OIG Releases Advisory Opinion Concerning Prompt Pay Discount

February 15, 2008

On February 8, 2008, the Office of Inspector General (OIG) published OIG Advisory Opinion No. 08-03, in which it analyzed under the Anti-kickback Statute a proposed arrangement whereby a health care system (Health System) would provide prompt pay discounts to federal health care program beneficiaries and other insured patients (Proposed Arrangement).

The OIG concluded that the Proposed Arrangement could potentially generate prohibited remuneration under the Anti-kickback Statute if there existed an intent to induce referrals of Federal health care program business, but that it would not impose administrative sanctions on the Health System in connection with the Proposed Arrangement. Further, the OIG found that the Proposed Arrangement would not constitute grounds for the imposition of civil monetary penalties.

Under the Proposed Arrangement, the Health System would offer a discount for prompt payment of cost-sharing amounts as well as amounts owed for non-covered services to Medicare, Medicaid and other Federal health care program beneficiaries and to other insured patients. The prompt pay discount would be offered to recipients of both inpatient and outpatient services regardless of their financial status or their ability to pay. Patients or their representatives would be told about the availability of prompt pay discounts only during the course of the actual billing process. The prompt pay discount would be based on the timing of the payment and the size of the balance owed by the patient according to the following schedule:

% of Bill Discounted on Payments Made Prior to Discharge:

• Balances $0 -- $999 = 10%
• Balances > $1,000 = 15%

% of Bill Discounted on Payments Made Post-Discharge But Within 30 days of Discount Offer:

• Balances $0 -- $999 = 5%
• Balances > $1,000 = 10%

The Health System asserted that it would not publicly advertise the prompt pay discount opportunity and that it would disclose the opportunity to third party payors. The costs associated with the proposed arrangement would be carried solely by the Health System.

The OIG analyzed the issue of prompt pay discounts for outpatient services separately from the issue of prompt pay discounts for inpatient services. It noted that the safe harbor for waivers of beneficiary coinsurance and deductible amounts found at 42 C.F.R. § 1,001.952(k) applies only to amounts owed by patients for inpatient hospital services. The OIG pointed out that the Health System's prompt pay discounts to inpatients would meet the safe harbor because the Health System would not claim the waived amount as bad debt or otherwise shift the burden to the Medicare or Medicaid programs, the Health System would waive the amount without regard to the patient's reason for admission, length of stay or diagnostic related group and the waiver would not be a part of a price reduction agreement between the Health System and a third party payor.

The OIG analyzed the prompt pay discounts for outpatient services by examining whether the prompt pay discounts may be a disguised payment for referrals. It determined that these prompt pay discounts would not be a means to induce patients to self-refer in light of the Health System's certification that the following safeguards would remain in effect:

• The Health System would not advertise the discount opportunity; patients would be informed of the availability of the prompt pay discount only during the course of the billing process;
• Other third party payors would be notified of the prompt pay discounts ^[];
• All costs of the Proposed Arrangement would be born by the Health System; and
• The amount of the discounted fees to patients would bare a reasonable relationship to the amount of avoided collection costs.

The OIG, therefore, concluded that (1) the Proposed Arrangement could potentially generate prohibited remuneration under the Anti-kickback Statute if there existed an intent to induce referrals of Federal health care program business, but that the OIG would not impose administrative sanctions on the Health System in connection with the Proposed Arrangement; and (2) the Proposed Arrangement would not constitute grounds for the imposition of civil monetary penalties.

Note that Advisory Opinion 08-03 is applicable only to the application of the Anti-Kickback Act and the civil monetary penalties provisions of the Social Security Act to the Proposed Arrangement. The opinion is silent as to the application of any other federal, state, or local statute, including the Stark law. CMS, rather than the OIG, is charged with enforcing the Stark law, which would apply only to the physician component of prompt pay discounts to federal health care program beneficiaries.

[] It is worth noting that in Phase III of the Stark law, CMS eliminated from the professional courtesy exception the requirement that an entity must notify an insurer when the professional courtesy involves the elimination or reduction of any coinsurance obligation. In the preamble to the Final Rule, though, CMS noted that providing such notice would be a "prudent practice." 72 Fed. Reg. 51012, 51065 (Sept. 5, 2007).