LEGAL SERVICES BULLETIN
Gwen Dayton, Vice President and General Counsel June 2004
Hospital Discounting and Collection Practices

Hospitals have long believed that providing discounts to private pay patients or waivers of Medicare cost-sharing amounts violates Medicare law, anti-kickback or other federal laws. This issue is of increasing importance as more patients are either uninsured or underinsured, and hospital costs are subject to greater scrutiny by consumers and purchasers. On February 19, 2004, the U.S. Department of Health and Human Services (DHHS) issued two documents clarifying that hospitals may provide discounts to indigent patients and waive Medicare co-payments in specified circumstances. The department also provided guidance on hospital collection practices.

In response to a letter sent by the American Hospital Association, Secretary Tommy Thompson of DHHS issued an eight-page letter and six-page question and answer attachment saying that Medicare regulations are not the problem. The Office of Inspector General (OIG) added additional guidance, indicating that no OIG authority “prohibits or restricts hospitals from offering discounts to uninsured patients who are unable to pay their hospital bills.” The OIG then addresses the Federal Anti-Kickback Statute and Section 1128 of the Social Security Act in turn, indicating that neither law prohibits offering discounts.

This new guidance combined with a changing health care financing landscape should encourage Oregon hospitals to re-evaluate their policies regarding low-income patient charges and billing. Every hospital and the community it serves is unique, so this Legal Services Bulletin will not provide a model discounting and billing policy to be adopted by all hospitals uniformly. Rather, the bulletin will assist hospitals to develop their own appropriate policies by articulating the principles established by the OIG, highlighting areas of inquiry for hospitals and answering key questions.

Basic Discounting and Waiver Principles

• Discounts for patients who are unable to pay must be applied in a uniform manner.
  
  
• Hospitals may determine their own indigent patient criteria, including the use of a sliding scale, but the criteria must apply equally to all patients regardless of payer source.
  
  
• Hospitals may forgive a Medicare coinsurance or deductible amount in consideration of a particular patient’s financial hardship so long as:
  • The waiver is not offered as part of any advertisement or solicitation;
  • The hospital does not routinely waive coinsurance or deductible amounts; and,
  • The hospital waives the coinsurance and deductible amounts after determining in good faith that the individual is in financial need and reasonable collection efforts have failed.
    
    
• A hospital also may waive coinsurance and deductible amounts for inpatient hospital services for which Medicare pays under the prospective payment system if the hospital meets three conditions:
  • The hospital cannot claim the waived amount as bad debt or otherwise shift the burden to the Medicare or Medicaid system, other payers, or individuals;
  • The waiver must be made without regard to the reason for admission, length of stay or diagnostic related group;
  • The waiver may not be part of a price reduction agreement between the hospital and a third-party payer (other than a Medicare SELECT plan).
    
    
• Routine waiver of Medicare coinsurance and deductibles can violate the Federal anti-kickback statute if one purpose of the waiver is to generate business payable by a Federal health care program. See, Special Fraud Alert; Routine Waiver of Copayments or Deductibles under Medicare Part B, 59 Fed. Reg. 65372, 65374 (Dec. 19, 1994).
  
  
• A hospital may not offer inducements, including cost-sharing waivers, to a Medicare or Medicaid beneficiary that the hospital knows or should know are likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier. See, 42 U.S.C. sec. 1320a-7a(a)(5).
  
  
• When considering “financial need” for purposes of co-payment waivers, the criterion is not limited to indigence, but can include any reasonable measures of financial hardship so long as those measures are based on objective criteria and provide waivers only for beneficiaries who are in genuine financial need. Hospitals may take into account factors relevant in their community, such as:
  • Local cost of living;
  • Patient income;
  • Assets and expenses;
  • Patient family size;
  • Scope and extent of patient’s medical bills.
    
    
• Hospital financial assistance guidelines should provide for a recheck of a patient’s eligibility at reasonable intervals and maintain documentation supporting a patient’s financial need.
  
  
• As an industry, we need to be mindful of antitrust/price fixing considerations as we discuss discounting policies amongst ourselves.
  
  
• Hospitals must also be mindful of recent class action lawsuits alleging that hospitals have violated their charitable mission by overcharging uninsured patients. Hospital assistance guidelines should include a statement regarding how the hospital’s guidelines and discounting policies reflect and support their charitable mission.

Basic Collection Principles

• Centers for Medicare and Medicaid Services (CMS) does not mandate any particular collection effort.
  
  
• Hospitals must engage in “reasonable collection efforts.” This does not necessarily require a hospital to seize a patient’s home, take court action or use a collection agency.
  
  
• A hospital’s policy on whether to pursue collections from patients and what reasonable collections actions are taken must be consistent for both Medicare and non-Medicare patients.
  
  
• Make sure your collection agency understands your collection policies.

Questions

• How does a hospital’s discounting policies affect its Medicare cost report? Hospitals’ Medicare cost reports should reflect full uniform charges, not a discounted rate, because reporting of full charges is necessary to ensure that a hospital’s cost-to-charge ratios are unaffected by any discounts.
  
  
• Must the hospital notify its fiscal intermediary of any discounting? The hospital should notify its fiscal intermediaries that full charges have been reported on their cost reports.
  
  
• Must the hospital obtain prior approval of CMS or the hospital’s fiscal intermediary before offering discounts? No.
  
  
• Will Medicare reimburse hospitals for Medicare patient’s unpaid deductibles or coinsurance as bad debt? Yes, provided the hospitals bill the patients and engage in reasonable, consistent collection efforts before determining an amount uncollectible. If a hospital, through its financial assistance guidelines and indigency policies determines that a patient is indigent, it may forego collection efforts and still seek bad debt reimbursement.
  
  
• May a hospital determine its own individual indigency criteria? Yes, so long as it applies the criteria uniformly.
  
  
• Does CMS mandate any particular documentation a hospital must obtain in order to make an indigency determination? No, but if a hospital wants to claim Medicare bad debt reimbursement, CMS does require documentation to support the indigency determination. Remember that a hospital may examine a patient’s total resources, which could include but are not limited to, an analysis of assets, liabilities, income and expenses.

Areas of Inquiry When Evaluating Financial Assistance Guidelines

• Are my hospital’s criteria for indigency still viable in light of changes to reimbursement and eligibility under the Oregon Health Plan?
  
  
• Have there been other changes in my hospital or community that might change how my hospital defines financial need?
  
  
• What indigency factors, if any, should my hospital consider in addition to income?
  
  
• Does my community have a significantly higher or lower standard of living than other areas in the state?
  
  
• Should my hospital’s financial assistance guidelines establish geographic boundaries?
  
  
• How will my discounted rates for indigent patients compare to rates applied to private insurers, Medicare reimbursement?
  
  
• What constitutes being “uninsured”? What about patients with Medical Savings Accounts?
  
  
• What kind of outreach and education should my hospital engage in to ensure my community understands our financial assistance policies and charity care obligations?
  
  
• Are my hospital’s financial assistance guidelines consistent with our charitable mission?
  
  
• Are the principles discussed above in this document being met?