To liberally paraphrase Winston Churchill, never have so many been so confused by something designed to affect so few. The “something” in question is the private-contracting provision of the 1997 Balanced Budget Act (BBA). That provision has been misunderstood, misinterpreted and misconstrued by physicians and their Medicare patients since President Clinton signed the law last year. This article will help to resolve the confusion.

What the law says

We first told you about the controversy surrounding private contracting with Medicare patients in a January 1996 article (“Contracting With Medicare Patients Is Asking for Trouble,” FPM, page 23). That article explained the concept of private contracting and noted that its legality was in dispute.

Trying to end that dispute, Congress inserted a provision in the BBA (Section 4507) stating that nothing in the Medicare law “shall prohibit a physician or practitioner from entering into a private contract with a Medicare beneficiary for any item or service” if certain conditions are met. In essence, the provision clarifies that private contracts with Medicare patients are indeed legal, provided they meet conditions specified in the law, most notably that the physician agrees not to submit any Medicare claims nor receive any payment from Medicare for items or services provided to any Medicare beneficiary for two years. Unfortunately, the provision seems to have created more problems than it has solved.

Here's the bottom line. If you want to provide a Medicare-covered service to a Medicare beneficiary without having to file a Medicare claim and without being subject to Medicare's limiting charge, you have to enter into a private contract with that patient and pay a considerable price: You must “opt out” of Medicare for two years.

Reality check

A number of myths have arisen since the BBA was enacted, not the least of which is the notion that the law prohibits physicians from treating Medicare beneficiaries if they treat private-pay (i.e., non-Medicare) patients. Here are some other myths and facts:

• Myth: To provide any service excluded by law from Medicare coverage (e.g., cosmetic surgery), you must have a private contract and must agree not to take Medicare patients for two years.

• Reality: The BBA does not revoke or in any way affect a physician's long-standing right to receive payment from a Medicare patient for services excluded from Medicare coverage. For services never covered by Medicare (i.e., excluded from Medicare coverage by law), a physician may charge his or her standard fee and collect it from the patient. No private contract is required.

• Myth: To receive payment for services denied coverage by Medicare, you must have a private contract.

• Reality: The BBA does not revoke or in any way affect a physician's long-standing right to receive payment from a Medicare patient for services that are not covered for reasons such as medical necessity — provided the patient has signed a waiver of liability (also called an “Advanced Beneficiary Notice”) before the service is provided. (See “A Reminder About Waivers of Liability,” FPM, September 1997, page 16, for more information on waiver requirements.)

Stay tuned

The issue of private contracts continues to be a subject of debate in Congress. A bill introduced in January by Rep. Gerald D. Kleczka, D-Wis., would repeal the private contracting provision in the BBA. The bill, which has been referred for consideration to the House committees on Commerce and Ways and Means, would require that a Medicare claim be submitted for any Medicare-covered service and that Medicare's payment amount be accepted as payment in full for the service. In addition, the conservative United Seniors Association and four of its members have filed a federal lawsuit challenging the constitutionality of Section 4507, which includes the provision. So you'll be hearing more about this issue.

In the meantime, if you think private contracts might be worth pursuing, read the text of the law (H.R. 2015,Balanced Budget Act of 1997, Sec. 4507, Use of Private Contracts by Medicare Beneficiaries) and consult your Medicare carrier for more information. If you aren't interested in private contracting, put the controversy out of your mind. The BBA's private-contracting provision was not intended to, and effectively does not, change the way most family physicians interact with their Medicare patients.