Ready for prime time? Make your financial assistance policy a class act: hospitals should feel free to offer uninsured patients discounts or financial assistance to pay for healthcare services; but they also should make sure their financial assistance policies are ready for the bright light of regulatory scrutiny

Healthcare Financial Management, March, 2005 by Dennis Barry, Christopher L. Keough

   Any individual or entity that ... has submitted
   or caused to be submitted bills or requests for
   payment (where such bills or requests are
   based on charges or cost) under title XVIII or a
   State health care program containing charges
   (or, in applicable cases, requests for payment
   of costs) for items or services furnished substantially
   in excess of such individual's or
   entity's usual charges (or in applicable cases,
   substantially in excess of such individual's or
   entity's costs) for such items or services,
   unless the Secretary finds there is good cause
   for such bills or requests containing such
   charges or costs.

The current regulations relating to this "excessive charge" provision paraphrase the statutory language and provide no meaningful guidance.

On Sept. 15, 2003, the OIG published a proposed rule in the Federal Register that could be problematic with respect to hospital discounts if the rule is adopted in its current form. The OIG's proposed rule makes it clear that providers are not obligated to give Medicare or Medicaid their best price.

The proposed rule is potentially troublesome, however, because it would define "usual charges" by reference to payments accepted from non governmental payers. Specifically, the proposed rule would define "usual charges" as the average of amounts that a provider agrees to accept as payment in full for all classes of patients except:

* Rates set for governmental patients (but not excluding rates providers negotiate with managed care payers for governmental patients)

* Charges based on capitated rates when more than 10 percent of the provider's maximum potential compensation could be paid in the form of a bonus

* Charges for services furnished to uninsured patients free of charge or at a "substantially reduced rate"

The "substantially-in-excess" limitation would be the amount that is 20 percent over the calculated "usual charge."

The OIG's proposed definition of "usual charges" could penalize hospitals for offering discounts to nongovernmental patients who are insured or underinsured. In addition, the OIG has not clarified how it would treat sliding scale discounts under the proposed definition of "usual charges." Under some hospitals' indigent care policies, discounts taper to relatively modest levels as the patient's income approaches the cut off for eligibility for financial assistance. For example, a hospital might offer a 5 percent discount from full charges for patients who have income at 35o percent of the federal poverty level.

A major problem with the OIG's proposed rule is that the calculation of "usual charges" would factor in discounts extended to all nongovernmental patients, except for "substantially reduced rates" offered to wholly "uninsured" patients. This approach could have the effect of reducing the calculated average "usual charge," thereby forcing hospitals to reduce the charges stated on Medicare bills (below the chargemaster) to avoid charging Medicare at a rate "substantially in excess" of the calculated usual charges. The lowered Medicare charges, in turn, could result in reduced payments for outliers and new technology because, under the current Medicare payment formula, the reduced charges reflected on a Medicare bill would not properly align with the cost-to charge ratio computed on the basis of the full charges recorded on Medicare cost reports.