Medicare payment may not be made for items or services paid for directly or indirectly by a Federal, State or local governmental entity. However, the law specifies that this exclusion does not prohibit payment for:

• items or services furnished under a health benefits or insurance plan established for employees of the governmental entity; or

• items or services furnished under one of the titles of the Social Security Act (such as medical assistance under title XIX); or

• rural health clinic services.

A. Application of exclusion to state and local government providers

Except for the facilities referred to below, payment may not be made for items and services which a State or local government facility furnishes free of charge; i.e., without expectation of payment from any source and without regard to the individuals' ability to pay. A facility which reduces or waives its charges for patients unable to pay, or charges patients only to the extent of their Medicare and other health insurance coverage, is not viewed as furnishing free services and may receive program payment.

Medicare regulations permit payment to the following two categories of governmental providers without regard to whether they furnish services free of charge:

1. State and local government-operated hospitals which are open to the general public, including participating psychiatric and tuberculosis hospitals; and

2. State and local government entities (not just hospitals) which serve persons who are indigent or who have infectious diseases, e.g., State and local government operated TB hospitals and State and local government operated clinics which serve the indigent.

B. Application of exclusion to nongovernmental providers

Payment may not be made for items or services furnished by a non-governmental provider where the charges have been paid for by a government program other than Medicare, or where the provider intends to look to another government program for payment, unless the payment by the other program is limited to the Medicare deductible and coinsurance amounts.

The fact that a nongovernmental provider receives government financing does not mean that the items and services it furnishes are paid for by a government entity. However, if a clinic receives government financing earmarked for particular services to patients (e.g., in the form of a research grant), Medicare may not pay for the same services.

Where an individual has the option of receiving free care at a government provider or care which is not free at a non-government provider, and he chooses the latter, Medicare payment may be made for the care at a non-government provider. However, items and services authorized by a Federal agency (for example, by the VA at a nongovernmental hospital) are excluded.