December 2002 Bulletin

Medicare participation: What are your options?

Making the Medicare enrollment decision has become tougher

By Dan Sung

Physician enrollment in the Medicare program has been complicated this year due to technical problems with the 2003 Medicare physician fee schedule. Notwithstanding these recent events, an orthopaedic surgeon still faces the important decision of whether to participate in the Medicare program. Do you know your enrollment options?

Early each November, the Centers of Medicare and Medicaid Services (CMS) typically publishes the Medicare physician fee schedule for the upcoming calendar year. However, due to discrepancies in data used to compute the annual update to the physician fee schedule, CMS did not publish the fee schedule in November of this year.

The practical implication of this delay means the new fee schedule will not become effective on January 1, 2003. Another effect of this delay is that Medicare carriers will be sending annual participation agreements to physicians later this year. But even with these delays, it is imperative that physicians know all their enrollment options with respect to the Medicare program. Essentially, physicians have three options:

  1. Participating physician
  2. Non-participating physician
  3. Opt out

Participating physician

To become a participating physician, a physician must sign a participation agreement. A participating physician agrees to accept payment from Medicare based on a fee schedule that lists all covered services, as well as the approved charge that Medicare will pay for a particular service. This Medicare physician fee schedule is normally updated and published annually in the Federal Register in early November. A participating physician agrees that payment for Medicare services based on the fee schedule represents the approved and full charge. This means a physician cannot collect or "balance bill" an amount in excess of the approved charge listed on the fee schedule for services furnished to Medicare patients.

A participating physician also agrees to accept assignment on all Medicare claims. This means that Medicare will pay 80% of the approved fee schedule charge directly to the physician. The physician is responsible for collecting the remaining 20% of the Medicare approved charge from the patient.

There are several advantages to being a participating physician. Physicians are reimbursed at 100% of the Medicare fee schedule amount for covered services furnished to patients. Physicians also receive 80% of payment due directly from Medicare, which often makes the claims process easier. In addition, participating physicians are listed in a "Medicare Participating Physician/Supplier Directory" that is made available to various senior citizen groups and individuals who contact Medicare and request the name of participating doctors.

Non-participating physician

A physician that does not participate in Medicare still faces limits with respect to the amount he or she can collect from Medicare for covered services furnished to patients. Non-participating physicians are subject to the Medicare fee schedule, but the approved charge amounts are 5% less than the approved charges of participating physicians (i.e. the fee schedule for non-participating physicians is 5% lower than the fee schedule for participating physicians). For example, if Medicare reimburses a participating physician $100 for Service X, a non-participating physician will be reimbursed $95.

The key advantage of choosing non-participation status is that physicians can accept or decline assignment for Medicare claims. If a non-participating physician accepts assignment, Medicare will pay 80% of the non-participating fee schedule rate directly to the physician. The physician must then bill the Medicare patient for the remaining 20% of the non-participating fee.

If a non-participating physician does not accept assignment, Medicare pays the patient for the claimed benefit, not the physician. Thus, it is up to the physician to collect the entire payment for covered services directly from the patient. The key advantage for physicians who do not accept assignment is that they can bill the patient for 115% of the non-participating fee schedule approved charge. Essentially, this means non-participating physicians who do not accept assignment may collect 9.25% more than participating physicians. For example, if Medicare reimburses a participating physician $100 for Service X, a non-participating physician that does not accept assignment may bill the patient for $109.25.

Non-participating physicians face a number of disadvantages. The higher billing rates of non-participating physicians may be offset in some states due to state laws that restrict balance billing of Medicare patients. Physicians should check with their local Medicare carrier to see if there are state restrictions on balance billing. An additional disadvantage in not accepting assignment is that the physician assumes a higher level of risk and effort to collect fees, since the physician must collect the entire reimbursement amount from the patient. Finally, a physician’s patient base may decrease because some patients prefer seeing participating physicians versus non-participating physicians.

Opt out

Physicians can also opt out of Medicare. In doing so, a physician makes the decision not to accept payment from Medicare for any and all (except emergency and urgent care) services performed on Medicare patients. Physicians choose to opt out of Medicare for a variety of reasons: overwhelming paperwork requirements, declining reimbursement rates, and onerous administrative burdens.

Participating physicians can opt out of Medicare on the first day of each calendar quarter, if they file an affidavit at least 30 days before the first day of the quarter. Non-participating physicians can opt out at any time.

In order for physicians who opt out of Medicare to receive reimbursement for services furnished to Medicare patients, the physician must sign a private contract with each and every Medicare patient the physician treats. In a private contract, the Medicare patient agrees to pay for services furnished by the physician without regard to any limits that would otherwise apply to what the physician could charge. In addition, a patient that signs a private contract agrees not to bill Medicare or ask the physician to bill Medicare–the patient assumes sole responsibility for payment of physician services. The primary benefit for a physician who opts out and private contracts is that the physician is able to bill Medicare patients without regard to the Medicare fee schedule and allowed charge limits normally imposed on participating and non-participating physicians.

Medicare has very specific provisions on the private contracting process. Both the physician and the Medicare patient must sign a private contract before services are furnished to the patient. Specific terms that must be included in a private contract are clearly laid out in Medicare regulations. Failure to include these terms or failure to adhere to other provisions of the private contracting process can result in severe penalties.

It is important to stress that a physician who chooses to opt out of Medicare may provide covered care to Medicare patients only through private contracting. In addition, physicians cannot private contract with some Medicare patients and not others. A decision to opt out means the physician cannot accept any payment from Medicare for two years.

Because many practices treat a high percentage of Medicare patients, the decision to participate in Medicare can have a significant financial impact on a physician’s practice. Physicians must consider many factors when making this decision. Some factors, such as recent fee schedule payment cuts, are dictated by legislative action. For 2003, Medicare officials have projected an additional 4.4% payment cut in addition to the 5.4% cut that occurred in 2002. Other factors, such as payer ratios and collection process issues, are more specific to an individual physician’s practice, but are still equally important considerations. A physician should carefully weigh all the factors, advantages, and disadvantages before making a decision to participate in Medicare.

Enrollment Status:

Reimbursement Rate

Who does the physician bill?

Example: Physician performs Service X. The Medicare fee schedule allowed charge for Service X is $100

Participating physician

100% of Medicare Fee Schedule

80% Medicare Carrier 20% Patient

Medicare carrier is billed for $80
Patient is billed for $20

Non-participating physician with assignment

95% of Medicare Fee Schedule

80% Medicare Carrier 20% Patient

Medicare carrier is billed for $76
Patient is billed for $19

Non-participating physician without assignment

109.25% of Medicare Fee Schedule

100% Patient

Patient Patient is billed for $109.25

Private contracting

Negotiated with patient

100% Patient

Patient is billed for negotiated rate

Dan Sung is a policy analyst, AAOS health policy department.

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