Moving the HME Industry Forward

Billing/Reimbursement

Waiver of Copayments – What You Can and Cannot Do

November 25, 2013

AMARILLO, TX – These are strange times. The DME industry, as we know it today, is about 30 years old. We are a young industry; in our formative years we had very little guidance from the HCFA (now CMS). Capitol Hill and HCFA/CMS did not understand the DME industry during the first two decades of our existence and, in my opinion, their understanding has not noticeably improved.

The reason for this lack of understanding is relatively simple: The DME industry is primarily for the elderly. Today, I do not need DME. However, when I wake up one morning and I am 75 years old—and my body breaks down—then I will need the services of a DME supplier. Unless the elected officials and staffers on Capitol Hill, and the regulators in Baltimore, have been caregivers for their grandmother, then they will likely never have set foot in a DME store.

Within the last eight years, it is as if Capitol Hill, and particularly CMS, have gone into overdrive to “make up for lost time.” We are caught in the “perfect storm” of competitive bidding, reimbursement cuts, increasingly stringent documentation requirements, and auditors on steroids. It is tough. Balanced against this is the tsunami of 78 million Baby Boomers who are retiring at the rate of 10,000 per day. In other words, the demand for what the industry has to offer is increasing exponentially.

All of these factors place the DME supplier in the unenviable position of having to meet demand while dealing with multiple facets of regulatory oversight. In order to survive, the supplier needs to distinguish itself from its competition. Said another way, the supplier wants to convince prospective customers to purchase from the supplier rather than purchasing from the competitor down the street. In doing this, it is important that the supplier not step onto any of the “slippery slopes” that can result in an enforcement action by a governmental agency.

One of these “slippery slopes” pertains to waiving copayments. A DME supplier may be inclined to suggest to potential customers that if they purchase from the supplier, then the supplier will waive the customers’ copayments. While it is acceptable for a DME supplier to waive a copayment when a customer establishes an inability to pay, the supplier can be subjected to all kinds of liability if it routinely waives copayments.

There are two important federal statutes prohibiting routine waivers of copayments for beneficiaries of federal and state health plans. The law that most specifically addresses waiver of copayments is 42 U.S.C. 1320a-7a, sometimes called the beneficiary inducement statute.

That statute prohibits the offer or payment of “remuneration” to a beneficiary by any person/entity if the person/entity knows (or should know) that the remuneration is likely to influence the beneficiary to obtain items or services from a particular supplier. The definition of “remuneration” specifically includes waivers or reductions of copayment amounts, except when (1) the waiver is not advertised, (2) the supplier does not routinely waive copayments, and either (a) the supplier in good faith determines that the beneficiary is in financial need, or (b) the supplier fails to collect the copayment after making reasonable collection efforts.

The other relevant federal statute is the Medicare anti-kickback statute, 42 U.S.C. 1320a-7b(b). The anti-kickback statute prohibits, among other things, the offer or payment of remuneration to induce a person to purchase a Medicare or Medicaid-covered item or service. Unlike the inducement statute, the anti-kickback statute does not include a definition of “remuneration.” However, it is generally accepted that the term includes transferring “anything of value.”

The Office of Inspector General (“OIG”) has long taken the position that routine waivers of copayments violate the anti-kickback statute. In 1991, the OIG issued a Special Fraud Alert on the topic. Although the anti-kickback statute and the related regulations do not contain an explicit exception for financial hardship as the inducement statute does, the OIG stated: “One important exception to the prohibition against waiving copayments and deductibles is that providers, practitioners or suppliers may forgive the copayment in consideration of a particular patient’s financial hardship. This hardship exception, however, must not be used routinely; it should be used occasionally to address the special financial needs of a particular patient. Except in such special cases, a good faith effort to collect deductibles and copayments must be made.”

Violation of either the beneficiary inducement statute or the anti-kickback statute can lead to substantial monetary penalties as well as possible exclusion from the Medicare and Medicaid programs. It is important, therefore, for a DME supplier to adopt and enforce a policy of waiving copayments only in individual cases where the supplier determines that the patient is financially needy. In all other cases, the supplier should pursue normal collection efforts. In addition, the supplier should avoid advertising that could be taken to imply that the supplier will routinely waive copayments.

In the case of commercially-insured patients, the rules vary depending on the location and the circumstances. A few states have statutes that specifically prohibit routine waiver of commercial payor copyaments. In a few others, there are Attorney General opinions or other written guidance that have the same effect.

In states where copayment waivers are not prohibited by law, the analysis depends first on whether the provider has a contract with the payor. Virtually all commercial payor contracts require providers to collect copayments. If a provider is a contracted member of a payor’s network, routinely waiving copayments is a breach of the contract and can lead to termination by the payor.

When a provider does not have a contract with a payor, courts in a few states have held that waiver of copayments is nevertheless improper. In some cases, courts have based this holding on the insurance contract between the insurer and the beneficiary. In one prominent case, the patient’s policy stated that “no payment will be made for expenses incurred….for charges which the Employee or Dependent is not legally required to pay.”

The court found that since the provider had agreed to accept payment from the insurance company as payment in full, “the provider’s charge to the patient was zero, and 80% of nothing is nothing.” Under these cases, an out-of-network provider that waives copayments may receive no payment from the insurer.

In other cases, insurers have claimed that a provider that bills an insurer, while waiving a required copayment, commits insurance fraud because the provider is misstating its actual charge. A few courts have accepted this argument.

There are several different approaches to determining financial need. One is to collect detailed information about a patient’s income and expenses and analyze that information to determine whether the patient can afford to pay for the equipment he or she needs. In theory, this method should provide the most individualized results. However, there is no readily-available formula for converting income and expense data into a determination of need.

In addition, it is generally difficult to verify a patient’s reported expenses. Consequently, some suppliers choose to base their determinations just on the patient’s family income as measured against the federal poverty guidelines. A  typical policy might provide that if the patient’s family income is less than 200% of the federal poverty level, he or she will be considered to be financially needy. This method is much easier to apply, but provides a much less individualized determination.

A third approach combines elements of the first two. The initial determination is based on the poverty guidelines, but a patient who has unusual expenses may be determined to be needy despite exceeding the guidelines.

Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato PC, a law firm based in Amarillo, Tex. He represents pharmacies, infusion companies, HME companies, and other health care providers throughout the United States. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization and can be reached at (806) 345-6320 or jbaird@bf-law.com.