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Private Contracting: No Final Word

by Jane M. Orient, M.D.

In normal times, the relationship between patient and physician has been based on an implicit, voluntary understanding or contract. Is it possible that a physician's relationship with a Medicare-eligible patient must now be codified in a legal document meeting narrow specifications defined by the federal government? And can it be in these United States of America that such a relationship is altogether forbidden unless (a) the physician swears to forgo all reimbursement from the only insurer of the patient population in greatest need of his services or (b) the service provided is "unnecessary" but not "unwarranted"?

The absurd state of affairs with Medicare is highlighted by a series of remarkable occurrences:

In 1997, Congress enacted a law (Section 4507 of the Balanced Budget Act) to assure exception (a) as an improvement on the previous situation in which private contracting was deterred by intimidating notices from Medicare carriers. To take advantage of the exception, physicians are supposed to formally opt out of the program even though they may never have agreed to opt in.

Next, United Seniors Association (United Seniors v. Shalala) filed suit to have Section 4507 declared unconstitutional, asserting that it effectively prohibited private contracting on a case-by-case basis, as well as to enjoin the Department of Health and Human Services from "in any way impairing Plaintiffs' freedom to contract privately for health care services" (1).

In July, 1999, the U.S. Circuit Court for the District of Columbia found for the defendant but declared exception (b) (2). Based on the oral argument, this was not unexpected. The Court proceedings reminded this observer of the Lord High Executioner's song in Gilbert and Sullivan's Mikado: "And I am right, and you are right, and everything is quite correct." Both sides declared victory, the Court seemed to breathe a sigh of relief at not having to adjudicate any serious Constitutional issues, and the Wall Street Journal applauded in a lead editorial (3).

It is doubtful that Medicare could have been enacted had Americans foreseen that it would mean compulsory dependency upon a bankrupt federal program for all "necessary" medical care, regardless of personal resources. Such a situation is thoroughly unAmerican; indeed, it is more characteristic of a totalitarian Marxist society, in which all are impoverished in preference to allowing anyone to better himself through his own efforts.

Has the unthinkable truly come to pass? And are Americans content with the tiny sliver of freedom acknowledged in this Court decision, although even that is clouded by the potential for the government to declare a treatment "unwarranted"?

Congress has never enacted a law explicitly repealing the assurances in Sections 1801, 1802, and 1803 of the Social Security Act. The Courts have never explicitly found that a person forfeits his right to use his own property to protect his own life as soon as he becomes entitled to federal "insurance" (although they have accepted the parties' stipulation to the functional equivalent of this situation). The Department of Health and Human Services (HHS), acting through the Health Care Financing Administration (HCFA), has nevertheless acted as though these things had indeed happened.

An excellent scholarly review of congressional ineptitude and HCFA's weaving and dodging is found in John S. Hoff's monograph, Medicare Private Contracting: Autonomy or Paternalism (4). This book is a "must read" for anyone seeking to penetrate the fog created by HCFA's "phantom policy" on private contracting. (I disagree with the review published previously in The Medical Sentinel; I found the book lucid, accurate, and right on target in its analysis.)

As Hoff recognizes, Section 4507 is an "exception to nothing." Yet, as he also points out, few physicians have been willing to treat Medicare-eligible patients privately. For example, on the first annual AAPS Medicare Patient Freedom Day in 1995, counsel for the Florida Medical Association warned physicians that they might be subjected to both civil and criminal penalties if they dared to treat a Medicare patient for $1 without filing a claim (5). To a physician who "confessed" to this activity, HCFA responded that "[p]ursuing sanctions in such a case would be an inappropriate use of the Medicare program's scarce administrative resources" because "the beneficiary was unlikely to have been harmed since she was charged only $1" (6).

So what now? The position of AAPS since 1965 has been that physicians ought to refuse to participate in an immoral and unconstitutional program. Many physicians adhered to this policy by declining to sign a participation agreement but giving patients the documentation they needed to file for their benefits. A critical change, in my view, occurred with the requirement that, as of September 1, 1990, physicians file Medicare claims for all covered services (even those sure to be denied because the patient had not met the deductible). An attempt to repeal this requirement was made in 1990 (7), but it failed. At this point, simple repeal would accomplish nothing because HCFA, with the assistance of the AMA, immediately increased the complexity of the claims-filing process; it is now probably impossible for most patients to file a claim without assistance. Space for narrative diagnoses was eliminated in 1991 (8). A strict liability standard for coding was established by the Eighth Circuit in Anesthesiologists Affiliated v. Sullivan in 1991 (9).

Most patients and physicians are now trapped. Even "nonparticipating" physicians participate to some extent unless they only treat patients who do not receive Medicare reimbursement. HCFA is relentlessly trying to increase its authority over all medical care. Neither Congress or the Courts have shown the slightest inclination to stop the gradual encroachments on the right to seek or offer private medical care.

Nevertheless, life, liberty, and property are unalienable rights. Moreover, they are recognized by the U.S. Constitution. Those who exercise and defend these rights can, and ultimately will, prevail. Victory, however, will not be won by simply sending a lawyer into a courtroom pleading for a narrow exemption, while accepting the basic assumptions of the program.


(1) Brown, KM, Northam, FM, Memorandum of points and authorities in support of plaintiffs' motion for a preliminary injunction, United Seniors Association, et al., v. Donna Shalala, U.S. District Court for the District of Columbia, civil action no. 97-3109.

(2) United State Court of Appeals for the District of Columbia Circuit, United Seniors Association, et al., v. Donna Shalala, No. 98-5142, decided July 16, 1999.

(3) Anon., Wall Street Journal, July 29, 1999, p. A26.

(4) Hoff, JS, Medicare Private Contracting: Paternalism of Autonomy, Washington, DC, AEI Press, 1998.

(5) Ault, TA, Director, Bureau of Policy Development, Health Care Financing Administration, letter to physician, Nov 8, 1995.

(6) Thrasher, J, memorandum to Donald C. Jones, Executive Vice President, Florida Medical Association, July 14, 1995.

(7) Medicare Claims Filing. AAPS News 1990;46(10):2.

(8) No Words Please. AAPS News 1991;47(4):2.

(9) "Strict Liability" for Codes. AAPS News 1991;47(10):3.