Medicare Prohibition on Reassignment of Direct Payments (Medicare
Carrier Manual Section 3060)
Current Status as of December 4, 1999
In August 1999, the Health
Care Financing Administration (HCFA) issued a revised
Medicare
Carrier Manual instruction on the reassignment of Medicare
payments. This revised instruction provides an exception for
university-affiliated medical faculty practice plans. The
exception assures that, in most cases, faculty practice plans
will be permitted to receive direct payments from Medicare
for the professional services of the clinical faculty billed
to the Medicare program. Prior to this change, HCFA’s policy
prohibited reassignment of Medicare payments to faculty practice
plans if the university (and not the plan) was the designated
employer of the individual clinical faculty member.
Background/Summary
In November 1996, HCFA issued a notice to its regional offices
asking them to strengthen enforcement of a rarely enforced
provision of the Social Security Act. The provision specifies
who may be considered a Medicare provider and who may bill
and receive payments for services provided to Medicare beneficiaries.
The notice instructed Medicare carriers to deny new provider
numbers to groups, which did not meet the requirements of
the law and prohibited physicians from reassigning their benefits
to these groups. HCFA published a form
letter for Medicare carriers to use when they notified
providers a second time about compliance with the reassignment
rule. Physician groups in different regions of the country
were notified about compliance with the rule and had their
billing arrangements reviewed by their Medicare carrier.
The provision, Section 1842 (b) (6) of the Social Security
Act, Prohibition Against Reassignment, enacted in 1972, established
the general principle that Medicare program payments should
be made to the beneficiary or, under an assignment, to the
physician who provides the service.1
The law was established to: 1) remove incentives a third
party (such as a physician's billing service) may have to
inflate Medicare billings or engage in fraudulent or abusive
billing practices; 2) enable HCFA to recover any overpayments
made where services were provided or not provided; and 3)
hold a provider of services accountable to the Medicare program
for services to Medicare beneficiaries. The statute provides
a number of exceptions to this general rule as detailed in
regulations (42 CFR 5424.80 issued in 1988) and the Medicare
Carrier Manual, Section 3060.
In order to protect the integrity of Medicare program payments,
HCFA requires organizations not in compliance with Medicare's
rules on reassignment to come into compliance without disrupting
beneficiary access to services. HCFA has not stated that the
staffing and contractual relationships that management service
organizations or faculty practice plans have with employed
or contract physicians or hospitals are illegal. However,
HCFA has stated that the billing arrangements these entities
may have are not consistent with Medicare law, regulations,
and carrier manual instructions.
Exceptions to the Rules
These reassignment rules, as detailed in MCM 3060, describe
several exceptions to the law including:
1. Payment to Employer Exception. Section 3060.1
states that payment may be made to the physician or in a
reassignment of benefits, to the physician's employer. The
carrier manual states that an employment relationship may
be demonstrated through the employer reporting the physician's
payment on a Form W-2.
2. Payment to an Organized Health Care Delivery System.
Section 3060.3 states payment may be reassigned to a clinic
or medical group, but only if all services provided by the
physicians to patients of the clinic are provided in space
owned or leased by the group.
3. Payment to Agent Exception. Section 3060.10 allows
the carrier to make payment to an agent in the name of the
physician, or other party eligible to receive payment under
Section 3060B, such as an employer or facility. However,
for the agent to satisfy the exception, five criteria must
be met:
- the agent must receive payment under an agency agreement
with the physician;
- the agent's compensation is not related in any way to
the dollar amounts billed or collected;
- the agent's compensation is not dependent on the actual
collection of payment;
- the agent acts under payment disposition instructions
which the physician may modify or revoke at any time;
and
- in receiving the payment, the agent acts only on behalf
of the physician (except insofar as the agent uses part
of that payment to compensate the agent for the agent's
billing and collections services).
4. Direction of Payment to Special Accounts. Section
3060.8 does allow major institutions, such as medical schools
or universities to direct the carrier to make payment to
specialty accounts. However, the payee must remain either
the physician or the physicians' employer.
In August 1999, the revised Carrier Manual instruction
added the following exception:
5. Exception for University-Affiliated Medical Faculty
Practice Plans Section 3060.3 allows Medicare to make
payments to a University-Affiliated Medical Faculty Practice
Plan for Medicare-covered services provided by non-employee
physicians furnished to patients outside of the medical
faculty practice plan provided that the plan:
- organizes and manages medical care;
- controls the financing and delivery of medical services;
- furnishes these medical services in a university-affiliated
setting; and
- has an affiliation agreement between the medical faculty
practice plan and the university teaching facility.
Illustration of the Potential Problem for Certain Faculty
Practice Plans, Prior to the August 1999 Revised
Instruction
It is instructive to look at one carrier's implementation
of the rule to understand the issues. At one separately
incorporated faculty practice plan, the carrier informed
the plan that it did NOT meet any of the established exceptions
and would be required to make substantial changes in its
reassignment of payments system. The carrier decision was
based on two facts: 1) the university, and not the practice
plan, employed the faculty; and 2) the practice plan did
not own or lease the facilities in which the faculty delivered
their medical services. The carrier has imposed the following
sanctions: 1) issuance of provider numbers to all new clinical
faculty hired since last July 1 was suspended; 2) all new
and existing faculty must be issued new provider numbers
and a new tax ID number associated with the university,
or some other legal reorganization of the practice plan;
3) all Medicare payments will be redirected by the carrier
to the university and subsequently are transferred to the
practice plan. The plan was able to negotiate a one-year
time frame to comply.
AAMC Action
The AAMC worked with HCFA staff to develop the specific language
for the new exception for university affiliated practices,
issued August 1999.
Contacts
Denise Dodero, Associate Vice President
AAMC Health Care Affairs
ddodero@aamc.org
(202) 828-0493
Ivy
Baer, Director & Regulatory Counsel
AAMC Division of Health Care Affairs
ibaer@aamc.orc (202) 828-0490
1 The language of
the statute is sweeping. Section 1842 (b) (6) of the Act expressly
provides, in pertinent part, that: No payment under this part
(B) for a service provided to any individual shall (except
as provided in section 1870 of the Act) be made to anyone
other than such individual or (pursuant to an assignment described
in (B) (ii) of paragraph (3) the physician or other person
who provided the service, except that (A) payment may be made
(i) to the employer of such physician or other person....(ii)
(where the service provided in a hospital, rural primary care
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,.....
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