• OIG Advisory Opinion Approves Arrangement for Patient Prompt Payment Discount
  • March 31, 2008
  • Law Firm: Hinshaw & Culbertson LLP - Chicago Office
  • The Office of the Inspector General (“OIG”) issued Advisory Opinion No. 08-03 on February 8, 2008, which approves a health system’s plan to offer prompt payment discounts to federal health care program beneficiaries and other insured patients for inpatient and outpatient services. The proposed plan would provide discounts ranging from 5 percent to 15 percent to all patients for prompt payment.

    The health system that sought this OIG Advisory Opinion owns and operates two acute care hospitals and one critical access hospital. Under the proposed arrangement, the health system would offer to Medicare, Medicaid and other federal health care program beneficiaries, along with all other insured patients, a discount for prompt payment of their cost-sharing amounts and amounts owed for non-covered services for which the patients received an advanced beneficiary notice. The health system designed the proposed prompt pay discount to reduce accounts receivables and cost of debt collection and to boost its cash flow. The health system certified to the OIG that the amount of fees discounted to patients under the proposed arrangement would bear a reasonable relationship to the amount of collection costs that would be avoided.

    Under the proposed arrangement, the prompt pay discount would be offered in connection with both inpatient and outpatient services and would be offered to insured patients regardless of their financial status or their ability to pay. Patients would benefit from the prompt pay discount in the following two circumstances:  (1) when payments are made on a hospital bill prior to the discharge of the patient; or (2) when payments are made after discharge, but within 30 days of the patient’s being informed of the discount offer. The amount of the prompt pay discount would depend on both the timing of the payment and the size of the remaining balance owed by the patient.

    The health system’s proposed prompt pay discount would not be publicly advertised and the health system would only notify patients at certain times during the ordinary course of dealing with patients including: when the patient registers for outpatient services and the patient pays his or her cost-sharing amount; when the health system sends written statements to a patient by mail; and when financial arrangements are made between the health system and the patient, or his or her appointed financial counselor, and after admission for inpatient health services.

    The health system certified to the OIG that it would disclose the fact of the prompt pay discount to third party payors and that the system would not claim the waived amount as bad debt or otherwise shift the burden to the Medicare or Medicaid programs or other third party payors or individuals. Under the proposed arrangement, the prompt pay discount would be offered without regard to the reason for the patient’s admission, length of stay, diagnostic-related group or ambulatory payment classification. The costs associated with the proposed arrangement would solely be carried by the health system and the amount of the discount would bear a reasonable relationship to the system’s avoided collections costs.

    The prompt payment discount will reduce the beneficiaries’ coinsurance and deductible amounts for Medicare and Medicaid, and the discounts could potentially be considered payments to induce patients to obtain services at the health system’s facilities. However, upon analysis of the proposed prompt payment discount arrangement, the OIG advised the health system that it would not impose sanctions under the Anti-Kickback Statute or civil monetary penalties based on the health system’s offering the discounts. The OIG determined that the health system could satisfy the safe harbor for waivers of beneficiaries coinsurance and deductible amounts, 42 CFR § 1001.952(k), by fulfilling the following conditions: the facility cannot claim the waived amount as bad debt or otherwise shift the burden to the Medicare or Medicaid programs, other third party payors, or individuals; the facility must make the waiver without regard to the patient’s reason for admission, length of stay, or diagnostic related group; and the waiver may not be a part of a price reduction agreement between the facility and a third party payor.

    Under the proposed arrangement, the health system certified that it would adhere to all of these conditions and the OIG found that the system’s prompt payment program met the requirement of the Anti-Kickback safe harbor for waivers of beneficiary coinsurance and deductible amounts for inpatient services. The safe harbor does not cover outpatient services, and the OIG analyzed whether the discount was a disguised payment for referrals or a legitimate prompt payment incentive. The OIG determined that the health system incorporated various commitments that suggest that the prompt pay discount would be a legitimate prompt payment incentive and not a means to induce patients to self-refer.

    The OIG’s decision was based upon certain components of the prompt payment discount program, which are similar to the criteria of the inpatient safe harbor and include: the discount program would not be advertised and patients and their representatives would only be informed of the prompt pay discount’s availability during the course of the actual billing process; third party payors would be notified of the prompt payment policies; all of the costs of the arrangement would be borne by the health system; and the amount of the discounted fees would bear a reasonable relationship to the amount of avoided collection costs.

    While this OIG Advisory Opinion provides valuable guidance, the opinion cannot be relied upon by any individual or entity other than the requesting health system. Health systems considering the implementation of a prompt payment discount arrangement should engage experienced health care counsel to assist in structuring the program and drafting policies and procedures.