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Medicare: Private Contracts

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Publication Date: October 1997

Publisher(s): Library of Congress. Congressional Research Service

Series: 97-944

Topic: Health (Health care financing)


Private contracting is the term used to describe situations where a physician and a patient agree not to submit a claim for a service which would otherwise be covered and paid for by Medicare. Under private contracting, physicians could bill patients at their discretion without being subject to upper limits specified by Medicare. The Health Care Financing Administration (HCFA, the agency that administers Medicare) had interpreted the law to preclude such private contracts. Some physicians recommended that the law be modified specifically to allow such arrangements.

The Balanced Budget Act of 1997 (BBA 97) included language permitting a limited opportunity for private contracting, effective January 1, 1998. However, if and when a physician decides to enter a private contract with a Medicare patient, that physician must agree to forego any reimbursement by Medicare for 2 years. The patient is not subject to the 2-year limit; the patient would continue to be able to see other physicians who were not private contracting physicians and have Medicare pay for the services.

The BBA 97 provision has been the subject of considerable controversy. Proponents of private contracting are seeking to expand the provision arguing that any limitations are unwarranted. Opponents of private contracting support the 2-year exclusion as a disincentive for physicians to enter into these arrangements. The Medicare Beneficiary Freedom to Contract Act (H.R. 2497; S. 1194), introduced by Representative Archer and Senator Kyl, would remove the 2-year exclusion.