Medicare Options

Medicare Information from the AAFP

Revised April 2, 2014

Please note: The following was developed from documents provided by the AMA and contains excerpts from the AMA-published Medicare RBRVS: The Physician's Guide 2013.

On Tuesday, April 1, 2014, the president signed into law H.R. 4302, the “Protecting Access to Medicare Act of 2014,” which averted cuts to Medicare physician payments that were to go into effect on April 1, 2014, under the current-law sustainable growth rate system. The legislation delays any cuts in Medicare payments to physicians until March 31, 2015.

To help ensure that physicians are making informed decisions about their contractual relationships with the Medicare program, the American Medical Association (AMA) has developed a “Medicare Participation Kit”(www.ama-assn.org) that explains the various participation options that are available to physicians. The AAFP is not advising or recommending any of the options described in this kit. The purpose of sharing this information is merely to ensure that physician decisions about Medicare participation are made with complete information about the available options.

Physicians wishing to change their Medicare participation or non-participation status for 2014 were required to do so by January 31, 2014. Participation decisions were effective January 1, 2014, even if made between then and January 31, 2014, and are binding for the entire year. 

The Three Options

There are basically three Medicare contractual options for physicians. Physicians may sign a participating (PAR) agreement and accept Medicare's allowed charge as payment in full for all of their Medicare patients. They may elect to be a non-PAR physician, which permits them to make assignment decisions on a case-by-case basis and to bill patients for more than the Medicare allowance for unassigned claims. Or they may become a private contracting physician, agreeing to bill patients directly and forego any payments from Medicare to their patients or themselves.

Physicians who wish to change their status from PAR to non-PAR or vice versa may do so annually. Once made, the decision is generally binding until the next annual contracting cycle except where the physician's practice situation has changed significantly, such as relocation to a different geographic area or a different group practice. To become a private contractor, physicians must give 30 days notice before the first day of the quarter the contract takes effect.

Those considering a change in status should first determine that they are not bound by any contractual arrangements with hospitals, health plans or other entities that require them to be PAR physicians. In addition, some states have enacted laws that prohibit physicians from balance billing their patients.

Participation

PAR physicians agree to take assignment on all Medicare claims, which means that they must accept Medicare's approved amount (which is the 80% that Medicare pays plus the 20% patient copayment) as payment in full for all covered services for the duration of the calendar year. The patient or the patient's secondary insurer is still responsible for the 20% copayment but the physician cannot bill the patient for amounts in excess of the Medicare allowance. While PAR physicians must accept assignment on all Medicare claims, however, Medicare participation agreements do not require physician practices to accept every Medicare patient who seeks treatment from them.

Medicare provides a number of incentives for physicians to participate:

  • The Medicare payment amount for PAR physicians is 5% higher than the rate for non-PAR physicians.
  • Directories of PAR physicians are provided to senior citizen groups and individuals who request them.
  • Medicare administrative contractors (MAC) provide toll-free claims processing lines to PAR physicians and process their claims more quickly.

Non-Participation

Medicare approved amounts for services provided by non-PAR physicians (including the 80% from Medicare plus the 20% copayment) are set at 95% of Medicare approved amounts for PAR physicians, although non-PAR physicians can charge more than the Medicare approved amount.

Limiting charges for non-PAR physicians are set at 115% of the Medicare approved amount for non-PAR physicians. However, because Medicare approved amounts for non-PAR physicians are 95% of the rates for PAR physicians, the 15% limiting charge is effectively only 9.25% above the PAR approved amounts for the services. Therefore, when considering whether to be non-PAR, physicians must determine whether their total revenues from Medicare, patient copayments and balance billing would exceed their total revenues as PAR physicians, particularly in light of collection costs, bad debts and claims for which they do accept assignment. The 95% payment rate is not based on whether physicians accept assignment on the claim, but whether they are PAR physicians; when non-PAR physicians accept assignment for their low-income or other patients, their Medicare approved amounts are still only 95% of the approved amounts paid to PAR physicians for the same service. Non-PAR physicians would need to collect the full limiting charge amount roughly 35% of the time they provided a given service in order for the revenues from the service to equal those of PAR physicians for the same service. If they collect the full limiting charge for more than 35% of the services that they provide, their Medicare revenues will exceed those of PAR physicians.

Assignment acceptance, for either PAR or non-PAR physicians, also means that the MAC pays the physician the 80% Medicare payment. For unassigned claims, even though the physician is required to submit the claim to Medicare, the program pays the patient, and the physician must then collect the entire amount for the service from the patient.

Example: A service for which Medicare fee schedule amount is $100

Payment Arrangement 

Total Payment Rate

Payment Amount from Medicare

Payment Amount from Patient 

PAR physician  100% Medicare fee schedule = $100  $80 (80%) MAC direct to physician  $20 (20%) paid by patient or supplemental insurance (e.g., Medigap) 
Non-PAR/ assigned claim 95% Medicare fee schedule = $95  $76 (80%) MAC direct to physician  $19 (20%) paid by patient or supplemental insurance (e.g., Medigap) 
Non-PAR/ unassigned claim  Limiting charge/109.25% Medicare fee schedule = $109.25 $0 $76 (80%) paid by MAC to patient+ $19 (20%) paid by patient or supplemental insurance
+ $14.25 balance bill paid by patient

Private Contracting

Provisions in the Balanced Budget Act of 1997 give physicians and their Medicare patients the freedom to privately contract to provide health care services outside the Medicare system. Private contracting decisions may not be made on a case-by-case or patient-by-patient basis, however. Once physicians have opted out of Medicare, they cannot submit claims to Medicare for any of their patients for a two-year period.

A physician who has not been excluded under sections 1128, 1156 or 1892 of the Social Security Act may, however, order, certify the need for, or refer a beneficiary for Medicare-covered items and services, provided the physician is not paid, directly or indirectly, for such services (except for emergency and urgent care services). For example, if a physician who has opted out of Medicare refers a beneficiary for medically necessary services, such as laboratory, DMEPOS or inpatient hospitalization, those services would be covered by Medicare.

To privately contract with a Medicare beneficiary, a physician must enter into a private contract that meets specific requirements, as set forth in the sample private contract below. In addition to the private contract, the physician must also file an affidavit that meets certain requirements, as contained in the sample affidavit below. To opt out, a physician must file an affidavit that meets the necessary criteria and is received by the MAC at least 30 days before the first day of the next calendar quarter. There is a 90-day period after the effective date of the first opt-out affidavit during which physicians may revoke the opt-out and return to Medicare as if they had never opted out.

Emergency and Urgent Care Services Furnished During the "Opt-Out" Period

Physicians who have opted-out of Medicare under the Medicare private contract provisions may furnish emergency care services or urgent care services to a Medicare beneficiary with whom the physician has previously entered into a private contract so long as the physician and beneficiary entered into the private contract before the onset of the emergency medical condition or urgent medical condition. These services would be furnished under the terms of the private contract.

Physicians who have opted-out of Medicare under the Medicare private contract provisions may continue to furnish emergency or urgent care services to a Medicare beneficiary with whom the physician has not previously entered into a private contract, provided the physician:

  • Submits a claim to Medicare in accordance with both 42 CFR part 424 (relating to conditions for Medicare payment) and Medicare instructions (including but not limited to complying with proper coding of emergency or urgent care services furnished by physicians and qualified health care professionals who have opted-out of Medicare).
  • Collects no more than the Medicare limiting charge, in the case of a physician (or the deductible and coinsurance, in the case of a qualified health care professional).

Note that a physician who has been excluded from Medicare must comply with Medicare regulations relating to scope and effect of the exclusion (42 C.F.R. § 1001.1901) when the physician furnishes emergency services to beneficiaries, and the physician may not bill and be paid for urgent care services.

Sample Medicare Private Contract and Affidavit

The sample private contract and affidavit below contain the provisions that Medicare requires (unless otherwise noted) to be included in these documents.

Private contracts must meet specific requirements:

  • The physician must sign and file an affidavit agreeing to forgo receiving any payment from Medicare for items or services provided to any Medicare beneficiary for the following 2-year period (either directly, on a capitated basis or from an organization that received Medicare reimbursement directly or on a capitated basis).
  • Medicare does not pay for the services provided or contracted for.
  • The contract must be in writing and must be signed by the beneficiary before any item or service is provided.
  • The contract cannot be entered into at a time when the beneficiary is facing an emergency or an urgent health situation.

In addition, the contract must state unambiguously that by signing the private contract, the beneficiary:

  • gives up all Medicare payment for services furnished by the "opt out" physician;
  • agrees not to bill Medicare or ask the physician to bill Medicare;
  • is liable for all of the physician's charges, without any Medicare balance billing limits;
  • acknowledges that Medigap or any other supplemental insurance will not pay toward the services; and
  • acknowledges that he or she has the right to receive services from physicians for whom Medicare coverage and payment would be available.

If you determine that you want to "opt out" of Medicare under a private contract, we recommend that you consult with your attorney to develop a valid contract containing other standard non-Medicare required provisions that generally are included in any standard contract.

Download sample contracts: