By Daniel B. Vukmer, Esq
In a March 26, 1997 letter, HCFA turned down a request by Coastal Physician Services, Inc., which staffed emergency rooms with physicians, stating that reassignment of Medicare benefits from the independent contractors to Coastal was in violation of HCFA’s prohibition on reassignment. Much has been written on this issue since the March 26th letter relative to companies which staff hospital departments; however, few have recognized the broad implications for many group practices.
Summary of Reassignment
There is a basic prohibition on the reassignment of Medicare benefit payments by the treating physician to another person or entity. The Medicare regulations provide for numerous exceptions, the most common of which is an exception which allows employed physicians to reassign benefits to their employers. Reassignment is attractive to group practices because it allows them to oversee the flow of receivables and have control over compensation arrangements with their physicians. In most group practices which employ the treating physician, reassignment to the employer is done through an “employee” exception. However, it has been a relatively common practice for medical groups to enter into independent contractor relationships with specialist physicians and, in turn, bill for the specialists’ services through the reassignment process even though the physicians are not bona fide employees of the practice. Reassignment by independent contractors is not an exception to the prohibition on reassignment except in limited circumstances. Although conduct outside of these limited circumstances has been honored in its breach for many years by HCFA, the Coastal decision and subsequent notices indicate HCFA’s intent to enforce the prohibition against reassignment.
HCFA Form 855 contains a “Reassignment of Benefits Statement” which requires that the entity receiving payment certify that the reassignment is in compliance with HCFA regulations and contains references to both criminal and civil statutes for falsifying information. The rash of recent federal False Claims Act cases based upon alleged falsification of Medicare forms adds to the importance of this statement. Given HCFA’s propensity to disregard tradition as a defense and its retroactive application of rules, for example: teaching hospital billing for residents, it is surely prudent to review independent contractor billing and payment arrangements prior to submitting Form 855 for enrollment or Form 1500 on behalf of a contractor physician.
Exceptions For Independent Contractors
There are three exceptions to the prohibition on reassignment which are relevant to independent contractor physicians. First, reassignment may be made to a facility at which the service was furnished. The term “facility” is defined to mean “institutions which make provision for furnishing services to individuals as inpatients.” These include such entities hospitals, university medical centers, skilled nursing facilities, nursing homes. Although the language of this exception suggests that the services be furnished at the facility, this exception allows for the provision of services outside of the facility if they are furnished to an inpatient of the facility or if they represent tests done on specimens obtained from the patient, or interpretations of the tests, which the patient is within the physical premises of the facility. An additional condition is that the contract be directly between the facility and the physician; contractual arrangements through a professional corporation, for example, will not qualify.
The second recognized exception for independent contractors is for Health Care Delivery Systems (HCDS). Among others, an HCDS will include a clinic. Clinics must be freestanding entities (e.g., physician, medical group or imaging center) which provide diagnostic and/or therapeutic medical services on an outpatient basis in quarters which it owns or leases. As with the facility exception, the services must be performed on the physical premises of the clinic and contractual arrangements must be directly between the clinic and the physician. In addition, only the clinic may bill and receive any fees for the services of the physician performed at the clinic.
Finally, Medicare allows Part B payment for professional interpretations which are purchased from an independent contractor. Although this method of billing is described in the Medicare Carrier’s Manual as an exception to the prohibition on reassignment, it is notably missing from the list of permissible methods of reassignment on HCFA Form 855. On the contrary, Medicare rules require only that the billing entity list certain information on item 24K of Form HCFA 1500 when billing for purchased interpretations and there is no explicit requirement that a formal Reassignment of Benefits Statement be executed. Therefore, it is not technically an assignment at all, but simply a means of purchasing and billing for services. Unlike the facility and HCDS exceptions, there is no requirement that the interpretations be performed at the facility nor must the contract be directly with the physician but may be with a professional corporation which will supply interpretations through its physician(s). However, there are three additional requirements:
• The tests must be initiated by a physician independent from the independent contractor.
• The entity purchasing the interpretations must submit a claim for both the tests and the interpretations.
• The interpreting physician may not see the patient.
What To Do With Current Arrangements?
First, review contracts between practices and independent contractor physicians and the billing arrangements. If an arrangement does not appear to fit one of the enumerated exceptions, then change or terminate the relationship. Any contract modifications must, however, take into account the anti-kickback safe harbors, proposed Stark II regulations and their collective impact upon group practices.
One option is to simply employ the physician as a part-time employee so that reassignment is done within the employee exception. This may be an attractive option for many practices, but will undoubtedly affect whether the practice qualifies as a group practice for purposes of a Stark exception to compensation and ownership arrangements. This exception requires that substantially all (75 percent or more) of the patient care services provided by the group members are furnished through, and billed in the name of, the group. If a part-time physician provides patient care services on behalf of other groups, then the 75 percent requirement will be affected.
Alternatively, the delivery of services by an independent contractor may be modified so that they are delivered on the physical premises of the facility, thus allowing for the clinic exception to reassignment. Again, however, the proposed Stark II regulations may hinder this approach. The existing Stark regulations allow independent contractors to be group members for purposes of the group practice exception. The proposed Stark II regulations have removed this option. Under the proposed rules, services provided by independent contractors are not factored into the substantially all test and, therefore, their part-time status will not dilute the substantially all test. On the other hand, independent contractors will not be afforded the protection of the group practice exception for intra-group referrals. This will require, inter alia, that referrals by the independent contractor physician for in-office ancillary services be supervised by the referring physician rather than other physicians within the group practice.
In the event that a local carrier finds an arrangement to be in violation of the reassignment rules, it must give notice to the offending provider that the arrangement subjects the provider to both criminal and civil penalties. Failure of the provider to correct the deficiency following notice, in a manner satisfactory to the carrier, allows the carrier to forward the case to the HCFA fraud unit for further action; this may include administrative, civil and criminal actions.
Daniel B. Vukmer, Esq., is with the law firm of Houston Harbaugh, P.C. in Pittsburgh.