Honorable Jesse Helms
United States Senate
Washington, D.C. 20510-3301

Dear Senator Helms:

Thank you for your inquiry on behalf of James P. Weaver, M.D., Central Carolina Cardiovascular & Thoracic Surgical Associates, P.A., Durham, North Carolina, with regard to his interest in private contracting by hospitals with beneficiaries in units established to provide what he characterizes as higher quality of care. I regret the long delay in this response.

Dr. Weaver indicates that the Ethics Committee of his local hospital, of which he is a member, has concerns that nurses are somewhat overworked and that the patient/nurse ratio has increased beyond what is reasonable. Specifically, the hospital is considering creating a floor in which patients who wish to obtain better nursing ratios and other potential amenities would pay an extra sum to the hospital per day to obtain what he characterizes as improved quality of care. He indicates that the amounts charged would depend on the details of the specific benefits. He indicates that he know that physicians who sign private contracts are forced to forgo Medicare payments for 2 years. He asks if a hospital could arrange to improve the quality of services for an extra amount without jeopardizing its payments from Medicare.

When a hospital signs a provider agreement with Medicare, it agrees to accept Medicare payment as payment in full for all Medicare covered services. The hospital is responsible for providing all medically necessary services that the beneficiary needs, including all nursing services, without charging the beneficiary more than the Medicare deductible and coinsurance. Payment for these services is included in the Medicare payment. Hence, a hospital may not charge for a higher nurse to patient ratio or similarly for an "improved" quality of medically necessary care. If a hospital charges in excess of the Medicare deductible and coinsurance for medically necessary services, such as nursing services, Medicare may terminate the facility's provider agreement based on the breach of that agreement.

As with physicians who opt out of Medicare to privately contract with beneficiaries, a hospital may voluntarily terminate its provider agreement with Medicare and thereby give up all rights to all payment from Medicare (except in certain emergency situations). If the hospital chooses not to terminate its provider agreement and gives up all Medicare funding, it may charge no more that the Medicare deductible and coinsurance for medically necessary services, including all needed nursing services.

However, nothing prevents a beneficiary from choosing to acquire noncovered services such as private duty nursing services that are not medically necessary or from purchasing other services that are not necessary to treat illness or injury and for which payment is not included in the Medicare payment (e.g., restaurant meals brought in at the beneficiaries request). Before the hospital charges the beneficiary for more expensive services than those that are necessary to treat the illness or injury and which are encompassed in the Medicare payment, the hospital must identify the specific additional services to be furnished and the charges for the additional noncovered service (e.g. the restaurant meal) and the charge for the covered service (e.g., the routinely furnished meal). Under regulations at 42 C.F.R. 489.32, the hospital may charge the difference between its usual charge for the type of service normally furnished and its charge for the more expensive noncovered service.

Sincerely yours,

Margaret Shaw
Health Insurance Specialist
Center for Health Plans and Providers