Courtesy Discounts

Many physicians consider discounting some or all of a patient’s portion of their bill as a courtesy.  However, in certain circumstances, this type of discount can be illegal, considered fraud, or run the practice afoul of payer contracts.  Keep your practice compliant by following these guidelines. 


Prohibited Discounts

Courtesy discounts given to patients are prohibited where the result is likely (or the physician should know that the result is likely) to:


  •  Induce or reward referrals from other physicians (especially federal healthcare program referrals);
  •  Induce or reward referrals from an entity from which the physician receives compensation or has ownership;
  •  Influence Medicare (or other government plan) beneficiaries to seek and receive additional items or services from the physician;
  •  Result in a billed claim that is different from the true picture of the claim (such as when a discount is offered to the patient before the claim is billed); or
  •  Circumvents the agreement between the patient and their insurance company regarding the patient’s financial responsibility for the care. 


As a general rule...

  • Medicare and other government programs prohibit discounting any portion of the patient's responsibility for the charge.
  • For private insurers, any percentage discount given to the patient must apply to the entire charge, not just the patient's portion.  Fixed co-payments may never be discounted, and the insurance company must be informed in writing that the claim represents a discounted bill. 


Note that many private insurance plans and some federal plans include language in the payer-physician contract that allows the plan to pay the lowest charge the physician charges to anyone.  Therefore, routine discounts may lead to a reduction in the allowable reimbursement schedule in that payer’s contract with the practice.


When Discounts are Allowed

As an exception to the general rules prohibiting discounts on the patient‘s bill, a physician may occasionally forgive some or all of the co-insurance or deductible in consideration of a particular patient’s financial hardship after good faith efforts have been made to collect the amount due.


This hardship exception rule cannot be applied regularly; it must be specific to an individual patient.  The patient’s record must document the reason for the financial hardship consideration and the efforts that were made to collect the amount due.  A notation in the practice management billing software and record of a patient statement or financial request will generally suffice to satisfy this requirement. 


Note that a courtesy discount is not the same as a “bad debt” adjustment, where a patient’s balance is adjusted after billing for lack of payment, or the consistent, routine application of a discount applied to all patients meeting a certain criteria (such as a patients without insurance or a prompt pay discount).


If you do extend discounts in your office, take the following precautions:


  • Take time to create a formal, written discount policy for your office that will apply in advance of patient care, and have it approved by your attorney. 
  • Carefully consider any individual discount for a patient who is receiving care from an ancillary business in which you have ownership or receive compensation. 
  • Do not apply a courtesy discount to any patient's co-payment.
  • Do not provide individual courtesy discounts to Medicare beneficiaries, and take care providing individual courtesy discounts with other government-funded programs. 


Legal Considerations

Careful application of this discount will keep you and your practice on the right side of the law.  Federal anti-kickback law, prohibitions on inducements to Medicare beneficiaries, Stark laws, HIPAA (which makes fraud against private insurers a federal crime), the False Claims Act, and physician contracts with private insurers, as well as other laws can all come into play on courtesy discounts. 


Penalties for improper use of courtesy discounts range from denial of an individual claim, de-selection of the physician from the health plan, suit for fraud, fines, and criminal prosecution. 


This is a summary of guidelines, not legal advice .  Given that the laws in this area are overlapping and complex, and the penalties consequential, you are encouraged to consult an attorney specializing in healthcare law on any courtesy policy or practice in your office.


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