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Requirements for Collecting Co-Insurance, Co-Payments and Deductibles: When Do I Have to Balance Bill?

By: Jennifer Kirschenbaum, Esq.

Wavier of insured’s out-of-pocket costs is a frequent practice of medical offices who may find requesting co-insurance, co-payment or deductibles burdensome on their patient population or unnecessary as the amounts received may represent de minimis compensation. However, failing to do so may lead to criminal violations, civil penalties and/or licensure implications for practitioners.

Recently the Office of the New York State Comptroller (the “Comptroller”) has taken action against an increasing amount of medical practices and individual practitioners for failing to “balance bill” their patient population for co-insurance, co-payments or deductibles. In on of the largest recent recovery efforts for a practices failure to balance bill, in December 2007 the Comptroller issued a recommendation for the recovery of $1,413,548 in overpayments from Day-Op Center of Long Island for the medical practice’s routine wavier of insured’s out-of-pocket costs.1

    Whether a practice or practitioner is responsible for balance billing in a particular circumstance is often a confusing question. The Insurance Department has issued a series of opinions in order to clarify for practitioners the appropriate balance billing procedures. This article will provide an overview of those opinions and hopefully clarify the Insurance Department’s position toward balance billing. As each opinion addresses direct questions posed from practitioners, each opinion will be addresses individually.

    (1)  Non-Participating Physicians and Balance Billing

Must a non-participating physician balance bill patients?

A non-participating physician who, as a general business practice, waives otherwise applicable co-insurance, co-payments or deductibles, where such waiver would affect the amount the insurer would pay, would be guilty of insurance fraud.

Non-participating physicians are generally paid 80% of the usual, customary and reasonable2 amount of the bills submitted for their patient treatment. If a claim is submitted by the Insured or the physician when the physician waives balance billing, either party or both may be guilty of insurance fraud pursuant to Insurance Law s. 176.05(2). This is because claims submitted are proof of total charges for the treatment provided by the physician and failing to balance bill results in a misrepresentation to the insurer of the total charges collected, and therefore, skews the data available to determine the physician’s calculated usual, customary and reasonable rates.

However, if a physician were to occasionally waive a co-insurance, co-payment or deductible as a courtesy to a family member or fellow physician or for an indigent patient, he would not be guilty of insurance fraud. In addition, a decision, in the exercise of business judgment, not to pursue the full legal remedies available to collect a debt would not constitute insurance fraud. Insurance Department, Opinions of General Counsel, Opinion Number 03-04-09.

An example:

If an individual were to be insured under a health insurance policy obligating the insurer to reimburse the insured 80% of the physician’s usual and customary charges and were the physician to inform the insurer that his or her usual and customary charge for a procedure was $100, the insurer would, in anticipation that the physician would require the patient to pay him $20, reimburse the insured $80. If however, the physician were to, as a general business practice, waive the $20 co-payment, the physician’s usual and customary charge would be $80. Under those circumstances, the obligation of the insurer would be $64. Insurance Department, Opinions of General Counsel, Opinion Number 03-04-09.

Similarly, if the policy required the insured to pay a $1,000 deductible before the insurer reimbursed the insured for the physician’s usual and customary charges, and the physician reported to the insurer that his usual and customary charges for services was $1,500, the insurer would pay the physician $500 expecting that the physician would require the insured to pay the remaining $1,000. By waiving the $1,000 deductible, the physician would be charging less for the services than he reported to the insurer.

Whether such actions constitute fraud would depend upon the facts of the particular case and the intent of the parties.

If Medicare or Medicaid were involved, then a federal statute, 42 U.S.C.S. 1320a-7b (LEXIS 2005) (see below), criminalizes a number of acts involving Federal health care programs. The United States Secretary of Health and Human Services has by regulation, 42 C.F.R. s. 1001.952(k)(LEXIS 2005) clarified when waivers do not constitute illegal remuneration. Insurance Department, Opinions of General Counsel, Opinion Number 05-04-07.

    (2)  Charging Different Rates for Different Patients

May a Practice: (1) as a general practice, waive insured patients’ co-payments amounts, if based on the patients’ financial hardship; (2) charge its uninsured patients lower rates than it charges its insured patients for the same services; and/or (3) charge patients who pay by cash lower rates than it charges patients who pay by credit card for the same services?

    If the insurer is paying the Practice a percentage of the usual and customary fee, then the waiving of co-payment fees on a regular basis and the charging of lower rates to the non-insured, or to patients who pay by cash, may be construed as insurance fraud because these practices may suggest that the Practice’s usual and customary fee is not being accurately reported to the insurer. When a rate discount is provided, the question arises as to whether the discounted rate is actually the service provider’s usual and customary charge, making the non-discounted rate an inflated rate. Thus, waiving co-payment amounts and charging higher rates to insurances than to non-insureds or to those who pay by credit card, for the same services may constitute insurance fraud under N.Y. Penal Law s. 176.05(2). Insurance Department, Opinions of General Counsel, Opinion Number 00-12-14.

(3)  Charging “Non-Insurance” Patients Differently than “Insurance” Patients

May a Practice bill patients without insurance or whose contractual benefits under an insurance policy have been exhausted a lower fee than to patients whose cost of services is covered by insurance?.

A Practice may charge a “non-insurance” patient a lower fee than he charges an insured patient because neither the Practice nor the patient submit any claim for services to an insurer, self-insurer, purported insurer, or any agent thereof. Accordingly, in processing such a claim, there is no insurance act involved, fraudulent or otherwise.

However, if a Practice 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 Practice runs the risk of being charged with a fraudulent insurance act if the Practice 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 insurance patients. Thus, the prudent Practice should fully disclose to the insurer that it charges non-insurance patients who pay cash a lower fee. – Be advised that is the Practice has a contractual relationship with an insurer; the terms of that contract may limit the Practice’s discretion to charge lower fees to different categories of patients.

The above discussed opinion is limited to whether the transactions described might constitute insurance fraud and it does not address any fee schedule pertaining to no-fault insurance or the availability of workers’ compensation benefits, nor does it address the New York Education Law. Insurance Department, Opinions of General Counsel, Opinion Number 07-06-05.

(4)  Flat Fee

May a Practice charge a flat fee as payment for unlimited services over a set period of time?

A Practice is not allowed to charge a flat fee as payment for unlimited services over a set period of time because the services that the Practice would provide to its patients would be dependent upon the happening of a fortuitous event, that being the need for medical care (the amount or type of which could not be predicted), which would be beyond the control of either party. The Practice’s offer to provide unlimited services for a pre-paid fee is a reserved parameter, under New York Insurance Law s. 1101(a), for an insurance business that is appropriately licensed by the State of New York. For a Practice that is not licensed as an insurer, and which charges a flat fee as payment for unlimited services over a set period of time is in violation of N.Y. Ins. Law s. 1102. Insurance Department, Opinions of General Counsel, Opinion Number 00-12-14.

Penalties

a. New York State Penalties for Insurance Fraud

Insurance fraud violations in New York may give rise to the following: (1) criminal liability; (2) civil penalty not exceeding $5,000 per violation and the amount of the claim for each violation upon any person, including those persons and their employees, New York Insurance Law s. 403; and (3) licensure penalties including censure, suspension, and revocation of professional license, fines not to exceed $10,000 and/or community service not to exceed $500, NY CLS Pub Health § 230-a.

b. Federal Penalties for Insurance Fraud

Insurance fraud violations under Federal law for defrauding a federal health program (Medicare, Medicaid) vary on the class of the violation: (1) a felony violation is punishable by a maximum fine of $25,000, imprisonment up to five years, or both; and (2) a misdemeanor violation is punishable by a maximum fine of $10,000, imprisonment up to one year, or both. Conviction will also lead to automatic exclusion from Federal health care programs, including Medicare and Medicaid. 42 USCS § 1320a-7b.

Should you have any questions regarding balance billing, do not hesitate to Kirschenbaum & Kirschenbaum, P.C., at (516) 747-6700 or Jennifer Kirschenbaum at Jennifer@Kirschenbaumesq.com.

1 Office of the New York State Comptroller, Report 2007-S-86

2 UCR is the dollar amount health plans consider appropriate for a service provided in the area. In-network providers agree to charge no more than the UCR rate. If a patient visits an out-of-network doctor, the patient will have to pay any portion of the fee above the UCR charge – typically in addition to a higher co-pay or co-insurance fee. As a general matter, the following factors are considered in establishing the UCR: 1) the provider’s training, qualifications and length of time in practice; 2) the nature of the services provided; 3) prevailing provider rates charged in the general geographic area in which the services were rendered; 4) other aspects of the economics of the medical provider’s practice that are relevant; and 5) any unusual circumstances in the case.