The Standing Coinsurance Waiver at an Orthopedic Group's Captive PT Company

No. The policy is not permissible as written, and the ownership structure makes it worse.

1. Routine waiver of Medicare cost-sharing

• The 20% coinsurance is a statutory beneficiary obligation. Waiving it across an entire class of patients (here, anyone who says the service is too expensive) is the textbook definition of a routine waiver.
• Waiver is defensible only when the provider makes a good-faith, individualized determination that the patient has a genuine financial hardship, using objective written criteria applied consistently, and documents that determination before or at the time of service. A rule that triggers on patient complaint is not a hardship determination.
• Exposure runs to the Civil Monetary Penalties beneficiary-inducement provisions and to the Anti-Kickback Statute. Cost-sharing is the utilization check on the service; absorbing it is remuneration to the patient to choose this provider, and building it into a service line in which the referring physicians hold the equity is the fact pattern enforcement targets.
• The 72% rate is itself evidence of a routine practice rather than individualized hardship.

2. The referral to the PT LLC

• Physical therapy is a designated health service. The referring physicians have a financial relationship with the entity furnishing it, so Stark analysis is required.
• A group practice must be a single legal entity. A separately incorporated LLC, even one wholly owned by the group, generally will not satisfy the group-practice definition, so the in-office ancillary services exception is unlikely to be available as currently structured.
• There is no in-office ancillary safe harbor under the Anti-Kickback Statute. If the therapists are bona fide W-2 employees of the billing entity, the employment safe harbor may apply to that piece, but that does not cure the coinsurance waiver.

Bottom line: retroactive hardship documentation does not rehabilitate a blanket policy. You cannot paper over a category-level waiver with after-the-fact forms.

0-30 days: stop the bleeding and gather facts

• Suspend the waiver policy in writing, effective immediately, with a memo to all staff and providers.
• Pull the 214 waiver accounts: date of service, patient, payer, CPT codes, units, dollar amount waived, and who approved it. Build a defensible exposure schedule.
• Verify the PT claim file itself: signed plan of care, certification/re-certification dates, documented progress, and timeliness. These are independent overpayment risks.
• Confirm the entity and employment facts (who employs the therapists, who bills, who is the supervising physician) - the Stark analysis depends on it.
• Brief the governing body in writing and engage health care counsel so the investigation runs under privilege. Instruct staff not to alter records or add late entries.

30-60 days: correct the structure

• Replace the waiver with a written financial-hardship policy using objective criteria (for example, income at or below a stated percentage of the federal poverty level), applied uniformly across all payers, documented at the time of service, with a named approver and a log.
• Replace the courtesy-adjustment write-off with accurate adjustment reason coding so the dollars are traceable.
• Decide whether to restructure the PT arrangement so it fits the group-practice definition, or to preserve patient freedom of choice and disclose ownership on the referral.

60-90 days: quantify and decide on disclosure

• Separate the two exposures. The waived coinsurance is not an overpayment of Medicare funds - CMS paid its 80% correctly - so the 60-day repayment rule is not automatically triggered by the waiver itself. The waiver exposure is CMP/AKS. If any PT claims were unbillable (no plan of care, no certification, non-covered), those dollars are overpayments and the 60-day clock is running.
• Counsel should make a documented recommendation on whether to use the OIG Self-Disclosure Protocol; the CMS self-referral disclosure protocol is available only for Stark, not for the inducement issue.
• Record the reasoning behind whatever disclosure decision is made. That memo is what a regulator or an acquirer will read.

• Prevalence is not a defense. A practice cannot establish compliance by pointing at the marketplace; the standard is the statute and the OIG's guidance, and a competitor's policy is equally unaudited.
• Reframe the goal. The stated objective - patients are deterred by cost - is legitimate. The policy is the problem. Offer compliant alternatives: written payment plans, a formal charity-care policy applied to all payers, financial counseling at scheduling, and price transparency before service. These address the same complaint without absorbing a statutory obligation.
• Quantify the countervailing risk the manager is not weighing: refund obligations, potential civil monetary penalties, exclusion risk for the physicians, and the fact that a 72% waiver rate is visible to any payer or contractor running analytics.
• Distinguish satisfaction from compliance. No satisfaction score survives an exclusion action.
• Escalate if necessary. If the policy is reinstated after the directive, that is a governance failure to report to the compliance committee and the board, and it should be documented as such. Compliance authority has to mean something, or the program is decorative.