is one that is similar to the effort made to collect on private patients -- it must involve billing the patient and may include subsequent billings, collection letters and telephone calls or personal contacts which constitute a genuine, rather than token, collection effort.

Finally, the Fraud Alert enumerates certain "suspect marketing practices" that may indicate unlawful waiver activities, including the following:

• *advertisements stating "no out-of-pocket" expense or "Medicare insurance accepted as payment-in-full" or granting "discounts" to Medicare beneficiaries, all of which announce an intent to waive collection of coinsurance/deductible amounts;
  
• *higher charges to Medicare beneficiaries to offset the cost of the waiver;
  
• *collection of coinsurance and deductibles only where the beneficiary has Medigap insurance;
  
• *failure to collect coinsurance for a specific group of patients, such as patients from a particular hospital, to induce referrals;
  
• *routine use of financial hardship forms; and
  
• *sham insurance programs, charging nominal "premiums" unrelated to actuarial risk and programs covering coinsurance only for services furnished by the entity offering the insurance.⁸

Unsolicited advice given to non-indigent patients that they need not pay is impermissible, as are waivers given to more than a significant percentage of a supplier's Medicare patient population for any reason other than "disproportionate" billing costs (when the costs of billing a patient exceed the amount due), unless reasonable collection efforts were made. Thus, in addition to securing "hardship" letters when appropriate, waivers also may be permitted if the Medicare carriers can be shown that the cost of billing for copayments for a service either exceeds or is disproportionate to the amount to be collected. As well, if the patient is indigent (as determined by the supplier, not the patient), suppliers may accept a lesser amount than their usual charge -- the patient must be asked if someone else can pay the bill.

Copyright © 2000 Corrine P. Parver