This study was researched and drafted by dK Coding (President: David Klein, CPC, CHC) with the assistance and support of the ProviderLAW Corporation (President: Keith Pendleton, Esq). The project was initiated in response to the many questions we receive from our clinic clients and subscribers relating to fee discounts, pre-payment plans, and copay / deductible waivers.

Our fundamental commitment throughout this project was to address the issues not only in an unbiased and thorough fashion, but also with an eye towards developing workable solutions.

As far as solutions go, here are three points to keep in mind. First, in light of the research in this study, the drafters are inclined to submit a request to the Office of Inspector General (OIG) for an advisory opinion regarding various discount scenarios. OIG Advisory Opinions are discussed periodically throughout this study.

Second, we are increasingly of the opinion that "installment agreements" represent a key potential solution to the issue of copay / deductable waivers. Installment agreements are discussed in more detail below in the section entitled, "Could Installment Agreements Be the Best Alternative?"

Third, we have been notified that The Martin Law Firm has commenced the research and development of a model installment agreement as an alternative to discounting your fees, waiving copays & deductibles, and offering pre-payment plans. For more information regarding the status of the firm's model installment agreement, you should feel free to contact the firm at 215-646-3980.

The drafters of this study wish to thank both of the research sponsors, not only for their sponsorship of the underlying research, but more importantly for their emphasis on developing a solution to the issues addressed in this study.

Providers routinely ask the question – can I discount my fees or waive copay / deductable amounts? The question comes in many different sizes, shapes, and colors. Generally speaking, the question reflects a desire to ease the financial burden to patients. As honorable as the intent may be, however, discounts to insurance patients now raise a significant issue under federal law. This is particularly true when the discounts may induce the patient to receive services that otherwise the patient might not seek, and when a governmental healthcare plan could become financially responsible for a measurable portion of the care as a result.

Ten years ago, Congress enacted new legislation to address growing concerns over the practice of discounts and routine waivers. The legislation was part of the "Health Insurance Portability and Accountability Act" more commonly known as HIPAA. Subsequently, the U.S. Department of Health and Human Services Office of Inspector General (OIG) issued rules and advisory opinions designed to refine and "flesh out" the new HIPAA provisions.

Among other things, the new provisions address the issue of whether healthcare providers and / or other organizations can extend "free" services – or services at discounted rates – to insurance patients, or otherwise waive copay, deductible, or co-insurance amounts.

Throughout this study, we will refer to the new legislation as the "HIPAA restriction on discounts."

This study has four specific goals: (1) to help explain, as clearly as possible and without bias, the HIPAA restriction on discounts; (2) to provide a methodology by which providers, as well as organizations that facilitate discounted services, can evaluate whether a program which they are using or considering will withstand HIPAA scrutiny; (3) to help providers decrease their vulnerability in the event of a post-payment review and recoupment request; and (4) to begin the process of developing workable solutions to the underlying problem – how providers can safely market their practices.

We should mention that there are two issues which this study does not cover, at least directly or completely: (1) whether providers can give discounts to uninsured patients, and (2) whether providers can charge maintenance care patients at a lower fee. We will be addressing the issue of discounts to uninsured patients in an upcoming advisory. On the latter topic, please refer to the dK Coding Advisory entitled, "If (or When) You Convert a Patient to "Maintenance Care," What CPT Code Can You Use to Bill For Your Service(s)? Can You Charge a Reduced Rate for the Service(s)?" dK Coding Advisory, First Published 01-19-06.

We hope that this study serves you well.

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) placed tight restrictions on providers who wish to market their practices through various financial inducements. These inducements include the offering of free services, discounted services, and waivers of co-insurance and deductible amounts. The restrictions are not just limited to healthcare providers. They apply to "[a]ny person (including an organization, agency, or other entity ...) that ... offers ... or transfers" the inducement.

On their face, the HIPAA restrictions are limited to instances where patients are covered by federal and state healthcare plans, and where the incentives induce a patient to seek treatment "from a particular provider." For various practical reasons, however, providers and organizations might be wise to assume that the underlying standard, contained within the HIPAA restrictions, has broader application than just federal and state programs.

Those who run afoul of the HIPAA restrictions face fines of up to $10,000 per item or service, treble damages, and expulsion from participation in federal and state healthcare plans or programs. Moreover, carriers and governmental healthcare plans have a number of ways of uncovering or learning about the financial policies of providers.

Before participating in, or facilitating, a discount program, providers and organizations are encouraged to (a) seek an advisory opinion from the Office of Inspector General (OIG), (b) seek the opinion of an attorney experienced in healthcare law, and / or (c) carefully review and consider written authorities on point (e.g., case law, OIG Advisory Opinions, etc). Reliance on informal, verbal, and unsubstantiated opinions is not recommended.

For reasons discussed in this study, we believe that installment agreements may represent the best alternative. Installment agreements are discussed in more detail below in the section entitled, "Could Installment Agreements Be the Best Alternative?"

The HIPAA restriction on discounts expressly applies to the following individuals and activities:

42 USC s 1320a-7a(a)(5) (please note – the in-text notation following the word, remuneration, was added by dK Coding pursuant to the below).

The restriction on discounts defines "remuneration" as "the waiver of coinsurance and deductible amounts (or any part thereof), and transfers of items or services for free or for other than fair market value." See 42 USC Section 1320a-7a(i)(6).

The meaning of the phrase, "fair market value," is discussed further below.

When it comes to discounts for insurance patients, there are three basic questions that need to be asked under the HIPAA restriction. The first question which needs to be asked is whether a healthcare service is being given or offered for "other than fair market value." True, the restriction itself does not define "fair market value." It also does not establish or identify the fair market value for any given service. It also does not indicate how much less than – or how much more than – the fair market value the price needs to be in order to constitute a HIPAA violation or otherwise trigger OIG scrutiny.

Nevertheless, as vague as the phrase, "fair market value" may be, there is one observation we can certainly make. Other federal laws (see, e.g., 42 USC 1395nn(h)(3)) and commonly-accepted definitions of "fair market value" strongly suggest that (as a matter of law) there is only ONE fair market value for any given service. What does this mean? As soon as you begin to offer different prices for the same service, especially as part of a formal policy or program, you not only significantly increase the chances of incurring HIPAA liability, you may also inadvertently be broadcasting your exposure in ways that you are not aware. For example, if your fee for a given service is typically $40, then arguably you are saying that $40 is the fair market value for that service. Arguably, any variation from this $40 fee for your insurance patients – including the giving away of services for free, discounting of services for any reason, and waiving co-insurance and deductibles – becomes problematic under the HIPAA restriction.

The next question you need to ask yourself is whether the patient in question who is being given the discount is a beneficiary of a federally-funded or state healthcare plan. Again, if this is true, you may be in violation of the HIPAA restriction. Now, here are two practical points to consider. First, it can be quite difficult to determine in any given instance whether the plan in question constitutes a federal or state health plan. Second, it is reasonable to expect that many private insurance entities will incorporate (or already have incorporated) the HIPAA standard into their managed care contracts. It is also reasonable to expect that other federal and state laws will incorporate (or already have incorporated) the same HIPAA standard into their definitions of insurance fraud and abuse. What does all of this mean? It means that the safest course of action may be to simply assume that other federal laws, state laws, and managed care contracts have already incorporated the same HIPAA standard.

The third question which needs to be asked is whether the financial incentive is likely to influence the patient to receive a service "from a particular provider." If you are a healthcare provider, "from a particular provider" essentially means "from you." If you are an organization or individual which facilitates the delivery of discounted healthcare services, "from a particular provider," requires a little more discussion. The OIG has made it clear, for example, that such cases require a fact determination rendered on a case-by-case basis. This point is discussed further in the section below entitled, "Some Sample Cases."

The general rule is that if all three prongs of the test are triggered, liability under HIPAA exists. While there are several published exceptions to this general rule (see next section below), the OIG has made it clear that it intends to keep any restrictions which it publishes closely tied to the statutory language.

Pursuant to statutory authority, the OIG has outlined a handful of exceptions to the HIPAA restriction. Most of the exceptions relate to whether you can discount – or offer for free – certain services to patients. One of the exceptions relates to whether you can waive copay / deductible amounts. For more information regarding the various OIG exceptions, refer to "Special Advisory Bulletin: Offering Gifts and Other Inducements to Beneficiaries," Health and Human Services Office of Inspector General, August 2002, p. 2.

With respect to copay / deductible waivers, the OIG has articulated an exception for the "non-routine, unadvertised waivers of copayments or deductible amounts based on individualized determinations of financial need or exhaustion of reasonable collection efforts." Based on this exception, dK Coding is currently in the process of developing an objective hardship policy in conjunction with legal counsel which providers will be able to use to support non-routine, unadvertised waivers of copays and deductible amounts. The hardship policy will seek to take into account the various factors identified by the OIG as appropriate for inclusion in such policies.

With respect to offering discounted services – or services for free – the OIG has created a number of exceptions. For instance, the OIG has created an exception for "inexpensive" services which are $10 or less individually. The OIG has also articulated an exception for "healthcare plans" which have arranged managed care or preferred provider discounts.

One particular OIG exception deserves special attention. The exception is entitled, "Incentives to Promote the Delivery of Preventive Care." While the exception may be promising for some specialties, a number of limitations need to be noted. According to the OIG:

Unfortunately, the "preventative care" exception is limited in a number of ways. First, the exception requires that the service which you seek to offer for free or at a discount must be "covered by Medicare." Second, when one reviews the Guide to Clinical Preventive Services, some of the listed services (e.g., Primary Care Interventions to Prevent Low Back Pain) appear to be limited to "primary care" situations. Third, some of the services, while they appear in the main text of the Guide, are not actually included in the list of "recommended" preventative services. For instance, "Primary Care Interventions to Prevent Low Back Pain" is assigned the ranking, "I." According to the Guide, this ranking means: "The USPSTF concludes that the evidence is insufficient to recommend for or against routinely providing [the service]. Evidence that [the service] is effective is lacking, of poor quality, or conflicting, and the balance of benefits and harms cannot be determined." As a result, Primary Care Interventions to Prevent Low Back Pain is not included on the Guide's list of recommended preventative services. See Guide to Clinical Preventative Services, 2005, U.S. Preventive Services Task Force, U.S. Department of Health and Human Services, at pp. 2-10.

Again, for more information regarding the various OIG exceptions, refer to "Special Advisory Bulletin: Offering Gifts and Other Inducements to Beneficiaries," Health and Human Services Office of Inspector General, August 2002, p. 2.

It is important to note that the OIG periodically issues advisory opinions on specific discount programs submitted to it by healthcare providers and organizations who wish to facilitate the delivery of discounted services.

The OIG advisories are significant not only because they serve as guidance for the healthcare community generally, but they also provide a mechanism whereby a provider or organization which has a question about a specific discount program can potentially receive OIG assurance that the discount program is "protected."

Two OIG Advisory Opinions will be mentioned here. The first one – No. 02-14 – involved a situation where the OIG declined to protect a program where the provider wished to give free safety equipment to hemophilia patients, as well as free electronic pagers to the parents of pediatric hemophilia patients. The OIG opined that these facts fell squarely within the meaning of improper remuneration likely to influence a patient to seek care from a particular provider. Read broadly, the opinion suggests that any free or discounted service offered by a particular provider for services rendered by that particular provider meets the burden of the third prong of the HIPAA test, thereby creating potential HIPAA liability. OIG Advisory Opinion No. 02-14, September 30, 2002.

In the second case – No. 04-4 – the OIG approved a program where the association / organization in question wished to arrange free vision screening tests for infants on behalf of its member providers. The fact that the free tests related to infants afforded the program special protection under the "preventative care" exception discussed above. Moreover, the OIG found that the association had structured the program in such a way that it would not induce a patient to seek care "from a particular provider." OIG Advisory Opinion No. 04-4, May 26, 2004.

In both instances, the OIG examined the facts of the program to see if patients would be induced to receive services "from a particular provider." These and other OIG advisory opinions should be examined carefully for further guidance on this issue.

We are regularly asked the question – are pre-payment discount plans allowed? The purpose of this section is not just to "plug and chug" the pre-payment scenario through the HIPAA equation. More importantly, it is to walk you, the reader, through the process to help you become more familiar with how the HIPAA restriction works.

As its name suggests, a pre-payment plan is a way of encouraging the patient to pay for future (and present) treatment at the commencement of care. Some providers look at the plans as a way of helping to ensure that a patient complies with a course of care which the provider believes the patient needs. On the other hand, the primary incentive to the patient is unquestionably financial – the patient receives a right to future (and present) services at a lesser price. Note – pre-payment plans should be distinguished from "installment arrangements" where providers calculate the estimated level of patient responsibility, and then agree to spread out the costs of that responsibility over an acceptable period of time. Installment agreements are discussed in the section below, "Could Installment Agreements Be the Best Alternative?"

When it comes to pre-payment plans, the first set of questions we would ask you is simple – Have you seen a written OIG Advisory Opinion which expressly supports pre-payment plans? Has the proponent of the plan received such an Advisory Opinion or requested one? Have you seen a formal, written legal opinion by a healthcare attorney on this point which has analyzed the pre-payment plan under the microscope of HIPAA? Have you seen anything in the HIPAA restriction above, the OIG Special Advisory Bulletin, or any federal case, that would lead you to believe that the pre-payment plan in question is "protected" under HIPAA?

In a section entitled, "Some Suggestions" (see below), we strongly recommend that you not rely on informal, verbal, and unsupported opinions on this topic.

Now, here is the second set of questions we would ask regarding pre-payment plans. Let's assume, for the sake of argument, that the patient is eligible for a federal or state healthcare plan. Let's also assume that it has been found that pre-payment plans are "likely to induce the patient to receive services from a particular provider." In other words, let's assume that we have already failed two prongs of the HIPAA test.

This brings us to the remaining prong – are services being offered or transferred for "other than fair market value?" Bear in mind that in order to survive HIPAA liability at this point, you will need to convince the OIG that services, including future services, are not being sold at fees which are less than, or greater than, their fair market values.

This may be quite difficult to do. First of all, you may have already "claimed" that the fair market value of a particular service delivered today and tomorrow is, e.g., $40. How are you going to claim that the fair market value for that service is now less than $40, particularly when you are still charging others the normal price? Second, how are you going to convince the OIG that future services can also have a fair market value under the statute which are measurable today?

As honorable as the goal of pre-payment plans might be (i.e., to help the patient comply with a course of care that you feel that the patient might need) – indeed, as honorable as any discount might be (i.e., to help the patient to receive care in the first place) – when insurance is involved, HIPAA does not allow you to unilaterally provide discounts and free services in an unrestricted fashion.

In the previous section, we drew a factual distinction between pre-payment plans on the one hand, and installment agreements on the other.

Installment agreements entail situations where providers calculate the estimated level of patient responsibility, and then agree to spread out the costs of that responsibility over an acceptable period of time. Oftentimes, these latter types of situations do not appear to entail the discounting of any fees. Typically, they operate simply as a way of delaying the collection of the patient-portion due.

Before analyzing installment agreements under HIPAA, let's make two assumptions. First, let's assume for the sake of argument that the patient is eligible for a federal or state healthcare plan. Let's also assume that it has been found that installment agreements are "likely to induce the patient to receive services from a particular provider." In other words, let's assume that we have already failed two prongs of the HIPAA test.

This brings us to the remaining prong – are services being offered or transferred for "other than fair market value?" Here, the critical question seems to be – is there anything in the installment arrangement that offers the services for less than the charges offered to other patients? Put another way, if the price used to calculate the estimated portion of patient-responsibility is the same as the price which is charged to other patients throughout the course of care, the question arises – how exactly can anyone argue that the service is being offered for less than fair market value?

Given the significance of this topic, we will repeat a point which we made previously. The Martin Law Firm has commenced the research and development of a model installment agreement as an alternative to discounting your fees, waiving copays & deductibles, and offering pre-payment plans. For more information regarding the status of the firm's model installment agreement, you should feel free to contact the firm at 215-646-3980.

The general answer appears to be "no." By its very terms, the restriction only applies to cases where the incentive is given to any individual "eligible for benefits under subchapter XVIII of this chapter, or under a State health care program."

Moreover, the OIG also appears to have stated that the restriction does not apply to uninsured patients. At the prompting of numerous hospitals, the OIG recently drafted the following notice:

70 Federal Register 4858, Section II.I.1, at pp. 4872-4873, January 31, 2005

Just because the HIPAA restriction may not apply to uninsured patients, however, does not mean that you can necessarily give discounts to such patients. For quite some time, legal authorities have stressed that giving discounts to uninsured patients can constitute a "dual fee schedule" and hence, insurance fraud.

In the near future, we will be drafting a separate advisory which will address the issue of discounts to uninsured patients. If you wish to receive notice of this advisory upon its completion, you should sign up for the ProviderPRO.net Newsletter.

There are a number of ways that this might happen. One of the easiest ways – a measure which is sometimes employed by carriers and governmental agencies – is to simply send questionnaires to your current and past patients. First, it should be noted that many of the patients who receive such questionnaires might not know that they could be providing incriminating evidence by responding to the questionnaires. Secondly, if you have had a falling out with one or more of your patients, this type of patient might be perfectly willing to complete a questionnaire regarding your financial policies.

In addition to the above, potential "whistleblowers" include disgruntled associates, disgruntled staff, staff members who are concerned about potential liability to themselves, and even competitors.

HIPAA provides for significant fines, treble damages, and even expulsion from federal and state healthcare plans for those who violate the restriction on discounts. Specifically, the statute provides that in such cases, individuals and organizations ...

42 USC s 1320a-7a(a)

Obviously, the discussion in this study may raise many questions. For example, at what point does the involvement of a marketing agent / facilitating organization subject the group itself to potential liability under HIPAA? Does the fact that a non-profit organization – as opposed to a for-profit organization – is facilitating the delivery of the discounted services really shield participating providers from liability? Does the discount program in question actually induce a patient to seek care "from a particular provider?"

Many other questions may also arise.

Before implementing any program which entails the facilitation or delivery of free services – or services at discounted rates – providers and organizations are strongly encouraged to do any or all of the following: (a) submit the terms of the program to the OIG for an advisory opinion, (b) carefully review and consider written authorities on point (e.g., case law, OIG Advisory Opinions), and/or (c) submit the program to a healthcare attorney for a formal, written legal opinion. Given how broad the restriction is, given how narrow the exceptions are, and given the OIG's interest in addressing this issue, reliance on informal, verbal, and unsubstantiated opinions is not recommended.

Consistent with this, providers who wish to participate in discount programs offered or facilitated by an organization should consider asking the organization whether it has already received an advisory opinion on point, or whether it has knowledge of some written authority which supports the program (e.g., case law, OIG Advisory Opinions), or whether it has obtained a formal, written legal opinion from a healthcare attorney.

Third, providers are encouraged to keep returning to the exact language of the restriction, to the exceptions discussed in the OIG Special Advisory Bulletin referenced above, and to the various advisory opinions published by the OIG.

Lastly, providers are encouraged to consider "installment agreements" as a possible alternative to discounting their services, waiving copay & deductible amounts, and offering pre-payment plans. For more information regarding installment agreements, refer to the section above entitled, "Could Installment Agreements Be the Best Alternative?"

Our provider clients and subscribers routinely ask the question – can I waive copay and deductible amounts? Can I offer free services? Can I offer pre-payment plans? Not only do such questions reflect a genuine interest in easing the financial burden to patients, they also reflect a legitimate interest in marketing and growing one's practice.

The purpose of this study was to address the foregoing questions thoroughly, without bias, and with an eye towards developing workable solutions. For reasons discussed in this study, we believe that installment agreements may represent the best alternative.

Lastly, we would remind the reader that there are two issues which this study does not cover, directly or completely: (1) whether providers can give discounts to uninsured patients, and (2) whether providers can charge maintenance care patients at a lower fee. We will be addressing the issue of discounts to uninsured patients in an upcoming advisory. On the latter topic, please refer to the dK Coding Advisory entitled, "If (or When) You Convert a Patient to "Maintenance Care," What CPT Code Can You Use to Bill For Your Service(s)? Can You Charge a Reduced Rate for the Service(s)?" dK Coding Advisory, First Published 01-19-06.