George Grob /s/

Deputy Inspector General

Office of Evaluation and Inspections

Providers Opting Out of Medicare Prior to Program Exclusion (OEI-04-99-00590;12/00)

Peter Griffin

Acting Director, Office of Communications and Operations Support

Health Care Financing Administration

We had begun work on an analysis of the so called "opting out" provision of Medicare under

which a physician or other practitioner may choose to not participate in the Medicare program

but provide services to Medicare beneficiaries under terms of a contract entered into with

them.  In discussions with Health Care Financing Administration (HCFA) staff, we discovered

that HCFA itself  had commissioned work on this topic.  In order to avoid a duplication of

effort, we significantly reduced the scope of our study.  We narrowed it to a single topic not

covered under HCFA's own study effort, namely whether providers are opting out of Medicare

prior to being excluded from the program.

SUMMARY 
There is not a widespread problem with providers opting out Medicare before being excluded 
from the program.  Our analysis shows that of the 1,107 providers who opted out of the 
Medicare program in 1998 and 1999, only one was subsequently excluded from Medicare. 
However, we did discover that in the rare event of a provider being excluded from Medicare 
after opting out, Medicare beneficiaries lose one element of protection which is afforded to 
those who enter into private contracts with providers who are not excluded after opting out or 
who are excluded before doing so.  Providers who opt-out of Medicare prior to exclusion are 
not required to notify Medicare beneficiaries, with whom they have existing private contracts, 
of their exclusionary status.  Medicare beneficiaries, therefore, may not be provided an 
opportunity to make informed health care choices and could receive care from an excluded 
provider without knowing that the provider is excluded. 
BACKGROUND 
By October 2001, HCFA is required to report to Congress on quality of care issues and the 
financial impact of allowing physicians or practitioners (providers) to opt-out of Medicare 
and establish private contracts with Medicare beneficiaries.  To support that effort, HCFA staff 
requested that we determine if providers opted out prior to exclusion from the Medicare 
program.  Page 2 - Peter Griffin 
Section 1802 of the Social Security Act (Act), as amended by 4507 of the Balanced Budget 
Act of 1997, permits certain physicians or practitioners to opt-out of Medicare and enter into 
private contracts with Medicare beneficiaries.  Physicians permitted to opt-out are doctors of 
medicine and doctors of osteopathy.1  Likewise, practitioners permitted to opt-out are 
physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse 
anesthetists, certified nurse midwives, and clinical social workers.2  Hereinafter, the group of 
statutorily defined physicians and practitioners eligible for opting out will be referred to as 
providers. 
Opt-out 
Providers opt-out by severing all ties with Medicare.  In such instances, providers may enter 
into private contracts with Medicare beneficiaries to provide items and services.  Payment for 
provided items and services is made directly by the patient or through private insurance. 
The opt-out option became available January 1, 1998.  Providers choosing to opt-out must do 
so for a 2-year period.  Providers are automatically allowed to bill Medicare at the conclusion 
of their opt-out period unless they renew their opt-out agreement with HCFA.  With 
exception of emergency or urgent care, providers who opt-out of Medicare are not eligible for 
reimbursement under the Medicare program. 
Exclusion 
The Act authorizes the Inspector General of the Department of Health and Human Services to 
exclude health care providers from Medicare.  Exclusionary offenses can include felony 
convictions, fraudulent behavior, license revocation, or loan default.  During the period of 
exclusion, providers cannot receive Medicare reimbursement for items or services, other than 
in cases of emergency.3 
METHODOLOGY 
We conducted a national evaluation to determine if providers voluntarily opted out of 
Medicare prior to involuntary exclusion from the Medicare program.  We analyzed two 
databases, the HCFA opt-out database and the Office of Inspector General (OIG) exclusions 
database. 
1 
42 C.F.R. Subpart DPrivate Contracts  405.400 (Oct. 1, 1999). See Social Security Act (SSA)  1802 et seq. 
42 U.S.C.  1395a. See also, Balanced Budget Act, Section 4507(b)(5) of Title IV of Pub. L. 105-33 (1997) 
citing SSA  1861(r)(1) and 1842(b)(18)(C). 
2 Id. 
3 Social Security Act  1892(e)(1). See, 42 C.F.R. at  405.425(j) (Oct. 1, 1999).  Page 3 - Peter Griffin 
We obtained calendar year 1998 and 1999 data from the opt-out database.  In the 43 
specialties represented in the database, 1,107 health care providers opted out of Medicare. 
We downloaded calendar years 1998, 1999, and the first 4 months of year 2000 exclusions 
data from the OIG Internet site.  We included January-April 2000 data to capture exclusions 
which occurred subsequent to opt-outs that came late in calendar year 1999.  In total, during 
our relevant time frame, 6,485 individuals or entities were excluded from the Medicare 
program. 
We also reviewed relevant laws, regulations, and HCFA policies to determine if health care 
providers are required to notify beneficiaries when they are excluded from Medicare.  To 
supplement our literature reviews we interviewed HCFA central office staff. 
FINDINGS 
One Provider Opted Out Prior To Exclusion 
We found that one provider opted out of the Medicare program prior to being excluded.  We 
ran three computer queries matching the opt-out and the exclusions databases.  The three 
queries, based on Unique Physician Identification Number (UPIN), First and Last Name, and 
Last Name and Zip Code, resulted in only one conclusive match. 
Our query based on the UPINs resulted in a match between the opt-out and exclusions 
databases. 
The First and Last Name query resulted in six matches where individuals opted out prior to 
exclusion.  To determine if the six name matches were coincidental or actually reflected the 
same provider, we compared Middle Initial, City, State, and Zip Code information.  Based on 
our review of the additional information, we concluded that five of the six Name matches were 
circumstantial and not actually the same providers.  The one provider that matched under this 
query was the same provider who matched under the UPIN query. 
In the final query, two pairs of providers shared identical Last Names and Zip Codes. 
Comparison of additional traits (i.e., First Names, Addresses, and Gender) of these common 
individuals clearly demonstrated they were not the same providers. 
Beneficiary Protections Could Be Compromised 
Congress and HCFA believe beneficiaries should receive adequate notice of their providers 
exclusionary status.4  The regulations require beneficiary notification of exclusionary status 
4 63 Fed. Reg. 58853 (1998) [HCFA] believe[s] it was Congresss intent to require clear notice of any 
exclusion, regardless of the specific statutory basis for it, in the contract with the beneficiary. (Emphasis 
added). See also 63 Fed. Reg. 58855 (1998) (discussing advance notice of opt-out).  Page 4 - Peter Griffin 
when an excluded provider creates a private contract with a beneficiary.  The notification must 
be made in writing as part of the newly established private contract with the beneficiary. 
The regulations, however, are not instructive on beneficiary notice for a provider who opts out 
and then is subsequently excluded.5  A provider can opt-out, establish a private contract with a 
beneficiary, subsequently become excluded, and is not then required to inform the previous 
privately contracted beneficiary of the providers exclusionary status.  The private contract 
remains in force throughout the opt-out period and is not voided by the exclusion.  As a 
consequence, a beneficiary would have no knowledge of the providers exclusionary status if 
the provider opted out prior to being excluded.  Knowledge of the exclusionary status of a 
health care provider could influence the decision by a beneficiary to continue receiving items 
and services from that provider. 
To illustrate, a provider may opt-out of Medicare in January.  The provider can then sign a 
private contract with a beneficiary which is silent on the issue of Medicare exclusion.  Several 
months later, the provider is excluded from Medicare.  Under the law, the provider must notify 
the beneficiary of his or her exclusionary status in any future private contracts.6  However, the 
provider previously (in January) opted out of Medicare and then entered into a private contract 
with the beneficiary.  The beneficiary has no required noticeretroactive or otherwiseof the 
exclusion. 
CONCLUSION 
Providers opting out of Medicare prior to their exclusion from Medicare is not a widespread 
problem.  However, in those rare cases where it occurs, the beneficiary protection of being 
notified that the health care provider has been excluded from Medicare is not operative. 
Should HCFA wish to strengthen beneficiary protections by eliminating this potential 
vulnerability, one option would be to require all pre-existing private contracts upon provider 
exclusion from the Medicare program be null and void.  A further refinement under this 
approach would be to require in the future that all private contracts between Medicare 
beneficiaries and providers opting out of the program contain a clause noting that a providers 
subsequent exclusion from a Federal health care program during the 2-year opt-out period will 
void and nullify the contract (i.e., the initial private contract) and that a new contract would be 
needed to continue the relationship between the provider and the Medicare patient. 
It should be noted that any burden associated with this new procedure would only encumber 
only those providers who opted out of Medicare and then are subsequently excluded from the 
program. 
5 SSA  1802(b)(2)(B) and 42 C.F.R.  405.415 (Oct. 1, 1999) (both rules require private contracts to 
indicate the physicians or practitioners exclusion in all newly created private contracts but not in any of the 
previously constructed private contracts). 
6 Id.; 63 Fed. Reg. 58855 (1998). See SSA  1862 et seq.  Page 5 - Peter Griffin 
If you have any questions, please do not hesitate to call me or have your staff call 
Stuart Wright at 410-786-3144.