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Medicare out-of-network payments

By Katherine M. Keefe, Esq.

Physicians providing care to Medicare beneficiaries who made conscious decisions not to participate in Medicare health plans may find themselves dealing with those same plans anyway, and might also be surprised to discover that they are unwittingly participating in one or more Medicare health plans. These scenarios are happening for two related reasons: the growth and popularity of Medicare health plans, including Medicare Private Fee for Service (PFFS) plans, and the payment and participation requirements found in the Medicare managed care law and regulations.

Medicare managed care has been around since the 1970s and 1980s when, under Medicare risk contracting, HMOs contracted with the federal government to provide the full range of Medicare benefits in exchange for monthly per person capitation rates. Medicare risk contracting evolved into the “Medicare + Choice” program via the Balanced Budget Act of 1997 (BBA), which then evolved into the current “Medicare Advantage” program via the Medicare Prescription Drug Improvement and Modernization Act of 2003 (MMA). (The MMA also created the new Medicare prescription drug program, which took effect in 2006.) In establishing the new Medicare Advantage Program, the MMA increased the kinds of plans that can be offered, changed the bidding process for contracts, and increased plan payments in the hope that more plans would enter and remain in the Medicare Advantage program.

Growth and Popularity of Medicare Health Plans

Medicare Advantage plans now include HMOs, PPOs, Special Needs Plans (SNPs), PFFS plans and Medical Savings Accounts (MSAs). Through lower cost-sharing obligations, Medicare Advantage PPOs encourage enrollees to receive services from participating network providers, but also permit enrollees to receive services on an out-of-network basis. Regional PPOs, which were added through the MMA, provide PPO coverage in 26 designated geographic regions; each region covers both rural and urban areas and most regions cross state lines. (Pennsylvania is in Region #6 along with West Virginia; New Jersey is its own Region #4). Medicare Advantage regional PPOs are obligated to provide access to Medicare covered services over an entire region. SNPs, also added by the MMA, enroll individuals with special needs, such as individuals that are eligible for both Medicare and Medicaid, those who are institutionalized or the severely chronically ill. PFFS plans, which have been around since the BBA and have burgeoned since the MMA, resemble privately administered fee for service Medicare in that they provide Medicare benefits but do not require enrollees to use a network of providers. A PFFS enrollee can receive services from any provider who is eligible to receive payment from Medicare and agrees to accept payment from the PFFS plan. (More on PFFS plans below.)

As a result of increased plan options, Medicare enrollment nationally has increased substantially since the implementation of the MMA, from under five million enrollees to over 7.5 million enrollees currently. According to data available from the Centers for Medicare and Medicaid Services (CMS), there are currently almost 250,000 Medicare Advantage enrollees in the five-county Philadelphia area and almost 25,000 Medicare Advantage enrollees in the three New Jersey counties closest to Philadelphia (Camden, Gloucester and Burlington).

It is noteworthy that the most significant growth rate within the Medicare Advantage program is occurring in PFFS enrollment. According to CMS data, PFFS plan enrollment nationally jumped from 802,068 in 2006 to 1.5 million currently – a huge increase in one year. Local statistics are consistent with this national trend. In the year-and-a-half since the end of 2005, numerous PFFS plans entered the market and PFFS enrollment in the Philadelphia increased from almost none to currently approaching 4,000 enrollees. The rapid growth in Medicare Advantage PFFS enrollment is inviting scrutiny; Congress is reviewing whether PFFS plans are being paid too much and whether PFFS plans’ marketing practices are appropriate.

Out-of-network Payment

This increase in Medicare Advantage plan enrollment, particularly in the PPO and PFFS plans, increases the likelihood that physicians and other health care providers – who may not participate with Medicare health plans – will be providing treatment to Medicare Advantage enrollees on an out-of-network basis. In doing so, physicians and other health care providers need to be mindful that, unlike claims for out-of-network services submitted to commercial health plans – which are often paid based on a percentage of charges or some other negotiated process – payment for out-of-network services provided to Medicare Advantage enrollees are dictated by Medicare law and regulations.

The basic Medicare Advantage out-of-network payment rule is that health care providers who treat Medicare Advantage enrollees on an out-of-network basis must accept as payment in full amounts the provider would have collected if the patient were enrolled in original Medicare. Other than for Medicare beneficiary cost-sharing, physicians and other health care providers may not bill Medicare Advantage enrollees for any additional amounts. Accordingly, Medicare Advantage health plans are directed by regulation to pay non-contracted providers an amount the provider would have received under original Medicare.

Many Medicare Advantage plans are sponsored by insuring entities that have varying familiarity and experience with the Medicare payment structure; some health plans may have historically based certain contract rates on the Medicare system, while others use proprietary fee schedules. However, the influx of PPO and PFFS enrollees underscores the need for Medicare Advantage plans to develop the ability to pay out-of-network providers at the Medicare rate. CMS publishes a “Medicare Advantage Payment Guide for Out of Network Payments” (last updated 6/15/06), which is designed to give Medicare Advantage plans general guidance for situations where the plans are required to pay the original Medicare rate to out-of-network providers. For each type of health care provider, the Guide provides the rules for Medicare fee for service payment. For physicians, the Guide instructs plans to pay physicians the lesser of billed charges or the Medicare Physician Fee Schedule. For physicians who do not participate in Medicare, plans are instructed to pay 95 percent of the Medicare participating fee schedule. The Guide further instructs plans that Medicare pays 80 percent of the fee schedule payment after the Part B deductible is met, and the beneficiary coinsurance is 20 percent.

Private Fee for Service: “Deemed” Participation

The PFFS model contributes additional nuances to the Medicare Advantage landscape. The law and regulations implementing the PFFS program require Medicare Advantage PFFS plans to pay contracted providers on the basis of fee for service payment; capitation payments or payments that would otherwise place the provider at financial risk are prohibited under PFFS. PFFS plans must provide access to Medicare covered services and may provide extra benefits; PFFS plans may set co-payment amounts which differ from Medicare’s. As mentioned above, a Medicare Advantage PFFS enrollee does not have to use network providers and can receive services from any provider who is eligible to receive Medicare payment and who has agreed to accept payment from the PFFS plan.

The PFFS rules contain a twist that may seem odd to many physicians and other health care providers: an agreement to accept the plan’s payment rate does not have to be demonstrated by through a participation agreement; providers may be “deemed” to be contracted without signing an agreement with a PFFS plan. Before providing Medicare covered services, if a physician (1) is informed that the patient is enrolled in a PFFS plan, and (2) is informed or given a reasonable opportunity to obtain information about the plan’s terms and conditions of payment under the plan, the physician will be “deemed contracted” and treated as having a contract in effect with the PFFS plan. PFFS plans are required to make available the terms and conditions of participation which include payment amounts, provider billing procedures, permitted cost-sharing amounts and whether the provider must obtain prior authorization from the PFFS plan before furnishing a particular service.

The most common scenario where these deeming criteria are met occurs when the PFFS enrollee provides a plan identification card to the physician, which contains the PFFS plan’s phone number and/or web site address through which the physician can obtain the plan’s terms and conditions. According to CMS, once the provider knows an enrollee is enrolled in a PFFS plan, it is up to the provider to either make the phone call or to access the plan’s web site for its terms and conditions. At each visit, physicians can choose to accept the PFFS plan or not. However, when a physician chooses to furnish services to a PFFS enrollee and the deeming conditions have been met, the provider must follow the PFFS plan’s terms and conditions of participation. If a physician furnishes services and the deeming conditions are not met (such as in an emergency, or where a patient provides no information as to plan enrollment status), the physician is considered non-contracted and is subject to the Medicare Advantage out-of-network payment limits discussed above.

Despite the growth of Medicare Advantage PFFS, it is a program yet to be fully understood by both Medicare beneficiaries and providers. Problems have occurred when PFFS enrollees face higher than expected co-payment obligations, and when providers turn PFFS enrollees away often because of a lack of understanding of the PFFS payment rules. In a recent memo to PFFS plans, CMS exhorted PFFS plans to develop more complete and accurate beneficiary and provider educational materials.

In this era of escalating Medicare health plan enrollment, especially as Medicare Advantage PPO and PFFS plans have emerged as popular beneficiary choices, there is increased likelihood that physicians and other health care providers will be impacted by these out-of-network payment and deemed participation rules.

Katherine M. Keefe, Esq., is a shareholder and head of the Health Law Group within the Health Care Liability Department of Marshall, Dennehey, Warner, Coleman & Goggin, in the firm’s King of Prussia office.

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