A family medicine practice we audited last year had a sticky note on the front desk monitor. It read: "No copay: Dr. K's family, staff, clergy, Mrs. R." Nobody thought of it as a compliance issue. The physician had been waiving copays for colleagues and a few long-time patients for twenty years. The note had simply grown.
Waiving copays is one of those habits that feels like good manners and reads, to a regulator or a payer auditor, like an inducement or a misrepresented charge. The rules are not as absolute as some compliance seminars make them sound, but they are specific, and the version most practices follow ("we just don't collect from people we like") does not fit any of the exceptions.
This piece lays out what the federal rules actually say, where professional courtesy fits, what payer contracts add, and how to write a financial hardship policy so you can still help patients who genuinely cannot pay. Treat this as operational guidance and check the final policy with counsel.
Key takeaways
- Routinely waiving Medicare or Medicaid copays and deductibles can violate the Anti-Kickback Statute and the beneficiary inducement civil monetary penalty law, and can make your billed charge a misstatement under the False Claims Act.
- Waivers are permitted when they are not advertised, not routine, and based on a documented good-faith determination of financial need or on failed reasonable collection efforts.
- The Stark Law professional courtesy exception is written for entities with a formal medical staff and does not neatly cover a small practice extending courtesy to other physicians.
- Commercial payer contracts almost always prohibit routine waiver of cost sharing, so the rules apply to more than government patients.
- A written hardship policy with an application, an income test and a file note turns a risky habit into a defensible process.
Why waiving copays is a legal question at all
Three federal rules meet here. The Anti-Kickback Statute is a criminal law that prohibits knowingly offering anything of value to induce the referral of business paid by a federal health care program. A waived copay is something of value, and if the waiver is meant to bring the patient back to you rather than to a competitor, prosecutors have treated it as an inducement. The Office of Inspector General said so plainly in its Special Fraud Alert on routine waiver of Medicare Part B copayments and deductibles, first issued in 1991 and republished in December 1994.
The beneficiary inducement civil monetary penalty is a separate, civil rule. It penalizes offering remuneration to a Medicare or Medicaid beneficiary that the person knows or should know is likely to influence the choice of provider. The statute's own definition of remuneration includes waivers of coinsurance and deductibles, and then carves out the conditions under which a waiver is fine. We come back to those conditions below because they are the ones a practice policy should track.
The third rule is the False Claims Act, and it is the one physicians find least intuitive. Medicare pays 80 percent of the allowed amount and expects the patient to owe 20 percent. If you never intend to collect the 20 percent, the government's position has long been that your actual charge is really 80 percent of what you reported, so the claim overstated the charge. That argument does not depend on any intent to induce referrals. It applies to the kind-hearted physician as much as to the schemer.
The waiver that is allowed: financial need, case by case
The inducement statute permits a waiver of coinsurance or deductible when all three of the following are true: the waiver is not offered as part of any advertisement or solicitation; the provider does not routinely waive cost sharing; and the waiver follows a good-faith determination that the individual is in financial need, or follows reasonable collection efforts that failed. The OIG's guidance adds that the determination should be individualized and documented.
In practice that means four things. You cannot put "we accept your insurance as payment in full" on a website or a sign. You cannot waive for a category of people (all seniors, all patients on a certain plan) without an individual review. You need a written standard for what financial need means at your practice, applied the same way to everyone who asks. And you need a record of the determination in the account, not in someone's memory.
The OIG also allows small gifts of nominal value to beneficiaries, which since its December 2016 policy statement means no more than $15 per item and $75 in total per patient per year, never cash or cash equivalents. A waived $40 copay is not a nominal gift; it is a waiver, and it has to meet the hardship conditions.
Professional courtesy: what the Stark exception does and does not cover
Professional courtesy, meaning free or discounted care to other physicians and their families, is older than Medicare. The Stark Law (the physician self-referral law) has an exception for it at 42 CFR 411.357(s), but read the conditions before relying on it. The exception applies to an entity with a formal medical staff, requires that courtesy be offered to all physicians on that staff or in the local community without regard to referrals, requires that the items and services be of a type the entity routinely provides, requires a written policy approved in advance by the governing body, and prohibits extending courtesy to a physician or family member who is a federal program beneficiary unless there is a good-faith showing of financial need.
A four-physician practice does not have a formal medical staff in the sense the rule means, so honestly, most independent practices cannot fit their courtesy habit into this exception. That does not make courtesy automatically illegal. Stark only bites when the courtesy runs to a physician who refers designated health services to you, and the Anti-Kickback Statute only bites when there is intent to induce federal program referrals. The OIG's 2000 compliance guidance for small physician practices points to two risk signals: courtesy extended selectively to referral sources, and waiver of cost sharing for federal program patients while billing the payer.
The safer forms of courtesy are the ones that do not involve a payer at all. Treating a colleague free of charge and not billing anyone is generally lower risk than billing Medicare and waiving the 20 percent. Courtesy to a physician who refers to you is a question for counsel.
What payer contracts add
Government rules get the attention, but commercial contracts are where most practices actually get caught. Nearly every participating provider agreement we review contains a clause requiring the practice to collect the member's cost sharing and prohibiting routine waiver, sometimes with a right to audit and recoup. Some state insurance fraud statutes make routine waiver an offense outright, and a few states require that any waiver be disclosed to the insurer.
| Situation | Government patient | Commercial patient | Our operational view |
|---|---|---|---|
| Patient completes a hardship application that meets the written policy | Permitted when not advertised and not routine, with the determination documented | Usually permitted if the contract allows hardship waivers; check the clause | Document the income test and keep the application in the account |
| Sign in the lobby: "We waive copays for seniors" | Advertised and routine; prohibited | Almost always a contract breach | Take the sign down today |
| Colleague on Medicare, copay waived, Medicare billed | Waiver of cost sharing without financial need; high risk | Not applicable | Either treat for free and bill nobody, or collect |
| Employee copay waived, practice health plan billed | Not a federal program issue unless the employee is a beneficiary | Contract and plan document issue; possible tax question | Ask counsel and the plan administrator before adopting |
| Balance under $10 after two statements, written off | Reasonable collection effort failed; permitted with a consistent small-balance policy | Generally permitted under a written policy | Put the threshold in writing and apply it to everyone |
| Cash-pay discount to uninsured patients | No federal payer involved; permitted if it reflects a consistent fee schedule | Check most-favored-nation clauses in older contracts | Publish the discount schedule and apply it uniformly |
Writing a hardship policy that holds up
A defensible policy has six parts. First, an income standard: many practices use a percentage of the federal poverty guidelines that HHS publishes each January, for example full waiver at or below 200 percent and a sliding scale to 300 percent. Second, an application that asks for household size, income and the documents you will accept (a tax return, two pay stubs, an unemployment or benefits letter). Third, a decision rule about who approves and within how many days. Fourth, a duration: approvals expire, usually after twelve months, and the patient reapplies. Fifth, a record: the signed application and the approval note stay with the account, and the adjustment posts under a dedicated code such as "hardship waiver" rather than a generic write-off. Sixth, a rule that the policy is offered on request or when a balance goes unpaid, never advertised as a reason to choose the practice.
A worked example. A 58-year-old patient on Medicare with a household of two reports income of $2,100 a month and brings a benefits letter. That falls under 200 percent of the 2026 poverty guideline for a two-person household.The practice manager approves a full waiver of coinsurance for twelve months, notes the determination and the date, and the biller posts each 20 percent balance to the hardship adjustment code. When Medicare or a payer asks why coinsurance was not collected on those claims, the answer is a policy, an application and a note, not a sticky note.
The same structure supports the reasonable-collection-efforts route: define what reasonable means at your practice (for example three statements over 90 days and one phone call), record that it happened, and write off under a distinct code. Our RCM audits look for exactly this separation, because when hardship, courtesy and bad debt all post to the same adjustment code, neither the practice nor an auditor can tell what happened.
Questions we hear
Can we waive the copay when the patient is a physician's relative or a staff member?
For a patient covered by Medicare or Medicaid, a waiver based on relationship rather than need does not fit the exceptions, so either collect or provide the care without billing the program. For commercial patients, the payer contract governs and most prohibit routine waivers; the practice's own employee health plan may have its own rules, and an employee benefit may have tax consequences. Get the plan document and counsel involved before writing a staff policy.
Is a prompt-pay discount the same as a waiver?
Not necessarily. The OIG has addressed prompt-pay discounts in advisory opinions and looked favorably on arrangements where the discount reasonably reflects the collection costs the practice avoids, is offered uniformly and is not tied to the choice of provider. The details matter, so if you want to offer one to Medicare patients, read the relevant opinion with counsel and build the discount from actual collection cost data.
We have been waiving copays for years. What now?
Stop the practice, replace it with a written hardship policy, and tell the affected patients why, using a short letter that points to the policy and the application. Then talk to counsel about whether any past claims need attention; the answer depends on volume, payer mix and intent, and it is not something a billing team should decide alone.
What to do this week
- Remove any sign, script or website line that offers to waive or reduce cost sharing.
- Pull a list of accounts where copays or coinsurance were adjusted off in the last twelve months and sort by reason; if there is only one generic code, that is the first problem.
- Draft a hardship policy with an income standard, an application form, an approver and a twelve-month expiration, and send it to counsel.
- Read the cost-sharing clause in your three largest commercial contracts and note what each permits.
- Create separate adjustment codes for hardship waiver, small-balance write-off and bad debt, and train the posting staff on which is which.
