Medicare is projecting a 4.2 percent cut in its physician reimbursement rate for 2004. This comes on the heels of a 5.4 percent cut in 2002 and a modest 1.6 percent increase in 2003. Unfortunately, your expenses don’t seem to be decreasing and neither do the paperwork and other hassles associated with Medicare. You may even be wondering if there is a way that you can still afford to see Medicare beneficiaries without all of the hassle. One option is to “opt out” of Medicare.

What does “opting out” mean?

Opting out, also known as private contracting, was made possible by Section 4507 of the 1997 Balanced Budget Act. It states 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 clarified that private contracts with Medicare patients are legal if the contracts meet certain 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. Note that if you opt out, not only will Medicare and Medicare+Choice plans not pay you, they also will not pay any entity to whom you might reassign your right to receive payment for services, unless the services are for emergency care or urgent care. (For more information, see “The Truth and Consequences of Private Contracting,” FPM, March 1998, page 25.)

Before opting out

Don’t opt out of Medicare without first considering the following:

Financial impact. You will need to review your patient mix, practice costs and reimbursement levels to determine the potential financial impact of opting out. A large percentage of your Medicare patients may decide to take their business elsewhere instead of privately contracting with you. If you are losing money on your Medicare patients, this may not be a problem, especially if opting out enables you to reduce your overhead. Keep in mind that private contracting imposes its own administrative burdens. While you won’t have to file claims and appeal denials if you opt out, you will have to enter into a written contract with each Medicare patient who chooses to receive your services, and you’ll also have to file and renew affidavits with Medicare every two years regarding your opt-out status. On the revenue side of the equation, you need to weigh the potential gain in fees paid against the percentage of Medicare patients lost. For example, if you lose half of your Medicare patients and the remaining half pay you twice as much as Medicare did, you might break even. In any case, you should also prepare for a short-term drop in revenue and ensure that you have the financial resources to tide you over.

Contractual obligations. Your contracts with hospitals, health plans or other entities (e.g., your employer) may require you to be a participating Medicare physician. Opting out of Medicare may therefore jeopardize or violate your contractual obligations and put other aspects of your practice (e.g., credentialing) at risk. Review your contracts to confirm that participation in Medicare is not required and, if it is, the consequences if you choose to opt out.

Other considerations. There are a variety of other factors to consider in deciding whether to opt out. For example, is opting out consistent with your practice philosophy? Will it increase your job satisfaction? How will it affect your practice’s reputation in the community (i.e., how will non-Medicare patients and potential patients react)? How will this affect the way you market your practice?

How to opt out

Once you’ve decided to opt out of Medicare, you’ll need to take the following steps:

1. Notify your patients, colleagues and others. The first step in the opt-out process is to notify your Medicare patients and others of your intent. Send a letter to your patients explaining what opting out means, your reasons for doing so and their options for staying with the practice or finding a new physician. The letter should be sent far enough in advance of opting out that patients have time to make alternative arrangements as needed. A similar letter should also be sent to any colleague or other entity that might be affected by your decision. The list of entities with whom you have a contractual relationship would be a good starting point.

Some patients will misunderstand the private contracting relationship and its implications. Therefore, maintaining and documenting effective lines of communication with patients before and after you opt out is critical.

2. File an affidavit with Medicare. The next step is to notify Medicare. You’ll need to file an affidavit with each Medicare carrier that has jurisdiction over claims that you have filed or that would have jurisdiction over your claims had you not chosen to opt out. The affidavit must be in writing, signed by you and include your full name, address, telephone number and uniform provider identification number (if applicable) or tax identification number. The American Psychiatric Association offers an affidavit for physician use at http://www.psych.org/pract_of_psych/optoutaffidavit121201.pdf. Or, your Medicare carrier may also have a sample. Regardless, have your attorney review any affidavit you use to ensure that it complies with your state’s requirements.

If you are a Medicare participating physician, the Medicare carrier must receive the affidavit at least 30 days before the first day of the calendar quarter (i.e., Jan. 1, April 1, July 1, and Oct. 1) following your opt-out date and within 10 days of entering into your first private contract.

3. Privately contract with the Medicare patients you continue to care for. Medicare patients who elect to receive care from you other than on an urgent care or emergency basis must sign a private contract before you can treat them. The contract should be written in large, legible type. You should keep a signed copy in your files and provide the patient with a signed copy. (For a sample contract you can adapt for your own use, go to http://www.msdc.org/body_optoutcontract.htm.) You should have your attorney review this contract for compliance with your state’s requirements too.

You’ll need to sign contracts with all Medicare beneficiaries you see, including those in Medicare+Choice plans and those you see in settings where you have otherwise reassigned your rights to receive Medicare payments. Again, the only exception is for Medicare patients who need emergency or urgent care services. In this situation, append modifier -GJ, “‘Opt out’ physician or practitioner emergency or urgent service,” to any codes you are billing to indicate the service was provided by an opt-out physician providing emergency or urgent care.

4. Initiate appropriate office procedures. Once you’ve executed your affidavit(s) and any private contracts, you need to establish office procedures to ensure that you comply with the opt-out rules. For example, you will need to implement procedures to identify Medicare patients and ensure that they are notified of the opt-out decision as well as remind them of payment arrangements when making appointments.

In a practice that includes some doctors who opt out and others who do not, procedures must be developed to identify the status of each patient with respect to each physician and ensure appropriate handling of his or her services.

Finally, you should implement procedures to ensure that you never file a claim for services for an opt-out physician who has a private contract with a Medicare patient. The exception for emergency and urgent care should be used with caution.

5. Mark your calendar to renew your opt-out status. Your final step is to mark your calendar to remind you to send in a new affidavit every two years to maintain your opt-out status. Failure to renew your opt-out affidavit will mean you are entering into private contracts with patients without Medicare’s blessing; these contracts will be deemed null and void and you have to submit claims for all of those services retroactively. If, after two years of opting out, you choose to re-enroll in Medicare, you will need to complete a new Medicare physician enrollment form, just as you would if you were new to the program.

Other thoughts

If you choose to opt out of Medicare, it’s important that you do so properly and remain in compliance with the opt-out conditions. Otherwise your private contracts are null and void.

Note that you have 90 days after the effective date of opting out to change your mind and return to Medicare as if you had never left. Just notify the same carriers to whom you sent your affidavit(s) and refund any money you received from private contracts.

For more detailed information on opting out of Medicare, consult Section 3044 of Part 3 of the Medicare Carriers Manual at http://cms.hhs.gov/manuals/14_car/3b3026.asp#r1639.html.