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 it’s not possible to eliminate all costs, you wonder if you should routinely waive the copayment for seniors, lower-income patients, or members of other vulnerable populations.

Sometimes, waiving a patient’s co-pay is appropriate. But not always. 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 potential problems for your practice. Because both Medicare and Medicaid are federally funded programs, you risk violating multiple 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, cause someone else to submit a false claim to the government, or knowingly make a false record or statement to get a false claim paid by the government. In short, the False Claims Act prohibits defrauding the government.

When a medical practice waives a co-pay and then submits the whole 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. Then, if Medicare pays 80% of the patient’s bill, that means that Medicare should be paying 80% of the actual cost of $80 (which equals $64) and not 80% of $100.

Say the practice filed a claim for $100 with Medicare—expecting to get reimbursed for $80 and then “waive” the $20 co-pay. In this case, 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, hefty 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 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. Therefore, it’s problematic for two reasons: it violates the Anti-Kickback Statute and 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, significant criminal fines, and 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. In other words, providers 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%; and
3. refer you and your practice for additional investigation for fraud and abuse of federally funded programs.

As a result, by routinely waiving co-pays, you may increase your risk of a government investigation and decrease your Medicare reimbursements.

Risks for Waiving Co-Pays Under Private Insurance.

Unsurprisingly, routine waivers of co-pays are problematic for private insurance companies also. Two main issues arise.

False Billing Claims.

First, say a provider discounts fees for certain patients but not others, without valid reasoning for the difference in treatment (such as documented financial hardship). Patients who do not receive the discount may allege false billing. Sometimes the insurer will make this argument, as well.

Breach of Contract.

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. In other words, the practice can’t “settle” for receiving only what the insurance company reimburses while not demanding payment from the patient as well. The insurance contract likely requires that the practice attempt to collect payment from the patient if it files a claim for the service.

Penalties.

If you routinely waive co-pays for a patient with private insurance, insurers could pursue general contract damages against you. Additionally, and more significantly, a violation of the terms of the insurance plan can serve as 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 that it collected that co-pay or 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.

See our related articles, “Understanding Insurance Audits” and “Understanding Insurance Clawbacks.”

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 specific 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. In other words, you agree to donate 100% of the costs of that care. You cannot request partial reimbursement from the government.

When Can You Waive a Patient’s Co-Pay?

Both federal healthcare programs and private insurance allow occasional waivers for patients who can demonstrate financial hardship. 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.

Similarly, private insurers usually contractually require providers to make a good faith effort to collect co-pays. If you choose to waive co-pays for patients with financial hardships occasionally, be sure to document the particular hardship.

Get Legal Support.

Jackson LLP’s experienced health care attorneys understand the nuances of federal regulations and insurance contracts. If you operate in one of the states where we have licensed attorneys, schedule a complimentary consultation with our firm. We can help you comply with the False Claims Act, the Anti-Kickback Statute, and other requirements.

This blog is made for educational purposes and is not intended to be specific legal advice to any particular person. It does not create an attorney-client relationship between our firm and the reader. It should not be used as a substitute for competent legal advice from a licensed attorney in your jurisdiction.