Other Bulletins

Summer 2004
Health Law Newsletter

New Medicare reassignment rule exception for independent contractors
By Elizabeth H. Sillin, Esq.

A new provision in the Medicare rules permits an entity, such as a physician practice group, health care facility or other health care provider, to submit to Medicare claims for services performed by a health care provider under a contractual arrangement with that entity. This new exception to the Medicare payment reassignment rules adds flexibility to working arrangements for health care providers participating in Medicare.

The new rule was added by the Medicare Prescription Drug, Improvement and Modernization Act of 2003 and has been in effect since March 2004.

Reviewing the Basics of Reassignment

Medicare is structured to pay patients for certain medical costs, but allows patients to "assign" to their health care providers Medicare’s payment for their services. The Medicare rules generally do not allow a provider to "reassign" the payment assigned to her by the patient to anyone else, such as the group practice with which she is affiliated, unless an exception applies.

There were previously certain narrow exceptions permitting reassignment under independent contract arrangements; however, the rules did not previously permit, for example, the common arrangement whereby a group practice had an independent contractor relationship with a specialist for services to be provided at the specialist’s office.

The New Independent Contractor Exception

Now, the Medicare rules permit a broad spectrum of independent contract arrangements. Importantly, contracting health care providers are not required to provide the services on the premises of the entity with which they contract. Not only may a group practice now have an independent contracting arrangement with a specialist, but also, for example, a physician affiliated with a provider group may perform services at a hospital under a contract arrangement with the provider group. Previously, the physician would have been required to be an employee of the provider group, or to engage in a "lock-box" arrangement.

The Medicare Claims Processing Manual, which is published by the federal Centers for Medicare and Medicaid Services, now instructs Medicare carriers to make payment under contractual arrangements. The Manual recommends that the contractual arrangement include shared joint and several liability between the entity submitting the claim and the person actually furnishing the service for any Medicare overpayment, and unrestricted access by the service provider to claims submitted by the entity for the services provided.

The Manual no longer addresses "indirect contracting arrangements." Previously permitted under certain circumstances, an indirect contracting arrangement is where an entity contracts for services with a second entity, and where the employees of the second entity provide the services. It seems unlikely that arrangements that were previously acceptable would not be permitted under the new, broader, independent contractor exception. We expect to see this and other ambiguities addressed in subsequent amendments to the Manual.

Will an Independent Contracting Arrangement Work for You?

Physicians and group practices that may have been limited by the prior constraints on reassignment of claims by independent contractors may want to review their service arrangements to determine whether new options may be considered in light of this change. Please feel free to contact a member of the BR&G Health Law Practice Group for assistance.

Elizabeth H. Sillin (esillin@bulkley.com) is an associate practicing in the Health Law Practice Group.