The Cash Pay Lie and Other Costly Realities

In an effort to maintain or increase patient volume and reduce collections costs, physician groups increasingly are offering substantial discounts to patients who pay cash up front for their medical care.

While discounts can range from as low as 20% to as high as 50%, they typically hover around 30% of the provider’s average charge amount. When utilized appropriately, these discounts offer great benefit to patients who might otherwise not seek much-needed care. However, when patients with insurance fail to disclose that information to a physician’s office staff in order to benefit from the cash pay discount, maximum reimbursement is not realized. This leads to the following questions: 1) Why would a patient not want to use their medical insurance; and 2) What legal option or responsibility does a provider have to file a claim with a patient’s insurance, once the provider is aware that such coverage exists?

According to the Kaiser Family Foundation’s (KFF) annual Employer Benefits Survey1 published on October 8, 2020, “83% percent of covered workers have a general deductible that must be met before most services are paid for by the plan.” For these workers, the average annual deductible has increased 25% over the last five years and 79% over the past 10 years. Much of the increase in the average deductible amount can be attributed to the growth of high deductible health plans (HDHP). A Bureau of Labor Statistics article2 published on September 3, 2020, reported that enrollment in HDHPs has increased from 15% of all workers in 2010 to 45% of all workers in 2018. The average deductible amount for single coverage ranged from a low of $1,500 to a high of over $5,000. More than 42% of covered workers have a deductible of $2,000 or more1

The KFF study reports most plans require patients to pay an additional coinsurance or copayment amount. For physician office services, copayment amounts range between $26 and $42, with coinsurance rates near 20%. For hospital services, coinsurance rates average 20% with copayment amounts of just over $300. 

Finally, most private insurance plans have a maximum in-network out of pocket amount that a patient has to pay before all subsequent claims are paid in full by the insurance carrier. Eighteen percent of covered workers have out of pocket maximums over $6,000 annually.

With such high deductibles and out-of-pocket costs for insured patients, it is often more fiscally beneficial for relatively healthy patients to present as cash pay patients. Paying a discounted cash pay rate for medical services several times is still less expensive that paying a high deductible and an even higher out-of-pocket maximum, but where does that leave the provider?

In February 2010, The HITECH Act regulated that a health care provider is required to honor a patient’s request to restrict disclosure of protected health information (PHI) to a health plan for purposes other than carrying out treatment (specifically, payment or healthcare operations) if the patient pays the healthcare provider the charges due in full [Section 13405 of Subtitle D of the HITECH Act (42 USC 17935)]. This means that if a patient does not wish to use their health insurance or med-pay, they can request that the insurance not be billed. There is a key component of this verbiage of which providers should be aware. If a patient does not pay the charges in full, the provider has a legal right to file a claim against any valid insurance coverage.

Providers also may have a contractual obligation to file claims for insurance plans with which they are in network. Depending on the terms of conditions of the payer contract, failure to file claims for patients covered by an in-network plan can be viewed as a breach. Cody Dumas, a Houston, TX area healthcare attorney with the firm of DumasNeel, successfully defended providers against lawsuits brought by a large insurance company claiming the provider was in breach of contract for not filing claims for covered patients. The provider was unaware of the patient’s coverage, and, while the patient had violated the terms of the contract by not presenting insurance information, the provider was targeted by the insurance company. Mr. Dumas commented, “It is better to spend $1,000 - $2,000 on preemptively identifying insurance coverage for patients than to be involved in a legal action.”

Insurance discovery technology can provide multiple benefits to providers as they navigate the often-challenging world of cash pay discounts. First, insurance discovery can offer providers an opportunity to maintain their cash pay or charitable giving programs for those patients who need it most — the uninsured and underserved. Second, insurance discovery can help protect providers from potential breach of contract situations when patients covered by in-network plans fail to present their insurance at the time of service.

Numerous affordable and efficient options exist for patient insurance discovery. If your practice has a robust cash pay discount program, or is contracted with numerous payers, introducing an insurance discovery tool to your operations is a good investment.


This article is a collaborative effort with ZOLL Data Systems.




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