Feds preparing to lower the boom on Medicare coinsurance waivers

New law spells out what you can and cannot do

If your hospital routinely waives Medicare patients’ coinsurance payments as a means of attracting more business, you are giving federal fraud investigators another reason to come knocking at your door.

The government’s Office of the Inspector General is targeting health care facilities that systematically waive the coinsurance portions of Medicare bills. The Baltimore-based Health Care Financing Administration (HCFA), which governs Medicare, requires coinsurance payments as a means of discouraging patients from seeking unneeded services.

But Medicare officials say hospitals are routinely waiving the payments to attract additional business, and then getting the fees reimbursed through annual cost reports.

Experts are advising those involved in hospital billing and collections to stay away from the practice unless the reasons meet exceptions contained in the Health Insurance Portability and Accountability Act of 1996, which took effect Jan. 1.

"The government is very serious about this and is going to crack down on providers who intentionally ignore the law," warns Sanford V. Teplitzky, JD, a health care attorney with the law firm of Ober, Kaler, Grimes & Shriver in Baltimore.

The law specifically defines routine coinsurance waivers as an illegal compensation to Medicare or Medicaid beneficiaries, and therefore, unlawful under federal anti-kickback statutes. In making routine coinsurance waivers illegal, the act reiterates existing Medicare/Medicaid prohibitions on illegal coinsurance waivers.

But the new provisions outline three exceptions. To be in compliance, providers must meet all three major exceptions.

The waivers are lawful if providers:

• do not regularly advertise that they’ll waive the fees;

• do not routinely offer the waivers;

• demonstrate sufficient reasons for their actions.

The third exception must be satisfied in all of the following ways:

• The provider must make an earnest effort to collect the fees before deciding on the waiver.

• The decision to waive is based on the patient’s financial need.

• The waiver complies with existing Medicare "safe harbor" standards.

Safe-harbor provisions allow providers to forgive the coinsurance under certain conditions, namely that the fees aren’t the focus of a formal pricing arrangement with a third-party payer.

Confusion may increase

The new law also raises civil penalties for violations. It hikes fines to a maximum of $10,000 per claim from the previous $2,000, and gives the government leeway to triple penalties (up from double penalties) based on the total dollar amounts of the coinsurance fees involved in the claims. It leaves open additional criminal sanctions under federal anti-fraud statutes.

Some health care attorneys say the coinsurance sections of the act may only serve to complicate an already confusing area of Medicare reimbursement. "The best way to avoid problems is by not offering the waivers at all. We generally tell our managers not to forgive the coinsurance under any circumstances," advises Lee Williams, CPAM, director of business development with Geisinger, a regional health system based in Danville, PA.

Coinsurance waivers have long been a subject of debate between providers and HCFA in Baltimore. Financial managers have never completely understood when they can legally forgive the out-of-pocket fees or even if they should waive them for any reason, Williams says.

Although safe harbors provide some latitude, many facilities allegedly have ignored or misinterpreted them, according to some industry insiders. Some providers may be abusing the practices, acknowledges Jim Whicker, CPAM, director of electronic data interchange at Intermountain Health Care in Salt Lake City. But he says the fees are usually forgiven only when a patient can’t pay at registration or reneges on a promise to pay. Usually, "The sums are waived after efforts to collect are exhausted," says Whicker. (For practical tips on complying with the Kennedy-Kassebaum legislation, see the suggestions below.)

Safe harbor provisions specifically limit coinsurance waivers to situations that don’t constitute a formal "price reduction agreement between a hospital [or other Part A provider] and a third-party payer."1 But they also exempt Medicare SELECT, a form of supplemental insurance offered by private insurers, which offers services through a network of preferred providers.2

Private carriers and some providers have allegedly used Medicare SELECT as the basis for sidestepping prohibitions and waiving the coinsurance to help build referrals, attorneys say. But facility financial managers have wondered at their own role when waivers are initiated by insurers and written into payer contracts.

Providers are being warned

Under Kennedy-Kassebaum, Congress is apparently attempting to strengthen existing safe harbors in hopes of clarifying past uncertainty, Teplitzky says. But the government also is warning providers that routine waivers are unlawful and is imposing stiffer monetary penalties to get out the message.

Nevertheless, some facilities inevitably will continue to puzzle over compliance, Teplitzky adds. For example: How much effort to collect the fees will satisfy the statute? Will a provider be liable if an insurer routinely advertises the waiver and then refers a patient?

Furthermore, "How do you justify the time and expense of going after a multitude of $3 copays to avoid breaking the law?" asks Whicker of Intermountain.

To help answer these questions, the statute directs the Department of Health and Human Services to solicit advisory opinions and ideas annually.


1. 56 Fed Reg (July 29, 1991) 35,952-35,962.

2. 61 Fed Reg (Jan. 25, 1996) 2,122-2,123.