WASHINGTON -- As the battle over Medicare private contracting spills over from the legislative to the judicial arena, "Section 4507" may be on its way to being a household term.

Late last month, a conservative seniors group known as the United Seniors Assn. and four of its members filed a federal lawsuit challenging the constitutionality of contracting language enacted last year as Section 4507 of the Balanced Budget Act. The organization claims more than 540,000 members, most of whom are seniors enrolled in Medicare.

According to plaintiff Peggy Sanborn, a Medicare recipient, "the Balanced Budget Act of 1997 took away my right to contract for medical services outside of Medicare."

As of Jan. 1, the law permits physicians and Medicare beneficiaries to enter private contracts for Medicare-covered services, under which no claim is filed and no balance-billing limits apply. At the insistence of the White House, however, a proviso states that any physician in such an arrangement must forswear any Medicare involvement for two years.

With this price of admission, physician participation is likely to be scant. The suit alleges that if physicians cannot afford to give up their Medicare business for two years, beneficiaries will be "absolutely prohibited" from contracting privately for any health care services unless they completely disenroll from Medicare Part B.

But physician groups appear slow to jump on the suit's bandwagon. The AMA, for example, has yet to join, although it strongly backs maximal private contracting allowances. "No decision has been made" regarding the new suit, reported AMA Chair Thomas R. Reardon, MD. "AMA is exploring all legal and legislative remedies," Dr. Reardon said, claiming that the two-year Medicare opt-out is unfair to both physicians and patients.

Jane Orient, MD, executive director of the Assn. of American Physicians and Surgeons, expressed hesitations over the suit's legal approach.

And guidance on the contracting topic from the Health Care Financing Administration appears to contradict some of the suit's assertions.

The lawsuit's rationale

According to Sanborn, the law threatens access to services. She explained that her husband had a prostate cancer test last month that Medicare would not cover, so he paid $50 privately. Unfortunately, she claimed, "the test cannot be performed in 1998 unless his doctor agrees to not take Medicare patients for two years."

Sanborn's internist, Dean Behner, MD, believes that the new law may force a senior seeking such tests to go to a strange doctor and claim he or she is uninsured and younger than 65.

According to attorney Kent Masterson Brown, who prepared the suit, "private contracting was certainly legal and lawful prior to the passage of Section 4507."

Brown is no stranger to the issue. He challenged restrictions on private contracting in a New Jersey case, Stewart v. Sullivan, that was dismissed in 1992. In that case, the federal district court ruled that the government did not have a clear enough policy against private contracting to warrant its attention.

In Brown's interpretation, the case "illustrates that there was no statutory prohibition against [private contracting] and there was no regulatory provision against it."

Brown drew parallels between the new suit and the Roe v. Wade landmark abortion case. "It's a simple proposition that if a pregnant woman has a constitutional right, a liberty interest in protecting her own health care … that a senior citizen has the same liberty interest to go in and spend his or her own money to pay for health care."

Differing interpretations

Possible GOP presidential candidate Steve Forbes reiterated his belief early this month that "Section 4507 effectively prohibits doctors from treating elderly patients on a private basis."

But a Health Care Financing Administration document prepared for physicians paints a different picture of the new landscape. "A private contract is needed only for services that are covered by Medicare and where Medicare may make payment if a claim were submitted," HCFA states.

The agency noted that beneficiaries continue to be able to pay completely privately -- without triggering Section 4507 -- for any services that Medicare does not cover. As examples, HCFA offers:

• Cosmetic surgery.
• Hearing aids.
• Routine physical exams.
• Certain screening benefits provided more frequently than a specified number during a set period, e.g. a screening mammogram more than once a year.

According to HCFA, a physician also may furnish -- without opting out for two years -- a service that Medicare covers under some circumstances but that may not be "reasonable and necessary" in others. A claim must be filed, however, and the beneficiary must receive an advance beneficiary notice of possible Medicare noncoverage and his or her financial liability if Medicare does not cover the service. Examples of these situations HCFA provided include:

• Multiple nursing home visits.
• Some concurrent care services.

For these types of situations, "there is not a need to enter into a private contract," HCFA Administrator Nancy-Ann Min DeParle said this month.

Washington attorney Jim Pyles noted that in 1995, HCFA stated that patients have the confidentiality right not to have a physician file a Medicare claim for a service, although balance-billing limits still would technically apply. Also, the patient later might change his or her mind and request that a claim be made, within the filing deadline.

Pyles said Medicare fraud laws are clear: "If you believe a claim is not covered, you have an obligation not to file a claim."

According to Dr. Orient of AAPS, the suit's assertion that Section 4507 is a blanket damper on private contracting is questionable. "I had trouble with that part of the lawsuit," she said, adding that she worried that too much of the suit was devoted to this argument. Nevertheless, she said, "we are in favor of litigating the issue."

Brown's assertion that private contracting has been legal since 1992 is dubious, Dr. Orient said. "In the perception of every doctor around the country, it was dangerous." In the wake of the earlier suit, her association considered advising doctors that contracting was fully legal, but "the lawyers would not sign their names to it."

Fierce controversy

The suit sounds the chimes of individual freedom and choice, a philosophy backed by the AMA.

But the health consumers advocacy group Families USA alleged that the suit "places physician profits ahead of quality care and will allow physicians to arbitrarily determine fees for Medicare procedures."

Late last year, House Ways and Means health subcommittee ranking Democrat Rep. Pete Stark (Calif.) asked U.S. postal inspectors to look into the United Seniors Assn. for possible mail fraud regarding letters the group sent on private contracting. The mailings alleged that the new law would prevent almost all private contracting.

Meanwhile, the American Assn. of Retired Persons, by far the largest seniors lobby in the country, remains staunchly opposed to removing the restrictions on private contracting.

On the legislative front

The contracting question became bitterly partisan last fall as Congress considered a Republican-led bill to remove the new statute's two-year ban on contracting physicians' Medicare participation. The measure never came to any hearings or votes.

The suit attempts to keep up the pressure. Brown lamented that congressional action "could be March, it could be June, it could be October. It might not be." But he claimed that the suit might accelerate any Capitol Hill action.

The Senate Finance Committee is planning a hearing on private contracting early this year. Sen. Phil Gramm (R, Texas), a member of that panel, has outlined principles for this year's anticipated consumer rights debate that include the universal right to privately purchase health services.

But the American College of Physicians, with 100,000 members in internal medicine, recently urged Congress to defer consideration of the issue until it is addressed by the new national bipartisan Medicare commission. ACP suggested "less drastic" alternatives to removing the two-year Medicare opt-out, such as raising or eliminating balance billing limits on wealthy seniors.

Private contracting

• October 1992 In Stewart v. Sullivan, a New Jersey federal district court dismissed a constitutional challenge alleging that Medicare policy prohibited private contracting on a case-by-case basis, saying a constitutionality reading was not "ripe."
• August 1997 The Balanced Budget Act of 1997 is signed into law, specifically permitting very limited private contracting. Any physician entering a contract must not participate in any way in Medicare for two years.
• September 1997 With the strong backing of AMA, House and Senate Republican lawmakers introduce legislation to repeal the two-year 'opt-out' provision from the new law. Democrats and the American Assn. of Retired Persons, however, strongly oppose repeal.
• December 1997 The United Seniors Assn. and four of its senior citizen members sue Health and Human Services Dept. Secretary Donna Shalala, PhD, challenging the constitutionality of the new private contracting measure.
• January 1998 Private contracting law goes into effect Jan. 1, and the Senate Finance Committee plans hearings on the issue later in the winter.

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