Can out-of-network labs waive coinsurance?

Sept. 1, 2010

Q Our laboratory does not participate with several private insurers. As a result, when we perform testing covered by one of those insurers, the individual receiving the test is subject to a coinsurance requirement that would not apply had the tests been performed by a participating laboratory. Can we waive the coinsurance and accept whatever payment we receive from the insurer?

A This question reflects an issue of concern to many laboratories. Out-of-network laboratories believe that waiving coinsurance may be one way to level the playing field. Many insurers, however, take the position that this practice interferes with their contractual relationships with participating providers who have agreed to accept reduced payments in anticipation of a significant volume of services resulting from their in-network status. Unfortunately, there is no one-size-fits-all answer as to whether waiver of coinsurance would subject a laboratory to legal risk. The answer usually depends upon applicable state laws.

The Department of Health and Human Services, Office of Inspector General (OIG) has stated that routine waiver of Medicare co-payments can provide patients with unlawful remuneration and will result in the submission of false claims. According to the OIG, a supplier that claims that its charge for a service is $100 but routinely waives the patient’s 20% co-payment has misstated its charge on its claim for payment, which is actually $80, not $100. As a general matter, the federal statutes on which the OIG relied would not apply to waivers of coinsurance due under private insurance plans. The OIG’s analysis — resulting in its conclusion that waiver of co-payments is unlawful — is potentially applicable under some state laws.

The laws of some states specifically address waiver of coinsurance and other patient cost-sharing obligations. For example, Colorado has declared the practice of waiving deductible and co-payment an “abuse of health insurance.” Florida laws state similarly that such a general practice is “insurance fraud.” Most states, however, do not have a specific law that prohibits these practices. But states generally prohibit common-law fraud and have statutes that prohibit submission of false claims or false statements to an insurer. These statutes could be interpreted to prohibit waivers of coinsurance based on an analysis similar to that used by the OIG. The New York Department of Insurance, for example, has taken that position. The California Attorney General, on the other hand, has found that a claim for payment for the full charge — without reduction by the waived amount — is not false or fraudulent. California appears to be in the minority of those states that have actually addressed such waivers. In most states, there is no definitive interpretation that resolves the issue.

At least one court has suggested that waiver of coinsurance does not result in a false claim if 1) the patient agrees to pay the difference between the provider’s charge and whatever the provider receives from the insurer, and 2) the provider had not decided whether it would attempt to collect this amount from the patient when it submitted the insurance claim. It may be difficult for a laboratory to obtain the patient’s agreement to pay any shortfall remaining after the insurer pays on the claim. Similarly, although it may make sense for a laboratory to write off part of a charge only after it has received the insurer’s payment, a laboratory may have difficulty arguing that it did not decide to waive coinsurance until after it submitted the claim, particularly when waiver has become the laboratory’s regular practice.

As a general matter, advance notice to the insurer of the practice of waiving a patient’s liability for coinsurance would provide a strong defense to a fraud claim. A laboratory may receive significant legal protection similarly by including a statement on its payment claim that it will waive coinsurance, or that it reserves the right not to pursue the patient for amounts left unpaid by the insurer. This disclosure, however, could result in the insurer’s denial of the claim. One court reasoned that a provider that waived coinsurance was not holding the individual receiving services with any financial responsibility for those services and, under the terms of the policy, the insurer was not required to pay charges for which the insured was not responsible. This theory may be used to deny payment — whether the waiver practice was disclosed or whether the insurer otherwise learned of it — either upon the insurer’s receipt of the claim or as part of an attempt to recoup previous payments.

Finally, waiver of coinsurance can raise the same type of claims as other discount arrangements, particularly by Medicaid or any other insurer which might have a basis to assert that it is entitled to a laboratory’s best price. The payor could refuse to pay more for a test than the laboratory actually received from the insurer if that amount was less than the amount on the payor’s fee schedule.

Waiver of coinsurance and similar arrangements are attracting increasing attention from insurers; lawsuits alleging out-of-network providers’ unlawful waiver practices have been brought against various entities, including a clinical laboratory. Other insurers may take similar actions or attempt to convince state regulators to pursue such arrangements. Therefore, a laboratory should carefully review this issue before establishing a practice involving waiver of coinsurance for out-of-network

Robert E. Mazer, Esquire, a principal with Ober|Kaler, Baltimore, MD, represents healthcare clients, particularly in connection with legal, regulatory, and business issues related to clinical laboratory and anatomic pathology services.

MLO’s “Liability and the lab” is intended to provide information of a general nature; it is not intended to provide specific legal advice. If you require legal advice, the services of an attorney should be sought. Contact us at [email protected].