Strike balance in proposals to modify private physician contracts, KFF warns

Policy makers considering proposals to ease Medicare private contracting rules should strike a balance between ensuring doctors and practitioners receive fair payment and helping beneficiaries face predictable and affordable medical care, a Kaiser Family Foundation (KFF) issue brief concluded. While proponents of such proposals may tout increased physician autonomy, easing private contracting rules could lead to “an unraveling of financial protections” currently in place.

Options for charging Medicare patients

Currently, physicians and practitioners have three options for charging patients in traditional Medicare—by registering as a participating provider, a nonparticipating provider, or an opt-out provider who privately contracts with Medicare patients. Participating providers (see Social Security Act (SSA) Sec. 1842(h)(1)) agree to accept the Medicare physician fee schedule amount as payment in full for all Medicare services, and patients are liable for a 20 percent coinsurance. Nonparticipating physicians may choose, on a service-by-service basis, to charge Medicare beneficiaries higher fees, up to a limit of 115 percent of the fee schedule amount (see SSA Sec. 1848(g)).

Opt-out providers with private contracts may charge Medicare patients any fee they feel is appropriate, as agreed upon in the contract, and Medicare does not cover or pay for such services (see SSA Sec. 1802(b)). Less than 1 percent of physicians in clinical practice chose to opt out of Medicare in 2016.

Patient protections

Before providing services, physicians must inform a beneficiary in writing that they opted out of Medicare (see 42 C.F.R. Sec. 405.415). The physician is prohibited from entering into a private contract when the beneficiary needs emergency or urgent care. Also, a physician must opt out of Medicare for all of his or her Medicare patients and for all services provided to them. A two-year opt-out period is automatically extended for two-year periods.

Proposals to change Medicare private contracting

The issue brief described various proposals to modify private contracting in Medicare, including legislation introduced by Rep. Tom Price (R-Ga): (1) allowing physicians to contract more selectively, on a patient-by-patient or service-by-service basis; (2) allowing patients and physicians to seek Medicare reimbursement for an amount that Medicare would normally pay under the physician fee schedule; and (3) allowing patients and physicians to seek reimbursement from supplemental insurance, such as Medigap policies and employee-sponsored retiree coverage.

KFF noted the arguments in favor of these proposals. First, lifting restrictions on private contracting would allow physicians to receive higher payment for services, which could offer practitioners greater autonomy. Second, the proposals could increase the number of physicians willing to accept Medicare patients because they could charge higher fees to some Medicare patients. Third, the proposals could reduce beneficiary out-of-pocket costs because beneficiaries entering into private contracts would be able to seek Medicare reimbursement for part of the physician’s bill.

KFF raised concerns, however. For example, liberalizing private contracting rules could increase costs for beneficiaries. In addition, some beneficiaries could lose access to affordable services, particularly for less common physician specialties.

American Kidney Fund calls NY Times article ‘factually incorrect and unfair’

The American Kidney Fund® (AKF), whose Health Insurance Premium Program (HIPP) helps pay insurance premiums for 80,000 people who have end-stage renal disease (ESRD) and need kidney dialysis treatment, categorically denied the accusations contained in a New York Times article that it resists giving aid to patients at dialysis clinics that do not donate money to AKF.


According to the New York Times article, in 1995, AKF had a $5 million annual budget and contributions from the dialysis industry accounted for less than 10 percent of its donations. In 1997, however, AKF obtained an advisory opinion from the HHS Office of Inspector General (OIG) that allowed dialysis clinics treating Medicare and Medigap patients to make charitable donations to AKF to fund its HIPP without incurring civil money penalties under section 231(h) of the Health Insurance Portability and Accountability Act (HIPAA) (P.L. 104-191). Section 231(h) prohibits payments to or on behalf of a federal health care program beneficiaries if the payments are likely to influence such beneficiaries to use a particular provider. The OIG advisory opinion found that AKF’s payment of premiums on behalf of financially needy beneficiaries was not likely to influence a beneficiary’s selection of a particular provider and would be allowed.

The Times reported that this 1997 OIG advisory opinion opened the floodgates for charitable donations to AKF, resulting in a 2015 revenue of $264 million.


The Times article described multiple cases where AKF allegedly pushed back on dialysis clinics that had not donated money, discouraging them from signing up their financially needy patients for assistance from the HIPP fund. The article also alleged that, until recently, AKF guidelines actually stated that clinics should not apply for patient aid if the clinic had not donated to the charity.

The article further alleged that in some cases, according to insurers and government officials, dialysis clinics used the HIPP fund to push Medicaid eligible people into private health insurance coverage through the health insurance exchanges, which can pay up to four times more than Medicaid for the same treatment. In fact, UnitedHealthcare of Florida, Inc. sued one dialysis clinic, American Renal Associates, for this practice, alleging that it is harming patients by moving them into less generous coverage. The lawsuit, filed in federal district court in Florida, also alleges that AKF directed some charitable donations directly back to patients at American Renal Associates.

In response to the investigation, AKF’s chief executive, LaVarne A. Burton, told the Times that “nearly 40 percent of the 213 dialysis companies whose clinics had successfully helped patients apply to the [HIPP] fund had never donated.” The Times noted, however, that Burton would not tell them “what percentage of the 80,000 patients the HIPP fund helps annually comes from clinics that do not donate, or how many of those patients come from the biggest companies, which donate most of their revenue.”

AKF response

AKF responded to the Times article with a press release posted on its website. The press release stated that the Times article “presented a factually incorrect and unfair picture of AKF” and emphasized the following points:

  • AKF asks all providers to contribute to HIPP—but it never requires it. If a clinic choses to donate, the donation goes into one funding pool. From that pool, grants are awarded to patients on a first- come, first-served basis. Patients can change dialysis clinics at any time and the grant follows the patient.
  • AKF has never turned away a patient who is financially qualified to receive a grant, and it never will, regardless of whether their provider donated to AKF.
  • AKF never conditions the issuing of grants on whether a provider contributed to AKF, and fully 40 percent of dialysis providers with patients receiving help from AKF do not contribute anything to AKF.
  • There is no “earmarking” of donations by AKF. Donations from a dialysis clinic go into a funding pool and are not used only for that clinics patients.
  • HIPP has firewalls in place to protect the integrity of the program. AKF’s funding staff does not have access to revenue data, i.e., they do not know whether a patient who is applying for assistance is treated at a clinic that donated to AKF.

AKF further explained that, when HIPP entered a period of instability five years ago, it embarked on an effort to educate providers about the need to contribute to the fund if the program was to continue. However, regardless of whether providers contributed, it claims that it has always continued to assist their patients. AKF expressed regret if their educational communications with providers lead them to believe that they would only assist the patients of donor facilities.

AKF also stated that it revised its HIPP guidelines to remove language in which it asked providers to donate because it does not want there to be any confusion over whether the contributions are voluntary. It also indicated that it developed a new patient-facing HIPP brochure that emphasizes that patients can receive HIPP assistance no matter where they have dialysis treatment.

Now that Medigap can’t cover drug costs, why exclude younger beneficiaries?

Although 31 states require Medigap insurers to provide at least one policy to Medicare beneficiaries under 65 with disabilities, only 2 percent of these beneficiaries have such a policy. The Kaiser Family Foundation (KFF) noted that insurers’ original concerns about paying high prescription drug costs for younger beneficiaries are now moot, and questioned the justification of excluding younger adults with beneficiaries from buying Medigap policies.


Medigap serves as supplemental insurance to help Medicare beneficiaries cover out-of-pocket expenses, which can be significant due to how the program is structured. About 20 percent of the 57 million Medicare beneficiaries have such a policy. In 1990, the federal government required insurers to allow new senior beneficiaries to buy a Medigap policy. At that time, when many Medigap plans covered some drug costs, insurers did not want to cover the high drug spending of those under 65 with disabilities.

Although the vast majority of beneficiaries are seniors, about 9 million people under 65 with disabilities have Medicare. Usually, those under 65 must become eligible for disability benefits, and then wait for 24 months until Medicare coverage becomes active. The KFF noted that younger Medicare beneficiaries generally have poorer self-reported health status than seniors and are operating with lower incomes. They also report more difficulty in accessing the care they need, sometimes due to costs.

Drug coverage

 Although Medigap plans could originally cover drug costs, the government now prohibits drug coverage due to the Part D benefit. Although Medicare per capita spending on prescription drugs is much higher for younger beneficiaries than for seniors (about $3100 more in 2014), Medigap insurers no longer have to worry about this cost. Excluding Part D expenditures, average spending per capita for younger beneficiaries is about $400 more than for seniors.