Be Wary of “No Out-of-Pocket Expense” Offers

March 15, 2004

It is illegal to routinely excuse patients from insurance copayments and deductibles. (A copayment is a fixed dollar amount paid whenever an insured person receives specified health-care services. A deductible is the amount that must be paid before the insurance company starts paying.) It is legal to waive a fee for people with a genuine financial hardship, but it is not legal to provide completely free care or discounts to all patients or to collect only from those who have insurance. Studies have shown that if patients are required to pay for even a small portion of their care, they will be better consumers and select items or services because they are medically needed rather than because they are free. Routine waivers thus raise overall health costs. They are considered fraudulent because averaging them with the doctor’s full fees would make the “usual” fees lower than the amounts actually billed for.

The document below pertains to Medicare providers, but the same principles apply to all insurance plans with copayments or deductibles. In Kennedy v. Connecticut General Life Insurance Co., 924F2nd (1991), a U.S. Court of Appeals held that by waiving the deductible and copayment, a chiropractor relieved both the insurance company and the patient of any obligation to pay for the chiropractor’s services. The court reasoned that because the insurance plan required co-payments to help hold down the cost of care, the chiropractor could not waive them without violating his contract with the company. And because the chiropractor had contracted with the patient to accept whatever the insurance company paid on the patient’s behalf. the patient had no obligation either.


Office of Inspector General Special Fraud Alert:
Routine Waiver of Copayments or Deductibles Under Medicare Part B

May 1991

To help reduce fraud in the Medicare program, the Office of Inspector General is actively investigating health care providers, practitioners and suppliers of health care items and services who (1) are paid on the basis of charges and (2) routinely waive (do not bill) Medicare deductible and copayment charges to beneficiaries for items and services covered by the Medicare program.

[Footnote:] This fraud alert is not intended to address the routine waiver of copayments and deductibles by providers, practitioners or suppliers who are paid on the basis of costs or diagnostic related groups. The fact that these types of services are not discussed in this fraud alert should not be interpreted to legitimize routine waiver of deductibles and copayments with respect to these payment methods. Also, it does not apply to a waiver of any copayment by a Federally qualified health care center with respect to an individual who qualifies for subsidized services under a provision of the Public Health Service Act.

What Are Medicare Deductible and Copayment Charges?

The Medicare “deductible” is the amount that must be paid by a Medicare beneficiary before Medicare will pay for any items or services for that individual. Currently, the Medicare Part B deductible is $100 per year.

“Copayment” (“coinsurance”) is the portion of the cost of an item or service which the Medicare beneficiary must pay. Currently, the Medicare Part B coinsurance is generally 20 percent of the reasonable charge for the item or service. Typically, if the Medicare reasonable charge for a Part B item or service is $100, the Medicare beneficiary (who has met his [or her] deductible) must pay $20 of the physician’s bill, and Medicare will pay $80.

Why Is it Illegal for “Charged-Based” Providers, Practitioners and
Suppliers to Routinely Waive Medicare Copayment and Deductibles?

Routine waiver of deductibles and copayments by charge-based providers, practitioners or suppliers is unlawful because it results in (1) false claims, (2) violations of the anti-kickback statute, and (3) excessive utilization of items and services paid for by Medicare.

A “charge-based” provider, practitioner or supplier is one who is paid by Medicare on the basis of the “reasonable charge” for the item or service provided. 42 U.S.C. 1395u(b)(3); 42 CFR 405.501. Medicare typically pays 80 percent of the reasonable charge. 42 U.S.C. 1395l(a)(1). The criteria for determining what charges are reasonable are contained in regulations, and include an examination of (1) the actual charge for the item or service, (2) the customary charge for the item or service, (3) the prevailing charge in the same locality for similar items or services. The Medicare reasonable charge cannot exceed the actual charge for the item or service, and may generally not exceed the customary charge or the highest prevailing charge for the item or service. In some cases, the provider, practitioner or supplier will be paid the lesser of his [or her] actual charge or an amount established by a fee schedule.

A provider, practitioner or supplier who routinely waives Medicare copayments or deductibles is misstating its actual charge. For example, if a supplier claims that its charge for a piece of equipment is $100, but routinely waives the copayment, the actual charge is $80. Medicare should be paying 80 percent of $80 (or $64), rather than 80 percent of $100 (or $80). As a result of the supplier’s misrepresentation, the Medicare program is paying $16 more than it should for this item.

In certain cases, a provider, practitioner or supplier who routinely waives Medicare copayments or deductibles also could be held liable under the Medicare and Medicaid anti-kickback statute. 42 U.S.C. 1320a-7b(b). The statute makes it illegal to offer, pay, solicit or receive anything of value as an inducement to generate business payable by Medicare or Medicaid. When providers, practitioners or suppliers forgive financial obligations for reasons other than genuine financial hardship of the particular patient, they may be unlawfully inducing that patient to purchase items or services from them.

At first glance, it may appear that routine waiver of copayments and deductibles helps Medicare beneficiaries. By waiving Medicare copayments and deductibles, the provider of services may claim that the beneficiary incurs no costs. In fact, this is not true. Studies have shown that if patients are required to pay even a small portion of their care, they will be better health care consumers, and select items or services because they are medically needed, rather than simply because they are free. Ultimately, if Medicare pays more for an item or service than it should, or if it pays for unnecessary items or services, there are less Medicare funds available to pay for truly needed services.

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. Otherwise, claims submitted to Medicare mat violate the statutes discussed above and other provisions of the law.

What Penalties Can Someone Be Subject to for Routinely Waiving Medicare Copayments or Deductibles?

Whoever submits a false claim to the Medicare program (for example, a claim misrepresents an actual charge) may be subject to criminal, civil or administrative liability for making false statements and/or submitting false claims to the Government. 18 U.S.C. 287 and 1001; 31 U.S.C. 3729; 42 CFR 1320a-7a). Penalties can include imprisonment, criminal fines, civil damages and forfeitures, civil monetary penalties and exclusion from Medicare and the State health care programs.

In addition, anyone who routinely waives copayments or deductibles can be criminally prosecuted under 42 U.S.C. 1320a-7b(b), and excluded from participating in Medicare and the State health care programs under the anti-kickback statute. 42 U.S.C. 1320a-7(b)(7).

Finally, anyone who furnishes items or services to patient substantially in excess of the needs of such patients can be excluded from Medicare and the State health care programs. 42 U.S.C. 1320a- 7(b)(6)(B).

Indications of Improper Waiver of Deductibles and Copayments

To help you identify charge-based providers, practitioners or suppliers who routinely waive Medicare deductibles and copayments, listed below are some suspect marketing practices. Please note that this list is not intended to be exhaustive but, rather, to highlight some indicators of potentially unlawful activity.

  • Advertisements which state: “Medicare Accepted As Payment in Full,” “Insurance Accepted As Payment in Full,” or “No Out-Of- Pocket Expense.”
  • Advertisements which promise that “discounts” will be given to Medicare beneficiaries.
  • Routine use of “Financial hardship” forms which state that the beneficiary is unable to pay the coinsurance/deductible (i.e., there is no good faith attempt to determine the beneficiary’s actual financial condition).
  • Collection of copayments and deductibles only where the beneficiary has Medicare supplemental insurance (“Medigap”) coverage (i.e., the items or services are “free” to the beneficiary).
  • Charges to Medicare beneficiaries which are higher than those made to other persons for similar services and items (the higher charges offset the waiver of coinsurance.)
  • Failure to collect copayments or deductibles for a specific group of Medicare patients for reasons unrelated to indigency (e.g., a supplier waives coinsurance or deductible for all patients from a particular hospital, in order to get referrals).
  • “Insurance programs” which cover copayments or deductibles only for items or services provided by the entity offering the insurance. The “insurance premium” paid by the beneficiary is insignificant and can be as low as $1 a month or even $1 a year. These premiums are not based upon actuarial risks, but instead are a sham used to disguise the routine waiver of copayments and deductibles.

If you have information about health care providers, practitioners, entities or other persons engaging in these types of activities or arrangements described above, contact any of the regional offices of the Office of Investigations of the Office of Inspector General, U.S. Department of Health and Human Services,

Chirobase Home Page

This article was posted on March 15, 2004.