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When May Physicians Offer Professional Courtesy, Co-Payment and Cash Payment Discounts?

Karin Bierstein, JD, MPH
Healthcare Consultant, McLean, VA

Most physicians know in general fashion that there are "compliance" issues with professional courtesy, co-payment waivers and discounts for cash payments. Yet confusion persists about exactly how to handle these situations.

The legal principles have not changed in the nearly two decades since the Health and Human Services (HHS) Office of the Inspector General (OIG) issued its Compliance Program for Individual and Small Group Physician Practices. The basic standards are still as spelled out by the OIG:

In general, whether a professional courtesy arrangement runs afoul of the fraud and abuse laws is determined by two factors: (i) how the recipients of the professional courtesy are selected; and (ii) how the professional courtesy is extended. If recipients are selected in a manner that directly or indirectly takes into account their ability to affect past or future referrals, the anti-kickback statute—which prohibits giving anything of value to generate Federal healthcare program business—may be implicated. If the professional courtesy is extended through a waiver of copayment obligations (i.e., ‘‘insurance only’’ billing), other statutes may be implicated, including the prohibition of inducements to beneficiaries [citation omitted]. Claims submitted as a result of either practice may also implicate the Civil False Claims Act.

The following are general observations about professional courtesy arrangements for physician practices to consider:

  • A physician’s regular and consistent practice of extending professional courtesy by waiving the entire fee for services rendered to a group of persons (including employees, physicians, and/ or their family members) may not implicate any of the OIG’s fraud and abuse authorities so long as membership in the group receiving the courtesy is determined in a manner that does not take into account directly or indirectly any group member’s ability to refer to, or otherwise generate Federal healthcare program business for, the physician.
  • A physician’s regular and consistent practice of extending professional courtesy by waiving otherwise applicable copayments for services rendered to a group of persons (including employees, physicians, and/ or their family members), would not implicate the anti-kickback statute so long as membership in the group is determined in a manner that does not take into account directly or indirectly any group member’s ability to refer to, or otherwise generate Federal healthcare program business for, the physician.
  • Any waiver of copayment practice, including that described in the preceding bullet, does implicate section 1128A(a) (5) of the Act if the patient for whom the copayment is waived is a Federal healthcare program beneficiary who is not financially needy. For example, we have previously stated that providers that routinely waive Medicare cost-sharing amounts for reasons unrelated to individualized, good faith assessments of financial hardship may be held liable under the anti-kickback statute. See, e.g., OIG Special Fraud Alert on Routine Waiver of Medicare Part B Copayments and Deductibles, 59 Fed. Reg. 65372, 65374 (Dec. 19, 1994). Such waivers may constitute prohibited remuneration to induce referrals, as well as a violation of the civil monetary prohibition against inducements to beneficiaries.

There are several fundamental points here. First, "professional courtesy" refers to the waiver of payment from fellow physicians or their family members or employees. When it consists of waiver of the whole fee, or a flat percentage of the fee, it is generally legal, unless targeted solely to actual or potential referral sources. In contrast, waivers of co-pays are generally illegal absent financial hardship, at least in the case of federally-insured patients (e.g., Medicare or Medicaid), including waiver of co-pays to physicians and family, as a professional courtesy.

Second, the federal anti-kickback statute is about remuneration for referral of Medicare/Medicaid business. If the patient is not in a position, even potentially, to refer Medicare/Medicaid patients to the physician, then the statute is not implicated—but that is a very rare situation. The Civil Monetary Penalties (CMP) statute imposes penalties against any person who gives something of value to a Medicare or state healthcare program (including Medicaid) beneficiary that the benefactor knows or should know is likely to influence the beneficiary’s selection of a particular provider. The federal prohibitions only come into play, therefore, when there is intent to induce or reward referrals of Federal healthcare program business. State statutes may cover broader categories of patients.

Third, if a practice is going to offer either professional courtesy waivers of co-pays, it should have a written policy describing the terms of the offer. Advice of counsel is recommended.

Practical Application

1. Professional Courtesy. Generally, it is legal to provide courtesy to physicians in the community, their families and their staff. Professional courtesy is illegal when it is targeted to those physicians or other persons who are in a position to refer federally-insured patients to the practice.

It is dangerous to target professional courtesy to potential referrers because this may constitute an illegal kickback for the referral of Medicare patients. The waiver of the provider’s usual fee can be viewed by as "non-cash remuneration" for potential future referrals.

Extending professional courtesy to pre-determined groups of individuals is the best way to avoid an appearance that the purpose of the fee waiver is to obtain referrals of Medicare patients. As stated by the OIG (above), a "physician’s regular and consistent practice of extending professional courtesy to groups will not implicate [the anti-kickback statute] so long as membership in the group receiving the courtesy is determined in a manner that does not take into account directly or indirectly any group member’s ability to refer to … the physician."

It is not necessary for the provider who provides professional courtesy discounts to avoid all physicians who might be in a position to refer Medicare patients to the practice. Professional courtesy can be offered to physicians and their families, including good referrers. What the practice cannot do is limit the availability of the free services to only the actual or potential referrers. As an example, a provider practice may not limit professional courtesy to high-volume surgeons on the hospital medical staff.

2. Waiving Co-Pays; Accepting "Insurance Only." Waiving patient co-pays or accepting "insurance only" as payment in full is similar to waiving the entire fee in a professional courtesy situation, in that both arrangements involve a discounted or reduced cost to the patient. Waiver of co-pays, however, is generally illegal.

Waivers of co-pays for Medicare patients violate the federal CMP statute, which prohibits the offer of "remuneration" to a Medicare or Medicaid beneficiary that the healthcare provider "knows or should know is likely to influence" the patient to seek medical care from the provider who is offering the co-pay waiver. One observer has speculated:

Arguably, waiving the entire fee, as in professional courtesy, is also likely to "influence" the beneficiary (who doesn’t like free medical care?). But the government (through the Office of Inspector General – "OIG") only cites this statute with respect to waiver of co-pays. It does not seem to think that waiver of the entire fee as a professional courtesy is illegal, unless targeted to actual or potential referral sources, as noted above. The waiver of the full fee does not increase the cost of services to the Medicare program which is likely why it is not addressed.

The bottom line is this. The OIG has long targeted the waiver of co-pays when extended to the public. It does not want medical practices to build their Medicare patient volume by offering "insurance only," since this encourages over utilization by the general Medicare population. The government also views waiver of co-pay as a fraud on the government, since it results in a "misstatement" of the Practice’s normal fee.

The OIG has never strenuously opposed or targeted "insurance only" in the context of professional courtesy to physicians and family, or to the practice’s staff and family. Nonetheless, it is technically illegal, for Medicare patients. It may also be illegal for commercial patients, depending on state law and the payer’s contract with the provider. Therefore, the best course is to avoid "insurance only" under all circumstances.

Co-Pays and Courtesy: Clearing Away the Confusion (Monroe County Medical Society, reprinted with permission from The Healthcare Group, Plymouth Meeting, PA). 

It is important to realize that "insurance only" billing has also been deemed insurance fraud by some states. The theory is that the real fee is less than the fee the practice bills to the insurance company; with a $100 charge and a waived $20 co-pay, the real fee should be $80, to use the familiar example.

"Insurance only" billing may also be prohibited by the participation agreement with the patient’s health plan, i.e., the contract may stipulate that the practice must collect co-pays and deductible amounts. In addition, many private health plans and some federal programs have a "most favored nation" clause in their contracts with physicians. This entitles the plan to pay the lowest charge the physician bills to anyone. Any pattern of discounts could result in a reduction in the physician’s allowable reimbursement schedule to the discounted amount.

3. Exception for Financial Hardship. There is one very limited exception to the prohibition on co-pay waivers. This is a waiver based on demonstrated financial hardship. It is permissible for the practice to waive the co-pay, even for Medicare patients, so long as such waivers are granted with reasonable, consistently applied hardship criteria and are not provided as a matter of course. The practice should establish a process in terms of what documentation (e.g., tax return, unemployment compensation documentation) must be provided by the patient to qualify.

Absent financial hardship, practices should always charge and collect the co-pay. It is not sufficient for the practice merely to go through the motions by billing the patient for the co-pay but failing to make any good faith effort to collect it, or by telling patients that the practice "has to" bill the co-pay to comply with the law but that the patient should simply disregard the bill.

4. Discounts for Cash Payment. To avoid the costs and uncertainties of seeking payment from insurance companies, many medical practices offer patients discounts for cash payments. While the practice of bypassing insurance altogether is perfectly legal, physicians need to check whether undercutting their own negotiated rates violates any of their health plan contracts. They also need have in place rigorous administrative controls so that they do not erroneously bill the patient’s health plan after having received payment in cash. The policy should be in writing, and followed uniformly.


The rules pertaining to professional courtesy and waivers of co-pays are superficially simple enough. The devil is, as the saying goes, in the details—which every practice that extends the discounts must state in written policies. While there has been little enforcement activity in so far as professional courtesy is concerned, waivers of co-payments extended to the public have raised prosecutorial interest. The safest course is to avoid granting co-pay waivers, except in cases of well-defined and documented hardship, as a matter of policy.

Karin Bierstein, JD, MPH, served as ABC’s Vice President for Strategic and Practice Affairs and before that with the American Society of Anesthesiologists until her retirement on July 1, 2016. She is now a consultant to ABC and can still be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

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