In these times when more and more patients find themselves without health insurance, providers feel increasing pressure to offer discounts to the uninsured. The uninsured is commonly understood to mean individuals who have no health care insurance coverage whatsoever – no Medicare, Medicaid, TriCare, BCBS, HMO or any other type of commercial or government health care coverage. While such discounts may seem simple and compelling, this article outlines several legal issues providers should take into consideration when deciding whether and how much of a discount they should offer to the uninsured.

Federal Anti-Kickback and Civil Money Penalty Statutes Are Not Implicated

The federal anti-kickback statute prohibits the payment, receipt or offering of remuneration in exchange for the referral of Medicare or Medicaid business. The civil money penalty statute prohibits offering inducements to a beneficiary which the provider knows or should know are likely to influence the beneficiary’s choice of provider for covered services. Because a discount to the uninsured is not being offered to Medicare or Medicaid patients (they are not uninsured), such a discount will not implicate the anti-kickback or civil money penalty laws. However, providers should use caution when applying an uninsured discount, to make sure that they do no inadvertently include any patients who have some coverage under Medicare, Medicaid or any other federal health care program.

Michigan Automobile No-Fault Statute

The Michigan automobile no-fault statute states that a provider who renders care to a patient covered under nofault personal protection insurance may not charge an amount that exceeds the amount that the provider customarily charges for like products or services in cases that do not involve insurance. The Michigan Court of Appeals has interpreted this provision to mean that nofault insurers are required to pay only the amount the provider customarily charges to uninsured patients. Hofman et al. v. Auto Club, 214 Mich. App. 577 (1995). The no-fault statute gives the insurance commissioner authority to address a provider’s “overcharging” under the no-fault statute by issuing a cease and desist order to the provider and by levying a civil penalty of up to $25,000. M.C.L.A. 500.150(1)(a).

In and of itself, offering a discount to the uninsured is not likely to be considered “overcharging” per se under the no-fault statute. However, a no-fault insurer has a strong argument that it is entitled to the same level of discount that an uninsured patient receives. If a provider is not willing to offer the same level of discount to a no-fault insurer, it may risk overcharging the no-fault insurer in violation of the no-fault statute. As a practical matter, an automobile insurer may simply be unwilling to pay more than the rate a provider charges an uninsured patient.

Accurate Determination of a Provider’s “Customary Charges” for Purposes of Non- Medicare Third Party Payors and the Health Care False Claims Statute

Some third party payors reimburse providers based in part on the provider’s usual and customary charge for the goods or service provided. For example, this is true for Michigan no-fault insurers (see above) and some managed care contracts that provide for payment at a percentage of usual and customary charges. When a provider offers a discount to the uninsured that results in a variation from its chargemaster for a significant number of patients, the provider’s chargemaster may no longer be an accurate statement of its usual charge. This may be considered a breach of the provider’s contract with the payor and may result in loss of participation status with that payor.

Further, if a discount for the uninsured is large enough and the uninsured represent a significant portion of a provider’s volume (i.e., the uninsured discount results in an inaccurate chargemaster), the provider may risk liability under the Michigan Health Care False Claims Act. This statute makes it a felony to present a claim for payment of health care benefits (including claims to commercial insurers) knowing that the claim is false or deceptive. The penalty for violating the Michigan Health Care False Claims Statute is a fine of up to $50,000 per false claim, imprisonment for up to four (4) years, or both.

Implication of Uninsured Discount on Charge-Based Medicare Payment Methodologies

The Medicare program incorporates the concept of a provider’s “charge” for a given item or service into certain of its payment methodologies, including (1) the “lower of cost or charges” or “LCC” principle, (2) the “cost-to-charge ratio” determination, and (3) the lower of charges or fee schedule payment method. To the extent that any of these Medicare payment methodologies applies to the provider, offering a discount to the uninsured may impact the provider’s “charge” under these Medicare payment methods and thereby affect the provider’s Medicare payment amount.

Michigan Medicaid Most Favored Nation Rule

The Michigan Medicaid program prohibits providers from submitting claims for reimbursement that exceed the provider’s usual and customary charge to the general public for the same goods or services. This is commonly referred to as the Medicaid Most Favored Nation Rule (the Rule). The Medicaid Provider Manual clarifies that this requirement applies to advertised discounts, special promotions and other reduced-price initiatives that are made available to the “general public or a similar portion of the population.” Thus, any time a provider offers a reduced price to the general public, it must offer that same reduced price to Medicaid or risk violating the Rule. A violation of the Rule is considered a breach of the provider’s Medicaid participation agreement and may subject the provider to suspension or termination of its participation in Medicaid, or result in placement on probation.

In the past, officials at Michigan Medicaid and the Michigan Attorney General’s Office have indicated during informal discussions that discounts offered to a special group, such as a provider’s employees, do not constitute “the general public” for purposes of applying the Rule. Unfortunately, the Michigan Medicaid Policy staff have recently indicated that they are not willing to extend this same logic to discounts offered to the uninsured as a group because they consider “the uninsured” to be the general public for purposes of applying the Rule. Therefore, under the Rule, a provider must offer Medicaid the same level of discount that it offers to its uninsured patients. As a practical matter this may not be a significant hurdle, given the relatively low reimbursement providers generally receive from Medicaid.

Any provider that considers offering a discount to its uninsured patients should take all of these legal issues into consideration.