Health Law Alert by Lamb McErlane attorneys: Vasilios J. Kalogredis, Esq. and Sonal Parekh, Esq.

Most physicians and other health care practitioners participate in Medicare, which requires adherence to strict reimbursement rules, fee schedules, and billing obligations. However, Section 1802 of the Social Security Act, implemented through the Medicare Benefit Policy Manual (Chapter 15, Section 40), gives eligible practitioners the option to “opt out” of Medicare and instead contract privately with patients.

Opting out offers greater flexibility in setting fees and structuring patient relationships, but it comes with significant compliance responsibilities. If those obligations are not met, a health care practitioner or provider (“Provider”) risks losing opt-out status and being forced back into Medicare participation for the remainder of the relevant two-year period.

What Does “Opting Out” Mean?

When a Provider opts out of Medicare, the following rules apply for a two-year period:

• No Medicare payments will be made to the Provider or to the patient for the Provider’s services.
• Private contracts must be signed with each Medicare patient the Provider treats (with limited exceptions for emergencies).
• Patients are responsible for direct payment to the Provider, without Medicare reimbursement.

Opt-out is an all-or-nothing decision. A Provider may not selectively opt out for certain patients or certain services while remaining enrolled for others.

The only exception arises in emergency or urgent care situations, where the Provider must bill Medicare and accept Medicare’s payment limits.

How to Opt Out

To properly opt out, a Provider must:

1. File an affidavit with each applicable Medicare Administrative Contractor (MAC) affirming that the Provider will not bill Medicare during the two-year period (other than for emergencies).
2. Enter into compliant private contracts with every Medicare patient treated during the opt-out period. These contracts must be in writing, signed before services are provided, and clearly state that the patient understands they cannot seek Medicare reimbursement.

Since June 16, 2015, opt-out status automatically renews every two years unless the Provider notifies Medicare in writing at least 30 days prior to renewal that they wish to re-enroll.

Maintaining Opt-Out Status

Compliance is an ongoing responsibility. To maintain opt-out status, the Provider must:

• Ensure that all covered services furnished to Medicare patients are under valid private contracts.
• Refrain from submitting Medicare claims, except for properly documented emergency or urgent care situations.
• Retain copies of all private contracts for the duration of the two-year period, with records available for review if requested.
• Implement internal controls so that billing staff do not mistakenly submit Medicare claims on the Provider’s behalf.

Even inadvertent errors can compromise opt-out status.

Failure to Maintain Opt-Out?

A Provider is considered to have failed to maintain opt-out status if any of the following occurs.

• A claim is submitted to Medicare (outside emergency exceptions), as discussed further below.
• The Provider accepts Medicare payments (outside emergency exceptions).
• The Provider fails to properly execute private contracts with Medicare beneficiaries.
• The Provider does not retain required contract records.

If a violation occurs, the MAC will notify the Provider and allow a 45-day period for correction. If the Provider does not respond or correct the issue in good faith within the 45-day period:

• All private contracts with patients become void.
• The Provider’s opt-out status is terminated.
• The Provider is automatically returned to Medicare participation for the remainder of the relevant two-year period.
• The Provider may not re-opt out until that period ends.

In the event a claim is submitted to Medicare for services rendered by a Provider, the MAC will notify the Provider and allow a 45-day period for correction, as set forth above. The purpose of the 45-day period is for fact-finding (i.e., to see if an exception applies) and to correct any applicable errors. If a claim is submitted by the Provider in violation of the opt-out provisions and the Provider either does not respond to the MAC or correct the issue in good faith within the 45-day period, it will be determined that the Provider failed to maintain opt-out status.

However, what happens in the event a patient submits a claim to Medicare unbeknownst to the Provider? In this case, the MAC will reach out to the Provider and request additional information to be submitted within the 45-day period, such as evidence of a private contract in place between the Provider and patient and/or evidence that an exception applies. Assuming the Provider is in compliance with his or her opt-out obligations and furnishes the MAC with information evidencing such compliance, the MAC will view the claim submission akin to an administrative error or mistake. In this instance, the MAC will determine that no violation has occurred and the Provider’s opt-out status will remain intact.

Why This Matters for Health Care Practices

Opting out of Medicare can be beneficial for Providers who want greater control over their fee structures and patient relationships. However, maintaining compliance requires careful planning and oversight.

This is particularly important during:

• Practice transitions such as acquisitions, sales, or closures.
• Staff changes where billing responsibilities may shift.
• Audits or reviews where CMS or MACs may request contracts and records.

Practical steps for Providers include:

• Timely filing of affidavits with all relevant MACs.
• Using only CMS-compliant private contracts.
• Training staff to avoid accidental Medicare billing.
• Maintaining organized records of all contracts for the full opt-out period.

Opting out of Medicare allows Providers greater independence in contracting directly with patients, but it requires strict adherence to CMS rules. Failure to follow CMS rules can undo opt-out status, disrupt practice operations, and subject Providers to Medicare billing requirements they sought to avoid. Providers should ensure they understand the requirements and implement systems to remain compliant throughout the opt-out period.

If you have questions regarding Medicare compliance or other health law matters, please contact us.

Vasilios J. (Bill) Kalogredis, Esq. has been advising physicians, dentists, and other healthcare professionals and their businesses as to contractual, regulatory and transactional matters for over 50 years. He is Chairman of Lamb McErlane PC’s Health Law Department. Bill can be reached by email at bkalogredis@lambmcerlane.com or by phone at 610-701-4402.

Sonal Parekh, Esq., is an associate at Lamb McErlane PC who focuses on healthcare transactional matters and a broad range of healthcare regulatory-related issues on behalf of healthcare systems, physicians, dentists, and other healthcare providers, and is a pharmacist by education and training. Sonal can be reached by email at sparekh@lambmcerlane.com or by phone at 610-701-4416.

*This article is for educational purposes only and does not constitute legal advice. For legal guidance on Medicare participation or any other health care matter, please contact our office.