Cash discounts surface as major government concern

Attorneys say cash discount arrangements loaded with land mines

Cash discounts are rising on the government’s radar screen, warn health care attorneys, who point to the Department of Health and Human Services’ Office of Inspector General special advisory on inducements issued last week (see related story, below). "Whether and to what extent cash discounts to patients are permissible continues to be a source of frustration for physicians, ambulatory surgery centers, and other providers," says Allison Shuren of Arent Fox in Washington, DC. While cash discount arrangements are permitted in many situations, she says there is no shortage of potential land mines.

Bill Sarraille, also of Arent Fox, says that list includes Medicare reimbursement limitations, state anti-kickback laws, the anti-beneficiary inducement provision of the Health Insurance Portability and Accountability Act, the Medicare exclusion provision that relates to Medicare and non-Medicare charges as well as state insurance anti-discrimination provisions.

Sarraille says the term "cash discounts" is sometimes used to incorrectly suggest an appropriate reason for improperly waiving on "out of the network" penalties required by a patient’s managed care insurance. "Providers, in these situations, are looking for a means of eliminating the out-of-network’ penalties that would otherwise apply, without reducing the amount that the insurance company pays," he explains.

According to Shuren, another potential problem with a cash discount in connection with Medicare patients is that Medicare pays the lesser of the applicable percentage of the fee schedule allowable or the actual charge for the service. "If a cash discount is offered in connection with a Medicare covered service, the effect of this will typically be to take the actual charge below the Medicare allowable," she explains.

If that fact is not reported on the claim form submitted to the Medicare program, she says the provider will receive an overpayment.

Similar issues may be raised with respect to patients covered by private insurance, says Shuren. She notes that some commercial payer provider agreements have language that follows the Medicare payment rules with regard to the distinction between fee schedule allowables and actual charges.

State insurance fraud and state false claims acts, which generally apply to all payers, can have the same effect on discounts in a private-pay context, as the federal False Claims Act has in a federal level, warns Shuren. In these situations, she says providers are well advised to notify payers, in writing, of the providers’ cash discount policy.

In some respects, discounts are already over-regulated, argues Robert Homchick, a partner with Davis Wright in Seattle. He points out that Congress included a statutory exception for discounts in the anti-kickback law and almost everyone would agree that discounting is a good thing and should generally be permissible.

There are certain issues such as swapping that are legitimate concerns on the part of the OIG, says Homchick. But the discount safe harbor is too narrowly drawn, particularly if the government is taking the position that the only permissible discounts are those that meet the safe harbor’s specific requirements.

According to Homchick, the dynamics of the marketplace make the OIG’s attempts to rein in discounting practices difficult and the aggressive stance of the regulators on this issue appears to be inconsistent with Congressional intent.