Alerts and Updates

OIG Approves Prompt Payment Discount Arrangement

February 21, 2008

On February 8, 2008, the Department of Health and Human Services Office of the Inspector General ("OIG") issued Advisory Opinion No. 08-03, in which it approved a health system's plan to offer prompt payment discounts to all patients for inpatient and outpatient services, regardless of their ability to pay. Because the prompt payment discount would necessarily reduce beneficiaries' coinsurance and deductible amounts for Medicare and Medicaid, the discounts could potentially have been considered payments to induce patients to obtain services at the health system's facilities. Nevertheless, 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 Proposed Program

The health system's proposed plan would provide discounts ranging from 5% to 15% to all patients for prompt payment of their cost-sharing amounts and amounts owed for non-covered services. For inpatients, the health system incorporated into the program the elements of the anti-kickback safe harbor for waivers of beneficiary coinsurance and deductible amounts for inpatient services. 42 C.F.R. § 1001.952(k). Specifically, the health system would not claim the waived amounts as bad debt or otherwise shift the burden to the Medicare or Medicaid programs, other third-party payers, or individuals; would not advertise the program; and would not use the program as part of a price reduction agreement between the health system and a third-party payer. In addition, the health system would offer the program without regard to the patient's reason for admission, length of stay, or diagnostic-related group; would bear all costs associated with administering the program; and would certify that the amount of the discount would bear a reasonable relationship to the system's avoided collections costs.

OIG Analysis

Because the health system's prompt payment program met the requirements of the anti-kickback safe harbor for waivers of beneficiary coinsurance and deductible amounts for inpatient services, the OIG had no difficulty approving this aspect of the program. With respect to outpatient services, which are not covered by the safe harbor, the OIG analyzed whether the discount was a disguised payment for referrals or a legitimate prompt payment incentive. The OIG determined that the prompt payment plan was a legitimate prompt payment incentive and there was minimal risk that the program would induce patients to self-refer to the health system for services.

The OIG's decision was based on four features of the program that were very similar to the elements of the inpatient safe harbor. First, the program would not be publicly advertised and the patient would be informed of the program only during the billing process. Second, third-party payers would be notified of the prompt payment program. Third, the costs of the discount program would be borne by the health system. Fourth, the amount of discounted fees would bear a reasonable relationship to the amount of avoided collection costs.

Hospitals and health systems considering a similar program should adopt procedures that emphasize that such a program is designed to reduce accounts receivable and costs of debt collection, and to boost cash flow. In this case, the discount by definition will have the purpose of encouraging prompt payment and not prohibited referrals.

For Further Information

If you have any questions about this Alert or would like more information, please contact Philip H. Lebowitz or the Duane Morris Health Law attorney with whom you typically confer.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.