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Private Medicare contracting under the law

By David A. Bongiovanni, Esq.

Almost since the inception of the Medicare program in 1966, Congress has grappled with the delicate balance between the privacy afforded to the financial relationship between patients and their physicians on the one hand, and the government’s interest in limiting the amount that Medicare beneficiaries pay for program services. The resulting tension has been stretched even further as the government struggles to control a program whose costs have continued to increase dramatically.

Over the years, the Medicare laws have been amended to encourage participation by physicians in the program and, at the same time, to discourage non-participation. As a result, even physicians who choose not to participate generally must comply with Medicare’s claim submission requirements for services furnished to beneficiaries, are prohibited from billing their Medicare patients if the services are determined to be medically unnecessary under program criteria, and are subject to limits on the amounts that they may charge their patients for services covered by Medicare.

In addition to increasing federal intervention in this regard, some states have enacted legislation that further impacts the financial relationship between physician and patient. For example, Pennsylvania’s Health Care Practitioners Medicare Fee Control Act prohibits physicians and other practitioners from billing beneficiaries more than the amount allowed under the Medicare program, regardless of whether the physician or practitioner participates in the program. Thus, while physicians are not required to participate in the Medicare program, the government has established a number of positive and negative reinforcements that are intended, in part, to encourage physicians to participate.

Notwithstanding the government’s encouragement in this regard, some physicians decline to take Medicare patients into their practices. In view of Medicare’s low reimbursement rates, coupled with balance-billing restrictions, some physicians have decided simply not to treat Medicare patients.

In response to a concern that Medicare beneficiaries may experience difficulty in obtaining physician services, Congress amended the Social Security Act to permit physicians and other practitioners to contract privately with their Medicare patients to furnish services covered under the program. From a distance, Section 4507 of the Balanced Budget Act of 1997 (which amended Section 1802 of the Social Security Act) presents physicians and their Medicare patients with the opportunity to enter into mutually acceptable arrangements for the furnishing of, and payment for, services that physicians might not otherwise provide. In this fashion, the patient could receive treatment from his or her physician of choice and the physician would not be deterred by the lean Medicare reimbursement rates and attendant balance-billing restrictions. However, a closer inspection leads to the conclusion that Section 4507 likely will not promote wide-scale private contracting.

Section 4507

Section 4507 permits physicians (and other practitioners including physician assistants, nurse practitioners and clinical psychologists) to enter into private contracts with Medicare beneficiaries with respect to services furnished on or after January 1, 1998. However, the physician must commit that, for two years, he or she will not submit any claim to Medicare for any service furnished to any Medicare beneficiary (although certain exceptions apply for urgent or emergency services furnished by the physician). In addition:

• If the physician is a member of a group practice, the practice may not bill Medicare for services furnished by the physician to beneficiaries. The practice, however, may continue to bill Medicare for services furnished by physicians who have not opted out of the program.

• The physician must enter into a private agreement with each Medicare patient whom he or she is treating, even where Medicare payment would be on a capitated basis.

Therefore, a physician who favors a private contracting approach will be able to charge any amount to beneficiaries for services provided, without limitations that would otherwise be imposed under the Medicare program. However, private contracting comes at a potentially steep price: a two-year commitment not to bill Medicare or receive any Medicare payment (directly or on a capitated basis) for services furnished to the beneficiaries. Moreover, if a physician who opts out of the program knowingly and willfully submits a claim to Medicare or receives a Medicare payment: the physician’s private contracts with his or her patients will become null and void, and for the duration of the opt-out period, the physician must submit to Medicare all claims for services furnished to the beneficiaries (although Medicare will not pay the claims) and abide by the limiting charge rules.

In the Wake of Section 4507

Proponents of the private contracting model expressed concern regarding the restrictions imposed by Section 4507, especially with respect to the two-year disenrollment period. Critics of Section 4507 believe that most physicians cannot afford to give up their Medicare practice for two years; as a result, they believe that physicians will not pursue private contracts, thereby effectively precluding senior citizens from paying for health care services outside of the Medicare program.

On the other hand, supporters of Section 4507 contend that the restrictions are necessary to protect the beneficiaries from unscrupulous practitioners who would pressure their patients to pay inflated prices for health care services and who, in the words of Representative Pete Stark (D-Calif.), would “perform wallet biopsies on Medicare beneficiaries.” Efforts to expand the physicians’ ability to contract privately were undertaken, but have been largely unsuccessful to-date.

Last January, the AMA launched a campaign to repeal the two-year disenrollment period. In early June, however, the AMA seemed to withdraw from this initiative and redirected its energy to support federal patient protection and tobacco control legislation.

Last February, Senator John Kyl (R-Ariz.) introduced the Medicare Beneficiary Freedom to Contract Act to amend Section 4507 by eliminating the two-year disenrollment period. The measure is stalled in Congress and Senator Kyl recently acknowledged that passage of the bill is unlikely.

Also in February, the United Seniors Association sought an injunction in federal district court to prevent the enforcement of Section 4507. The case was dismissed in April and is on appeal.

These efforts to relax Section 4507’s restrictions may have lost momentum, in part, as a result of reports from the General Accounting Office, HCFA and other organizations indicating that only a small fraction of beneficiaries has experienced difficulty in obtaining physician care as a result of the Medicare reimbursement amounts. These reports also note that more than 95 percent of the nation’s physicians treat Medicare patients and, in 1997, more than 98 percent of Medicare’s payments to physicians covered claims for which the physicians accepted the Medicare-approved amount as payment in full. Finally, in early June, HCFA reported that only about 300 practitioners (nearly half of whom are psychiatrists) have elected to contract privately with their Medicare patients through the opportunity made available by Section 4507.

It is questionable at this stage whether the private contracting provisions of the Balanced Budget Act will have a significant impact on the delivery of physician services to the Medicare population. Clearly, private contracting on a large scale will not occur as long as Section 4507’s two-year disenrollment period remains intact. Moreover, the prospect is dim for the disenrollment period to be repealed in the near future. As currently constituted, one may question whether Section 4507 will have a measured impact on the Medicare program, the beneficiaries or the physicians.

David A. Bongiovanni, Esq., a partner at Reed Smith Shaw & McClay, heads the firm’s managed health care practice.

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