The Social Security Act generally prohibits payment for Medicare Part B services being made to anyone other than the beneficiary, or the physician or other person who provided the service to the beneficiary (i.e., the beneficiary’s assignee). This rule is known as the prohibition on the reassignment of benefits. Previously, this prohibition generally did not permit physicians to reassign their benefits to an entity with which they had an independent contractor relationship unless the physician performed the underlying services on the premises of the entity.[Note: Payments for purchased interpretations were permitted without physical presence under limited circumstances.] The recently enacted Medicare Modernization Act of 2003 ("MMA") has created a new exception to the prohibition that allows independent contractor physicians to reassign their benefits to an entity with which they have an independent contractor relationship, regardless of where the service is furnished.

The MMA amendment was in response to a March 2003 U.S. Government Accountability Office ("GAO") report that addressed the barriers that the reassignment prohibition presented to the staffing of hospital emergency departments. However, as recommended by the Centers for Medicare & Medicaid Services ("CMS") in a response to the GAO report, the MMA amendment was not tailored specifically to such emergency department staffing situations. CMS’s own interpretation of the MMA amendment is that it potentially permits myriad relationships and financial arrangements.

Background

The basis for the prohibition on reassignment by physicians derives from both the Social Security Act and federal regulations. These authorities state that Medicare does not pay amounts that are owed to a supplier under an assignment to any other person under reassignment, power of attorney, or any other direct arrangement.

An exception to the prohibition that has been of limited utility to physicians is the one for payment to a health care delivery system, which includes physician groups and other freestanding entities, referred to as "clinics." That exception permits payment to a clinic for covered services of an independent contractor physician if there is a contractual arrangement between the clinic and the physician under which the clinic bills for the supplier’s services. [Note: The regulation separately addresses reassignment from a physician to an employer.] Application of this clinic exception was limited based on guidance in the Medicare Carriers Manual stating that the exception was only available if the underlying services were performed on the premises of the clinic.

A practical example of the limitations of the "on premises" requirement for the clinic exception involves services such as interpretations of diagnostic tests. Ideally, a physician group, such as a cardiology practice, would be able to contract with diagnostic radiologists or nuclear medicine physicians to provide teleradiology interpretations of nuclear diagnostic scans at locations remote from the site of the cardiology practice. As independent contractors, these physicians would normally reassign their right to bill and receive payment to the cardiology group practice, which would bill globally for the technical and professional components of the nuclear diagnostic scan services and pay the contractors a fee that would otherwise meet all applicable CMS regulations. The economics of this arrangement could improve the quality of care delivered to patients since interpretations would be performed by the radiologist or expert nuclear medicine specialist, rather than a less experienced physician.

However, the regulatory reality has been that the potential commonsense benefit of the clinic reassignment exception was prevented by the additional requirement that, in order for the cardiology group to bill globally for the professional component (i.e., interpretation) of the nuclear diagnostic scan provided by the independent contractor physician, that physician must perform the interpretation while physically located at the physician group practice location. The additional costs of being physically present rather than providing the interpretations remotely makes the long-term engagement of the radiologists or nuclear medicine specialists as independent contractors not economically feasible for the cardiology group, with the result that the group practice may choose the less medically beneficial option of having its members interpreting the nuclear diagnostic scans themselves.

The prohibition on reassignment is a very real obstacle to certain arrangements because violation of the prohibition, or failure to maintain documentation of compliance with the prohibition and its exceptions, may result in revocation of a physician’s right to receive payment from Medicare. Moreover, there are indications that the Office of Inspector General may consider claims that are made in violation of the reassignment prohibition as violations of the False Claims Act.

MMA Provisions

Prior to the MMA, the statutory language underlying the "on premises" requirement for reassignment by independent contractor physicians read as follows:

[P]ayment may be made… (where the service was provided in a hospital, critical access hospital, clinic, or other facility) to the facility in which the service was provided if there is a contractual arrangement between such physician or other person and such facility under which such facility submits the bill for such service…."

The MMA Section 952 deleted that text and substituted the following language:

[P]ayment may be made… where the service was provided under a contractual arrangement between such physician or other person and an entity (as defined by the Secretary), to the entity if, under the contractual arrangement, the entity submits the bill for the service and the contractual arrangement meets such other program integrity and other safeguards as the Secretary may determine to be appropriate…."

CMS Instructions

Congress instructed the Secretary of Health and Human Services to implement the change via program instructions to the Medicare contractors. Consequently, on February 27, 2004, CMS issued Transmittal 111 which revised the Medicare Claims Processing Manual ("MCPM"). The MCPM, at Chapter 1, Section 30.27, now contains the following language:

A carrier may make payment to an entity (i.e., a person, group, or facility) enrolled in the Medicare program that submits a claim for services provided by a physician or other person under a contractual arrangement with that entity, regardless of where the service is furnished. Thus, the service may be furnished on or off the premises of the entity submitting the bill. The contractual arrangement between the entity and the physician or other person should include the following program integrity safeguards:

1. Joint and several liability is shared between the entity submitting the claim and the person actually furnishing the service, for any Medicare overpayment relating to such claim.

2. The person furnishing the service has unrestricted access to claims submitted by the entity for the services provided by that person.

This language makes explicit that independent contractor physician services may be provided in a location other than on the premises of the entity to which the physician reassigns benefits.

Medicare Physician Fee Schedule: Revised Reassignment Regulations

Along with the final 2005 physician fee schedule, CMS has published new regulations implementing the reassignment provisions of the MMA. CMS states that the purpose of the joint and several liability provision of the MMA amendment is to encourage both of the parties to the contractual-reassignment arrangement to exercise oversight of the billings submitted to the Medicare program by holding them both fully accountable. Given such liability, the final rule provides that a physician should have access to the billings submitted on his or her behalf. CMS notes that the MMA amendment revises only the statutory reassignment exceptions relevant to services provided in facilities (e.g., hospitals) and clinics (e.g., freestanding entities such as physician groups).

However, not all physician groups will be able to fully implement the relaxed reassignment provisions for off-site independent contractors. Compliance with other laws and coverage requirements, such as those relating to "incident to" services, payment for purchased diagnostic tests, and payments for purchased test interpretations, is still required. As an example of another legal constraint, CMS notes that the in-office ancillary services and physician services exceptions under the Stark law contain separate requirements that an independent contractor physician provide services to the group practice’s patients in the group’s facilities.

Conclusion

Independent contractors may now provide services and reassign benefits to hospitals and clinics subject to the program integrity requirements of the new rule. Physician groups and other enrolled entities may now take reassignment and bill Medicare for the services of independent contractors—regardless of their practice location—for most services. But CMS has also clarified that physician group practices should be mindful of compliance with other laws and coverage requirements, notably the physicians’ services exception and the inoffice ancillary services exception to Stark. These standards require that a physician who is engaged by a group practice as an independent contractor may provide "designated health services" to the group practice’s patients only if physically located in the group’s facilities. 

This article is presented for informational purposes only and is not intended to constitute legal advice.