Time of Service Discounts

TIME OF SERVICE DISCOUNTS – “BUT THE D.C. DOWN THE STREET IS DOING IT!”

One of the most frequent questions asked of ICS staff is whether it is acceptable to offer “time of service” discounts (sometimes called “prompt pay discounts”) to patients who pay in cash at the time of service.  Some physicians offer these discounts as an incentive for immediate payment to avoid the administrative and financial costs of carrying an outstanding account.  As is the case with any type of discount, providers should be cautious, informed, and wary of assuming that unrestricted discounts are allowable simply because competitors may be promoting them.

Although providers most often use these discounts for patients who are either uninsured (not in any health plan) or who have insurance that does not cover the services in question, this article will also address whether in-network providers may offer time of service discounts to patients in the same network.  (Time of service discounts are not to be confused with licensed medical Discount Plans, discussed below, in which patients pay a fee to gain access to a network of providers and the patient pays the provider based upon the network’s negotiated discount rate schedule.)

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Although various laws and cases address medical discounts generally, neither the Medical Practice Act nor any published court opinion in Illinois directly mentions “time of service” discounts, so guidance must be found from general legal authority about discounts offered to patients. Health care providers can be liable for false insurance billing by offering discounts to certain groups of patients but not to insurance payers.  Additionally, providers who offer discounts to Medicare patients could also be violating the anti-kickback law by offering prohibited gifts to induce patients to use Medicare services.  These and other potential pitfalls, as well as legal solutions, are discussed below.

Challenges By Private Insurance Companies Regarding Discounts — Actual, Usual Reasonable and Customary Fees

In almost every health plan, benefits are available only when the services are medically necessary and when the charge submitted by the provider is the actual and the usual, reasonable and customary charge (“URC”). When a provider establishes different fees for certain groups of patients, an insurer may claim that the bill submitted to it is false because it is not the provider’s actual or URC bill. These practices may result in license discipline, the insurance company’s refusal to pay the full amount, or a lawsuit for breach of contract or false claims. In case law, these challenges have arisen in two major ways: first, where the providers offer to discount or waive an insured patient’s deductible or copayment, and second, where the provider offers to discount the fee itself for uninsured patients. 

In Illinois, it is illegal for a physician to advertise that he or she will accept insurance payments as full payment if the effect is to give the impression of eliminating the need to pay a deductible or copayment (Section 27 of the Medical Practice Act — 225 ILCS 60/27). The “advertising” can consist of something as simple as a statement on a website, in an office poster, or verbal statements made to patients. These advertisements are prohibited because the underlying conduct is illegal. Routinely waiving deductibles or co-payments and accepting insurance payments as full payment can amount to unprofessional conduct or the filing of false reports in your practice, and puts your license at risk.

Illinois also has the Insurance Claims Fraud Prevention Act, as well as consumer fraud laws, that permit treble financial damages for the filing of false insurance claims. If a provider who routinely waives deductibles and co-payments bills the health plan for the full “retail” fee, the plan may claim the billing is false because it is not the actual or URC fee. The reasoning is that by routinely discounting or waiving deductibles and copayments, the provider is really demonstrating the intent to collect only the portion the fee that is not discounted, and the undiscounted portion is the true, actual and URC fee. Another situation that can result in an insurer accusing the provider of false billing is where the provider offers a time-of-service discount to an uninsured injury patient who pays cash. Where the injury arises from a negligence case, the patient may later submit the full, undiscounted bill to his or her own auto carrier or the defendant’s liability carrier. In this situation, the insurer may pay the patient more than the patient actually paid the provider, and may motivate the insurer to claim that the billing was fraudulent.

Real Case Examples: Waiver of Deductibles and Copayments

A good example of how this practice can cause problems occurred in a federal court case in Hawaii. A dentist routinely waived a 30% deductible and submitted his full fee to the insurance company for reimbursement. The insurance company refused to pay the full amount of the stated fee and sued the dentist for breaching his agreement to collect deductibles and copayments from patients. The court said the insurance company was within its rights to reduce payments, because the company was losing money in two ways: one, because a greater volume of patients would utilize the dentist’s services knowing they would not have to pay anything out of pocket, and two, because the dentist’s actual fee was only 70% of the fee he submitted to the insurer due to his waiver of the 30% deductible.

In another case involving dental charges, a state dental association filed a case again a dentist who uniformly discounted copayments for all insured patients,submitted bills to their carriers for the full charge, and discounted payments for cash patients.. The court noted that all provider agreements call for the provider to disclose the actual charges and to verify that the bill represents the provider’s usual, customary and reasonable fees. Because this dentist was discounting copayments or providing cash discounts to 97% of his patients, his “usual and customary” fees only applied to 3% of his patients, so his bills reflecting the full amount were ruled to be fraudulent. 

The court provided a hypothetical case where the original bill was $100. If the dentist agrees to waive the $20 deductible, the fee is then reduced to $80. When the patient pays the $80 and then submits the bill to the insurance company, the patient cannot truthfully claim $100 back from the insurance company as the actual fee. The court said there is no difference between that case and one where the patient assigns his or her benefits to the provider. The provider cannot state the fee to be $100 when he or she intends to be satisfied with a payment of $80. 

Although these cases involved dentists, the same principles would likely apply to physicians if a court were to consider similar facts. The same reasoning would almost certainly apply to prohibit routine waivers of portions of copayments, as well as full copayments and deductibles.

Department Of Health & Human Services Office Of Inspector General (OIG) Advisory Opinion

In response to a hospital system’s request for opinion regarding a proposed “prompt pay discount” to Medicare, Medicaid, and other Federal beneficiaries, the OIG issued an advisory opinion that provides some insight into the OIG’s view of these discounts.

In this case, the Prompt Pay Discount would be offered to insured patients regardless of their financial status or their ability to pay. The size of the Prompt Pay Discount ranged from 5%-15%, depending on both the timing of the payment (which included both time of service and 30 days thereafter) and the size of the remaining balance owed by the patient.

The OIG noted that these cases warrant careful review, because some discounts amount to disguised payments intended to induce a patient to use a provider.   The OIG examined all elements of the program and concluded that, in this particular case, the Prompt Pay Discount would be a legitimate and acceptable prompt payment incentive and not a means to induce patients to self-refer. The OIG cited the following bases for its conclusion:  the Health System did not advertise the discount opportunity; patients would only be informed of the Prompt Pay Discount’s availability during the course of billing; the Health System committed that other third-party payers (including insurers) would be notified of the prompt payment policies; that all the costs of the arrangement would be borne by the Health System; and that the amount of fees discounted to patients would bear a reasonable relationship to the amount of avoided collection costs.  The OIG believed that these features reduce the likelihood that the arrangement would be used as a means to draw referrals to the Health System and is actually used as a prompt payment discount for the purpose of more successful bill collection.

Does the OIG advisory opinion provide authority for physicians to offer a standard 15% time of service discount to all patients?  Unequivocally, no. 

For one thing, advisory opinions provide rulings only in the requestor’s individual case, and based on the exact facts as presented.  In addition, the OIG concluded that the proposed discount could only be applied as it reasonably related to the actual amount avoided in collection costs.  It is difficult to justify that a standard percentage relates to actual collection costs when bills can vary widely in amount.

General Principles Regarding Discounts and Private Carriers

In reading together OIG opinions, the Medical Practice Act, Illinois false claims and consumer fraud law and cases that have been decided in other jurisdictions, providers should follow the following guidelines:

1. Bills presented to a patient or directly to an insurer should represent the actual and usual, reasonable and customary charge for the service.
2. If you do offer a “time of service” discount, the amount of the available discount should be noted on your bills. If you discount the amount of any copayment (for prompt payment), the copayment that is available should also be noted on your bill. This is to indicate your intent to maintain your URC fee at its full amount, rather than the discounted amount.
3. If you do offer a “time of service discount,” you should offer it to insurance companies as well as patients. As a practical matter, it is unlikely that an insurer will pay you on the date of service, but the fact that you offer it is another way to try to maintain your URC charges and to refute any allegation that you are defrauding the insurer.
4. The amount of any “time of service” discount, whether relating to the copayment of the entire fee for uninsured patients, should be related to your actual savings, considering administrative billing expenses. Under this standard, a uniform percentage deducted from every bill will be impossible to justify because your administrative expenses of billing have no relationship to the amount of each fee. Moreover, at current interest rates , the difference between the present cost of an office visit, as opposed to the future cost of the same fee collected through billing procedures, will justify only reasonable of discounts.
5. Review your provider agreements. To the extent that you have entered into agreements that prohibit discounting, you will not be able to offer those insureds a discount that violates the agreement.
6. Some provider agreements may also have a “most favored nation” clause, which requires that any fee you submit to the insurer may not exceed the fees charged to any other party. You will need to carefully review the language of these provisions and talk to the insurer to determine whether discounts would violate your provider agreement.
7. Consider participating in an Illinois licensed Discount Medical Plan Organizations (DMPO), under which your patients pay a fee to gain access to a network of providers who agree to accept the network’s negotiated discount rate schedule for services not covered by insurance.  The law permits providers to offer the DMPO discount rate to patients who are members of these organizations licensed by the Illinois Department of Insurance.

Discounts and Medcare

As most ICS members know, discounts also pose problems for providers who participate in Medicare and other federal health care plans. Federal anti-kickback law prohibits the giving of remuneration to health care beneficiaries to influence their choice of provider. “Remuneration” means anything of value, and includes waivers of copayments and deductibles. Although the Office of the Inspector General provides a few exceptions to this rule, they are so limited that it is not advisable to provide any kind of discount for services to Medicare patients. First, it would risk a determination by CMS that your actual charges are less than the Medicare fee schedule and that your reimbursement should be reduced proportionately. Secondly, and more importantly, CMS might conclude that reductions or waivers of copayments and deductibles are offered to induce purchasing or ordering of Medicare services are therefore subject to prosecution under the anti-kickback statute.

Conclusion: Worth the Risk?

As always, providers must weigh whether providing financial incentives is worth the risk. In some situations, such as Medicare cases, the answer is clearly no.

Non-Medicare cases are less clear, but there is no doubt that any discount (assuming it is otherwise legal) must be proportional to the actual saving to the provider. It is unlikely that a provider could justify any uniform percentage discount, let alone one such as 25%, which is a common amount offered. If you do offer a time-of-service discount, you should incorporate the elements of the proposed plan in OIG Advisory Opinion, including a sliding scale of 5%-15% maximum, based on saved collection costs.  If you would prefer to minimize your risk, you may choose instead to participate in a Discount Medical Plan Organization for your cash-paying and uninsured patients, rather than trying to navigate the uncertainty of “time-of-service” discounts.