Can You Legally Waive Your Patients’ Co-Pays?

Before you waive copayment for a patient,  here are a few risks and situations to consider.

As healthcare providers, you understand that medical expenses can be overwhelming for your patients. And while waiving all costs is not possible, you wonder if you should routinely waive the copayment requirements for your most vulnerable patient populations: seniors and lower-income patients. The answer is that waiving a patient’s co-pay is sometimes appropriate. Let’s break down the risks of routinely waiving co-pays and discuss when it may be allowed.

Risks for waiving co-pays under Medicare and Medicaid

Routinely or regularly waiving co-pays for Medicare or Medicaid patients poses several issues for your practice. Because both Medicare and Medicaid are federally funded programs, you run the risk of violating several federal laws.

False Claims Act Violations

First, you risk violating the False Claims Act, which makes it illegal to knowingly submit a false claim to the government, causing someone else to submit a false claim to the government, or knowingly making a false record or statement in order to get a false claim paid by the government. Basically, the False Claims Act makes defrauding the government illegal.

When a medical practice waives a co-pay and then submits the full claim amount to Medicare or Medicaid, the provider often misstates the actual cost of the service or product. For example, if the provider charges $100 for a service but then routinely waives the $20 co-pay, then the actual cost of the service is $80. If Medicare pays 80% of the patient’s bill, that means that Medicare should be paying 80% of $80 (which is $64), and not 80% of $100. If this hypothetical practice filed a claim for $100 with Medicare – expecting to get reimbursed for $80 and then “waive” the $20 copay – it would’ve defrauded Medicare by $16.   

The False Claims Act carries civil, administrative, and criminal penalties. A violation could result in: a federal prison sentence, large fines, and exclusion from federally funded healthcare programs.

Anti-Kickback Statute Violations

Second, by routinely waiving patients’ co-pays, you also risk liability under the Anti-Kickback Statute. This statute prohibits the exchange of anything of value (e.g., discounting a co-pay to $0) for referrals for services that are payable by federal programs, like Medicare or Medicaid. 

In a 1994 Special Fraud Alert, the Office of the Inspector General of the U.S. Department of Health and Human Services (HHS) noted that when providers routinely waive financial obligations, except in the cases of genuine financial hardship, providers may be unlawfully inducing that patient to purchase more products or services from the provider. This is problematic for two reasons: it violates the Anti-Kickback Statute and it can promote the over-utilization of federally funded healthcare programs.

The results of violating the Anti-Kickback Statute can be costly, with penalties including criminal prosecution and significant criminal fines, as well as exclusion from federally funded healthcare programs.

Decrease in Medicare Reimbursements

According to data from the Centers for Medicare and Medicaid Services (CMS), fewer providers are opting out of Medicare, which means that they increasingly rely on Medicare reimbursements in their practice.  Routinely waiving co-pays can lead to reduced Medicare reimbursements.

Under the Medicare Claims Processing Manual, a co-pay is included in the reasonable charge for a product or service. Therefore, if a Medicare carrier determines that you routinely discount your patients’ co-pay obligations to $0, several things happen. Medicare will: 

  1. process the current claim based on the actual (not billed) charge
  2. reduce the provider customary charge by 20%
  3. refer you and your practice for additional investigation for fraud and abuse of federally funded programs.

By routinely waiving co-pays, you may increase your risk of a government investigation and have your Medicare reimbursements decreased.

Risks for waiving co-pays under private insurance

Unsurprisingly, routine waivers of co-pays are problematic for private insurance companies.  Here, there are two main issues. First, when a provider discounts fees for certain patients but not for others, without valid reasoning for the difference in treatment (such as documented financial hardship), it can lead to false billing claims by either a party not getting the discount or the insurer themselves. 

Secondly, routinely waiving co-pays can be considered a breach of the practice’s contract with the insurance company. Most private insurers contractually require practices seeking reimbursement to make reasonable efforts to collect co-pays from patients. Similarly, most private insurers will only pay claims when the charge for the product or service submitted by the provider is the actual charge. This means that the practice can’t “settle” for receiving only what the insurance company reimburses while not demanding payment from the patient too – the insurance contract likely requires that the practice work to collect payment from the patient if it files a claim for the service.

The possible penalties for routinely waiving co-pays for a patient with private insurance is that the insurer could pursue general contract damages against you. Additionally, and more significantly, a violation of the terms of the insurance plan is usually a valid basis for the insurer to proceed with a recoupment audit against you.

Under a recoupment audit, an insurance company requests proof of collection of co-pays for five randomly selected patients. The practice must then prove either that it collected that co-pay or that it made all reasonable efforts to collect the co-pay. If the practice can’t do so, the insurance company may demand a refund for benefits paid across a larger patient population.

Is waiving a co-pay calculated into charity care?

Charity care is a common term referring to a practice’s policy of providing either free or significantly discounted services to patients who meet certain established criteria. Generally, courtesy discounts aren’t considered part of a practice’s charity care program, as charity care is typically rendered through a standardized, income-based program. Also, services provided as “charity care” can’t be reimbursed by Medicare (meaning that you’re agreeing to donate 100% of the costs of that care, as you can’t request partial reimbursement from the government).

When can you waive a patient’s co-pay?

Both the federal healthcare programs and private insurance allow occasional waivers for patients who can demonstrate financial hardship. Generally, both government and private insurers require that the practice make a good faith effort to collect co-pays from patients. HHS’ 1994 Special Fraud Alert noted that providers need to make good faith efforts to collect co-pays, apart from the cases of special financial needs of certain patients.

Private insurers usually contractually require providers to generally make good faith effort to collect co-pays. If you choose to occasionally waive co-pays for patients with financial hardships, it makes good sense that your practice should document the particular hardship.

Contact an experienced healthcare attorney to ensure your practice policies don’t run afoul of federal law

Jackson LLP’s experienced health care attorneys understand the nuances of federal regulations and insurance contracts. If you have questions about your firm’s compliance with the False Claims Act, the Anti-Kickback Statute, and other requirements, please schedule a complimentary consultation with our firm by calling any of our offices or clicking the button below.

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