A hospital discounts by 20% the employee share of bills for hospital services if the employee is covered under the hospital's self-funded health benefits plan. The discount also applies to the employee's spouse and dependent children if they are covered under the plan. The discount is applied by the hospital's billing office at the back end, not at the front end. For example, assume $1000 in covered services. A claim for $1000 is submitted to the health plan, which pays $800. The employee share, as shown on the EOB, is $200. The hospital's billing office then applies a 20% discount and bills the employee for $160 rather than $200.

Is the hospital and/or its health plan running afoul of the Medicare secondary payer rules? If hospital plan's EOBs are submitted to Medicare to pay secondary, it seems to me that we have a problem as the EOB overstates the portion of the claim that the employee is paying. Can anyone direct me to any MSP regulation or other guidance that prohibits (or permits) this practice?

Any thoughts about other legal issues the hospital should be concerned about. Thanks.

I do not think that I am understanding your post, but from what I see, IMHO, billing a secondary payer for anything other than $40 (1,000 - (800 + 160) = 40) seems fraudulent. I fact, I do not think that the employee should be even billed until all other payers have paid, otherwise it should be questionable ( possibly also illegal/unlawful) balance billing, at the least.

Is there a stop-loss policy involved with the self-funded plan?

Thank you good point. The Medicare secondary payment inadvertantly was ommited from the facts. Assume the same facts as above except, after the employer's plan pays $800, the $200 balance is submitted to Medicare, which pays $150. The balance is then $50, which the hospital discounts by 20% and bills the employee for $40. My concern is that something in the Medicare secondary payor rules (which we haven't been able to find) may require that the balance submitted on a secondary basis to Medicare should include the discount (i.e., $160 submitted to Medicare, not $200).

Yes, there is.