Win-win or no-no?
by Neil B. Caesar
June 1, 2011

Have you ever offered, or wanted to offer, customer discounts for prompt payment or for cash payments? Such discounts may seem like a smart business strategy. But if they are not handled carefully, they may put you at risk for deep fines for kickbacks.

Way back in May 1991, the HHS Office of Inspector General issued a special fraud alert focusing on issues of copayments, etc. The fraud alert states "routine waiver of deductibles and copayments … is unlawful because it results in (1) false claims, (2) violations of the anti-kickback statute, and (3) excessive utilization of items or services paid for by Medicare." A prompt pay or cash discount is not quite the same thing as a copayment waiver, but in many ways they raise the same concerns.

The OIG claims that prompt pay discounts pose false claim risks because they throw into question an HME supplier's "usual charge" for a service. This uncertainty causes problems because regulations prohibit providers from billing Medicare "substantially in excess of usual charges." For example, the fraud alert offers, "if a supplier claims that its charge for a piece of equipment is $100, but routinely waives the copayment, the actual charge is $80." Thus, "Medicare should be paying 80 percent of $80 (or $64), rather than 80 percent of $100 (or $80)."

Understanding why discounts can be kickbacks is difficult because the term "kickback" typically describes remuneration one health care provider makes to another in exchange for referrals. But the antikickback statute broadly defines a kickback as anything of value given to anyone as an inducement for referrals.

If an HME routinely offers discounts to its Medicare patients, it is giving them something of value in exchange for choosing the company for their health care needs. However, a discount can be distinguished from a copay waiver if it can be shown that the discount is a fair value in exchange for certain savings that accrue to the HME company's benefit.

Prompt pay discounts may offer enhanced cash flow and reduced costs. Cash discounts offer the same benefits as well as significant savings from the reduction or avoidance of the claim submission process. While cash discounts are not available to Medicare suppliers who take assignment, they can still be very attractive for non-par companies and for commercial insurance.

But if you intend to argue that the administrative streamlining and enhanced cash flow justify a discount, you will need to be able to demonstrate three truths: first, that the benefits/savings did occur; second, that they are worth the amount of the discount; and third, that they were not dangled in front of Medicare patients to induce them to use your services. Let's examine these truths.

  1. Any discount policy should be written and have clear parameters

    It should require documentation of payment and should be applied even-handedly. Any HME company implementing a discount policy should have an internal file memo and worksheet demonstrating the benefits from the discount. This internal analysis should be reevaluated and redocumented every year or so.

  2. How deep a discount is justifiable?

    Well, the OIG talked about this in a 2008 advisory opinion (No. 08-03), where a health system proposed to offer a discount to inpatients and outpatients for prompt payment of cost-sharing amounts and amounts owed for non-covered services. These proposed discounts would not be tied to financial need. The amount of the discount ranged from 10 to 15 percent of the patient's payment obligation for payments made prior to discharge, and 5 to 10 percent for payments made after discharge but within 30 days of service.

    The OIG approved the proposed arrangement, finding that it was a legitimate proposal and not a means to disguise payments for referrals. One of the reasons for the favorable opinion was that the discounted fee amount seemed to bear a reasonable relationship to the avoided collection costs.

    Accordingly, discounts in the 5 to 15 percent range are generally considered reasonable target discounts. The specific discount, of course, would still need to satisfy a "value" analysis. Also, remember that these are discounts to the allowable amount. When viewed as a discount against the "retail price," the percentage may be deeper; a 12 percent discount off the Medicare allowable might translate to a 20 percent discount off retail price, for example.

  3. In the advisory opinion, three other provisions were found by the OIG to be important to its favorable decision

    First, the prompt pay discounts would not be advertised. Patients would only be informed of a discount's availability during the billing process. In other words, the availability of the discount was not an inducement to the patient to choose a particular provider.

    Second, the discount would apply to all payers, not just Medicare patients. Finally, third-party payers would be notified of the discount on the claims invoice.

All three of these provisions emphasize the "reasonableness" and even-handed application of the discount. Because they were important to the OIG, you should consider them important as well.

Read more Compliance University columns.

Neil Caesar is president of the Health Law Center (Neil B. Caesar Law Associates, PA), a national health law practice in Greenville, S.C. He also is a principal with Caesar Cohen Ltd., which offers compliance training, outsourcing and consulting and the author of the Home Care Compliance Answer Book. You can reach him at 864/676-9075 or ncaesar@healthlawcenter.com.

Materials in this article have been prepared by the Health Law Center for general informational purposes only. This information does not constitute legal advice. You should not act, or refrain from acting, based upon any information in this presentation. Neither our presentation of such information nor your receipt of it creates nor will create an attorney-client relationship.