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Hospitals consider paying insurance tab

Buyer beware: picking up insurance tab for poor patients may have consequences

As hospitals continue to get squeezed by new Medicare penalties and shrinking reimbursements from private insurers, many are looking for ways to make up for that missing revenue. Some are seeking creative ways to collect on the bad debt incurred from patients unable to pay their bills.

A recent letter from Health and Human Services Secretary Kathleen Sebelius suggests that picking up the insurance tab for poor patients may help collecting on bad debt, but experts warn: buyer beware.

[See also: Stopping the rise in hospital bad debt]

Sebelius’ letter says that the federal anti-kickback law that prohibits providers from offering insurance premium assistance to patients covered by federal health programs does not apply to patients who are soon to be insured through the new insurance exchanges. 

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The reasoning apparently is that if hospitals began paying some of the cost of insurance, it’s likely the increased payments they received for services rendered would outweigh the cost of the premium assistance.

The American Hospital Association recently issued a legal advisory in which it stated that federal regulations “clearly allow for another person or organization [including hospital affiliated charitable foundations] to pay the insurance premium for the enrolling individual.”

But it would appear as though the federal government is of two minds on this issue.

The letter from Sebelius that seemed to give the green light to the practice was dated October 30, but a November 4 statement from the Centers for Medicare & Medicaid Services reads like an about-face.

In answering the question: “Are third party payers permitted to make premium payments to health insurance issuers for qualified health plans on behalf of enrolled individuals?”, the agency stated: “HHS has significant concerns with this practice because it could skew the insurance risk pool and create an unlevel field in the Marketplaces. HHS discourages this practice and encourages issuers to reject such third party payments. HHS intends to monitor this practice and to take appropriate action, if necessary.”

Considering all the confusion, providers need to proceed cautiously, if at all, said David Friend, MD, a managing director in the Health Care Practice at consulting firm BDO USA. There are all kinds of legal and regulatory concerns that CFOs need to weigh before paying insurance premiums for patients. “You may go into this with the best of intentions but some other branch of the government may show up – the Federal Trade Commission or the Office of the Inspector General, for example – and say you’re violating some kind of incentive law or some provision of the Stark rule,” said Friend.

Paying patients’ insurance premiums to reduce the cost of uncompensated care “is an innovative idea, but I haven’t seen anyone doing it,” said Jeff Hoffman, senior partner at Kurt Salmon. And for a variety of political and financial decisions, he doesn’t see many health systems jumping on this idea in the next year or so. “Most of the clients I’m dealing with are waiting to see how the exchanges and new healthcare plans shake out.”

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