Federal legislation that proposes fewer restrictions on private contracting between providers and Medicare beneficiaries has become controversial in recent weeks. Supporters of the legislation point to the wish of some Medicare beneficiaries to receive care outside of the Medicare system to protect their privacy. Opponents believe private contracting allows providers to charge more than Medicare allows and will undermine existing beneficiary protections. As often occurs in politically charged controversies, many facts and details get lost in the debate.

Historically, Medicare has completely prohibited beneficiaries from using their own funds to buy services directly from the provider rather than filing a Medicare claim. One rationale for the prohibition was that the publicly funded health-care program should protect seniors from being pressured by providers to go outside of the system?a move that would allow the providers to increase the price of services. This prohibition remained in force even if the patient wished to contract privately with a provider to prevent, for example, having his or her record of psychological services be available to the government. Ironically, if a Medicare beneficiary sought services from a provider who could not qualify to become a Medicare provider, no such prohibition of contracting outside Medicare would apply.

In the face of increasing challenges by patients and providers alike, the Health Care Financing Administration (HCFA) reconsidered this policy in August 1995. The new policy stipulated that if a beneficiary independently chose to withhold a Medicare claims authorization, without pressure from the provider, the provider was not obligated to submit a claim on the beneficiary?s behalf. HCFA distinguished this type of patient-initiated contract from a provider-initiated agreement, which would still be invalid. Patients who initially chose to privately contract for Medicare-covered services could later change their minds and require that claims be submitted to Medicare anytime before the claims filing limit expired.

A significant wrinkle to HCFA?s policy related to payment. Nonphysician Medicare-qualified providers, including psychologists, could not, through private contract, charge the patient more than the total of the deductible and co-pay the patient would ordinarily pay if the services were billed through Medicare. This policy prevented the psychologist from collecting from the patient the assignment amount that would ordinarily be paid to the psychologist by Medicare. In other words, the psychologist would receive lower payment for the service if provided privately than if provided through Medicare. Physicians were not limited in this way and could receive the same amount privately as was received through Medicare. Providers who did not qualify for Medicare had no limit to what they privately charged Medicare beneficiaries.

In an effort to provide statutory guidance to HCFA on private-contracting issues, Congress enacted a provision as part of the Balanced Budget Act of 1997 that permits providers to privately contract with Medicare beneficiaries for services otherwise reimbursed through the Medicare program. Unlike the prior HCFA policy, the statute indicates that no limits under Medicare apply to the amounts that may be charged for the privately contracted services. Therefore, psychologists would presumably not be forced to forgo the assignment amount of the payment. However, the statute contains a major limitation not previously included in HCFA policy. Once a provider has entered into a private contract with a Medicare beneficiary, he or she is foreclosed from submitting any claims to Medicare for a period of two years.

Since enactment of the private contracting provision, Rep. Bill Archer (R-Texas) and Sen. Jon Kyl (R-Ariz.) have introduced companion bills to repeal the two-year exclusion requirement. It is this legislation that has sparked the controversy. Opponents to private contracting believe the two-year exclusion is necessary to discourage providers from overusing private agreements. Proponents of private contracting see the two-year exclusion as undermining the benefits of private contracting, such as privacy protection and a quality ?check? on Medicare. Furthermore, supporters believe that with Medicare managed care on the rise, it will be all the more important to provide confidentiality and quality safeguards for seniors.

The legislation proposed by Archer and Kyl will receive increasing attention when Congress reconvenes in the new year. As this column goes to press, APA?s Board of Directors and Committee for the Advancement of Professional Practice are reviewing the legislation in order to determine a position by the association that is appropriately supportive of both psychologist and patient interests.