By: Larry J. Laurent, Attorney at Law
During 1997, the Health Care Financing Administration (“HCFA”) announced a change in its former policy concerning its prohibition on reimbursement for the emergency room industry. On August 7,1997, the Deputy Director for the Center for Health Plans and Providers issued a question-and-answer guide for emergency rooms to use in selecting options for coming into compliance with the Medicare laws and regulations as well as carrier manual instructions on reassignment. The hope is that once the emergency room industry comes into compliance, the compliance program will be expanded to other physician groups. Such compliance would be on a case-by-case basis, and subtle changes in wording would affect the acceptability of any compliance plan or business structure.
Section 1842(b)(6) of the Social Security Act, 42 U.S.C. §1395u(b)(6), establishes the general principle that Medicare program payments should be made to the beneficiary or, under an assignment, to the physician who provides the physician service. This principle was developed to ensure accountability and to prevent “factoring” a practice that Congress specifically found to be abusive. The statute contains several exceptions, but the
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exceptions are generally construed narrowly to preserve the intent of the general rule. Office of Personnel Management v. Richmond, 496 U.S. 414,416 (1990). See also US v. MacCollum, 426 U.S. 317, 321 (1976). 42 C.F.R. section 424.80 contains the basic prohibition on the reassignment of claims by suppliers. It states that Medicare will not pay amounts that are due a supplier under an assignment to any other person under reassignment, power of attorney, or any other direct payment arrangement.
The exceptions to the basic rule are also outlined in the same regulation. Those exceptions include:
Payment to an employer;
Payment to a facility in which the services are furnished if there is a contractual arrangement between the facility and the supplier under which the facility bills for the supplier’s services;
Payment to a healthcare delivery system if there is a contractual arrangement between the system and the supplier under which the system bills for the supplier’s services;
Payment to a government agency or entity;
Payment under a reassignment established by court order;
Payment to an agent who furnishes billing and collection services to the supplier or to the employer, facility, or system referred to above, if the conditions of 42 C.F.R. section 424.73(b)(3) for payment to a provider’s agent are met by the agent of the supplier or of the employer, facility, or system. Payment to the agent will always be made in the name of the supplier or employer, facility, or system.
What Kinds of Practice Structures Are Prohibited?
Basically, this prohibition on reimbursement affects some professional corporation arrangements. Specifically, it affects those in which the “supplier” physician has an employee-employer relationship with him- or herself and the professional corporation; but the professional corporation has an independent contractor relationship with a partnership, or other relationship through which the partnership bills and collects fees.
The Test: Possibility of Converting the Payment to the Use of Ineligible Person or Organization
Under the CCH-Annotations, Medicare Guide 13350.43, detail is provided concerning the limitations on assignments and reassignments. Essentially, it states that “[p]ayment is considered to be made directly to an ineligible person or organization if that person or organization can convert the payment to its own use and control without the payment first passing through the control of the provider or physician or other supplier or a party eligible to receive the payment under the exceptions in subsection B below.” (The exceptions are those as outlined above in the regulations.) Generally speaking, when a supplier is a partnership, any services furnished by a partner are considered furnished by the supplier if those services are within the scope of the partnership agreement. There is an unanswered question, however: Must the actual provider number that is submitted to Medicare or the governmental agency be that of the partnership, not that of the physician, since the physician is not the partner -his or her respective professional corporation is?
Can a Properly Constituted Partnership Be the Supplier and an Eligible Recipient?
If a partnership that meets state law requirements is established, can the partnership be considered the supplier and bill and receive direct Medicare payments for the services of its partners? In an August 7, 1997 letter from the Deputy Director of the Center for Health Plans and Providers, that question was answered “yes.” So long as the partnership met state law requirements to be a valid partnership, it can be considered the supplier of the service and may bill for services furnished by its partners. Medicare Carriers Manual. §3060.D.
If the Physicians Are Independent Contractors, Can the Partnership Be an Eligible Recipient?
If the partnership uses independent contractors who are not partners of the partnership, can the partnership still bill and receive direct Medicare payment for the services rendered by the independent contractors? The answer provided by the Deputy Director in the August 7,1997 was that “if the services rendered by the independent contractors provided on the premises that the partnership owns or leases, the health care delivery system exception to the prohibition on the reassignment may apply.” See §3060.2C of the Medicare Carrier’s Manual. Because the independent contractors are not employees of the partnership, reinstatement can only be permitted if the relationship falls within one of the other specific exceptions. The entity must meet the definition of the supplier under §3060.D of the Medicare Carrier’s Manual or one of the exceptions to the prohibition on reassignment to be able to bill and receive direct Medicare payments for services provided by the physician.
What Happens if the Payment Is to an Ineligible Recipient?
A payment to an ineligible recipient may be sanctioned. These sanctions would be invoked under section 3060.13 against a physician or other supplier to prevent him or her from executing or effectively continuing such an authorization in the future. But the physician, the supplier, and/or the ineligible recipient are not required to repay the Medicare payment.
Whatever the long-term future of managed care may be, its short-term prospects are clear: An increasing number of individual physicians and practice groups will join the fold. This means that there is an increasing likelihood that you will at some point be called on to review the terms of a practice agreement between a carrier and a client who is a physician. The carriers naturally have more firepower at their disposal; nevertheless, armed with an understanding of the lengths to which carriers will go to minimize payments to physicians, you can at least negotiate a fair and workable arrangement for your client.