MEDICARE REASSIGNMENT; FOR INDEPENDENT CONTRACTORS LIFE GETS EASIER (MAYBE)

In developing contractual arrangements with physicians, one issue that must be addressed frequently is whetherthe physician should be an employee or independent contractor. There are a number of considerations arguing in favor of each option. For those practices that provide services to a large population one of the most significant issues can be who will receive payment for that physician's services rendered to Medicare beneficiaries? Included within the recently enacted Medicare drug prescription legislation is a provision that should significantly reduce the need to be concerned about this question.

The "General Rule"

As a general proposition, Medicare makes payment directly to beneficiaries for those items and services that are reimbursed under Part B of the program. A beneficiary, however, has the authority to reassign his or her right to receive payment to the physician or supplier that renders the service in question. This is commonly referred to as the "assignment of benefits." Under an assignment of benefits the Medicare program will make payment in the name of that physician or supplier, rather than the beneficiary.

With certain narrow exceptions, however, Medicare does not permit that physician or supplier to then reassign those Medicare benefit payments to a third party. Thus, for example, the Medicare program will make payment to a physician for his or her services rather than to the beneficiary under an assignment arrangement, but will not make those payments to a bank, or financing company to which the physician has pledged his or her recievables. This is commonly referred to as the ' prohibition against reassignment.'

When a physician contracts to render services as an independent contractor, the question of which party will be paid for his or her services rendered to Medicare beneficiaries can be a very significant issue. In many circumstances the only exception to the prohibition against reassignment that will enable the Medicare program to make payment directly to the principal, rather than the physician, is the so-called "clinic exception." This exception permits a physician-contractor to reassign his or her Medicare benefit payments to a qualified "clinic". This reassignment right however is limited; payment for only those services the physician performs on the premises of that clinic may be reassigned. Thus, for example, if a physician independent contractor examines a Medicare beneficiary at the clinic and, based on the results of that examination admits that patient to the hospital, where he or she is heated by that same physician, Medicare's payments for those inpatient hospital services may not be reassigned to the clinic. Needless to say, the prohibition against reassignment has proven to be a disincentive for physicians and clinics interested in developing independent contractor arrangements.

Revised Clinic Exception

As part of the recent legislation that created the Medicare prescription drug benefit, Congress amended the provisions of the Medicare reassignment prohibition as it relates to independent contractor arrangements. Under the amended provision, Medicare benefits maybe reassigned by a physician-independent contractor to his or her principal when "the service was provided under a contractual arrangement between such physician or another person in an entity, W the entity if, under the contractual arrangement, the entity submits the bill for the service and the contractual arrangement meets such program integrity and other safeguards as the secretary [of health and human services] may determine to be appropriate." 42USC 1395 (2b)(6)(ii).

The Centers for Medicare and Medicaid Services ("CMS"} recently issued administrative instructions to Part B carriers for implementing this change in the law. These instructions make clear that a physician independent contractor may reassign his or her right to receive Medicare payments "regardless of where the service is furnished"; provided:

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.

Although this amendment of Medicare's reassignment prohibition appears to make it easier for physicians to enter into independent contractor arrangements, three points should be kept in mind. First, this exception does not permit a third party, for example, an employer (to whom a physician may reassign Medicare payments), to assign again these already reassigned benefit payments it is entitleded to receive. Rather, the exception only applies to the physician or supplier who renders the covered service. Second, in order to take advantage of this loosening of the prohibition against reassignment, the physician-independent contractor must recognize that he or she assumes a clear duty to know what the information the entity is submitting in order to receive payment. Third, notwithstanding CMS' historical practice of trying to recover an overpayment from the party who received payment, in these circumstances it seem likely that Medicare will seek repayment from both the entity and the physician-independent contractor.