CMS Creates Broad Exception to Medicare Reassignment Prohibition

By Daniel F. Gottlieb and Daniel H. Melvin

The Centers for Medicare and Medicaid Services (CMS) has created a broad exception to the general prohibition on reassignment of Medicare payments by a physician or other practitioner (the Reassignment Prohibition) by amending § 30.2 of the Medicare Claims Processing Manual (formerly § 3060 of the Medicare Carriers Manual) through CMS Transmittal 111. This amendment significantly expands the circumstances under which a practitioner, who is an independent contractor, may validly reassign his or her right to bill and collect Medicare payments for professional services to an entity. CMS Transmittal 111, which was issued on February 27, 2004, provides that the amendment is effective December 8, 2003.

A Medicare beneficiary who receives Medicare-covered professional services from a Medicare-participating physician or other practitioner may either pay the practitioner’s bill and then obtain reimbursement from the Medicare program or assign the right to Medicare reimbursement to the practitioner who provided the services. The practitioner, in turn, must submit a claim for payment to the practitioner’s Medicare carrier unless one of the limited exceptions to the Reassignment Prohibition permits the practitioner to reassign the right to bill and collect payment to another individual or organization. The purpose of the Reassignment Prohibition is to reduce the likelihood of an incorrect, inflated or fraudulent Medicare claim submission, which results from the submission of Medicare claims by a party who did not directly provide the services for which reimbursement is claimed.

Historically, the Reassignment Prohibition included exceptions for the reassignment of payments to the following categories of persons (subject to specific conditions set forth in the Medicare Claims Processing Manual): government agencies; persons receiving reassignment pursuant to a court order; billing agencies; employers of practitioners rendering services; owners of inpatient facilities in which practitioners render services; organized health care delivery systems; interpreting physicians who purchase diagnostic tests; suppliers of diagnostic tests who purchase interpretations of the tests; physicians with reciprocal billing arrangements with other physicians; and physicians obtaining locum tenens coverage.

These historical reassignment exceptions permit the reassignment of billing and collection rights in many common health care arrangements. However, they do not permit the reassignment of billing and collection rights in other arrangements that have become increasingly common. For example, the historical reassignment exceptions did not permit a physician group or other entity that engages an independent contractor physician to bill for the contractor’s services rendered off premises owned or leased by the entity, e.g., services rendered at a hospital or skilled nursing facility. As a result, group practices and emergency department staffing companies, for example, often had to implement elaborate lockbox deposit arrangements to take receipt of Medicare payments following the initial payment to the physician.

The U.S. Congress amended the version of the Reassignment Prohibition contained in the Medicare statute as part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, which President Bush signed into law on December 8, 2003. The amendment by CMS of the Reassignment Prohibition in the Medicare Claims Processing Manual implements the statutory amendment.

The Medicare Claims Processing Manual now provides that a Medicare carrier may make a 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. This broad exception is the result of an amendment to what was historically known as the inpatient facility exception.

While the new exception is broad, it does not authorize reassignments by providers and suppliers other than practitioners enrolled with Medicare carriers. In addition, it does not change Medicare rules regarding carrier jurisdiction for claims submission, documentation requirements or the application of fraud and abuse provisions.

The amendment to the Medicare Claims Processing Manual also introduced some ambiguities to the Reassignment Prohibition. For instance, prior to the amendment, the manual authorized, under specified conditions, reassignment in circumstances where there is a contract between the rendering practitioner and an entity and another contract between that entity and the billing entity. However, the amendment deleted this language without adding new language to address the permissibility of reassignment in the context of such indirect contractual relationships between a practitioner and a billing entity. Having the rendering practitioner join the contract between the intermediate entity and the billing entity should satisfy the new exception provided that the practitioner files a CMS 855R form reassigning to the billing entity with the applicable Medicare carrier.

There is a second ambiguity introduced by the amendment: its deletion of parts of the historical "health care delivery system" exception to the Reassignment Prohibition without revising the remaining parts. The amendment deleted the definition of the health care delivery system and its language authorizing reassignments by independent contractor practitioners to clinics (i.e., freestanding entities providing services on an outpatient basis).

The amendment did not modify the authorization of reassignments to certain university-affiliated medical faculty practice plans and managed care organizations. It is unclear at this time whether the faculty practice plan and managed care organization exceptions have been rendered moot by the broad exception for independent contractor practitioners or if the pre-existing exceptions authorize reassignments that are not permissible under the new exception. In either case, to the extent that anyone is relying on the faculty practice plan or managed care organization exception for a particular reassignment, the parties may continue to do so notwithstanding the new exception.

The amendment created another ambiguity by not touching the historical purchased interpretation exception to the Reassignment Exception, which authorizes a reassignment by a physician interpreting the results of a diagnostic test to the supplier of the test in certain limited circumstances (without filing a CMS 855R form with the supplier’s carrier). It is unclear whether CMS distinguishes between a "purchase" of an interpretation and acquisition of the same interpretation through an independent contractor service arrangement. The distinction is important because most physician group practices wishing to bill globally for diagnostic tests interpreted by an outside radiologist are unable to meet the requirements of the purchased interpretation exception.

Although the new exception does not explicitly require it, it is advisable for the contracting parties to memorialize the contractual arrangement in a written agreement that makes it clear that the contracting practitioner will not bill and collect for his or her services rendered under the contract and addresses the liability issue discussed below. Further, the reassigning practitioner must formalize the reassignment through completion and filing of the CMS 855R form for reassignment.

This new exception has a number of potential applications to common health care provider relationships. For example, a physician practice may now accept reassignment and bill for the interpretations of an independent contractor radiologist performed off the premises of the practice. Because of the historical requirement that the reassigning contractor provide the services on premises owned or leased by the practice, many practices with diagnostic imaging services have not been able to bill globally for the services of an independent contractor radiologist. Further, the new exception will eliminate prior confusion over whether a contracted practitioner who is not on premises owned or leased by a practice can serve as the practice’s supervising physician for purposes of Medicare coverage of diagnostic tests. In addition, as noted earlier, a physician group or emergency room staffing company may bill and collect for a contractor physician’s services provided at a hospital.

The new exception also provides that the contractual arrangement between the billing entity and the practitioner "should" include the following two provisions: joint and several liability between the entity submitting the claim and the practitioner actually furnishing the service for any Medicare overpayment relating to such claim; and unrestricted access by the practitioner to claims submitted by the entity for the services provided by the practitioner. CMS indicated in the transmittal issuing the new manual provision that "should" denotes an optional provision, so it seems unlikely that the Medicare carriers will require the inclusion of the two provisions in the contract between the practitioner and billing entity. However, CMS can be expected to hold the reassigning contractor liable for any overpayment if the reassignee fails to make a refund. Consequently, allocation of the risk for such liability (through indemnification or other provisions) should be negotiated between the contractor and the reassignee.

The amendment to the Reassignment Prohibition does not affect similar reassignment prohibitions applicable to Medicaid and other public or private health care benefit programs. For example, the federal Medicaid statute still contains more limited exceptions to its reassignment prohibition and state Medicaid laws and rules may specify further restrictions. In any event, practitioners and their business partners should not assume that a valid reassignment of Medicare payments is also a permissible reassignment of other benefit program payments without consulting regulatory counsel.

Physician groups and other suppliers of professional services should explore possibilities to change existing contracts to implement more efficient and logical billing procedures consistent with the new exception to the Reassignment Prohibition.