Ninety-six year old Elsie Rittman of Tucson, Arizona needed the services of a physician, but was told by the doctor she contacted that he couldn’t afford to take on any more Medicare patients. When she offered to pay him out of her own pocket, she was told it was illegal to spend her own money to see the doctor of her choice.

Mrs. Rittman wrote Health and Human Services Secretary Donna Shalala, “I find it hard to believe I can’t spend my money to see the doctor I want. Please write me a letter that tells him that it is legal for me to pay him for the services I want without using my Medicare.”

Secretary Shalala responded to Mrs. Rittman that HHS could not give her physician legal permission to accept payment directly from her, and warned that any agreement between her and the doctor would be evidence of a violation of Medicare law, punishable by fines and/or sanctions.(1)

In June 1989, the U.S. Supreme Court let stand a District of Columbia Court of Appeals decision (New York Ophthalmology Society v. Bowen) that prevented a Medicare beneficiary from using his own money to pay for an allegedly superfluous service — in this case the attendance of an assistant eye surgeon during a cataract extraction.

When eye surgeons had been found by the Office of the Inspector General to be able to get along without an assistant in some areas of the country, Congress had passed a law declaring the practice to be unnecessary everywhere else. An “unnecessary” service cannot be covered by Medicare. The Court of Appeals extended this reasoning to make assisting during cataract surgery virtually illegal, at least for an operation on anyone over the age of 65. Although it isn’t illegal for a surgeon to assist in such cases, it is illegal to have anyone pay for it.(2)

Restricted Access to Health Care Services

These stories are part of an ever-increasing problem of access to care for Medicare patients. According to a 1997 nationwide survey of physicians conducted by the Association of American Physicians and Surgeons (AAPS), almost one-half (46%) of doctors surveyed restrict services to Medicare patients.(3) Three-fourths (74%) of physicians who restrict services to Medicare patients do so because of hassles and/or threats from Medicare, and seventy-five percent do so because of cuts in reimbursements.

Access to health care services for Medicare patients is becoming especially difficult for seniors who live in rural areas. Small towns generally have larger concentrations of Medicare eligible patients and physicians have higher percentages of Medicare recipients as a share of their practices. When doctors decide to reduce or eliminate their Medicare patient load due to low reimbursements, restricted services, or bureaucratic hassle, elderly citizens sometimes have to travel long distances to see a Medicare physician. Some of these patients would benefit from the ability to privately contract with a local physician.

The increasing lack of access to Medicare physicians and the de facto prohibition on private contracting has left Medicare patients in a situation that is, in reality, worse than their counterparts living in countries with socialized medicine like Britain or Canada. If physicians in Britain’s government-run health care system want to treat patients on a private basis, they can do so without exposing themselves to possible fines, penalties and legal action by their government. If patients want to contract privately, they may do so without risking their government health benefits. In Canada, seniors who want to contract outside their health care system can come to the United States for medical assistance.

Medicare Law on Private Contracting Not Clear

More and more often, Medicare patients find the care they desire harder to obtain. Some have offered to pay the physician of their choice out of their own pocket, only to be told that this will not be allowed. This prohibition is interesting, considering no law restricting private contracting has existed. Medicare law has been silent on whether seniors can enter into private contracts with doctors. However, the Health Care Financing Administration (HCFA), which administers the Medicare program, has threatened fines of up to $2,000 per claim against physicians who don’t submit bills for all their elderly patients. As Kathleen Buto, director of HCFA’s Bureau of Policy, states, “A physician can choose not to treat Medicare beneficiaries. However, once a physician renders services to a Medicare beneficiary, he or she is subject to Medicare’s requirements and regulations, regardless of the physician’s participation as a Medicare provider.”(4)

In 1992, five patients of Dr. Lois Copeland’s, a New Jersey physician, filed suit against the government to resolve the question of private contracting. In his decision (Stewart v. Sullivan), Judge Nicholas Politan stated that he could find no statutory prohibition that would prevent Medicare patients from privately contracting with physicians. Unfortunately, HCFA has never changed its position following the decision, and continues to threaten doctors with fines. According to Bruce Vladek, HCFA Administrator, “The law requires that physicians submit claims on behalf of beneficiaries... violations of these requirements are subject to sanctions such as civil monetary penalties and exclusion from Medicare.”(5) Most physicians, not wanting to antagonize the federal government, comply with HCFA’s edict.

Adding insult to injury, in 1994, amendments to Medicare passed by Congress extended regulations to any Medicare-eligible person (rather than just to services for which a claim was made under Part B, or physician services).(6) The legislation also imposed limits on balance billing, the amount a physician can bill above and beyond what Medicare reimburses for health services. Doctors are supposed to submit bills for all their elderly patients to Medicare once they care for a single Medicare patient. No wonder Medicare recipients are finding it harder and harder to find a physician who will care for them.

The Balanced Budget Agreement of 1997

Senator Jon Kyl (R-AZ) made an attempt to clarify the law regarding private contracting in the recent Balanced Budget Agreement passed by Congress. His legislation allowed Medicare beneficiaries to sign private contracts with doctors for any medical service at any price. Doctors could charge patients fair market value for services rendered. Neither doctor nor patient would submit a claim to Medicare, and the government would not make any payment for any of the services covered by private contracts. Contracts could not be entered into during the time of a medical emergency, and patients would agree to pay all of the costs with their own money or private insurance.

Senator Kyl successfully included his amendment in the balanced budget package. However, the legislation was changed in the House-Senate conference committee (the House did not pass a similar provision). Conferees added language that would prohibit a physician from treating any Medicare patients for two years if he contracted privately with any Medicare recipient. Apparently, the compromise occurred as the result of a veto threat by President Clinton if Senator Kyl’s original language remained intact. Since only about nine percent of physicians currently do not treat Medicare patients, the two-year ban effectively restricts the rights of the remaining ninety-one percent of doctors and their patients to contract freely.

In other words, beginning January 1, 1998, if you are a Medicare patient and you want to pay out of your pocket for treatment that may or may not be covered by Medicare, then you have to find a doctor willing to abandon all of his Medicare patients. Dr. Robert Moffit, a health care policy analyst with The Heritage Foundation, notes that this provision, “is the boldest and most direct assault on the doctor-patient relationship ever launched by official Washington.”(7)

Effects of the Prohibition on Private Contracting

 Restricting or eliminating the ability of patients and doctors to contract freely would have several detrimental effects, in terms of both philosophical concerns and practical problems. The first and most obvious effect is the attack on American citizens’ ability to enter into private contracts with each other. Historically, the American judicial system has intervened to uphold the “right to contract” of its citizens. In the case of Medicare, however, the government is attempting to restrict the right of a Medicare-eligible patient to spend his own hard-earned money to purchase a private medical service from a specific physician. An unelected bureaucracy in the form of HCFA is depriving citizens of their right to provide for their own needs as they see fit. As Senator Kyl asserts, “There is no justification for the government to order doctors out of Medicare just because they provide private medical care to a senior who wants it.”(8)

The ultimate outcome of this restriction on private contracting is, in effect, to completely nationalize health care for anyone over the age of sixty-five. It confines seniors to the government-run health care system, and unlike the rest of the population, offers them no alternatives or freedom of choice. With this new restriction on Medicare patients and physicians, the over-65 population of this country joins most of the rest of the world in a socialized system of health care.

The recently-passed restrictions on physicians and private contracting effectively renders seniors in the U.S. Medicare system worse off than if they lived in Canada or Britain. At least in those countries there exist safety valves and methods for getting around the government-run system. The two-year prohibition imposed by the U.S. government on a doctor’s ability to treat any Medicare patients if he contracts privately with even one makes it extremely difficult, if not impossible, for seniors to seek private alternatives to their medical care.

The ability to privately contract was not as important in the early days of the Medicare program when physicians were adequately reimbursed, services were not restricted, and Medicare functioned as a true fee-for-service system. Today, however, with reimbursements to doctors consistently declining, doctors eliminating Medicare patients from their practices, covered services increasingly restricted, and recipients encouraged to join managed care, the freedom to contract privately for health care services is becoming ever more important.

Managed care plans hold down costs by rationing care and limiting the ability of physicians to decide their own treatment plan for patients. Currently, about 4.5 million Medicare patients receive managed care through health maintenance organizations (HMOs). Experts expect enrollment in managed care by Medicare recipients to rise to nearly 10 million by the year 2002. As enrollment in Medicare managed care plans increases, quality and access to services may decline, and the ability of patients to privately contract becomes more crucial.

What is the Solution?

The solution to this inevitable progression of increased bureaucracy, lower quality care, and limited freedom of choice is simple — allow Medicare recipients the right to privately contract with any physician of their choice for any health care service. A bill that would clarify the ability of Medicare patients to do just that was introduced on September 18, 1997 by Senator Jon Kyl (S. 1194) and Congressman Bill Archer (H.R. 2497), and is titled the “Medicare Beneficiary Freedom to Contract Act of 1997.” This bill was the result of concern that reached members of Congress from both the medical and senior communities. This legislation, if enacted, will mean that patients will no longer lose the right to choose their doctor or a health care service simply because they turn sixty-five.

The bill includes several provisions that were part of the original Balanced Budget Agreement:

• Private contracts between the patient and physician must be in writing, signed by the beneficiary, and identify the services covered by the contract.

• Private contracts cannot cover treatment of emergency medical situations, unless the contract was entered into before the onset of the emergency medical condition.

• Private contracts must notify the beneficiary that Medicare is not responsible for the payment of any services covered under the contract, and that Medicare payment limits will not apply to any services covered under the contract.

• Medicare supplemental policies (i.e., Medigap) cannot cover services provided under a private contract as these policies and the amounts they can reimburse are regulated by Medicare. Medigap policies are also very specific about what services they cover and include only those services that Medicare doesn’t cover.

In addition, the bill would repeal the requirement that physicians who enter into private contracts forego Medicare reimbursement for a period of two years. It would also eliminate the requirement that physicians submit an affidavit agreeing not to submit any claims to Medicare. Physicians would be allowed to enter into private contracts on a patient-by-patient and/or claim-by-claim basis.

Conclusion

Opinion polls show an overwhelming number of Americans believe that they should be able to use their own money to purchase health care services. “Surely,” says Senator Kyl, “a law that made it illegal to supplement with private funds the amount received from Social Security would be met with disbelief and derision. But that is exactly what HCFA has threatened to do, thereby restricting health care choice for seniors.”(9) The choice is clear — allow seniors the freedom to choose the course of their own health care.

References

1. Government red tape restricting seniors’ access to medical care, says doctors. AAPS News, May 13, 1997.

2. Alper PR. Doctor-patient relationship takes turn for the worse: inside the Medicare dictatorship. The Wall Street Journal, January 18, 1990.

3. AAPS News, op. cit.

4. Medicare and private contracting. The Wall Street Journal, September 12, 1997.

5. Genrich M. Washington denies seniors’ right to choose medical care. The Arizona Republic, September 24, 1997.

6. Freedom from Medicare is available. AAPS News 1997;53(9).

7. Forbes S. Fact and comment. Forbes, September 22, 1997.

8. Medicare showstopper. The Wall Street Journal, August 22, 1997.

9. Genrich, op. cit.

Terree P. Wasley is the District Director for Representative Matt Salmon (R-AZ) and serves on the National Advisory Board of United Seniors Association. Previously, Ms. Wasley was an economic consultant specializing in health care, the federal budget, and tax issues. She is the author of What Has Government Done To Our Health Care? (Washington, DC: The Cato Institute, 1992.)

Originally published in the Medical Sentinel 1998;3(2):57-59. Copyright © 1998 Association of American Physicians and Surgeons (AAPS).