Cash-Pay Physical Therapy: Ensuring Compliance with the Medicare Mandatory Claims Submission Rule
Just because you don’t accept Medicare at your physical therapy practice doesn’t mean that you’re not subject to some of its rules. Learn about the Medicare Mandatory Claim Submission Rule and its implications for your cash PT practice.
One of the major draws of a cash-based physical therapy practice is avoiding the administrative hassles that come with participating in third-party payor programs, such as Medicare and Medicaid. But these practices should be cautioned: Even if they have no relationship at all with the federal Medicare program, they still may be subject to some of its rules, including what’s called the Medicare Mandatory Claims Submission Rule.
For many physical therapists (PT), a cash-pay practice offers a refreshing alternative to a traditional practice model based on revenue from third-party payors. Under this model, patients simply pay for PT services at the point of service, based on rates set by the PT practice. To this end, the PT practice is spared the administrative burdens of billing and complying with the rules and regulations of third-party payor programs, including government programs like Medicare and Medicaid.
Yet, cash-pay practices are not immune from their own risks and challenges. Among those cash-pay PTs who have no relationship with Medicare, a perennial question is whether they may provide cash-pay PT services to Medicare beneficiaries and, if so, under what circumstances. Intuitively, one might think there should be no problem with a Medicare beneficiary privately contracting and paying for PT services. And for that matter, why should a PT who has no affiliation with Medicare be subject to its regulations?
The answers to these questions are nuanced and turn, in key part, on one’s interpretation of the Medicare Mandatory Claims Submission Rule. In this post, we discuss the contours of this rule and its limits.
Medicare Terminology: A Brief Overview
Comparable in complexity to the tax code, the Medicare program is an elaborate web of statutes, regulations, and guidance documents. Before turning to the Medicare Mandatory Claims Submission Rule, it’s helpful to have a basic understanding of some of the key Medicare concepts and terminology that arise in this context:
- Participating Supplier – In Medicare vernacular, PTs are “suppliers.” A “participating supplier” is one who has an agreement with the Medicare program to “accept assignment” for all Medicare-covered services. By accepting assignment, a participating supplier agrees to accept the Medicare-approved amount as payment in full for Medicare-covered services.
- Non-Participating Supplier – A “non-participating supplier” is a supplier who is enrolled in Medicare but is allowed, on a service-by-service basis, to either bill the beneficiary directly or accept assignment from Medicare. If the supplier elects to bill the beneficiary, however, the supplier must not charge more than the “limiting charge,” meaning an amount that is 15% more than the applicable Medicare rate.
- Opt-Out Supplier – A supplier who has “opted out” of Medicare is one who has taken the affirmative steps necessary to choose not to enroll in the program. An opt-out supplier bills and receives payment from the Medicare beneficiary directly pursuant to the terms of a private contract. Although PTs are not legally required to enroll in Medicare as either a participating or nonparticipating supplier, current law does not recognize them as a category of supplier who can “opt out” of Medicare – which has implications for Medicare Mandatory Claims Submission Rule compliance, as discussed below.
- Covered Service – A service that is “covered” by Medicare is one that falls within an authorized benefit category and meets the applicable requirements of the specific service. A universal requirement for Medicare coverage is that the service be “reasonable and necessary” or “medically necessary.”
- Advance Beneficiary Notice (ABN) – An ABN is a notice issued by a supplier prior to rendering services that the supplier believes will not be covered by Medicare because the supplier believes the service will not meet Medicare’s medical necessity requirement. When a supplier issues an ABN, the supplier may seek payment from the beneficiary.
The Medicare Mandatory Claims Submission Rule
By its express terms, the Medicare Mandatory Claims Submission Rule states that “within 1 year after the date of providing a service for which payment is made under [Medicare] on a reasonable charge or fee schedule basis,” a supplier “shall complete and submit a claim for such service on a standard claim form.” Failure to comply with the Medicare Mandatory Claims Submission Rule is subject to a civil monetary penalty of $2,000 per instance of noncompliance, among other penalties.
The Medicare Mandatory Claims Submission Rule does not apply to physicians and certain other categories of suppliers who have opted out of Medicare. Thus, these suppliers may bill a Medicare beneficiary for Medicare-covered services under a private contract that complies with Medicare’s opt-out requirements. But, as noted above and in Section 40.4 of Chapter 15 of the Medicare Benefit Policy Manual: “Physical therapists in independent practice and occupational therapists in independent practice cannot opt out because they are not within the opt out law’s definition of either a ‘physician’ or ‘practitioner.’”
According to the same above-noted section of the Medicare Benefit Policy Manual, there is only one situation where “non-opt-out” suppliers are not required to submit claims for Medicare-covered services. That situation is where a “beneficiary or the beneficiary’s legal representative refuses, of his/her own free will, to authorize the submission of a bill to Medicare.”
An ABN also functions as a mechanism whereby a supplier who has not opted out of Medicare may bill a Medicare beneficiary for services that would ordinarily be covered by Medicare but may not be in a particular case, without first having to submit a claim to Medicare as required by the
Medicare Mandatory Claims Submission Rule. As Section 50.3 of Chapter 30 of the Medicare Claims Processing Manual notes, however, suppliers who are not enrolled in Medicare (either as a participating or non-participating supplier) cannot issue ABNs to Medicare beneficiaries. This means that cash PTs who have no relationship with Medicare cannot use ABNs to facilitate cash-pay transactions for services with Medicare beneficiaries.
Aside from these exceptions, the Medicare Benefit Policy Manual indicates the Medicare Mandatory Claims Submission Rule has a broad reach:
Application of [the Medicare Mandatory Claims Submission Rule] cannot be negotiated between a physician/practitioner or other supplier and the beneficiary except where a physician/practitioner is eligible to opt out of Medicare . . . . Agreements with Medicare beneficiaries that are not authorized as described in these manual sections and that purport to waive the claims filing or charge limitations requirements, or other Medicare requirements, have no legal force and effect. For example, an agreement between a physician/practitioner, or other supplier and a beneficiary to exclude services from Medicare coverage, or to excuse mandatory assignment requirements applicable to certain practitioners, is ineffective.
Interpreting the Medicare Mandatory Claims Submission Rule
From the foregoing, there are at least two distinct possible interpretations of the Medicare Mandatory Claims Submission Rule as it applies to cash-only PTs.
Under one interpretation, one could conclude that the Medicare Mandatory Claims Submission Rule simply does not apply to these PTs because they have no relationship whatsoever with Medicare and therefore are out of its regulatory grasp. Thus, it would follow from this interpretation that cash-pay PTs are free to enter into private arrangements with Medicare beneficiaries, including for PT services that would otherwise be covered by Medicare.
Under another, more conservative interpretation, one could conclude that the Medicare Mandatory Claims Submission Rule does apply even to cash-pay PTs who have no relationship with Medicare. This would lead one to surmise that PTs could accept cash payment from Medicare beneficiaries for services otherwise covered by Medicare only if the “free will” exception noted in the Medicare Benefit Policy Manual applies.
Let’s consider each possible interpretation in more detail.
Interpreting the Medicare Mandatory Claims Submission Rule as Inapplicable to Cash Physical Therapists
Arguably, the limits of the Medicare Mandatory Claims Submission Rule are in the terms of the rule itself. It requires that a supplier “complete and submit a claim” for services “for which payment is made under [Medicare].” But a cash PT who has no relationship necessarily cannot “complete and submit a claim” to Medicare for the PT’s services, and thus payment cannot be “made under” the program. Similarly, the definition of a “supplier” incorporated into the rule is a “physician or other practitioner, a facility, or other entity (other than a provider of services) that furnishes items or services under [Medicare.]” A cash PT as described in this context does not provide services “under” Medicare.
Proponents of this line of argument could point to foundational provisions contained in the preamble to the Medicare law for support. One such provision states that nothing in the Medicare law authorizes the Medicare program “to exercise any supervision or control over the practice of medicine or the manner in which medical services are provided, or over the selection, tenure, or compensation of any officer or employee of any institution, agency, or person providing health services; or to exercise any supervision or control over the administration or operation of any such institution, agency, or person.” Another provision assures that the Medicare law does not preclude “any individual from purchasing or otherwise securing[ ] protection against the cost of any health services.”
Advocates of cash-pay transactions between Medicare beneficiaries and their providers have even argued that restrictions by the Medicare program on such transactions are unconstitutional. In the case of United Seniors Association v. Shalala, an organization of senior citizens and several individual Medicare beneficiaries challenged Section 4507 of the Balanced Budget Act of 1997, which established rules for the use of private contracts between Medicare beneficiaries and opt-out suppliers. Because Section 4507 prohibits a supplier who enters into a private contract “with even a single patient” from submitting any claims to Medicare during a two-year period, the plaintiffs contended that the provision “effectively ma[de] it impossible for them to contract for medical services outside of the Medicare system – particularly for services Medicare will not cover, either because they are categorically excluded or because Medicare deems them unreasonable or unnecessary in a particular case.” Based on this understanding, the plaintiffs argued that Section 4507 was unconstitutional insofar as it “violate[d] their liberty to contract privately for health care services, violate[d] their ability to maintain the privacy of their medical information by requiring them to file claims for all medical services, and violate[d] their equal protection and due process rights by denying them the same liberty to contract enjoyed by other citizens.” The lower court, however, rejected these assertions and ruled in favor of the federal government.
On appeal, the U.S. Circuit Court of Appeals for the District of Columbia dodged addressing these issues head-on. Instead, it held that the plaintiffs lacked legal “standing” to challenge Section 4507 because the government had interpreted the law in such a way that eliminated any “injury” to the plaintiffs. The “injury” that the plaintiffs alleged was that the two-year bar on submission of Medicare claims under Section 4507 would make it “virtually impossible to find a doctor willing to enter into a private contract with a Medicare beneficiary”; as a result, the plaintiffs would not be able to “purchase services for which Medicare will not itself pay, thus rendering them unable to obtain those services on any terms.”
But the government countered that Section 4507 did not apply in this manner. According to the government, its scope was limited “only to services that Medicare would reimburse but for the private contract.” In other situations where Medicare would not reimburse a service – “either because it is categorically excluded or because it is deemed reasonable or unnecessary in the particular case” – then parties could privately contract without implicating the two-year restriction under Section 4507. Because the court was obliged to defer to the government’s interpretation of the statute, and because the plaintiffs conceded that “their case [would be] at an end” under such an interpretation, the court affirmed the lower court’s judgment for the government.
Given the resolution of the United Seniors case on standing grounds, the constitutionality of the government’s ability to restrict cash-pay transactions with Medicare beneficiaries remains unresolved. Should a cash-pay PT and/or Medicare beneficiary seeking cash-pay PT services want to press the issue, a future legal challenge could pick up where United Seniors left off. Since PTs have no right at all to opt out of Medicare under Section 4507, a challenge to the legal restrictions on cash-pay transactions in the context of PT services could be particularly compelling.
Interpreting the Medicare Mandatory Claims Submission Rule as Applicable to Cash Physical Therapists
While the above analysis may provide an attractive outline for concluding that the Medicare Mandatory Claims Submission Rule does not apply to cash-only PTs, we stress that this is an area where the law is not settled. The safer — and more plausible — approach views the Mandatory Claims Submission Rule as being applicable to cash PTs. Within the PT sector, PTs, their attorneys, and other stakeholders disagree over whether the Mandatory Claims Submission Rule governs transactions between cash PTs with no relationship to Medicare and Medicare beneficiaries for services that Medicare would ordinarily cover. As noted, it may take a court case to test just how far the Medicare law extends in this respect. In the meantime, the decision whether or not to comply with the Medicare Mandatory Claims Submission Rule turns on one’s risk tolerance.
Against this backdrop of legal uncertainty, many cash-pay PTs assume (without necessarily agreeing) that the Mandatory Claims Submission Rule does apply to their practice, despite them not having any ties to Medicare. Taking this position, a cash-pay PT would likely decide not to provide Medicare-covered services to Medicare beneficiaries in most circumstances since the PT cannot submit a claim for the services to Medicare and has no other recourse for payment from the beneficiary.
Notably, even under this interpretation, there would still be some opportunities for a cash-pay PT to provide services to Medicare beneficiaries. For one, the Medicare Mandatory Claims Submission Rule, consistent with Section 4507 as construed in United Seniors, does not prohibit a PT from directly billing a Medicare beneficiary for those services that are not covered by Medicare (i.e., they are expressly excluded as a benefit category) or that would typically be covered but are not in a particular case because they do not comport with Medicare’s “reasonable and necessary” requirement. In the PT context, services that could fall within these categories could include, for example, certain kinds of maintenance care and fitness-related services.
Further, as outlined in the Medicare Benefit Policy Manual, a cash-pay PT may render Medicare covered-services to a Medicare beneficiary who “refuses, of his/her own free will, to authorize the submission of a bill to Medicare.” This raises the question of under what circumstances a beneficiary will be deemed to have exercised his or her “own free will” so as to refuse Medicare coverage and receive PT services on a cash-pay basis. To date, there is no definitive guidance on this carve-out to the Mandatory Claims Submission Rule. Importantly, we have seen instances of patients not understanding the scope of this “refusal” when giving their assent to a cash PT’s treatment, only to later file a claim for reimbursement; this triggers CMS to request additional information from the PT, including their (nonexistent) Medicare number.
Thus, as with determining whether the Mandatory Claims Submission Rule applies at all to cash-pay only PTs, how one interprets the “free will” exception is largely a risk calculation. Those cash-pay PTs who are more risk averse may decide that they will not treat a Medicare beneficiary on a “free will” basis except where the beneficiary has affirmatively, without any prompting from the PT, sought out the cash-pay PT’s services and clearly expressed an intention not to seek coverage through Medicare.
If a PT’s forms request that a patient provide their “refusal” to bill to Medicare, this likely fails to satisfy any reasonable definition of patient-initiated refusal. Others may be willing to accept Medicare beneficiaries on a more a liberal basis, so long as the Medicare beneficiary signs a release or other contractual document acknowledging that the beneficiary refuses to submit a claim to Medicare as an election of his or her “own free will.” Whatever one’s risk tolerance, all cash-pay PTs who agree to provide Medicare-covered services to “free will” Medicare beneficiaries should ensure they have appropriate policies and procedures for accepting these patients and documenting their choice not to bill Medicare.
What About the “HIPAA Loophole”?
Some within the PT community speculate that the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and its implementing regulations offer a “loophole” for cash-pay PTs to provide Medicare-covered services to Medicare beneficiaries. For support, these commentators cite a provision of the HIPAA regulations that prohibits a PT or other healthcare provider who is a “covered entity” under HIPAA from disclosing an individual’s protected health information to a health plan where the individual has requested the restriction and “[t]he protected health information pertains solely to a health care item or service for which the individual, or person other than the health plan on behalf of the individual, has paid the covered entity in full.”
When the U.S. Department of Health and Human Services (HHS) implemented this regulation in 2013, it specifically addressed the intersection of the regulation and the Mandatory Claims Submission Rule in the regulation commentary:
With respect to commenters’ concerns with prohibitions in State law and under Medicare and Medicaid that prevent providers from billing, and receiving cash payment from, an individual for covered services over and above any permissible cost sharing amounts, we provide the following guidance. If a provider is required by State or other law to submit a claim to a health plan for a covered service provided to the individual, and there is no exception or procedure for individuals wishing to pay out of pocket for the service, then the disclosure is required by law and is an exception to an individual’s right to request a restriction to the health plan pursuant to § 154.522(a)(1)(vi)(A) of the Rule. With respect to Medicare, it is our understanding that when a physician or supplier furnishes a service that is covered by Medicare, then it is subject to the mandatory claim submission provisions of section 1848(g)(4) of the Social Security Act (the Act), which requires that if a physician or supplier charges or attempts to charge a beneficiary any remuneration for a service that is covered by Medicare, then the physician or supplier must submit a claim to Medicare. However, there is an exception to this rule where a beneficiary (or the beneficiary’s legal representative) refuses, of his/her own free will, to authorize the submission of a bill to Medicare. In such cases, a Medicare provider is not required to submit a claim to Medicare for the covered service and may accept an out of pocket payment for the service from the beneficiary. The limits on what the provider may collect from the beneficiary continue to apply to charges for the covered service, notwithstanding the absence of a claim to Medicare. See the Medicare Benefit Policy Manual, Internet only Manual pub. 100-2, ch. 15, sect. 40, available at http://www.cms.gov/manuals/Downloads/bp102c15.pdf. Thus, if a Medicare beneficiary requests a restriction on the disclosure of protected health information to Medicare for a covered service and pays out of pocket for the service (i.e., refuses to authorize the submission of a bill to Medicare for the service), the provider must restrict the disclosure of protected health information regarding the service to Medicare in accordance with § 164.522(a)(1)(vi).
Those who refer to this excerpt for support of the HIPAA loophole seem to think that cash PTs can bypass the Mandatory Claims Submission Rule and provide Medicare-covered services whenever a Medicare beneficiary requests that the beneficiary’s protected health information not be disclosed to Medicare. But that’s not actually what this excerpt says. Quite the contrary: “If a provider is required by State or other law to submit a claim to a health plan for a covered service provided to the individual, and there is no exception or procedure for individuals wishing to pay out of pocket for the service, then the disclosure is required by law and is an exception to an individual’s right to request a restriction to the health plan pursuant to § 154.522(a)(1)(vi)(A) of the Rule” (emphasis added).
Simply put, the HIPAA regulations, as construed by HHS, merely affirm the Mandatory Claims Submission Rule and its “free will” exception as articulated in the Medicare Benefit Policy Manual. Further, it nearly goes without saying that a PT who does not fall within the definition of a HIPAA “covered entity” cannot simultaneously claim that HIPAA does not apply to their practice while also seeking to avail themselves of certain rights bestowed by HIPAA. In our opinion, the so-called “HIPAA loophole” is illusory.
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 42 U.S.C. § 1395w-4(g)(4)(A).
 42 U.S.C. § 1395w-4(g)(4)(B).
 See 42 U.S.C. § 1395a.
 42 U.S.C. § 1395x(d).
 42 U.S.C. § 1395.
 42 U.S.C. § 1395b.
 182 F.3d 965 (D.C. Cir. 1999).
 Id. at 968.
 Id. at 969.
 Id. at 970.
 42 C.F.R. § 164.522(a)(1)(B)(vi).