Popovits & Robinson - Client Advisories

April 2004 - OFFERING DISCOUNTS TO PATIENTS

The Department of Health and Human Services (DHHS) has announced an official position on the issue of hospitals offering discounts to patients. The DHHS policy on this issue is as follows:

POLICY SUMMARY

Hospitals may offer discounts to uninsured and underinsured patients who cannot afford their hospital bills;
Hospitals may discount or waive the cost-sharing obligations of Medicare beneficiaries; and
Hospitals may offer discounts to self-pay or insured patients with large medical bills.

SYNOPSIS
According to a February 19, 2004 letter from Tommy G. Thompson, Secretary of DHHS, to the American Health Lawyers Association, nothing in the Medicare program rules or regulations prohibit hospitals from helping financially needy patients. This statement is supported by a series of Frequently Asked Questions prepared by the Centers for Medicare and Medicaid Services(CMS) and a guidance document issued by the DHHS Office of Inspector General (OIG). Both documents were posted earlier this year on the agencies’ respective websites.

BACKGROUND
This policy is in sharp contrast to the legal and health care community’s current understanding that Federal law and DHHS regulations require hospitals to bill all patients using the same schedule of charges in order to avoid violating the following two federal laws:

First, the anti-kickback statute prohibits a hospital from giving or receiving anything of value in exchange for referrals of business payable by a Federal health care program. According to the OIG, the anti-kickback statute does not prohibit discounts to uninsured patients so long as the discounts may not be linked in any manner to the generation of business payable by Medicare and Medicaid.

Second, Section 1128(b)(6)(A) of the Social Security Act permits the OIG to exclude from participation in the Federal health care programs any provider that submits bills or requests payment from Medicare or Medicaid in an amount substantially more than the provider's usual charges. However, the OIG emphasized that discounts would not violate this provision unless hospitals routinely charged Medicare and Medicaid beneficiaries substantially higher amounts than other customers.

GUIDELINES FOR OFFERING DISCOUNTS

Highlights from the CMS’ FAQ’s and the OIG’s guidance document

Federal law and regulations do not require that hospitals charge all patients the same price nor charge Medicare and Medicaid beneficiaries the “best price.” Rather, a hospital may not charge Medicaid and Medicare substantially more than other payors for the same services.
Hospitals may offer discounts to uninsured and underinsured patients so long as the discounts are not used to induce Medicaid and Medicare beneficiaries to seek services from the hospital.
Hospitals may waive coinsurance for Medicaid beneficiaries who cannot afford their Medicare cost-sharing obligations if the discount is done as part of the hospital’s indigency policy, is not advertised and is done after making a good faith assessment of an individual’s financial need.
Hospitals may also offer discounts to self-pay or insured patients with large medical bills in the same way that a hospital can waive collection of charges for individuals under its indigency policy.
Hospitals have flexibility in establishing their own indigency policies and do not need permission prior to offering discounts. However, these policies should be based on objective criteria and uniformly applied to all patients.
Hospitals should carefully document their charity care / indigency policies and should properly note all patient discounts on patient accounts.
Hospitals should ensure their Medicare cost reports reflect full uniform charges rather than the discounted amounts.

IMPACT ON NON-PROFIT HOSPITALS

The DHHS patient discount position will help provide additional avenues for non-profit hospitals to provide charity care thus providing additional support to the organization’s tax exempt status. Nonprofit hospitals and health care organizations are exempt from federal income tax under Internal Revenue Code Section 501(c)(3) only if they are organized and operated exclusively for charitable purposes within the meaning of the statute. See Treas. Reg. § 1.501(c)(3)-1(c)(2).
Hospitals are generally not required to provide any minimum amount of charity care to maintain their tax exempt status other than an emergency room open to all patients regardless of their ability to pay. However, the IRS issued an internal field service advice memorandum in February 2001 that advised IRS agents to look not only at a provider’s stated policy regarding charity care, but at what the provider actually does and how it documents its charity care.