Executive Summary: Congress Should End the Confusion Over Medicare Private Contracting

Report Health Care Reform

Executive Summary: Congress Should End the Confusion Over Medicare Private Contracting

February 18, 2000 4 min read Download Report
Robert E. Moffit
Senior Research Fellow, Center for Health and Welfare Policy
Moffit specializes in health care and entitlement programs, especially Medicare.

As a result of a provision in the Balanced Budget Act (BBA) of 1997, Medicare patients are legally restricted in their ability to spend their own money as they wish on medical services that they desire. This untenable development in a system that is supposed to ensure that seniors and the disabled have access to good health care is the direct result of a combination of federal law, federal regulation, and federal court rulings. It means that--thanks to Congress, the Clinton Administration, and the courts--Medicare patients may not seek a medical service from a doctor of their choice and pay for it on their own if it is already "covered" or "paid for" by the Medicare program. There is simply no exception to this rule for any medical service that the Medicare bureaucracy deems "covered."

The U.S. Court of Appeals for the District of Columbia Circuit ruled in 1999 that under certain conditions, Medicare patients could enter into the equivalent of a private agreement with a doctor. However, this arrangement would be controlled by a bureaucratic paperwork process established by the Health Care Financing Administration (HCFA), the powerful agency that runs the huge Medicare program. Under this exception, a Medicare patient could pay a doctor privately for a medical service that HCFA considers medically "unnecessary" if HCFA does not also think that the service is "unwarranted." Unfortunately, the Court of Appeals did not define what is or is not a "warranted" medical service. It shifted that crucial responsibility to HCFA, which has not yet even finalized its definition of "medical necessity."

While the 1999 Court of Appeals decision did grant narrow relief to patients who seek to contract privately with their physicians under judicially prescribed conditions, it did not settle the fundamental policy questions or outstanding constitutional issues raised by this unprecedented statutory restriction on the doctor-patient relationship.

Most Americans would think that patients have a natural right to seek and pay for a medical treatment of their choice. But the law on private contracting, embodied in Section 4507 of the Balanced Budget Act (BBA) of 1997, holds that a Medicare patient may contract privately with a doctor only if that doctor signs an affidavit to that effect, submits the affidavit to the Secretary of Health and Human Services (HHS) within 10 days, and then drops out of Medicare for two full years. This has generated concern because:

  • This statutory restriction on private agreements between doctors and their patients is unprecedented. There had never been a statutory restriction on Medicare private contracting before enactment of the BBA.

  • No similar statutory restriction has ever been imposed in any other government health insurance program, including Medicaid, the Federal Employees Health Benefits Program (FEHBP), the Department of Defense health program, the Veterans Administration program, or the Indian Health Service.

  • In two separate rulings, the federal courts upheld this bizarre law. The restrictions of Section 4507 elicited immediate and intense opposition across the ideological spectrum. The United Seniors Association was joined by the Washington Chapter of the American Civil Liberties Union (ACLU) and a number of patient and medical groups in a suit seeking to strike down Section 4507 as a violation of basic constitutional rights of liberty and privacy. The U.S. District Court for the District of Columbia declared in 1998 that, on the basis of judicial precedent, Medicare patients had no constitutional right to privacy in their relationships with their physicians, and it refrained from striking down Section 4507. In subsequent litigation, the U.S. Court of Appeals for the District of Columbia dodged the constitutional issues and ruled in 1999 that there was an administrative avenue within the narrow confines of HCFA's regulatory system.

  • Medicare patients have limited legal access to a private agreement with a physician only if the Medicare bureaucracy considers that particular service uncovered or "unnecessary" or potentially "unnecessary." It does not matter whether the Medicare patient wants to obtain a service of a higher quality or is willing to pay more out of pocket for the special skills of a particular physician. As long as that service is "covered" by Medicare, the service may not be obtained outside of the system.

  • The only other officially stated exception to the restrictions in Section 4507 is a weak privacy exception. The Clinton Administration declared that privacy is an exception to the statutory requirement that doctors must submit the claims of their patients, which sometimes contain sensitive information, to the Medicare bureaucracy. Meanwhile, the U.S. General Accounting Office reported that Medicare's privacy safeguards are weak and that unauthorized individuals could gain access to confidential patient information.

Medicare patients are uniquely disadvantaged by the restrictions in Section 4507 of the Balanced Budget Act. Such restrictions on personal liberty and privacy reflect the troubling transformation of Medicare into an engine of bureaucratic control over virtually every aspect of the financing and delivery of medical services to the nation's retirees. Congress needs to create a new Medicare program that will serve the next generation of retirees, especially the first wave of the 77 million baby boomers who will begin to retire in 2011.

In the meantime, Congress should clarify the right of Medicare patients to spend their own money on the services of physicians of their choice, regardless of how HCFA or its contractors or the courts choose to classify them. Representative Patrick Toomey (R-PA) has introduced the Seniors' Health Care Freedom Act (H.R. 2867) to guarantee the right of seniors to contract privately regardless of HCFA's views. No one, least of all the government, should decide how or when or under what circumstances American citizens may spend their own money on lawful medical services. Congress, under pressure from the Administration, created this mess. And only Congress can fix it.

Robert E. Moffit, Ph.D., is Director of Domestic Policy Studies at The Heritage Foundation.


Robert E. Moffit
Robert Moffit

Senior Research Fellow, Center for Health and Welfare Policy