Apache Health frequently gets medical billing questions from our clients about “cash pay discounts”, whether they are legal, can they provide them, and how much of a discount is legally allowed?  This is part of our ongoing series about the rules and regulations surrounding medical billing.


Government payers

A potential problem in medical billing with offering discounts on the patient portion is that the HIPAA anti-patient inducement civil monetary penalty provision makes it illegal to offer any benefit (including a discount) to a patient that the provider knew, or should have known, was likely to affect the choice of provider or utilization of the service.


Office of Inspector General OIG Opinion 08-03 from 2008

The OIG is the enforcement arm for CMS, aka Medicare.  Opinion 08-03 basically holds that a prompt pay discount may be legal for Medicare, Medicaid, and other government beneficiaries under some conditions.  It cannot be publicized, and should be after patient has chosen a provider and utilized the service, so that there is no risk of inducement of either utilization of the service or choice of provider.

Additionally, the discounts have to be reasonably related to the collection costs avoided.  In the case of this opinion, a hospital was offering cash pay discounts on the patient portion of the Medicare fee while the patient was still in the facility in order improve collections.  The OIG Opinion held that the ranges of 5-15% depending on whether it was paid immediately and a small balance (5%), or within 30 days and large balance over $1,000 (15%) were deemed reasonable approximations of their cost of collections.  This Opinion stated that this ruling did not apply to any other provider or circumstance, so it is not clear whether this would be applicable to other providers under similar conditions.


Prompt Pay Discounts

Many attorneys have suggested that when billing if a doctor offers a “cash pay discount”, this could be interpreted as the de facto fee schedule and payers could come back and claim that they have overpaid and attempt to recoup funds.  Unfortunately, since insurers have the money, regardless of whether they are correct or legally allowed to do so, they can simply withhold future payments when a provider sees patients from that insurer in the future.


If the payer determines this has happened and the provider (e.g. an ASC) is billing out of network, the payer would pay the lesser of their UCR or the “cash rate”, instead of the lesser of the UCR or the billed fee schedule.  This could lower the reimbursement from some of the higher paying payers if they realize this and try and recoup payments.


If in network, the payer allows the lesser of the contracted rate or the fee schedule and in this case they could conceivably pay less than the contracted rate.  By offering cash rates lower than insurance-negotiated rates, healthcare providers run the risk of violating payer contract provisions. “If insurers find out that plan members are able to access a cheaper cash rate, they’ll call up the hospital and say, ‘That’s our new contracted rate,'” Jim Lazarus, vice president of The Advisory Board, told The Wall Street Journal.


We have not often seen doctors trying to offer a cash rate that is lower than the contracted rate with payers, therefore, there appears to be less risk of this happening with contracted payers when offering a cash discount to patients who have no benefits, have a high unmet deductible, or to OoN patients.  Having said that, there have been some highly publicized examples where the cash pay rate was not only less than the contracted rate, but less than the patient portion of the contracted rate.


This is very similar to cases ongoing where payers are suggesting that reducing the patient balance (not balance billing in full) is effectively fraud since the provider is misrepresenting their fee schedule since they do not intend to collect the full amount from the patient if the payer does not pay the entirety.  We will look at these cases in another article.


Many attorneys feel comfortable with a “prompt pay discount” of 5-15%, although this is typically not enough of a discount to entice most patients to utilize them if the provider is billing 3x Medicare or more.  Providers must also note that this offer is available to anyone, as long as it does not conflict with the patient’s insurance policy.


Commercial Insurance

Some insurer’s agreements with physicians or their patients have similar provisions to the Medicare payment rules regarding the fee schedule allowable compared to actual charges.  Therefore a provider could be at least in breach of contract with a contracted insurer if they offered a cash pay rate that was lower than the contracted rate if the agreement forbade such an activity.


State insurance fraud statutes can also pose a legal threat.  For example, in 2007 the Office of General Counsel for the New York State Insurance Department stated in a written opinion 00-12-06 that:

“…if a chiropractor submits a claim to an insurer for an insured patient, or issues a bill to an insured patient for services knowing that the bill will be presented to the insurer, then the chiropractor runs the risk of being charged with a fraudulent insurance act if the chiropractor were to mislead the insurer by, for example, failing to disclose that he charges non-insurance patients a lower fee for the same services he provides to insured patients.”

(*emphasis ours)

This clearly states that not disclosing to an insurer that a provider offers a lower cash pay rate, would potentially open them up to criminal fraud liability.


Some states like Texas have specific statutes making it a crime to charge different prices:


(a) A person commits an offense if:

(1)  the person knowingly or intentionally charges two different prices for providing the same product or service;  and

(2)  the higher price charged is based on the fact that an insurer will pay all or part of the price of the product or service.

(b)  An offense under this section is a Class B misdemeanor.


In addition to insurance fraud statutes, many states have anti-kickback statutes that pose a legal risk similar to the Medicare anti-kickback provisions.  Some states also have insurance anti-discrimination provisions which forbid discriminating financially against a patient who has health insurance.  This would mean that a provider cannot charge a patient more due to having health insurance than if they were uninsured.  There are too many of these laws in too many states to go through them all one by one.  Feel free to contact us to get additional information on your state or contact your healthcare attorney.


“Everyone Else is Doing It”

For many years a large number of physicians, surgery centers, and other providers have been offering a cash pay discount.  This has even become widely publicized, for example an LA Time article in 2012 detailed this in great depth.  While many providers are doing this most attorneys would likely counsel that this does not make it legal.


Patient Implications

In 2012 Blue Shield of California patient Jo Ann Snyder initiated a class action lawsuit against Blue Shield because she paid more in network out of pocket than if she had paid the hospital’s cash pay price.  She claimed this violated her contract with Blue Shield of California since it promised to negotiate the lowest rates for her and this clearly didn’t happen.


There are enormous implications to the widespread implementation of cash pay rates.  Patients are often now determining that it would be less expensive to not have insurance than to pay their coinsurance and unmet deductible.  This has led to many patients now pretending not to have insurance in order to pay a lower rate than what they would have to pay with their coinsurance and unmet deductible.  There is a risk to patient obviously.  They need to weigh whether they are likely to incur additional healthcare expenses during the course of the year since the cash payment would not count against their deductible and therefore they would still face this cost later in the year if they receive a significant amount of services.


What You Can Do

Have a good medical billing company that is flexible and can work with whatever compliant billing solution you choose to implement, whether that be cash pay discounts, prompt pay discounts, billing out of network, patient balance billing requirements, or any other complex scenario.

Make sure you are a represented by good healthcare legal counsel that is up to date on regulations and laws and is good at research.  They will help you make a determination not only on compliance but on risk assessment since there are some areas of medical billing that are in flux.

Be informed.  Make sure that not only is your Compliance Officer informed, but that the physicians and owners of the practice are well informed about the changing laws and regulations regarding medical billing.


About Apache Health

Apache Health is a revenue cycle management (RCM) analytics, benchmarking, and auditing company. The founders of Apache formerly ran a large RCM company that was acquired by a private equity group in a rollup. Apache’s predictive analytics will benchmark billing performance and project exactly how much more revenue you should earn from your existing volume of patients.  Using many factors and a blend of artificial intelligence and specialty specific benchmarks, the model projects whether changing the billing process would improve collections for your particular mix of procedures and payers. Apache Health can help you evaluate whether to outsource the billing, determine which billing company to select to maximize performance, or track inhouse billing performance improvement over time.

Sean McSweeney

Apache Health




Legal disclaimer: Apache Health is engaged in the business of healthcare revenue cycle management analytics.  We offer information about regulations, rules, and industry practices relating to compliance.  Apache has researched that subject and has set forth the results of that research herein.  Apache Health is not a law firm and we do not offer legal advice.  Apache does not guarantee the completeness nor the accuracy of its research.  You should consult with your qualified healthcare attorney.