Summary of OIG Advisory Opinion 08-03

From the American Health Lawyers Association (www.healthlawyers.com):

Summary of OIG Advisory Opinion 08-03
Issued January 30, 2008, and posted February 8, 2008
Written by Ingrid Brydolf, Reviewed by Joseph M. Kahn*

Advisory Opinion 08-03 analyzes a healthcare system's provision of prompt pay discounts to inpatients and outpatients, and concludes that while the program could potentially generate prohibited remuneration under the anti-kickback statute if the requisite intent to induce referrals were present, the Office of Inspector General (OIG) would not impose administrative sanctions and that no grounds for imposing civil monetary penalties would exist.

Under the proposed arrangement, the three-hospital healthcare system would offer a discount to patients, including federal healthcare program beneficiaries and other insured patients, for prompt payment of their cost-sharing amounts and amounts owed for non-covered services. The program is structured to reduce the healthcare system's collection costs and the discount (5-15% of bill amount) would bear a reasonable relationship to the system's avoided collections costs. The program would be offered to both inpatients and outpatients, regardless of ability to pay.

The system would not publicly advertise the prompt pay program. Patients would only be informed of the availability of the discount when the patient registered for outpatient services and paid his or her cost-sharing amount, when written statements were sent to the patient by mail, and when financial arrangements were made with the patient after admission for inpatient services. In addition, the system would notify all payers of the program, and the system would bear all costs associated with administering the program.

The OIG began its analysis with the anti-kickback safe harbor for waivers of beneficiary co-insurance and deductibles for hospital inpatients, 42 C.F.R. § 1001.952(k). The safe harbor applies only to inpatient services and requires the following: the facility cannot claim waived amounts as bad debt or otherwise shift the burden to the Medicare and Medicaid programs or other third-party payers or individuals; the facility must make the waiver without regard to the patient's reason for admission, length of stay, or diagnostic related group; and the waiver may not be a part of a price reduction agreement between the facility and a third-party payer. The healthcare system certified that its inpatient program would meet each of these requirements.

With respect to outpatient services, which by definition are not covered by the safe harbor, the OIG analyzed whether the discount was a disguised payment for referrals. The OIG determined that because of the following program features, the risk was sufficiently reduced. First, the discount would not be publicly advertised and the patient would only be informed of the discount during the billing process. Second, third-party payers would be notified of the discount program. Third, the costs of the discount program would be borne solely by the healthcare system. Fourth, the amount of discounted fees would bear a reasonable relationship to the amount of avoided collection costs.

For these same reasons, the OIG also concluded that grounds would not exist for the imposition of civil monetary penalties against the system.

*The AHLA Practice Group Leadership would like to thank Advisory Opinions Task Force members Ingrid Brydolf (Davis Wright Tremaine LLP, Portland, OR) and Joseph M. Kahn (Nexsen Pruet PLLC, Greensboro, NC), for respectively writing and reviewing this summary.