Looming Medicare pay cut forces tough decisions on participation

Some physicians may be attracted by the higher reimbursement they can get under a nonparticipation arrangement, but patient collections may be an issue.

By — Posted Dec. 24, 2007

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With congressional debate on an upcoming 10.1% Medicare cut to physicians stretching into the final weeks of the year, physicians' decisions on whether to participate in the program in 2008 took on added degrees of importance and complexity.

The year-end deadline for physicians to change their participation status is important because it likely will determine how doctors will be able to bill the program and receive payment for all of 2008. If physicians do not inform their Medicare carriers in writing of their intent to change their status before Jan. 1, they will be locked into their current choices for the next 12 months -- possibly under a newly reduced fee schedule.

This year's decision is more complicated than usual given the pay cut's unprecedented size and lawmakers' delay in addressing it. The American Medical Association urged doctors earlier this month to look extra hard at Medicare participation options in light of the political situation.

"Unless Congress takes immediate action ... Medicare will begin across-the-board cuts on Jan. 1," said AMA President Ron Davis, MD. "Congressional action is not guaranteed, so physicians interested in changing their Medicare participation status for 2008 should review the information now, fill out the forms and prepare to mail them prior to Dec. 31."

The AMA has a document on its Web site (link) outlining participation options and telling doctors how to change status. If Congress fails to reverse the cut by Jan. 1, but does so after it reconvenes, lawmakers could decide to let doctors who changed their status revert to their prior choice.

Physicians who participate in Medicare, or PAR for short, agree to accept Medicare's fee schedule amounts for all of the claims they file.

Physicians who decide not to participate still can see Medicare patients for a reduced fee. They can decide on a per-patient basis to accept this "assignment." Doctors who don't accept assignment get the reduced rate and also can balance-bill patients up to 15% more. As a result, they may receive up to 9.25% more than participating doctors for the same services.

Changing from participating to nonparticipating status has a potential downside. Non-PAR physicians who do not accept assignment do not receive the government's portion of the fee directly from their carriers. Instead, Medicare reimburses the patient directly. The physician thus must invoice the patient for the full amount: the payment, co-payment and balance-billing charge.

This trade-off is especially important with the uncertainty over the physician pay cut, states the AMA's participation options document.

"With a 10% cut about to be imposed, many physicians may consider balance billing an extra 9% as one means of helping close the gap between 2007 and 2008 payment amounts," the document says. "When considering whether to be non-PAR, however, physicians should consider whether their total revenues from Medicare, including amounts the program pays, patient co-pays 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."

A third option, known as private contracting, means that physicians opt out of Medicare completely for at least two years. During that time, neither they nor their patients can bill Medicare for any of their services.

Pros and cons

Some physicians drawn by the added payment flexibility have switched to a nonparticipating Medicare arrangement and never looked back.

Lawrence K. Monahan, MD, an internist in Roanoke, Va., and former president of the Medical Society of Virginia, is part of a practice that went non-PAR more than a decade ago. He said seeing Medicare patients without accepting assignment has led to few problems with collecting the full bills from patients and that hardly any beneficiaries resist the added charges. "If the doctor and the patient have an open and honorable relationship, the patient trusts the doctor to give professional advice and the doctor trusts the patient to pay the bill."

Collecting slightly higher fees from some patients also gives him and his colleagues the flexibility to reduce or eliminate out-of-pocket Medicare bills for more needy patients, something not possible for PAR doctors, Dr. Monahan said. The ability to balance-bill when appropriate could be the saving grace, he said, for many practices that are considering turning away Medicare patients next year.

But relying on patients to pay the government's portion as well as their own share makes this a tough sell for many physicians, said Jeffrey P. Harris, MD, an internist in Millwood, Va., and president-elect of the American College of Physicians. Specialists who see many Medicare patients and often provide more costly services might find themselves in dire financial straits if only a few patients fail to pay up. Some doctors trade the potential for higher payments through nonparticipation for the guarantee that the government will pay its 80% if they accept assignment, so they don't need to chase down payment from patients.

The AMA estimated that non-PAR physicians would need to collect the full charge -- with balance billing -- allowable under Medicare statute for at least 35% of their services just to stay even with PAR doctors.

The potential impact on patients is a major factor in a practice's decision to become nonparticipating, Dr. Harris said. Patients used to having billing handled by Medicare and supplemental insurers -- and who are reluctant to spend more out of pocket -- will protest if that change is made, he added.

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Does it pay to switch?

The highest amount a physician actually can receive for a hypothetical $100 Medicare service varies depending on his or her participation status.

StatusParticipatingNonparticipating (assigned claim)Nonparticipating (unassigned claim)
Total payment100% of fee rate schedule ($100)95% of fee schedule ($95)115% of reduced rate ($109.25)
Medicare pays physician80% of fee schedule ($80)80% of reduced rate ($76)$0
Medicare pays patient0%$080% of reduced rate ($76)
Patient pays physician20% of fee schedule ($20)20% of reduced rate ($19)80% of reduced rate ($76), co-pay of 20% of reduced rate ($19), balance-bill charge of 15% of reduced rate ($14.25)

Source: American Medical Association

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Medicare's 3 options

Here are doctors' choices for relating to Medicare.

Participation: PAR physicians agree to take assignment on all Medicare claims and receive full Medicare-approved payments for the entire year. Physicians who are non-participating and want to change their status to participating must do so in writing before Jan. 1, 2008.

Non-participation: Non-PAR physicians agree to receive 95% of the Medicare-approved payments for all of their Medicare claims for the entire year. In cases where they don't accept assignment, doctors can also balance-bill their patients for up to 15% of those reduced rates. Physicians who are participating and want to change their status to non-participating must do so in writing before Jan. 1, 2008.

Private contracting: Private contracting physicians agree to opt out of Medicare completely for at least two years. These doctors sign waivers stating they will not bill Medicare or supplemental insurers for any services during that time. Patients sign contracts acknowledging that Medicare will not pay for any of their care from that physician during the contract period. Physicians who wish to opt out must do so in writing at least 30 days before the next calendar quarter but may rescind the opt-out within 90 days of the effective date.

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External links

"Medicare Participation Options for Physicians," American Medical Association, November, in pdf (link)

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