Extending a professional courtesy discount to a colleague could result in allegations of fraud, unless specific requirements are met.
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Published 10/1/2014
William R. Pupkis, CMPE

Is It Professional Courtesy or Fraud?

Regulations spell the demise of courtesy discounts

In the past, it was common for physicians to give “courtesy discounts” to colleagues and others. But passage of the Health Insurance Portability and Accountability Act, HIPAA, in 1996 made these discounts potentially illegal, with significant civil monetary and criminal penalties.

Not collecting deductible or coinsurance payments may have serious repercussions for a practice. The primary issues involve HIPAA, the Anti-Kickback Statute, Stark legislation, contractual considerations, and the effects of legislation on the provision of discounts.

The extension of fraud and abuse provisions to private carriers increases the likelihood of detection and prosecution, even in instances in which “intent” to defraud is questionable. Private health carriers now have an incentive to identify and publicize their efforts to curb fraud and abuse. Many explanation of benefits statements carry a standard message regarding fraud and abuse detection; some include an 800 number for beneficiaries to report suspect activities. Even where no fraud or abuse exists, disgruntled patients or employees have avenues through which they can voice their frustrations and concerns with the healthcare system.

According to the U. S. Department of Health and Human Services and the Office of the Inspector General (OIG), submitting false statements or committing fraud are criminal offenses, carrying 5- and 10-year prison sentences, respectively, along with significant civil monetary penalties.

For example, a practice submits a claim for services totaling $200 to an insurance carrier, receives payment of 80 percent of that amount ($160), and writes off the balance ($40) as a professional courtesy. The insurance company has grounds to argue that the actual fee was only $160, because that is the amount for which the patient is being held liable. Under this circumstance, the insurance company could argue that the payment to the physician should be only $128 (80 percent of the actual patient-liable fee of $160). The insurance contends it has issued an overpayment of $32.

In this example, a criminal case could be brought for healthcare fraud and false statements. The fraud issues revolve around the knowing and willful attempt to defraud a healthcare plan and/or obtain money or property by making a false or fraudulent representation. The false statement issues are substantiated by the claim form, which depict a knowing and willful falsifying of material representation; by representing the charge to be one amount but only holding the patient accountable for a lower amount, the provider is making a false statement.

Potential penalties
Under the 1996 False Claims Act, a violation occurs any time this waiver of deductible or coinsurance takes place in connection with any payer. So, a physician who bills an insurance carrier for one amount and then extends a courtesy discount, forgiving part or all of the remaining balance, would be guilty of filing a false claim and subject to a civil monetary penalty of up to $50,000 per claim.

Providers who believe this provision of the law will never be pursued should think again. A wide range of articles have appeared in healthcare journals detailing such cases and penalties.

The OIG has the authority to impose the civil monetary penalties for violations of the Stark Act. Stark violations include civil money penalties of up to $15,000 per claim and up to $100,000 for each referral-inducing financial arrangement. How many $50,000 false claim settlements or $100,000 referral arrangements would it take to bankrupt your practice?

Providers should also educate staff members, who—for whatever reason—may unsuspectingly be promulgating illegal activity inside the practice. As orthopaedic groups downsize or merge, the level of discontentment of employees may increase.

Practices should be more concerned about a report by a disgruntled employee or dissatisfied patient than about a random audit, particularly because, under current whistleblower rules, the reporting person retains a percentage of the recouped funds. That can provide an incentive for reporting fraudulent practices.

Are there alternatives?
As noted in the AAOS Practice Management Center article on Stark II, Phase II creates a professional courtesy exception that defines such actions as the provision of free or discounted healthcare items or services to a physician, immediate family members, or office staff. To qualify for the exception, the arrangement must meet all of the following conditions:

  1. The professional courtesy is offered to all physicians on the entity’s bona fide medical staff or in the entity’s local community without regard to volume or value of referral or other business generated between the parties.
  2. The healthcare items and services provided are of a type routinely provided by the entity.
  3. The professional courtesy policy is set out in writing and approved in advance by the entity’s governing body.
  4. The professional courtesy is not offered to a physician (or immediate family member) who is a federal healthcare program beneficiary, unless there is a good faith showing of financial need.
  5. If the professional courtesy involves any whole or partial reduction of any coinsurance obligation (a waiver of copayments), the reduction or waiver is disclosed to the insurer in writing.
  6. The arrangement does not violate the Anti-kickback Statute or any federal or state laws and regulations covering billing or claims submission.

The government is serious about its fraud and abuse programs and continues to support initiatives and litigation. The message is clear: zero tolerance of fraud and abuse in the medical practice must become the norm, not the exception.

Developing a compliance plan will not insulate a group from prosecution, but it will serve as a defense against willful and intentional disregard for the law. It should be a written courtesy discount policy that integrates elements of the compliance plan with specific guidelines, forms, and letters relating to professional courtesy issues.

William R. Pupkis, CMPE, is a member-at-large of the American Association of Orthopaedic Executives. This article originally appeared in the Feb. 25, 2014, edition of the AAOE News and is adapted with permission.

Bottom Line

  • Regulations such as HIPAA and Stark Laws have placed substantial limitations on the practice of providing “courtesy discounts” to other medical professionals.
  • Several requirements must be met for any arrangement to qualify for the professional courtesy exception under Stark II, Phase II.
  • Although not a guarantee of nonprosecution, a written courtesy discount policy that integrates elements of the practice’s compliance plan will help serve as a defense if a practice is investigated for fraud.
  • Penalties for fraud are severe—up to $50,000 per claim for filing false claims, up to $15,000 per claim for Stark violations, and up to $100,000 per claim for referral-inducing financial arrangements.

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