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Copayments & Deductibles, The Same Old Story  

03.01.2018

Recent updates to the Department of Health and Human Services Office of Inspector General (OIG) "Work Plan" indicate that OIG has taken an interest in the utilization of certain off-the-shelf orthotic devices, and will therefore be paying closer attention to Medicare/Medicaid reimbursements of those products in 2018. Of course, scrutiny of the durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) industry by federal and state regulators is nothing new. The Centers for Medicare and Medicaid Services (CMS) have long regarded the industry as being particularly vulnerable to fraud. Accordingly, manufacturers, suppliers, and marketers of DMEPOS products (collectively, "DMEPOS suppliers") should avoid even the appearance of impropriety in their dealings with covered providers and beneficiaries of Medicare, Medicaid, and other federal health care programs. It is especially important that DMEPOS suppliers toe the line when offering discounts on, and promoting the sale/purchase of, their products.

A common question received from DMEPOS suppliers is whether (and if so, how) they can offset the out-of-pocket cost-sharing amounts (e.g., copayments and deductibles) that patients have to pay for their products. Such offsets may be proposed as discounts, rebates, prompt-pay incentives, or coupons that reduce the product’s total cost or directly reduce only the patient’s cost-sharing portion. In this article, we will refer to all of the above as a discount.

As anyone knowledgeable about the healthcare industry knows, there are a myriad of complex legal issues that must be carefully navigated in order for a provider or supplier to comply with applicable federal and state laws and the terms of its contracts with private payors when promoting and honoring discounts. For one, the supplier’s practices must conform to U.S. Federal Trade Commission regulations as well as the laws of the states in which its products are sold. In Idaho, for example, it is "unlawful for a service provider to engage in a regular practice of waiving, rebating, giving, paying, or offering to waive, rebate, give or pay all or part of a claimant’s deductible or claim for . . . health insurance." Idaho Code § 41-348(2). For another, managed care contracts with commercial payors typically require full collection of the customer’s cost-sharing amount. Unauthorized discounts could therefore give rise to claims for breach of contract, tortious interference with contract, and statutory or common law fraud—particularly if there is no showing of the patient’s financial need or the supplier’s reasonable but unsuccessful collection efforts. See, e.g., Aetna Life Ins. Co. v. Bay Area Surgical Mgmt. LLC, Case No. 1:12-cv-217943 (Cal. Super. Ct. Feb. 2, 2012). Before offering discounts of any kind, a provider or supplier should seek qualified legal counsel.

Additionally, we must analyze the effect, if any, of the proposed discount on federal healthcare programs. If a provider or supplier’s products are sold to beneficiaries of, and may be paid for by, a federal healthcare program, then the supplier’s practices must comply with both the federal anti-kickback statute and the civil monetary penalties law. The anti-kickback statute makes it a criminal offense to knowingly and willfully offer or give anything of value in order to induce or reward the purchase of any item for which payment may be made by a federal health care program, such as Medicare or Medicaid. Similarly, the civil monetary penalties law makes it unlawful to offer or give anything of value to a Medicare or Medicaid beneficiary that is likely to influence the beneficiary to order or receive from a specific supplier any item for which payment may be made by Medicare or Medicaid. A discount would clearly constitute anything of value, regardless of the form of discount, and there are harsh penalties for violating either law.

Because of their breadth, both the federal anti-kickback statute and the civil monetary penalties law have certain exceptions and so-called "safe harbors" that allow specific practices, but only a few are applicable to discounts. Unfortunately, there is no exception or safe harbor that would protect a DMEPOS supplier that wants to offset its customers’ out-of-pocket costs generally and without regard to any customer’s financial need. The OIG has expressly noted that the discount exception to the federal anti-kickback statute does not apply to discounts offered directly to beneficiaries. The discount safe harbor may apply, but the discount must be properly structured.

The discount safe harbor allows discounts on a DMEPOS product to be given, by a seller to a buyer, if: (1) the discount is made (or the terms of the rebate are fixed and disclosed) at the time of sale, and (2) when the seller submits a claim or request for payment on behalf of the beneficiary, the seller fully and accurately reports the discount to the federal or state health care program. Importantly, the definition of "discount" excludes any cost reduction offered to one payor unless the same reduction is applicable to the federal health care program. In other words, for a discount given to a Medicare or Medicaid beneficiary to be protected under the safe harbor, the same discount must also be given to the federal payor. According to the OIG:

As a general rule, discounts for health care items and services are encouraged under the Federal health care programs so long as the Federal health care programs share in the discount where appropriate, and as appropriate, to the reimbursement methodology. Arrangements in accordance with which Federal programs get less than their proportional share of cost-savings on items or services payable by the programs are seriously abusive. Such arrangements result in the programs being overcharged and are not protected by either the statutory exception or the regulatory safe harbor for discounts.

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The most important aspect of the discount safe harbor is that the Federal health care programs share in the discount in proportion to the percentage the programs pay of the total cost. Congress intended to protect discounts that could fairly benefit the Federal health care programs. It is our intention in these regulations to ensure that the only discounts protected are those where the Federal programs receive such benefit.

Equally important is the definition’s explicit exclusion of routine reductions and waivers of beneficiaries’ cost-sharing amounts, which is essentially just an extension of the definition’s exclusion for discounts offered to one payor but not to the federal health care programs. To the extent that a beneficiary’s cost-sharing amount is partially or completely waived, the federal health care programs must be given a proportionate discount. However, such a proportionate discount may be impractical if the goal is to relieve the beneficiary of his or her payment obligation. Moreover, any discount program that focuses solely on reducing the beneficiary’s cost-sharing obligations is problematic.

Furthermore, the OIG’s Compliance Program Guidance for the DMEPOS Industry takes a strong position against waivers of copayments and deductibles, as well as any marketing or promotion that suggests to federal health care program beneficiaries that they may not be charged their full cost-sharing amount.

Routine waivers of deductibles and coinsurance may result in false claims, [civil monetary penalties ("CMP"s)] for inducements to beneficiaries, and violations of the anti-kickback statute or similar Federal or State statute or regulations. In addition to the potential problems regarding kickbacks, false claims, and CMPs, the OIG has programmatic concerns when DMEPOS suppliers routinely waive deductibles and coinsurance. When DMEPOS suppliers forgive financial obligations for reasons other than genuine financial hardship of a particular patient, they may be inducing the patient to use items or services that are unnecessary, simply because they are free. Such usage may also lead to overutilization.

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Salespeople must not offer physicians, patients or other potential referral sources incentives, in cash or in kind, for their business. Similarly, they must not engage in any marketing activity that either explicitly or implicitly implies that Medicare beneficiaries are not obligated to pay their coinsurance or can receive "free" services. In addition, DMEPOS suppliers must not promote items or services to patients or physicians that are not reasonable or necessary for the treatment of the individual patient.

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The OIG believes marketing strategies employed by all DMEPOS suppliers, regardless of size, should be clear, correct, honest, straightforward, non-deceptive and fully informative. In addition, all DMEPOS suppliers should inform their sales people of potential anti-kickback concerns, the telemarketing law, and the prohibition on inappropriately using references to Social Security and Medicare.

Historically, hospitals, drug companies, and DMEPOS suppliers have offered various forms of direct support to privately insured patients aimed at reducing or eliminating their out-of-pocket costs for specific items and services. For example, drug companies often give "copayment coupons" to privately insured patients. However, the OIG has unambiguously clarified its position that "copayment coupons constitute remuneration that is offered to consumers to induce the purchase of specific items" and thus, "[w]hen the item in question is one for which payment may be made, in whole or in part, under a Federal health care plan . . . the anti-kickback statute is implicated."

In other words, the OIG has concluded that copayment coupons satisfy the remuneration and intent elements of the anti-kickback statute. Therefore, while copayment coupons may be provided to privately insured patients, they are plainly illegal if provided to federal health care program beneficiaries. Moreover, although other types of cost-sharing reductions (e.g., prompt-pay discounts) have not similarly been found to necessarily serve an illegal purpose, when such discounts were applied only to a patient’s cost-sharing amount (i.e., not shared with the federal payor), they have been found to fail to meet the safe harbor’s requirements and thus potentially violate the anti-kickback statute.
It should be noted, however, that although routine waivers of copayments and deductibles can be problematic under the federal regulations, the OIG does understand the need to waive such copayments and deductibles in specific financial situations—but, even then, the waivers must be determined on a case-by-case basis and cannot be routine. In its Compliance Program Guidance, the OIG provides that:

DMEPOS suppliers are permitted to waive the Medicare coinsurance amounts for cases of financial need. We recommend that the DMEPOS supplier develop and maintain written criteria documenting its policy for determining financial need and consistently apply this criteria to all cases. A good faith effort must be made to collect deductibles and coinsurance.

In sum, there is no bullet-proof approach for a provider or supplier to lower patients’ out-of-pocket costs on items that are payable under a federal health care program, unless the provider or supplier (a) gives the federal payor a proportionate discount or (b) makes a case-by-case determination of the patient’s financial need for such a waiver. Neither the timing of the discount nor the form in which it is presented is a material factor. Unless the relevant federal health care program shares in the discount, the discount safe harbor will not apply. DMEPOS suppliers are well advised to remember that any monetary incentive that is advertised, promoted, or otherwise made known to a federal health care program beneficiary before he or she decides to order the supplier’s product will implicate both the anti-kickback statute and civil monetary penalties law.

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