In response to general confusion and public concern regarding whether hospitals may offer discounts to indigent patients, HHS, CMS, and the OIG each issued guidance this past February to clarify their policies regarding hospital discounts to uninsured and underinsured patients. This new guidance, issued in the form of a letter from HHS, Q&As from CMS, and informal guidance from the OIG, should help hospitals and other entities to better understand when and how they may offer discounts or waivers of copayment and deductibles to their indigent patient populations and better serve their communities without fear of violating federal fraud and abuse laws.

HHS issued a letter to the American Hospital Association (AHA) on February 19, 2004, in response to that organization's inquiry regarding what hospitals can and cannot do with respect to discounts to uninsured or underinsured patients. In the letter, HHS stated unequivocally that "nothing in the Medicare program rules or regulations" prohibits hospitals from providing "discounts to uninsured and underinsured patients who cannot afford their hospital bills and to Medicare beneficiaries who cannot afford their Medicare cost-sharing obligations." Further, the letter indicates that the OIG has informed HHS that "hospitals have the ability to offer discounts to uninsured and underinsured individuals and cost-sharing waivers to financially needy Medicare beneficiaries."

The HHS letter to the AHA was prompted by concerns expressed by the AHA that regulations requiring hospitals to bill all patients using the same schedule of charges would force patients to pay full price for their care. CMS and the OIG both prepared summaries of their respective policies regarding this issue, to dispel this concern and to offer guidance with respect to what is and what is not permitted in terms of discounts and cost-sharing waivers for uninsured or underinsured patients.

According to CMS and the OIG, hospitals may waive collection of, or discount, charges to indigent patients. To do so, however, a hospital must provide the waiver or discount in accordance with an indigency policy which determines patients' financial ability to pay for services. CMS states that hospitals "have flexibility" here and may develop their own criteria. In addition, CMS and the OIG caution that waivers and discounts may not be linked to the generation of business payable by a federal health care program without potentially violating the federal antikickback statute or triggering civil monetary penalty provisions relating to inducements to beneficiaries.

Hospitals will be free to develop their own criteria for indigency under hospital policies and will not be required to obtain any special approval from the government. A hospital's Medicare cost reports, however, should reflect the hospital's full uniform charges rather than an amount reflecting indigency discounts, and the hospital should alert its intermediary that the hospital has reported its full charges. This will avoid issues with the hospital's cost-to-charge ratio and Medicare cost apportionment.

Although a hospital may set its own indigency criteria, it must apply the criteria to Medicare and non-Medicare patients in the same manner. CMS states that there are no documentation requirements with respect to indigency determinations other than those relating to a hospital's claim for Medicare bad debt reimbursement. A hospital should con-sider, however, creating and retaining some level of documentation with respect to its indigency policies and their uniform application to both Medicare and non-Medicare patients. Documentation required for bad debt reimbursement includes, generally, support of the indigency determination as well as collection efforts on the part of the provider. More specific guidance can be found in CMS's Provider Reimbursement Manual.

For hospitals that want to write off a patient's deductible or coinsurance, regardless of the patient's income level, CMS indicates that the hospital may do so as part of its "charity care" or as a "courtesy allowance." However, CMS cautions that Medicare will not reimburse these amounts, and further, the OIG warns that waivers of deductibles and copays implicate both the federal antikickback statute and statutory prohibitions against beneficiary inducements.

The OIG notes its long-standing concern regarding insurance-only billing that may be used to "entice Federal health care program beneficiaries to obtain items or services that may be medically unnecessary, overpriced, or of poor quality." The OIG states that there are two exceptions to the general prohibition against waivers of coinsurance and deductibles applicable to hospitals. The first exception permits a hospital (or other providers, practitioners, or suppliers) to forgive Medicare coinsurance or deductible "in consideration of a particular patient's financial hardship," so long as (1) the waiver is not offered as part of any advertisement or solicitation; (2) the hospital does not routinely waive coinsurance or deductible amounts; and (3) the hospital waives the amounts after determining in good faith that the individual is in financial need or reasonable collection efforts have failed. In determining financial need, the OIG states that hospitals should "use a reasonable set of financial need guidelines that are based on objective criteria and appropriate for the applicable locality." The OIG lists the following factors that may be considered in determining a patient's financial need: (1) the local cost of living; (2) a patient's income, assets, and expenses; (3) a patient's family size; and (4) the scope and extent of a patient's medical bills. In addition, the OIG suggests that if the waiver continues for a period of time, the hospitals should recheck a patient's financial status, as a patient's financial needs may change over time.

The second exception is through the OIG's safe harbor regulation relating to inpatient hospital services. Under the regulation, a hospital that complies with the requirements will fit within the safe harbor and not be prosecuted under the federal antikickback statute. It should be noted, however, that failure to fit within a regulatory safe harbor does not necessarily mean that an arrangement is unlawful. The safe harbor provides that a hospital may waive coinsurance and deductible amounts for inpatient services (for which Medicare pays under the prospective payment system) if the following conditions are met: (1) the hospital cannot claim the waived amount as bad debt or otherwise shift the burden to the Medicare or Medicaid programs, other payers, or individuals; (2) the waiver must be made without regard to the reason for admission, length of stay, or diagnostic related group; and (3) the waiver may not be part of a price reduction agreement between the hospital and a third-party payer. See 42 C.F.R. § 1001.952(k).

The OIG encourages hospitals or others to avail themselves of the OIG's advisory opinion process to obtain assurance that they will not "run afoul of the fraud and abuse laws." See 42 C.F.R. part 1008. A hospital seeking an advisory opinion from the OIG must submit a detailed, written description of its existing or proposed arrangement following certain protocols which may be found on the OIG's website at http://oig.hhs.gov/fraud/advisoryopinions.html.

The HHS letter to the AHA is available on HHS's website at http://www.hhs.gov/news/press/2004pres/20040219.html. The CMS Q&As are available on CMS's website at http://www.cms.hhs.gov/ FAQ_Uninsured.pdf. The OIG guidance is available on the OIG's website at http://oig.hhs.gov/fraud/docs/alertsandbulletins/2004/
FA021904hospitaldiscounts.pdf.