American Academy of Emergency Medicine

Third Party Contracts

by Robert V. West, MD JD FAAEM

While it may seem foreign to many physicians that they have a choice when it comes to entering into third party payment arrangements, the reality is that traditionally the doctor patient relationship was a two-party contract. That is quite different from today's market where we almost exclusively look to third parties to pay for the care we render to patients.

There is usually an incentive offered to participate in a health care plan, such as Medicare. The flip side is that you usually work at a greatly reduced rate, and the patient may still be your responsibility after the plan declares bankruptcy. Medicare is an interesting paradigm because typically the seniors who are eligible are the most responsible and have saved up resources to cover such risks as paying for medical care.

Nevertheless, the Health and Human Services would like to enlist all physicians as "participants," in an effort to insure the health care of the population as a whole. Remember, ultimately its your choice, you can say "no" to participation in Medicare and any other plan and simply look to the patients for reimbursement.

Medicare Participation Options for Physicians

Introduction: In the face of an impending 5.4% cut in the Medicare conversion factor, a number of physicians have inquired about their options with regard to Medicare billing arrangements. There are three options.

  1. Physicians may sign a participation agreement and accept Medicare's allowed charge as payment in full.

  2. They may elect to be a non-participating physician, which permits them to bill patients for somewhat more than the Medicare allowance.

  3. They may become a private contracting physician agreeing to bill patients directly and forego any payment from Medicare either to the patient or the physician.

Physicians who wish to change their status from participating (PAR) to nonparticipating (Non-PAR) or vice versa must do so annually. Once made, the decision is irrevocable except where the physician's practice situation has changed significantly, such as relocation to a different geographic area or a different group practice. To become a private contractor, physicians must give 30 days notice before the first day of the quarter the contract takes effect. Those considering a change in status should first determine that they are not bound by any contractual arrangements, which require them to be participating doctors.

Participation: Participating physicians must agree to take assignment on all Medicare claims, which means that they must accept Medicare's approved amount as payment in full for all covered services for the duration of the calendar year. The patient is still responsible for the 20% coinsurance but the physician cannot bill the patient for amounts in excess of the Medicare allowance.

Medicare provides a number of incentives for physicians to participate:

The Medicare payment amount for participating physicians is 5% higher than the rate for non-par physicians.