[Federal Register Volume 69, Number 59 (Friday, March 26, 2004)]
[Rules and Regulations]
[Pages 16054-16146]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-6668]
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Part III
Department of Health and Human Services
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Centers for Medicare & Medicaid Services
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42 CFR Parts 411 and 424
Medicare Program; Physicians' Referrals to Health Care Entities With
Which They Have Financial Relationships (Phase II); Interim Final Rule
Federal Register / Vol. 69, No. 59 / Friday, March 26, 2004 / Rules
and Regulations
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 411 and 424
[CMS-1810-IFC]
RIN 0938-AK67
Medicare Program; Physicians' Referrals to Health Care Entities
With Which They Have Financial Relationships (Phase II)
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Interim final rule with comment period.
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SUMMARY: This interim final rule with comment period (Phase II of this
rulemaking) incorporates into regulations the provisions concerning
ownership and investment exceptions in paragraphs (c) and (d) and the
compensation exceptions in paragraph (e) of section 1877 of the Social
Security Act (the Act). Phase II also addresses comments concerning the
reporting requirements in section 1877(f) of the Act.
Phase I (as defined below) addressed the majority of issues in
implementing section 1877 of the Act. Phase II both addresses the
remaining issues not addressed in Phase I and responds to public
comments. In general, in response to public comments, the Department
has attempted to reduce regulatory burden by broadening exceptions
using the Secretary's discretionary authority under the statute to
create exceptions that pose no risk of fraud or abuse. For the
convenience of affected parties, we have set out the entire rule as
previously promulgated, including the changes made by this rulemaking.
DATES: Effective date: This interim final rule is effective on July 26,
2004.
Comment date: We will consider comments on Phase II issues if we
receive them at the appropriate address, as provided below, no later
than 5 p.m. on June 24, 2004. Late filed comments will be considered to
the extent practicable.
ADDRESSES: In commenting, please refer to file code CMS-1810-IFC.
Because of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission.
Submit electronic comments to http://www.cms.hhs.gov/regulations/ecomments or to www.regulations.gov. Mail written comments (one
original and two copies) to the following address only: Centers for
Medicare & Medicaid Services, Department of Health and Human Services,
Attention: CMS-1810-IFC, P.O. Box 8013, Baltimore, MD 21244-8013.
Please allow sufficient time for mailed comments to be timely
received in the event of delivery delays.
If you prefer, you may deliver (by hand or courier) your written
comments (one original and two copies) to one of the following
addresses: Room 445-G, Hubert H. Humphrey Building, 200 Independence
Avenue, SW., Washington, DC 20201, or Room C5-14-03, 7500 Security
Boulevard, Baltimore, MD 21244-1850.
(Because access to the interior of the HHH Building is not readily
available to persons without Federal Government identification,
commenters are encouraged to leave their comments in the CMS drop slots
located in the main lobby of the building. A stamp-in clock is
available for persons wishing to retain a proof of filing by stamping
in and retaining an extra copy of the comments being filed.)
Comments mailed to the addresses indicated as appropriate for hand
or courier delivery may be delayed and could be considered late.
All comments received before the close of the comment period are
available for viewing by the public. After the close of the comment
period, CMS posts all electronic comments received before the close of
the comment period on its public Web site. To protect an individual's
privacy and identity, a commenter may wish to omit his or her full name
and address from the comment. We request that the commenter identify
only his or her zip code. For information on viewing public comments,
see the beginning of the SUPPLEMENTARY INFORMATION section.
FOR FURTHER INFORMATION CONTACT: Joanne Sinsheimer, (410) 786-4620.
SUPPLEMENTARY INFORMATION: Submitting Comments: We welcome comments
from the public on all issues set forth in this rule to assist us in
fully considering issues and developing policies. You can assist us by
referencing the file code CMS-1810-IFC and the specific ``issue
identifier'' that precedes the section on which you choose to comment.
Inspection of Public Comments: Comments received timely will be
available for public inspection as they are received, generally
beginning approximately 3 weeks after publication of a document, at the
headquarters of the Centers for Medicare & Medicaid Services, 7500
Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of
each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view
public comments, phone (410) 786-7197.
Copies: To order copies of the Federal Register containing this
document, send your request to: New Orders, Superintendent of
Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. Specify the date
of the issue requested and enclose a check or money order payable to
the Superintendent of Documents, or enclose your Visa or Master Card
number and expiration date. Credit card orders can also be placed by
calling the order desk at (202) 512-1800 (or toll-free at 1-888-293-
6498) or by faxing to (202) 512-2250. The cost for each copy is $10. As
an alternative, you can view and photocopy the Federal Register
document at most libraries designated as Federal Depository Libraries
and at many other public and academic libraries throughout the country
that receive the Federal Register.
This Federal Register document is also available from the Federal
Register online database through GPO Access, a service of the U.S.
Government Printing Office. The Web site address is: http://www.access.gpo.gov/nara/index.html.
To help readers locate information in this interim final rule, we
are providing the following Table of Contents. The Table of Contents
also indicates whether a subject was previously addressed in Phase I or
is a Phase II issue.
I. Background
II. The General Prohibition under Section 1877 of the Act (Phase I)
A. General Comments
B. When Is There a Financial Relationship Between the Referring
Physician and the Designated Health Service (DHS) Entity?
C. When Does a Physician Make a Referral?
D. Definition of ``Consultation''
III. Physician Compensation Under Section 1877 of the Act (Phase I)
IV. The ``Volume or Value'' Standards under Section 1877 of the Act
(Phase I)
V. Exceptions Applicable to Ownership and Compensation Arrangements
(Phase I)
A. Physician Services Exception
B. In-Office Ancillary Services Exception
1. General Comments
2. Covered Designated Health Services
3. Direct Supervision
4. The Building Requirements
5. The Billing Requirement
C. Group Practice Definition
D. Prepaid Plans
VI. General Exception Related Only to Ownership or Investment in
Publicly-Traded Securities and Mutual Funds (Phase II)
VII. Additional Exceptions Related Only to Ownership or Investment
Prohibition (Phase II)
A. Hospitals in Puerto Rico
[[Page 16055]]
B. Rural Providers
C. Hospital Ownership
VIII. Exceptions Relating to Other Compensation Arrangements (Phase
II)
A. Rental of Office Space and Equipment
B. Bona Fide Employment Relationships
C. Personal Service Arrangements
D. Remuneration Unrelated to the Provision of Designated Health
Services
E. Physician Recruitment
F. Isolated Transactions
G. Certain Group Practice Arrangements with Hospitals
H. Payments Made by a Physician for Items and Services
IX. Reporting Requirements (Phase II)
X. Sanctions (Phase II)
XI. Definitions (Phase I)
A. Designated Health Services General Principles
B. Professional Services as Designated Health Services
C. Clinical Laboratory Services
D. Physical Therapy Services
E. Occupational Therapy Services
F. Radiology and Certain Other Imaging Services
G. Radiation Therapy Services and Supplies
H. Durable Medical Equipment and Supplies
I. Parenteral and Enteral Nutrients, Equipment, and Supplies
J. Prosthetics, Orthotics, and Prosthetic Devices and Supplies
K. Home Health Services
L. Outpatient Prescription Drugs
M. Inpatient and Outpatient Hospital Services
N. Other Definitions
1. Consultation
2. Entity
3. Fair Market Value
4. Group Practice
5. Health Professional Shortage Area
6. Employee
7. Immediate Family Member
8. Referral
9. Remuneration and the Exceptions in Section 1877(h)(1)(C) of
the Act
10. Transaction and Isolated Transaction (Phase II)
XII. Regulatory Exceptions
A. Academic Medical Centers (Phase I)
B. Services Furnished Under Certain Payment Rates (Phase II)
C. Implants in an ASC (Phase I)
D. Fair Market Value Exception (Phase I)
E. Non-Monetary Compensation up to $300 and Medical Staff
Incidental Benefits (Phase I)
F. Risk-sharing Arrangements (Phase I)
G. Compliance Training (Phase I)
H. Anti-Kickback Safe Harbors (Phase II)
I. Professional Courtesy (Phase II)
J. Charitable Donations by a Physician (Phase II)
K. Preventive Screening Tests, Immunizations, and Vaccines
(Phase I)
L. EPO and Other Dialysis-Related Outpatient Prescription Drugs
Furnished in or by an ESRD Facility (Phase I)
M. Intra-family Rural Area Referrals (Phase II)
N. Certain Arrangements Involving Temporary Noncompliance (Phase
II)
O. Retention Payments in Underserved Areas (Phase II)
P. Community-wide Health Information Systems (Phase II)
XIII. Technical Corrections (Phase II)
XIV. Collection of Information Requirements
XV. Regulatory Impact Statement
A. Overall Impact
B. Anticipated Effects
C. Alternatives Considered
D. Conclusion
XVI. Waiver of Proposed Rulemaking
Regulations Text
Attachment
I. Background
Section 1877 of the Social Security Act (the Act), also known as
the physician self-referral law: (1) Prohibits a physician from making
referrals for certain ``designated health services'' (DHS) payable by
Medicare to an entity with which he or she (or an immediate family
member) has a financial relationship (ownership or compensation) unless
an exception applies; and (2) prohibits the entity from filing claims
with Medicare for those referred services, unless an exception applies.
The statute establishes a number of specific exceptions and grants the
Secretary the authority to create regulatory exceptions for financial
relationships that pose no risk of fraud or abuse.
In reviewing the public comments received, the Department has
endeavored to reduce the burden and prescriptive nature of the rule
while applying the statute and maintaining the integrity of the
regulatory framework. The Phase II rule exercises the Secretary's
authority to create exceptions to accomplish this goal. In particular,
the Phase II rule creates a new exception for community-wide health
information systems. It also creates limited exceptions to allow
physicians to refer to immediate family members in rural areas in
certain circumstances when no other physician is available, and to
exempt hospital payments to retain a physician who would otherwise
leave a health professional shortage area.
This is Phase II of a bifurcated final rulemaking under section
1877 of the Act. The current version of section 1877, which applies to
referrals for eleven DHS, has been in effect and subject to enforcement
since January 1, 1995. Proposed regulations were published in 1998 at
63 FR 1659 (January 9, 1998) (the ``January 1998 proposed rule'').
Phase I of the final rulemaking was published in the Federal Register
on January 4, 2001 (66 FR 856) (``Phase I'') as a final rule with
comment period.
The reasons for bifurcation of the rulemaking are explained in the
Phase I preamble (66 FR 859-860). With two exceptions, the regulations
published in Phase I became effective on January 4, 2002. Section
424.22(d), relating to home health services, became effective on April
6, 2001 (see our Federal Register notice dated February 2, 2001 (66 FR
8771)). We delayed the effective date of the final sentence of Sec.
411.354(d)(1) relating to the definition of ``set in advance'' for one
year from January 4, 2002 to January 6, 2003, in a Federal Register
document published on December 3, 2001 (66 FR 60154). We further
delayed the effective date of this sentence for an additional 6 months,
until July 7, 2003, in a Federal Register document published on
November 22, 2002 (67 FR 70322), and for an additional 6 months, until
January 7, 2004, in a Federal Register document published on April 25,
2003 (68 FR 20347). We published another delay notice on December 24,
2003 (68 FR 74491), delaying that effective date until July 7, 2004.
Phase I covered--
Sections 1877(a) and 1877(b) of the Act (the
general prohibition and the exceptions applicable to both ownership and
compensation arrangements);
The statutory definitions at section 1877(h) of
the Act;
Certain additional regulatory definitions; and
A number of new regulatory exceptions
promulgated under section 1877(b)(4) of the Act.
Phase II covers--
The remaining provisions of section 1877 of the
Act;
Additional regulatory definitions;
Additional new regulatory exceptions promulgated
under section 1877(b)(4) of the Act; and
Responses to the public comments on the Phase I
regulations.
We had intended to address in this Phase II rulemaking section
1903(s) of the Act, which applies section 1877 of the Act to referrals
for Medicaid covered services and which we interpreted in the proposed
rule at Sec. 435.1012 and Sec. 455.109. However, in the interest of
expediting publication of these rules, we are reserving the Medicaid
issue for a future rulemaking with one exception. In this rulemaking,
we are amending the prepaid plans exception at Sec. 411.356(c) to
cover Medicaid managed care plans.
Phase II has a 90-day comment period and will become effective 120
days after the date of publication. Comments received on the Phase II
rulemaking will be addressed in a separate Federal Register notice.
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Phase I and Phase II of this rulemaking are intended to be read
together as a unified whole. Among other things, Phase I contains a
complete legislative and regulatory history (66 FR 857-859), which is
not repeated here. Modifications or revisions to Phase I are clearly
indicated in this Phase II preamble and corresponding regulations text.
Unless otherwise expressly noted, to the extent the preamble in Phase
II uses different language to describe a concept addressed in Phase I,
our intent is to better explain or clarify a Phase I discussion, not to
change its scope or meaning. For clarity and ease of access of the
general public to the entire set of issues raised by the statute, we
are republishing the regulatory text in its entirety. This Department
has consistently worked to clarify and simplify the Phase I rules in
response to comments, as well as to reduce the burden of the entire set
of rules by exercising the Secretary's authority to create additional
exceptions for financial relationships that pose no risk of fraud and
abuse when all of the conditions of an exception are met. The Phase I
and the Phase II rules, together, supersede the 1995 final rule (60 FR
41914), which has been applicable to referrals for clinical laboratory
services.
As with Phase I, in developing Phase II of this rulemaking, we have
carefully reconsidered the January 1998 proposed rule (63 FR 1659),
given both the history and structure of section 1877 of the Act and the
extensive comments we received to the January 1998 proposed rule, as
well as the considerably smaller number of comments to the Phase I
final rule. As with Phase I, we believe that Phase II of this
rulemaking addresses many of the industry's primary concerns with the
January 1998 proposed rule, is consistent with the statute's goals and
directives, and protects beneficiaries of Federal health care programs.
In particular, we have attempted to preserve the core statutory
prohibition while providing sufficient flexibility to minimize the
impact of the rule on many common business arrangements. For more
detailed discussion of the criteria we have applied in evaluating
regulatory options for Phase II, see 66 FR 859-863 of the Phase I rule.
This Phase II preamble is generally organized to track the statute.
We first address the general prohibition, then the exceptions, then the
definitions (although certain key definitions, such as ``group
practice'' and ``isolated transaction'' are addressed in the
discussions of the exceptions to which they mainly relate). Discussion
of new regulatory exceptions follows (except that regulatory exceptions
closely related to a statutory provision are discussed together with
the statutory provision). Topics previously covered by Phase I are
clearly indicated, along with cross-references to the relevant Phase I
preamble pages and regulatory text. Topics new to Phase II are also
clearly indicated, and, as in Phase I, each Phase II issue begins with
summaries of the existing law, the January 1998 proposed rule, and the
final rule. These summaries are intended to aid the reader in
understanding the regulations. More detailed discussions of particular
points are included in the responses to public comments for each topic.
II. The General Prohibition Under Section 1877 of the Act
(Section 1877(a) of the Act; Phase I--66 FR 863-875; Sec. 411.353 and
Sec. 411.351)
Overall, the commenters to the Phase I rulemaking welcomed the
additional clarity provided with respect to the general statutory
prohibition, particularly with respect to the treatment of indirect
compensation arrangements. However, we received a number of comments
with respect to various aspects of the general prohibition. As in Phase
I, the summaries of the public comments and our responses are divided
into four parts:
A. General comments.
B. Comments related to whether a financial relationship exists
between a referring physician and a designated health services
entity (``DHS entity'').
C. Comments related to whether there has been a referral from a
referring physician to a DHS entity.
D. Comments regarding the definition of ``consultation.''
A. General Comments
Comment: Many commenters praised the new regulations, particularly
their clarity, flexibility, and focus on ``bright line'' rules.
However, several stated that the regulations are still overly complex,
lengthy, and burdensome. A physician organization asserted that the
complexity discourages physicians from participating in the Medicare
program.
Response: A certain amount of regulatory complexity is inevitable
under a statutory scheme that encompasses the full panoply of physician
financial arrangements with providers of eleven different types of
health care services. The Phase I preamble attempted to provide clear
explanations of the rules and to respond to approximately 13,000 public
comments. Accordingly, it is somewhat lengthy. However, the Phase I
regulations themselves constitute only 13 of the 108 pages published in
the Federal Register. Moreover, while certain aspects of the statute
and regulations involve detailed tests or standards, the overall
statutory and regulatory scheme is straightforward. Most physician
ownership in DHS entities is prohibited. Most physician compensation
must be fair market value. We believe that the rule, like the statute,
provides clear guidance for providers to comply demonstrably with the
law.
Comment: The basic sanction under section 1877 of the Act is
nonpayment for DHS referred by a physician with an improper financial
relationship with the DHS entity. A home health agency commented that
payment denial was not a sufficient deterrent to improper referrals and
that referring physicians and hospitals that own or operate their own
home health services need to be penalized.
Response: Section 1877(g) of the Act provides for two types of
sanctions: nonpayment of claims for all violations and civil monetary
penalties (CMPs) for knowing violations. Nonpayment applies to any DHS
furnished to any Medicare patient under a prohibited referral. We
believe the combination of nonpayment and CMPs is a strong deterrent.
Comment: A practicing physician objected to physicians being denied
the right to own businesses to which they refer. The physician
complained that the law compels referrals to businesses owned by
persons who are not physicians and who do not have the skills or
expertise to run them.
Response: As we explained in Phase I (66 FR 859), in enacting
section 1877 of the Act, the Congress responded in part to a number of
studies showing that physician ownership of certain types of facilities
resulted in significantly higher utilization of those facilities by the
physician-owners. While in some cases physician-owners may have been
actively involved in the businesses, in others they were merely passive
investors. The Congress created exceptions for certain physician-owned
DHS entities, including providers in rural areas (section 1877(d)(2) of
the Act), and for DHS provided within a physician's own office practice
to the physician's patients (the in-office ancillary services exception
in section 1877(b)(2) of the Act and Sec. 411.355(b) of the
regulations).
Comment: Several commenters requested that we enact various
``grace'' periods under the exceptions to accommodate situations in
which parties to an arrangement: (1) Fall out of compliance with
aspects of an exception
[[Page 16057]]
through events outside their control; or (2) are unable to comply with
an exception for temporary periods of time.
Response: We are persuaded that a specified and limited exception
for certain arrangements that have unavoidably and temporarily fallen
out of compliance with other exceptions is warranted and consistent
with the overall statutory scheme and the obligations the statute
imposes on providers. Accordingly, using our authority at section
1877(b)(4) of the Act, we have incorporated into these regulations an
exception at Sec. 411.353(f) for certain arrangements that have fully
satisfied another exception for at least 180 consecutive days, but have
fallen out of compliance with the exception for reasons beyond the
control of the DHS entity. Parties must take steps to rectify their
noncompliance or otherwise comply with the statute as expeditiously as
possible under the circumstances. The Sec. 411.353(f) exception lasts
up to 90 days and applies to DHS furnished during the exception period.
By the end of the 90-day exception period, parties must either comply
with another exception or have terminated their otherwise prohibited
arrangement. It is in the provider's interest to document
contemporaneously the reasons for the temporary noncompliance and the
steps taken to rectify it. For example, this exception will allow rural
providers that fall out of compliance with Sec. 411.356(C)(2) through
re-designation of a rural area as a non-rural area time to finish
patients' existing courses of treatment or refer patients to other
providers.
This new exception, at Sec. 411.353(f), does not apply to
arrangements that previously complied with the exceptions for non-
monetary compensation up to $300 or incidental medical staff benefits.
To provide otherwise would effectively negate the limits set in those
exceptions. (In the case of non-monetary compensation, it is, of
course, possible to be compliant in the next year, since the exception
permits non-monetary compensation up to $300 annually.)
The new exception is not intended to allow DHS entities to file
otherwise prohibited claims or bills when they purposefully take or
omit to take actions or engage in conduct that causes their financial
relationship to be noncompliant with an exception. The exception period
is limited to 90 calendar days following the date of the initial event
resulting in noncompliance with an exception and applies to DHS
furnished during the exception period. The exception is intended to be
used sparingly and may not be used by a DHS entity more often than once
every three years with respect to referrals from the same referring
physician. We believe this exception should address a number of
situations that present special and temporary compliance problems,
including conversion of publicly-traded companies to private ownership;
loss of rural or health professional shortage areas (HPSA)
designations; or delays in obtaining fully-signed copies of renewal
agreements. As noted in section V.C below, we have also modified the
group practice definition at Sec. 411.352(d)(5) to address problems
faced by group practices that fall out of compliance with elements of
the definition when they add new members to the group. We have also
interpreted the lease exceptions to permit holdover month-to-month
leases for up to six months.
Comment: A commenter commended the Phase I regulations regarding
referrals between physicians and their spouses, but submitted that the
regulations did not go far enough in permitting certain cross-referrals
between physicians who are family members. In the commenter's view,
these referrals should be allowed whenever the referral arrangement
would be permitted between non-family member physicians. For example,
the commenter believed that if a physician could himself perform a
designated health service under the in-office ancillary services
exception, he should be permitted to refer to his spouse if she could
also otherwise provide that service under the in-office ancillary
services exception. According to the commenter, a physician would have
no greater incentive to refer to his or her spouse if the physician
could otherwise provide the designated health service under an
exception. Thus, the commenter believes prohibiting cross-referrals
unfairly penalizes two-physician families.
Response: The statute clearly provides that a physician may not
make a referral to a DHS entity with which the physician (or an
immediate family member) has a financial relationship, unless an
exception applies. The change suggested by the commenter would
contradict this clear statutory directive. However, as discussed in
section V.B below, we are creating a new regulatory exception for some
intra-family referrals that meet specific conditions.
B. When Is There a Financial Relationship Between the Referring
Physician and the DHS Entity? (Phase I--66 FR 864; Sec. 411.351, Sec.
411.354, and Sec. 411.357(p))
[If you choose to comment on issues in this section, please include
the caption ``Financial Relationship Definition'' at the beginning of
your comments.]
The existence of a financial relationship between the referring
physician (or an immediate family member) and the entity furnishing DHS
is the factual predicate triggering the application of section 1877 of
the Act. Section 1877(a)(2) defines a financial relationship as: (1) An
ownership or investment interest of a referring physician (or an
immediate family member) in the DHS entity; or (2) a compensation
arrangement between the referring physician (or an immediate family
member) and the DHS entity. Any financial relationship between the
referring physician and the DHS entity implicates the statute, even if
the financial relationship is wholly unrelated to a designated health
service payable by Medicare (for example, a financial relationship
involving only private pay business). Unless the financial relationship
fits into a statutory or regulatory exception, referrals and
corresponding claims for DHS are prohibited. Section 411.354 addresses
the circumstances under which a financial relationship exists.
The statute expressly contemplates that ``financial relationships''
include both direct and indirect ownership and investment interests and
direct and indirect compensation arrangements between referring
physicians and DHS entities (sections 1877(a)(2) and 1877(h)(1) of the
Act, respectively). We consider a ``direct'' financial relationship to
be an arrangement between the entity furnishing DHS and a referring
physician (or an immediate family member) with no person or entity
interposed between them (Sec. 411.354(a)(1)(2)). ``Indirect''
financial relationships--whether ownership or investment or
compensation--exist where one or more persons or entities are
interposed between the referring physician and the DHS entity. For
indirect compensation arrangements, Phase I established a three part,
``bright line'' test that incorporated a knowledge element to protect
DHS entities not in a position to know about or suspect an otherwise
prohibited compensation arrangement with the referring physician. Phase
I also established a corresponding new exception for indirect
compensation arrangements. By
[[Page 16058]]
(1) defining the universe of ``indirect compensation arrangements''
that potentially triggers disallowance of claims and penalties; and (2)
creating an exception for the subset of ``indirect compensation
arrangements'' that will not trigger disallowance or penalties, we have
structured the treatment of indirect compensation arrangements under
section 1877 of the Act to parallel the treatment of direct
compensation arrangements.
Most commenters were pleased with the specificity of Sec. 411.354,
which sets out rules for determining whether a financial relationship
exists, and the accompanying discussion in the Phase I preamble (66 FR
864). While Sec. 411.354 establishes rules for both direct and
indirect financial relationships, very few comments addressed the rules
for direct financial relationships. Rather, most comments addressed the
definition of an indirect compensation arrangement at Sec.
411.354(c)(2) and the interplay between that definition and the
exception at Sec. 411.357(p).
As discussed below, we are modifying the language of Sec. 411.354
to address some of the concerns expressed by the commenters. These
modifications include--
Clarifying the meaning of direct and indirect
ownership and affirming that common ownership of an entity does not
create an ownership interest by one common investor in another;
Clarifying the relationship between the
``indirect compensation arrangements'' definition and the ``volume or
value'' and ``other business generated'' standards;
Clarifying that a referring physician may be
treated as ``standing in the shoes'' of his or her wholly-owned
professional corporation (PC).
Summaries of the comments and our responses follow.
Comment: One commenter asked us to clarify that remuneration
received as a result of an arrangement that does not fit in the
definition of a ``financial relationship'' under Sec. 411.354(a) does
not implicate section 1877 of the Act.
Response: The commenter did not provide any specific examples of
remuneration that would not result in a financial relationship. As a
matter of law, section 1877 of the Act does not apply in the absence of
a financial relationship as defined in Sec. 411.354(a), but in the
absence of specific examples, we find it difficult to identify any
remuneration not covered by that definition.
Comment: A number of commenters found the definition of ``indirect
compensation arrangement'' at Sec. 411.354(c)(2) to be very
complicated. One commenter stated that the definition was too broad and
covered many arrangements that had not previously been subject to the
statute. A national physician association emphasized that the physician
community would need education as to the scope and application of the
definition.
Response: The definition of ``indirect compensation arrangement''
at Sec. 411.354(c)(2) requires three elements:
Paragraph (c)(2)(i)--an unbroken chain of
financial relationships (ownership or compensation) linking the
referring physician to the DHS entity;
Paragraph (c)(2)(ii)--aggregate compensation
paid to the referring physician that varies with, or otherwise takes
into account, the volume or value of referrals to, or other business
generated for, the DHS entity; and
Paragraph (c)(2)(iii)--knowledge by the DHS
entity that the physician receives aggregate compensation that varies
with, or otherwise takes into account, the volume or value of referrals
to, or other business generated for, the DHS entity (using the same
knowledge standard that applies under the False Claims Act (31 U.S.C.
Sec. 3729) and the Civil Monetary Penalties Law (section 1128A of the
Act)).
With education and experience, we think DHS entities and referring
physicians will be able to apply the test without difficulty. (We
discuss further the application of the various elements in response to
specific comments below.) We have made several technical revisions to
clarify the intent of the exception.
We agree that the definition encompasses many arrangements that
physicians and DHS entities claim not to have thought were covered by
the statute. As we discussed in the Phase I preamble (66 FR 864), we
believe that the knowledge element sufficiently and equitably sets the
boundaries for the potential universe of prohibited arrangements.
Comment: Many commenters expressed confusion at the interplay
between (1) the definition of ``indirect compensation arrangement'' at
Sec. 411.354(c)(2), which looks at whether the referring physician's
aggregate compensation varies with, or otherwise takes into account
``the volume or value of referrals'' generated by the referring
physician, and (2) Sec. 411.354(d)(2), which describes when certain
compensation (such as time-based and unit-of-service based payments)
will be deemed not to take into account ``the volume or value of
referrals,'' even though aggregate per unit compensation will always
vary with the volume or value of referrals. (We received similar
comments regarding Sec. 411.354(d)(3) with respect to when
compensation does not take into account ``other business generated
between the parties.'') These provisions were discussed in the Phase I
preamble (66 FR 876).
Specifically, under Sec. 411.354(d)(2) and Sec. 411.354(d)(3),
time-based and unit-of-service based compensation is deemed not to take
into account the volume or value of referrals or other business
generated if the unit-based compensation: (i) Is fair market value for
items or services actually provided; and (ii) does not vary over the
term of the agreement in any manner that takes into account DHS
referrals or other business generated by the referring physician. Some
commenters questioned whether an indirect compensation arrangement
exists at all if a referring physician receives time-based or unit-of-
service based compensation that is fair market value and does not vary
over the term of the agreement, that is, compensation that, by
definition, does not take into account the volume or value of referrals
or other business generated according to Sec. 411.354(d)(2) and Sec.
411.354(d)(3).
Similarly, the new exception for indirect compensation arrangements
at Sec. 411.357(p), like Sec. 411.354(d)(2) and Sec. 411.354(d)(3),
does not look to aggregate compensation and incorporates a fair market
value test. Given this, several commenters pointed out that the
ultimate result would be the same whether time and unit-of-service
based compensation arrangements are initially excluded from the
definition of ``indirect compensation arrangement'' in Sec.
411.354(c)(2) or included in the definition and then excepted by the
new exception. One commenter proposed three options: (1) Retaining the
indirect compensation arrangement definition in the final regulation
and deleting the indirect compensation exception; (2) revising the
indirect compensation arrangement definition by deleting the volume and
value language; or (3) revising Sec. 411.354(d)(2) and Sec.
411.354(d)(3) to make clear that those provisions do not apply to the
indirect compensation arrangements definition.
Response: An ``indirect compensation arrangement'' exists under
Sec. 411.354(c)(2) if the referring physician's aggregate compensation
varies with, or otherwise takes into account, the volume or value of
referrals or other business generated by the referring physician. Since
time-based or unit-of-service based compensation will always vary with
the volume or value of services when considered in the
[[Page 16059]]
aggregate, these compensation arrangements can constitute ``indirect
compensation arrangements'' under Sec. 411.354(c)(2), even if the
individual time or unit-of-service based compensation is fair market
value and otherwise complies with the language of Sec. 411.354(d)(2)
and Sec. 411.354(d)(3).
We agree that the close similarity in the regulatory language
between Sec. 411.354(c)(2) and Sec. 411.354(d)(2) and Sec.
411.354(d)(3) can be clarified. We are modifying Sec.
411.354(c)(2)(ii) to do so. Our intent is two-fold. First, we intend to
include in the definition of ``indirect compensation arrangement'' any
compensation arrangements (including time-based or unit-of-service
based compensation arrangements) where the aggregate compensation
received by the referring physician varies with, or otherwise takes
into account, the volume or value of referrals or other business
generated between the parties, regardless of whether the individual
unit of compensation qualifies under Sec. 411.354(d)(2) and Sec.
411.354(d)(3). Second, we intend to exclude under the indirect
compensation arrangement exception at Sec. 411.357(p) that subset of
indirect compensation arrangements where the compensation is fair
market value and does not reflect the volume or value of referrals or
other business generated and the other conditions of the exception are
satisfied. Per unit compensation will meet this test if it complies
with Sec. 411.354(d)(2) and Sec. 411.354(d)(3). While we agree that
the ultimate result may be the same--time, unit-of-service, or other
``per click'' based arrangements are generally permitted if they are at
fair market value without reference to referrals--we believe this
construct more closely corresponds to the statutory treatment of direct
compensation arrangements. Accordingly, we are clarifying Sec.
411.354(c)(2)(ii).
It is important to bear in mind that, depending on the
circumstances, fixed aggregate compensation can form the basis for a
prohibited direct or indirect compensation arrangement. This will be
the case if such fixed aggregate compensation takes into account the
volume or value of referrals (for example, the fixed compensation
exceeds fair market value for the items or services provided or is
inflated to reflect the volume or value of a physician's referrals or
other business generated). Section 411.354(d)(2) and Sec.
411.354(d)(3) were not intended to remove the existing prohibition on
fixed compensation arrangements that take into account the volume or
value of referrals or other business generated between the parties. We
have clarified the language in these sections to reflect the
distinction.
Comment: The first element of an ``indirect compensation
arrangement'' is an unbroken chain of financial relationships between
the DHS entity and the referring physician. In Phase I, we explained
that the links in the chain could be any form of financial
relationship, whether excepted or not. Several commenters believe that
there should be no indirect compensation arrangement if any financial
relationship in the chain qualifies for an exception. One commenter
pointed out that under section 1877(a)(2) of the Act, the definition of
``financial relationship'' excludes any financial relationship that
fits in an exception. Thus, according to this commenter, the inclusion
of an excepted financial relationship in a chain of financial
relationships necessarily ``breaks'' the chain and precludes an
indirect compensation arrangement. The commenter explained further that
this result would make the application of the indirect compensation
rules easier for DHS entities, especially hospitals, that have
arrangements with group practices that employ, or contract with,
referring physicians using compensation arrangements that fit in the
employment, personal services contracts, or fair market value
exceptions. Finally, the commenter suggested that, at a minimum, there
should be no indirect financial relationship if every link in the chain
qualifies for an exception.
Response: Section 1877(a)(2) of the Act excludes from the
definition of ``financial relationship'' any ownership or compensation
arrangement that fits in an exception. While the regulations are
structured somewhat differently, they achieve the same result. The
regulations define ``financial relationship'' in Sec. 411.354(a)
without limiting the term to unexcepted financial relationships.
Exceptions are set forth in separate provisions of the regulations.
Thus, the reference in the definition of ``indirect compensation
arrangement'' to an unbroken chain of ``financial relationships'' as
defined in Sec. 411.354(a) includes both excepted and unexcepted
relationships. A direct financial relationship can form a link in a
chain of financial arrangements that creates an indirect compensation
arrangement, even if the direct financial relationship qualifies for an
exception. While it is very unlikely, we believe that a chain
consisting entirely of excepted financial relationships could
theoretically create an indirect compensation arrangement, if the
remuneration paid to the referring physician is not fair market value
or varies with, or otherwise takes into account, the volume or value of
referrals or other business generated for the DHS entity by the
referring physician. A more likely scenario is that the chain would
either involve fair market value compensation that would qualify the
relationship under the indirect compensation arrangement exception. We
address the special issue of contracts with group practices in a
subsequent response below.
Comment: A commenter asserted that ``indirect'' compensation under
section 1877 of the Act means only non-monetary benefits that are
incidental to a direct financial relationship, and that the Secretary
exceeded his statutory authority by extending the regulations to other
indirect compensation arrangements.
Response: The commenter provided no statutory support for its
interpretation of section 1877 of the Act. Nor does the plain meaning
of the term ``indirect'' support the commenter's view. The
interpretation offered by the commenter would permit wholesale
circumvention of section 1877 of the Act through the formal
interposition of another person or entity between the referring
physician and the DHS entity. The Congress clearly intended to prevent
such schemes by including indirect compensation in the definition of
remuneration in section 1877(b)(1)(B) of the Act. The Secretary has
broad authority under sections 1102 and 1871 of the Act to promulgate
regulations implementing any provision of the Act.
Comment: One commenter asked how far an indirect compensation
arrangement could be traced along a chain of financial relationships
created through common ownership.
Response: As with any indirect compensation arrangement, the chain
of financial relationships can be of any length. As we discussed in the
preamble to the Phase I rule (66 FR 864), the knowledge element in
Sec. 411.354(c)(2)(iii) limits the potential liability of a DHS entity
involved in a distant, indirect compensation arrangement.
Comment: A number of commenters expressed the view that an indirect
compensation arrangement should be excepted if any link in the chain
fits in one of the exceptions for direct compensation arrangements.
This issue was raised by group practices that contract to provide
services to hospitals (or other DHS entities) or to lease space or
equipment from DHS entities. For example, in the case of a services
agreement between a hospital and a group practice, an indirect
compensation arrangement is created
[[Page 16060]]
between the hospital and the contracting group practice's employee or
investor physicians (that is, the referring physicians). Instead of
looking to the indirect compensation exception in such circumstances,
commenters proposed that the test be whether the compensation
arrangement between the hospital and the group practice fits in a
direct compensation exception. Commenters suggested that we use a
similar rule for other indirect compensation arrangements involving
referring physicians who are members of group practices, where the link
in the chain closest to the referring physician is his or her
compensation arrangement with his or her group practice. Commenters
requested comparable relief with respect to physician-owned PCs. In the
commenter's view, the fact that a physician practices through a wholly-
owned PC should not convert a direct financial relationship with a DHS
entity into an indirect relationship (that is, physician--PC--DHS
entity).
Response: We do not agree that an indirect compensation arrangement
should be excepted if any link in the chain complies with a direct
compensation exception. As we explained in the Phase I preamble (66 FR
867), we are concerned that, in some situations, such a test would
permit a middle entity to redirect compensation to referring physicians
based upon the volume or value of referrals or other business generated
by the physicians to the DHS entity (which is not the middle entity).
We recognize that it is not necessary to treat a referring
physician as separate from his or her wholly-owned PC. We have revised
the definition of referring physician in Sec. 411.351 to reflect this
clarification.
By way of example, under the Phase I regulations, if a hospital
contracted with a referring physician's PC for the provision of
services, the hospital would potentially have an indirect compensation
arrangement with the referring physician for which the only available
exception would be the indirect compensation arrangements exception.
Under the revised regulations, the contract would create a direct
compensation arrangement between the hospital and the referring
physician.
We believe the revised regulations should make it simpler for
physicians and others to evaluate their financial relationships and the
application of exceptions under section 1877 of the Act.
We are not making any changes to the Phase I rule with respect to
the issue of indirect compensation arrangements that are created when a
group practice is an intervening entity in the chain between the DHS
entity and referring physicians who are members of the group (for
example, a hospital contracts with a group practice for services). The
commenters' proposal that the regulations permit physicians to stand in
the shoes of their group practices, thereby converting indirect
arrangements to direct arrangements, is inconsistent with the
compensation exceptions as drafted. We believe that the knowledge
standard in the indirect compensation arrangements definition and
exception adequately protects DHS entities. We solicit comments on this
issue.
Comment: One commenter asked us to clarify the application of the
indirect compensation arrangement rules to the situation in which a
referring physician owns an interest in a hospital and the hospital
contracts for services with a clinical laboratory to which the
physician refers. In the preamble to the Phase I rule (66 FR 866), we
indicated that there would be a chain of entities (referring
physician--hospital--clinical lab). The commenter asked us whether that
arrangement would fit in the indirect compensation arrangement
definition and, if necessary, the indirect compensation exception.
Response: As commonly structured, the example would not create an
indirect compensation arrangement. There would be an unbroken chain of
financial relationships between the referring physician and the
clinical laboratory (the DHS entity) via the hospital. However, an
unbroken chain is only one of three elements required under the
definition of indirect compensation arrangement. Section
411.354(c)(2)(ii) requires that the referring physician receives
aggregate compensation that varies with, or otherwise takes into
account, the volume or value of DHS referrals or other business
generated by the referring physician for the DHS entity. Under Sec.
411.354(c)(2)(ii), we look to the non-ownership or non-investment
interest closest to the referring physician in the unbroken chain. That
means that in the commenter's scenario, we would look to the
contractual relationship between the hospital and the clinical
laboratory. Absent unusual circumstances, the hospital would not
receive aggregate compensation that reflects the volume or value of
referrals, since the hospital would not be receiving any compensation
from the clinical laboratory (assuming the contracted charges for
laboratory services are fair market value). If, however, the contracted
laboratory charges were less than fair market value, the arrangement
could qualify as an indirect compensation arrangement between the
referring physician and the clinical laboratory, provided the
laboratory knew of, or had reason to suspect, the referring physician's
ownership interest in the hospital. Because the payments would not be
fair market value, the arrangement could not fit in the indirect
compensation arrangements exception.
Comment: A commenter questioned whether the payment of a royalty by
an equipment manufacturer to a physician inventor for a device
implanted during surgeries performed by the physician inventor is
permitted or whether that arrangement would create an indirect
compensation relationship with the hospital that purchased the device.
The commenter did not think that parties would be able to establish a
fair market value for a unique invention.
Response: In the scenario described, the physician inventor would
have an indirect compensation arrangement with the hospital in which
the surgeries are performed (that is, the DHS entity (hospital) buys
the invention from the manufacturer (the intermediary link in the
chain), which pays the referring physician a royalty). However, as long
as the royalty payment (the compensation link in the chain nearest the
physician) is fair market value, the relationship should satisfy the
indirect compensation exception at Sec. 411.357(p). We see no reason
that one cannot establish a fair market value for royalties, even on
unique inventions.
Comment: A number of commenters questioned the discussion in the
Phase I preamble that relates to ownership interests and indirect
compensation arrangements (66 FR 867 and 870). Specifically, commenters
questioned the statement that common ownership of an entity may create
an indirect financial relationship between or among the common owners
(66 FR 867). One commenter asked us to explain what type of financial
relationship was created and when. Other commenters complained that the
statement was inconsistent with other statements that common ownership
did not create an indirect ownership interest in the common owners (66
FR 870). Several commenters stated that co-ownership of a non-DHS
entity should not create any financial relationship between the owners.
Many commenters objected to the statement in the Phase I preamble
that the direct compensation exceptions in section 1877 of the Act did
not apply to indirect compensation arrangements. According to the
commenters, all exceptions should be available,
[[Page 16061]]
regardless of whether the financial relationship is direct or indirect,
and a DHS entity should be able to take advantage of any exception. A
commenter asked whether a prohibited indirect ownership arrangement
could be excepted if it satisfied the indirect compensation arrangement
exception.
Response: An ownership or investment interest in an entity creates
a financial relationship between the investor and the entity (if the
entity has an ownership or investment interest in another entity, the
investor may have an indirect ownership or investment interest in that
further entity, and so on). Absent unusual circumstances, common owners
of an entity will not, by virtue of their common ownership, have
ownership or investment interests in each other. However, an indirect
compensation arrangement may arise from their common ownership. Since
an indirect compensation arrangement requires an unbroken chain of any
financial relationships between the referring physician and the DHS
entity, ownership or investment interests in a common entity count as
links. In other words, common ownership does not itself create an
indirect compensation arrangement as defined in Sec. 411.354(c)(2)
between co-owners; rather, the ownership or investment interests of the
individual investors can satisfy the unbroken chain element of the
three-part indirect compensation arrangement definition at Sec.
411.354(c)(2). For example, if a DHS entity and a referring physician
jointly own an entity, such co-ownership creates a chain of financial
relationships linking the DHS entity to the referring physician: DHS
entity--[ownership relationship]--owned entity--[ownership
relationship]--referring physician. This chain is created regardless of
the nature of the jointly owned entity.
However, even if an unbroken chain exists, the other elements of
the definition at Sec. 411.354(c)(2) still need to be satisfied to
establish an indirect compensation arrangement (which could then be
excepted under the indirect compensation exception, if applicable). In
the preceding example, as long as the physician's aggregate return on
his investment in the co-owned entity (including capital appreciation)
did not vary or otherwise take into account the volume or value of
referrals to, or other business generated for, the DHS entity (not the
common venture), there would be no indirect compensation arrangement.
We would expect this to be the case for most joint ownership of non-DHS
entities. However, if the jointly owned entity is, for example, an
imaging equipment leasing company co-owned by a hospital (the DHS
entity) and a referring physician, the co-ownership may create an
indirect compensation arrangement, since the physician's aggregate
payout from the leasing company may vary with, or otherwise take into
account, the volume of imaging business he or she generates for the
hospital, assuming that the hospital contracts with the leasing
company. Sufficient knowledge of the co-ownership is likely to exist in
this circumstance to satisfy the knowledge standard at Sec.
411.354(c)(2)(iii). If an indirect compensation arrangement exists, the
relevant inquiry is whether the arrangement fits in the indirect
compensation exception. In general, if the rental payment (frequently a
``per click'' payment) by the hospital to the leasing company is fair
market value (and the ``per click'' fee does not vary over the term of
the agreement) and does not otherwise reflect the volume or value of
referrals, the indirect compensation arrangement would be excepted.
Such arrangements could still violate the anti-kickback statute.
To address the commenters' concern, we are modifying Sec.
411.354(b)(5)(i) and establishing new Sec. 411.354(b)(5)(iii) and
(b)(5)(iv) to make clear that common ownership does not establish an
ownership or investment interest by one common investor in another
common investor. An indirect ownership or investment interest requires
an unbroken chain of direct ownership interests between the referring
physician and the DHS entity such that the referring physician can be
said to have an indirect ownership or investment interest in the DHS
entity. In the preceding example, the referring physician has an
ownership interest in the leasing company, but not in the hospital.
(If, however, the leasing company owned an interest in a DHS entity,
the physician would have an indirect ownership interest in that DHS
entity).
If an indirect ownership or investment interest exists, it cannot
be excepted under the indirect compensation exception in Sec.
411.357(p). The Phase I preamble may have inadvertently suggested
otherwise. We created a new exception for indirect compensation
arrangements because none of the statutory compensation exceptions
apply by their terms to these arrangements, and we believe that the
Congress did not intend a wholesale prohibition on indirect
compensation arrangements. The new indirect compensation arrangements
exception conceptually follows the statutory exceptions applicable to
direct compensation arrangements; in other words, we attempted to make
the indirect compensation exception analogous to the existing
exceptions. By contrast, the Congress clearly included indirect
ownership or investment interests in the definition of ownership or
investment interests to which the statute applies (section 1877(a)(2)
of the Act) and created exceptions that can apply to those indirect
interests. Thus, we have not created a separate exception for indirect
ownership or investment interests. However, the definition of an
``indirect ownership or investment interest'' in Sec.
411.354(b)(5)(i)(B) incorporates a knowledge element that should
sufficiently limit the universe of prohibited ownership and investment
interests so that most remote ownership or investment interests should
not trigger the prohibition.
Comment: The indirect compensation exception includes a requirement
that the compensation arrangement not violate the anti-kickback
statute, section 1128B(b) of the Act (Sec. 411.357(p)(3)). One
commenter wanted clarification as to which arrangement in the indirect
compensation arrangement chain this provision referred.
Response: The relevant subject of the inquiry would be the entire
arrangement, including all sources of remuneration, between the DHS
entity and the referring physician (or group practice where
applicable). This would include each link in the chain as well as the
overall arrangement viewed as a whole.
Comment: One commenter asked us to clarify that compensation need
not be ``set in advance'' under the indirect compensation exception.
Response: The indirect compensation exception does not include a
``set in advance'' requirement.
Comment: One commenter asked that the regulatory text be modified
to expressly state that a DHS entity can rely on a certification from a
physician that a known indirect compensation arrangement between the
physician and another entity is at fair market value not taking into
account the volume or value of referrals.
Response: While obtaining a certification may be an appropriate
practice in some circumstances, we are not prepared to provide a
blanket exception for reliance on certifications.
Comment: While most commenters welcomed the knowledge requirement
in the definition of an indirect compensation arrangement in Sec.
411.354(c)(2)(iii), a number of commenters had questions about the
conditions under which a DHS entity
[[Page 16062]]
has a duty to inquire as to the existence of an indirect compensation
arrangement with a referring physician (66 FR 865, 868). One commenter
asserted that the knowledge element in the False Claims Act, 31 U.S.C.
3729, did not impose any duty to inquire. According to that same
commenter, the preamble discussion seemed to impose a simple negligence
standard. Others believed that the ``reason to suspect'' language was
inconsistent with other statements that there was no duty to inquire on
the part of the DHS entity (66 FR 865).
Response: The knowledge element used in Sec. 411.354(c)(2)(iii) is
the same as in the False Claims Act and the Civil Monetary Penalty Law
(section 1128A of the Act): actual knowledge or reckless disregard or
deliberate ignorance. As we explained in the Phase I preamble (66 FR
864), the phrase ``reason to suspect'' was simply intended as a
convention to avoid repetition of the wordier ``actual knowledge or
reckless disregard or deliberate ignorance'' standard. There is
extensive case law applying the standard in the context of False Claims
Act and the Civil Monetary Penalties Law. As stated in the Phase I
preamble (66 FR 865), a DHS entity has no duty to inquire whether a
referring physician receives aggregate compensation that varies with,
or otherwise takes into account, referrals to, or other business
generated for, the DHS entity unless facts or circumstances exist such
that a failure to follow up with an inquiry would constitute deliberate
ignorance or reckless disregard.
Comment: One commenter asked how the knowledge element in the
definition of indirect compensation arrangements in Sec.
411.354(c)(2)(iii) relates to the knowledge element in the sanctions
sections 1877(g)(3) and (g)(4) of the Act (civil money penalties and
exclusions).
Response: The standards are identical. However, the standard would
be applied separately for each inquiry. In other words, whether an
indirect compensation arrangement exists is a separate inquiry from
whether a person has knowingly presented or caused to be presented an
improper claim or bill for services or has knowingly entered into a
circumvention arrangement. It is likely, however, that some facts would
be relevant to both inquiries.
Comment: Several commenters, including a national physician
professional association, questioned why the regulations only consider
the DHS entity's knowledge. These commenters urged that physicians be
protected under section 1877 of the Act if they do not have knowledge
of the existence of a prohibited financial relationship.
Response: The statutory scheme already protects physicians from any
liability in the absence of actual knowledge, reckless disregard, or
deliberate ignorance. The basic statutory sanction is disallowance of
claims or bills, which affects the DHS entity, not the referring
physician. The new knowledge standards in Sec. 411.354(c)(2)(iii) and
Sec. 411.354(b)(5)(i)(B) protect against this otherwise strict
liability aspect of section 1877 of the Act. Under section 1877 of the
Act, physicians are only subject to sanction under the civil monetary
provisions of section 1877(g) of the Act. Those provisions already
contain a comparable knowledge element.
Comment: One commenter asked that we clarify the statement in the
Phase I preamble at 66 FR 866 that a distribution from an excepted
ownership or investment interest is also excepted (and thus does not
require recourse to a compensation exception), unless the distribution
is a ``sham''. As an example, we posited a limited liability company
that was losing money, but nonetheless made a distribution to physician
investors after borrowing funds from a bank. The commenter suggested
that the appropriate test should be whether the borrowing and
distribution were lawful under applicable State law.
Response: We do not believe it is possible to establish a ``bright
line'' test for determining whether a particular distribution is a
``sham'' in all cases. Rather, it will depend on the circumstances. The
reference to possible ``sham'' distributions was intended to make clear
that an excepted ownership or investment interest may not be used to
shield payments that are not legitimately related to the ownership or
investment interest (such as funneling additional remuneration to
physicians as ostensible ``returns'' from an investment entity).
Comment: A physician organization questioned why a referring
physician's investment interest in a subsidiary company should be
considered an indirect ownership interest in the parent company if the
subsidiary has any investment interest in the parent. The commenter
thought the test should also require that the referring physician know
that the investment interest exists.
Response: Our treatment of investment interests in subsidiaries
that, in turn, have investment interests in parent companies is
consistent with the general definition of indirect ownership and
investment interests, described above. In short, in those
circumstances, a physician investor in the subsidiary has an indirect
investment interest in the parent. If the parent is a DHS entity, the
physician may not refer patients to the parent for DHS and the parent
may not file claims for those DHS, unless an exception applies. With
respect to indirect ownership or investment interests, however, Sec.
411.354(b)(5)(B) limits liability to those DHS entities that have
actual knowledge of, or act in reckless disregard or deliberate
ignorance of, the existence of an indirect ownership or investment
interest by the referring physician in the DHS entity. In other words,
although the physician need not have knowledge to trigger the
prohibition, the DHS entity must have some reason to suspect the
existence of the indirect ownership or investment interest. This
regulatory scheme does not adversely impact physicians who do not have
knowledge; non-payment of claims affects only the DHS entity, and
imposition of CMPs (the sanction applicable to physicians under section
1877 of the Act) only applies to knowing violations.
Comment: One commenter asked us to clarify that, if a referring
physician's direct ownership or investment interest in a DHS entity
would be protected under an exception, then a similar indirect
ownership or investment interest of the physician in that same DHS
entity would be excepted.
Response: The commenter is correct. For example, if a physician has
an investment interest in a company that, in turn, owns an interest in
a hospital in Puerto Rico, the physician's indirect investment interest
in the Puerto Rico hospital is excepted under Sec. 411.356(c)(3).
Comment: One commenter questioned our conclusion that stock options
and convertible securities create a compensation arrangement, rather
than an ownership or investment interest (Sec. 411.354(b)(3)(ii)). The
commenter pointed out that options and securities can be purchased on
the open market and are not just received pursuant to employment.
Response: We are persuaded that the commenter is correct and are
modifying the definition of ownership or investment interest. The
determination as to whether stock options and convertible securities
create ownership or investment interests or compensation arrangements
depends on the method of acquisition. If the options or securities are
originally purchased or received for money or in return for a capital
contribution in whole or in part, they will be considered ownership or
investment interests. If they are received
[[Page 16063]]
as compensation for services, they will be considered compensation
until the time that they are exercised, at which time they become an
ownership or investment interest.
Comment: One commenter objected to treating loans secured by the
property of an entity as an ownership interest in the entity (Sec.
411.354(b)(1)).
Response: Section 1877(a)(2) of the Act states that an ownership or
investment interest may be through equity, debt, or other means. The
rule adopted in Phase I for secured loans accommodated the industry's
desire for a ``bright line'' rule in this area. However, we agree with
the commenter that loans or bonds that are secured by, or otherwise
linked to, a particular piece of equipment or the revenue of a
department or other discrete hospital operations should not be
considered an ownership interest in the whole hospital, but only in a
part or subdivision of the hospital. Therefore, the whole hospital
exception would not apply.
C. When Does a Physician Make a Referral? (Section 1877(h)(5) of the
Act; Phase I--66 FR 871; Sec. 411.351)
As defined by section 1877(h)(5) of the Act, a ``referral'' means a
request by a physician for an item or service for which payment may be
made under Medicare Part B, including a request for a consultation
(including any tests or procedures ordered or performed by the
consulting physician or under the supervision of the consulting
physician), and the request or establishment of a plan of care by a
physician that includes the furnishing of DHS, with certain exceptions
for consultations by pathologists, diagnostic radiologists, and
radiation oncologists. The regulations define ``referral'' in Sec.
411.351.
In Phase I, we excluded from the definition of ``referral''
services performed personally by the referring physician, but included
services provided by a physician's employees, co-workers, or
independent contractors. We made clear that referrals can occur in a
wide variety of formats--written, oral, or electronic--depending on the
particular service. Moreover, referrals can be direct or indirect.
Phase I also added a new regulatory exception at Sec. 411.353(e) for
certain referrals of DHS to an entity with which the referring
physician has a prohibited financial relationship that are ``indirect''
referrals (for example, when a physician has caused a referral to be
made by someone else or has directed or routed a referral through an
intermediary) or are oral referrals (that is, no written request or
other documentation that would identify the referring physician is
required). Under this exception, a claim by a DHS entity may be paid
for purposes of section 1877 of the Act if the entity did not know of,
or have reason to suspect, the identity of the physician making the
indirect or oral referral.
Comments to the Phase I rule on referrals and our responses follow.
We are making no major changes to the final rule in this area.
Comment: A number of commenters urged that the definition of
referral exclude services that are performed ``incident to'' a
physician's personally performed services or that are performed by a
physician's employees. According to the commenters, such services are
integral to the physician's services. Another commenter suggested that
services by licensed professionals that are separately billable should
be considered referrals, but services that are only billable as part of
a physician's service should not be considered referrals. One commenter
suggested the appropriate test should be whether there is significant
physician involvement in the provision of a service.
Response: This is an issue about which we specifically solicited
comments in the Phase I rulemaking. After careful consideration of the
comments and the issues raised, we are adhering to our original
determination that ``incident to'' services performed by others, as
well as services performed by a physician's employees, are referrals
within the meaning of section 1877 of the Act. As discussed in the
Phase I preamble (66 FR 871-872), this interpretation is consistent
with the statute as a whole. A blanket exclusion for services that are
``incident to'' a physician's services or are performed by a
physician's employees would, for example, substantially swallow the in-
office ancillary services exception. As a practical matter, although
``incident to'' services and employee services are included in the
definition of ``referrals'' for purposes of section 1877 of the Act,
many of those referrals will fit in the in-office ancillary services or
another exception. This approach to the definition of ``referral'' is
consistent with the statutory scheme, which allows productivity bonuses
for ``incident to'' services under the in-office ancillary services
exception, but not under other exceptions. A ``substantial
involvement'' test would be vague and impracticable.
Comment: A group representing allergists and immunologists
requested clarification that no referral occurs when a physician
prepares an antigen and furnishes it to a patient. Another commenter
requested clarification that there is no referral if a physician
personally refills an implantable pump. Yet another commenter requested
clarification that there is no referral if a physician personally
provides durable medical equipment (DME) to a patient.
Response: The commenters are correct. There is no ``referral'' if a
physician personally performs a designated health service. However, as
noted above, there is a referral if the designated health service is
provided by someone else. In many cases, these referrals will qualify
for an exception.
Comment: A commenter sought clarification that no referral occurs
when a physician personally performs services in a hospital, even if
the hospital bills for the services pursuant to an assignment.
Response: If a physician personally performs the services, there is
no referral, regardless of whether the physician bills the program
directly or another entity bills pursuant to an assignment. However,
technical components associated with a physician's personally performed
services in a hospital are referrals to which section 1877 of the Act
applies (66 FR 871).
Comment: One commenter suggested that the application of section
1877 of the Act to referrals within a physician's medical practice is
inconsistent with the Office of the Inspector General's interpretation
of the anti-kickback statute, section 1128B(b) of the Act. The
commenter suggested that there exists a blanket exception for such
referrals under the anti-kickback statute.
Response: As we discussed more thoroughly in the Phase I preamble
(66 FR 863), section 1877 of the Act is a separate statute from the
anti-kickback statute and must be applied separately. We do not
perceive any inconsistency, however, in the treatment of referrals
within a physician's medical practice. Like section 1877 of the Act,
the anti-kickback statute contains no blanket exception for such
referrals (contrary to the commenter's suggestion). Some arrangements
may be protected by a statutory or regulatory safe harbor under the
anti-kickback statute. (42 CFR 1001.952)
Comment: One commenter requested clarification as to whether
services ordered by a nurse practitioner or other licensed professional
will be considered to have been referred by a physician in the same
group practice.
Response: In determining whether an independent health
professional's referral to a DHS entity should be attributed to the
physician, all the facts
[[Page 16064]]
and circumstances surrounding the referral and the relationship of the
independent health professional and the physician must be considered.
As we indicated in the Phase I preamble (66 FR 872), our concern is
that physicians could attempt to circumvent section 1877 of the Act by
funneling referrals through nonphysician practitioners. The relevant
inquiry is whether the physician has controlled or influenced the
nonphysician's referral such that the referral should properly be
considered the physician's referral. We are changing the regulation
text accordingly to reflect Phase I preamble language.
Comment: An imaging center commented that physicians do not refer
patients to imaging centers, but only order tests. The commenter also
stated that many radiology procedures have similar sounding names, and
a patient may not know the difference between procedures if he or she
is given an oral referral and may unwittingly request a designated
health service rather than a service that is not a designated health
service. The commenter also stated that, if a patient self-referred to
an imaging center, a report would usually be sent to the patient's
physician, whether the physician made the referral or not.
Response: Contrary to the commenter's assertion, in many instances
physicians do refer patients to entities that furnish imaging services.
The determination whether a particular patient has been referred by a
particular physician for a designated health service within the meaning
of section 1877 of the Act would depend on the facts and circumstances.
While we are unclear about the commenter's statement concerning
patients, we note that imaging centers are in a position to ensure
compliance with section 1877 of the Act by structuring any financial
arrangement with a referring physician or immediate family member (or
potential referring physician or immediate family member) to fit in an
exception.
Comment: A commenter objected to the application of section 1877 of
the Act to referrals for hospital and other Medicare Part A services.
According to the commenter, the statutory definition of ``referral'' in
section 1877 of the Act only applies to items or services ``for which
payment may be made under Part B.''
Response: As we discussed in the January 1998 proposed rule (63 FR
1691-1692), section 1877(h)(5) of the Act contains two parts defining
``referral''. The first part, section 1877(h)(5)(A) of the Act, defines
a referral to include the request by a physician for an item or service
for which payment may be made under Part B, including the request for a
consultation with another physician (and any test or procedure ordered
by, or to be performed by, or under the supervision of, that other
physician). The second part, section 1877(h)(5)(B) of the Act, covers
the request or establishment of a plan of care by a physician that
includes the provision of a designated health service. Although this
second part is not drafted in Medicare-specific terms and could be
interpreted to include any designated health service, we interpreted it
to cover only DHS that may be covered under Medicare. This would
include DHS, such as hospital and home health care services, that are
covered under Medicare Part A. We noted in 1998 that we were aware of
no rationale for the broader reach of ``referral'' under the first part
(a request for any Part B item or service) than the second (a request
for a designated health service). We therefore took the position--which
we affirm here--that the first part relating to Part B items and
services should be limited to referrals for DHS.
Comment: An association for nursing facilities objected to the
concept of imputed or oral referrals. According to the association, the
regulations will inhibit communications between physicians and patients
by restricting a physician's ability to share information about DHS
entities freely with patients. The association suggested that the
regulations protect any physician who provides patients with accurate
information about all appropriate DHS entities and discloses his or her
financial relationships with any of those DHS entities.
Response: Section 1877 of the Act embodies a congressional
determination to discourage physicians from having financial
relationships with DHS entities to which they refer Medicare patients.
Neither the statute nor the regulations burdens any physician-patient
communications except those communications in which the physician
refers to those DHS entities with which the physician has a prohibited
financial relationship. Although disclosure of financial interests to
patients informs patients of the potential conflict of interest, we do
not believe, nor does the statute contemplate, that such disclosure
adequately protects against improper referrals or overutilization. If
DHS entities and physicians insist on entering into financial
relationships, they can protect themselves by structuring the
relationships to fit in one of the exceptions. The commenter's proposed
exception would swallow the statute and inhibit enforcement.
Comment: A hospital association requested that the ``innocent
entity'' exception at Sec. 411.353(e), which protects DHS entities
that do not have knowledge of the identity of the referring physician,
be expanded to protect DHS entities that do not have knowledge of the
existence of a financial relationship with the referring physician. In
particular, the commenter was concerned that it may be difficult for
DHS entities to know if they have financial relationships with
immediate family members of referring physicians.
Response: Knowledge of the existence of a financial relationship is
an element of the definition of an ``indirect compensation
arrangement''. (66 FR 864) Absent the requisite knowledge, no indirect
compensation arrangement is established. This aspect of the definition
should address many of the commenter's concerns. We recognize that no
comparable knowledge limitation applies to direct financial
relationships, including direct financial relationships with referring
physicians' family members. The statute clearly contemplates a strict
liability bar on direct financial relationships with immediate family
members. The exception proposed by the commenter would effectively
negate the statutory prohibition.
Comment: A number of commenters asked that we expand the protection
of the ``innocent entity'' exception at Sec. 411.353(e) to referring
physicians.
Response: As discussed above, referring physicians have no
liability under section 1877 of the Act unless they knowingly cause an
improper claim or bill to be submitted or knowingly engage in a
circumvention scheme.
D. Definition of ``Consultation'' (Section 1877(h)(5) of the Act; Phase
I--66 FR 873; Sec. 411.351)
The definition of a ``referral'' at section 1877(h)(5) of the Act
includes DHS provided in accordance with a consultation with another
physician, including DHS performed or supervised by the consulting
physician or any DHS ordered by the consulting physician. Section
1877(h)(5)(c) of the Act creates a narrow exception for a small subset
of services provided or ordered by certain specialists in accordance
with a consultation requested by another physician. These include
requests by a pathologist for clinical laboratory services or
pathological examination services; a radiologist for diagnostic
radiology services; or a radiation oncologist for radiation therapy. To
qualify, the services must be furnished by, or under the supervision
of, the
[[Page 16065]]
pathologist, radiologist, or radiation oncologist in accordance with a
consultation requested by another physician.
In Phase I, we broadly interpreted a ``consultation'' for purposes
of determining when an entity with which a pathologist, diagnostic
radiologist, or radiation oncologist has an otherwise prohibited
financial relationship will be permitted to submit a claim to Medicare
for DHS ordered by those physicians (66 FR 873). The ``consultation''
definition in this rule is not intended to, nor does it, apply to other
Medicare coverage or payment rules relating to consultations. Moreover,
neither section 1877(h)(5)(C) of the Act, nor the definition of
``consultation'' at Sec. 411.351, protects referrals from the
physician requesting the consultation to a DHS entity with which the
requesting physician has a prohibited financial relationship (66 FR 875
of Phase I preamble).
The Phase I rule adopted the following criteria to identify a
consultation for purposes of section 1877 of the Act:
A consultation is provided by a physician whose
opinion or advice regarding evaluation and/or management of a specific
medical problem is requested by another physician.
The request and need for the consultation is
documented in the patient's medical record.
After the consultation is provided, the
consulting physician prepares a written report of his or her findings,
which is provided to the physician who requested the consultation.
With respect to radiation therapy services
provided by a radiation oncologist, a course of radiation treatments
over a period of time will be considered to be furnished pursuant to a
consultation, provided the radiation oncologist communicates with the
referring physician on a regular basis about the patient's course of
treatment and progress.
We have modified the final rule slightly to accommodate concerns raised
by consulting physicians in group practices and by radiation
oncologists who furnish services that are ancillary and integral to
radiation therapy services. Otherwise, we have made no major changes to
the Phase I rule. Comments to the Phase I definition of
``consultation'' and our responses are related below.
Comment: Several commenters questioned the level of supervision
required for radiological procedures. Another asked us to affirm that
it is sufficient to provide the level of supervision required by the
Clinical Laboratory Improvement Amendments of 1988 (CLIA) (Pub. L. 100-
578, October 31, 1988). One professional association asked us to
clarify that the services need not be supervised by the consulting
radiologist, but could be supervised by another physician in the
consulting radiologist's group practice.
Response: Nothing in this rulemaking establishes any particular
level of supervision for any particular services. The supervision
necessary to come within the various exceptions that include a
supervision requirement, as well as the definition of ``consultation''
in section 1877(h)(5)(C) of the Act, is the level of supervision
otherwise required by the applicable Medicare payment and coverage
rules for the specific service (66 FR 872). In Sec. 411.351, the
definition of ``referral'' in paragraph (2)(ii) provides that the DHS
must be furnished ``by or under the supervision of the pathologist,
radiologist, or radiation oncologist.'' We agree that supervision by a
pathologist, radiologist, or radiation oncologist in the same group
practice as the consulting pathologist, radiologist, or radiation
oncologist, respectively, would be appropriate and consistent with the
overall statutory scheme and structure. We have modified the regulation
accordingly. Where applicable Medicare payment and coverage rules
permit, the supervision required under section 1877(h)(5)(C) of the Act
may be provided by a physician in the same group practice.
Comment: Section 1877(h)(5)(C) of the Act applies to requests by
radiation oncologists for ``radiation therapy.'' Several professional
associations representing radiologists and imaging centers requested
that we interpret ``radiation therapy'' to include other DHS performed
as part of the radiation therapy treatment. According to the
commenters, computerized axial tomography (CT), magnetic resonance
imaging (MRI) and ultrasound services are often integral and necessary
to the provision of radiation therapy. The commenters indicated that in
many cases the in-office ancillary services exception at section
1877(b)(2) of the Act and Sec. 411.355(b) will not cover these
ancillary services.
Response: We agree with the commenters that the exception for
radiation oncologists who request radiation therapy services would fail
its intended purpose if it did not also protect necessary and integral
ancillary services requested, and appropriately supervised, by the
radiation oncologist. We have modified the regulations accordingly. We
believe this interpretation effectuates the statutory intent. Moreover,
it is consistent with the existing exception in section 1877(h)(5)(C)
of the Act for diagnostic radiology services (including CT, MRI, and
ultrasound) requested by a radiologist.
Comment: One commenter objected that the consultation definition at
Sec. 411.351 requires the consulting physician to produce a written
report. According to the commenter, most consulting physicians do not
prepare written reports.
Response: Current Medicare rules governing payment and coverage for
consultation services require a written report. Moreover, no other
commenter, including the many physician associations, objected to the
requirement. Since we believe that preparation of a written report is
the general practice and consistent with Medicare program rules, and
the commenter provided no evidence to support his assertion, we are
retaining the written report requirement.
Comment: One commenter requested that we expand section
1877(h)(5)(C) of the Act to cover cardiologists who interpret
echocardiograms under financial arrangements that are comparable to
those that exist when a radiologist interprets a radiological
ultrasound.
Response: An echocardiogram ordered and read by a cardiologist is
not a service integral to a consultation by a specialist within the
meaning of section 1877(h)(5)(C) of the Act. Under section
1877(h)(5)(C) of the Act, the Congress specifically excepted three
narrow categories of physicians who provide specific services pursuant
to consultations. The statutory language is very specific and reflects
congressional intent that the exception be narrow. We do not have the
authority to extend this exception to other specialists. Moreover,
there is a substantial difference between a radiologist ordering
diagnostic radiology tests pursuant to a request for a consultation and
a cardiologist ordering an echocardiogram. In the former situation, the
ordering and interpretation of the procedure is the physician's primary
specialty; in the latter, the echocardiogram is ancillary to the
cardiologist's primary medical practice, the treatment of the heart. In
other words, an echocardiogram ordered by a cardiologist is no
different from any other designated health service test ordered by
other physicians who are not pathologists, radiologists, and radiation
oncologists; if the physician has a financial interest in the
furnishing of the test, section 1877 of the Act is implicated.
[[Page 16066]]
Comment: One commenter stated that some patients self-refer to
radiation oncologists for brachytherapy, which is then provided by an
entity with which the radiation oncologist has a financial
relationship. Since there is no referral from another physician, the
consultation exception in section 1877(5)(C) of the Act is not
available. Moreover, according to the commenters, the in-office
ancillary services exception in section 1877(b)(2) of the Act and Sec.
411.355(b) is often unavailable for these referred services, because
patients primarily come to the radiation oncologist or his or her
entity only for radiation therapy services. Thus, the services cannot
meet Sec. 411.355(b)(2)(i) of the in-office ancillary services
exception in Phase I, which required that excepted services be provided
in a building where the referring physician (or another member of the
referring physician's group practice) furnishes substantial physician
services unrelated to the furnishing of DHS or in a centralized
building owned or operated by the physician's group practice on a full-
time basis. The commenter wondered whether, in these circumstances, it
would be appropriate for the radiation oncologist to refer the patient
to a urologist who might then refer the patient back to the radiation
oncologist.
Response: While we recognize the problem identified by the
commenter, the proposed solution would be an inappropriate
circumvention. Rather, we believe the changes to the in-office
ancillary services exception described in this Phase II preamble in
section V.B.4 address the commenter's concerns. These changes should
enable most radiation oncologists to provide radiation therapy services
to self-referred patients under the in-office ancillary services
exception.
III. Physician Compensation Under Section 1877 of the Act (Phase I--66
FR 875)
Section 1877 of the Act provides different exceptions for core
physician compensation based on whether the physicians are physicians
in a group practice (in connection with the in-office ancillary
services and physician services exceptions), employees, or independent
contractors. The terms of the statutory exceptions vary. In addition,
the Phase I regulations implemented new regulatory exceptions for fair
market value compensation paid to employees or independent contractors
and compensation for certain academic physicians.
Many comments addressed the issue of physician compensation under
section 1877 of the Act. We have provided detailed responses to these
comments in the relevant sections of this preamble. However, some
issues relate to more than one exception. We summarize those aspects of
physician compensation here. This discussion supplements the discussion
of physician compensation in section IV of the Phase I preamble (66 FR
875).
A common thread in many of the comments was the observation that
physician compensation arrangements are structured in various ways for
legitimate reasons and that the form of the arrangement (for example,
employment or personal services contract) should not constrain the
structure of the compensation (for example, percentage-based
compensation, productivity bonuses, or physician incentive plans). In
short, many commenters thought that there should be only one set of
conditions applicable to physician compensation, and that the same
rules should apply to group practices, employees, and independent
contractors, as well as under the fair market value and academic
medical center exceptions. As explained below, we have tried to
minimize the differences, consistent with the statute.
First, the statute permits group practices to divide revenues among
their physicians in ways that are very different from the ways other
DHS entities are permitted to share revenues with employed or
independent contractor physicians. The statute recognizes the
differences between physicians in a group dividing income derived from
their own joint practice and a hospital (or other entity) paying a
physician employee or contractor who generates substantial income for
the facility that would not ordinarily be available to a physician
group. In effect, group practices receive favored treatment with
respect to physician compensation: they are permitted to compensate
physicians in the group, regardless of status as owner, employee, or
independent contractor, for ``incident to'' services and indirectly for
other DHS referrals. This preference is statutory.
Second, outside of the group practice/in-office ancillary services
context, we have tried to equalize the most important conditions in the
other main physician compensation exceptions (employment, personal
services, fair market value, and academic medical centers). Under these
exceptions in the regulations, physicians can be paid on a percentage
of revenues or collections for personally performed services; receive a
productivity bonus on any personally performed services; and
participate in a physician incentive plan related to health plan
enrollees. These issues are explained in more detail below and in the
discussions of the relevant exceptions.
Percentage compensation arrangements. Commenters
representing independent contractors argued that the statute and
regulations unfairly restrict the kinds of compensation that
independent contractor physicians can receive when compared to the
compensation permitted for group practice physicians and employed
physicians. In particular, the personal service arrangements and the
fair market value exceptions (key exceptions for independent
contractors) both contain a ``set in advance'' requirement not present
in the statutory group practice definition or employment exception.
In Phase I, we interpreted ``set in advance'' to preclude most
percentage compensation arrangements. As discussed below in section IV,
we have modified our interpretation of ``set in advance'' to permit
some percentage compensation if the methodology for calculating the
compensation is set in advance and does not change over the course of
the arrangement in any manner that reflects the volume or value of
referrals or other business generated by the referring physician. As a
result, like their group practice and employee counterparts,
independent contractor physicians can receive certain limited forms of
percentage compensation under section 1877 of the Act. The same is true
for academic physicians under the academic medical centers exception,
which also contains the ``set in advance'' requirement.
Productivity bonuses. A second concern for
independent contractors is the availability of productivity bonuses
under section 1877 of the Act. While the personal service arrangements,
employment, fair market value, and academic medical centers exceptions
all restrict compensation that is determined based on the volume or
value of DHS referrals, the personal service arrangements, fair market
value, and academic medical centers exceptions further restrict
compensation that is determined based on the volume or value of ``other
business generated.'' Moreover, the employment exception contains a
provision that expressly permits productivity bonuses to be paid to
employed physicians for services they personally perform. Independent
contractor physicians have noted that the statute and regulations make
no comparable provision for productivity bonuses for work personally
performed by independent contractors.
[[Page 16067]]
We partially addressed this issue in the Phase I rulemaking. There,
we defined ``referral'' under the statute to include only DHS referrals
and to exclude personally performed DHS. In short, personally performed
work -DHS or otherwise--is not considered a ``referral'' under section
1877 of the Act. (See Sec. 411.351.) Thus, a productivity bonus based
on personally performed work would not be based on the volume or value
of ``referrals.''
The personal service arrangements, fair market value, and academic
medical centers exceptions bar compensation that takes into account
``other business generated'' by the referring physician. (In the
January 1998 proposed rule, we had proposed adding by regulation a
similar restriction to the employment exception, but we are not
adopting that proposal.) In Phase I, we interpreted ``other business
generated'' to include any health care business, including private pay
business (See Sec. 411.354(d)(3)). Many commenters construed this
definition to encompass personally performed services, including a
physician's professional services. That was not our intent, nor do we
believe it to have been the intent of the Congress. We have clarified
the regulations at Sec. 411.354(d)(3) to reflect that ``other business
generated'' does not include personally performed services. It does,
however, include any corresponding technical component of a service
that is billed by the DHS entity.
The result of these interpretations is that all physicians, whether
employees, independent contractors, or academic medical center
physicians, can be paid productivity bonuses based on work they
personally perform. As discussed above, consistent with the statutory
scheme, group practices also may pay physicians in the group, whether
independent contractors or employees, productivity bonuses based on
``incident to'' services, as well as indirect bonuses and profit shares
that may include DHS revenues, provided the distribution methodology
meets certain conditions. As noted above, this additional latitude for
group practices is statutory.
Physician incentive plans and other risk-sharing
arrangements. A further perceived inconsistency raised by some
commenters involves payments to physicians under risk-sharing
arrangements. The statutory personal service arrangements exception
contains an express provision allowing independent contractor
physicians to be compensated under a physician incentive plan with
respect to services provided to individuals enrolled with the entity
making the payments. The group practice, employee, fair market value,
and academic medical center exceptions do not contain comparable
language. Notwithstanding, in Phase I, we established a new regulatory
exception at Sec. 411.357(n) for compensation under a risk-sharing
arrangement for services furnished to enrollees of a commercial or
employer-provided health plan. The new exception applies to payments
made directly or through a subcontractor. The new exception is
available for all qualifying risk-sharing arrangements, whether the
physician is a member of a group practice, employed, an independent
contractor physician, or an academic medical center physician. (The
prepaid plans exception at Sec. 411.355(c) protects referrals of DHS
furnished to enrollees of Medicare and Medicaid managed care plans.)
The risk sharing arrangements exception is discussed in Phase I at 66
FR 912 through 914. Also, in this Phase II, we have clarified that
payments made by downstream subcontractors may be protected under the
physician incentive plan provision of the personal service arrangements
exception.
In sum, we have modified the regulations to clarify that
independent contractor and academic medical center physicians, like
their group practice and employed counterparts, can be paid using
certain forms of percentage compensation and can receive productivity
bonuses based on personally performed services. Moreover, the
regulations permit group practice, employed, and academic medical
center physicians, like independent contractors, to be paid under risk-
sharing arrangements. We believe these changes substantially address
the concerns raised by the commenters.
Despite these modifications, the terms and conditions of the
statutory and regulatory exceptions differ with respect to physician
compensation. For the convenience of the public, we are providing the
following chart briefly summarizing key provisions. Readers are
cautioned that the exceptions contain additional conditions not
summarized here. (In the chart below, those sections referred to as
1877 refer to section 1877 of the Social Security Act; those sections
referred to as 411 refer to Sec. 411 of the Code of Federal
Regulations.)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Personal service
Group practice Bona Fide employment arrangements Fair market value Academic medical
Terms of exception physicians [1877(e)(2); [1877(e)(3); [411.357(1)] centers [411.355(e)]
[1877(h)(4); 411.352] 411.357(c)] 411.357(d)]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Must compensation be ``fair market No.................... Yes--1877(e)(2)(B)(i). Yes--1877(e)(3)(A)(v) Yes--411.357(1)(3)... Yes--411.355(e)(1)(ii
value''? ).
Must compensation be ``set in No.................... No.................... Yes--1877(e)(3)(A)(v) Yes--411.357(1)(3)... Yes--411.355(e)(1)(ii
advance''? ).
Scope of ``volume or value'' DHS referrals-- DHS referrals-- DHS referrals or DHS referrals or DHS referrals or
restriction. 1877(h)(4)(A)(iv). 1877(e)(2)(B)(ii). other business-- other business-- other business--
1877(e)(3)(A)(v). 411.357(1)(3). 411.355(e)(1)(ii).
Scope of productivity bonuses Personally performed Personally performed Personally performed Personally performed Personally performed
allowed. services and services--1877(e)(2). services--411.351 services--411.351 services--411.351
``incident to'', plus (``referral'') and (``referral'') and (``referral'') and
indirect--1877(h)(4)( 411.354(d)(3). 411.354(d)(3). 411.354(d)(3).
B)(i).
Are overall profit shares allowed? Yes--1877(h)(4)(B)(i). No.................... No................... No................... No.
Written agreement required? No.................... No.................... Yes, minimum 1 year Yes (except for Yes, written
term. employment), no agreement(s) or
minimum term. other document(s).
[[Page 16068]]
Physician incentive plan (PIP) No, but risk-sharing No, but risk-sharing Yes, and risk-sharing No, but risk-sharing No, but risk sharing
exception for services to plan arrangement exception arrangement exception arrangement arrangement arrangement
enrollees? at 411.357(n) may at 411.357(n) may exception at 411.357 exception at exception at
apply. apply. may also apply. 411.357(n) may apply. 411.357(n) may
apply.
--------------------------------------------------------------------------------------------------------------------------------------------------------
General comments on physician compensation and our responses
follow.
Comment: Several commenters asked whether a physician's personally
performed services would be included as ``other business generated
between the parties.''
Response: Personally performed services are not considered ``other
business generated'' for purposes of these regulations. This
interpretation is consistent with the exclusion of personally performed
services from the definition of ``referral'' at Sec. 411.351. The
regulations have been revised to clarify that personally performed
services do not count as other business generated for the DHS entity.
However, the technical component corresponding to a physician's
personally performed service would be considered other business
generated for the entity.
Comment: A number of exceptions, including the personal service
arrangements, office and equipment rental, fair market value, and
academic medical center exceptions, require that compensation be ``set
in advance.'' Many commenters urged us to abandon our position that
percentage compensation arrangements based on fluctuating or
indeterminate measures or which result in the seller receiving
different payment amounts for the same services from the same purchaser
are not ``set in advance'' for purposes of section 1877 of the Act.
This was of particular concern to academic medical centers and
hospitals, which argued that percentage compensation is commonplace in
their physician compensation arrangements. They also pointed out that,
under the statute, group practices are not subject to the ``set in
advance'' restriction when paying profit shares or productivity bonuses
to group practice physicians, nor are employers so restricted in their
payments to employed physicians under the employee exception.
Response: As noted in section I above, we delayed until January 7,
2004, the effective date of the last sentence of Sec. 411.354(d)(1),
which contained the percentage compensation limitation, so we could
reconsider our position without unduly upsetting existing percentage
compensation arrangements. Upon further consideration, we are persuaded
that our original position was overly restrictive. We are deleting the
last sentence of Sec. 411.354(d)(1) as promulgated in the Phase I
final rule. Instead, we are modifying the ``set in advance'' definition
at Sec. 411.354(d)(1) to clarify that the formula for calculating
percentage compensation must be established with specificity
prospectively, must be objectively verifiable, and may not be changed
over the course of the agreement between the parties based on the
volume or value of referrals or other business generated by the
referring physician. We are clarifying the regulations text to make
clear that compensation is ``set in advance'' if it is set in an
agreement before the services for which payment is being made are
rendered. As explained above, the different treatment of group practice
physicians is part of the statutory scheme. We address the specific
circumstances of academic medical centers further in section XII.A
below.
Comment: One commenter requested clarification that the set in
advance and fair market value tests in Sec. 411.354(d)(1) are separate
tests.
Response: The commenter is correct. Compensation must be both ``set
in advance'' and ``fair market value.'' We have clarified the
regulation by deleting the second sentence of Sec. 411.354(d)(1),
which states that a ``set in advance'' payment must be fair market
value not taking referrals or other business into account. This concept
is already contained in Sec. 411.354(d)(2) and (d)(3), as well as in
the individual exceptions.
IV. The ``Volume or Value'' Standards Under Section 1877 of the Act
(Phase I--66 FR 876; Sec. 411.354)
Many of the exceptions in section 1877 of the Act include a
requirement that compensation not take into account the volume or value
of any referrals and, in some of the exceptions, the further
requirement that the compensation not take into account other business
generated between the parties. In Phase I (66 FR 876), we interpreted
the statute as permitting time-based or unit-of-service based payments,
even when the physician receiving the payment has generated the payment
through a DHS referral, as long as the individual payment is set at
fair market value at the inception of the arrangement and does not
subsequently change during the term of the arrangement in any manner
that takes into account DHS referrals. For those exceptions that also
restrict payments that take into account ``other business generated
between the parties,'' we interpreted the language to mean that the
payments also may not take into account any other business, including
non-Federal health care business, generated by the referring physician.
We interpreted the phrase ``generated between the parties'' to mean
business generated by the referring physician. As discussed in the
preceding section, we have interpreted ``other business generated'' to
make clear that it excludes personally performed services (but includes
corresponding technical components).
In short, we interpreted section 1877 of the Act to establish a
straightforward test that compensation arrangements should be at fair
market value for the work or service performed or the equipment or
space leased. We indicated that we would apply our interpretation of
the volume or value standard uniformly to all provisions under section
1877 of the Act and part 411 where the language appears. The ``other
business generated'' restriction applies only to those exceptions in
which it expressly appears.
In Phase I, we also concluded that, in certain situations,
compensation arrangements that require physicians to refer to
particular DHS entities would be permitted under section 1877 of the
Act, if the compensation is set in advance, is consistent with fair
market value (without regard to anticipated or required referrals),
otherwise complies with an applicable exception, and complies with
certain conditions ensuring patient choice, insurer choice, and a
physician's independent medical judgement. In response to comments, we
are clarifying that this provision, codified at Sec. 411.354(d)(4),
applies only to employment, managed care, and
[[Page 16069]]
personal services arrangements and only if (i) the required referrals
relate solely to the physician's services covered under the
arrangement; and (ii) the referral requirement is reasonably necessary
to effectuate the legitimate purposes of the compensation relationship.
Comments to the Phase I rule on the ``volume or value'' standards
and our responses follow.
Comment: Two commenters requested that we clarify that per-use or
per unit-of-service based payment methodologies do not vary with the
volume or value of referrals or other business generated within the
meaning of the regulations. One of the commenters asked that the
regulatory text be modified to make this clear.
Response: Section 411.354(d)(2) and Sec. 411.354(d)(3) clearly
state that time-based and unit-of-service based compensation will be
deemed not to take into account the volume or value of referrals or
other business generated between the parties as long as the time-based
or unit-of-service based compensation is fair market value for services
or items actually provided and the compensation does not vary during
the course of the compensation agreement in any manner that takes into
account referrals of DHS (or, in the case of Sec. 411.354(d)(3), other
business generated by the referring physician, including private pay
health care business). We consider per-use payments (also known as
``per click'') payments to be unit-of-service based compensation. When
viewed in the aggregate (for example, for purposes of the indirect
compensation arrangement definition at Sec. 411.354(c)(2)), unit-of-
service based compensation is likely to vary or otherwise reflect the
volume or value of DHS referrals or other business generated, as
applicable.
In reviewing the regulatory text, we discovered that the language
``for services or items actually provided'' appears in Sec.
411.354(d)(2), but not correspondingly in Sec. 411.354(d)(3); this was
a technical oversight and has been corrected. We are also clarifying
Sec. 411.354(d)(3) by changing the phrase ``during the term of the
agreement'' to ``during the course of the compensation agreement'' to
conform to the language used in Sec. 411.354(d)(2). We intended these
provisions to be comparable.
Comment: A number of commenters questioned the discussion of the
``volume or value'' standard as applied in the context of the indirect
compensation arrangement definition at Sec. 411.354(c) and the
indirect compensation arrangements exception at Sec. 411.357(p).
Response: As discussed above at section II.B, the use of very
similar language in the indirect compensation arrangement definition,
indirect compensation arrangments exception, and the explanations of
the ``volume or value'' and ``other business generated'' standards at
Sec. 411.354(d)(2) and Sec. 411.354(d)(3) raised unnecessary
questions, and we have revised the regulations. For purposes of
determining whether an indirect compensation arrangement exists under
the definition at Sec. 411.354(c), the inquiry is whether the
aggregate compensation to the referring physician reflects the volume
or value of DHS referrals or other business generated by the referring
physician, even if individual time-based or unit-of-service based
payments would otherwise be permissible (that is, the payments are fair
market value at inception and do not vary over the term of the
agreement). In short, many time-based or unit-of-service based fee
arrangements will involve aggregate compensation that varies based on
volume or value of services and thus will be ``indirect compensation
arrangements'' under Sec. 411.354(c). However, in determining whether
these arrangements fit into the indirect compensation arrangements
exception at Sec. 411.357(p), which does not include an aggregate
requirement, the relevant inquiry is whether the individual payments
are fair market value not taking into account the volume or value of
referrals or other business generated by the referring physician (and
do not change after inception). In other words, the issue is whether
the time-based or unit-of-service based fee is fair market value and
not inflated to compensate for the generation of business. As noted
above, we have revised Sec. 411.354(c)(2)(ii) to clarify the
application of the ``volume or value'' standards in Sec. 411.354(d) to
indirect compensation arrangements.
Comment: A commenter asked whether a per-use or per unit-of-service
based methodology that incorporated decreasing payments as volume
increased would be permitted. According to the commenter, these payment
methodologies often more accurately reflect fair market value for
equipment leases because they spread fixed costs over the term of the
lease.
Response: Payments of the sort described by the commenter would be
reviewed on a case-by-case basis. There may be circumstances,
particularly in the context of equipment leases, in which payments that
decrease as volume increases most accurately reflect fair market value
and do not take into account the volume or value of referrals or other
business generated for purposes of section 1877 of the Act. For
example, to the extent the declining payments are fair market value and
based on costs, rather than volume, they would be permitted. It is our
understanding that these declining payment arrangements primarily occur
in the context of equipment leases, where the costs allocable to the
equipment decline over time.
Comment: In Phase I, we determined that the volume or value
standard would not be implicated by an otherwise acceptable
compensation arrangement solely because the arrangement required the
physician to refer to a particular provider as a condition of payment,
as long as certain conditions were satisfied (66 FR 878). Several
commenters objected to permitting employers to require employees to
refer to specific DHS entities, notwithstanding the conditions imposed
under Sec. 411.354(d)(4). Commenters representing competitor entities
that are not part of integrated health systems objected to our position
on required referrals, believing themselves to be competitively
disadvantaged by our rule.
Response: In limited circumstances, required referrals are a
reasonable and appropriate aspect of certain health care business
arrangements that should not, in and of themselves, implicate section
1877 of the Act. Notwithstanding, we are persuaded by the commenters
that Sec. 411.354(d)(4) is overly broad and could permit required
referrals beyond those that are reasonable and appropriate. We are
modifying Sec. 411.354(d)(4) to permit only those required referrals
that are related to the services a physician performs while acting
under his or her arrangement with an entity, such as when an employer
requires its employees, when working in their capacity as employees, to
refer to employer-affiliated entities or when a managed care
organization requires its network providers, when treating enrollees,
to refer to other network providers. Thus, Sec. 411.354(d)(4) will
apply to employment, managed care, and other contractual arrangements
that include required referrals only to the extent those referrals
relate to the physician's services that are covered under the
contractual arrangement and the referral requirement is reasonably
necessary to effectuate the legitimate purposes of the compensation
relationship. For example, an entity that employs or contracts with a
physician on a part-time basis to provide services to the entity cannot
condition the employment or contract--or any compensation under
[[Page 16070]]
the employment or contract-on referrals of the physician's private
practice business (for example, patients seen by the physician when he
or she is not working part-time for the entity). As we cautioned in
Phase I, mandatory referral arrangements could still implicate the
anti-kickback statute, depending on the facts and circumstances.
Comment: Several commenters asked us to clarify whether the rules
set out in Sec. 411.354(d) are requirements or simply ``safe
harbors.'' One commenter sought confirmation of the following
interpretation: a promotional item offered free of charge to referring
and non-referring physicians alike would not violate the ``volume or
value of referrals'' standard, even though it would not qualify under
Sec. 411.354(d) because it was not sold at fair market value.
Response: The provisions at Sec. 411.354(d) are intended to be
``deeming'' or ``safe harbor'' provisions. In other words, there may be
some situations not described in Sec. 411.354(d) where an arrangement
does not take into account the volume or value of referrals. The
promotional giveaway arrangement described by the commenter might not
take the volume or value of referrals into account if the promotional
item were offered to all physicians in a community (but not, for
example, if the giveaway were limited to all members of a particular
medical staff in the community). The arrangement still creates a
financial relationship with the referring physicians that would need to
comply with an exception. Apart from the non-monetary compensation up
to $300 or hospital medical staff incidental benefits exceptions, other
potentially applicable exceptions require that compensation be fair
market value.
V. Exceptions Applicable to Ownership and Compensation Arrangements
(Section 1877(b) of the Act; Phase I--66 FR 879; Sec. 411.355)
A. Physician Services Exception (Section 1877(b)(1) of the Act; Phase
I--66 FR 879; Sec. 411.355(a))
Section 1877(b)(1) of the Act specifies that the general
prohibition does not apply to services furnished on a referral basis,
if the services are physician services, as defined in section 1861(q)
of the Act, and are furnished: (1) Personally by another physician in
the same group practice as the referring physician; or (2) under the
personal supervision of another physician in the same group practice as
the referring physician. We are making no modifications to the Phase I
rule for this exception.
Comment: We received one comment on this provision. A group
practice of allergists objected to the inclusion of antigens as an
outpatient prescription drug in the final rule. According to the
commenter, the provision of antigens is paid as a physician service and
is defined as a physician service in the Act. The group asked that we
clarify that the provision of antigens is a physician service covered
by Sec. 411.355(a) or, in the alternative, that the furnishing of such
antigens by a physician in his office is not a referral when he or she
personally furnishes the antigens to the patient.
Response: The commenter is correct that providing antigens is a
physician service and that the provision of antigens may qualify under
the physician services exception at Sec. 411.355(a). Moreover, under
the final rule, personally performed services are not considered
referrals to an entity. Finally, we note that the provision of antigens
will frequently qualify under the in-office ancillary services
exception, which also covers physician services that are DHS.
B. In-Office Ancillary Services Exception (Section 1877(b)(2) of the
Act; Phase I--66 FR 880; Sec. 411.355(b))
[If you choose to comment on issues in this section, please include the
caption ``In-Office Ancillary Services Exception'' at the beginning of
your comments.]
A detailed discussion of the in-office ancillary services exception
appears in the Phase I preamble. In general, the exception regulates
physicians' ordering of DHS in the context of their own practices. The
exception is designed to protect the in-office provision of certain DHS
that are truly ancillary to the medical services being provided by the
physician practice.
The Phase I rule made significant changes to the January 1998
proposed rule, which was generally criticized as overly restrictive. In
response to a large volume of comments to the January 1998 proposed
rule, we modified the types of services that could qualify for
protection under the exception, the level of physician supervision
required to qualify, the kinds of physicians that could provide the
requisite supervision, and the locations where the services could be
provided. While the overwhelming majority of the comments to the Phase
I rule strongly supported the changes, some commenters raised concerns
about aspects of the Phase I rule, particularly the building
requirements. We have simplified the building tests as described in
section V.B.4 of this preamble. We have made a number of other minor
changes.
As in Phase I, comments and responses to the in-office ancillary
services exception are divided into five sections: general comments,
covered DHS, supervision requirements, building requirements, and
billing requirements.
1. General Comments (Sec. 411.355(b))
Several commenters objected to the easing of the requirements for
meeting the in-office ancillary services exception. In particular, a
number of physical and occupational therapy organizations complained
that physicians would use the exception to expand the scope of the
services they provide within their practices and thus capture
additional revenues from their own referrals. These commenters
suggested tightening various elements of Sec. 411.355(b).
As we explained more fully in the Phase I preamble (66 FR 880), we
believe the final rule reflects the balance that the Congress sought
between regulating physician financial relationships and not unduly
interfering with the practice of medicine.
2. Covered Designated Health Services (Phase I--66 FR 881; Sec.
411.355(b))
The in-office ancillary services exception in section 1877(b)(2) of
the Act covers all DHS except durable medical equipment (DME) (other
than infusion pumps) and parenteral and enteral nutrients, equipment,
and supplies. In Phase I, we used the statutory authority at section
1877(b)(4) of the Act to expand the scope of DHS potentially included
in the in-office ancillary services exception by--
(1) Clarifying that outpatient prescription drugs may be
``furnished'' in the office, even if they are used by the patient at
home;
(2) Permitting external ambulatory infusion pumps that are DME to
be provided under the in-office ancillary services exception;
(3) Clarifying that chemotherapy infusion drugs may be provided
under the in-office ancillary services exception through the
administration or dispensing of the drugs to patients in the
physician's office; and
(4) Creating a new exception for certain items of DME furnished in
a physician's office for the convenience of the physician's patients.
We are making no further changes to the DHS covered by the in-
office ancillary services exception in Phase II.
Comment: Many commenters approved of the modification made in Sec.
411.355(b)(4) to permit physicians to
[[Page 16071]]
furnish crutches, canes, walkers, and manual folding wheelchairs to
patients who need assistance in ambulating in order to depart from the
physician's office. Several physician organizations commended the
modifications, but suggested that the regulatory language should not be
specific as to the items covered. An association for DME suppliers
expressed concern that the provision of folding manual wheelchairs
might discourage patients from receiving more appropriate chairs and
suggested we only permit physicians to loan wheelchairs.
Response: It is unlikely that the provision of a folding wheelchair
will deter a patient from receiving a more appropriate wheelchair on a
long-term basis. In general, with the exception of infusion pumps, the
statute expressly excludes DME from the in-office ancillary services
exception. Given this statutory directive, we think a specific and
limited list of permitted items is appropriate. While we recognize that
specificity limits future flexibility, we do not anticipate significant
changes in the equipment that might be permitted in the future.
Comment: A DME supplier association asked us to clarify the
provision in Sec. 411.355(b)(4)(iv) that physicians or group practices
that furnish DME under the in-office ancillary services exception must
meet all DME supplier standards in Sec. 424.57(c). Specifically, the
commenter asked whether physicians must apply for a supplier number
from the National Supplier Clearinghouse. If not, the commenter asked
how the DME will be billed to ensure that payment is made at the DME
regional carrier (DMERC) rates.
Response: Certification of a physician or physician group as a
provider of Medicare services does not authorize that physician or
group to bill Medicare for DME. Rather, the physician or physician
group must obtain a Medicare certification as a DME Prosthethic,
Orthotics and Supplies (DMEPOS) supplier under the DMEPOS fee schedule.
Given this payment rule, if a physician or group intends to furnish and
bill Medicare for DME under the in-office ancillary services exception,
the physician or group would need to obtain a supplier number.
3. Direct Supervision (Section 1877(b)(2)(A)(i) of the Act; Phase I--66
FR 885; Sec. 411.355(b)(1))
The in-office ancillary services exception includes a requirement
that the DHS be provided personally by: (i) The referring physician;
(ii) a physician who is a member of the same group practice as the
referring physician; or (iii) individuals ``directly supervised'' by
the physician or another physician ``in the group practice'' (section
1877(b)(2)(A)(i) of the Act). In the Phase I final rule, we interpreted
``directly supervised'' to mean that the supervision meets the
physician supervision requirements under applicable Medicare payment or
coverage rules for the specific service at issue. We interpreted
physicians ``in the group practice'' to include owners of the group
practice, employees of the group practice, and independent contractors
who, while not ``members of the group,'' contract to provide services
to the group's patients in the group's facilities pursuant to an
arrangement that complies with the reassignment rules in Sec.
424.80(b)(3) of these regulations and in section 3060.3, ``Payment to
Health Care Delivery System,'' of the Medicare Carriers Manual (CMS
Pub. 14-3), Part 3--Claims Process.
Commenters were generally pleased with the Phase I interpretation
of the ``supervision'' requirement, and we are making no significant
changes to the rule. Comments to the Phase I rule and our responses
follow.
Comment: In the Phase I final rule, we interpreted the ``direct
supervision'' requirement in section 1877(b)(1) of the Act to mean that
supervision must be provided at the level necessary to meet the
Medicare program payment and coverage rules applicable to the
particular designated health service being furnished. (See Sec.
411.355(b)(1)(iii)). While several commenters approved of this general
approach, they objected to various aspects of the current supervision
standards in the payment and coverage rules. For example, several
commenters objected to the fact that ``incident to'' services require a
very high level of supervision.
Response: This regulation is not the appropriate vehicle for
addressing concerns with the supervision requirements in current
coverage and payment rules and policies. This regulation addresses
supervision of services only insofar as it is relevant to determining
whether there is a prohibited financial relationship or a prohibited
referral. In that regard, we have simply tied this regulatory scheme to
the payment and coverage supervision standards. If those rules change
in the future, those changes would similarly apply, prospectively,
under these regulations.
Comment: A physician organization asked that we modify the language
of Sec. 411.355(b)(1)(iii) from ``another physician in the group
practice'' (emphasis added) to ``a physician in the group practice.''
According to the commenter, the proposed change more clearly reflects
that a solo practitioner can furnish DHS through a shared facility in
the same building. In the commenter's view, the current language
implies that the referring physician must be in a group practice.
Response: The regulatory language cited by the commenter is
identical to the statutory language. However, to forestall any
confusion, we have clarified the regulatory text to make clear that the
language ``another physician in the group practice'' is not intended to
mean that the referring physician must be in a group practice. Under
the regulations, a solo practitioner may provide DHS through a shared
facility, as long as the supervision, location, and billing
requirements of the in-office ancillary services exception are
satisfied. The supervision requirement referenced by the commenter
requires that the services be furnished personally by an individual
supervised by:
(1) The referring physician or, in the alternative if applicable;
(2) another physician in the referring physician's group practice.
(Under other sections of the regulation, in-office ancillary services
may also be furnished personally by the referring physician or a member
of his or her same group practice (Sec. 411.355(b)(1)(i) and Sec.
411.355(b)(1)(ii))). Thus, a solo practitioner can satisfy the first
alternative and provide the necessary supervision himself or herself.
(The level of supervision that the practitioner must provide is
dictated by the applicable Medicare coverage and payment rules for the
service.)
Comment: Several physical therapists and a professional association
representing physical and occupational therapists urged us to require
personal supervision under Sec. 411.355(b)(1). The professional
association specifically requested clarification of the following
issues:
When physical therapists work in a physician
office, is the physician required to bill ``incident to'' for those
services? Would the standards of Medicare Carrier's Manual 2050 apply?
Does the level of supervision required in the
physician's office differ depending on whether a physical therapist has
his or her own provider number?
Can a group practice own a rehabilitation agency
and bill through it? What is the supervision requirement?
If a group practice owns a comprehensive
outpatient rehabilitation facility (CORF), and the physicians who own
the practice refer patients for
[[Page 16072]]
physical therapy, what are the supervision requirements?
According to the commenter, if physicians can own these kinds of
facilities without providing direct supervision, the intent of section
1877 of the Act would be circumvented.
Response: As explained in the Phase I preamble (66 FR 885-886), we
have concluded that section 1877 of the Act should not subject
physicians to supervision standards that differ from the standards for
Medicare payment and coverage for the services provided. Thus, for
example, services billed ``incident to'' will require the level of
supervision applicable under the ``incident to'' rules. Services that
require only low-level general supervision are subject to that lower
level of supervision for purposes of section 1877 of the Act. As noted
above, these regulations under section 1877 of the Act do not, in the
first instance, establish the supervision requirements applicable to
particular services, nor are they an appropriate vehicle for doing so.
Similarly, group practices must comply with all existing billing
and claims submission rules. These regulations do not change any of
those existing rules, nor is this an appropriate place to address other
rules. Strictly for purposes of meeting the in-office ancillary
services exception, the referred DHS must be billed in a manner that
satisfies Sec. 411.355(b)(3) (discussed below).
4. The Building Requirements (Section 1877(b)(2)(A)(ii) of the Act;
Phase I--66 FR 887; Sec. 411.355(b)(2))
Under the in-office ancillary services exception, DHS must be
furnished to patients in the same building where the referring
physicians provide their regular medical services, or, in the case of a
group practice, in a central building, provided certain conditions are
satisfied (section 1877(b)(2)(A)(ii) of the Act). As the Phase I
preamble notes, the building requirements help ensure that the DHS
qualifying for the exception are truly ancillary to the physician's
core medical office practice and are not provided as part of a separate
business enterprise.
In the Phase I final rule, we adopted the suggestion of some
commenters and defined a ``building'' as a structure with, or
combination of structures that share, a single street address as
assigned by the U.S. Postal Service, excluding all exterior spaces and
interior parking garages. Under this test, a building can include a
skilled nursing or other facility or a patient's private home, provided
all other conditions of the in-office ancillary services exception are
satisfied. A mobile van or trailer is not considered a building or a
part of a building for purposes of section 1877 of the Act (see Sec.
411.351). We are retaining the Phase I definition.
We are also retaining without substantive change the Phase I
``centralized building'' test for group practices under the in-office
ancillary services exception. To prevent abuse of off-site DHS
arrangements, such as part-time MRI or CAT scan rentals, Phase I
provided that the group practice must have full-time, exclusive
ownership or occupancy of the centralized space. While many commenters
objected to this requirement, we are not changing the rule.
We are, however, substantially revising the ``same building'' test
under the in-office ancillary services exception to provide greater
flexibility and a clearer rule. The same building test in the statute
requires that the building be one in which the referring physician (or
a member of his or group practice) furnishes physician services
unrelated to the furnishing of DHS. In the Phase I rule, we interpreted
this standard as requiring the referring physician (or another
physician who is a member of the same group practice) to furnish in the
same building ``substantial'' physician services unrelated to the
furnishing of DHS.
We defined the phrase ``physician services unrelated to the
furnishing of DHS'' using a three-part test (the ``Phase I three-part
test''). First, ``physician services unrelated to the furnishing of
DHS'' was defined to mean physician services that are neither Federal
nor private pay DHS, even if the physician services lead to the
ordering of a designated health service. Second, we required that the
physician services unrelated to the furnishing of DHS that are
furnished in the building represent substantially the full range of
physician services unrelated to the furnishing of DHS that the
physician routinely provides (or, in the case of a member of a group
practice, the full range of physician services that the physician
routinely provides for the group practice). Third, we added a
requirement that the DHS furnished in the building must be furnished to
patients whose primary reason for coming in contact with the referring
physician (or his or her group practice) is the receipt of physician
services unrelated to the furnishing of DHS. The Phase I three-part
test was intended so that parties could not use the same building test
to circumvent the intent of the statute that the in-office ancillary
services exception be limited to services that are truly ``in-office''
and related to the physician's core medical services to his or her
patients.
A number of commenters raised concerns about the Phase I three-part
test. Some found it unclear or insufficiently ``bright line''. For
example, some commenters wanted further guidance on the meaning of the
``substantial physician services'' and ``primary reason'' elements.
Commenters representing practitioners in specialty groups that
primarily provide DHS, such as radiology or oncology, suggested that
the Phase I three-part test was unduly restrictive and precluded them
from using the in-office ancillary services exception.
In addition, since publication of the Phase I final rule, we have
become concerned that the Phase I three-part test might be susceptible
to abuse. In particular, we are concerned that the test would allow
physicians to implement arrangements in which DHS are insufficiently
tied to the referring physician's core medical practice and are, in
essence, separate business enterprises. For example, under the Phase I
three-part test, a group practice might lease space at an off-site
imaging facility, provide physician services there one day a week, and
then provide nothing but imaging services the remainder of the week
without any involvement or presence of the group practice physicians at
the site. These types of arrangements would not be consistent with the
intent of the ``same building'' requirement in the statute, and we had
not intended to permit them.
For all of these reasons, we have developed three new, alternative
tests that are more straightforward, afford physicians greater
flexibility, and are less susceptible to abuse. Only one of the three
tests needs to be satisfied to meet the ``same building'' requirement.
All three tests are available to solo practitioners, as well as group
practices. These new tests replace the Phase I three-part test in its
entirety. We believe that virtually all legitimate arrangements that
complied with the Phase I three-part test should qualify under one of
the new tests, as will many arrangements that had difficulty meeting
the Phase I three-part test. Arrangements that may have complied with
the Phase I three-part test, but do not meet any of the new tests,
should be restructured (or unwound) prior to the effective date of this
regulation.
Under the first new test, at Sec. 411.355(b)(2)(i)(A), a
designated health service is furnished in the ``same building'' if the
building is one in which the referring physician or his or her group
practice (if applicable) has an
[[Page 16073]]
office that is normally open to their patients at least 35 hours per
week, and the referring physician or one or more members of his or her
group regularly practices medicine and furnishes physician services to
patients in that office at least 30 hours per week. Some of the
services must be physician services that are unrelated to the
furnishing of DHS, whether Federal or private pay, although the
unrelated physician services may lead to the ordering of DHS. This new
test should address the concerns expressed by radiologists,
oncologists, and others whose practices primarily consist of furnishing
DHS. Conceptually, this test generally describes buildings that are the
principal place of practice for physicians or their groups.
Under the second new test, at Sec. 411.355(b)(2)(i)(B), a
designated health service is furnished in the ``same building'' if the
building is one in which the referring physician or his or her group
practice has an office that is normally open to their patients at least
8 hours per week, and the referring physician regularly practices
medicine and furnishes physician services to his or her patients in
that office at least 6 hours per week (including some physician
services unrelated to the furnishing of DHS). In this test, services
provided by members of the referring physician's group practice do not
count toward the 6-hour threshold. In addition, the building must be
one in which the patient receiving the designated health service
usually sees the referring physician or other members of his or her
group practice (if the physician practices in a group practice).
Conceptually, this test generally describes a building where a
referring physician practices medicine at least 1 day per week and that
is the principal place in which the physician's patients receive
physician services.
Under the third new test, at Sec. 411.355(b)(2)(i)(C), a
designated health service is furnished in the ``same building'' if the
building is one in which the referring physician or his or her group
practice has an office that is normally open to their patients at least
8 hours per week, and the referring physician or a member of his or her
group practice (if any) regularly practices medicine and furnishes
physician services to patients at least 6 hours per week in that office
(including some physician services unrelated to the furnishing of DHS).
In addition, the referring physician must be present and order the
designated health service in connection with a patient visit during the
time the office is open in the building or the referring physician or a
member of his or her group practice (if any) must be present while the
designated health service is furnished during the time the office is
open in the building. This test requires presence in the building, but
not necessarily in the same space or part of the building.
Conceptually, this test generally describes buildings in which
referring physicians (or group practice members, if any) provide
physician services to patients at least 1 day per week and the DHS are
ordered during a patient visit or the physicians are present during the
furnishing of the designated health service.
Under all of these tests, referring physicians or group practices
must have offices in the building that are normally open to their
patients a requisite number of hours per week. This standard is not
intended to preclude occasional weeks in which the office is open fewer
hours (for example, during vacation periods). In addition, under all
three tests, referring physicians (or for Sec. 411.355(b)(2)(i)(A) and
Sec. 411.355(b)(2)(i)(C), their group practice members) must regularly
practice medicine and furnish physician services for a minimum number
of hours per week in that office. This standard is not intended to
preclude use of the in-office ancillary services exception by
physicians or group practices that have unfilled appointment slots,
cancellations, or other occasional gaps in the furnishing of services
such that they do not actually provide the requisite number of hours of
physician services in particular weeks. Rather, they must regularly
(that is, in the customary, usual, and normal course) practice medicine
and furnish physician services in the building for the minimum number
of hours. In addition, consistent with the statute, the tests require
that ``some'' of the physician services be unrelated to the furnishing
of DHS. We are not requiring any particular threshold amount of
physician services unrelated to the furnishing of DHS--``some'' should
be interpreted in its common sense meaning. For purposes of
establishing compliance with the ``same building'' test, we do not
interpret the statute to mean that the physician services must be
entirely disconnected from subsequent furnishing of DHS. A stricter
interpretation would be inconsistent with the Congress' intent to
create an exception that allows physicians to conduct their medical
practices in their own offices for their own patients. Moreover, in the
context of this exception, we are concerned that a stricter
interpretation could potentially adversely impact the delivery of
patient care. Therefore, as in Phase I, we are defining ``physicians'
services unrelated to the furnishing of DHS'' to mean physician
services that are neither Federal nor private pay DHS, even if the
physician services lead to the ordering of a designated health service
(for example, a physical examination that leads to the ordering of a
clinical laboratory test or an x-ray). The provision of interpretations
and reads of diagnostic or other tests will not be considered
physicians' services unrelated to the furnishing of DHS for purposes of
this rule.
Finally, we are making several minor modifications to the building
requirements described in the responses to comments below. Moreover, we
are revising the regulations to make clear that physicians and group
practices may purchase the technical components of mobile services
(which are not buildings for purposes of the in-office ancillary
services exception) and bill for them pursuant to Sec. 414.50 and the
purchased diagnostic testing rules at section 3060 of the Medicare
Carriers Manual (as amended or replaced from time to time).
Comments to the Phase I building requirements follow, along with
our responses.
Comment: A number of commenters objected to using the post office
street address to determine whether DHS are being provided in the same
building as the physician's practice. Some commenters suggested various
alternative tests, including same ``strip mall'', same ``campus'',
``adjacent buildings'', and several others. One commenter said that the
decision as to location of the DHS was frequently controlled by the
landlord, not the physician.
Response: Any bright line test in this area will produce aberrant
results in some circumstances. Nevertheless, a bright line test for
``same building'' is essential given the significance of the in-office
ancillary services exception and, in particular, the significance of
the building tests. The post office address test was proposed by
commenters to the January 1998 proposed rule (66 FR 888). None of the
tests proffered by the Phase I commenters, nor any other test proposed
in comments to the January 1998 proposed rule, is sufficiently definite
to establish a ``bright line'' test. Any specific listing of types of
building configurations would invariably cover some situations but omit
others. The postal address test, while imperfect, provides a clear,
fair, easily-applied standard. Moreover, as we explained in Phase I (66
FR 889), the easing of the supervision standards under the
[[Page 16074]]
exception elevates the importance of meaningful building requirements
in ensuring that the in-office ancillary services exception protects
those DHS that are truly ancillary to the physician's office practice
and not those that are essentially a separate business enterprise.
Comment: A number of commenters objected to the exclusion of
services furnished in mobile vans or other facilities not permanently
affixed to the building. These commenters stated that mobile equipment
was cost-efficient and offered convenience to patients, especially in
rural areas. One commenter asked why we were prohibiting physicians
from purchasing the technical component of these mobile services.
Another commenter asked that we clarify that mobile equipment that can
be moved into a building can qualify for the in-office ancillary
exception.
Response: As we stated in the Phase I preamble (66 FR 891), part-
time rentals of DHS equipment are precisely the arrangements that
section 1877 of the Act was designed to restrict. Mobile equipment that
is placed inside a building qualifies for the exception if it is
located and used inside the ``same building'' (that is, not in the
garage or an internal loading dock or parking garage). (In this regard,
we have modified the rule consistent with our original intent in Phase
I, to clarify that internal loading docks are not considered the ``same
building''.) The special circumstances of rural area providers are
addressed by the rural exception at section 1877(d)(2) of the Act
(Sec. 411.356(c)(1)), discussed in more detail below at VII.B.
It was not our intent to prohibit physicians and group practices
from purchasing diagnostic tests under the purchased diagnostic testing
rules Sec. 414.50 and in section 3060 of the Medicare Carriers Manual
(Reassignment) (as amended or replaced from time to time). Upon further
review, however, we have concluded that the Phase I rule did not
adequately provide for the furnishing of those services. The purchased
diagnostic tests rules permit physicians or groups to bill Medicare for
purchased diagnostic tests, as long as they do not mark up the charge
for the test, and they accept the lowest of the physician fee schedule,
the physician's actual charge, or the supplier's net charge to the
physician or group as payment in full for the test, even if assignment
is not accepted. Having considered various options for addressing this
issue in this interim final rule with comment period, we have
determined that the best approach would be to exclude physicians (or
group practices) who bill for purchased diagnostic tests in accordance
with Medicare rules from the definition of ``entity'' under Sec.
411.351, which otherwise defines an ``entity'' as the party that bills
Medicare for the DHS. Conceptually, this approach reflects the
substance of a purchased diagnostic test transaction, in which another
entity actually furnishes the test, but passes the responsibility for
billing Medicare on to the physician, who is precluded from profiting.
Comment: In response to comments to the January 1998 proposed rule,
the Phase I rule included a special provision under the in-office
ancillary services exception for services provided by physicians
(including services provided by qualified persons accompanying those
physicians) whose principal medical practice involves treating patients
in their private residences (Sec. 411.355(b)(6)). Under Sec.
411.355(b)(6), the ``same building'' test is met if DHS are provided in
a private home contemporaneously with a physician service that is not a
designated health service. A private home does not include a nursing,
long-term care, or other facility or institution. We solicited comments
as to whether additional special rules might be appropriate. Two
commenters urged us to expand the exception to cover more locations and
to ease the other restrictions so that more physicians could qualify.
One commenter objected to the requirement that the physician's
principal medical practice consist of home care; the commenter stated
that the requirement was unnecessary and limited the applicability of
the exception. The commenter suggested that a physician should qualify
if his or her medical group spent more than 50 percent of the group's
practice time outside of the office setting, including travel time,
preparation, and follow up. The same commenter asked us to clarify that
the requirement that the services be contemporaneous does not require
the physician's presence during the furnishing of the designated health
service.
Response: While we understand that relaxing the standards would
result in more physicians qualifying under the special rule for home
care physicians, the commenters apparently misunderstood our intent.
Simply put, we intended to create a narrow rule for a particular group
of specialty physicians who otherwise would generally be precluded from
using the in-office ancillary services exception because they would
have no ``building'' that could qualify as the place in which they
furnish DHS under the exception. Restricting the special rule to
physicians who principally practice in the home care field is designed
to insure that the patient's home is, in fact, the physician's real
locus of practice. The special rule is specifically limited to private
residences, not nursing or other facilities.
The commenter is correct that the contemporaneous requirement does
not require the physician to be present throughout the furnishing of
the designated health service. However, the physician must be present
in the patient's private residence at the inception of the designated
health service. This presence requirement is necessary to limit the
exception to services truly furnished as part of the referring
physician's ``office'' medical practice.
Comment: One commenter asked us to clarify that residences in
independent living facilities and assisted living facilities qualify as
private homes. The commenter observed that some assisted living
facilities have examination rooms that physicians use to treat
residents. The commenter asked whether DHS furnished in such rooms
would qualify as services furnished in the patient's residence.
Response: We agree that private residences in independent living
facilities and assisted living facilities should qualify as private
homes for purposes of the special rule. We will consider a residence in
an independent living facility or assisted living facility to be
``private'' if the patient occupies the premises as his or her
residence, through ownership or lease (by the patient or a relative or
friend on the patient's behalf), and has the right to exclude others
from the premises. The use of common examination rooms in those
facilities is more problematic. For example, in some cases, assisted
living facilities are conjoined with nursing facilities, and a case-by-
case evaluation would be required to determine whether a shared
examination room is part of the nursing facility or the assisted living
facility. On balance, we prefer a clear rule in this area, and thus
would not consider a common examination room to be a private residence.
Comment: Many commenters objected to the requirements in the ``same
building'' test that (i) the referring physician (or another physician
in his or her group practice) furnish substantial physician services
unrelated to the furnishing of DHS in the same building (Sec.
411.355(b)(2)(i)(A)); and (ii) those unrelated services represent the
full range of services that the referring physician routinely provides
(or, for a
[[Page 16075]]
referring physician in a group practice, the full range of services
that the physician routinely provides for the group practice) (Sec.
411.355(b)(2)(i)(B)).
These commenters described these requirements as vague, both with
respect to the quantity of services that are not DHS that must be
performed in the building and the kinds of services that are not DHS
that qualify. Moreover, the commenters objected to the requirement in
Sec. 411.355(b)(2)(i)(C) that the receipt of DHS not be the primary
reason the patient comes into contact with the referring physician or
the group practice. Commenters pointed out that the latter requirement
was particularly problematic for physicians in certain specialties,
such as radiology and oncology, where much of their practice consists
of furnishing DHS. Commenters suggested a number of replacements for
the term ``substantial,'' including ``any,'' ``more than incidental,''
``10 percent,'' and ``significant,'' and requested clarification as to
the application of the ``primary reason'' test to oncology and
radiology practices.
Response: The statute requires that the DHS be furnished in the
``same building'' where the referring physician (or a member of his or
her group practice) furnishes ``physicians'' services unrelated to the
furnishing of DHS.'' The requirements referenced by the commenters were
intended to ensure that DHS furnished under the in-office ancillary
services exception are truly ancillary to the delivery of physician
services and that the exception is sufficiently circumscribed to
prevent abuse, particularly since the exception, as revised in the
Phase I rule, permits certain shared facilities.
As explained in detail above, we agree that the Phase I three-part
test did not adequately take into account the nature of certain
speciality practices, such as oncology and radiology, that inherently
involve the furnishing of substantial DHS and relatively limited
physician services unrelated to the furnishing of DHS. We have
addressed those concerns, among others, by replacing the Phase I three
part test with three new tests, one of which applies to any building in
which a physician's practice (whether solo or group) is normally open
for business 35 hours per week and in which the physician (or, if
applicable, members of his or her group) regularly practices medicine
and furnishes physician services to patients at least 30 hours per
week. Some part of the physician services must be physician services
unrelated to the furnishing of DHS, even if the physician services lead
to the ordering or furnishing of DHS. We are no longer requiring that
the physician services unrelated to the furnishing of DHS be
``substantial.'' We believe that radiology, oncology, and other
specialty practices that primarily provide DHS to their patients will
be able to meet the lower threshold of providing ``some'' unrelated
services in the revised regulations.
We note that interpretations or reads of tests are generally DHS
and will not count as physician services unrelated to the furnishing of
DHS.
Comment: One commenter asked us to clarify that, in Sec.
411.355(b)(2)(i)(B) of Phase I, the physician services unrelated to the
furnishing of DHS can be provided by the referring physician or by
another physician who is a member of the same group practice.
Response: The commenter is correct, although the test will be
superseded as of the effective date of these regulations by the new
building tests described above. However, for referrals and claims filed
during the period between the effective date of Phase I (January 4,
2002) and the effective date of Phase II, the Phase I building test
would apply.
Comment: Several commenters suggested that the Phase I three part
test in Sec. 411.355(b)(2) should count only DHS payable by Medicare
or Medicaid.
Response: We disagree. The purpose of the same building test is to
determine the location where the physician or group practice is
practicing medicine so as to ascertain whether the DHS are truly
ancillary to the referring physician's core medical practice and
furnished in the same building as the referring physician's (or his or
her group's) core medical practice. Consistent with this purpose,
physicians should be providing in the building that is the subject of
the inquiry at least some physician services that are unrelated to the
furnishing of any DHS, whether Federal or private pay. In other words,
the fact that a physician or group provides private pay x-rays in a
building is insufficient to establish that the provision of DHS is
ancillary to the physician's or group's core office medical practice.
We have incorporated this concept in the three new same building tests
described above.
Comment: Several commenters asked us to clarify that the primary
purpose element of the Phase I three-part test does not preclude a
referral of a patient to a group practice or to a physician for DHS
from a physician who is not in the group.
Response: Unless the outside physician has a financial relationship
with the group or physician to whom the patient is referred, a referral
for a designated health service to a physician or group practice by an
outside physician would not implicate section 1877 of the Act. As noted
previously, we are eliminating the primary purpose element in the new
Phase II regulations.
Comment: Many commenters commended our decision to permit shared
facilities in the same building provided the parties comply with the
supervision, location, and billing requirements of the in-office
ancillary services exception. Several commenters urged us to permit
shared facilities that are not located in the same building. Many
commenters objected to the requirement in the centralized building test
(66 FR 889) that the building be owned or leased by the group practice
on a full-time basis and used exclusively by the group practice, thus
excluding shared off-site facilities under the centralized building
test. Some commenters observed that the full-time, exclusive use
requirement unduly favored large group practices over small ones.
Response: We are not persuaded to change the regulations regarding
shared off-site facilities. As discussed in greater detail in the Phase
I preamble (66 FR 888), we believe that section 1877 of the Act is
directed at arrangements that enable physicians to profit from
referrals to free-standing DHS that are not ancillary to their medical
practices. For the reasons given in the Phase I preamble (66 FR 888-
893), we believe the final Phase I regulation strikes the proper
balance with respect to shared facilities.
Comment: Several commenters objected to our decision to permit
group practices to have more than one centralized facility.
Response: We discern no reason to restrict group practices to a
single centralized building, nor does the statutory language compel
that result. We believe the requirement that any centralized building
must be owned or leased 24 hours per day, 7 days per week, for at least
six months, and used exclusively by the group practice should
adequately protect against abuse.
5. The Billing Requirement (Section 1877(b)(2)(B) of the Act; Phase I--
66 FR 893; Sec. 411.355(b)(3))
To qualify for the in-office ancillary services exception under the
statute, the DHS must be billed by one of the following: The physician
performing or supervising the service; the group practice of which that
physician is a member under that group practice's billing number; or an
entity that is wholly owned by the referring or
[[Page 16076]]
supervising physician or the referring or supervising physician's group
practice. In addition, under the Phase I rule, the group practice may
bill if the physician is a ``physician in the group practice'' under
the group practice's billing number. (This interpretation corrected a
statutory anomaly and conformed the billing requirement to the
corresponding statutory supervision requirements.) As with the other
requirements in the in-office ancillary services exception, the billing
requirements serve to directly associate the ancillary services for
which self-referrals will be permitted with the physician's core
medical practice. The billing requirement is a threshold rule for
determining whether a designated health service furnished by a
physician practice may be billed or claimed. The bill or claim itself
must still comply with all other applicable billing and claims
submission laws, regulations, and policies.
Comment: One commenter asked that we interpret the billing
requirement to permit a shared facility to bill under its own billing
number.
Response: We decline to adopt the commenter's suggestion. The
billing arrangement proposed by the commenter clearly falls outside of
the statutory requirement. Moreover, the proposal would undermine the
role of the billing requirement in ensuring that the excepted
furnishing of DHS closely relates to a physician's core medical
practice.
Comment: The same commenter interpreted the final regulations as
permitting physicians to bill ``incident to'' for DHS that only require
general supervision, even though the ``incident to'' billing rules
require ``direct supervision''. Another commenter asked whether
physical therapy services had to be directly supervised by a physician
if the services are billed by a physician or a group practice.
Response: The commenter misapprehends the scope of these
regulations. The regulations under section 1877 of the Act do not
establish or authorize any billing practice that is not in full
compliance with other applicable Medicare coverage and payment rules.
The billing requirement set forth in these regulations is for the
purpose of determining whether a designated health service fits within
the in-office ancillary services exception such that, as a threshold
matter, a claim or bill for the service may be submitted at all by a
physician or group practice. If a claim or bill may be submitted, it
must still comply with all applicable Medicare payment and coverage
rules (including, for example, the ``incident to'' rules).
Comment: A professional association for physical therapists asked
the following questions:
If a physical therapist employed by a physician
practice furnishes services, bills using the physical therapy provider
number, and then reassigns payment to the group practice, are the
billing requirements met?
Would a rehabilitation agency, which is owned by
physicians, and has its own billing number, be considered a wholly
owned entity for billing purposes?
Can physicians own a physical therapy private
practice office and bill through the provider number of that office?
When a designated health service is billed by an
entity wholly owned by a group practice, do the Medicare conditions of
participation applicable to the wholly owned entity determine the
applicable level of supervision or do the supervision requirements
related to group practice billing apply?
Response: With respect to the first question, we assume it is
directed at services provided after March 1, 2003, as prior to that
date, services by an employed physical therapist had to be billed as
``incident to'' services. Billing by a physical therapist under his or
her own billing number does not satisfy the billing requirement of
section 1877(b)(2)(B) of the Act, which requires that the service be
billed by the performing physician, the supervising physician, the
group practice using a number assigned to the group, or an entity
wholly owned by the performing or supervising physician or the group
practice. However, if the physical therapist reassigns his or her right
to payment to the group, and the group bills using its own billing
number (with the physical therapist's number indicated on the bill),
then the billing requirement would be met. As to the second and third
questions, the rehabilitation facility or physical therapy practice
would be considered wholly owned if it is owned 100 percent by the
physician group practice; 100 percent by the performing physician; or
100 percent by the supervising physician. A wholly owned entity can
bill using its own billing number (See Sec. 411.355(b)(3)(iv)). With
respect to the last question, the supervision must meet the
requirements applicable to the billing submitted to the Medicare
program.
C. Group Practice Definition (Section 1877(h)(4)) of the Act; Phase I--
66 FR 894; Sec. 411.352)
[If you choose to comment on issues in this section, please include the
caption ``Group Practice Definition'' at the beginning of your
comments.]
The Phase I rulemaking addressed the definition of a ``group
practice'' under section 1877(h)(4) of the Act (the regulatory
definition appears at Sec. 411.352). Most commenters commended the
changes made in Phase I. In particular, the final rule incorporated
significant additional flexibility for group practices. We are making
no major changes to that definition in Phase II. We have modified the
``primary purpose'' test to make clear that the relevant inquiry is the
current operation of the group practice and have eliminated the
requirement for centralized utilization review under the ``unified
business'' test. We have revised the special rules on profit shares and
productivity bonuses to make clear that the ``safe harbors'' are
deeming provisions. We have also made certain modifications to address
particular concerns raised by group practices operating across State
lines, group practices employing part-time physicians, and existing
group practices adding new members.
Comments on the Phase I group practice definition and our responses
follow.
Comment: Two commenters asked us to clarify the application of the
single legal entity rule in Sec. 411.352(a) to a group practice that
has offices in more than one contiguous State and thus operates through
``mirror'' entities with identical ownership and governance.
Response: As long as both entities are absolutely identical as to
ownership, governance, and operation, the States in which the group is
operating are contiguous, and the group uses multiple legal entities
solely to comply with jurisdictional licensing laws, we will consider
the two entities to be a single legal entity. We have modified the
regulation accordingly. We note that, as a whole, the States in which
the group operates need to be contiguous, but each State need not be
contiguous with every other State.
Comment: A number of commenters objected to the requirement in
Sec. 411.352(a) that the single legal entity must be formed primarily
for the purpose of being a physician group practice. According to the
commenters, the purpose at the time of formation is irrelevant, as long
as the entity is currently operated primarily as a physician group
practice.
Response: We agree with the commenters that the relevant inquiry
should be whether the group currently is operating primarily for the
purpose of being a physician practice. We have
[[Page 16077]]
revised the rule accordingly. We want to iterate, however, that an
entity that has a substantial purpose other than operating a physician
group practice, such as operating a hospital, will not qualify. Thus,
hospitals that employ two or more physicians are not physician ``group
practices'' for purposes of section 1877(h)(4) of the Act and are not
eligible under the in-office ancillary services exception. A hospital
may own or acquire a separate physician group practice that qualifies
under section 1877(h)(4) of the Act and would be eligible under the in-
office ancillary services exception.
Comment: One commenter asked us to clarify that a group practice
can meet the definition at Sec. 411.352 if it is owned by a medical
group, as long as the medical group that owns it no longer provides
medical services. Some commenters asked us to reconsider our position
that the single legal entity requirement is not met if a group practice
is owned by another functioning medical group.
Response: Under Sec. 411.352(a), defunct medical groups no longer
providing medical services can own or operate a medical practice that
qualifies as a ``group practice'' for purposes of section 1877(h)(4) of
the Act. In this regard, we have clarified the third sentence in Sec.
411.352(a) to read: ``The single legal entity may be organized or owned
(in whole or in part) by another medical practice, provided that the
other medical practice is not an operating physician practice (and
regardless of whether the medical practice meets the conditions for a
group practice under this section).'' We stand by our determination
that a group practice owned by other functioning medical groups cannot
meet the single legal entity requirement; to conclude otherwise would
insufficiently protect against sham group practice arrangements or
physicians forming groups substantially for the purpose of profiting
from DHS referrals.
Comment: Several commenters objected to our determination that, for
purposes of section 1877(h)(4) of the Act, a hospital cannot form a
group practice of its employed physicians without organizing them into
a separate entity.
Response: As we explained in the Phase I preamble (66 FR 898-899),
treating a ``group'' of hospital-employed physicians as a ``group
practice'' for purposes of section 1877(h)(4) of the Act would stretch
the meaning of a ``group practice'' too far. It would enable hospitals
that employ two or more physicians to use the in-office ancillary
services exception inappropriately to protect virtually all inpatient
and outpatient hospital services. We do not believe that the Congress
intended the in-office ancillary services exception, which focuses on
services provided by physician practices, to be used to exempt hospital
services from the scope of section 1877 of the Act. Under the ``group
practice'' definition, a hospital may legally organize, own, or operate
a group practice that is a separate legal entity; however, the hospital
itself (or other facility or entity the primary purpose of which is
something other than the operation of a physician group practice)
cannot be a group practice for purposes of section 1877(h)(4) of the
Act. Hospitals that employ physicians can appropriately structure their
arrangements with physicians to fit in the employment exception.
Comment: Some commenters urged that a foundation-model physician
practice should be allowed to qualify as a ``group practice'' under
section 1877(h)(4) of the Act.
Response: It is our understanding that ``foundation-model''
physician practices exist in a variety of forms, depending on
jurisdiction and other factors (including, for example, whether a
particular State bars the corporate practice of medicine). Given the
variety of foundation-model arrangements, it would be difficult to
craft a uniform definition of a foundation-model group. Moreover, the
personal services arrangements exception corresponds more closely to
the contractual arrangements that typically establish foundation-model
physician practices. Indeed, the legislative history reflects
congressional intent to apply the personal services exception to
foundations. (H.R. Conf. Report No. 103-213 at 814 (1993) (``The
conferees intend that this exception would apply to payments made by a
non-profit Medical Foundation under a contract with physicians to
provide health care services and which conducts medical research
[sic].'')) Thus, as explained in Phase I (66 FR 897), foundation-model
practices should use the personal service arrangements exception. We
believe the modifications we are making to that exception in this Phase
II will address the commenters' concerns and offer adequate protection
for DHS referrals within most foundation-model group structures. This
determination does not preclude particular foundations or foundation-
model practices that, in fact, meet the single legal entity test from
qualifying as a group practice and using the in-office ancillary
services exception.
Comment: Section 1877(h)(4) of the Act requires that a ``group
practice'' consist of ``2 or more physicians.'' Several commenters
asked that we clarify whether the ``2 or more physicians'' test is met
if a group consists of one full-time physician and one part-time
employed physician or independent contractor physician. The commenters
interpreted the Phase I preamble as requiring that the second physician
be a full-time, rather than part-time, employee. The commenters viewed
this requirement as conflicting with Sec. 411.352(b), which requires
that the group have two physicians who are ``members of the group'' (as
defined in Sec. 411.351), whether as employees or direct or indirect
owners. The commenters pointed out that, under the ``members of the
group'' test, a physician with only token ownership in the group could
qualify as a member of the group. Given this relatively expansive test
for ``members of the group,'' the commenters discerned no reason for
the ``2 or more physicians'' test to require that the second physician
be a full-time employee.
Response: The list of examples of acceptable group practice
structures in the Phase I preamble (66 FR 897) is illustrative, not
exhaustive, of the kinds of arrangements that could qualify under the
group practice definition. We agree with the commenters' interpretation
that the physicians counted for the ``2 or more physicians'' test can
be part-time employed physicians. The group practice would still need
to satisfy the remaining conditions of Sec. 411.352. This
interpretation is consistent with the language of Sec. 411.352(b), and
we are therefore making no textual change.
However, with respect to independent contractor physicians, we are
not expanding Sec. 411.352(b) to permit them to fulfill the ``2 or
more physicians'' test. Independent contractors are not group practice
``members'' under Sec. 411.351. A large number of commenters to the
January 1998 proposed rule, as well as commenters to the Phase I rule,
opposed including independent contractors in the definition of ``member
of the group'' because of concerns about meeting certain of the
statutory group practice tests (66 FR 900). Accordingly, we excluded
those physicians from being group practice members, but included them
in the definition of ``physicians in the group practice,'' a resolution
consistent with the comment letters and the statutory language. To
count non-member physicians in the ``2 or more physicians'' test would
effectively expand the group practice definition to groups with no
physician members (that is, groups with 2 or more independent
contractors), a result inconsistent with the statute. That expansion
would
[[Page 16078]]
enable physicians to nullify the various tests in section 1877(h)(4) of
the Act related specifically to group practice members. For example,
the ``75 percent physician-patient encounters'' test in section
1877(h)(4)(A)(v) of the Act, which requires that members of the group
conduct at least 75 percent of the group practice's physician-patient
encounters, would be meaningless.
Comment: One commenter asked that we reconsider permitting group
practices to elect to treat independent contractors as members for
purposes of determining compliance with Sec. Sec. 411.352(d) and (h)
(the 75 percent ``substantially all'' and ``75 percent physician-
patient encounters'' tests, respectively).
Response: We are not persuaded that a change is warranted or
feasible. As we indicated in the Phase I preamble (66 FR 900), an
election process would impose an administrative burden on groups
without significant corresponding benefit, given the overall design of
the final ``group practice'' definition and in-office ancillary
services exception. Moreover, no mechanism currently exists to
administer or monitor that election, and we do not believe most
physician groups would favor creation of an election reporting
requirement. Given the lack of an election reporting mechanism, any
election provision would have to be an alternative to the existing
test, making enforcement difficult. In short, an election procedure is
impracticable. A single ``bright line'' test is preferable.
The ``substantially all'' and ``75 percent physician-patient
encounters'' tests are intended to measure whether a group practice
functions as an integrated whole. If a group is unable to take
advantage of the benefits afforded group practices under the statute
because of the use of independent contractor physicians, it can
integrate the physicians into the group as employees or owners or
restructure to comply with another exception. As noted above, a
substantial number of commenters to the January 1998 proposed rule (as
well as commenters to the Phase I rule) asked that independent
contractors not be considered members of the group to ease compliance
with the group practice definition. In response to those original
comments, we excluded independent contractors as members of the group,
while including them as ``physicians in the group practice'' where that
term is relevant.
Comment: Section 411.352(d)(5) establishes a 12-month ``grace
period'' for start-up groups to come into compliance with the group
practice definition. The grace period does not apply when an existing
group adds a new member (for example, a new employed physician) or
reorganizes. Several physician professional associations commented that
application of this rule could cause group practices that add new
physician members to lose their group practice designations for a
period of time after the new physician joins, because the new physician
could skew the ``substantially all'' test (which requires that at least
75 percent of patient care services provided by group members be
provided through the group and billed under a number assigned to the
group, with the amounts received treated as revenues of the group).
According to the associations, there are frequently delays in obtaining
Medicare billing numbers for newly employed physicians. Moreover, the
associations believe that the current rule discourages bringing younger
physicians into existing practices.
Response: Our intent in excluding existing group practices that add
new members from the broad grace period under Sec. 411.352(d)(5) was
to ensure that groups would not, in essence, secure perpetual grace
periods through the continuing addition of new physicians. In many
cases, the addition of new physicians, such as physicians with
established medical practices, to an existing group practice will not
impair the group's ability to meet the group practice definition. We
concur with the commenters, however, that some accommodation should be
made for group practices that add new members, as long as the group
practice otherwise continues to fit squarely in the definition. We are
therefore creating Sec. 411.352(d)(6) to provide that, if the addition
of a new member who has relocated his or her practice to an existing
group practice would cause the group practice to fall out of compliance
with the requirements of the ``substantially all'' test at Sec.
411.352(d)(1), the group practice will have 12 months to come back into
full compliance, provided that--
(i) For the 12-month period, the group practice is fully compliant
with the ``substantially all'' test if the new member is not counted as
a member of the group for purposes of Sec. 411.352; and
(ii) The new physician's employment with, or ownership or
investment interest in, the group practice is documented in writing
before commencement of the new employment or ownership.
We have limited this rule to new members who have relocated their
medical practices (as defined in the revised physician recruitment
exception) to prevent abuse by groups that add new members through
mergers with other groups. We are retaining the portion of the current
rule that precludes group practices that reorganize from taking
advantage of the startup or new member grace periods; if a group
practice wants to use the exceptions available to group practices, the
group should reorganize in accordance with the group practice
definition.
Comment: One commenter asked that we clarify whether leased
physician employees can be considered employees (that is, members) of a
group practice. A commenter noted that the new rules for coverage of
``incident to'' services treat leased employees as employees and
suggested that the same treatment should extend to determining whether
a leased physician employee is a member of a group practice.
Response: To the extent that a leased employee is a bona fide
employee of the group under IRS rules, that leased employee physician
would be considered an employee of the group practice, and therefore a
member of the group. Group practices bear the burden of establishing
the necessary criteria for employment. We have clarified the definition
of ``member of the group'' accordingly.
Comment: The definition of ``physician in the group practice'' in
Sec. 411.351 provides that referrals from an independent contractor
who is a physician in the group practice are subject to the prohibition
on referrals under section 1877 of the Act and that the group practice
is subject to the limitation on billing for referred services. A
commenter asked us to clarify that this provision means that
independent contractor referrals for DHS within the group implicate
section 1877 of the Act to the same extent that the group member's
referrals are implicated and not that DHS referrals cannot be made.
Response: The commenter is generally correct. Like group practice
members, an independent contractor who is a physician in the group
practice can make referrals of DHS to the group practice, as long as an
exception applies to those referrals. There is no group practice
exception as such. In general, group practices rely on the in-office
ancillary services exception for referrals within a group. Referrals
from a ``physician in the group practice'' can be covered by this
exception if all of the conditions in the exception are met.
Alternatively, referrals from an independent contractor to a group
practice for DHS could be excepted
[[Page 16079]]
under the personal service arrangements or fair market value
exceptions.
Comment: A commenter representing free clinics requested
modifications to the ``substantially all'' and ``full range of
services'' tests to accommodate the special circumstances of volunteer
physicians providing free patient care services at free clinics. The
commenter suggested that these services be treated comparably to
services provided in Health Professional Shortage Areas (HPSAs) under
Sec. 411.352(d)(4). The commenter explained that the modifications are
necessary to prevent section 1877 of the Act from acting as a
disincentive to providing free clinic services. Specifically, the
commenter recommended that Sec. 411.352(c) be amended to exclude
volunteer patient services provided by physicians in HPSAs from the
``full range of services'' test and that a new subparagraph be added to
Sec. 411.352 to create a special rule for volunteer patient services
provided at a clinic operated by a governmental entity or agency or by
a tax-exempt entity.
Response: We do not believe, nor was it our intent, that donating
volunteer services to patients at free clinics or similar facilities
should adversely impact a group practice's ability to qualify as a
``group practice'' within the meaning of Sec. 411.352. The ``full
range of services'' test at Sec. 411.352(c) measures whether a member
of a group practice provides substantially the same scope of patient
care services within the group context as he or she provides outside
the group context. The test does not require absolute identity of
services. To the extent a physician donates the same scope of patient
care services at a free clinic (that is, outside the group) as he or
she provides as part of the group practice (that is, inside the group),
there should be no problem meeting the ``full range of services'' test.
To the extent the physician donates patient care services in a free
clinic that are different from those he or she provides for the group,
we would not expect that the donated patient care services would
prevent the group from meeting the ``substantially all'' requirement.
To the extent our reference in the Phase I preamble (66 FR 903) to
volunteer activities involving treating indigent patients suggested
otherwise, we withdraw the reference.
With respect to the ``substantially all'' test at Sec. 411.352(d),
a group practice member's donation of volunteer services to a free
clinic generally should not impair the group's ability to meet the 75
percent threshold. In those situations where it may, we see no reason
that arrangements for the donated services could not be structured such
that the services are donated to the free clinic through the group. So
structured, we would consider donated patient care services to a free
clinic (or comparable charitable enterprise) to be ``billed'' through
the group, notwithstanding that no actual bills are sent or collected.
Comment: A commenter representing physicians in group practices
with members who provide substantial academic medical services sought
relief similar to the preceding comment for time spent by physicians
providing academic patient care services. The commenter explained that
a medical school physician group would have difficulty meeting the
``substantially all'' test because its members provide substantial
academic medical services to clinics and foundations at the medical
school. One commenter gave an example of a medical school group in
which physicians spend over 25 percent of their time supervising
residents and providing care at a university-affiliated clinic,
hospital, and foundation, primarily for Medicaid patients. Since these
services count as ``patient care'' services under the definition of
that term in Sec. 411.351, and the physicians do not bill for these
services under their arrangement with the academic medical center, the
physician group cannot meet the ``substantially all'' test. The
commenter urged that academic patient care services provided by
academic physicians to university hospitals, clinics, and foundations
as part of the university's faculty practice plan be excluded from the
``substantially all'' test.
Response: As with the donated volunteer services described above,
we see no reason that, in situations in which the 75 percent threshold
will not otherwise be met, arrangements for the provision of academic
patient care services could not be structured such that the services
are billed through the group and treated as receipts of the group (66
FR 905).
Comment: A commenter sought clarification that a medical school
group practice can use the in-office ancillary services exception, even
though it and its physicians are part of a faculty practice plan of an
academic medical center.
Response: If the medical school group practice meets the definition
of a ``group practice'' in Sec. 411.352, and all of the criteria of
the exception are satisfied, it can use the in-office ancillary
services exception to protect referrals within the group practice (but
not referrals to other components of the academic medical center, such
as the teaching hospital).
Comment: A commenter representing several entities described as
``independent practice associations'' (IPAs) expressed concern that
physicians in group practices who participate in an IPA representing a
significant revenue source for the group practice may forfeit their
group practice eligibility because they will not meet the
``substantially all'' test. That test requires that 75 percent of the
total patient care services of the group practice members be furnished
through the group practice and billed under a billing number assigned
to the group practice, and that the amounts received be treated as
receipts of the group practice. According to the commenter, IPAs often
employ or contract with group practice physicians directly and bill for
the provision of their services under managed care contracts. According
to the commenter, if a large portion of group members' patient care
services are provided and billed under these contracts, they will not
meet the 75 percent ``substantially all'' test. The commenter proposed
two solutions. First, we could count as ``patient care services'' only
``fee for service'' services, excluding managed care services.
Alternatively, we could count only Medicare and Medicaid services.
Response: We are somewhat unclear as to the nature of the
particular entities represented by the commenter. They do not appear to
be typical IPAs, which generally do not employ physicians.
Nevertheless, we understand the commenter to be asking about the
treatment of managed care contract services under the ``substantially
all'' test. In Phase I, a commenter posed a similar situation: a group
member physician contracts with a hospital to provide professional
services and reassigns his or her payments for those services to the
hospital. Thus, the hospital, not the group, bills Medicare for the
services. In response, we affirmed that a group should be able to count
professional services provided by the group member under a global
payment when calculating the ``75 percent of patient care services''
requirement for purposes of the ``substantially all'' test. As we
explained, the ``substantially all'' test is intended to guarantee that
group practice members are providing a substantial amount of their
services through the group practice (66 FR 905). Thus, ``if the group's
business includes providing professional services to another entity,
which, in turn, pays the group for those services, it is our view that
these are services that should count as services a physician provides
through the group'' (66 FR 905). We indicated our intent to interpret
the requirement
[[Page 16080]]
that ``substantially all'' of a physician's patient care services be
provided through the group and billed ``under a billing number assigned
to the group'' to include any physicians' professional services billed
by a group under any group billing number regardless of the payer of
the services, provided the receipts are treated as receipts of the
group.
Applied to the commenter's managed care contracts example, this
interpretation means that the group practice could count patient care
services provided under managed care contracts that are part of the
group practice's business (for example, where the group practice
contracts with the IPA to provide the services or where an individual
physician member contracts to provide the services, but assigns his or
her right to payment to the group). However, services provided by
physicians pursuant to outside employment or contractual arrangements
that are not tied to the group cannot meaningfully be said to be
provided ``through the group practice.'' Accordingly, such services
would not be counted as patient care services provided through the
group practice. Thus, services provided by physicians during the course
of employment with an IPA would count against a group practice under
the ``substantially all'' test.
We are not adopting either of the two alternative tests suggested
by the commenter. We believe they are too narrow to achieve the purpose
of the ``substantially all'' test in measuring the bona fides of a
group practice.
Comment: Section 411.352(d)(2) requires that data used to calculate
compliance with the ``substantially all'' test in Sec. 411.352(d)(1)
and supportive documentation must be made available to the Secretary
upon request. One commenter asked that we delete this requirement,
calling it simply a back-door attestation requirement.
Response: The commenter misapprehends the legal distinction between
an attestation, a document created to make mandatory representations,
and a documentation requirement, which merely requires that a group
retain records of its own activities. The documentation provision,
which mandates production of documentation only upon the Secretary's
request, enables the government to ascertain whether the
``substantially all'' test has been satisfied. Group practices that
choose to take advantage of the special treatment afforded groups under
the statute should be prepared to demonstrate compliance with relevant
statutory and regulatory standards.
Comment: Section 411.352(f) sets forth a three-part test for
determining whether a group practice is a ``unified business.'' Section
411.352(f)(1)(i) requires centralized decision-making by a body
representative of the group practice that maintains effective control
over the group's assets and liabilities, including, but not limited to,
budgets, compensation, and salaries. Section 411.352(f)(1)(ii) requires
consolidated billing, accounting, and financial reporting. One
commenter asked us to clarify the meaning of these provisions.
Specifically, the commenter asked whether the test is met if individual
group practice locations devise their own budgets, including salary and
compensation, and submit them for approval by the group's governing
board.
Response: The ``unified business'' test is intended to be flexible
and to accommodate a wide variety of group practice arrangements, while
ensuring that a group practice for purposes of section 1877 of the Act
is organized and operated on a bona fide basis as a single integrated
business enterprise with legal and organizational integration. The
``unified business'' test sets general parameters indicative of
integration, but does not dictate specific practices. (For further
discussion of the ``unified business'' test, see the Phase I preamble
(66 FR 905).) With respect to the centralized decision-making aspect,
we believe there must be substantial ``group level'' management and
operation. While, in the interest of flexibility, we are not
prescribing any particular process for managing budgets or determining
compensation and salaries, the centralized management of the group
practice must exercise substantial control over the process and output
of these activities and not simply rubber stamp decisions by the
various cost centers or locations.
Comment: The third part of the ``unified business'' test, Sec.
411.352(f)(1)(iii), provides that the group must have ``centralized
utilization review.'' Several commenters asked that we delete or modify
this requirement because many group practices do not perform
utilization review.
Response: We agree and are deleting Sec. 411.352(f)(1)(iii).
Comment: A number of commenters asked that we clarify that
physicians in the group practice can be paid a productivity bonus or
profit share based directly on services that are ``incident to''
services personally performed by the physician. The commenters stated
that while the Phase I preamble plainly contemplated that such bonuses
were permitted (66 FR 909), they found the language of the regulatory
text in Sec. 411.352(i) to be ambiguous.
Response: The commenters are correct with respect to our intent in
Phase I, and we are amending the regulatory text in Sec. 411.352(i)(3)
to make our original intent clear. Section 1877(h)(4)(B)(i) of the Act
expressly permits a physician in the group practice to receive a profit
share or productivity bonus based directly on services that he or she
personally performs and services that are ``incident to'' his or her
personally performed services. We have revised the regulations to make
clear that profit shares or productivity bonuses can be based directly
on services that are ``incident to'' the physician's personally
performed services.
Comment: Two commenters asked that we apply the group practice
bonus and profit sharing rules to employees and independent
contractors.
Response: For purposes of section 1877 of the Act, a group practice
may pay any employee or independent contractor of the group practice
who qualifies as a ``physician in the group practice'' profit shares
and productivity bonuses under Sec. 411.352(i). Referrals from a
physician in the group practice to the group practice may be protected
under the in-office ancillary services exception (provided the
conditions of the exception are met). However, if a group practice
instead uses the bona fide employment, personal service arrangements,
or fair market value exceptions to protect referrals from an
independent contractor to the group practice, the compensation rules
applicable under those exceptions must be satisfied. These rules are
discussed in section VIII below.
Comment: Section 411.352(i)(2) provides that ``overall profits'' of
the group must be based on any component of the group consisting of at
least five physicians. Several commenters asked that we permit groups
to distribute profits based on pools of fewer than five physicians.
Another commenter asked that we clarify that any grouping of five
physicians in the group constitutes an acceptable pool.
Response: As we explained in the Phase I preamble (66 FR 908), we
believe a threshold of at least five physicians is broad enough to
attenuate the ties between an individual physician's compensation and
his or her referrals. We rejected a previous suggestion from a
commenter to the January 1998 proposed rule that we use a threshold of
three physicians, because we believed that the lesser threshold would
result in pooling that would be
[[Page 16081]]
too narrow and, therefore, potentially too closely related to DHS
referrals. The commenter is correct that any grouping of five
physicians is permissible.
Comment: Two commenters asked that we clarify that bonuses based on
factors other than the volume or value of referrals of DHS are
permitted. Another commenter asked that we clarify that group practices
may distribute all their revenue using the approved allocation
methodologies in Sec. 411.352(i)(2) and Sec. 411.352(i)(3).
Response: Nothing in the statute or regulations prohibits or
restricts group practice bonuses or incentives based on criteria that
do not take into account the volume or value of DHS referrals. There is
nothing to prevent a group practice from allocating all of its revenue
using the ``safe harbored'' allocation methodologies.
Comment: One commenter asked that we clarify that, for purposes of
the ``safe harbors'' at Sec. 411.352(i)(2)(iii) and Sec.
411.352(i)(3)(iii), less than five percent of the group practice's
revenues and less than five percent of each physician's revenues must
be attributable to DHS reimbursable by Medicare or Medicaid.
Response: The commenter is generally correct. The regulations
provide that revenues derived from DHS must be less than 5 percent of
the group practice's total revenues, and that the amount of those
revenues allocated to any individual physician must constitute 5
percent or less of his or her total compensation from the group
practice. The regulations define ``DHS'' as Medicare or Medicaid DHS.
Thus, an allocation method is acceptable if less than 5 percent of the
group practice's and less than 5 percent of each physician's total
revenues come from Medicare or Medicaid DHS.
D. Prepaid Plans (Section 1877(b)(3) of the Act; Phase I--66 FR 911;
Sec. 411.355(c))
[If you choose to comment on issues in this section, please include the
caption ``Prepaid Plans Exception'' at the beginning of your comments.]
Comments related to the prepaid plan exception are discussed in
connection with comments to the risk-sharing arrangements exception at
section XII.F below.
In addition, in the January 1998 proposed rule, we proposed a
prepaid plans exception for certain Medicaid prepaid plans. As
explained in Phase I (66 FR 911), a number of commenters urged us to
expand the exception to include other Medicaid organizations analogous
to the Medicare prepaid plans covered by section 1877(b)(3) of the Act,
and we agree with these commenters. While we are deferring final
regulations for section 1903(s) of the Act, given the prevalence of
managed care in the Medicaid program, we believe it would be useful and
appropriate to expand the prepaid plans exception at Sec. 411.355(c)
to include referrals of enrollees in Medicaid managed care plans
analogous to the Medicare plans previously included in the exception.
The modification effectively addresses the application of section
1903(s) of the Act to referrals of items or services provided to
Medicaid managed care patients by making clear that such referrals
would not result in the denial of payment under section 1877 of the Act
and thus would not result in denial of Federal financial participation
under section 1903(s) of the Act. In short, instead of creating a
separate exception for Medicaid prepaid plans as proposed in 1998, we
are achieving the proposed regulatory result through modification of
Sec. 411.355(c).
VI. General Exception Related Only to Ownership or Investment in
Publicly-Traded Securities and Mutual Funds (Section 1877(c) of the
Act; Phase II; Sec. 411.356(a) and Sec. 411.356(b))
[If you choose to comment on issues in this section, please include the
caption ``Publicly-Traded Securities Exception'' at the beginning of
your comments.]
Existing Law: Section 1877(c) of the Act creates an exception for
ownership in certain publicly-traded securities and mutual funds. To
qualify for the exception in section 1877(c)(1) of the Act:
(1) The securities must be securities that may be purchased on
terms generally available to the public;
(2) The securities must be listed on the New York Stock Exchange,
the American Stock Exchange, or any regional exchange in which
quotations are published on a daily basis, or be foreign securities
listed on comparable exchanges or traded under the National Association
of Securities Dealers automated quotation system; and
(3) The ownership must be in a corporation that had shareholder
equity exceeding $75 million at the end of the corporation's most
recent fiscal year or on average during the previous three fiscal
years.
In addition, section 1877(c)(2) of the Act permits ownership of
investments in mutual funds with total assets exceeding $75 million at
the end of the most recent fiscal year or the average of the last three
fiscal years. Investment securities include shares or bonds,
debentures, notes, or other debt instruments.
Proposed Rule: The January 1998 proposed rule interpreted the
requirement that the investment securities be those that ``may be
purchased on terms generally available to the public'' to mean that, at
the time the physician (or his or her immediate family member) obtained
the ownership interest, the interest could have been purchased on the
open market, even if the physician or family member acquired the
interest in another manner. For purposes of the $75 million test, the
proposed regulation defined stockholder equity as the difference in the
value between a corporation's total assets and total liabilities.
Final Rule: For reasons set out in more detail in the responses to
comments that follow, we have reconsidered the interpretation of the
``may be purchased on terms generally available to the public''
provision in the January 1998 proposed rule. In this Phase II interim
final rule, we are interpreting the provision to mean that the
ownership interest must be in securities that are generally available
to the public at the time of the DHS referral. In other words,
securities acquired by a referring physician or his or her family
member prior to a public offering will fit in the exception if they are
available to the public at the time of any designated health service
referral (and the other conditions in the exception are satisfied). In
addition, as explained in this preamble in section II.B, we will not
consider stock options received as compensation to be ownership or
investment interests until the time that they are exercised. Having
received no comments on the definition of stockholder equity, we are
adopting the January 1998 proposal.
Comment: Several commenters objected to our interpretation in the
January 1998 proposed rule that, in order to qualify for the public
securities exception, the securities owned by the referring physician
(or his or her immediate family member) must have been generally
available to the public at the time the physician or family member
acquired their ownership interest. According to the commenters, this
interpretation conflicted with the language and history of the statute
and the overall statutory scheme, which focuses on DHS referrals. The
commenters suggested that the proper interpretation should be that the
securities are generally available to the public at the time any DHS
referrals are made.
Response: After careful consideration of the proposed rule, the
statutory scheme, and the comment letters, we have reconsidered our
position and
[[Page 16082]]
concur with the commenters. The interim final rule adopts the
interpretation proffered by the commenters. We believe this rule
strikes an appropriate balance between excepting legitimate investments
and precluding abusive ``sweetheart'' deals predicated on referrals.
Comment: Several commenters asserted that the statutory exception's
$75 million benchmark is too restrictive and that investments in
smaller public companies should be permitted. Two commenters proposed
that we except any investment in a publicly-traded company as long as
the referring physician's (or immediate family member's) ownership
constitutes less than five percent of the total ownership of the
company. Another commenter suggested that we except any investment in
any publicly-traded corporation or mutual fund. However, one commenter
urged us not to expand the publicly-traded securities exception beyond
the strict statutory standards.
Response: We find no support in the statutory language for either
of the suggested expansions of the exception, nor are we persuaded that
either expansion would be without risk of abuse, the standard for
promulgating new regulatory exceptions under section 1877(b)(4) of the
Act. The commenters urging the five percent ownership test
misunderstand the purpose of the statute. The statute is targeted at
financial relationships that create financial incentives for physicians
to refer to DHS entities. While a five percent test may be probative on
the issue of control of an entity, that test would be largely
irrelevant to the existence of an incentive to refer. On the other
hand, the limitation in the statutory exception to companies with
stockholder equity in excess of $75 million is relevant, because it
effectively severs any tie between referrals and returns on the
investment. In short, the relationship between returns and referrals is
sufficiently diffuse. An exception for investments in all publicly-
traded companies, including smaller companies, would not preclude
abuse.
Comment: One commenter requested that we create a new exception to
permit publicly-traded companies that do not meet the statutory
thresholds to bill for a de minimis amount of Medicare and Medicaid DHS
referred by physicians (or immediate family members) if the company
does not know that the physicians (or immediate family members) are
stockholders of the company.
Response: In Phase I, we added Sec. 411.353(e), which creates an
exception for entities that submit claims for DHS if the entity does
not have actual knowledge of, and does not act in reckless disregard or
deliberate ignorance of, the identity of the referring physician, and
the claim otherwise complies with all applicable laws, rules, and
regulations. We believe Sec. 411.353(e) adequately addresses the
commenter's concerns, and no further exception is needed.
Comment: One commenter requested that we create a new exception to
protect investments in privately held companies. According to the
commenter, physicians are investing in a variety of risk-bearing,
integrated practice structures, such as physician-sponsored
organizations (PSOs) and physician practice management companies
(PPMCs). The commenter believed that investments in these companies
should be protected.
Response: Nothing in the statute or regulations prohibits
investments in entities that do not furnish DHS. In Phase I of this
rulemaking, we clarified and significantly narrowed the situations in
which a managed care entity will be considered an entity providing DHS.
(See Sec. 411.351 (definition of ``entity''); see also 66 FR 943.) We
also significantly expanded the statutory exception for referrals to
prepaid plans at Sec. 411.355(c) and created a new regulatory
exception for risk-sharing arrangements at Sec. 411.357(n). These
aspects of the interim final rule largely address the situations raised
by the commenter. Of course, if the PSO, PPMC, or other investment
entity directly (or indirectly through a subsidiary) furnishes DHS
(that is, is an ``entity'' under the definition at Sec. 411.351),
there is no reason to treat it differently from any other DHS entity.
Comment: One commenter was concerned that the January 1998 proposed
rule imposed an impossible administrative reporting requirement on
publicly-traded companies. Under the August 1995 final rule, DHS
entities were required to report to the Secretary any ownership,
investment, or compensation arrangements, including the names and
unique physician identification number (UPIN) of all physicians holding
an ownership or investment interest. However, the regulations released
entities from reporting any arrangements that qualified for certain
exceptions under the Act, including the publicly-traded securities
exception. By contrast, the January 1998 proposed rule proposed
requiring entities to report all arrangements with physicians,
including those that qualify for an exception. According to the
commenter, while the proposal makes some effort to accommodate the
burden placed on publicly-traded companies, the reporting requirements
are unduly burdensome.
Response: As explained in the section on reporting requirements at
section IX below, this Phase II interim final rule eliminates the
reporting requirement for shareholder information regarding financial
relationships that satisfy the exceptions in Sec. 411.356(a) and (b)
for ownership and investment interests in publicly-traded securities
and mutual funds.
VII. Additional Exceptions Related Only to Ownership or Investment
Prohibition (Section 1877(d) of the Act; Phase II; Sec. 411.356)
A. Hospitals in Puerto Rico (Section 1877(d)(1) of the Act; Phase II;
Sec. 411.356(c)(2))
Section 1877(d)(1) of the Act provides that an ownership or
investment interest in a hospital located in Puerto Rico is not a
financial relationship within the meaning of section 1877 of the Act.
We received no comments on the January 1998 proposed rule for this
exception. The interim final rule adopts the proposed rule without
change.
B. Rural Providers (Section 1877(d)(2) of the Act; Phase II; Sec.
411.356(c)(1))
[If you choose to comment on issues in this section, please include the
caption ``Rural Providers Exception'' at the beginning of your
comments.]
Existing Law: With respect to DHS furnished in a rural area (as
defined in section 1886(d)(2)(D) of the Act), section 1877(d)(2) of the
Act provides an exception for ownership or investment interests in
rural providers that furnish DHS in a rural area, if substantially all
of the DHS are furnished to individuals residing in a rural area.
Section 507 of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA), (Pub. L. 108-173), amended section
1877(d)(2) of the Act to specify that, for the 18-month period
beginning on December 8, 2003, the rural provider may not be a
specialty hospital. Section 507 defined the term ``specialty hospital''
in a new subsection 1877(h)(7).
Proposed Rule: In the January 1998 proposed rule, we defined a
``rural provider'' as an entity that furnishes at least 75 percent of
its total DHS to residents of a rural area. Consistent with the
statute, we provided that the DHS must be furnished in a rural area,
and we defined a ``rural area'' as an area that is not an urban area
pursuant to
[[Page 16083]]
Sec. 412.62(f)(1)(ii) of this chapter (that is, an area outside a
Metropolitan Statistical Area (MSA)). We proposed eliminating the
requirement from the August 1995 final rule that the rural provider be
located in a rural area.
Final Rule: Except for codifying the changes made by section 507 of
MMA, this interim final rule adopts the January 1998 proposed rule
without change. In addition, the Phase II interim final rule creates a
limited new exception, Sec. 411.355(j), for certain referrals from a
referring physician to a DHS entity with which his or her immediate
family member has a financial relationship, if the patient being
referred resides in a rural area and there is no DHS entity available
in a timely manner in light of the patient's condition to furnish the
DHS to the patient in his or her home (for DHS furnished to patients in
their homes) or within 25 miles of the patient's home (for DHS
furnished outside the patient's home).
We have been asked to ``grandfather'' investments in DHS entities
furnishing services in rural areas that are subsequently reclassified
as non-rural areas. As we explained in the August 1995 preamble (60 FR
41954), section 1877 of the Act specifically requires that a rural
provider provide DHS in a rural area and provide ``substantially all''
of its DHS to residents of a rural area. Accordingly, if an area is
reclassified and these requirements cannot be met, a physician investor
in a rural provider cannot refer Medicare patients for DHS to that
rural provider. As noted in section II.A above, we have established a
regulatory exception at Sec. 411.353(f) for certain arrangements that
inadvertently and temporarily fall out of compliance with certain
exceptions. This new exception would apply to rural providers.
Comment: Two commenters stated that the proposed exception was too
broad and would unfairly benefit physician-owned DHS entities in rural
areas, especially home health agencies. One commenter suggested that
the exception be limited to areas where there is no other provider of
the designated health care services.
Response: The statutory exception clearly applies to rural
providers of DHS regardless of whether other DHS entities already
operate in a particular rural area or serve a particular rural patient
population. In this regard, the statute may benefit physician-owned
entities to the detriment of competing DHS entities that are not owned
by physicians. However, the statutory directive is clear.
Comment: A commenter objected to our proposed interpretation of the
term ``substantially all'' in section 1877 of the Act as requiring the
DHS entity to furnish at least 75 percent of its DHS to residents of a
rural area. The commenter stated that many providers in rural areas are
part of larger State-wide or regional health care systems that provide
services outside the rural area. The commenter suggested that the
``substantially all'' requirement should be met if the entity provides
rural area residents with one or more DHS on a 24-hour basis.
Response: We disagree that a ``24-hour basis'' rule would
appropriately or adequately implement the ``substantially all''
requirement. Indeed, the suggested test would create a loophole into
which virtually any provider could fit, thereby evading the statutory
prohibition. While we understand that many services in rural areas may
be provided by entities that are part of larger systems, we are not
convinced that fact should permit them to have physician ownership
simply because they operate minimally in a rural area. We believe the
Congress enacted the rural provider exception to ensure adequate access
to DHS for residents in rural areas that might otherwise have
difficulty attracting a sufficient number of providers and suppliers.
The 75 percent test we are adopting fully implements the statutory
requirement that ``substantially all'' of the DHS of an excepted rural
provider be furnished to residents of a rural area.
Comment: One commenter urged that physicians be permitted to own
DHS entities in ``rural'' areas located inside an urban area (that is,
inside a MSA). The commenter gave an example of a radiologist married
to a primary care physician, where the nearest alternate radiologist is
15 miles away. In the commenter's view, it would be a hardship for
patients if the primary care physician were to send them to the remote
radiology facility.
Response: The fundamental premise of section 1877 of the Act is
that physicians should not own DHS entities to which they refer. We see
no reason to expand the scope of the rural provider exception beyond
the bright line rural area definition provided in the statute.
Moreover, commenters to the various rulemakings in section 1877 of the
Act have consistently urged us to adopt ``bright line'' regulations.
The commenter's suggested test would blur an existing clear line and
would present a substantial risk of program and patient fraud and
abuse.
With respect to the commenter's example of the primary care
physician (that is, the referring physician) married to the local
radiologist (that is, the DHS entity for purposes of the example), the
problem is less with the rural provider exception than with the
financial relationship resulting from the family relationship (that is,
the radiologist's ownership of the DHS entity is imputed to the
referring spouse because of the ``immediate family'' rule). We
discussed this problem in some detail in the Phase I preamble at 66 FR
885. There, we responded to a comment asking whether a referral to a
physician spouse in another group practice, who subsequently orders a
designated health service for the referred patient, could come within
the in-office ancillary services exception. We responded that the
referral should be allowed as long as DHS were not the reason for the
original referral and any subsequent referrals by the physician spouse
fit within the in-office ancillary services exception. We further
recognized that there could be some circumstances, particularly in
underserved areas, where a spouse may be the only qualified provider of
a particular designated health service. We indicated that we were
considering a limited additional exception and invited comments.
Having considered the issue further, and in the interest of
ensuring access for patients in remote or sparsely-served areas, we
have concluded that a limited exception is warranted for intra-family
rural referrals where there are no other available providers or
suppliers of the DHS in the area to furnish the designated health
service in a timely manner in light of the patient's condition. So as
to prevent program abuse and to minimize any unfair competitive effect
on non-physician owned DHS entities that may seek to provide services
in rural areas, we have crafted a narrow exception under our authority
at section 1877(b)(4) of the Act. The new exception, at Sec.
411.355(j), excepts intra-family rural referrals if the patient resides
in a rural area and there is no DHS entity available to furnish the
referred DHS to the patient in a timely manner in light of the
patient's condition (i) at the patient's residence in the case of home
health services or other services required to be furnished in the
patient's home (for example, certain DME, such as hospital beds), or
(ii) within 25 miles of the patient's residence in the case of services
furnished outside the patient's home. Although we have considered the
15-mile radius suggested by the commenter, we believe a 25-mile radius
will best serve our need to ensure access to care, preclude any
potential for program abuse, and minimize the potential for any unfair
competitive
[[Page 16084]]
effects on non-physician owned entities in rural areas. We note that
this standard is consistent with that used elsewhere in this
regulation.
This new exception focuses on the location where the services are
furnished, not where the DHS entity is located. In other words, if a
physician knows that a home health agency located 50 miles away is
willing to provide home health services to a patient, the patient may
not be referred to a family-owned home health agency under this
exception. The referring physician or the immediate family member must
make reasonable inquiries as to the availability of other persons or
entities to furnish DHS.
However, neither the referring physician nor the immediate family
member has any obligation to inquire as to the availability of persons
or entities located farther than 25 miles from the patient's residence.
Depending on the circumstances, reasonable inquiry might include, for
example, consulting telephone directories, professional associations,
other providers, or Internet resources. As with all exceptions in
section 1877(b)(4) of the Act, the financial arrangement between the
immediate family member and the DHS entity must not violate the anti-
kickback statute.
We note that while this new exception looks to timely availability
of DHS, it does not take into account the quality of other available
DHS entities. In other words, the exception is not available if a
physician makes an intra-family referral because he or she is
dissatisfied with the quality of care provided by an otherwise
available DHS entity. While quality services for Medicare beneficiaries
and others is of the highest priority, it is not feasible to craft an
objective, qualitative measure in the new exception. Other Federal,
State, and local laws and regulations exist to address quality issues.
C. Hospital Ownership (Section 1877(d)(3) of the Act; Phase II; Sec.
411.356(c)(3))
Existing Law: Section 1877(d)(3) of the Act provides that, with
respect to DHS provided by a hospital, an ownership or investment
interest in a hospital (and not merely a subdivision of the hospital)
is not a financial relationship within the meaning of section 1877 of
the Act if the referring physician is authorized to perform services at
the hospital. Section 507 of MMA amended section 1877(d)(3) to provide
that, effective for the 18-month period beginning on December 8, 2003,
the ownership or investment interest must not be a specialty hospital.
Section 507 defined the term ``specialty hospital'' in a new subsection
1877(h)(7) of the Act.
Proposed Rule: In the preamble to the January 1998 proposed rule
(63 FR 1698), we interpreted the requirement that the DHS be ``provided
by the hospital'' to mean that the services had to be furnished by the
hospital and not by another hospital-owned entity, such as a skilled
nursing facility or a home health agency. We further stated that the
exception only protects referred services provided by an entity that is
a ``hospital'' under the Medicare conditions of participation and that
the referring physician must be authorized to perform services at the
hospital to which he or she wishes to refer. We further explained that
a physician can have an ownership or investment interest in a hospital
by virtue of holding an interest in an organization (such as a health
system) that owns a chain of hospitals, because the statute does not
require the physician to have a direct interest in the hospital (63 FR
1713). The interest must be in the whole hospital, not in a part or
department of the hospital.
Final Rule: The Phase I final rule reincorporated the definition of
``hospital'' that was originally established in the August 1995 final
regulations and that was followed by the January 1998 proposed rule
(with incidental conforming changes). In this Phase II rulemaking, we
are adopting the January 1998 proposed rule for the hospital ownership
exception without change, except for conforming amendments to
incorporate the provisions of section 507 of MMA.
Comments and responses follow.
Comment: A commenter objected generally to the exception as giving
physician-owned hospitals an unfair competitive advantage over not-for-
profit community hospitals. The commenter recommended that we limit the
exception to situations in which the physician-owned hospital was a
sole community provider.
Response: While we recognize that physician-owned hospitals may
have a competitive advantage under section 1877 of the Act, the
statutory language is clear and applies to physician ownership in any
hospital (but not a subdivision, part, or department of a hospital), if
the DHS are provided by the hospital and the referring physician is
authorized to perform services at the hospital. We believe that the
statute requires a bona fide authorization to perform services at the
hospital (for example, granting privileges to a physician who is not
expected to perform services at the hospital is not a bona fide
authorization to perform services). Notwithstanding, physician
ownership of hospitals may implicate the anti-kickback statute, section
1128B(b) of the Act, depending on the circumstances. For example,
specialty hospital ventures in which investment opportunities are
substantially limited to physicians in a position to refer to the
specialty hospital may implicate the anti-kickback statute. Physician
ownership interest in specialty hospitals may also implicate section
1877 of the Act, as revised by section 507 of the MMA.
Comment: Several commenters, including several hospital trade
associations, objected to our interpretation that the exception only
applies to services furnished by the hospital and not to services
furnished by other providers owned by the hospital. The commenters
believe that the interpretation substantially limits the usefulness of
the exception, since many hospitals provide DHS through entities that
have separate accreditation or licensure. According to the commenters,
the larger the consolidated entity (that is, hospital plus
subsidiaries), the greater the attenuation of the financial incentive.
A hospital trade association asserted that the proposed interpretation
was inconsistent with the statutory language ``in the case of DHS
provided by a hospital.'' According to the association, if the statute
only protected inpatient and outpatient hospital services provided by
the hospital, rather than subsidiaries or affiliates, the use of the
broader term ``DHS'' was unnecessary. Another commenter thought the
proposed interpretation was inconsistent with the discussion in the
January 1998 proposed rule (63 FR 1713) relating to indirect ownership
of a hospital through ownership of stock in a hospital chain.
Response: We believe our interpretation is correct and consistent
with the statutory language. The commenter's focus on the use of the
term ``DHS'' ignores the modifying language ``provided by a hospital''
that immediately follows. The interpretation we are adopting gives
meaning to every word in the statutory provision. The interpretation
proffered by the commenters would effectively create a blanket
exemption for for-profit hospital conglomerates and would create
incentives for physicians to refer their patients to such conglomerates
for all health services. Instead of attenuating the financial incentive
to refer, ownership in a large hospital conglomerate is equally likely
to intensify the incentive by increasing the
[[Page 16085]]
profit opportunities for the physician. Finally, the commenter's
suggested interpretation would give for-profit, hospital-owned DHS
entities, including DME suppliers and home health agencies, a
significant and unwarranted commercial advantage over their free-
standing competitors.
With respect to the comment that our interpretation is inconsistent
with the discussion in the preamble to the January 1998 proposed rule
addressing ownership interests in hospital chains (63 FR 1713), we
disagree. In that discussion, we explained that we would except an
indirect ownership interest in a hospital if a direct ownership in the
hospital would have been excepted. We explained that the statutory
language of the exception was not limited to direct ownership interests
and that the exception had to be read in conjunction with section
1877(a)(2) of the Act, which establishes the principle that an
ownership interest includes an indirect ownership interest for purposes
of section 1877 of the Act. In the case of hospital-owned DHS entities,
such as home health agencies, however, direct ownership by physicians
would be prohibited (absent some other applicable exception). We see no
reason to protect indirect ownership of such entities under the
hospital ownership exception, nor do we believe that the Congress
intended the exception to be used to circumvent the general prohibition
on physician ownership of DHS entities. (We note that, in some cases,
another exception-such as the rural provider or in-office ancillary
services exception--may apply to referrals from a physician-owner of a
hospital to a hospital-owned DHS entity.) Our interpretation conforms
conceptually with the language in the exception precluding ownership of
a part or subdivision of a hospital.
VIII. Exceptions Relating to Other Compensation Arrangements (Section
1877(e) of the Act; Phase II; Sec. 411.357)
A. Rental of Office Space and Equipment (Sections 1877(e)(1)(A) and
(e)(1)(B) of the Act; Phase II; Sec. 411.357(a) and Sec. 411.357(b))
[If you choose to comment on issues in this section, please include the
caption ``Space and Equipment Rental Exception'' at the beginning of
your comments.]
The Existing Law: Section 1877(e)(1)(A) and section 1877(e)(1)(B)
of the Act set forth exceptions for certain lease arrangements for
space and equipment that meet six specific criteria: (i) The lease is
in writing, signed by the parties, and specifies the space or equipment
covered by the lease; (ii) the space or equipment rented or leased does
not exceed what is reasonable and necessary for the legitimate business
purposes of the lease or rental and is used exclusively by the lessee
when being used by the lessee (except that space leases can include
appropriately prorated payments for common areas); (iii) the lease or
rental term is at least one year; (iv) the rental charges over the term
of the lease are set in advance, consistent with fair market value, and
not determined in a manner that takes into account the volume or value
of any referrals or other business generated between the parties; (v)
the lease would be commercially reasonable even if there were no
referrals between the parties; and (vi) the lease meets other
requirements set by the Secretary to protect against program or patient
abuse. ``Fair market value'' is defined in section 1877(h)(3) of the
Act as the value of rental property for general commercial purposes
(not taking into account the property's intended use). For rentals or
leases where the lessor is a potential source of patient referrals to
the lessee, fair market value means general commercial value not taking
into account intended use or the additional value the prospective
lessee or lessor would attribute to the proximity or convenience to the
lessor. The August 1995 final rule enacted Sec. 411.357(a) and Sec.
411.357(b) (space and equipment rentals, respectively), which tracked
the statutory language, including the definition of ``fair market
value.''
The Proposed Rule: The preamble to the January 1998 proposed rule
set forth several interpretive changes to the lease exceptions. First,
we proposed interpreting the requirement that the lease term be for one
year as permitting leases to be terminated for cause within the one-
year period, provided the parties did not enter into another lease
until after the expiration of the original term (63 FR 1713). We also
proposed interpreting the one-year term requirement as requiring that
any renewal of a lease be for at least one year, thereby precluding
holdover month-to-month leases (63 FR 1713). Second, we proposed
interpreting the exclusive use provisions to prohibit subleases, unless
the sublease itself satisfied the conditions of the exception (63 FR
1714). Third, we proposed interpreting the exceptions as applying to
operating leases, but not capital leases (63 FR 1714). Finally, we
proposed that ``per click'' (for example, per use or per service)
equipment rental payments would qualify for the equipment rental
exception, unless the payments were for the use of the equipment on
patients referred by the lessor-physician (63 FR 1714).
The Final Rule: The Phase I final rule addressed the definitions of
several terms used in the lease exceptions, including: ``fair market
value'', ``set in advance,'' ``volume or value of referrals,'' and
``other business generated between the parties.'' Under the final rule,
these terms have uniform meanings wherever they appear in the
regulations, including the lease exceptions. Additional discussion of
the ``volume or value of referrals,'' ``other business generated,'' and
``set in advance'' definitions appear elsewhere in this Phase II
preamble in section IV. The final regulations for the lease exceptions
at Sec. 411.357(a) and Sec. 411.357(b) adopt the regulatory language
of the January 1998 proposed rule, with minor changes noted in the
responses to comments below. Specifically:
Leases or rental agreements may be terminated
with or without cause as long as no further agreement is entered into
within the first year of the original lease term and any new lease fits
on its own terms in an exception.
Month-to-month holdover leases are allowed for
up to six months if they continue on the same terms and conditions as
the original lease.
All leases or rental agreements, whether
operating or capital, are eligible for the lease exceptions if they
meet the applicable criteria.
We have revised the ``exclusive use'' provision
to allow subleases in many cases. The exclusive use test will be
considered met as long as the lessee (or sublessee) does not share the
rented space or equipment with the lessor during the time it is rented
or used by the lessee (or sublessee). A subleasing arrangement may
create a separate indirect compensation arrangement between the lessor
and the sublessee that would need to be evaluated under the indirect
compensation rules.
``Per click'' rental payments are permitted for
DHS referred by the referring physician as long as the payments are
fair market value and do not take into account the volume or value of
referrals or other business generated by the referring physician, as
those concepts are defined in Sec. 411.351 and Sec. 411.354.
Our responses to comments on the lease exceptions follow.
Comment: Several commenters requested that we interpret the one-
year term rule to include leases or rental agreements that provide for
termination without cause, as long as the parties do
[[Page 16086]]
not enter into a new agreement during the original term. According to
the commenters, parties frequently prefer to use a ``without cause''
provision even if they have sufficient grounds to justify a ``for
cause'' termination to avoid the costs of litigation. Several
commenters disagreed with our position that upon expiration of a
contract's term, holdover month-to-month tenancies would trigger the
statutory prohibition. A commenter suggested that as long as the
holdover was on the same terms and conditions as the original lease,
there was little additional risk of abuse.
Response: We agree that there is little risk from ``without cause''
terminations as long as the parties do not enter into a new lease or
rental agreement during the first year of the original term and any new
agreement fits on its own terms in an exception. We have modified Sec.
411.357(a)(2) and Sec. 411.357(b)(3) accordingly. We also agree that
there is little risk if a holdover month-to-month tenancy or possession
proceeds on the same terms and conditions as the original lease or
rental agreement for a limited time (that is, no more than six months).
We have added Sec. 411.357(a)(7) and Sec. 411.357(b)(6) to reflect
these interpretations.
Comment: One commenter sought clarification regarding whether the
requirement that an arrangement be commercially reasonable in the
absence of referrals only applies to referrals of Medicare DHS. The
commenter said that a broader interpretation would prohibit the payment
of any amounts for referrals of private pay DHS as part of the
acquisition of the practice of a non-retiring physician.
Response: In Phase I, we defined a referral for purposes of section
1877 of the Act to mean a request for, or plan of care that includes, a
``designated health service'' and ``designated health service'' to
include only Medicare-covered services. We intend to use uniform
definitions in these regulations whenever possible. For purposes of
Sec. 411.357(a)(6) and Sec. 411.357(b)(5), we interpret the
restriction to mean that the lease or rental agreement must be
commercially reasonable even if no referrals of Medicare DHS are made
to the DHS entity. We note, however, that, in addition to the
commercial reasonableness condition, sections 1877(e)(1)(A)(iv) and
(e)(1)(B)(iv) of the Act provide that rental charges may not be
determined in a manner that takes into account ``other business
generated between the parties.'' As discussed in this preamble in
section IV, Sec. 411.354(d)(3) provides that ``other business
generated between the parties'' includes private pay health care
business (but not personally performed services). Of course, as with
all exceptions and consistent with the statutory scheme and purpose,
the conduct of the actual financial relationship between the parties
must comport with the terms of the written agreement. The written
agreement is the documentary evidence of the underlying financial
relationship.
Comment: A number of commenters objected to the interpretation in
the January 1998 proposed rule that the exclusive use requirement in
the lease exceptions prohibits subleases. These commenters recommended
that we permit subleases if they meet the other requirements of the
exception.
Response: We concur with the commenters that the Congress did not
intend for the lease exceptions to preclude lessees from subletting
leased space or equipment. The statutory lease exceptions provide that
the lessee must use the leased space or equipment ``exclusively'' when
the lessee is using the space or equipment. Upon further consideration
of the statutory scheme and purpose, we believe a fair reading of the
exclusive use provision in the context of the lease exceptions is that
the rented space or equipment cannot be shared with the lessor when it
is being used or rented by the lessee (or any subsequent sublessee). In
other words, a lessee (or sublessee) cannot ``rent'' space or equipment
that the lessor will be using concurrently with, or in lieu of, the
lessee (or sublessee). (The statute and these regulations do allow
shared common space when the rent is appropriately prorated.) Thus, for
example, if a DHS entity rents examination rooms from a physician
practice, the physician practice may not use those same examination
rooms while the lessee (or a sublessee) is using or renting them.
To preclude referring physicians or group practices from
circumventing this rule by setting up separate real estate holding
companies or subsidiaries to act as the ``lessor'', we are modifying
the regulations to preclude sharing of rented space with the lessor or
any person or entity related to the lessor, including, but not limited
to, group practices, group practice physicians, or other providers
owned or operated by the lessor. We believe our interpretation
effectuates congressional intent to curb abusive rental arrangements,
gives meaning to the exclusive use requirement in the statutory
exceptions, and, in conjunction with other conditions in the exceptions
(such as the fair market value and ``reasonable and necessary for
legitimate business purposes'' requirements) adequately protects
against abuses, while allowing legitimate subletting arrangements.
Persons or entities should be aware that, depending on the
circumstances, a sublease may create an indirect compensation
arrangement between the original lessor and the sublessee through a
chain of leases (that is, compensation arrangements). The indirect
compensation arrangement thus created would have to fit in the indirect
compensation arrangements exception in Sec. 411.357(p).
Finally, we note that, depending on the circumstances, equipment
leases may be eligible alternatively under the new fair market value
exception in Sec. 411.357(l) (66 FR 917). However, that exception,
which is limited to items and services provided by physicians, does not
apply to space leases.
Comment: Several commenters disagreed with our interpretation that
the lease exceptions apply only to operating leases and not capital
leases.
Response: We agree with the commenters. Any kind of bona fide lease
arrangement that in form and substance satisfies the regulatory
conditions can fit in the exceptions.
B. Bona Fide Employment Relationships (Section 1877(e)(2) of the Act;
Phase II; Sec. 411.357(c))
[If you choose to comment on issues in this section, please include the
caption ``Employment Relationships Exception'' at the beginning of your
comments.]
Existing Law: Section 1877(e)(2) of the Act establishes an
exception for payments made by an employer to a physician (or immediate
family member) with whom the employer has a bona fide employment
relationship for the provision of services, if certain conditions are
met. These conditions require that--
(1) The employment is for identifiable services;
(2) The amount of the payment is fair market value for the services
and is not determined in a manner that takes into account (directly or
indirectly) the volume or value of referrals by the referring
physician;
(3) The employment agreement would be commercially reasonable even
if no referrals were made to the employer; and
(4) The employment meets such other requirements as the Secretary
may impose to protect against program or patient abuse.
The statute expressly provides that employers may pay employees
productivity bonuses based on services the employee personally
performs. The statute defines an ``employee'' as an individual who
would be considered an
[[Page 16087]]
employee under the usual common law rules applicable in determining the
employer-employee relationship, as applied for purposes of section
3121(d)(2) of the Internal Revenue Code of 1986. (See section
1877(h)(2) of the Act.) We note that there is no presumption of
employment under section 1877 of the Act.
The August 1995 final rule incorporated the provisions of sections
1877(e)(2) and 1877(h)(2) of the Act into the regulations in Sec.
411.357(c) and Sec. 411.351, respectively, without imposing any
additional requirements.
Proposed Rule: The January 1998 proposed rule retained the employee
exception in Sec. 411.357(c), with certain additional requirements.
The preamble to the January 1998 proposed rule took the position that
the productivity bonus provision created an improper financial
incentive for physicians to generate referrals of DHS that the
physician would personally perform. Thus, under the authority in
section 1877(e)(2)(C) of the Act to add additional requirements in the
interest of protecting against abuse, we proposed excluding any
productivity bonus based on a physician's own referrals of DHS, even
where personally performed. We pointed out that this restriction would
not limit a physician's ability to receive productivity bonuses for
generating referrals of non-DHS or non-covered services. The proposed
rule also added a restriction on compensation related to other business
generated between the parties that is not present in the statute. The
proposed rule made no changes to the August 1995 final rule definition
of ``employee.''
Final Rule: We are adopting the January 1998 proposed rule without
the proposed limitation on productivity bonuses or the addition of the
``other business generated'' language. The limitation is no longer
relevant given our determination in the Phase I rulemaking that
personally performed DHS are not referrals for purposes of section 1877
of the Act. Moreover, as we explained in the Phase I preamble, the
statute contemplates that employed physicians can be paid in a manner
that directly correlates to their own personal labor, including labor
in the provision of DHS. What the statute does not permit are payments
for an employee's productivity in generating referrals of DHS performed
by others (66 FR 876). Except as permitted under the group practice
definition for employees of group practices, ``incident to'' DHS may
not be the basis for productivity bonuses paid to employed physicians.
We are adopting without change the January 1998 proposed rule
definition of ``employee'', which follows the statutory language.
Comments to the ``employee'' exception and our responses follow.
Comment: Several commenters asked us to expand the statutory
definition of ``employee'' in Sec. 411.351 beyond the common law
definition established in the statute to include leased employees as
defined by State law.
Response: We believe that the statutory definition is clear and
that incorporation of State law definitions of employment would be
inconsistent with the statute. As noted above in the discussion of
group practices, to the extent that a leased employee is a bona fide
employee of the DHS entity under IRS rules, remuneration paid to that
employee would be eligible under the exception. As with all exceptions,
the DHS entity would bear the burden of establishing the necessary
indicia of employment. There is no presumption of employment.
Comment: A commenter expressed concern that physicians employed by
health care systems are pressured into referring to DHS entities within
the same health system, sometimes without regard to a patient's best
interests. Other commenters, however, urged that employers should be
allowed to control their employees and should be able to require
referrals to the employer or an entity affiliated with the employer.
These commenters believed that the proper focus is on whether the
referral requirement interferes with a physician's medical judgement. A
commenter representing emergency room physicians explained that
emergency room physicians are often constrained when making referrals
because of hospital policies and rules, on-call policies, contractual
arrangements, patient's prior contact with primary care doctors or
specialists, common practice, or professional courtesy.
Response: We agree that health care referrals should always take a
patient's best interests into account and that referral requirements
should not interfere with a physician's medical judgement. However, we
believe that section 1877 of the Act was not intended to interfere
unduly with legitimate employment and health system structures. As
discussed above, we have narrowed the rule for directed referrals in
Sec. 411.354(d)(4) to employers, managed care organizations, and
certain contractual arrangements (including many emergency room
physician contracts). We have concluded that a referral restriction
will not violate the volume and value of referrals standard in section
1877 of the Act if--
The referring physician is compensated at fair
market value for services performed in an arrangement that otherwise
fits within the employment (or another) exception;
The referral restriction relates solely to the
physician's services covered by the scope of the employment or contract
and is reasonably necessary to effectuate the legitimate purposes of
the compensation relationship; and
Referrals are not required (directly or
indirectly)--
A. When the patient expresses a different choice,
I. When the patient's insurer determines the provider, or when the
referral is not in the best medical interest of the patient in the
physician's judgment.
We believe this narrower rule strikes a reasonable balance between the
legitimate business needs of employers and health systems, and
protection of patient choice and physician judgment.
Our determination here is limited to the effect of directed
referrals under section 1877 of the Act. Other laws and regulations
exist to address medically inappropriate referrals.
Comment: A number of commenters objected to the January 1998
proposal to prohibit productivity bonuses based on personally performed
DHS. Some commenters suggested that the limitation should apply only to
referrals of DHS performed by others. Some commenters urged, however,
that employers be permitted to base productivity bonuses on DHS
rendered under the supervision of an employee or, in the case of
physicians employed by a group practice, under the supervision of
another member of the group practice. A commenter urged that
productivity bonuses be permitted for supervision of ``incident to''
services that are not DHS.
Response: We are not adopting the 1998 proposed prohibition. In
Phase I, we concluded that personally performed DHS are not referrals
within the meaning of section 1877 of the Act. Accordingly, physicians
may be paid productivity bonuses based on personally performed
services, including personally performed DHS. In addition, nothing in
the exception precludes a productivity bonus based solely on personally
performed supervision of services that are not DHS, since that bonus
would not take into account the volume or value of DHS referrals.
Productivity bonuses based on supervising DHS raise a different
issue. We are concerned that, in some cases, a payment for supervision
services may
[[Page 16088]]
merely be a proxy payment for having generated the DHS being
supervised. In many cases, especially in hospitals, the supervision
required under Medicare rules is minimal, and the supervisor need do
nothing more than be present in the facility while conducting other
work. Accordingly, we are concerned that such payments could mask
improper cross-referral or circumvention schemes. We note that any
payment for supervision services must meet the fair market value
standard in the exception.
As for productivity bonuses for employees of group practices, we
expect that most group practices will rely on the in-office ancillary
services exception, rather than the employment exception, to protect
referrals by employed physicians. In that case, the group practice may
compensate the employed physicians under the productivity bonus
provisions of the ``group practice'' definition in Sec. 411.352
(discussed above at section V.C). If a group practice chooses to rely
on the employment exception, it must restrict productivity bonuses to
personally performed services and comply with the overall fair market
value requirement.
Comment: Two commenters asked whether the employment exception
would be satisfied if an employer paid an employed physician a flat fee
for each mid-level provider he or she supervises in order to compensate
the physician for the time spent on supervision.
Response: We see nothing in the exception that would bar flat fee
compensation based on the number of mid-level providers under the
physician's supervision, as long as the compensation is fair market
value for actual time dedicated to supervision services and is not
determined in any manner that takes into account, directly or
indirectly, the volume or value of DHS referrals generated by the
physician. The burden of proving the time will be on the DHS entity.
Comment: A number of commenters raised questions regarding
physician compensation that is stable and unvarying, but could still be
viewed as predicated on the volume or value of referrals. For example,
some commenters inquired regarding exclusivity provisions in employment
contracts (for example, contracts for hospital-based physicians). The
commenters noted that the exclusivity provision could be viewed as
taking into account the volume or value of referrals, even if the
dollar compensation paid to the exclusively employed physician is
unvarying. One commenter observed that exclusivity in a hospital-based
physician contract may be important for liability and insurance
purposes. Similarly, some commenters asked for clarification regarding
inclusion of covenants not to compete in employment contracts.
Response: We agree that exclusive contracting arrangements between
hospitals and traditional hospital-based physicians (radiologists,
pathologists, anesthesiologists, and emergency room physicians) can, in
certain circumstances, serve legitimate business purposes. To the
extent that these payments are for personally performed services, we do
not believe they raise any substantial concerns under the statute or
regulations. If the payments reflect or take into account non-
personally performed services, they may raise concerns under the
statute and would merit case-by-case determination, regardless of the
apparent fixed payment. In the circumstances described by the
commenters, non-compete covenants in employment contracts generally do
not take into account the volume or value of referrals. However, the
payment for the non-compete covenant must be at fair market value. (We
note that, in some contexts, these covenants in conjunction with a
lease arrangement may not be able to satisfy the special fair market
value rules for leases of space and equipment.)
Comment: Several commenters urged that the exception permit
hospitals to pay incentives to employed physicians based on meeting
hospital or drug utilization targets. The commenters believe that these
payments should not be construed as based on the volume or value of
referrals for purposes of section 1877 of the Act.
Response: There is no exception in the statute or in these
regulations that would permit payments to physicians based on their
utilization of DHS, except as specifically permitted by the risk-
sharing arrangements, prepaid plans, and personal service arrangements
exceptions. None of those exceptions permit those payments other than
in the context of services provided to enrollees of certain health
plans. We believe that the Congress intended to limit these kinds of
incentives consistent with the civil monetary penalty provision at
section 1128A(b)(1) of the Act that prohibits a hospital from paying
physicians to reduce or limit care to hospital patients. Given that
prohibition, we cannot say that payments based on lowering utilization
present no risk of fraud or abuse. Our specific authority in section
1877(e)(2)(D) of the Act to add additional requirements to the
employment exception is limited to requirements needed to protect
against program or patient abuse. Since section 1128A(b)(1) of the Act
represents a legislative determination of potential abuse, we cannot
create an exception for those activities.
Comment: According to a commenter representing an integrated
delivery system, employers should be able to reward employees based on
appropriateness of referrals as measured by quality-oriented medical
records review and compliance with clinical protocols and guidelines.
In addition, the commenter supported allowing employers to pay employed
physicians in part based on volume data in relationship to industry
norms. The commenter believed that the statutory language, unencumbered
by the 1998 proposed addition, would achieve this result.
Response: We agree that nothing in the statutory exception bars
payments based on quality measures, as long as the overall compensation
is fair market value and not based directly or indirectly on the volume
or value of DHS referrals, and the other conditions of the exception
are satisfied. For example, nothing in the statute or regulations would
prohibit payments based on achieving certain benchmarks related to the
provision of appropriate preventive health care services or patient
satisfaction. To the extent that a payment gives a physician an
incentive to reduce the volume or value of DHS, it must be a qualified
physician incentive plan payment under the personal service
arrangements exception or fit in the prepaid plans or risk-sharing
arrangements exceptions. Moreover, hospitals should be aware that
payments to reduce or limit services--which could include certain
payments based on ``appropriateness'' of referrals--may violate the
civil money penalty provision at section 1128A(b)(1) of the Act.
Comment: A commenter presented the following scenario. A hospital
employs a physician at an outpatient clinic and pays the physician for
each patient seen at the clinic. The physician reassigns his or her
right to payment to the hospital, and the hospital bills for the Part B
physician service (with a site of service reduction). The hospital also
bills for the hospital outpatient services, which may include some
procedures furnished as ``incident to'' services in a hospital setting.
The commenter's concern is that the payment to the physician is
inevitably linked to a facility fee, which is a designated health
service (that is, a hospital service). Accordingly, the commenter
wondered whether the payment to the physician
[[Page 16089]]
would be considered an improper productivity bonus based on a DHS
referral (that is, the facility fee).
Response: The fact that corresponding hospital services are billed
would not invalidate an employed physician's personally performed work,
for which the physician may be paid a productivity bonus (subject to
the fair market value requirement).
Comment: A commenter described the following scenario. A DME
supplier leases a supply closet in a physician's office. The DME
supplier and the physician share a non-physician employee who measures
braces and fits other supplies. If the physician does not see the
patient, the DME supplier bills Medicare. If the physician does see the
patient, the physician bills Medicare for a level 1 service. The DME
supplier and the physician each pay for the employee's services for
which each bills. The commenter inquired whether the shared employee
creates a financial relationship.
Response: The scenario presented by the commenter suggests several
possible financial relationships. First, the ``shared'' employee raises
significant issues. If the salary paid by the DME supplier covers any
portion of the employee's work that benefits the physician (for
example, work for which the physician would otherwise have incurred
costs), that portion of the employee's salary could be remunerated to
the physician that would create a financial relationship between the
physician and the DME company. Second, if the shared employee is a
family member of a referring physician, the employee's salary payments
from the DME supplier would also create a compensation arrangement with
the referring physician. Third, the rental of the supply closet creates
a direct financial relationship between the physician and the DME
supplier.
Comment: A commenter inquired whether a physician employed by a
hospital-owned management services organization (``MSO'') could refer
to the hospital if his or her compensation from the management services
company fits in the employment exception.
Response: The arrangement described by the commenter is a potential
indirect compensation arrangement (hospital--MSO--physician) that would
need to be analyzed under the indirect compensation rules (discussed
above in section II.B). Under the indirect compensation analysis, the
physician's compensation would be excepted if it is fair market value
for services and does not reflect the volume or value of referrals to
the hospital (that is, the DHS entity). The employment exception is not
applicable in the commenter's example, because the exception applies to
direct employment arrangements between a referring physician and an
employer that is an entity furnishing DHS (for example, section
1877(e)(2)(C) of the Act: ``even if no referrals were made to the
employer'') (emphasis added). In the example, the hospital--not the
employer MSO--is the entity furnishing DHS. Thus, the referring
physician's financial relationship with the hospital is indirect.
Comment: A commenter urged that a physician employed by a hospital
should be allowed to refer to a home health agency owned by the
hospital.
Response: As in the preceding comment, the commenter's scenario
potentially involves an indirect compensation arrangement between the
employed physician and the home health agency (the DHS entity) that
would have to fit in the indirect compensation arrangements exception.
Under that exception, the compensation paid by the hospital to the
physician could not vary or otherwise take into account referrals to
the home health agency. However, the hospital can require its employees
to refer to its home health agency without running afoul of the
restriction on compensation that reflects referrals if the requirements
of Sec. 411.354(d)(4) are satisfied.
C. Personal Service Arrangements (Section 1877(e)(3) of the Act; Phase
II; Sec. 411.357(d))
[If you choose to comment on issues in this section, please include the
caption ``Personal Services Exception'' at the beginning of your
comments.]
Existing Law: Section 1877(e)(3) of the Act establishes an
exception for personal service arrangements if--
(1) The arrangement is set out in writing, signed by the parties,
and specifies the services covered by the arrangement;
(2) The arrangement covers all of the services to be provided by
the physician (or immediate family member) to the entity;
(3) The aggregate services contracted for do not exceed those that
are reasonable and necessary for the legitimate business purposes of
the arrangement;
(4) The term of the arrangement is for at least one year;
(5) The compensation paid over the term is set in advance, does not
exceed fair market value, and, except for certain physician incentive
plans, is not determined in a manner that takes into account the volume
or value of referrals or other business generated between the parties;
(6) The services do not involve the counseling or promotion of an
unlawful business arrangement or other activity; and
(7) The arrangement meets the other requirements that the Secretary
may impose by regulation to protect against program or patient abuse.
For purposes of the exception, a physician incentive plan (PIP) is
defined in section 1877(e)(3)(B)(ii) of the Act as ``any compensation
arrangement between an entity and a physician or physician group that
may directly or indirectly have the effect of reducing or limiting
services provided with respect to individuals enrolled with the
entity.'' Under a PIP, compensation may be determined in a manner that
takes into account (through a withhold, capitation, bonus or otherwise)
directly or indirectly the volume or value of referrals or other
business generated between the parties, provided that the PIP meets the
following requirements--
(1) No specific payment is made as an inducement to reduce or limit
medically necessary services provided with respect to a specific
enrolled individual;
(2) If the PIP places the physician at substantial financial risk,
the PIP complies with the requirements in section 1876(i)(8)(A)(ii) of
the Act; and
(3) Upon the Secretary's request, the entity provides the Secretary
with access to descriptive information regarding the PIP to enable the
Secretary to determine whether the PIP is in compliance with applicable
requirements under the personal services exception.
The August 1995 final rule incorporated section 1877(e)(3) of the
Act into regulations in Sec. 411.357(d) and the definition of
``physician incentive plan'' in Sec. 411.351, without imposing any
additional requirements.
Proposed Rule: The January 1998 proposed rule contained several
technical changes and some additional proposed interpretations. The
technical changes would conform the PIP requirements to the regulations
governing PIPs issued on March 27, 1996 (61 FR 13430) established in
Sec. 417.479; delete Sec. 411.357(d)(3), a time-sensitive provision
that is now obsolete; and reorder certain paragraphs for clarity.
We proposed interpreting the exception as covering services
furnished by a physician or his or her immediate family member (63 FR
1701). We proposed interpreting the requirement that the proposed
arrangement cover all services to be provided by the physician (or
immediate family member) to permit multiple agreements between the
[[Page 16090]]
physician and the entity if each individual agreement fits in an
exception and all of the agreements incorporate one another by
reference (63 FR 1701). With respect to covered ``services'' under the
exception, we concluded that the exception is limited to ``personal
services'', that is, services of any kind performed personally by an
individual for an entity, but not including any items or equipment.
Thus, ``personal services'' would not be limited to generic Medicare
services (defined in Sec. 400.202). We further interpreted the
exception to permit the contracting physician (or immediate family
member) to perform the services personally or to provide the services
through technicians or others whom they employ (63 FR 1701). We
interpreted the exception to apply to situations in which an entity has
an arrangement with either an individual physician (or immediate family
member) or a group practice to provide personal services. Thus, a
hospital could use the exception if it contracted with a group practice
for purposes of having group members serve as the hospital's staff (63
FR 1702).
With respect to PIPs, we concluded that the exception applies only
when the entity paying the physician or physician group is the kind of
entity that enrolls its patients, such as a health maintenance
organization (63 FR 1701).
Final Rule: As described in more detail in the responses to
comments, we are adopting the January 1998 proposed rule, with some
modifications. These modifications include clarifying the treatment of
the termination provisions, clarifying that payments from downstream
subcontractors are included in the physician incentive plan exception,
and easing the incorporation by reference rule. These changes are
discussed in greater detail in the following comments and responses. In
addition, we are making a technical change to Sec. 411.357(d)(2)(iii)
(the physician incentive plan (PIP) exception) by updating the
citations to reflect that, since January 1, 1999, the PIP requirements
that apply to Medicare risk contracts have been set forth at Sec.
422.208 and Sec. 422.210.
As indicated in the Phase I preamble (66 FR 897) and above in this
preamble, we believe that the personal service arrangements exception
is the applicable exception for most foundation-model physician
practices. The fair market value exception may also be available,
depending on the circumstances. Changes we have made to the
regulations, particularly in the definitions of ``referral'' and ``set
in advance,'' should enable foundation-model practices to use the
personal service arrangements exception to engage freely in common
foundation-model structures and compensation arrangements. In
particular, the regulations make clear that independent contractor
physicians--including most, if not all, foundation-model physicians--
can receive compensation that takes into account the volume or value of
personally performed services (that is, services that are not referrals
for purposes of section 1877 of the Act) and can be compensated using a
percentage-based compensation methodology as long as the methodology is
set in advance. We also discuss, in the following responses to
comments, new ``safe harbors'' for determining fair market value for
physician services.
Comment: Several commenters suggested that the exception not be
limited to contracts between entities and physicians or group
practices. For example, the commenters suggested that contracts with
hospitals, universities, or corporations for the services of employed
physicians should be included.
Response: In light of the new exceptions for fair market value
compensation arrangements in Sec. 411.357(l), indirect compensation
arrangements in Sec. 411.357(p), and risk-sharing arrangements in
Sec. 411.357(n), we do not believe any further change is necessary to
accommodate the types of arrangements described by the commenter under
section 1877 of the Act.
Comment: Several commenters sought clarification concerning whether
the aggregate compensation paid under a personal services arrangement
needed to be set in advance.
Response: The aggregate compensation need not be set in advance
under the personal service arrangements exception. The requirements
under the ``set in advance'' standard are set forth in Sec.
411.354(d)(1) and discussed in this Phase II preamble at section IV
above.
Comment: Many commenters stated that the proposed regulations would
not permit any termination of a personal service arrangement without
cause before the end of the one-year term. These commenters believed
that termination should be permitted for any reason as long as the
parties do not enter into the same or substantially the same
arrangement within the original term.
Response: As with leases, we agree that there is little risk as
long as the parties do not enter into the same or substantially the
same arrangement during the first year of the original term and any
subsequent agreement fits on its own terms in an exception. This
provision includes, but is not limited to, arrangements for the same or
substantially same services to the same or substantially same patients
or entities. We have modified Sec. 411.357(d)(1)(iv) to reflect this
interpretation.
Comment: A number of commenters urged that we expand the PIP
exception to include incentive plans with entities other than HMOs.
Commenters also advocated for expansion of the PIP exception to include
arrangements involving subcontractors of the HMO.
Response: The PIP exception in the final rule has been modified to
clarify that it applies to downstream subcontractor arrangements
related to health plan enrollees. We addressed the issue of incentive
plans with other entities in Phase I in connection with the new risk-
sharing arrangements exception, discussed in the Phase I preamble (66
FR 912-914).
Comment: Several commenters recommended that the exception be
modified to allow physicians to hire independent contractors or use
wholly owned companies to perform services they have contracted to
provide.
Response: The commenter's proposal would present a potential for
abuse. The personal service arrangements exception is not limited to
professional services, and physicians may be hired to provide non-
physician services as well. Allowing physicians to use independent
contractors to provide services would allow a physician to enter into
brokering arrangements for virtually any kind of service and take a fee
as a middle person, without actually performing any services. This is
contrary to the intent and purpose of the statute. Using bona fide
employees to provide contract services is different. The employment
relationship ties the employee to the physician in a manner evidencing
a bona fide business operated by the physician to provide the services.
Along these same lines, we agree that a physician should be able to use
a wholly owned company to provide contracted services under the
exception.
Comment: One commenter inquired about the relationship between
supervision requirements and services provided by a physician's
employees.
Response: Nothing in these regulations affects the supervision
necessary for Medicare payment and coverage purposes. A physician may
only provide services through his or her employees if he or she
provides the requisite level of supervision under the applicable
payment and coverage rules.
Comment: Several commenters objected to our proposed interpretation
[[Page 16091]]
that items and equipment cannot be included in an arrangement under the
personal service arrangements exception (63 FR 1701). These commenters
urged that equipment or items incidental or peripheral to the provision
of personal services should be covered by the exception, if the
equipment or items comprise only a minor component of the overall
arrangement. These commenters urged that providers not be required to
parse an arrangement through several exceptions. One commenter noted
that there is a difference between a lease, in which exclusive
possession of the leased equipment is transferred, and a services
contract in which the services provider uses his or her own equipment
to provide a service. One commenter inquired, for example, whether
parties contracting for personal services and an equipment lease would
have to have two separate contracts.
Response: We have reconsidered our position on items or equipment
under the personal service arrangements exception. It is a common
practice for many independent contractors to provide the tools of their
trade in connection with their services contracts. As a practical
matter, given the similarities between the personal service
arrangements and equipment rental exceptions, the proposed exclusivity
rule would be unnecessarily formalistic. Both exceptions require fair
market value compensation that does not take into account the volume or
value of DHS referrals or other business generated by the referring
physician. For purposes of determining fair market value, however, we
will separate services and equipment contained in a single arrangement.
As previously noted, in all cases the conduct of the actual financial
relationship between the parties must comport with the terms of the
written agreement.
Comment: Several commenters inquired about various forms of
remuneration to ``voluntary'' or ``affiliated'' physicians. For
example, one commenter wanted the exception to cover ``voluntary
leadership'' arrangements in which physicians volunteer several hours
per week to enhance patient care or further an organization's health
care mission, receiving only incidental out-of-pocket expenses or
training. According to the commenter, the time volunteered by the
physician almost always exceeds the value of the training and costs
incurred.
Response: Nothing in the statute precludes a physician from
``donating'' time spent in excess of the fair market value of the
compensation received in the circumstances described by the commenter.
Comment: A commenter explained that many integrated delivery
systems rely on affiliation agreements to encourage integration in
managed care endeavors. The commenter believed that integrated delivery
systems should be able to structure compensation under affiliation
agreements that reflects the volume or value of appropriate referrals.
The commenter suggested that the PIP exception in Sec. 411.355(d)(2)
be expanded to apply equally to compensation ``intended to improve the
quality of patient care.''
Response: As discussed earlier in the context of employment
arrangements, we do not believe an expansion of the physician incentive
plans exception is appropriate. Compensation arrangements that reward
physicians for reducing or limiting care to patients under their
clinical care are subject to abuse. (See, for example, section
1128A(b)(1) of the Act.) The only permitted arrangements are those that
will fit in an existing exception. We note that physician incentive
payments under existing exceptions are limited to enrollees of a health
plan. Section 1877 of the Act is not a per se prohibition on other
forms of incentive payments that are not based on the volume or value
of referrals or other business generated between the parties and that
do not directly or indirectly reduce or limit medically necessary
patient care. For example, a bonus paid to a physician for ensuring
that his or her patients received preventive care services would not be
considered to be a payment to reduce or limit medically necessary
services.
Comment: Several commenters stated that requiring multiple
agreements to incorporate one another by reference imposes an undue
administrative burden on providers, particularly large providers with
high volumes of physician contracts, all subject to various
commencement and termination dates. In addition, one commenter was
concerned that the incorporation requirement potentially created a
situation in which an agreement could be technically breached due to a
default under a marginally related contract. The commenter offered the
following example: if the wife of a physician were to breach her
contract as a fitness instructor at a hospital, that breach could taint
the hospital's contract with her spouse's group practice for the
provision of medical services to hospital patients. Some commenters
recommended that the incorporation requirement be deleted or that it be
changed to require a cross-reference to a master list of contracts that
would be maintained and updated centrally.
Response: We agree that the incorporation requirement may impose a
significant burden on entities. We included the incorporation
requirement to fulfill the statutory directive in section
1877(e)(3)(A)(ii) of the Act that arrangements cover all of the
services to be provided. To alleviate the burden on entities, we are
adopting the commenters' suggestion and changing the regulations to
require either incorporation of other agreements or cross-referencing
to a master list of contracts that is maintained and updated centrally.
We understand that some providers may organize their contracting
functions by department or otherwise have more than one central
repository for contracting data. The master list alternative will be
satisfied if more than one master list is maintained and cross-
referenced, so long as the several master lists, taken together, cover
all of the contracts with the referring physician or immediate family
member. Moreover, annual or other regular financial statements (such as
quarterly statements) that clearly show parties, dates, payments, and
purposes of payments separately for each personal service contract can
qualify as a master list if the statements are appropriately cross-
referenced in the agreement. We are adding a requirement that the
master list or lists be made available for inspection by the Secretary
upon request and that the list or lists be maintained in a manner that
preserves the historical record (that is, updating should not be done
in a manner that erases records of past contracts). We believe this
solution adequately fulfills the statutory ``covers all'' requirement
while minimizing the burden on entities.
Comment: A commenter expressed concern that the personal service
arrangements exception does not contain an exception for productivity
bonuses, noting that this is a particular issue for contractors of
group practices, who under the January 1998 proposed rule were not
considered members of the group. The commenter asked whether
independent contractors can be paid a percentage of collections related
to work personally performed by the contractor if the percentage is
fair market value and not based on DHS referred to the group by the
independent contractor.
Response: Changes made in the Phase I rulemaking largely address
the commenter's concern. First, under Phase I, independent contractors
are considered ``physicians in the group'' and may be paid productivity
bonuses
[[Page 16092]]
in accordance with the group practice rules set forth in Sec. 411.352.
However, if the independent contractor generates DHS referrals for the
group practice, and the group practice relies on the personal service
arrangements exception rather than the in-office ancillary services
exception to protect those referrals, then the compensation rules of
the personal service arrangements exception would apply. Second, under
the Phase I rules, the definition of ``referral'' no longer includes
personally performed DHS, so compensation paid for personally performed
services does not vary based on the volume or value of referrals. Thus,
all physicians, whether group practice physicians, employed physicians,
or independent contractor physicians, can be compensated for personally
performed DHS, whether self-referred or referred by someone else. (We
note that, under the statute, productivity bonuses for services
``incident to'' personally performed services are only permitted for
physicians in group practices.) The personal service arrangements
exception requires that a physician's compensation be ``set in
advance.'' Under changes we are making in this Phase II rule to the
``set in advance'' requirement in Sec. 411.354(d)(1), certain
percentage compensation arrangements will be considered ``set in
advance.'' Assuming that the new ``set in advance'' requirements are
met, the scenario described by the commenter would be permitted, since
the compensation is fair market value and none of the compensation
relates to referrals of DHS.
Comment: Two commenters representing independent dialysis
laboratories urged us to issue additional regulations prohibiting
referrals between dialysis centers and laboratories owned by a common
parent company. These commenters believed that the two major
corporations that own dialysis facilities should be subject to the same
referral prohibition as physicians. In addition, these commenters
raised concerns about medical director contracts or other employment or
services contracts entered into in connection with a physician's sale
of his or her dialysis facility to a corporate owner. The commenters
believe that these contracts--which often are long-term and include
non-compete clauses--are part of the overall purchase price of the
facility and should be considered when determining whether the sale is
at fair market value. They also believe that these contracts serve to
lock the physician into referring to the corporation's laboratories,
thus competitively disadvantaging independent laboratories.
Response: Section 1877 of the Act is limited to referrals by
physicians and does not cover referrals among commonly held entities,
absent involvement of a referring physician. With respect to medical
director contracts or other contracts between corporate dialysis
facilities and physicians, these arrangements may create indirect
compensation arrangements between the medical director and the
corporate laboratory that would need to fit in the indirect
compensation exception. In other words, the medical director contract
creates a link between the physician and the dialysis facility, which
is linked through ownership to the parent corporation, which is linked
by ownership to the corporation's laboratory (the DHS entity). If the
physician's compensation takes laboratory referrals into account, the
arrangement would not fit in the exception. (See discussion of indirect
arrangements in section II.B)
Comment: One commenter recommended that we establish a benchmark
for evaluating whether end-stage renal disease (ESRD) facility medical
director compensation is fair market value by establishing a presumed
appropriate fair market value hourly rate.
Response: With respect to the commenters' suggestion that we fix a
fair market value benchmark for medical directors, we are not in a
position--nor would it be appropriate--to set a fixed, industry-wide
fair market value rate for ESRD medical directors. However, we are
creating a ``safe harbor'' provision under the definition of ``fair
market value'' in Sec. 411.351 for hourly payments to physicians for
their personal services. The ``safe harbor'' provision applies to
payments for services provided personally by the physician, but not to
services provided by the physician's employees or other persons or
entities. The safe harbor is not limited to medical director services
for ESRD facilities, but may be used for other hourly physician
compensation paid by any DHS entity.
The safe harbor consists of two methodologies for calculating
hourly rates that will be deemed to be ``fair market value'' for
purposes of section 1877 of the Act. The first methodology requires
that the hourly payment be less than or equal to the average hourly
rate for emergency room physician services in the relevant physician
market, provided there are at least three hospitals providing emergency
room services in the market. The second methodology requires averaging
the fiftieth percentile salary for the physician's specialty of four
national salary surveys and dividing the resulting figure by 2000 hours
to establish an hourly rate. The ``safe harbor'' provides a choice of
six recognized, readily-available surveys. If the relevant specialty
does not appear on the survey, the safe harbor looks to the salary for
general practice.
Compliance with these safe harbor methodologies is entirely
voluntary; DHS entities may continue to establish fair market value
through other methods. DHS entities that choose to use either of the
two ``safe harbor'' methodologies will be assured that their
compensation rates will be deemed fair market value for purposes of
section 1877 of the Act. (Their arrangements will still need to meet
all other conditions of an applicable exception.) For example, we
believe that nephrology salary data from four surveys could be used to
calculate an hourly payment for medical directors of ESRD facilities
(that is, the average fiftieth percentile nephrologist salary from four
surveys divided by 2000 hours). DHS entities using other methodologies
to determine fair market value will continue to bear the risk that
their rates may not be considered fair market value.
For purposes of section 1877 of the Act, we would treat a sale of a
dialysis facility and an accompanying employment contract as separate
arrangements to be evaluated under the isolated transactions exception
and the employment exception, respectively. Both exceptions require
fair market value compensation.
Finally, we note that the arrangements described by the commenters
may be problematic under the anti-kickback statute.
Comment: Commenters representing independent dialysis laboratories
stated that dialysis corporations sell dialysis supplies at a discount
to physicians who agree to refer to the corporation laboratories and
enter into management contracts with independent dialysis facilities
that steer the facility business to the corporation laboratories.
Response: If the dialysis corporations sell items or services to
physicians at a price below fair market value (including any discount),
the arrangement will not fit in the exception for payments by a
physician for items or services at Sec. 411.357(i). Similarly, cut-
rate management contracts in exchange for the ability to steer business
will not fit in an exception. Again, these arrangement may raise
concerns under the anti-kickback statute.
[[Page 16093]]
Comment: Two commenters recommended that the personal service
arrangements exception allow the substitution of bona fide locum tenens
physicians, consistent with the Medicare reassignment rules.
Response: A physician may use a locum tenens physician to provide
contracted services under this exception. To determine whether a
physician is a bona fide locum tenens physician for purposes of this
rule, we will look to the definition of ``locum tenens'' in Sec.
411.351, except that the requirement in the definition that the regular
physician must be a member of a group practice will not apply (for
example, the regular physician could be a sole practitioner). We will
apply this standard, even if the contracted services are not
reimbursable by Medicare. Also in this regard, in Phase I we expanded
the group practice definition to include independent contractors and
locum tenens physicians.
Comment: In the preamble of the January 1998 proposed rule (63 FR
1700), we indicated our intent to interpret the ``commercially
reasonable'' requirement for purposes of all exceptions that require
commercial reasonableness to mean that an arrangement was a sensible,
prudent business arrangement from the perspective of the particular
parties involved, even in the absence of potential referrals. In the
commenter's view, this interpretation injected an unwarranted
subjective element into the test.
Response: An arrangement will be considered ``commercially
reasonable'' in the absence of referrals if the arrangement would make
commercial sense if entered into by a reasonable entity of similar type
and size and a reasonable physician (or family member or group
practice) of similar scope and specialty, even if there were no
potential DHS referrals.
D. Remuneration Unrelated to the Provision of Designated Health
Services (DHS) (Section 1877(e)(4) of the Act; Phase II; Sec.
411.357(g))
[If you choose to comment on issues in this section, please include
the caption ``Remuneration Unrelated to DHS Exception'' at the
beginning of your comments.]
Existing Law: Under section 1877(e)(4) of the Act, remuneration
provided by a hospital to a physician that does not relate to the
furnishing of DHS does not constitute a prohibited compensation
arrangement. The exception does not apply to remuneration from a
hospital to a member of a physician's immediate family. (Until January
1, 1995, the payments to immediate family members were included.) Nor
does it apply to remuneration from entities other than hospitals.
Proposed Rule: To conform to various statutory changes, the January
1998 proposed rule proposed to revise Sec. 411.357(g) by removing that
portion that was based on the predecessor provision of section
1877(b)(4) of the Act, since that provision had expired, and by
changing the reference to remuneration not related to the furnishing of
clinical laboratory services to remuneration not related to the
furnishing of DHS.
In addition, the January 1998 proposed rule discussed proposed
interpretations of the exception. First, in order to come within the
exception, the remuneration would have to be completely unrelated to
the provision of DHS. Where a hospital made payments that were
inordinately high for apparently unrelated services to a physician who
referred DHS to the hospital, we would presume the excess payment was,
in fact, related to the DHS. Second, we gave several examples to
illustrate potentially ``unrelated'' services. These examples included
fair market value payments by a teaching hospital to a physician to
rent a house for use by visiting fellows, as well as payments for
teaching, general administrative services, or utilization review. By
contrast, payments to a physician for a medical device used in the
provision of DHS (for example, inpatient procedures) or for malpractice
insurance would be considered related to the provision of DHS. We
stated that the test would be whether there was any link between the
remuneration and the referral or provision of DHS. We noted that some
of these arrangements might fit in another statutory or regulatory
exception.
Final Rule: We have incorporated the technical changes described in
the January 1998 proposed rule. In light of the statutory history, we
are interpreting the exception to be narrow and available only if
remuneration is wholly unrelated to the provision of DHS. In general,
for purposes of the exception, we will treat any item, service, or cost
that could be allocated in whole or in part to Medicare or Medicaid
under applicable cost reporting principles to be related directly or
indirectly to the provision of DHS. In addition, other remuneration
will be considered related to DHS for purposes of this exception if it
is furnished, directly or indirectly, explicitly or implicitly, in a
selective, targeted, preferential, or conditional manner to medical
staff or other physicians in a position to make or influence referrals.
The exception will not apply to any other remuneration that is related
in any manner to the provision of DHS. Given the other exceptions,
especially the personal services arrangements and fair market value
exceptions, any bona fide compensation relationships related in any way
to DHS could be structured to satisfy another exception.
Section 411.357(g) has been modified to reflect these
interpretations, which are explained further in the responses to
comments.
Comment: Several commenters objected to our statement that any link
to the provision of DHS would make the exception unavailable. One
commenter stated that our position appeared to mean that if either
party would use the items or services provided under the arrangement to
furnish DHS, the exception would not apply. Another commenter stated
that the broad statements in the preamble to the January 1998 proposed
rule were not consistent with the statutory language. Another commenter
objected to the example in the preamble suggesting that payments to a
physician for a medical device used for an inpatient procedure would be
considered related to the provision of a designated health service. The
same commenter stated that payment for malpractice insurance should not
be considered related to the provision of DHS and that under the
proposed interpretation, even granting staff privileges would trigger
the prohibition.
Response: We believe that the exception for services unrelated to
DHS in section 1877(e)(4) of the Act is intended to be very limited and
available only if the remuneration is wholly unrelated to the provision
of DHS, such as the rental of residential property. We believe this
narrow reading is consistent with the statutory history. Initially,
under the original statute, the exception was necessary to insulate a
hospital's relationships with physicians that were unrelated to the
provision of clinical laboratory services, a very small element of a
hospital's practice. Since 1995, however, all hospital services are DHS
and a narrower interpretation of the exception is required to prevent
abuse. Given this breadth of DHS, the statute's purpose, and the
industry's desire for bright line rules in connection with section 1877
of the Act, we will treat any item, service, or cost that could be
allocated in whole or in part to Medicare or Medicaid under applicable
cost reporting principles as related to the provision of DHS. To the
extent that the preamble to
[[Page 16094]]
the January 1998 proposed rule suggested that general administrative or
utilization review services were not related to DHS, we are withdrawing
that interpretation. Even if not covered by cost reporting principles,
remuneration that is otherwise related to the provision of DHS will not
come within the protection of the exception. We will consider
remuneration to relate to DHS if it is furnished, directly or
indirectly, explicitly or implicitly, to medical staff or other
physicians in a position to make or influence referrals in any manner
that is selective, targeted, preferential, or conditional. For example,
a loan from a hospital to a physician to finance the physician's
purchase of an interest in a limited partnership that owns the hospital
would be related to the provision of DHS. Likewise, for example, a
hospital's lease of office space in a nearby medical building to
physicians in a position to refer to the hospital would be related to
the provision of DHS. Any such arrangements must comply with another
exception. Elsewhere in this rulemaking, we have promulgated sufficient
exceptions that any legitimate arrangement between a hospital and a
referring physician should be able to qualify for protection under
another exception. Finally, the provision of malpractice insurance or
other support services to physicians who would otherwise have to pay
for them clearly creates a compensation arrangement within the language
and intent of the statute.
Comment: One commenter objected that the exception is limited to
remuneration paid to physicians and does not extend to payments to
immediate family members.
Response: When the Congress amended the exception in 1993, it
limited the provision solely to remuneration paid by a hospital to a
physician. Accordingly, the regulation tracks the current statute.
Legitimate arrangements with immediate family members should be able to
qualify for one of the other available exceptions, such as the personal
service arrangements or fair market value exceptions.
Comment: A commenter objected to the statement in the preamble that
we would presume that an above fair market value payment for services
unrelated to the provision of DHS was actually related to those
services. The commenter stated that we had no authority to add an
additional requirement (that is, that payments for unrelated services
be fair market value) to the statutory exception.
Response: The commenter misunderstood our position. We agree that a
payment that is wholly unrelated to the provision of DHS does not have
to be fair market value for the exception to apply. However, as an
enforcement matter, we will carefully scrutinize any payments that are
above fair market value to ensure that they are not disguised payments
related to DHS.
Comment: One commenter concluded that our broad reading of
``related'' meant that payments to physicians for covenants not to
compete could not fit in the exception, since those covenants were
related to the furnishing of DHS. The commenter observed that there is
a distinction between a reasonable geographic restriction on providing
medical services and an affirmative obligation to make referrals.
Response: We agree with the commenter that a covenant not to
compete is not necessarily equivalent to an obligation to make
referrals. The statutory exception in section 1877(e)(4) of the Act,
however, only protects payments unrelated to the provision of DHS, and
a payment by a hospital to a physician for a covenant not to compete is
plainly related to the provision of DHS. Nevertheless, transactions
involving non-compete covenants can be structured to fit within other
exceptions.
Comment: One commenter asked whether the unrelated services
exception would be available if the payment were from an entity related
to a hospital, but not the hospital itself.
Response: The exception is only available for payments from the
hospital itself. Depending on the circumstances, payments from a legal
entity related to the hospital would be analyzed as a direct
compensation arrangement subject to the direct compensation exceptions
or as an indirect compensation arrangement to which the indirect
compensation exception may apply.
E. Physician Recruitment (Section 1877(e)(5) of the Act; Phase II;
Sec. 411.357(e))
[If you choose to comment on issues in this section, please include
the caption ``Physician Recruitment Exception'' at the beginning of
your comments.]
Existing Law: Section 1877(e)(5) of the Act excepts remuneration
provided by a hospital to a physician to induce the physician to
relocate to the geographic area served by the hospital in order to be a
member of the hospital's medical staff. To qualify, the following
conditions must be met--
(i) The physician is not required to refer patients to the
hospital;
(ii) The amount of remuneration under the arrangement is not
determined in a manner that takes into account (directly or indirectly)
the volume or value of any referrals by the referring physician;
(iii) The arrangement meets any other requirements imposed by the
Secretary to protect against program or patient abuse.
The August 1995 final rule incorporated the provisions of section
1877(e)(5) of the Act into our regulations at Sec. 411.357(e), with
the additional requirements that the arrangement and its terms be in
writing and signed by both parties and that the physician not be
precluded from establishing staff privileges at another hospital or
referring to another entity.
Proposed Rule: The January 1998 proposed rule retained Sec.
411.357(e), with minor editorial changes. In the preamble, we
interpreted the rule to require that the recruited physician reside
outside the hospital's geographic area and actually relocate into the
area. We specifically solicited comments on how to define a hospital's
``geographic area.'' We suggested that recruitment payments to
physicians already residing in the hospital's geographic area, for
example, community physicians or hospital residents, might be excepted
under the proposed new ``fair market value'' compensation exception
(Sec. 411.537(l)).
Final Rule: The final rule substantially modifies the January 1998
proposed rule in the following respects:
The final rule looks to the relocation of the
recruited physician's medical practice, rather than the physician's
residence. A physician will be deemed to have relocated to the
hospital's geographic area (defined as the lowest number of contiguous
postal zip codes from which the hospital draws at least 75 percent of
its inpatients) if: (i) The physician has relocated the site of his or
her practice a minimum of 25 miles; or (ii) at least 75 percent of the
physician's revenues from services provided by the physician to
patients (including services to hospital inpatients) are derived from
services provided to new patients.
Residents and physicians who have been in
medical practice less than one year will not be considered to have an
established practice and will therefore be eligible under the physician
recruitment exception regardless of whether or not the physician
actually moves his or her practice location.
We have created a regulatory exception for
federally qualified health
[[Page 16095]]
centers (FQHCs) that make recruitment payments to physicians on the
same basis as hospitals.
Recruitment payments made through existing
medical groups (rather than directly to the recruited physician) in
connection with the recruitment of a new physician are covered under
certain conditions elaborated below.
We have added a limited new exception at Sec.
411.357(t) for some retention payments made to physicians with
practices in HPSAs.
We have modified the proposed language requiring
recruited physicians to establish staff privileges at other hospitals
and to refer to other entities to make clear our original intent that
recruitment payments not be used to lock physicians into using the
recruiting hospital, except insofar as there may be a separate,
excepted employment or contractual arrangement under which required
referrals may be permitted in accordance with Sec. 411.354(d)(4). The
revised language makes clear that recruited physicians must be allowed
to establish staff privileges at other hospitals and, except as noted
in the preceding sentence, to refer to other entities (even if the
other hospital or entity is a competitor). For purposes of section 1877
of the Act, reasonable credentialing restrictions on physicians
becoming competitors of a hospital would not violate this condition.
The reasons for these changes are discussed in the responses to
comments that follow.
Comment: A number of commenters objected to the proposed
requirement that the recruited physician had to relocate his or her
residence to qualify for the exception. The commenters suggested that
the relevant inquiry should be where the physician practices medicine,
not where the physician lives. One commenter urged abandonment of the
relocation requirement entirely on the grounds that other conditions in
the proposed regulation were sufficient to prevent abuse. Another
commenter proposed that the exception apply as long as the recruited
physician is new to the hospital's medical staff and either relocates
his or her practice at least ten miles or derives 75 percent of his or
her patient revenue from patients new to the physician. A hospital
trade association proposed that the test be that the recruited
physician either relocates to the hospital's service area (to be
defined as the lowest number of contiguous zip codes of 51 percent of
its inpatients) or relocates 15 miles.
Response: In general, we agree with the commenters that our
proposed regulation was unnecessarily restrictive. The relocation
requirement is statutory, and even if it were not, we believe a
relocation requirement is an important safeguard against abusive
financial incentives disguised as ``recruitment'' payments. We are
persuaded, however, that the recruited physician's practice location,
not his or her residence, should be the relevant consideration. As to
the test for ``relocation to the geographic area served by the
hospital,'' we believe the regulations should set bright line rules,
but also incorporate some flexibility to accommodate variations in
legitimate recruitment arrangements. We have revised Sec. 411.357(e)
by combining and modifying several of the commenters' suggestions.
Specifically, the hospital's geographic service area is defined for
purposes of the exception as the area composed of the lowest number of
contiguous zip codes from which the recruiting hospital draws 75
percent of its inpatients. Given the significant easing of the
``relocation'' test described below, we believe using a 75 percent
criteria is more appropriate than the 51 percent suggested by the
commenter. In particular, it is less likely to lead to abusive
recruiting payments to established physicians from nearby hospitals.
The relocation test may be met by moving one's medical practice a
minimum distance of 25 miles or by establishing a practice with a
substantial base of new patients (75 percent of the physician's
revenues from professional services provided to patients in the
relocated practice (including services provided to hospital
inpatients)). For the 75 percent revenues test, the regulations measure
practice revenue annually on a fiscal or calendar year basis (at the
physician's option). For the initial ``start up'' year of the recruited
physician's relocated practice, the test is whether it is reasonable to
expect that the recruited physician will meet the 75 percent test. New
patients are those patients who have not been seen by the physician in
his or her previous practice for at least three years. We believe these
tests provide clear rules with sufficient flexibility to permit
legitimate recruitment arrangements, while protecting against
potentially abusive arrangements (for example, cross-town recruitment
of an established physician's practice from a competitor hospital).
Recruitment payments to community or other local physicians who do not
meet the relocation requirement will not fit in the fair market value
exception in Sec. 411.357(1), which requires fair market value
payments for services rendered.
Comment: Many commenters objected to treating residents and new
physicians as residing in the hospital's service area. These commenters
argued that these physicians have not yet established a medical
practice, so hospitals should be permitted to recruit them. Other
commenters pointed out that for many hospitals with residency programs,
the residents were the most likely physicians to stay in the community.
Response: We agree and have modified the regulation to provide that
hospital residents, as well as physicians who have been in practice one
year or less, will not be subject to the relocation requirement. In our
view, these physicians do not have an established practice to relocate.
However, the recruited physician must establish his or her medical
practice in the geographic area served by the hospital to be eligible
for recruitment payments under the exception.
Comment: Two commenters wanted the exception to protect recruitment
payments from DHS entities other than hospitals.
Response: The statutory exception is expressly limited to
recruitment payments made by hospitals, and we are not persuaded that a
wholesale extension to other DHS entities is warranted. Under our
authority in section 1877(b)(4) of the Act to create additional
exceptions, we are extending the exception to cover federally qualified
health centers (FQHCs) that recruit physicians to join their medical
staffs. We believe that FQHCs should be able to recruit physicians to
join their medical staffs under the same terms and conditions
applicable to hospitals. This extension is consistent with the
statutory intent and scheme and will help ensure that the statute does
not impede efforts by FQHCs, which provide substantial services to
underserved populations, to recruit adequate staffs. We are not
persuaded that the exception should similarly be extended to other DHS
entities, such as nursing homes or home health agencies, that may want
to recruit physicians into their service areas. These kinds of
recruitment arrangements could pose a risk of abuse. We are not
extending the recruitment exception to cover recruitment payments made
by physician practices. In the first place, physician practices do not
have medical staffs comparable to hospitals under the terms of the
exception. Moreover, the in-office ancillary services exception is
available to cover referrals from recruited physicians. Because the
FQHC expansion falls under our authority in section 1877(b)(4) of the
Act, FQHCs will be subject to the additional general conditions that
their arrangements not violate the anti-kickback statute and that
[[Page 16096]]
claims submissions comply with all program rules. Since these are pre-
existing obligations, they are not unduly burdensome.
Comment: Several commenters observed that, contrary to statements
in the January 1998 proposed rule (63 FR 1702), payments to recruit
residents and payments to existing group practices to recruit
physicians would not fit in the new fair market value exception. Two
commenters noted that the proposed fair market value exception required
compliance with the anti-kickback statute or an anti-kickback safe
harbor and that the only available safe harbor was limited to physician
recruitment in rural areas. Another commenter questioned whether
recruitment would be an ``item or service'' for purposes of the fair
market value exception. The commenter considered that a physician's
relocation to a community benefits the community, not the recruiting
hospital. Another commenter claimed that the commercial reasonableness
and fair market value criteria in the fair market value exception would
require hospitals to incur costs for expensive valuations and stated
that comparative data was kept confidential and difficult to obtain.
Finally, a commenter pointed out that the proposed fair market value
exception included none of the additional safeguards contained in the
physician recruitment exception.
Response: In the preamble to the Phase I rule, we stated that
physician recruitment arrangements might fit in the new fair market
value exception, depending on the specific facts. Nevertheless, we
recognized that many recruitment arrangements that offer ``extra''
payments to induce physicians to relocate would not be covered because
the compensation would exceed the fair market value of the physician's
services (66 FR 919). We concluded that we would consider the issue
further in Phase II of the rulemaking.
Upon further consideration, we do not believe that recruitment
incentives can fit in the fair market value exception in Sec.
411.357(l). We agree that the physician's relocation is not properly
viewed as a benefit to the hospital, except as a potential source of
DHS referrals--a consideration that is antithetical to the premise of
the statute. As discussed above, we have modified the recruitment
exception to make clear that payments to hospital residents can be
covered. Payments by a hospital to a physician practice to assist the
physician practice in recruiting physicians to the community who will
join the existing practice are discussed in the following comment and
response. On the issue of anti-kickback compliance, we refer to the
discussion in the Phase I rulemaking (66 FR 918).
Comment: Many commenters believed the exception should be expanded
to include hospital payments to medical groups in connection with the
recruitment of a new physician to join the group. One commenter pointed
out that the proposed rule protected any ``remuneration provided by a
hospital to recruit a physician,'' but did not specify to whom the
payment had to be made (63 FR 1725). The commenters stated that many
new physicians prefer to join existing groups and that such
arrangements save the costs and labor of setting up a new practice and
provide cross-coverage and peer review. Another commenter stated that
under the existing Internal Revenue Service (IRS) rules, recruited
physicians must report forgivable recruitment loan amounts in the years
the debt is forgiven. According to the commenter, this rule discourages
recruited physicians from staying in a community; allowing the payments
to be made to a group practice might ease the tax burden. One commenter
suggested that payments to a medical group be permitted if the group--
Agrees to participate in Medicare and Medicaid;
Agrees to participate in the hospital's on-call
program;
Provides professional services to all hospital
patients; and
Enters into an agreement with the recruited
physician that does not contain a covenant not to compete or a
liquidated damages provision if the physician leaves the group.
According to the commenter, these conditions are consistent with IRS
Revenue Ruling 97-21. Another commenter thought that payments could be
made to groups to recruit physicians as long as the terms of the
arrangement are set out in writing and signed by all the parties, and
the group agrees to pass substantially all of the remuneration to the
recruited physician.
Response: Section 1877(e)(5) of the Act expressly excepts payments
made by a hospital ``to a physician.'' We recognize that many new or
relocating physicians prefer to join existing practices rather than set
up a new practice for legitimate reasons, such as cost, cross-coverage,
and professional expertise. We also recognize that hospitals may want
to provide financial support through existing medical groups to aid in
recruiting new physicians to the community. We are concerned that a
recruitment arrangement involving direct or indirect payments to an
existing physician practice might be used improperly to pay for
referrals from the existing physician practice, in essence creating an
improper financial relationship between the hospital and the existing
physician practice. However, we have concluded that some narrowly
tailored accommodation for recruitment into existing groups would be
appropriate under the recruitment exception and have sought to create
criteria that would preclude abuse of the exception. Accordingly, the
regulations provide that the exception will apply to remuneration
provided by a hospital (or FQHC) to a physician indirectly through
payments to another physician or physician practice, as long as the
following conditions are met:
The arrangement between the hospital and the
physician practice is set out in writing and signed by the parties.
Except for actual costs incurred by the
physician or physician practice in recruiting the new physician, the
remuneration is passed directly through to or remains with the
recruited physician. Records of the actual costs and the passed-through
amounts must be maintained for a period of at least 5 years and made
available to the Secretary upon request.
In the case of an income guarantee made by the
hospital to a physician who joins a local physician practice, costs
allocated by the physician practice to the recruited physician may not
exceed the actual additional incremental costs to the practice
attributable to the recruited physician.
The new physician must establish a medical
practice in the hospital's geographic service area and join the
hospital's medical staff.
The physician practice's arrangement with the
recruited physician is set out in writing and signed by the parties.
The new physician is not required to refer
patients to the hospital and is allowed to establish staff privileges
at any other hospital(s) and to refer business to other entities
(except insofar as required referrals are permitted under Sec.
411.354(d)(4)).
The remuneration from the hospital under the
arrangement is not determined in any manner that takes into account
(directly or indirectly) the volume or value of any referrals (actual
or anticipated) by the recruited physician or by the physician practice
receiving the direct payments from the hospital (or any physician
affiliated with that physician practice).
The physician practice receiving the hospital
payments may not impose additional practice restrictions on the
recruited physician (for example, a non-
[[Page 16097]]
compete agreement), but may impose conditions related solely to quality
considerations.
The regulations similarly apply to payments made directly to a
physician who joins a physician practice.
Because we are expanding this exception under our authority in
section 1877(b)(4) of the Act, which authorizes the creation of new
exceptions only if the excepted arrangement presents no risk of program
or patient abuse, the arrangement must not violate the anti-kickback
statute and must comply with all relevant claims submission and billing
laws and regulations. In this context, if there is any intent
unlawfully to reward or induce referrals from the physician practice
whose recruitment the hospital chose to underwrite, the anti-kickback
statute would be violated and the exception would not apply.
This rule for pass-through hospital recruitment payments
establishes an exception applicable to the compensation arrangement
created between the hospital and the recruited physician (and between
the hospital and the existing physician practice). We note that if the
physician practice receiving the payments from the hospital is a DHS
entity to which the recruited physician will refer (that is, the
practice submits claims to Medicare for DHS), any separate or
additional financial relationship it has with the recruited physician
will have to fit in an exception (for example, the in-office ancillary
services exception).
Comment: Several commenters suggested that the regulatory exception
should be expanded to permit hospitals to provide incentives to retain
physicians already on the medical staff. Several commenters pointed out
that these incentives are particularly useful for hospitals in rural or
inner city areas where there is a shortage of health professionals and
constant turnover is a significant problem and expense. One commenter
suggested that retention payments could be limited to situations where
the hospital had a bona fide, reasonable, and documented belief that a
physician may terminate his or her staff privileges and join another
hospital staff.
Response: We are sympathetic to the problems faced by hospitals and
other entities in certain rural and inner city areas in retaining
sufficient numbers of qualified physicians in the community. On the
other hand, we are concerned about, among other things, protecting
payments to physicians in bidding wars between hospitals. The
commenter's suggested standard of a reasonable and documented belief
that a physician may terminate his staff privileges would not
adequately address this potential abuse. We are persuaded that a narrow
retention exception for some remuneration paid to physicians with
practices in HPSAs to retain them in the community is appropriate and
consistent with the statutory scheme. Therefore, in accordance with our
authority under section 1877(b)(4) of the Act, we have added a new
exception for retention payments made to a physician with a practice
located in a HPSA (regardless of whether the HPSA is specifically
designated for the physician's particular specialty) who has a firm
written recruitment offer from an unrelated hospital or FQHC that
specifies the remuneration being offered and that would require the
physician to move the location of his or her practice at least 25 miles
and outside of the geographic area served by the hospital or FQHC
making the retention payment. The retention payment must be limited to
the lower of (i) the difference between the physician's current income
from physician and related services and the income the physician would
receive from physician and related services in the recruitment offer
(over no more than a 24-month period) or (ii) the reasonable costs the
hospital or FQHC would otherwise have to expend to recruit a new
physician to the geographic area served by the hospital or federally
qualified health center in order to join the medical staff of the
hospital or federally qualified health center to replace the retained
physician. Parties must use a reasonable methodology to calculate the
physician's current and anticipated incomes for purposes of this test.
Moreover, parties must use the same methodology when calculating the
physician's income from his or her current job and the anticipated
income from the recruitment offer. Any retention payment must be
subject to the same restrictions, if any, on repayment or forgiveness
of indebtedness as the recruitment offer. A hospital may enter into a
retention arrangement with a physician no more frequently than once
every five years and the amount and terms of the retention payment may
not be altered during the term of the arrangement in any manner that
takes into account the volume or value of referrals or other business
generated by the physician. Except in these limited circumstances, we
are unable to devise a sufficiently clear and flexible exception for
retention payments that would be without risk of program or patient
abuse. If a hospital or federally qualified health center wishes to
retain an employed physician by matching a salary offer from another
facility, the hospital or federally qualified health center may
structure an arrangement to fit in this exception. Alternatively, the
arrangement may be structured to fit in the employee exception at Sec.
411.357(c) (as discussed in this preamble at section VIII.B), provided
the compensation to be paid to the employed physician will be fair
market value and the other conditions of the exception are satisfied.
The new exception for retention payments in underserved areas does not
protect payments made indirectly to a retained physician via another
person or entity, including a physician practice.
Apart from physicians practicing in HPSAs or employed physicians,
we think the best approach is to make decisions on retention
arrangements on a case-by-case basis through advisory opinions. Thus,
the final rule provides for approval of retention payments to
physicians in other underserved areas (or serving underserved patient
populations) on a case-by-case basis through an advisory opinion. We
are not further defining underserved areas or underserved patient
populations for purposes of this regulation in order to give the
Secretary maximum flexibility in evaluating the special circumstances
attendant on retention payments. We expect to approve retention
payments in advisory opinions only in unusual and compelling
circumstances. We caution that retention arrangements can implicate the
anti-kickback statute, and parties should take care to scrutinize their
arrangements for compliance with that statute.
Comment: A trade association representing academic medical centers
requested a special exception for teaching hospitals.
According to the commenter, teaching hospitals often need to
recruit local community physicians to teach. The commenter noted that
many academic medical centers have closed medical staffs and would not
be able to satisfy the condition that the recruited physician not be
required to refer to the hospital.
Response: We are not persuaded that a special exception is needed
in light of the academic medical center exception created in the Phase
I rulemaking and codified in Sec. 411.355(e) (see discussion in
section XII.A below). In addition, arrangements with local faculty may
fit in the personal service arrangements exception in Sec.
411.357(e)(3) or the employment exception in Sec. 411.357(e)(2).
[[Page 16098]]
F. Isolated Transactions (Section 1877(e)(6) of the Act; Phase II;
Sec. 411.357(f))
[If you choose to comment on issues in this section, please include
the caption ``Isolated Transactions Exception'' at the beginning of
your comments.]
Existing Law: Section 1877(e)(6) of the Act provides that an
isolated transaction, such as a one-time sale of property or a
practice, is not considered to be a compensation arrangement for
purposes of the prohibition on physician referrals if the following
conditions are met:
The amount of remuneration for the transaction
is consistent with fair market value and is not determined, directly or
indirectly, in a manner that takes into account the volume or value of
referrals.
The remuneration is provided in accordance with
an agreement that would be commercially reasonable even if no referrals
were made to the entity.
The transaction meets any other requirements
that the Secretary may impose by regulation as needed to protect
against program or patient abuse.
The August 1995 final rule incorporated the provisions of section
1877(e)(6) of the Act into our regulations in Sec. 411.357(f), with an
additional requirement that there be no additional transactions between
the parties for 6 months after the isolated transaction, except for
transactions that are specifically excepted under another exception.
The August 1995 final rule also established definitions of
``transaction'' and ``isolated transaction'' in Sec. 411.351. The rule
defined a ``transaction'' as an instance or process of two or more
persons doing business and an ``isolated transaction'' as a transaction
involving a single payment between two or more persons. The definition
specifies that a transaction involving long-term or installment
payments is not considered an isolated transaction.
Proposed Rule: The January 1998 proposed rule proposed retaining
Sec. 411.357(f) and the definitions in Sec. 411.351, with a
clarification that ``transactions'' can involve persons or entities.
Final Rule: The final rule retains the existing exception and
definitions with the following modifications (as well as the
clarification that transactions can involve persons or entities).
First, we are modifying the definition of ``isolated transaction''
to permit installment payments, provided the total aggregate payment
is: (i) Set before the first payment is made; and (ii) does not take
into account, directly or indirectly, referrals or other business
generated by the referring physician. Additionally, the outstanding
balance must be guaranteed by a third party, secured by a negotiable
promissory note, or subject to a similar mechanism to assure payment
even in the event of default by the purchaser or obligated party.
Second, post-closing adjustments that are commercially reasonable and
not dependent on referrals or other business generated by the referring
physician will be permitted if made within 6 months of the date of a
purchase or sale transaction.
Comments and our responses follow.
Comment: Two commenters found the single payment requirement--in
conjunction with the six-month prohibition on other transactions--
impractical since it precluded common post-closing adjustments in
connection with sales of practices and other transactions. According to
the commenters, escrows or post-closing adjustments occur shortly after
the initial closing and are designed to remedy unknown conditions,
shortfalls in accounts receivable, or similar contingencies. One
commenter suggested that commercially reasonable post-closing
adjustments be permitted within six months, while another commenter
requested a one-year grace period.
Response: We have adopted the commenters' suggestion to modify the
rule to permit post-closing adjustments within six months of the date
of sale if they are commercially reasonable, even if there are no
referrals or other business generated by the referring physician.
Comment: Several commenters questioned the necessity for the single
payment rule. Several pointed out that the safe harbor under the anti-
kickback statute for the sale of a physician's practice (Sec.
1001.952(e)) does not contain a similar requirement. According to these
commenters, as long as the purchase price is set at the time of
closing, consistent with fair market value, and not dependent on
referrals, it should not matter if the funds are paid out over time.
Two commenters observed that a seller would have a breach of contract
claim for any unpaid amounts. One commenter pointed out that any risk
that a selling physician would have an ongoing incentive to refer to a
sold entity to assure payment by the purchaser could be addressed by
requiring the purchase obligation to be secured in the event of the
purchaser's default or bankruptcy.
Response: The Congress clearly intended that an isolated
transaction, whether through a single payment or installment payments,
creates a financial relationship between the parties on a prospective
basis. We have reconsidered the single payment requirement in light of
the comments and have modified the final rule to also permit
installment sales under certain conditions. We are concerned, however,
that many installment transactions provide continuing incentives to
refer. Resort to costly and uncertain litigation to enforce a
contractual right is insufficient protection against the pressure to
continue referrals. To address that concern, the installment payments
rule requires that payments must be either immediately negotiable or
otherwise secured so that the seller is guaranteed payment in the event
of the purchaser's default or bankruptcy.
Comment: A publicly-held company suggested that we create a special
exception for installment payments by companies that are eligible for
the publicly-held entity exception in Sec. 411.356(a).
Response: As discussed above, the final rule permits installment
sales that meet certain conditions. There is no reason to distinguish
between large publicly-held companies and other purchasers.
Comment: A physician association objected to the prohibition on
other unexcepted transactions within six months of the transaction
qualifying under the isolated transaction exception. According to the
association, a better rule would be a maximum number of transactions
within a calendar year.
Response: We decline to adopt the suggestion. We think that the
concept of an isolated transaction is incompatible with the suggestion
that parties can routinely engage in multiple transactions each year or
more than one transaction during a short period of time.
Comment: One commenter asked us to clarify that only transactions
related to DHS are subject to the prohibition on other transactions
within six months of an isolated transaction.
Response: The prohibition applies to all transactions. A financial
relationship between a DHS entity and a referring physician can be
created by any financial relationship, whether or not the financial
relationship involves DHS and whether or not the financial relationship
involves Medicare or private pay business. Unless the financial
relationship--whatever it may be--can fit in one of the statutory or
regulatory exceptions, the physician may not refer any Medicare DHS to
the DHS entity and the entity may not
[[Page 16099]]
submit claims to Medicare for DHS provided in the event that such
patients are nevertheless referred.
G. Certain Group Practice Arrangements with Hospitals (Section
1877(e)(7) of the Act; Phase II; Sec. 411.357(h))
Existing Law: Section 1877(e)(7) of the Act provides that an
arrangement between a hospital and group under which DHS are furnished
by the group but are billed by the hospital does not constitute a
compensation arrangement for purposes of the prohibition on referrals
if the following conditions are met:
With respect to the services furnished to a
hospital inpatient, the arrangement is for the provision of inpatient
hospital services under section 1861(b)(3) of the Act. The arrangement
began before December 19, 1989, and has continued in effect without
interruption since that date.
With respect to the DHS covered by the
arrangement, substantially all of those services furnished to patients
of the hospital are furnished by the group under the arrangement.
The arrangement is set out in a written
agreement that specifies the services to be furnished by the parties
and the amount of compensation.
The compensation paid over the term of the
agreement is consistent with fair market value, and the compensation
per unit of services is fixed in advance and is not determined in a
manner that takes into account the volume or value of any referrals or
other business generated between the parties.
The compensation is provided under an agreement
that would be commercially reasonable even if no referrals were made to
the entity.
The arrangement between the parties meets any
other requirements the Secretary may impose by regulation as needed to
protect against patient or Medicare program abuse.
The 1995 final rule incorporated the provisions of section
1877(e)(7) of the Act, as they relate to clinical laboratory services,
into the regulations in Sec. 411.357(h), without imposing any
additional requirements.
Proposed Rule: The January 1998 proposed rule proposed to revise
Sec. 411.357(h) to apply the provisions to all DHS, not just clinical
laboratory services, and to make certain minor changes. In particular,
the proposed rule proposed modifying the regulation to make clear that
the arrangement for which the protection of the exception was sought
had to have begun prior to December 19, 1989, and have continued in
effect, without interruption, since that time. We also proposed
interpreting the regulatory language to permit changes to the
arrangement over time with respect to the services covered by the
arrangement or the physicians providing those services. We also
clarified that the ``substantially all'' test in section
1877(e)(7)(A)(iii) of the Act required that at least 75 percent of the
DHS covered under the arrangement furnished to patients of the hospital
be furnished by the group under the arrangement.
Final Rule: We received no comments to this provision. This interim
final rule adopts the proposed rule.
H. Payments Made by a Physician for Items and Services (Section
1877(e)(8) of the Act; Phase II; Sec. 411.357(i))
Existing Law: Section 1877(e)(8) of the Act creates an exception
for certain payments that a physician makes to a laboratory in exchange
for clinical laboratory services or to an entity as compensation for
other items or services, if the items or services are furnished at a
price that is consistent with fair market value. The August 1995 final
rule incorporated the provisions of section 1877(e)(8) of the Act into
the regulations in Sec. 411.357(i).
Proposed Rule: The January 1998 proposed rule proposed to interpret
``other items or services'' to mean any kind of items or services that
a physician might purchase, but not including clinical laboratory
services, or any items or services specifically listed under other
compensation exceptions (63 FR 1703). In other words, under the
proposed rule, exceptions would be mutually exclusive. In the August
1995 final rule, we had defined remuneration to include discounts and
explained that the exception in section 1877(e)(8) of the Act would not
be available if the remuneration included a discount that did not
reflect fair market value. In the preamble to the January 1998 proposed
rule (63 FR 1694), we clarified that a discount would meet the fair
market value standard if it were made pursuant to an arm's-length
transaction; were offered to all similarly situated individuals
regardless of whether they make referrals; did not reflect the volume
or value of past or future referrals; and were passed on to Medicare
and other insurers. In addition, the January 1998 proposed rule
proposed a new exception in Sec. 411.357(j) for discounts to
physicians based on the volume of referrals, provided the discount is
passed on in full to the patients or their insurers and does not
benefit the physicians in any way. The proposed exception would not
contain a fair market value standard.
Final Rule: The final rule adopts the January 1998 proposed rule,
without the proposed exception for discounts. Upon further
consideration, we believe that legitimate discounts will fall within
the range of values that is ``fair market value.'' In addition,
pursuant to our authority under section 1877(b)(4) of the Act, we are
extending the exception to cover payments by a referring physician's
immediate family member. We believe the Congress did not intend that
the fair market value purchase by immediate family members of items and
services from health care entities would create a prohibited financial
relationship such that the physician could not refer to the entity.
Comment: Several commenters questioned the statutory authority for
our determination that items or services that were potentially covered
under another exception, such as a lease or personal service agreement,
could not also be excepted under this provision. One commenter noted
that in some instances, some payers will not pay separate physician and
facility charges for certain hospital-based physician clinics because
the physician payment includes practice expenses. In those situations,
it is common for the hospital to charge the physician some amount for
office space and equipment. However, those kinds of transactions cannot
fit in the lease or services exceptions.
Response: In the case of this particular exception, the
determination that items and services addressed by another exception
should not be covered in this exception is consistent with the overall
statutory scheme and purpose and is necessary to prevent the ``payments
by a physician'' exception from negating the statute. However, we are
modifying the regulatory text to make clear that parties can use the
fair market value exception, where applicable, which should address
some of the issues raised by commenters.
XI. Definitions (Section 1877(h) of the Act; Phase I--66 FR 922-49;
Sec. 411.351)
[If you choose to comment on issues in this section, please include
the caption ``Definitions'' at the beginning of your comments.]
A. Designated Health Services--General Principles (Section 1877(h)(6)
of the Act; Phase I--66 FR 922)
Section 1877(h)(6) of the Act lists eleven broad categories of DHS,
but does not further define those categories. In response to requests
for clear definitions of the various DHS, Phase I defined the entire
scope of the following categories of DHS by reference to specific CPT
and HCPCS codes: Clinical
[[Page 16100]]
laboratory services; physical therapy, occupational therapy, and
speech-language pathology services; radiology and certain other imaging
services; and radiation therapy services and supplies. The list of
codes used to define these DHS categories appeared in an Attachment to
Phase I and is updated on an annual basis in the physician fee schedule
final rule and on the CMS Web site. For the convenience of the reader,
we are also including this list of codes as an Attachment to this Phase
II rule. Commenters generally responded favorably to our use of codes
in defining DHS. Phase I defined the remaining DHS categories in
regulatory descriptions that did not refer to a service-by-service list
of CPT or HCPCS codes.
In Phase I, we also published separate lists of CPT and HCPCS codes
to identify DHS that may qualify for the new regulatory exceptions in
Sec. 411.355(g) (regarding EPO and other dialysis-related outpatient
prescription drugs furnished in or by an ESRD facility) and Sec.
411.355(h) (regarding preventive screening tests, immunizations and
vaccines). Services that qualify for one of these exceptions remain DHS
for purposes of section 1877 of the Act; however, referrals may be made
and claims may be submitted for these DHS if all of the conditions of
the applicable exception are satisfied.
As noted below in the comments and responses section, we received a
number of comments from various providers advocating that we either
exclude certain services from the definition of a particular DHS
category or create an exception for financial arrangements involving
those services because, in the commenters' view, the items or services
pose a low risk of overutilization or abuse. For the reasons stated in
Phase I (66 FR 922-923) and our responses below, we continue to decline
to make service-by-service determinations of the risk of abuse.
Accordingly, we are not adding any new regulatory exceptions for
additional DHS in this Phase II rulemaking.
Our responses to comments on the various DHS definitions follow in
the order set forth in Phase I.
Comment: Some commenters found it confusing to have a service
included on both the list of codes used to define certain DHS and the
list of codes that identifies certain services as ``excluded'' under
either Sec. 411.355(g) or Sec. 411.355(h). These commenters suggested
that such services be omitted from the DHS list.
Response: If a particular service is a DHS, the fact that it
potentially qualifies for an exception under Sec. 411.355 does not
negate the fact that it is a DHS. The various exceptions serve to
permit referrals and claims submission for DHS when certain enumerated
conditions are satisfied. The exceptions do not convert DHS into
services that are not DHS. Thus, we cannot omit from the DHS code lists
those services that may be covered by a regulatory exception, such as
the exception in Sec. 411.355(h) for certain preventive screening
tests, immunizations and vaccines. However, with respect to certain
definitions in the Attachment to Phase I regarding the codes that would
be ``excluded'' under the exceptions in Sec. 411.355(g) and Sec.
411.355(h), we are making a number of technical revisions to the
definitions of DHS in Sec. 411.351 to more clearly reflect the
regulatory scheme. In addition, in the December 31, 2002 physician fee
schedule final rule (67 FR 79966), we have clarified that the codes
listed under ``Drugs Used by Patients Undergoing Dialysis'' and
``Preventive Screening Tests, Immunizations and Vaccines'' constitute
items or services to which the physician self-referral prohibition does
not apply if the items or services are furnished in compliance with all
of the conditions listed in the exceptions at Sec. 411.355(g) and
Sec. 411.355(h), respectively.
Comment: One commenter urged us to define all categories of DHS by
reference to specific CPT, HCPCS, or other relevant codes. In
particular, the commenter was concerned about potential confusion
regarding whether a supply is considered a DME, orthotic or prosthetic
supply versus an ordinary supply.
Response: As explained in the Phase I preamble (66 FR 923), some
DHS are not amenable to definition through codes. For those services,
we believe the definitions provided in Phase I are sufficiently clear
to permit entities and physicians to identify them readily.
With respect to the commenter's particular concern, we are unclear
as to how or why the Phase I definitions of ``durable medical
equipment'' and ``prosthetics, orthotics, and prosthetic devices and
supplies'' generate any significant confusion. Phase I did not change
any existing definitions for those terms. As discussed in the Phase I
preamble (66 FR 932), the simplest way to determine the proper
classification of these items is to consult the Durable Medical
Equipment, Prosthetics, Orthotics and Supplies (DMEPOS) fee schedule,
which identifies such items by HCPCS code and is available on the CMS
Web site at: http://cms.hhs.gov/providers/pufdownload/default.asp#dme.
Most supplies paid under the DMEPOS benefit (as opposed to ordinary
supplies used in physician offices) are listed on this Web site. In
general, a supply is categorized as a DME supply or a prosthetic,
prosthetic device, or orthotic supply if it is disposable in nature and
necessary for the effective use of DME, a prosthetic, a prosthetic
device, or orthotic equipment by the patient outside of the physician's
office.
B. Professional Services as Designated Health Services (Phase I--66 FR
924)
Comment: Our DHS definitions, including the definition of
``radiology and certain other imaging services'' at Sec. 411.351,
encompass both the professional and technical components of a service.
A commenter stated that including the professional component is
contrary to the statute and creates a significant obstacle to the
delivery of ultrasound services provided anywhere except in a
physician's office. For example, according to the commenter, if a
physician refers a hospital inpatient for an ultrasound, and a member
of the referring physician's group practice interprets the ultrasound
(that is, provides the professional component), the in-office ancillary
services exception is not applicable and the group cannot bill for the
professional service.
Response: First, we do not find any evidence that the Congress
intended to exclude all professional physician services from the list
of DHS, for the reasons explained in the Phase I preamble (66 FR 924).
Second, under the physician services exception (section 1877(b)(1) of
the Act; Sec. 411.355(a)), the self-referral prohibition does not
apply to physician services that are personally performed by, or under
the supervision of, another physician who is in the same group practice
as the referring physician. Unlike the in-office ancillary services
exception, the physician services exception does not impose any ``same
or centralized building'' requirement. Thus, a physician may refer a
hospital inpatient for ultrasound services when the professional
component is furnished in a hospital by, or under the supervision of,
another physician in his or her group practice. In many other cases,
physician services that are DHS will fall under one of the other
exceptions or will be personally performed by the referring physician
and therefore not constitute a ``referral'' for purposes of section
1877 of the Act.
C. Clinical Laboratory Services (Phase I--66 FR 924)
In Phase I, we defined the entire scope of ``clinical laboratory
services'' by reference to codes ``as specifically
[[Page 16101]]
identified by the CPT and HCPCS codes posted on the HCFA Web site * *
* and in annual updates * * *, except as specifically excluded on the
HCFA Web site and in annual updates.'' We are deleting the phrase
``except as specifically excluded on the HCFA Web site and in annual
updates'' in response to comments discussed in section XI.A addressing
the distinction between items and services that do not constitute a DHS
and items and services that are DHS but may qualify for an exception
under Sec. 411.355. We are not making any other changes to the
definition of ``clinical laboratory services.''
Comment: One commenter urged us to exclude from the definition of
``clinical laboratory services'' all laboratory tests for which the
requirements of CLIA have been waived. The commenter stated that CLIA-
waived tests should not be considered DHS because they are an integral
part of patient care furnished in the physician office setting.
Response: We see no reason to exclude CLIA-waived tests from the
definition of ``clinical laboratory services'' under Sec. 411.351.
Under CLIA regulations, clinical laboratory tests are categorized based
on complexity. The three categories are: waived tests, tests of
moderate complexity, and tests of high complexity. The commenter is
addressing the set of relatively simple tests that the CLIA rules
categorize as waived tests. Under Sec. 493.15, waived tests must: (1)
Be cleared by the Food and Drug Administration (FDA) for home use; (2)
employ methodologies that are so simple and accurate as to render the
likelihood of erroneous results negligible; or (3) pose no reasonable
risk of harm to the patient if the test is performed incorrectly. None
of these factors reduces the risk of overutilization or other abuse for
purposes of section 1877 of the Act. To the extent waived tests are an
integral part of patient care and are furnished during an office visit,
they will likely fit in the in-office ancillary services exception at
Sec. 411.355(b).
D. Physical Therapy Services (Phase I--66 FR 924-927)
In Phase I (66 FR 924-27, 955), we defined ``physical therapy,
occupational therapy, and speech-language pathology services'' as those
particular services identified by the CPT and HCPCS codes on our Web
site (and in annual updates published in the Federal Register),
regardless of who provides them. We listed the codes for each of these
services under a single category because they overlap (for example, a
particular service that is associated with a single CPT or HCPCS code
may be within the scope of practice of both physical therapists and
occupational therapists). We believe that the list of CPT and HCPCS
codes for these services represents what most clinicians would define
as physical therapy/occupational therapy/speech-language pathology
services. However, we are removing CPT code 94762 (measure blood oxygen
level) from the list of physical therapy/occupational therapy/speech-
language pathology services because it is not a physical therapy
service.
We received the following comments.
Comment: One commenter was concerned that our use of the phrase
``regardless of who provides them'' might imply that people other than
licensed physical therapists and physical therapist assistants could
provide physical therapy services in a physician's office. The
commenter believed that we should develop policies to avoid unlicensed
or unqualified individuals from providing physical therapy services.
Response: We do not intend for the description of ``Physical
therapy, occupational therapy, and speech-language pathology services''
in Sec. 411.351 to have any effect on who is allowed to furnish
physical therapy services to Medicare patients. Section 411.351 merely
defines the scope of services included in the definition; it does not
address the qualifications required to perform them. As noted in the
preamble to Phase I final rule (66 FR 926), some physical therapy
services can be performed by physicians, and we defer in this rule to
existing Medicare policy concerning which professionals may provide a
given service.
Comment: A commenter stated that we should add two CPT codes to the
list of physical therapy codes: 97601 for removal of devitalized tissue
from wound without anesthesia and 97602 for non-selective debridement,
without anesthesia.
Response: We agree. In Phase I, we defined physical therapy
services, as described in section 1861(p) of the Act, to include the
following: (i) Assessments, function tests and measurements of
strength, balance, endurance, range of motion, and activities of daily
living; (ii) therapeutic exercises, massage, and use of physical
medicine modalities, assistive devices, and adaptive equipment; and
(iii) the establishment of a maintenance therapy program for an
individual whose restoration potential has been reached. Removing
devitalized tissue and non-selective debridement without anesthesia are
physical medicine modalities, and the CPT places the codes for these
services within a series of codes for other physical therapy services.
We are therefore including CPT codes 97601 and 97602 on the list of
codes used to define physical therapy services.
Comment: One commenter asserted that we should not interpret the
term ``physical therapy services'' to include speech-language
pathology. According to the commenter, neither section 1877 of the Act
nor its legislative history indicates that the term ``physical
therapy'' encompasses speech-language pathology. Another commenter
asserted that the Congress intended speech-language pathology services
and physical therapy services to be separate benefits. The commenter
asserts that although speech therapy services are referenced in section
1861(p) of the Act, the definition of these services is included in a
separate statutory provision, section 1861(ll)(l) of the Act. The
commenter noted that we also recognize speech-language pathology
services as distinct from physical therapy.
Response: As previously noted in Phase I (66 FR 926), the
definition of ``outpatient physical therapy services'' in section
1861(p) of the Act specifically states that ``[t]he term `outpatient
physical therapy services' also includes speech-language pathology
services furnished by a provider of services, a clinic, rehabilitation
agency, or by a public health agency, or by others under an arrangement
with, and under the supervision of, such provider, clinic,
rehabilitation agency, or public health agency * * *.'' Thus, by
definition, speech-language pathology services are a subset of
outpatient physical therapy services under the Medicare statute.
Although the term ``speech-language pathology services'' is defined
elsewhere in the Act, and there may be different regulatory guidelines
applicable to physical therapy services and speech-language pathology
services, the statute clearly includes the latter within the definition
of ``outpatient physical therapy services.''
Comment: One commenter asserted that the Phase I preamble
incorrectly stated that device mapping (the fine tuning of cochlear
implants) is performed by speech-language pathologists (66 FR 935).
According to the commenter, device mapping is not within the speech-
language pathology scope of practice. The commenter also asserted that
CPT code 92507 (speech/hearing therapy) is not a designated health
service and should be deleted from the code list.
Response: In Phase I (Sec. 411.351; 66 FR 955), we described
``speech-language
[[Page 16102]]
pathology services'' as services performed ``for the diagnosis and
treatment of speech, language, and cognitive disorders that include
swallowing and other oral-motor dysfunctions.'' We noted in the Phase I
preamble (66 FR 935) that, although cochlear implants are considered
prosthetic devices, cochlear rehabilitation services (billed under CPT
code 92510) are considered speech-language pathology services for
purposes of Medicare coverage and payment. The Phase I Attachment also
included CPT codes 92506 (speech/hearing evaluation) and 92507-92508
(speech/hearing therapy) as physical therapy/occupational therapy/
speech-language pathology services.
We have removed CPT code 92506 (speech/hearing evaluation) from the
list of codes used to define physical therapy, occupational therapy,
and speech-language pathology services. CPT code 92506 is a diagnostic
audiology service. Contrary to the commenter's request, we are not
removing CPT code 92507 (speech/hearing therapy) because it is a
speech-language pathology service. In addition, we note that we removed
CPT 92510 (rehab for ear implant) from the code list in the December
31, 2002 physician fee schedule final rule (67 FR 80017) because we no
longer recognize this code as valid for payment purposes. The services
formerly billed under this code may be billed under 92507-92508, which
remain on the list of codes used to define physical therapy,
occupational therapy, and speech-language pathology services.
We did not intend to include audiology services within the scope of
our description of speech-language pathology services. Accordingly, we
are removing the following four codes, which were erroneously added to
the DHS code list in the CY 2003 physician fee schedule update (67 FR
79966, 80016, effective for services furnished on or after March 1,
2003): CPT 92601 (cochlear implant f/up exam <7); 92602 (reprogram
cochlear implant <7); 92603 (cochlear implant f/up exam 7);
and 92604 (reprogram cochlear implant 7). All of these codes
represent diagnostic audiology services.
Comment: A commenter stated that there are two additional CPT codes
that should be considered speech-language pathology services: CPT 92520
(laryngeal function studies) and CPT 92511 (nasopharyngoscopy).
According to the commenter, these services are clearly within the scope
of practice of speech-language pathologists.
Response: As we stated in Phase I (66 FR 925), we are defining this
category of DHS using specific codes that correspond to services that
we consider to be speech-language pathology services. The Medicare
program does not currently recognize nasopharyngoscopy (CPT 92511) and
laryngeal function studies (CPT 92520) as therapy services. We intend
that the list of CPT/HCPCS codes will reflect existing Medicare
coverage and payment policies for each DHS category on the list. To
include the codes suggested by the commenter would be contrary to
existing policy; therefore, we are not including these codes as DHS
under the physician self-referral prohibition.
E. Occupational Therapy Services (Phase I--66 FR 926)
We received no comments on this subject. Accordingly, we are not
making any changes to the relevant portion of the definition of
``physical therapy, occupational therapy, and speech-language pathology
services.''
F. Radiology and Certain Other Imaging Services (Phase I-66 FR 931)
Under section 1877(h)(6)(D) of the Act, ``radiology services,
including magnetic resonance imaging, computerized axial tomography,
and ultrasound services'' are DHS. Radiation therapy services and
supplies are DHS under section 1877(h)(6)(E) of the Act. In the January
1998 proposed rule, we proposed a single definition for both of these
DHS categories. In Phase I, we took the following steps, among others,
to define this category with greater clarity:
We separately defined the DHS identified in
section 1877(h)(6)(D) and section 1877(h)(6)(E) of the Act.
We defined the category of services covered by
section 1877(h)(6)(D) of the Act under the name ``radiology and certain
other imaging services'' to make clear the Congress's intent to include
some imaging services other than radiology.
We defined the entire scope of DHS under section
1877(h)(6)(D) of the Act in a list of CPT and HCPCS codes.
We excluded the following services from the
definition of ``radiology and other imaging services'': (i) X-ray,
fluoroscopy, and ultrasound services that require the insertion of a
needle, catheter, tube or probe; (ii) radiology procedures that are
integral to the performance of, and are performed during,
nonradiological medical procedures; and (iii) nuclear medicine
procedures.
We received a number of comments concerning radiology services,
particularly with respect to nuclear medicine. We are deleting the
parenthetical ``(except as otherwise specifically excluded on the CMS
Web site and in annual updates)'' in response to comments discussed in
section XI.A addressing the distinction between items and services that
do not constitute a DHS and items and services that are DHS but may
qualify for an exception under Sec. 411.355. In response to comments,
we are modifying the definition to exclude certain radiology procedures
performed immediately after a nonradiological medical procedure.
Comment: Several commenters asked us to confirm their belief that
the only services that constitute ``radiology and certain other imaging
services'' for purposes of section 1877 of the Act are those
represented by the codes listed in the Attachment to Phase I (66 FR
963) and its subsequent updates.
Response: The commenters are correct.
Comment: One commenter asserted that echocardiograms should not be
considered DHS because section 1877 does not include cardiology
services as DHS. In addition, an association of cardiologists stated
that the Congress's choice of language indicates that it intended to
include only ultrasound services that are appropriately considered
radiology services. That is, the commenter asserted that, although
echocardiography is a diagnostic procedure using ultrasound technology,
it should not be considered a radiology service because
echocardiography is a service performed primarily by cardiologists,
billed under cardiology CPT codes, and furnished to cardiology
patients. In addition, the commenter asserted that echocardiography has
not been identified as a service that poses a high risk of improper
referrals, unlike other services appropriately included in the
radiology services category. Another association of cardiologists
asserted that we should exclude any ultrasound service not generally
performed by radiologists, but instead performed by other specialists
as part of their own specialties (such as cardiac, ophthalmic, and
gynecologic ultrasound), just as we excluded nuclear medicine in Phase
I.
Response: In Phase I, we responded to public comments that
questioned why cardiac, vascular, and obstetric ultrasound procedures
should be considered radiology services. As we explained then, ``these
services are subject to the physician self-referral provisions because
section 1877(h)(6)(D) of the Act specifically includes ultrasound as a
DHS, not because they are ordinarily considered to be `radiology
services.' '' (66 FR 928). We see no reason to reconsider this
[[Page 16103]]
determination. As explained in Phase I, we do not believe the Congress
intended for us to make service-by-service determinations with respect
to the risk of overutilization or other abuse. In many cases, these
services may qualify for the in-office ancillary services exception or
another exception.
Comment: The Phase I definition of ``radiology and other imaging
services'' specifically states that the list of codes used to define
these services excludes ``[r]adiology procedures that are integral to
the performance of, and performed during, nonradiological medical
procedures.'' One commenter preferred the language we used in the
preamble to the January 1998 proposed rule to indicate our intention to
exclude radiology services that are ``incidental'' or ``secondary'' to
another procedure (63 FR 1676).
Response: We decline to adopt the standard advocated by the
commenter. Many of the comments we received on the January 1998
proposed rule indicated that the ``incidental or secondary'' standard
was confusing or ambiguous. As noted in Phase I (66 FR 928), ``it is
generally not possible to establish, based on the CPT code used,
whether or not the primary purpose of the procedure was the
interventional procedure itself (with the imaging procedure being an
adjunct procedure) or whether the primary purpose was to take a picture
with an imaging modality.'' Those who commented on the ``integral''
standard generally favored the new language.
Comment: One commenter asserted that radiology services may be
needed before a procedure to plan the manner in which a needle,
catheter, or probe will be guided, and that radiology services may be
performed after a procedure to assess whether the procedure was
effective. Another commenter asserted that we should exclude all
interventional radiology services, since in almost all cases, the
physician making the referral performs part or all of the procedure.
Response: We interpret the commenter to request that such pre- and
post-procedure radiology services be considered ``integral to and
performed during'' a procedure so as to qualify under the standard set
forth at Sec. 411.351 (Radiology and other imaging services, subpara.
(2)). We agree, in part, with the commenter. We have modified the
definition of radiology and other imaging services at Sec. 411.351 to
make clear that radiology services performed immediately after a
procedure in order to confirm the placement of an item during the
procedure are not DHS. Otherwise, we decline to change the regulations
for the reasons set forth in Phase I (66 FR 928-929). In addition,
depending on the circumstances, existing exceptions in the statute and
regulations, such as the in-office ancillary services exception or the
rural provider exception, may apply to radiology procedures furnished
pre- or post-surgery.
Comment: Two commenters addressed ophthalmic A-scans, and one of
the commenters also addressed B-scans. According to the commenters,
because A-scans (particularly CPT 76519) must be performed before
cataract surgery to determine the appropriate power of the intraocular
lens (IOL) to be implanted, these procedures are integral to cataract
surgery even though they are not performed during the surgery. One
commenter asserted that B-scans are performed only in support of
another service or procedure. For example, the commenter stated that B-
scans may be used in certain cataract surgery cases to view the
posterior segment or retina of the eye to determine if a structural
pathology is present. Both commenters argued that the ``integral to and
performed during'' standard should be changed to accommodate A-scans
and B-scans. Alternatively, the commenters advocated that we create a
special exception for A-scans on the grounds that they are sufficiently
integral to another procedure and are subject to little or no
overutilization or abuse. One of the commenters alleged that such an
exception would be based on the same rationale as that which led us to
create the exception in Sec. 411.355(g) regarding EPO and other
dialysis-related drugs furnished in or by an ESRD.
Response: We do not see a meaningful distinction between the A-
scans and B-scans described by the commenters and other radiology
services ordered by surgeons in connection with surgeries; nor do we
think that A-scans and B-scans pose no risk of abuse. Moreover, we do
not believe that our rationale for creating the exception in Sec.
411.355(g) pertains here. Unlike ESRD services, A-scans and B-scans are
not necessarily performed in conjunction with services that are paid
for under a composite rate, nor are they subject to strict utilization
and coverage criteria. Nevertheless, we would expect that in many
cases, the in-office ancillary services exception may apply to A-scans
and B-scans.
Comment: Commenters expressed concern that, in many cases, ASCs
will not be able to provide radiology and ultrasound services that are
not performed during surgery. These commenters urged that, if CMS
continues to consider radiology and ultrasound services performed
before or after surgery to be DHS, then the same reasons that support a
special exception for prosthetic devices implanted in an ASC should
also support a specific exception for these radiology services.
Response: We are not persuaded that a special exception is
warranted. The exception for implants in ASCs applies to the
implantation of a device during a surgical procedure, rather than
before or after it. In those circumstances, the implant is clearly
integral (indeed, inseparable) from the surgery itself. Similarly,
radiology included in the ASC composite rate for an ASC procedure is
not a DHS for the reasons set forth in Phase I at 66 FR 923. We see no
reason to treat radiology services that are furnished in an ASC, but
are not paid for in the ASC composite rate, differently from radiology
services provided by any other entity.
Comment: One commenter advocated that we create an exception to
permit interventional radiologists to order diagnostic, non-
interventional radiology or other imaging procedures from an entity
with which they have a financial relationship prior to performing
interventional radiology and related surgical procedures. The commenter
noted that the professional component of the diagnostic procedure may
be performed at a hospital or an ASC by another physician in the
radiologist's group practice. According to the commenter, a limited
exception would enable beneficiaries to benefit from interventional
radiology.
Response: We see no need for a new exception. The self-referral
prohibition does not apply to a radiologist's request for diagnostic
radiology tests pursuant to a consultation because the request is not a
``referral'' for purposes of section 1877 of the Act. Our expansion of
the definition of ``referral'' would permit a radiologist to order
diagnostic radiology services that are supervised by another
radiologist in the same group practice.
If the request is not made pursuant to a consultation, the referral
of the professional component may nevertheless qualify for another
exception (such as the physician services exception). With respect to
any technical component billed by a hospital or ASC, there are
sufficient exceptions available in the statute and regulations to
address legitimate financial relationships between physicians and these
entities.
Comment: A commenter urged us to amend the final rule to clarify
that not only the ordering physician, but also other ``physicians in
the group practice,'' may provide the professional component of a
radiology service if all
[[Page 16104]]
the following conditions apply: (1) A physician in the group has
ordered the technical component; (2) the professional component is
provided at an institutional provider; and (3) the patient is either an
outpatient or inpatient of the institution where the professional
component is provided.
Response: As explained in section II.D, above, we have expanded the
consultation exception in the definition of ``referral'' in Sec.
411.351 to permit supervision by another physician in the same group
practice as the radiologist, as long as the request results from a
consultation initiated by another physician and the other conditions of
the exception are satisfied. Moreover, the physician services exception
may apply in the circumstances described by the commenter.
Comment: One commenter expressed concern that the exclusion of some
interventional radiology codes for services such as angiographies,
angiograms, cardiac catheterizations, and endoscopies might afford some
physicians more incentive to refer for costly interventional tests that
may not be medically necessary. Although these studies would be DHS
under 1877(h)(6)(K) when performed as inpatient or outpatient hospital
services, some will be performed at freestanding facilities and
therefore not constitute a DHS. The commenter asked that we reassess
our decision, or, in the alternative, instruct contractors to monitor
utilization patterns for excluded interventional radiology services.
Response: As explained in Phase I (66 FR 929), the services
referenced by the commenter are not fundamentally radiological in
nature because they do not involve an imaging service that is described
in 1877(h)(6)(D) of the Act. These services are DHS when performed in a
hospital inpatient or outpatient setting. Other statutes, including the
Federal anti-kickback statute, are available even in instances where a
particular item or service is not DHS under section 1877 of the Act.
Comment: An association representing radiologists urged us to
consider nuclear medicine a DHS because excluding nuclear medicine, as
was done in Phase I, increases the risk of program abuse. The commenter
asserted that nuclear medicine is a subspecialty of radiology and that
radiologists perform and interpret the vast majority of nuclear
medicine studies performed in the United States. The commenter also
asserted that the exclusion of nuclear medicine has encouraged
potentially abusive business arrangements involving physician financial
relationships with entities to which they refer patients for positron
emission tomography (PET) scans. Another commenter expressed concern
that echocardiography is a DHS, while nuclear medicine procedures (some
of which are commonly performed as a clinical alternative for stress
echocardiography) are not. The comment suggested that a physician's
financial interest in nuclear medicine modalities could influence the
physician to select nuclear medicine procedures over echocardiography.
Response: We are making no changes to the treatment of nuclear
medicine procedures under the DHS definitions at this time. However, we
are mindful of the issue raised by the commenter and are continuing to
consider the application of section 1877 of the Act to nuclear medicine
procedures. Moreover, parties should be mindful that arrangements
involving nuclear medicine may violate the anti-kickback statute,
depending on the circumstances.
G. Radiation Therapy Services and Supplies (Phase I--66 FR 931)
Phase I indicated that the list of codes for radiation therapy
services and supplies identified on our Web site and in annual updates
is based on section 1861(s)(4) of the Act (42 U.S.C. Sec.
1395(x)(s)(4)) and Sec. 410.35, but does not include nuclear medicine
procedures. As explained above in the immediately preceding section
concerning radiology services, we are continuing to consider the
application of section 1877 of the Act to nuclear medicine procedures,
but we are not changing the treatment of nuclear medicine procedures
under the DHS definitions at this time.
Comment: One commenter opposed our use of CPT and HCPCS codes to
define the scope of ``radiation therapy services and supplies'' because
Medicare has never used these codes to define such services.
Response: As explained above, we used codes in Phase I to define
various categories of DHS in response to public comments urging us to
create ``bright line'' definitions for DHS. In general, commenters were
pleased with this approach. The list of codes applies only to section
1877 of the Act and the corresponding regulations. The list is updated
annually, and we look to commenters to identify any specific codes that
we have listed that should not be considered ``radiation therapy
services and supplies.''
Comment: One commenter stated that services that are furnished
before or after radiation treatment (such as a consultation to plan the
placement of radioactive elements or post-surgical dosimetry services)
should not be considered radiation therapy services for physician self-
referral purposes. According to the commenter, these services are
neither radiation therapy services nor inpatient or outpatient hospital
services; they are physician services performed in a physician's
office.
Response: Pre-planning placement services (CPT codes 77300 and
77305 through 77331) and normal follow-up post-surgical dosimetry
services are professional physician services, as are many other
radiation therapy services. To the extent that those services are
billed as an outpatient hospital service, they would constitute a
designated health service under section 1877(h)(6)(K) of the Act. We
think that, in many cases, these services will be performed or
supervised by a radiation oncologist pursuant to a consultation and
therefore will not constitute a ``referral'' under Sec. 411.351. To
the extent that a request for these services constitutes a referral, it
would appear that the in-office ancillary services exception and the
physician services exception could apply in many cases. However, these
exceptions are not available for any technical component that is billed
as an outpatient hospital service.
Comment: One commenter asked us to reconsider our statement in the
January 2001 final rule preamble (66 FR 931) that there is no logical
or empirical evidence that physician ownership of brachytherapy centers
improves quality of care.
Response: The commenter offered no evidence or support for the
proposition that physician ownership of brachytherapy centers improves
quality of care. Our position remains the same.
Comment: One commenter asked that we exclude from the list of codes
that defines ``radiation therapy services and supplies'' the CPT codes
for brachytherapy (CPT codes 77781 through 77784). The commenter stated
that excluding brachytherapy from the list of DHS codes would be
appropriate because the Congress did not intend to include as DHS
invasive forms of radiation therapy. According to the commenter, when
the Congress expanded section 1877 to apply to radiation therapy
services and supplies, radiation therapy typically encompassed only the
use of an external electron beam through the body without any invasive
procedure. The commenter also noted that the definitions of
``radiation'' and ``radiation therapy'' found in Stedman's Medical
Dictionary
[[Page 16105]]
do not include treatments (such as brachytherapy) in which surgical
means are necessary to insert radioactive isotopes into the body. See
The American Heritage Stedman's Medical Dictionary, Houghton Mifflin
Company, Boston, Massachusetts, October 1995 (defining ``radiation'' as
the emission and propagation of energy in the form of rays or waves,
and ``radiation therapy'' as the treatment of disease with radiation,
especially selective irradiation with X-rays or other ionizing
radiation and by ingestion of a radioisotope). The commenter asserted
that the same logic that caused us to exclude certain invasive
radiology procedures from the definition of ``radiology and certain
other imaging services'' should persuade us to exclude brachytherapy
from the definition of ``radiation therapy services and supplies.''
Response: As noted in Sec. 411.351, the list of codes defining
``radiation therapy services and supplies'' is based on section
1861(s)(4) of the Act (authorizing Medicare payment for ``x-ray, radium
and radioactive isotope therapy''). Brachytherapy involves the
placement of radioactive isotopes under the skin for therapeutic
purposes, and therefore is clearly within the scope of services
identified in section 1861(s)(4) of the Act. Accordingly, brachytherapy
is also within the scope of the DHS category of ``radiation therapy
services and supplies.'' We find nothing in the statutory scheme or
language to suggest that the Congress intended to exclude radiation
therapy involving surgical or invasive procedures. We do not believe
the Congress intended the definitions of DHS under the statute to be
frozen in time, as this would eventually defeat the purpose of the
statute. Just as new clinical laboratory tests are, and will continue
to be, included in the definition of ``clinical laboratory tests,'' so,
too should new radiation therapy services and supplies be included in
the definition of ``radiation therapy and supplies.'' Moreover, in
1993, when section 1877 of the Act was made applicable to radiation
therapy services and supplies, the Congress would have understood that
this category included brachytherapy services. AMA-approved
brachytherapy codes have been in existence since 1983: One
brachytherapy service (CPT code 77776) received a CPT code in 1983; ten
brachytherapy services (CPT codes 77761-63; 77777-78; 77789; 77326-28;
and 77799) received CPT codes in 1984; and four brachytherapy services
(CPT codes 77781-84) received CPT codes in 1991. Finally, the AMA chose
to place the codes for these brachytherapy items and services in the
77000 section, a section for radiation therapy services.
Comment: The same commenter argued in the alternative that we
should use our authority pursuant to section 1877(b)(4) of the Act to
create an exception for financial relationships involving brachytherapy
services. According to the commenter, such financial relationships do
not pose a risk of program or patient abuse because brachytherapy is
not a diagnostic procedure; it is used only after a diagnosis of cancer
has been made by the treating physician. In addition, the commenter
asserted that, since brachytherapy can be performed only once on a
patient, any abuse in the form of repetitive billing would be obvious.
Finally, the commenter asserted that abuse is more likely to occur with
other competing and more expensive procedures that have higher profit
margins, such as radical prostatectomy or external beam radiation.
Response: We are not persuaded that an additional exception is
warranted. To the extent brachytherapy services and supplies are
furnished by a radiation oncologist pursuant to a consultation, the
consultation exception could apply. To the extent that a urologist
provides the services, there are a number of exceptions that could be
available, depending on the circumstances. We recognize that there
would be no exception available for a facility fee billed by an entity
owned by a urologist, unless the entity were located in a rural area or
the DHS qualified under the in-office ancillary services exception.
However, we continue to believe that brachytherapy may be subject to
abuse. For example, a urologist who owns a brachytherapy facility may
be more inclined to order brachytherapy rather than another radiation
therapy treatment in which he or she may not have a financial interest.
The statuory language and structure reflects the Congress' intent to
curb physician ownership in DHS entities to which they refer because
such ownership creates an inappropriate financial incentive to make
referrals. With respect to the commenter's assertions regarding the
nature of brachytherapy, all radiation therapy services and supplies
are furnished only after a diagnosis of cancer is made; thus, we see no
reason to differentiate among radiation therapy treatments on that
basis. The fact that other treatments may be more expensive or have
higher profit margins--and therefore may be more likely to be abused--
is not a basis for concluding that brachytherapy poses no risk of
abuse.
Comment: A commenter stated that brachytherapy is less invasive
than other procedures for removing a tumor in the prostate gland and
that including it as a designated health service will prohibit
physicians in multiple specialties from collaborating to provide the
service.
Response: We are unclear from the comment as to why including
brachytherapy as a DHS will prohibit collaboration on such services.
While certain financial interests in brachytherapy services may be
prohibited, nothing in the statute or regulations prohibits physicians'
professional collaboration on patient care. A physician's personally
performed service is not considered a referral for purposes of section
1877 of the Act. Futhermore, physicians are free to refer to one
another as long as they do not have a prohibited financial arrangement.
Finally, we are not aware of a brachytherapy access problem in the
United States.
H. Durable Medical Equipment (DME) and Supplies (Phase I--66 FR 931)
We received only one comment regarding our definition of DME, in
which we defined DME with reference to section 1861(n) of the Act and
Sec. 414.202. We are not making any changes to this definition.
Comment: The January 1998 proposed rule explicitly stated that home
dialysis equipment and supplies do not constitute DME for the purposes
of section 1877 of the Act. A commenter sought clarification that the
ESRD benefit under section 1861(s)(2)(F) of the Act (providing coverage
for home dialysis supplies and equipment) is distinct from the DME
benefit in section 1861(s)(6) of the Act, and that home dialysis
equipment and supplies are not covered as DME under Medicare.
Response: The commenter is correct. Our position regarding home
dialysis equipment and supplies remains the same: The DME and ESRD
benefits are distinct, and home dialysis equipment and supplies are not
DME, as defined in section 1861(n) of the Act and Sec. 414.202 of the
regulations.
I. Parenteral and Enteral Nutrients, Equipment and Supplies (Phase I--
66 FR 932)
We received only one comment on this subject and are making no
change to the definition set forth in Phase I.
Comment: A commenter stated that the Phase I preamble (66 FR 933)
asserts incorrectly that enteral nutrition is widely available in
grocery stores, drug stores, and other retail outlets. The statement
was made in response to a
[[Page 16106]]
comment advocating that we exclude from the definition or create an
exception for parenteral nutrition furnished by a physician group
practice to its own patients.
Response: We have received conflicting reports about the routine
availability of enteral nutrition in grocery stores and drug stores.
The commenter may be correct with respect to patients who are
completely dependent on enteral formulas for nutrition. Regardless, the
Congress specifically excluded the provision of parenteral and enteral
nutrients from the in-office ancillary services exception in section
1877(b)(2) of the Act. Accordingly, to the extent that the commenter
would like us to reconsider our overall response to the original
comment, we cannot do so.
J. Prosthetics, Orthotics, and Prosthetic Devices and Supplies (Phase
I--66 FR 933)
We received no comments on this subject and are making no
substantive changes to the definition.
K. Home Health Services (Phase I--66 FR 936)
We received no comments on this subject and are making no changes
to the definition.
L. Outpatient Prescription Drugs (Phase I--66 FR 937)
Phase I defined outpatient prescription drugs as ``all prescription
drugs covered by Medicare Part B.'' We note that, effective January 1,
2006, many additional outpatient prescription drugs will be covered
under Medicare Part D, which was added to the Social Security Act by
section 101 of MMA. In light of the expanded coverage, we will revisit
the definition of ``outpatient prescription drugs'' in a future
rulemaking. The MMA amended Title XVIII to include a definition for
``covered Part D drug'' in section 1860D-2(e) of the Act. While we have
no specific proposal at this time, we are interested in receiving
comments regarding approaches to expanding the definition of
``outpatient prescription drugs'' to reflect the definition of
``covered Part D drug'' in the MMA. We received the following comments
regarding outpatient prescription drugs.
Comment: A commenter asked us to clarify that antigens are not
``outpatient prescription drugs'' or, in the alternative, to clarify
that a referral by a physician for antigens which he or she personally
provides is not a ``referral'' within the meaning of section 1877 of
the Act.
Response: We responded to this comment in section V.A, noting that
the provision of antigens may be protected under the physician services
or in-office ancillary services exceptions. We also noted that when
antigens are personally furnished by the referring physician, there is
no ``referral'' for purposes of section 1877 of the Act.
Comment: One commenter urged that any drug administered in a
physician's office not be considered an ``outpatient prescription
drug'' because the physician may not be required to write a
prescription for that item. According to the commenter, section 1877 of
the Act was intended to govern only the in-office dispensing (as
opposed to administration) of drugs. In the alternative, the commenter
believed that we should exclude all injectables from the definition of
``outpatient prescription drugs,'' whether or not they would qualify as
immunizations or vaccines. According to the commenter, the
administration of injectable drugs is so integral to a physician
service that physicians should be permitted to furnish injectables
without complying with the in-office ancillary services exception.
Response: We responded to similar comments in Phase I (66 FR 938).
We continue to find no meaningful distinction between prescription
drugs dispensed by pharmacies and those mixed and administered in a
physician's office. Drugs administered in the physician office setting
are outpatient prescription drugs; they are available only upon a
physician's order and are provided in an outpatient setting. Phase I
made clear that drugs administered in a physician's office may, and
typically will, fit in the in-office ancillary services exception. If
administered personally by the referring physician, there is no
``referral'' for purposes of section 1877 of the Act. We are not
convinced that creating an additional exception for all drugs
administered in the physician office is either necessary or without any
risk of fraud or patient abuse.
M. Inpatient and Outpatient Hospital Services (Phase I--66 FR 940)
In the January 1998 proposed rule, we solicited comments on whether
we should exclude lithotripsy from the DHS category of ``inpatient and
outpatient hospital services.'' We received hundreds of comments urging
us to exclude lithotripsy as a designated health service. We addressed
these comments in the Phase I preamble (66 FR 940 through 941) and
declined to exclude the service as an inpatient or outpatient hospital
service. After the publication of Phase I, we received similar comments
from two associations representing physicians with ownership interests
in lithotriptors.
Given the statutory language, we are not revising the regulatory
definition. However, in light of the unique legislative history
regarding the application of section 1877 of the Act to lithotripsy, we
will not consider lithotripsy an ``inpatient or outpatient service''
for purposes of section 1877 of the Act. Contractual arrangements
between hospitals and physicians or physician practices regarding
lithotripsy nevertheless constitute a ``financial relationship'' under
section 1877 of the Act. Accordingly, such contractual arrangements
must comply with an exception if the physician will refer Medicare
patients to the hospital for services that otherwise constitute an
``inpatient or outpatient hospital service'' or another designated
health service.
N. Other Definitions (Phase I--66 FR 942)
1. Consultation
The definition of ``consultation'' is addressed in section III.B.2
of the Phase I preamble (66 FR 873), in section II.D of this Phase II
preamble (including comments and responses), and in the regulations in
Sec. 411.351.
2. Entity
The definition of ``entity'' is addressed in section VIII.N.2 of
the Phase I preamble (66 FR 943) and in the regulations in Sec.
411.351. Comments and our responses on the Phase I definition follow.
Comment: Several commenters claimed that the definition of
``entity'' was confusing. In particular, the commenters urged that the
definition be restructured to be more clear and that the statement that
certain organizations that employ a supplier or operate a facility that
``could'' accept reassignment be changed to clarify whether such
entities would, in fact, be deemed to provide DHS.
Response: We have rewritten the language in an effort to provide
greater clarity. The substance of the definition remains unchanged.
Comment: A commenter representing independent practice associations
urged that we exclude IPAs from the definition of ``entity'' when they
furnish DHS directly, through employees or entities that they own.
Response: We discern no reasonable basis to treat IPAs that furnish
DHS differently from other entities that furnish the same services. If
an IPA
[[Page 16107]]
furnishes DHS through employees or owned entities, then it is a DHS
``entity'' for purposes of section 1877 of the Act.
3. Fair Market Value
The definition of ``fair market value'' is addressed in section
VIII.N.3 of the Phase I preamble (66 FR 944) and in the regulations in
Sec. 411.351. The following are our responses to comments to the Phase
I definition.
Comment: A commenter expressed concern that the discussion of
``fair market value'' in the Phase I preamble does not provide
sufficiently clear guidance for determining ``fair market value.'' That
commenter recommended that the regulations include a rebuttable
presumption of reasonableness and ``fair market value'' when entities
benchmark their arrangements to objective measures or when they obtain
the opinion of independent third parties as to ``fair market value'' in
a particular arrangement. The commenter suggested that the presumption
be similar to that contained in the IRS's intermediate sanctions
provisions.
Response: We appreciate the commenter's desire for clear ``bright
line'' guidance. However, the statute covers such a wide range of
potential transactions that it is not possible to verify and list
appropriate benchmarks or objective measures for each. Moreover, the
definition of ``fair market value'' in the statute and regulation is
qualified in ways that do not necessarily comport with the usage of the
term in standard valuation techniques and methodologies. For example,
the methodology must exclude valuations where the parties to the
transactions are at arm's length but in a position to refer to one
another. In addition, the definition itself differs depending on the
type of transaction: leases or rentals of space and equipment cannot
take into account the intended use of the rented item; and in cases
where the lessor is in a position to refer to the lessee, the valuation
cannot be adjusted or reflect the value of proximity or convenience to
the lessor. Our Phase I discussion made clear that we will consider a
range of methods of determining fair market value and that the
appropriate method will depend on the nature of the transaction, its
location, and other factors. While good faith reliance on a proper
valuation may be relevant to a party's intent, it does not establish
the ultimate issue of the accuracy of the valuation figure itself. With
respect to valuing physician services, however, we are establishing
several ``safe harbored'' methodologies discussed in more detail in
section VIII.C.
Comment: A commenter sought clarification that determinations of
``fair market value'' could involve comparisons of national or regional
data where appropriate. By way of example, the commenter suggested that
the market for physician recruitment has become national.
Response: Whether resort to national or regional data is
appropriate will depend on the facts and circumstances of each case.
The regulations necessarily cover a wide variety of arrangements,
services, and markets, and no single means for determining ``fair
market value'' will apply to all. For hourly physician compensation, we
have added ``safe harbored'' methodologies for establishing fair market
value that take into account national and regional data (section VIII.C
of this preamble). If parties are using comparables to establish fair
market value, they should take reasonable steps to ensure that the
comparables are not distorted.
4. Group Practice
The definition of ``group practice'' is addressed in section VI.C
of the Phase I preamble (66 FR 894), in section V.C of this Phase II
preamble, and in the regulations in Sec. 411.352.
5. Health Professional Shortage Area
The definition of ``health professional shortage area'' is
addressed in section VIII.N.5 of the Phase I preamble (66 FR 945) and
in the regulations in Sec. 411.351. We received no comments on this
definition and are making no changes to it.
6. Employee
The definition of ``employee'' is addressed in section VIII.N.6 of
the Phase I preamble (66 FR 946), in section VIII.B of this Phase II
preamble, and in the regulations in Sec. 411.351.
7. Immediate Family Member
The definition of ``immediate family member'' is addressed in
section VIII.N.7 of the Phase I preamble (66 FR 946) and in the
regulations in Sec. 411.351. We received no comments on this
definition and are making no changes to it.
8. Referral
The definition of ``referral'' is addressed in section III.B of the
Phase I preamble (66 FR 871), section II.C of this Phase II preamble,
and in the regulations in Sec. 411.351.
9. Remuneration and the Exceptions in Section 1877(h)(1)(C) of the Act
The definition of ``remuneration'' (along with the exceptions) is
addressed in section VIII.N.9 of the Phase I preamble (66 FR 946) and
in the regulations in Sec. 411.351.
The statute expressly excludes from the definition of
``remuneration'' payments made by an insurer or self-insured plan to a
physician to satisfy a claim, submitted on a fee-for-service basis, for
the furnishing of health services by that physician to an individual
who is covered by a policy with that insurer or by that self-insured
plan. This might occur, for example, if a plan enrollee receives out-
of-network care in an emergency room. In practice, the application of
this rule may not have the intended effect of excluding those payments
from the definition of ``remuneration.'' This is because, in many
cases, payments are made by downstream subcontractors of insurers or
self-insured plans (for example, providers who have assumed risk under
a plan), rather than the insurer or plan itself. Accordingly, we have
revised the regulations to cover payments made by downstream
subcontractors.
In addition, we received the following comment:
Comment: A commenter recommended that the items and services
enumerated by the new exceptions for non-monetary compensation, medical
staff incidental benefits, and compliance training be excluded from the
definition of ``remuneration'' rather than included in various new
exceptions.
Response: We disagree. Most, if not all, of the items and services
covered by the new exceptions fit squarely in the broad statutory
definition of ``remuneration.'' The Congress included in the definition
of ``remuneration'' a short list of specific items and services that it
intended to exclude. The items and services covered by the new
exceptions are not among them. Treating them as remuneration (that is,
as creating compensation arrangements) and then excepting them is
consistent with the statutory scheme and structure.
We note that among the items specifically excluded from the
definition of remuneration are items used to collect, transport,
process, or store specimens. In the Phase I preamble, we indicated that
sterile gloves do not fit in this category of items excluded from the
definition of remuneration (66 FR 948). Our use of the term ``sterile
gloves'' was intended to be illustrative, not exclusive, and other
gloves similarly are not excluded from the definition of remuneration.
As stated in the Phase I preamble, the provision of any free gloves
would be remuneration and would need to fit in an exception.
[[Page 16108]]
10. Transaction and Isolated Transaction (Phase II--Sec. 411.357(f))
The definitions of ``transaction'' and ``isolated transaction'' are
addressed in section VIII.F of this Phase II preamble and in the
regulations in Sec. 411.351.
XII. Regulatory Exceptions
In Phase I, we created a number of new exceptions using the
authority granted to the Secretary in section 1877(b)(4) of the Act. We
are creating some additional exceptions under section 1877(b)(4) of the
Act in Phase II.
Several commenters to Phase I objected to the condition in these
new regulatory exceptions that the arrangement in question not violate
the anti-kickback statute. The commenters felt that this condition
injected an unnecessary facts and circumstances test in what is
intended to be a bright line area of law. If the requirement is
retained, a commenter urged that the language used in all references to
violation of the anti-kickback statute in the regulations be made
consistent. One commenter claimed to be confused by the requirement in
new exceptions that compensation arrangements comply with all billing
and claims submission laws or regulations. The commenter pointed out
that, in some cases, it is difficult to see how compensation
arrangements implicate billing or claims filing.
We have endeavored to craft bright line rules under these
regulations wherever possible. However, our authority under section
1877(b)(4) of the Act is expressly limited to arrangements that pose no
risk of program or patient abuse. Thus, if an arrangement poses even a
low risk, we cannot create a new exception. The statutory ``no risk''
standard is not limited to a determination of ``no risk'' under section
1877 of the Act. Given this broad ``no risk'' standard, it would be
impossible to create new exceptions for many arrangements without the
anti-kickback statute condition. Many arrangements that might otherwise
warrant an exception under section 1877 of the Act--a strict liability
statute--pose some degree of risk under the anti-kickback statute;
these arrangements cannot, therefore, be said to pose no risk. We are
rectifying the lack of consistency in the language used in these
regulations when referring to the anti-kickback statute by making
technical changes to several provisions. We are also clarifying through
a new definition at Sec. 411.351 that a party will be considered to
have received a favorable advisory opinion from the OIG with respect to
the anti-kickback statute if the opinion indicates that the OIG will
not subject the party's arrangement to sanctions arising under the
anti-kickback statute.
The billing and claims submission condition was also included to
satisfy the absolute no risk standard under section 1877(b)(4) of the
Act. We agree that many compensation arrangements will not implicate
billing or claims filing. However, some arrangements may, and the
exceptions are designed to cover a wide scope of arrangements.
Moreover, most referrals will implicate billing and claims submission
for the referred item or service. If a particular arrangement does not
implicate billing or claims submission in any way, then the parties
need not be concerned with that condition. We have also revised the
regulations to rectify the lack of consistency of the language used in
this regard. Specifically, technical changes have been made to several
provisions.
We received one comment proposing a new exception that we are not
promulgating. The request was for an exception for referrals in areas
with a demonstrated community need (for example, areas lacking adequate
health care facilities or providers, particularly inner city areas).
The proposed exception would be comparable to the rural area exception
and permit physician ownership of inner city DHS entities. We are
unable to adopt the suggestion. The Congress clearly limited ownership
of DHS entities in underserved areas to rural providers (section
1877(d)(2) of the Act). We cannot conclude that ownership in inner city
areas--which are proximate to more affluent urban areas from which to
draw additional business--would be without risk. We are mindful of the
difficulties some inner city areas experience in providing adequate
health care to community residents. However, given the numerous
statutory and regulatory exceptions--including the fair market value
exception--we are not persuaded that section 1877 of the Act is a
significant impediment.
Comments and responses to new regulatory exceptions not already
discussed in this preamble are set forth below.
A. Academic Medical Centers (Phase I--66 FR 915; Sec. 411.355(e))
[If you choose to comment on issues in this section, please include the
caption ``Academic Medical Centers Exception'' at the beginning of your
comments.]
In Phase I, we added a new regulatory exception for academic
medical center arrangements, using the authority granted the Secretary
under section 1877(b)(4) of the Act. While most commenters praised the
new exception in Sec. 411.355(e), many suggested ways to improve it.
The most significant comments addressed the requirements in Sec.
411.355(e)(1)(ii) relating to the referring physician's compensation.
In particular, commenters observed that the requirement that a
physician's compensation be ``set in advance'' precluded calculating
any component of the compensation using a percentage-based methodology.
In addition, the requirement that compensation not take into account
``other business generated by the referring physician within the
academic medical center'' potentially affected compensation based on a
physician's professional services. Commenters viewed these provisions
as more strict than the requirements for physician compensation paid by
group practices under Sec. 411.352 or for other physician compensation
arrangements.
Other commenters requested modifications to various elements of the
definition of an ``academic medical center'' in Sec. 411.355(e)(2).
These commenters wanted greater flexibility as to the number and
organization of affiliated practice plans, and they objected to the
requirements that a majority of the affiliated hospital's medical staff
be faculty members and a majority of the hospital's admissions come
from faculty members.
Our modification of the ``set in advance'' and the ``other business
generated'' provisions (see section IV above) should address the
concerns of many commenters. We are revising the rule to make it easier
to qualify as an academic medical center or a component of an academic
medical center, and we have clarified some of the exception's
terminology. The particular changes are discussed in the responses to
comments that follow.
Comment: One commenter asked that we broaden the definition of an
academic medical center in Sec. 411.355(e)(2) to eliminate the
requirement that an academic medical center include an accredited
medical school. According to the commenter, if a hospital has an
approved medical education program, it should be enough to ensure that
the hospital is part of an academic medical center. One commenter
suggested including any hospital or health system that sponsors five or
more medical education programs.
Response: We agree that the definition is overly restrictive. We
have modified the definition of an academic medical center in Sec.
411.355(e)(2)(i) to permit hospitals or health systems that sponsor
four or more approved medical education programs (for purposes of the
[[Page 16109]]
exception, an ``accredited academic hospital'') to qualify, provided
they meet the other criteria in the exception. We think a requirement
for four programs will adequately ensure that the hospital or health
system has a substantial teaching mission. A hospital or health system
meeting the requirement in Sec. 411.355(e)(2)(i) may be the same
hospital that meets the ``affiliated hospital'' requirement of Sec.
411.355(e)(2)(iii), and we have modified the regulation to reflect
this. Finally, to reflect this broader reading of an ``academic medical
center,'' we have revised the regulations to clarify that the referring
physician may be on the faculty of the affiliated medical school or the
accredited academic hospital.
Comment: We received many comments related to various aspects of
the affiliated faculty practice plan requirement in Sec.
411.355(e)(2)(ii). A number of commenters objected to the requirement
that the practice plan be a tax exempt organization under either
section 501(c)(3) or 501(c)(4) of the Internal Revenue Service (IRS)
Code. These commenters noted that many bona fide plans are organized as
professional corporations or not-for-profit organizations under State
law or are not separate legal entities. Other commenters sought
clarification as to whether an academic medical center could have more
than one affiliated faculty practice plan. Finally, several commenters
asked whether the faculty practice plan could be affiliated with the
teaching hospital, rather than the medical school.
Response: We recognize that there are many variants of the basic
academic medical center arrangement. We are eliminating the requirement
that the faculty practice plan or plans be organized in any particular
manner. As long as the other criteria of the exception can be met,
there is sufficient assurance that the faculty practice plan is part of
a bona fide academic medical center and that the practice plan supports
the core teaching mission. We are also clarifying Sec.
411.355(e)(2)(ii) to reflect that an academic medical center may have
more than one affiliated faculty practice plan and that the faculty
practice plans can be affiliated with the teaching hospital, the
medical school, or the accredited academic hospital.
Comment: A number of commenters questioned aspects of Sec.
411.355(e)(2)(iii), especially the requirements that a majority of the
affiliated hospital's medical staff be faculty members and that a
majority of the hospital's admissions be made by faculty members. A
number of commenters suggested that these requirements are unnecessary
in light of Sec. 411.355(e)(1)(i), which contains the requirements for
referring physicians. Some commenters sought clarification that
residents and non-physician practitioners need not be counted when
calculating the percentage of medical staff that are faculty members.
Other commenters suggested that courtesy and volunteer faculty should
count as faculty members for purposes of the tests in Sec.
411.355(e)(2)(iii), even if they do not qualify as referring physicians
under Sec. 411.355(e)(1)(i). One commenter on behalf of a children's
hospital stated that children's hospitals frequently affiliate with
several medical schools in their geographic area. The commenter
suggested that we permit children's hospitals to aggregate the faculty
members from all affiliated medical schools. Another commenter on
behalf of children's hospitals asked that the tests be restructured to
be alternatives, so that satisfying either test would be sufficient.
One commenter asked that we include in the exception arrangements
between a medical college and a hospital other than an affiliated
teaching hospital by broadening the definition of an affiliated
hospital; this commenter suggested that we include unaffiliated
hospitals where otherwise bona fide faculty members of the academic
medical center may be assigned by the medical school to perform
services as part of their continued employment or appointment with the
academic medical center. The commenter noted that these kinds of
arrangements occur for a variety of practical reasons, ranging from
availability of sophisticated specialty equipment to accommodating the
needs of communities located near unaffiliated hospitals.
Response: Given the breadth of the academic medical center
exception, it is important to ensure that the relationship between the
components is sufficiently focused on the academic medical center's
core mission. We believe the tests for affiliated hospital faculty and
admissions set forth in Sec. 411.355(e)(2)(iii) are strong indicators
of that core relationship. A teaching hospital can include any faculty,
including courtesy and volunteer faculty, in determining whether it
qualifies under these tests. We are, however, revising the regulatory
text to clarify (i) that the majority of physicians on the medical
staff must be on the faculty, and (ii) that the aggregation of faculty
from any affiliated medical school is permitted. We agree with the
commenters that residents and non-physician professionals do not need
to be included as medical staff for purposes of Sec.
411.355(e)(2)(iii).
Comment: Several commenters raised issues about the requirement in
Sec. 411.355(e)(1)(i) that the referring physician must be an employee
of a component of the academic medical center. Other commenters asked
that volunteer faculty be included in the requirement. One commenter
representing a State institution wanted primary care physicians
included, even though they do not have substantial teaching
responsibilities. One commenter asked that we clarify that the
physician can be an employee of the hospital, as well as the medical
school.
Response: The purpose of the academic medical center exception is
to provide protection under section 1877 of the Act for academic
medical centers because they often have complex compensation
arrangements with their faculty. If a physician is not an employee of
any of the components of the academic medical center, we believe the
relationship between the physician and the party paying the
remuneration should not be sufficiently different from the usual
arrangements of entities or organizations that are not academic medical
centers, and one of the other exceptions under section 1877 of the Act
should apply. For the same reasons, we are not including primary care
physicians who do not perform substantial academic services or clinical
teaching services. While we recognize that primary care services may be
part of a State institution's mission, the primary care physicians are
essentially in the same circumstances as employed physicians of any
health system. Arrangements with those physicians can be structured to
fit in other exceptions, including the fair market value exception or
the personal services exception.
The referring physician need not be an employee of the medical
school, however. Section 411.355(e)(1)(i) requires only that the
referring physician be a bona fide employee of a component of the
academic medical center. A referring physician could be an employee of
the teaching hospital and a volunteer faculty member, for example, as
long as his or her employment encompasses substantial academic services
or clinical teaching services.
Comment: Several commenters also asked that we clarify what
constitutes ``substantial academic or substantial clinical teaching
services'' under Sec. 411.355(e)(1)(i)(D).
Response: In the Phase I rule, we did not specify what constitutes
``substantial academic services or
[[Page 16110]]
clinical teaching services'' because we believe it will vary with the
precise duties of a given faculty member, and we wanted to provide
academic medical centers with flexibility. Nevertheless, to provide
added clarity, we are adding a ``safe harbor'' provision to Sec.
411.355(e)(1)(i)(D) that will deem any referring physician who spends
at least 20 percent of his or her professional time or, in the
alternative, 8 hours per week providing academic services or clinical
teaching services (or a combination of academic services and clinical
teaching services) as fulfilling the requirement. This test is intended
to be a ``safe harbor'', not an absolute requirement, and the
regulation is being modified to make clear that physicians who do not
qualify under this ``safe harbor'' may still be providing substantial
academic services or clinical teaching services, depending on the
circumstances. Academic medical centers should use a reasonable and
consistent method for calculating a physician's academic services and
clinical teaching services. We are also modifying the regulation text
to clarify that the substantial services test can be met through either
academic services (which would include, without limitation, both
classroom and academic research services) or clinical teaching
services, or a combination of both.
Comment: One commenter asked that we clarify in which State the
referring physician must be licensed.
Response: The referring physician must be licensed in the States in
which he or she practices.
Comment: Many commenters objected to the requirements of Sec.
411.355(e)(1)(ii) that the total compensation paid to the referring
physician by all components of the academic medical center be ``set in
advance'' and not take into account ``other business generated by the
referring physician within the academic medical center.'' The
commenters stated that many faculty practice plans, like many group
practices, base some part of the physician's compensation on a
percentage of collections or revenues attributable to the physician's
personally performed services. Moreover, commenters were unclear as to
what effect the requirement that the compensation not take into account
``other business generated'' by the referring physician would have on a
physician's personally performed services. The commenters generally
thought that academic medical centers should be allowed to compensate
referring physicians in the same manner as group practices or entities
that employ physicians.
Response: We believe the changes made to the definitions of ``set
in advance'' and ``other business generated'' described in section IV
above largely address the commenters' concerns. We are not persuaded
that further changes are needed. Nor are we persuaded that academic
medical center arrangements are more similar to group practices than to
other contractual arrangements.
Comment: Section 411.355(e)(l)(ii) (and the corresponding preamble
discussion) refers to the referring physician's total compensation for
the ``previous 12-month period (or fiscal year or calendar year).'' A
commenter found this reference unclear insofar as compensation is
generally set for a future period. Moreover, the commenter wondered how
the ``set in advance'' requirement would be applied to compensation in
a prior time period. The commenter suggested that the phrase ``previous
12-month period'' be deleted and that the exception instead require
that the compensation be fixed for a specified time period.
Response: We are revising Sec. 411.355(e)(l)(ii) to delete ``the
previous 12-month period (or fiscal year or calendar year)'' language.
Upon further consideration, we do not believe that a time period
requirement is necessary in light of the remaining conditions in Sec.
411.355(e)(l)(ii) and the exception as a whole.
Comment: One commenter asked us to clarify that in establishing a
referring physician's compensation, an academic medical center is not
limited to the fair market value at other academic medical centers if
the fair market value for comparable private practice physicians in its
area is higher.
Response: The commenter is correct. An academic medical center can
use either measure of fair market value.
Comment: One commenter asked that the regulation except all
transfers of funds between the components of an academic medical center
and any other supporting organization, such as a foundation, as long as
the supporting organization's primary purpose is supporting the
nonprofit mission of the academic medical center, including health care
services, education, research, and disease prevention.
Response: We agree in part with the commenter, although we consider
the commenter's proposed change to be overly broad in the context of
this exception. We have revised the rule to include, in the list of
possible components of an academic medical center, not-for-profit
supporting organizations whose primary purpose is supporting the
teaching mission of the academic medical center.
Comment: A commenter asked that we clarify that the components of
the academic medical center need not be separate legal entities.
Response: We have made a clarifying change to Sec.
411.355(e)(1)(i)(A).
Comment: A number of commenters asked that we modify the
requirement in Sec. 411.355(e)(1)(iii)(B) that the relationship among
the components be set out in a written agreement. Some commenters asked
that we permit the relationship to be set out in several separate
documents. Others suggested that a course of conduct should be
sufficient. A commenter representing an academic medical center with
components all owned by a single legal entity noted that the
relationship of its components is not reflected in written agreements
among the components. This commenter suggested that transfers of funds
documented in routine financial reports covering the components should
suffice in lieu of written agreements.
Response: We did not intend to restrict the written agreement to a
single document. We have modified the regulatory text of Sec.
411.355(e)(1)(iii)(B) to permit the relationship to be memorialized in
multiple writings. In order to permit the government to verify an
academic medical center's compliance with the exception, it is
necessary that the relationship of the components be memorialized in
writing or that there be a clearly established course of conduct that
is appropriately documented. In the case of a single legal entity
academic medical center, we agree that financial reports documenting
the transfers of funds between components would be sufficient.
Comment: One commenter asked us to revise the language in Sec.
411.355(e)(1)(iii)(C) to permit use of research money for bona fide
research, teaching, indigent care, and community service, the same
missions listed in Sec. 411.357(e)(1)(iii)(A), as long as use of the
funds is consistent with the terms and conditions of the research
grant. The commenter explained that in many instances compensation paid
to a physician under a research grant may properly be used for these
purposes.
Response: We agree that some additional flexibility in this area is
warranted. We have modified the regulations to cover research money
used for teaching, a core academic medical center function. However,
while we recognize the importance of indigent care and community
service, the commenter's proposal is overly broad in the context of
research grants,
[[Page 16111]]
which can be an area subject to potential abuse. Payments to referring
physicians for indigent care or community service may be structured to
fit in other exceptions.
B. Services Furnished Under Certain Payment Rates (Sec. 411.355(d);
Phase I--66 FR 924)
Existing Law: In the August 1995 final rule, we took the position
that clinical laboratory services furnished as part of a larger service
paid by Medicare on a composite basis, such as surgery in an ambulatory
surgical center (ASC) or treatment in an end-stage renal dialysis
(ESRD) facility, was a referral to an entity providing clinical
laboratory services. Accordingly, if the DHS entity and the referring
physician had a prohibited financial relationship, any referral and
corresponding claim would be tainted. However, under the authority
granted in section 1877(b)(4) of the Act, the Secretary determined that
referrals for certain clinical laboratory services furnished in ASCs or
ESRD facilities or by a hospice do not pose a risk of Medicare program
or patient abuse when payments for these services are included in the
composite rates for those services. An exception for the services was
included in the August 1995 final regulation at Sec. 411.355(d).
Proposed Rule: The January 1998 proposed rule would have retained
the exception for certain composite rate services, extending it to all
DHS, with an amendment to allow the Secretary to except services
furnished under other payment rates that the Secretary determines
provide no financial incentive for either underutilization or
overutilization or other risk of program or patient abuse. We
specifically solicited comment on whether there are analogous composite
rates under the Medicaid program.
Final Rule: In the Phase I final rule, we defined designated health
services'' to exclude services that are reimbursed by Medicare as part
of a composite rate (for example, ASC services, skilled nursing
facility (SNF) Part A services, or ESRD composite rate services),
except to the extent the specifically enumerated DHS in section
1877(h)(6) of the Act are themselves payable through a composite rate
(that is, all services provided as home health services or inpatient or
outpatient hospital services remain DHS.) (See Sec. 411.351.)
Further, we created several exceptions for specific DHS often
performed in association with services reimbursed on a composite rate,
such as implants furnished in an ASC and certain drugs administered in
or by an ESRD facility. Accordingly, we declined to extend Sec.
411.355(d) beyond clinical laboratory services. Further, we indicated
that we were reconsidering the need for Sec. 411.355(d) in light of
the new DHS definition and additional regulatory exceptions, and
specifically solicited comments on this issue (66 FR 924).
Two commenters believe that the new composite rate exception
rendered the prior exception unnecessary and potentially confusing
insofar as it would suggest that a separate exception is needed or that
clinical laboratory and other DHS would be subject to disparate
treatment. One commenter conceded that the prior exception is redundant
given the new composite rate rule, but asked that we nonetheless retain
it and extend it to all DHS. The commenter stated that a clear,
separate rule has been helpful for providers. On balance, we concur
with the first two commenters. We are deleting the ASC/ESRD/Hospice
exception, formerly in Sec. 411.355(d). We are persuaded that the risk
of undue confusion outweighs any utility in having a repetitive
exception.
We note that services separately listed in section 1877(h) of the
Act that are paid on a composite basis now or in the future (for
example, home health and hospital services) are DHS, notwithstanding
that they are paid on a composite basis. This concept was incorporated
in the Phase I regulations at Sec. 411.351 (definition of ``designated
health services'').
C. Implants in an ASC (Phase I--66 FR 934; Sec. 411.355(f))
In Phase I, we established a new exception for implants furnished
by an ASC as a DHS entity. The new exception was necessary because many
implantable items are DHS, but are not bundled in the ASC composite
rate. Accordingly, the ASC becomes a DHS entity when it furnishes the
implants.
Comment: A commenter sought clarification that the new exception
for ASC implants applies whether the ASC bills the insurer or the
physician bills.
Response: The exception applies to a financial relationship between
the physician and the ASC (as the DHS entity) and to a referral for an
implant used during an ASC procedure. Accordingly, the exception
applies when the implant is billed by the ASC. When a physician bills
for an implant, the physician is the DHS entity (as defined in Sec.
411.351), rather than the ASC. In other words, not all implants qualify
for this exception; implants implanted in an ASC qualify only if the
ASC is the entity furnishing the implant. When a physician bills for
the implant, another exception would need to be satisfied, such as the
in-office ancillary services exception.
Comment: A commenter also sought confirmation that the exception
applies to the implantation of radioactive seeds in the course of
brachytherapy.
Response: The exception in Sec. 411.355(f) applies only to
``implanted prosthetics, implanted prosthetic devices, and implanted
DME.'' Accordingly, the implantation of radioactive brachytherapy seeds
cannot qualify for this exception.
D. Fair Market Value Exception (Phase I--66 FR 917; Sec. 411.357(l))
In Phase I, we finalized an exception for fair market value
arrangements originally proposed in the January 1998 proposed rule,
with several modifications in response to comments. The fair market
value exception applies to arrangements, in writing, for the provision
of items and services by physicians (provided directly or through
employees). Several commenters to the Phase I rule advocated expanding
the exception to include remunerative relationships other than the
provision of items or services. The commenters urged us to expand the
exception to cover the transfer, lease or license of real property,
intangible property, property rights, or a covenant not to compete.
Moreover, in the commenters' view, the exception should apply equally
when the entity provides the items, services, property rights, and so
forth to the physician. A commenter pointed out that the fair market
value exception does not apply to leases of space by entities to
physicians, contrary to statements in the preamble suggesting that the
exception could apply in such circumstances. According to one
commenter, as long as the arrangement is commercially reasonable,
serves a legitimate business purpose, and provides for fair market
value compensation that is set in advance and does not take into
account the volume or value of referrals, the arrangement would be free
of the potential abuse addressed by section 1877 of the Act. In
addition, some commenters asserted that a written agreement should not
be necessary if there is equally effective alternative evidence that
the arrangement meets all of the requirements of the exception.
We are not persuaded to make substantive changes to the fair market
value exception. We believe the other exceptions in the statute and
regulations adequately address the various arrangements noted by the
commenters, including arrangements in which physicians pay for items or
services, such as office space. Moreover, we
[[Page 16112]]
believe that it would be difficult to expand the exception to be as
comprehensive as the commenters advocate without posing a risk of fraud
or abuse.
E. Non-Monetary Compensation up to $300 and Medical Staff Incidental
Benefits (Phase I--66 FR 920; Sec. 411.357(k) and Sec. 411.357(m))
In Phase I, we finalized the proposed exception for non-monetary
compensation up to $300 and added a new exception for incidental
benefits provided by a hospital to its medical staff. Our responses to
comments to the Phase I regulations on this subject follow.
Comment: A commenter suggested that we raise the $300 threshold in
the non-monetary compensation exception to $600 to conform to IRS Code
section 6041A(a), which requires businesses to report remuneration paid
to service providers in excess of $600 per year. This change would
enable providers to have a single tracking system for both purposes.
Response: We decline to adopt the suggestion. We believe $600 is
too high for purposes of section 1877 of the Act and would create a
risk of abuse. We do not think it should be unduly burdensome for
providers to track when they have met the $300 threshold.
Comment: A commenter stated that the non-monetary compensation and
medical staff incidental benefits exceptions imposed an undue burden on
DHS entities by requiring them to keep track of the value of all items
they provide to each physician in a given year. In addition, the
commenter wondered whether an entity would risk having claims denied
under section 1877 of the Act if it sends a $25 dollar holiday basket
at the end of the year that inadvertently puts the total value of goods
provided to the physician over the $300 limit.
Response: Section 1877 of the Act is clearly intended to make DHS
entities responsible for monitoring their compensation arrangements
with physicians. DHS entities that are not providing a high volume of
free items to referring physicians are unlikely to be much affected by
the requirement that they not provide more than $300 worth of items a
year, nor should tracking be problematic.
Comment: Several commenters suggested that the $300 and $25
thresholds in Sec. 411.357(k) and Sec. 411.357(m) be indexed for
inflation, because otherwise the usefulness of the exceptions will
diminish over time.
Response: We agree that indexing is appropriate and have revised
the regulations to reflect this change. The $300 limit for non-monetary
compensation in Sec. 411.357(k) and the $25 limit in Sec. 411.357(m)
will be adjusted annually for inflation to the nearest whole dollar
effective January 1 of each year using the increase in the Consumer
Price Index-Urban All Items (CPI-U) for the 12-month period that ends
the previous September 30. As soon as possible after September 30 each
year, we intend to display both the increase in the CPI-U for that 12-
month period and the new limits on the physician self-referral Web site
at http://cms.hhs.gov/medlearn/refphys.asp.
Comment: A commenter questioned the restriction in the non-monetary
compensation exception on gifts conferred on group practices, rather
than individual physicians, such as office parties, equipment, or
supplies. The commenter thought that these gifts should be allowed as
long as the value apportioned over each physician in the practice is
less than $300. By precluding any compensation requested by a
physician, the strict anti-solicitation provision reduces the risk that
compensation might be solicited in exchange for referrals. Because this
is an exception under section 1877(b)(4) of the Act, the exception must
be drafted so that covered arrangements pose no risk of patient or
program abuse. Consistent with the statutory scheme and structure, as
well as the industry's expressed preference for bright line rules, the
anti-solicitation provision applies to all physician requests for
compensation, regardless of the purpose of the request.
Response: We are retaining the restrictions. Our intent with
respect to group gifts is to preclude high value gifts to group
practices that may control referrals to the benefactor. The anti-
solicitation provision reduces the risk of abuse.
Comment: Several commenters sought clarification of the ``on-
campus'' rule under the new regulatory exception for incidental
benefits provided to a hospital's medical staff in Sec. 411.357(m). In
particular, the commenters viewed the ``on campus'' rule as unduly
restrictive with respect to electronic communications, internet access
(for access to records and patient-related communications), and pagers
or two-way radios offered by hospitals to their medical staff. A
commenter also explained that many hospitals are developing integrated
information systems that electronically link various components of a
health care system, including physicians. As part of these programs,
physicians may be provided with dedicated computers to allow remote
access to a hospital's system in connection with hospital services
provided to hospital patients. These systems allow physicians to order
tests and medications for hospital patients, check test results,
schedule surgery, and access treatment protocols and other decision
support references from their own offices.
A commenter also expressed concern about hospital Web sites that
identify or list hospital-affiliated physicians. According to the
commenter, these listings primarily benefit the hospital or health
system and patients, but they may confer an incidental benefit on
physicians that would be difficult to value and administratively
difficult to track. The commenter urged that these listings be clearly
excepted under the incidental benefits exception.
Response: The ``on-campus'' requirement in the exception was
intended to make clear that the new exception for medical staff
incidental benefits was limited to benefits, such as parking, cafeteria
meals, and the like, that are customarily provided by hospitals to
their medical staff and that are incidental to services being provided
by the medical staff at the hospital. The exception was not intended to
cover the provision of tangential, off-site benefits, such as
restaurant dinners or theater tickets, which must comply with the
exception for nonmonetary compensation up to $300. As indicated in the
Phase I preamble, it was clearly our intent to cover benefits in the
form of computer and internet access that ``facilitates the maintenance
of up-to-date medical records and the availability of cutting edge
medical information'' (66 FR 921).
Accordingly, we have modified Sec. 411.357(m) to make our intent
clear. We are also modifying Sec. 411.357(m)(1) and Sec.
411.357(m)(2) of the regulation by changing the word ``offered'' to
``provided'' to be consistent with other paragraphs of the exception
and by making clear that Sec. 411.357(m)(1) will be satisfied if the
benefits are offered to all members of the medical staff practicing in
the same specialty, even if some members do not accept them. Moreover,
in the interest of clarity, we are changing the phrase ``performing
other duties'' to ``are engaged in other services or activities.''
These changes will help clarify that dedicated electronic or Internet
items or services can meet the requirement in Sec. 411.357(m)(2),
since those items or services would be provided ``only during periods
when the medical staff members are * * * engaged in other services or
activities that benefit the
[[Page 16113]]
hospital or its patients.'' Similarly, the revised exception will cover
dedicated pagers or two-way radios used to facilitate instant
communication with physicians in emergency or other urgent patient care
situations when they are away from the hospital campus.
We also agree that the simple listing or identification of the
medical staff on a hospital's Web site is an incidental benefit that
should be excepted. We are revising the regulation to include listings
of affiliated physicians in hospital advertising. However, advertising
or promoting a physician's private practice on a hospital Web site is
not covered; those arrangements would have to fit in the exception for
non-monetary compensation under $300 or the hospital would have to
charge the physician or practice a fair market value rate for the
advertising. In light of all of the conditions contained in the
exception, we do not believe that the arrangements that fit in the
exception will pose a risk of program or patient abuse.
A hospital's provision of a computer or other technology that is
wholly dedicated to use in connection with hospital services provided
to the hospital's patients would be for the hospital's benefit and
convenience and would not constitute remuneration to a physician for
purposes of section 1877 of the Act. Moreover, while we believe that
the provision of valuable information technology, such as computer
hardware or software, to physicians may be subject to abuse, using our
authority under section 1877(b)(4) of the Act, we are creating a new
regulatory exception at Sec. 411.357(u) for the provision of
information technology items and services (including both hardware and
software) by a DHS entity to a physician to participate in a community-
wide health information system designed to enhance the overall health
of the community, so long as certain conditions are met. The health
information system must be community-wide, that is, available to all
providers, practitioners, and residents of the community who desire to
participate. The health care system must be one that allows community
providers and practitioners to access and share electronic health care
records. In addition to health care records, the system may permit
access to, and sharing of, complementary drug information systems,
general health information, medical alerts, and related information for
patients served by community providers and practitioners. The DHS
entity may only provide information technology items and services that
are necessary to enable the physician to participate in the health
information system. Thus, for example, if a physician already owns a
computer, it may only be necessary to provide software or training
specific to the health information system. Likewise, it would not be
considered necessary to provide Internet access to a physician who
already has Internet service. In all cases, the information technology
items or services furnished under the exception must principally be
used by the physician as part of the community-wide health information
system. The items and services may not be provided in any manner that
takes into account the volume or value of referrals or other business
generated by the physicians. Thus, the exception would not apply to the
selective provision of items and services to referral sources. Finally,
as with all exceptions under section 1877(b)(4) of the Act, the
arrangement must not violate the anti-kickback statute and all claims
and billing must comply with applicable Federal and State laws and
regulations. Under these circumstances, we do not believe that an
exception for the provision of community-wide information technology
items and services poses a risk of program or patient abuse; however,
we will revisit the terms of the exception if we become aware of
abusive arrangements.
Comment: A physician professional association asked that Sec.
411.357(m)(5) be deleted from the exception for medical staff
incidental benefits. Section 411.357(m)(5) requires that the incidental
benefits be of a type offered to medical staff members at other local
hospitals or by comparable hospitals in comparable regions. The
commenter stated that this requirement imposed an unnecessary burden of
inquiry on hospitals. The commenter believes that the $25 per
occurrence limit was a sufficient safeguard.
Response: Section 411.357(m)(5) was not intended to, and did not,
impose any duty of inquiry on hospitals. We believe that most hospital
administrators are familiar with customary medical staff benefits
offered by other hospitals locally and farther afield. The provision
was included to help limit the exception to the provision of customary
and usual staff benefits, such as meals, lab coats, and parking. We are
concerned that the exception not be misused to protect an ever-
increasing array of new ``incidental benefits'' that collectively are
of considerable value to physicians. Nevertheless, we are persuaded
that the other conditions in the exception sufficiently protect against
such abuse. Accordingly, we are deleting Sec. 411.357(m)(5).
Comment: One commenter considered the $25 per occurrence limit in
the medical staff incidental benefits exception to be too low. The
commenter suggested that the limit be deleted, or, in the alternative,
raised to $100.
Response: We are not persuaded that the limit is unnecessary or too
low. Benefits of higher value may still be protected under the
exception for non-monetary compensation up to $300. However, as with
the exception for non-monetary compensation, we have revised the
regulations to provide for annual inflation indexing.
Comment: A commenter sought clarification regarding our statement
in the Phase I preamble (66 FR 921) that we did not believe that
medical transcription services were an incidental benefit of nominal
value. The commenter found the statement ambiguous. In particular, the
commenter asked us to confirm that the statement is limited to medical
transcription services of non-hospital services (for example, services
provided by physicians in their private offices).
Response: We do not believe that transcription of hospital medical
records dictated by an attending physician is a benefit--incidental or
otherwise--to the physician. Thus, such services do not create a
compensation arrangement. However, the provision of transcription
services for the benefit of the physician, such as transcription of his
private office records, does create a compensation arrangement between
the hospital and the physician that would need to fit in an exception.
Comment: An association representing hospitals inquired about the
treatment under section 1877 of the Act of certain benefits provided to
physicians that cannot fit in the non-monetary compensation exception,
because they are worth more than $300; the medical staff incidental
benefits exception, because they are worth more than $25 per
occurrence; or the fair market value exception, because they do not
involve a written contract.
These examples include:
Business meetings with physicians (sometimes
including spouses) that include a meal (for example, attendance at a
Board of Trustees meeting or dinner with a hospital administrator to
discuss operation of a hospital department).
A dinner to which hospital physicians (and
sometimes spouses) are invited to meet and recruit a potential new
physician for the staff.
Free use of a dedicated computer terminal
located at the physician's office but usable only in connection with
hospital patients and services.
[[Page 16114]]
Free continuing medical education (CME) or other
training at the hospital. (The commenter notes that hospitals often
obtain educational speakers free of charge, thus enabling them to
provide low cost training.)
Physician referral services to the community in
which they reside for which the physician may or may not pay a fee.
Response: The first two examples cited by the commenter involve
scenarios that do not lend themselves to categorical answers. The
statute defines ``remuneration'' broadly to include any remuneration,
directly or indirectly, overtly or covertly, in cash or in kind
(Section 1877(h)(1)(B) of the Act). Whether a remunerative arrangement
between specific parties would fit in an exception would depend on the
particular facts and circumstances. For example, some dinners and
meetings might fit in the exception for non-monetary compensation at
Sec. 411.357(k) or the exception for fair market value compensation at
Sec. 411.357(l); others would not. Nothing in the statute precludes
modest meals in connection with services provided by or to Boards of
Trustees, Boards of Directors, or hospital administrators, and many of
these activities can easily fit in an exception.
The third example cited by the commenter--the free use of a
dedicated computer terminal used only for the hospital patients and
services strikes us as unlikely to involve remuneration to the
physician so long as the computer terminal has no independent value to
the physician. Alternatively, the free use of the computer may qualify
for the exception for medical staff incidental benefits at Sec.
411.357(m). The fourth example, the free CME, could constitute
remuneration to the physician, depending on the content of the program
and the physician's obligation to acquire CME credits. With respect to
referral services, we believe these services should be excepted under
section 1877 of the Act, and, accordingly, we are incorporating the
safe harbor under the anti-kickback statute for referral services at
Sec. 1001.952(f) into these regulations as a new exception at Sec.
411.357(q). (We note that creation of a referral services exception was
supported by a second commenter.)
We recognize that our regulations do not address every possible
relationship between physicians and DHS entities of the type addressed
by the commenter, nor could they. In some cases, relationships clearly
will not involve a transfer of remuneration and thus will not trigger
section 1877 of the Act. In others, an activity might involve the
transfer of remuneration, and there may be no readily apparent
exception. We expect that questions of the kind posed by the commenter
will arise with some frequency. Parties may submit advisory opinion
requests about specific arrangements according to Sec. 411.370. We
will also continue to evaluate whether remunerative arrangements exist
for which additional exceptions are necessary and appropriate.
Comment: A commenter urged that long-term care facilities be
permitted to use all the exceptions available to other providers,
including the medical staff incidental benefits and compliance training
exceptions.
Response: As noted in section XII.G, we are expanding the
compliance training exception to include all entities. As for the
medical staff incidental benefits exception, we agree that certain
institutional entities, such as long-term care facilities, FQHCs, and
other health care clinics, that have medical staffs should be permitted
to provide incidental benefits to those staffs on the same terms and
conditions as apply to hospitals under the exception. This exception
applies only to bona fide medical staffs. Whether a facility has a bona
fide medical staff will depend on the facts and circumstances. We have
modified the regulations accordingly.
Comment: A commenter urged that the Office of Inspector General
(OIG) issue a statement that remuneration covered by the non-monetary
compensation, medical staff incidental benefits, and compliance
training exceptions does not violate the anti-kickback statute.
Response: Whether to issue a statement of the sort requested by the
commenter is a decision for the OIG and/or the Department of Justice
and is outside the scope of this rulemaking. Parties may seek advisory
opinions about their arrangements from the OIG pursuant to regulations
at 42 CFR part 1008.
F. Risk-Sharing Arrangements (Phase I--66 FR 912-915; Sec. 411.357(n))
We received several comments to the new risk-sharing arrangements
exception in Sec. 411.357(n) established in Phase I. The risk-sharing
arrangements exception applies to compensation (including, but not
limited to, withholds, bonuses, and risk pools) between a managed care
organization or an independent physician's association and a physician
(either directly or indirectly through a subcontractor) for services
provided to enrollees of a health plan.
Comment: A commenter welcomed the new exception for risk-sharing
arrangements, but requested a definition of the term ``managed care
organization'' as used in the exception or clarification in preamble
language that the new exception is meant to cover all risk-sharing
compensation paid to physicians by an entity downstream of any type of
health plan, insurance company, or health maintenance organization
(HMO). A commenter sought clarification that the downstream entity
could itself be an entity that furnishes DHS, such as a hospital.
Response: The new exception is meant to cover all risk-sharing
compensation paid to physicians by an entity downstream of any type of
health plan, insurance company, HMO, or Independent Practice
Association (IPA), provided the arrangement relates to enrollees and
meets the conditions set forth in the exception. All downstream
entities are included. We purposefully declined to define the term
``managed care organization'' so as to create a broad exception with
maximum flexibility.
Comment: A physician association asked that the prepaid plans and
risk-sharing arrangements exceptions be expanded to include referrals
of patients to entities owned by a managed care organization, even if
the patients are not enrollees in the managed care organization. The
commenter gave as an example a referral to an orthopedic ASC owned by a
managed care organization that is, in turn, owned by the referring
physician. The commenter considered it illogical that the physician
could refer a health plan enrollee to the ASC, but not a Medicare fee-
for-service patient.
Response: Contrary to the commenter's perception, we discern
nothing illogical in the result under the example provided. The fee-
for-service referral to a DHS entity in which the physician has an
indirect ownership interest is precisely the kind of improper referral
barred by the statute, whereas the statute includes an exception for
referrals of Medicare managed care patients (Sec. 411.355(c)). (We
assume, for purposes of responding to the example, that the ASC
furnishes some designated health care service not covered by the ASC
composite rate, since composite rate services are not DHS for purposes
of section 1877 of the Act).
G. Compliance Training (Phase I--66 FR 921; Sec. 411.357(o))
A number of commenters asked that we expand the new compliance
training exception to include compliance training provided by entities
other than
[[Page 16115]]
hospitals. A commenter asked that the exception be expanded to include
training of the physician's office staff. We concur with both comments
and have modified the exception in Sec. 411.357(o) to include
compliance training provided by any entity that furnishes designated
health care services to a physician or a physician's office staff. We
are also modifying the regulations to include compliance training
addressing the requirements of any Federal, State, or local law,
regulation, or rule governing the conduct of the party for whom the
training is provided. We do not consider continuing medical education
(CME) to be compliance training for purposes of this exception, which
is primarily intended to promote legal compliance. In many cases, the
provision of CME to physicians could constitute a benefit of
significant monetary value to physicians. CME may be covered under the
non-monetary compensation up to $300 exception.
H. Anti-Kickback Safe Harbors (Phase II, Sec. 411.357(q) and Sec.
411.357(r))
[If you choose to comment on issues in this section, please include the
caption ``Anti-Kickback Safe Harbor Exception'' at the beginning of
your comments.]
In the Phase I preamble, we indicated that we were considering an
exception for arrangements that fit squarely within an anti-kickback
``safe harbor'' (Sec. 1001.952 (Exceptions)). We have been urged to do
so by providers frustrated by having to apply two sets of conditions to
their financial arrangements. Having carefully considered the issue and
the industry perspective, we have concluded that a wholesale
importation of the anti-kickback safe harbors into the exceptions in
section 1877 of the Act would be problematic. In some cases, the
statutory requirements of seemingly comparable ``safe harbors'' and
exceptions vary. In other cases, the section 1877 exception and the
anti-kickback statute ``safe harbor'' for similar conduct differ for
reasons attributable to the difference in statutory scope and scheme,
core prohibited conduct, or liability standards. In some cases, the
section 1877 exception is broader; in other cases, it is narrower. Many
of the anti-kickback ``safe harbors'' address activities that do not
implicate section 1877 of the Act. In sum, while we are mindful of the
concerns expressed by the commenters, we believe it is not feasible to
except financial relationships solely because they fit in an anti-
kickback ``safe harbor.''
Nevertheless, we have reviewed the existing list of ``safe
harbored'' arrangements for which there are no section 1877 analogs and
have concluded that the ``safe harbors'' for referral services (Sec.
1001.952(f)) and obstetrical malpractice insurance subsidies (Sec.
1001.952(o)) should be incorporated by reference into section 1877 of
the Act. We are therefore creating new exceptions in Sec. 411.357(q)
and Sec. 411.357(r) for these arrangements. As the anti-kickback
``safe harbor'' regulations are amended and supplemented from time to
time, we will consider whether any additional ``safe harbored''
arrangements should be incorporated as exceptions under section 1877 of
the Act.
A commenter has also suggested that we create a new exception for
any arrangement approved in an OIG advisory opinion regarding the
application of the anti-kickback statute to the arrangement. We decline
to adopt the commenter's suggestion. OIG advisory opinions may not be
relevant in all respects to a determination under section 1877 of the
Act. For example, a favorable opinion from the OIG often concludes that
a potential remunerative relationship exists, but that the OIG would
exercise its discretion and decline to impose sanctions arising from
the potential anti-kickback violation (which contains an intent
requirement not applicable under section 1877 of the Act). These
determinations are not appropriate for blanket protection under section
1877 of the Act.
I. Professional Courtesy (Phase I--66 FR 922; Phase II; Sec.
411.357(s))
[If you choose to comment on issues in this section, please include the
caption ``Professional Courtesy Exception'' at the beginning of your
comments.]
A number of commenters responded to our call for comments on a
possible exception for professional courtesy. These commenters pointed
out that free or discounted ``professional courtesy'' to physicians and
their family members is a longstanding tradition and remains a
widespread practice. Most commenters supported creation of an
exception. One commenter suggested the following conditions: The
services are routinely provided without charge to physicians and their
family members by the provider, without regard to referrals, as part of
the provider's standard professional courtesy policy and notice is
provided to all applicable public or private third party payers that
the services were provided without charge to the physician as a
professional courtesy (that is, the co-insurance obligation was
waived). A commenter representing a radiology concern recommended that
professional courtesy be limited to physicians and dependents for whom
the physician would pay the medical bill and that the courtesy be
further limited to free services for which no person or entity is
billed. Further, the commenter wanted to limit the exception to
circumstances where professional courtesy is the prevailing practice in
a given marketplace.
Another commenter suggested that the definition of ``professional
courtesy'' be limited to partial ``out-of-pocket'' expense reductions
(as opposed to total fee waivers or out-of-pocket cost waivers) offered
by health care providers for health care services furnished to
physicians and their family members who are not employed by the health
care provider. The commenter excluded employees because discounts to
employees could be protected under the employee exception. The
commenter suggested limiting the exception to partial waivers because
health care providers are more likely to offer partial waivers across
the board; the commenter believed that health care providers are more
likely to offer costly full waivers selectively based on referrals. As
for specific conditions to apply under an exception, the commenter
suggested the following: (1) The discount is offered to all physicians
(whether or not affiliated with the health care provider) without
regard to the volume or value of referrals or other business generated
between the parties; (2) the professional courtesy policy is set out in
writing and approved in advance by the governing body of the health
care provider; (3) the discount is limited to 25 percent of what would
otherwise have been the physician's out-of-pocket expense and subject
to an annual cap; (4) the discount is not offered to a physician (or
family member) who is a Federal health care program beneficiary (this
condition addresses the beneficiary inducement problem raised by
professional courtesy arrangements); (5) all discounts are reported as
income to the physician in accordance with Federal and State tax
requirements; and (6) to avoid insurance fraud, insurers are informed
of any reduction of a co-insurance obligation. The commenter notes that
providers may want to make an offer of professional courtesy contingent
on the insurer's agreement to provide coverage notwithstanding.
Yet another commenter, representing a physician association,
suggested that the exception should cover professional courtesy,
including fee waivers or discounts up to $300 per year
[[Page 16116]]
(consistent with the non-monetary compensation exception). One
commenter expressed concern that providers not be required to offer
professional courtesy, and that such arrangements should be entered
into at the discretion of the parties.
We are persuaded to promulgate an exception for certain services
provided to a physician or his or her immediate family members. We are
defining ``professional courtesy'' in Sec. 411.351 as the provision of
free or discounted health care items or services to a physician or his
or her immediate family members or office staff. To qualify for the new
exception, the arrangement must meet the following conditions:
1. The professional courtesy is offered to all physicians on the
entity's bona fide medical staff or in the entity's local community
without regard to the volume or value of referrals or other business
generated between the parties;
2. The health care items and services provided are of a type
routinely provided by the entity;
3. The entity's professional courtesy policy is set out in writing
and approved in advance by the governing body of the health care
provider;
4. The professional courtesy is not offered to any physician (or
immediate family member) who is a Federal health care program
beneficiary, unless there has been a good faith showing of financial
need;
5. If the professional courtesy involves any whole or partial
waiver of any coinsurance obligation, the insurer is informed in
writing of that reduction so that the insurer is aware of the
arrangement.
6. The professional courtesy arrangement does not violate the anti-
kickback statute or any billing or claims submission laws or
regulations.
While professional courtesy discounts may be covered under the
employee exception, nothing in this new exception precludes hospitals
or other entities from extending their professional courtesy policies
to employees, including non-physician employees, under the new
exception. Nothing in these regulations should be construed as
requiring or encouraging professional courtesy arrangements. Moreover,
parties are cautioned that some professional courtesy arrangements may
violate the anti-kickback statute or the civil monetary penalties law
against giving inducements to Medicare and Medicaid beneficiaries
(section 1128A(a)(5) of the Act). Concerns regarding those laws should
be addressed to the OIG. Private insurers may also have concerns about
professional courtesy in the form of coinsurance waivers. The
requirement to notify private insurers of a professional courtesy
arrangement may provide an additional check against abusive
arrangements.
J. Charitable Donations by a Physician (Phase II; Sec. 411.357(j))
[If you choose to comment on issues in this section, please include the
caption ``Charitable Donations'' at the beginning of your comments.]
A commenter to the January 1998 proposed rule expressed concern
about charitable contributions made by physicians to DHS entities, for
example, the purchase of a hospital charity ball ticket or a donation
to a charitable health care entity's general fund-raising campaign. The
commenter noted that, under section 1877 of the Act, funds flowing from
a physician to a DHS entity can create a financial relationship.
However, no exception exists for a physician's bona fide charitable
donations.
We agree that charitable donations from a physician to a DHS entity
involve remuneration as defined in the statute, thus creating a
compensation arrangement between donor and donee and that an exception
for bona fide charitable donations is appropriate. Under our authority
in section 1877(b)(4) of the Act, we have added a new exception in
Sec. 411.357(j) for bona fide charitable donations made by a physician
(or immediate family member). To qualify, donations must be made to an
organization exempt from taxation under the IRS Code (or to an exempt
supporting organization, such as a hospital foundation). The new
exception provides that the donation may not be solicited or made in
any manner that reflects the volume or value of referrals or other
business generated from one party for the other. Broad-based
solicitations not targeted specifically at physicians, such as sales of
charity ball tickets or general fund-raising campaigns, will qualify
under this exception. Parties engaged in more selective or targeted
fund-raising activities should ensure that those activities are not
conducted in any manner that reflects or takes into account referrals
or the generation of business between the parties. As with all new
regulatory exceptions under section 1877(b)(4) of the Act, a protected
arrangement must not violate the anti-kickback statute or billing or
claims filing rules.
K. Preventive Screening Tests (Phase I--66 FR 923; Sec. 411.355(h))
[If you choose to comment on issues in this section, please include the
caption ``Exceptions Preventive Screening'' at the beginning of your
comments.]
In the Phase I final rule, we used our authority under section
1877(b)(4) of the Act to create a regulatory exception (Sec.
411.355(h)) for certain preventive screening tests, immunizations and
vaccines.
Section 411.355(h)(2) of the exception requires that the preventive
screening tests, immunizations, and vaccines be reimbursed by Medicare
under a fee schedule. It has come to our attention that some of the
vaccines covered by the exception may be paid by Medicare using
different reimbursement methods. To avoid confusion, we are deleting
the fee schedule requirement from the regulation. We believe the
remaining conditions in the exception are sufficient to protect against
abuse under section 1877 of the Act.
In addition, we received the following comments.
Comment: Two commenters representing pathologists inquired about
the treatment of Pap tests under the final regulations. One association
was concerned that only screening Pap tests, but not diagnostic Pap
tests, could qualify for the preventive screening tests exception.
Another association urged us not to except screening Pap tests because
physicians would then have financial incentives to send all screening
tests to clinical laboratories with which they have financial
relationships and to send all diagnostic tests to different
laboratories. In the commenter's view, this might endanger continuity
of care and the ability to compare the findings of screening and
diagnostic Pap tests.
Response: We can discern no reason to expand the exception to
protect referrals for diagnostic Pap tests. As noted above, we created
the exception in Sec. 411.355(h) pursuant to our authority under
section 1877(b)(4), which authorizes the Secretary to create additional
exceptions for financial relationships that do not pose a risk of
program or patient abuse. We are not persuaded that diagnostic Pap
tests are any different from other diagnostic clinical laboratory tests
to which the statutory prohibition applies.
We are unclear as to how the potential use of two different
laboratories for two different clinical laboratory tests will
compromise continuity of patient care. Moreover, it is our
understanding that screening and diagnostic Pap test results are not
typically compared. We
[[Page 16117]]
continue to believe that the exception as set forth in Phase I is
sufficiently limited to pose no risk of program or patient abuse.
Accordingly, we are not removing the codes for screening Pap tests from
the list of codes identifying those services that may qualify for the
exception in Sec. 411.355(h).
Comment: An association representing radiologists supported our
decision to include screening mammography in the exception for
preventive screening tests at Sec. 411.355(h), but was disappointed
that the exception does not cover diagnostic mammography. The
association disagreed with our statement that diagnostic mammography
could be subject to abuse.
Response: For the reasons stated in Phase I (66 FR 930), diagnostic
mammography is treated similarly to all other diagnostic radiology
services. In many cases, a radiologist who has performed a screening
mammogram will also recommend a diagnostic mammogram. We do not see why
diagnostic mammography performed after screening mammography is less
subject to abuse than any other diagnostic service that is performed
after a screening service. We note that a radiologist who orders a
diagnostic mammography pursuant to a consultation does not make a
``referral'' for purposes of section 1877 of the Act.
Comment: A commenter stated that screening tests should not be
considered DHS when performed either as screening tests or as part of a
patient's ongoing care once a problem has been identified.
Response: We disagree. Consistent with the statutory and regulatory
scheme, we have created an exception for a subset of screening tests
furnished under circumstances that do not pose a risk of abuse.
Comment: In the Phase I Attachment, we listed the CPT and HCPCS
codes for screening tests that may qualify for the exception in Sec.
411.355(h) if all of the criteria for that exception are satisfied (66
FR 965). We included in that list one code for a bone density test (CPT
76977), which the Phase I Attachment also identified as a radiology
service. Several commenters believed that the list should also include
five other codes for bone density tests (CPT codes 76070, 76075, 76076,
78350, and 78351).
Response: Generally, a test performed for diagnostic reasons is
subject to section 1877 of the Act. However, some tests performed as
preventive screening tests are not subject to the physician self-
referral prohibition if all conditions of the exception in Sec.
411.355(h) are satisfied. None of the five codes identified by the
commenters is a screening test, as none is available to the general
population without a pre-existing condition. Section 1861(rr) of the
Act, which provides for the bone mass measurement benefit, identifies
five specific categories of individuals with pre-existing conditions
who qualify for the benefit. Accordingly, none of these five codes will
be added to the list of codes that may qualify for the exception in
Sec. 411.355(h). Also, we are removing CPT code 76977 from the list of
services that may qualify for the exception in Sec. 411.355(h) for
preventive screening tests because we had incorrectly identified it as
a screening test.
After careful review, we have determined that four of the bone
density tests cited by the commenters (76070, 76075, 76076, and 78350),
fall within the definition of ``radiology and certain other imaging
services,'' yet were not included as such on the Phase I attachment or
its updates. (Although CPT code 78351 would otherwise fall within the
category of ``radiology and certain other imaging services,'' CPT code
78351 is not a Medicare covered service and, thus, is not subject to
the statute.)
In the physician fee schedule final rule, published December 31,
2002 (67 FR 79996), we added CPT code 76070 to the list of codes
defining ``radiology and certain other imaging services.'' (At that
time, we also added as ``radiology and certain other imaging services''
two other codes for bone density tests: CPT codes 76071 and 0028T.)
We are now adding to the definitional code list for ``radiology and
certain other imaging services'' the three remaining densitometry scans
identified by the commenters (CPT codes 76075, 76076, and 78350) that
were inadvertently omitted from the previous list of codes.
Additionally, in reviewing the bone density test codes, we found
two codes (CPT code 76078 and HCPCS code G0130) not identified by the
commenters. We have determined that these two codes also fall within
the category of ``radiology and certain other imaging services'' and
are adding them to that category.
The following is a complete list of the densitometry scans that
will be included in the definitional code list for ``radiology and
certain other imaging services'':
76070 Ct bone density, axial
76071 Ct bone density, peripheral
76075 Dexa, axial skeleton study
76076 Dexa, peripheral study
76078 Radiographic absorptiometry
76977 Us bone density measure
78350 Bone mineral, single photon
0028T Dexa body composition study
G0130 Single energy x-ray study
As explained above, none of these tests qualifies for the exception
in Sec. 411.355(h).
L. EPO and Other Dialysis-Related Outpatient Prescription Drugs
Furnished in or by an ESRD Facility (Phase I--66 FR 939; Sec.
411.355(g))
[If you choose to comment on issues in this section, please include the
caption ``Exceptions-Dialysis Drugs'' at the beginning of your
comments.]
Phase I created a new exception for EPO and certain other dialysis-
related outpatient prescription drugs furnished in or by an ESRD
facility. The drugs that may qualify for this exception were initially
identified by CPT and HCPCS codes in the Phase I Attachment, and
updates to that list appear on the CMS Web site and in annual updates
published in the Federal Register.
Comment: One commenter advocated that we expand the list of codes
to include other drugs specifically related to ESRD services if those
drugs are used specifically and exclusively for a patient's ESRD
treatment. In particular, the commenter believed that the following
drugs should be added to the list of drugs that may qualify for the
exception in Sec. 411.355(g): heparin (heparin sodium); normal saline
(0.9 percent sodium chloride) for catheter maintenance; paricalcitrol;
carnitine; and albumin for injection.
Response: We note that, according to section 3168.A of the Medicare
Intermediary Manual, heparin and normal saline are included in the ESRD
composite rate. Thus, these items do not constitute DHS when reimbursed
under the composite rate and therefore did not need to appear on the
list of codes that may qualify for the exception in Sec. 411.355(g).
In addition, we added paricalcitol to this list of codes in Addendum E
of the December 31, 2002 Federal Register final rule, Revisions to the
Physician Fee Schedule for Calendar Year 2003 (67 FR 79966 and 80172).
(Zemplar is the trade name for paricalcitol, which is often referred to
as paricalcitrol.)
With respect to the other drugs mentioned by the commenter, we
agree that the list of drugs was not broad enough to include all the
drugs that should be excepted. We believe it is appropriate to use our
authority under section 1877(b)(4) of the Act and the exception at
Sec. 411.355(g) to cover these and other outpatient prescription drugs
that are required for the efficacy of dialysis, and are not self-
administered
[[Page 16118]]
(except for EPO and darbepoetin alfa (Aranesp)), provided that all
other conditions of the exception are satisfied. Therefore, we are
adding to our list albumin and levocarnitine, which is the intravenous
form of carnitine.
We are also adding several other drugs to the list. We are
including darbepoetin alfa (Aranesp), which is a new drug that is
functionally equivalent to EPO although not structurally identical. For
physician self-referral purposes, we are using the term EPO to include
both epoetin alfa and darbepoetin alfa (Aranesp). Both products use the
same biological mechanism to produce stimulation of the bone marrow to
produce red blood cells. In addition, we are adding an additional
vitamin D drug (calcitonin-salmon), and three additional thrombolytics
used to declot central venous catheters. These thrombolytics are
streptokinase, urokinase, and retaplase.
We believe that this exception does not pose a risk of patient or
program abuse. First, as explained in the Phase I preamble (66 FR 938),
we believe that this exception is appropriate because of the high
correlation between the use of these drugs and dialysis. Second, strict
utilization and coverage criteria for EPO and the other listed
medically necessary drugs required for the efficacy of dialysis
mitigates the risk of abuse. However, we intend to monitor use of this
exception and, if we determine that the exception is abused, we would
revisit it. Except as provided in this exception, we believe physician
financial interests in the furnishing of self-administered drugs poses
a risk of abuse. As we explained in the Phase I preamble (66 FR 938),
this exception was never intended to protect drugs or supplies that
patients use at home, except EPO in limited circumstances. Accordingly,
we want to emphasize that this exception applies only to drugs that are
not self-administered except when the facility furnishes EPO or Aranesp
to the patient who dialyzes at home. Given the additions to the list of
drugs, we are clarifying the regulation text in order to ensure that
the exception will continue to pose no risk of program or patient
abuse.
M. Intrafamily Referrals (Phase II; Sec. 411.355(j))
[If you choose to comment on issues in this section, please include the
caption ``Exceptions Intrafamily Referrals'' at the beginning of your
comments.]
This exception is discussed in section VII.B of this preamble.
N. Exception for Certain Arrangements Involving Temporary Noncompliance
(Phase II; Sec. 411.353(f))
[If you choose to comment on issues in this section, please include the
caption ``Exceptions-Temporary Noncompliance'' at the beginning of your
comments.]
This exception is discussed in section II.A of this preamble.
O. Retention Payments in Underserved Areas (Phase I; Sec. 411.357(t))
[If you choose to comment on issues in this section, please include the
caption ``Exceptions--Retention Payments in Underserved Areas'' at the
beginning of your comments.]
This exception is discussed in section VIII.E of this preamble.
P. Community-Wide Information Systems (Phase II; Sec. 411.357(w))
[If you choose to comment on issues in this section, please include
the caption ``Exceptions-Community-wide Information Services'' at the
beginning of your comments.]
This exception is discussed in section XII.E of this preamble.
XIII. Technical Corrections
In Phase I, we indicated our intent to remove Sec. 411.360
relating to physician attestations, but the regulatory text did not do
so. We have removed Sec. 411.360. We have also changed references from
HCFA to CMS, consistent with the final rule published July 31, 2001 (66
FR 39450), which revised the references in accordance with the name
change of the Health Care Financing Administration to the Centers for
Medicare & Medicaid Services. In addition, we have updated references
to Internet Web sites in the Phase I regulations.
We have removed Sec. 411.354(c)(1)(ii) that specified that the
shared compensation for consultations conducted via interactive
telecommunications systems required by the Medicare program under Sec.
414.65 was not a compensation arrangement. Section 414.65 was
substantially revised in the November 1, 2001 physician fee schedule
final rule (66 FR 55332). A consultant practitioner is no longer
permitted to share payment with the referring practitioner, and thus, a
provision for this situation is no longer necessary.
In addition, pursuant to the Balanced Budget Act of 1997 (Pub. L.
105-33) and the Medicare, Medicaid, and SCHIP Balanced Budget
Refinement Act of 1999 (Pub. L. 106-113), we have replaced references
to ``primary care rural hospitals'' with ``critical access hospitals''
in Sec. 411.351.
We have deleted the mailing address and telephone number for the
Superintendent of Documents and the National Technical Information
Service from Sec. 411.351 since the Medicare Carriers Manual is
available free of charge on the CMS Web site. In light of the recent
and ongoing reorganization of CMS manuals, we have clarified that
references to specific manual provisions incorporate any amendments to
those provisions.
We have also revised the title of subpart J to reflect the current
scope of section 1877 of the Act and these regulations.
Comment: One commenter noted that the references in Sec.
411.352(d)(1) to Sec. 411.352(d)(2) and Sec. 411.352(d)(3) should be
to Sec. 411.352(d)(3), Sec. 411.352(d)(4), and Sec. 411.352(d)(5).
Response: The commenter is correct. We have made the technical
correction. We have also made a technical correction in Sec.
411.352(b) by changing the words ``this section'' at the end of Sec.
411.352(b) to ``Sec. 411.351''.
XIV. Collection of Information Requirements
Under the Paperwork Reduction Act of 1995 (PRA), we are required to
provide 60-day notice in the Federal Register and solicit public
comment before a collection of information requirement is submitted to
the Office of Management and Budget (OMB) for review and approval. In
order to fairly evaluate whether an information collection should be
approved by OMB, section 3506(c)(2)(A) of the PRA requires that we
solicit comment on the following issues:
The need for the information collection and its usefulness in
carrying out the proper functions of our agency.
The accuracy of our estimate of the information
collection burden.
The quality, utility, and clarity of the
information to be collected.
Recommendations to minimize the information
collection burden on the affected public, including automated
collection techniques.
Therefore, we are soliciting public comments on each of these
issues for the information collection requirements discussed below.
The following information collection requirements and associated
burdens are subject to the PRA.
Section 411.352 Group Practice
Under paragraph (d), a covered entity is required to document the
total time each member spends on patient care services, and to maintain
and make available to the Secretary, upon request, documentation
concerning compliance
[[Page 16119]]
with the substantially ``all test.'' This paragraph also requires that
a new member's employment with, or ownership interest in, the group
practice be documented in writing no later than the beginning of his or
her new employment relationship or ownership or investment interest.
The burden associated with these requirements is that of
documentation and making available information to the Secretary. This
documentation may be in the form of time cards, appointment schedules,
personal diaries, or any alternative measure that is reasonable, fixed
in advance of the performance of the services being measured, uniformly
applied over time, and verifiable. This is not a new requirement to
maintain or collect additional information because these types of
records are usually kept by group practices in the normal course of
business in order to allocate resources such as time, examination
space, remuneration, and productivity bonuses. The documentation
requirements reflect usual and customary business practices, and, as
such, the burden is not subject to the PRA under 5 CFR 1320.3(b)(5);
the burden of making the records available is exempt under 5 CFR
1320.4(a) as that incurred during an administrative action,
investigation, or audit involving an agency against specific
individuals or entities. In addition, this burden was found to be
exempt from the requirements of the PRA in Phase I (66 FR 856).
Section 411.354 Financial Relationship, Compensation, and Ownership or
Investment Interest
Paragraph (d)(4) of this section mandates that the requirement to
make referrals to a particular provider, practitioner, or supplier be
set forth in a written agreement signed by the parties.
We do not believe this requirement imposes any additional burden.
Where mandatory referral requirements are used, they are already
routinely made part of a more comprehensive service agreement (for
example, a contract between a physician and a managed care entity for
the provision of physician services, or a preferred provider network
agreement). We believe that this burden is a result of usual and
customary business practice and, as such, is exempt from the PRA under
5 CFR 1320.3(b)(5).
Section 411.355 General Exceptions to the Referral Prohibition Related
to Both Ownership/Investment and Compensation
Paragraph (e)(1)(iii) of this section requires that the
relationship of the components of the academic medical center must be
set forth in written agreement(s) or other written document(s) that
have been adopted by the governing body of each component. If the
academic medical center is one legal entity, this requirement will be
satisfied if transfers of funds between components of the academic
medical center are reflected in the routine financial reports covering
the components.
The burden associated with this requirement is that of documenting
compliance, either in written documents or routine financial reports.
The written documents, adopted by the governing body of each component,
detailing the relationship of the components of the academic medical
center may be any documents generated in the usual course of business,
such as articles of incorporation or bylaws. In response to comments,
we have decreased the minimal burden associated with this requirement
for academic medical centers that consist of one legal entity. Those
academic medical centers will satisfy the requirement if transfers of
funds between components of the academic medical center are reflected
in routine financial reports generated in the usual course of business.
We believe that the burden imposed by Sec. 411.351(e)(1)(iii) is a
result of usual and customary business practice and, as such, is exempt
from the PRA under 5 CFR 1320.3(b)(5). In addition, this burden
(without the relief granted in this interim final rule for certain
academic medical centers) was found to be exempt from the requirements
of the PRA in Phase I (66 FR 856, 949).
Section 411.357 Exceptions to the Referral Prohibition Related to
Compensation Arrangements
This section requires a written agreement signed by the parties for
space and equipment rental agreements and arrangements for personal
services, physician recruitment, certain group practice arrangements
with a hospital, fair market value compensation, and indirect
compensation. In addition, an entity's professional courtesy policy
must be set out in writing if there is any whole or partial coinsurance
reduction, and an entity must notify its insurers that the entity has a
professional courtesy policy.
The burden associated with these requirements is that of obtaining
agreements in writing, setting out professional courtesy policies in
writing and notifying insurers that an entity has a professional
courtesy policy. The burden also includes a requirement that all
separate personal service arrangements between an entity and a
physician or an immediate family member of a physician must incorporate
each other by reference or the entity must maintain centrally a master
list of contracts that is updated and preserves the historical record
of the personal service contracts. The lease of equipment is usually
and routinely set forth in a written agreement, as are personal
services arrangements, recruitment agreements, and contracts between
group practices and hospitals. Therefore, the requirement that these
arrangements be set forth in a written agreement does not impose an
additional burden beyond usual business practices. In addition, the
burden that direct and indirect compensation arrangements be set forth
in writing was formerly found to be exempt from the requirements of the
PRA in the Phase I final rule (66 FR 856). We believe that the burden
of these written agreements is a result of usual and customary business
practice and, as such, is exempt from the PRA under 5 CFR 1320.3(b)(5).
The requirement to notify insurance companies that an entity has a
professional courtesy policy under which coinsurance is reduced or not
collected could be met by creating a model letter or applying an edit
to a claim where professional courtesy applies. We estimate that a
health care entity would have to spend approximately 25 minutes to
draft the model letter and then 5 minutes to prepare a letter for each
insurer. We do not know how many of the 1.2 million entities (including
approximately 581,108 physicians) that furnish services to Medicare
beneficiaries would offer professional courtesy to their bona fide
medical staffs or to all physicians in the local community. However,
traditionally, only hospitals and physicians have provided professional
courtesy to physicians, their immediate family members, and sometimes
the physician's staff. We do not expect this pattern to change
significantly but, for purposes of this analysis, we estimate that 75
percent of hospitals, 100 percent of physicians, and 10 percent of
entities other than physicians and hospitals will offer professional
courtesy. We also believe that these numbers are high but we
[[Page 16120]]
cannot satisfactorily reduce these estimates. That is, we do not
believe that all physicians and all hospitals offer professional
courtesy and we do not believe that even 10 percent of entities that
have rarely offered professional courtesy will now start offering it.
Most of the 581,108 physicians practice in group practices. Many
physicians practice in very large groups, while many practice in multi-
specialty practices of 15 to 20 physicians or single specialty groups
of fewer than 10 physicians. For purposes of this discussion, we assume
that the median number of physicians practicing together is 10.
Therefore, we assume there are 58,110 physician entities (groups or
sole practitioners) that could and would offer professional courtesy.
We also assume that 75 percent of all hospitals (6,018 x 75 percent =
4,514) would offer professional courtesy.
We assume that each hospital, physician group practice, and sole
physician practice would have to notify 10 insurers the first year
under this interim final rule and that the other health care entities
would have to notify 5 insurers. Therefore, for physicians and
hospitals that choose to use a model letter, 58,110 physician entities
+ 4,514 hospitals would each spend a total of 75 minutes [25 minutes to
prepare model letter + (10 insurers x 5 minutes for preparing each
copy) = 75 minutes] to comply with the notification requirement. This
would result in an estimated overall burden on physicians and hospitals
of approximately 78,280 hours. The overall burden for entities other
than hospitals and physicians should be 51,073 hours. (1,200,000
entities - 581,108 physicians - 6,018 hospitals = 612,874 x (10
percent) x [(25 minutes + (5 insurers x 5 minutes for preparing each
copy)] = 51,073). In each subsequent year, we expect that there might
be one notification per entity to two new insurance companies, which
would amount to 10 minutes per entity x (58,111 physicians + 4,514
hospitals + 612,874 other entities) = 102,898 hours.
Although we have estimated that it would take 25 minutes for each
entity to create a model letter, we expect that a chain of hospitals or
other entities would choose to prepare one model letter for use by each
of its members. Also, we expect that some individual may develop a
model letter that would be used by many entities. Although the
paperwork burden may seem large, overall, we expect that the burden on
an individual entity would be relatively minimal. The provisions in the
personal services arrangements exception in this section requires that
all separate arrangements between an entity and a physician or an
entity and a member of a physician's immediate family must incorporate
each other by reference or all separate arrangements must be identified
in a master list of contracts that is maintained and updated centrally.
This requirement was suggested by the industry because it is less
burdensome than the requirement in the proposed rule and because it
more closely reflects current business practices (or practices that can
be easily adapted). We added the requirements that the master list must
be made available for review by the Secretary upon request and that the
master list must be maintained in a manner that preserves the
historical record. In the alternative, annual or other regular
financial statements (such as quarterly statements) that clearly show
parties, dates, payments, and purposes of payments separately for each
personal service contract can qualify as a master list if the
statements are appropriately cross-referenced in the agreement. An
entity could meet this requirement by having several master lists that,
taken together, cover all of the contracts with the referring physician
and immediate family members.
The ``master list'' alternative should impose minimal, if any,
burden because it is a usual and customary business practice for a
company to maintain records of its contracts. However, for those
entities without a master list, multiple lists, or databases, creating
a master list will take time. We request comments on these
requirements.
Of the approximately 677,002 health care entities (58,110 physician
entities + 6,018 hospitals + 612,874 other entities), we estimate that
one-quarter, 169,251, contract for personal services with physicians or
their immediate family members. We expect that many of these entities
are relatively small physician group practices, clinical laboratories
or other suppliers that can easily furnish a master list of contracts
with physicians and immediate family members or have one contract with
a physician or family member that covers everything this individual
performs for the small entity. We expect that larger entities can meet
this recordkeeping requirement relatively easily by creating a master
list of contracts. We recognize that it is possible that some large
entities (for example, certain urban hospitals) may have multiple
contracts with physicians and family members and not currently meet
this requirement.
We estimate that, on average, it would take a large entity 7 hours
to meet this requirement and a small entity 2 hours. We assume that,
since public commenters recommended the use of cross-referencing to a
master list of contracts, many entities already have such a list.
Therefore, we estimate that one-half of the 169,251 entities affected
by this requirement will have to create a master list. Assuming that
one-half of the entities are small and one half are large entities, we
estimate that there will be a one-time burden of [(\1/2\ x 169,251 x 2
hours) + (\1/2\ x 169,251 x 7 hours)] = 677,000 hours. We also estimate
that it would take one-half of these entities \1/2\ hour annually to
update the master list and it would take one-half of the entities 1
hour annually to update the master list, resulting in an annual burden
of 126,938 hours. We note that these are preliminary estimates, so we
specifically request comments on these estimates.
Although the overall burden in creating a master list or
referencing all other contracts with a physician or immediate family
member in each contract might appear sizable, the burden on an
individual entity should be relatively minimal.
Under paragraph (d)(2), which allows physician incentive plans
under the personal services exception, the entity must give the
Secretary access to the plan upon request.
Making the information available (or giving access) to the
Secretary should occur rarely and would be exempt from the PRA under 5
CFR 1320.4(a) as information required during an administrative action,
investigation, or audit involving an agency against specific
individuals or entities.
Section 411.361 Reporting Requirements
This section requires that, except for certain exceptions, all
entities furnishing services for which payment may be made under
Medicare must submit information to us concerning their financial
relationships (as defined in the section), in the form, manner, and at
the times that we specify.
The information that we request can include the following:
(1) The name and unique physician identification number (UPIN) of
each physician who has a financial relationship with the entity.
(2) The name and UPIN of each physician who has an immediate family
member (as defined in Sec. 411.351) who has a financial relationship
with the entity.
(3) The covered services furnished by the entity.
(4) With respect to specified physicians, the nature of the
financial relationship (including the extent and/or value of the
ownership or investment
[[Page 16121]]
interest or the compensation arrangement) as evidenced in records that
the entity knows or should know about in the course of prudently
conducting business, including records that the entity is already
required to retain to comply with the rules of the Internal Revenue
Service and the Securities and Exchange Commission and other rules of
the Medicare and Medicaid programs.
The first 3 requirements above are statutorily mandated. The fourth
requirement was proposed in the proposed rule (63 FR 1659) and adopted
in this rule with no changes.
Entities that are subject to the requirements of this section must
retain the information, and documentation sufficient to verify the
information, and, upon request, must make that documentation available
to us or to the OIG.
The burden associated with these requirements is that of
maintaining documentation and, if necessary, making it available to the
Secretary. We believe that the information we are requiring the
entities to maintain is information that they would have and maintain
already. The proposed rule proposed that entities that are subject to
requirements of this section must report to the agency on a prescribed
form and thereafter report once a year all changes to the submitted
information that occurred in the previous 12 months. In this rule, the
requirement has been modified to require entities to make information
available only upon request and to maintain the information only for
the length of time specified by the applicable regulatory requirements
for the information (that is, IRS, SEC, Medicare, Medicaid, or other
programs). This substantially reduces the burden on entities, since
this is information that is required to be maintained by other
regulatory agencies in the usual course of business. We believe that
this burden is a result of usual and customary business practice and,
as such, is exempt from the PRA under 5 CFR 1320.3(b)(5).
Making information available to the Secretary will rarely be
necessary and the information will be collected during the conduct of
an administrative action, investigation, or audit involving an agency
against specific individuals or entities. It is thus exempt from the
PRA under 5 CFR 1320.4(a).
For those requirements that are not exempt from the PRA, we have
quantified the burden associated with compliance and have set forth
time estimates. The total time estimated to be necessary to comply with
the requirements of this section is 806,353 hours for all entities in
the country in the first year, and 229,836 hours annually thereafter.
We have submitted a copy of this interim final rule with comment
period to OMB for its review of the information collection requirements
described above. These requirements are not effective until they have
been approved by OMB.
If you comment on any of these information collection and record
keeping requirements, please mail copies directly to the following:
Centers for Medicare & Medicaid Services, Office of Strategic
Operations and Regulatory Affairs, Division of Regulations Development
and Issuances, Attn: Reports Clearance Officer, 7500 Security
Boulevard, Baltimore, MD 21244-1850, Attn: John Burke, CMS-1810-IFC.
and
Office of Information and Regulatory Affairs, Office of Management and
Budget, Room 10235, New Executive Office Building, Washington, DC
20503, Attn: Brenda Aguilar, Desk Officer.
XV. Regulatory Impact Statement
A. Overall Impact
[If you choose to comment on issues in this section, please include the
caption ``Impact'' at the beginning of your comments.]
We have examined the impact of Phase II of this rulemaking as
required by Executive Order 12866 (September 1993, Regulatory Planning
and Review), the Regulatory Flexibility Act (RFA) (September 16, 1980,
Pub. L. 96-354), section 1102(b) of the Social Security Act, the
Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), and Executive
Order 13132.
Executive Order 12866 (as amended by Executive Order 13258, which
merely reassigns responsibility of duties) directs agencies to assess
all costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). A
regulatory impact analysis (RIA) must be prepared for major rules with
economically significant effects ($100 million or more in any 1 year).
Although we cannot determine with precise certainty the aggregate
economic impact of Phase II of this rulemaking, we do not believe that
the impact will approach $100 million or more annually. Physicians and
DHS entities have been required to comply with the physician self-
referral prohibition for many years. The prohibition has applied to
physician referrals for clinical laboratory services since 1992 and to
referrals for all other DHS since 1995. Phase I interpreted the
prohibition narrowly and the exceptions broadly, and established
additional regulatory exceptions for legitimate arrangements that would
otherwise violate the prohibition. Phase I covered the following:
Sections 1877(a) and 1877(b) of the Act (the
general prohibition and the exceptions applicable to both ownership and
compensation arrangements);
The statutory definitions at section 1877(h) of
the Act;
Certain additional regulatory definitions; and
New regulatory exceptions promulgated under
section 1877(b)(4) of the Act for certain arrangements involving the
following--
Academic medical centers;
Implants furnished by an ambulatory surgery
center;
EPO and certain dialysis-related outpatient
prescription drugs;
Preventive screening tests, immunizations, and
vaccines;
Eyeglasses and contact lenses after cataract
surgery;
Non-monetary compensation up to $300;
Fair market value compensation;
Medical staff incidental benefits;
Risk-sharing arrangements;
Compliance training; and
Indirect compensation arrangements.
Phase II covers--
The remaining provisions of section 1877 of the
Act (namely, the exceptions for ownership and investment interests and
the exceptions for various compensation arrangements);
Additional regulatory definitions; and
Additional new regulatory exceptions promulgated
under section 1877(b)(4) of the Act for certain arrangements involving
the following:
Temporary noncompliance with an applicable
exception;
Intra-family rural referrals;
Charitable donations by a physician;
Referral services;
Obstetrical malpractice insurance subsidies;
Professional courtesy;
Retention payments in underserved areas; and
Community-wide health information systems.
Phase II also addresses public comments on the Phase I regulations.
[[Page 16122]]
Among other things, Phase II revises the Phase I ``set in advance''
definition to permit percentage compensation arrangements; revises the
Phase I exception for academic medical centers to make it easier to
qualify as an academic medical center or a component of an academic
medical center; revises the Phase I ``same building'' definition to
provide a simpler, bright-line rule that will substantially decrease
the regulatory burden on many physician practices; eliminates the 1998
proposed restriction on productivity bonuses, thereby permitting
employees to be paid based on personal productivity (but not ancillary
referrals); expands the physician incentive plan exception to
downstream contractors in the managed care context; and expands the
physician recruitment exception to federally qualified health centers.
Phase II does not generally unsettle existing financial
relationships, and it offers sufficient exceptions to enable parties to
restructure noncompliant arrangements. Wherever possible, we have
accommodated legitimate financial relationships, thereby reducing the
regulatory burden. For these reasons, we conclude that this is not a
major rule with an economically significant effect of $100 million in
any 1 year.
The RFA requires agencies to analyze options for regulatory relief
of small businesses. For purposes of the RFA, small entities include
small businesses, nonprofit organizations, and government agencies.
Most hospitals and most other providers and suppliers are small
entities, either because they are nonprofit organizations or because
they generate revenues of $6 million to $29 million in any one year.
Currently, there are approximately 1.2 million physicians, other health
care practitioners, and medical suppliers that receive Medicare
payment. For purposes of the RFA, according to the latest numbers from
the Small Business Administration's North American Industrial
Classification System, 95 per cent of offices of physicians in the U.S.
have total revenues of $8.5 million or less and are considered small
entities. Individuals and States are not included in the definition of
a small entity. We determine that this interim final rule does not have
a significant impact on small businesses because it does not increase
regulatory burden, but rather reduces it. As noted above, we are
generally interpreting the prohibition narrowly and the exceptions
broadly. We are creating new exceptions where appropriate, conforming
the regulation to existing Medicare payment and coverage policies, and
minimizing the possibility of disrupting non-abusive arrangements.
Overall, this rule is very accommodating to legitimate industry
practices for hospitals and physicians.
In addition, section 1102(b) of the Act requires us to prepare an
RIA if a rule may have a significant impact on the operations of a
substantial number of small rural hospitals. This analysis must conform
to the provisions of section 604 of the RFA. For purposes of section
1102(b) of the Act, we define a small rural hospital as a hospital that
is located outside of a Metropolitan Statistical Area and has fewer
than 100 beds. For the same reasons identified above for small
businesses, this rule does not significantly impact small rural
hospitals. Moreover, rural hospitals benefit in this rule from a new
exception permitting certain retention payments for physicians in
health professional shortage areas (HPSAs), and a new exception for
community-wide health information systems. This interim final rule also
revises the physician recruitment exception to permit hospitals to
recruit residents and physicians who have been in practice for less
than one year but for whom recruitment does not require relocation.
This benefits small rural hospitals, which often experience difficulty
in recruiting physicians. In summary, this interim final rule does not
have a substantial negative impact on the operations of a substantial
number of small rural hospitals.
Section 202 of the Unfunded Mandates Reform Act of 1995 also
requires that agencies assess anticipated costs and benefits before
issuing any rule that may result in an expenditure in any one year by
State, local, or tribal governments, in the aggregate, or by the
private sector, of $100 million. Phase II of this rulemaking does not
have such an effect on the governments mentioned, and we do not believe
the private sector costs meet the $110 million threshold.
Executive Order 13132 establishes certain requirements that an
agency must meet when it promulgates a proposed rule (and subsequent
final rule) that imposes substantial direct requirement costs on State
and local governments, preempts State law, or otherwise has Federalism
implications. We do not anticipate that Phase II of this rulemaking
will have a substantial effect on State or local governments.
We are not preparing analyses for either the RFA or section 1102(b)
of the Act because, for the reasons identified above, we have
determined, and we certify, that this interim final rule will not have
a significant economic impact on a substantial number of small entities
or a significant impact on the operations of a substantial number of
small rural hospitals. For the benefit of the public, we discuss below
the anticipated effects of the rule and the alternative regulatory
options we considered.
B. Anticipated Effects
This interim final rule with comment period primarily affects
physicians and health care entities that furnish items and services to
Medicare beneficiaries. For the reasons stated above, we do not
anticipate that this rule will have a significant economic impact on a
substantial number of small entities. In fact, we expect that Phase II
of this rulemaking will have a much smaller impact than the provisions
we proposed. Nevertheless, we wish to inform the public of what we
regard as the major effects of this rulemaking.
In response to comments on the January 1998 proposed rule, we
created in Phase I a more manageable regulation that included ``bright
line'' rules to help the health care community determine more easily
when a physician's referrals are in compliance with the law. In this
interim final rule, we are continuing our efforts to establish ``bright
line'' rules, and attempting to minimize the effect of this rule on
physicians and DHS entities by interpreting the law in a practical and
realistic manner. The result, we believe, is an overall approach that
should have far less impact on the business relationships of physicians
and DHS entities than the January 1998 proposed rule. We discuss below
some of the possible economic effects upon physicians and DHS entities.
We also briefly discuss the effects of the rules on Medicare
beneficiaries.
1. Effects on Physicians
The primary statutory sanctions for violating the physician self-
referral prohibition are nonpayment of claims for DHS furnished as the
result of a prohibited referral and the corresponding obligation to
refund any amounts collected on those claims. These sanctions target
the entities that furnish DHS, including physician group practices.
Referring physicians may be sanctioned with the imposition of civil
monetary penalties (CMPs) only for knowing violations of the statutory
prohibition. Nevertheless, although referring physicians are not the
primary targets of the sanctions for violating the statute, their
financial relationships with DHS entities must comply with the statute
and implementing regulations. Accordingly, this interim final rule may
affect a physician's or group practice's decision to enter into a
particular
[[Page 16123]]
financial relationship and the manner in which the arrangement is
structured.
We received voluminous comments on the January 1998 proposed rule
from or on behalf of physicians and DHS entities (especially
hospitals). In addition to specific complaints and objections, the
commenters expressed a number of general concerns, including that the
proposed regulation inappropriately intruded into the organization and
delivery of medical care within physicians' offices; that the
regulation conflicted with other longstanding policies on coverage and
similar issues; that the rule was unclear in many areas; that ``bright
line'' rules were essential in light of the severe statutory penalties
(especially payment denial); and that some aspects of the proposed
rule, such as its treatment of indirect financial relationships, were
administratively impractical or would have been prohibitively costly in
terms of monitoring compliance. We have made every effort in both Phase
I and this Phase II rulemaking to address the concerns of physicians
and physician group practices while remaining faithful to the statute.
We discuss below the major provisions of this rule that affect
physicians.
a. Compensation. This interim final rule includes many
clarifications and several new exceptions related to physician
compensation. For example, this interim final rule revises the set-in
advance definition to permit certain fluctuating compensation
arrangements if the payment methodology is set in advance; eliminates
the proposed restriction on productivity bonuses, and permits employees
to be paid bonuses based on personal productivity (but not ancillary
referrals). Moreover, the regulations permit group practice and
employed physicians, like independent contractors, to be paid under
risk-sharing arrangements. Phase II also clarifies the indirect
compensation arrangements definition and exception, as well as the
definitions of certain key concepts, such as ``volume and value of
referrals'' and ``other business generated.'' Phase II also creates a
physician hourly compensation ``deeming provision'' that deems certain
hourly compensation to physicians to be fair market value for purposes
of complying with various exceptions. All of these changes ease the
burden and cost of complying with the statutory prohibition by creating
or implementing clear rules in such a way that parties can determine
more easily and with greater certainty whether their financial
relationships comply with an exception. In addition, by expanding some
definitions and exceptions, a greater number of legitimate arrangements
can comply with the statute.
b. In-office Ancillary Services. This interim final rule revises
the in-office ancillary services exception. Specifically, this interim
final rule eases the same building requirement by substituting simple,
more expansive tests. The revised in-office ancillary services
exception should also make it less burdensome for radiologists and
oncologists to comply with the exception because the revised exception
includes more definite standards. Thus, these physicians will have
greater certainty that their arrangements comply with the statute.
c. Physician Recruitment. This interim final rule revises the
physician recruitment relocation exception to focus on relocation of
the physician's office and percentage of new patients, rather than the
physician's residence. The exception now provides for either a minimum
move of the physician's office practice or a substantial percentage (75
percent) of new patients. In addition, the relocation requirement in
this exception does not apply to residents and physicians in practice
for less than one year. It also now allows certain joint recruiting
with existing group practices. Together, these changes permit a greater
number of legitimate arrangements to comply with the statute.
This interim final rule also adds an exemption for certain
retention payments for physicians in health professional shortage areas
(HPSAs) or in an area with demonstrated need for the retained physician
as determined by the Secretary in an advisory opinion issued pursuant
to section 1877(d)(6) of the Act. This new exception will permit a
greater number of legitimate arrangements to comply with the law.
d. Miscellaneous. This interim final rule contains a new exception
for professional courtesy, and establishes an exception for certain
inadvertent and temporary lapses in compliance with an existing
exception, both of which should minimize the effect of the final rule.
To the extent that new or expanded exceptions permit additional
legitimate arrangements to comply with the law, the potential and
significant costs of noncompliance (for example, overpayment refunds,
civil monetary penalties) are avoided. In addition, these changes will
require fewer arrangements to be restructured to comply with an
exception, thus reducing the costs of compliance.
2. Effects on Other Health Care Providers and Suppliers
As we stated above, Phase II of this rulemaking affects entities
that furnish DHS by preventing them from receiving payment for services
that they furnish as the result of a physician's prohibited referral.
Entities may also be subject to other sanctions, including fines and
exclusion from Federal health care programs, if they knowingly submit a
claim in violation of the prohibition. While all physicians and DHS
entities are subject to this rule, we lack the data to determine the
number of entities whose financial relationships with physicians must
be terminated or revised to comply with this rule. However, we believe
the number will be fewer than we had anticipated in the January 1998
proposed rule and the January 4, 2001 Phase I final rule because, as
with Phase I, we have interpreted the prohibition narrowly and the
exceptions broadly.
There are a few provisions that will be especially beneficial to
hospitals and other DHS entities. The first of these is the creation of
safe harbors for different types of hourly compensation. This minimizes
the risk for physicians, their employers, and DHS entities that
contract with physicians to provide services. This interim final rule
sets forth a physician hourly compensation deeming provision that deems
hourly payments to a physician to be fair market value if the payment
equals (i) the community hourly rate for ER doctors, or (ii) the
average hourly rate for specialties as determined by averaging certain
national physician compensation surveys. This interim final rule also
addresses the issue of reporting requirements by requiring that DHS
entities retain relevant information and make it available upon request
by the Secretary. By not requiring periodic reporting, we have
significantly eased the cost and burden of compliance. In addition,
Phase II includes ownership exceptions for publicly-traded securities
and mutual funds, rural providers, and hospitals. Additional exceptions
that benefit DHS entities include the intra-family referrals exception,
the physician retention in underserved areas exception, the community-
wide health information systems exception, and the temporary grace
period exception. Again, to the extent that new or expanded exceptions
permit additional legitimate arrangements to comply with the law, the
potential and significant costs of restructuring arrangements is
reduced, and the costs of noncompliance are avoided entirely.
[[Page 16124]]
3. Effects on the Medicare and Medicaid Programs
Section 1877 of the Act was enacted to address over-utilization,
anti-competitive behavior, and other abuses of health care services
that occur when physicians have financial relationships with certain
ancillary services entities to which they refer Medicare or Medicaid
patients. Physician financial arrangements may have some anti-
competitive effects to the extent that those relationships discourage
other providers from entering a market in which patients are primarily
referred to physician-owned entities or DHS entities that maintain
generous compensation arrangements with physicians. Anti-competitive
behavior can increase program costs if the DHS entities with which
physicians have financial relationships are favored over other, more
cost-efficient providers or providers that furnish higher quality care.
Overutilization increases program costs because Medicare (or Medicaid)
pays for more items or services than are medically necessary.
We expect that Phase II of this rulemaking will result in savings
to the program by minimizing anti-competitive business arrangements as
well as over-utilization or other abuse of covered services. For
example, the new ``same building'' definition will prohibit
arrangements in which DHS are insufficiently tied to the referring
physician's core medical practice and essentially constitute separate
business enterprises. We have made clear that these arrangements, which
could otherwise encourage overutilization and anti-competitive
behavior, will not qualify for the in-office ancillary services
exception. We cannot gauge with any certainty the extent of these
savings to the program at this time.
We note that while we have delayed rulemaking with respect to
portions of the application of section 1903(s)(2) of the Act, the fact
that most providers and suppliers of Medicaid services also furnish
Medicare services means that the Medicaid programs should indirectly
benefit from compliance on the Medicare side. Thus, Phase II of this
rulemaking should result in savings to the Medicaid program, but we
cannot gauge with any certainty the extent of these savings at this
time.
4. Effects on Beneficiaries
Some commenters thought the January 1998 proposed rule exceeded our
statutory authority and imposed unnecessary and costly burdens on
physicians and other health care providers/suppliers that would harm
patient access to health care facilities and services. We have tried to
ensure that this rule will not adversely impact the medical care of
Federal health care program beneficiaries. Where we have determined
that Phase II of this rulemaking may have an impact on current
arrangements under which patients are receiving medical care, we have
attempted to verify that there are other ways available to structure
the arrangement, so that patients may continue to receive services in
the same location. In almost all cases, we believe Phase II of this
rulemaking should not require substantial changes in delivery
arrangements. For the same reasons noted above under ``Effects on the
Medicare and Medicaid Programs,'' we believe that this interim final
rule will help minimize anti-competitive behavior that can affect where
a beneficiary receives health care services and possibly the quality of
the services furnished, and we believe this rule will minimize the
number of medically unnecessary tests performed or items or services
ordered on Federal health care program beneficiaries.
C. Alternatives Considered
In drafting the January 1998 proposed rule, we interpreted the
statute strictly and literally. After reviewing the voluminous number
of comments we received, we considered in Phase I many alternatives to
accommodate the practical problems that commenters raised, while still
remaining true to the statutory language and intent. As noted
throughout the Phase II preamble, we continued to consider alternatives
raised in comments submitted on the January 1998 proposed rule and,
where applicable, comments received on Phase I. For example, we
received many comments requesting modifications to various provisions
concerning academic medical centers. In Phase I, we added a new
regulatory exception for academic medical center arrangements, pursuant
to section 1877(b)(4) of the Act. In response to objections from Phase
I commenters about the definition of an academic medical center in
Sec. 411.355(e)(2), we are revising the definition in Phase II to more
accurately reflect the nature of these entities. The new definition
permits hospitals or health systems that sponsor four or more approved
medical education programs to qualify as an academic medical center,
provided they meet the other criteria in the exception. We considered
requiring the hospital or health system to sponsor five or more
approved medical education programs. However, after reviewing the issue
more carefully, we decided that a requirement for four programs would
adequately ensure that the hospital or health system has a substantial
teaching mission and would not disqualify institutions that otherwise
appeared to be bona fide academic medical centers.
We received comments suggesting that we revise the ``same
building'' requirement in the in-office ancillary services exception to
allow non-abusive arrangements or to clarify terms that commenters
claimed were ambiguous. We considered maintaining the Phase I ``same
building'' test, but realized that we would be unable to protect
legitimate arrangements involving the specialty groups that primarily
furnish DHS such as oncology and radiology. For example, under the
Phase I definition, the referring physician (or another physician who
is a member of the same group practice) must furnish in the same
building ``substantial'' physician services unrelated to the furnishing
of DHS. At the suggestion of commenters, we considered replacements for
the term ``substantial,'' including ``any,'' ``more than incidental,''
``10 percent,'' and ``significant.'' Ultimately, we decided that these
replacement terms were not sufficiently bright-line and would not
necessarily protect legitimate arrangements involving radiologists and
oncologists. We replaced the Phase I same building test with three
separate options, one of which was specifically designed to permit
legitimate arrangements involving radiologists and oncologists. Under
that test, a designated health service is furnished in the ``same
building'' if the building is one in which the referring physician or
his or her group practice has an office that is normally open to their
patients at least 35 hours per week, and the referring physician or one
or more members of his or her group regularly practices medicine and
furnishes physician services to patients in that office at least 30
hours per week. However, the revised provision should not unsettle
legitimate arrangements under the Phase I definition. In fact, the new
``same building'' test should permit some legitimate arrangements not
protected by Phase I.
Many Phase I commenters objected to the definition of compensation
that is ``set in advance'' because it did not permit certain percentage
compensation arrangements. We considered maintaining the Phase I
definition of ``set in advance,'' but realized that hospitals, academic
medical centers, and other entities would have to renegotiate numerous
legitimate contracts for physician services, potentially causing
significant
[[Page 16125]]
disruption within the health care industry without a corresponding
program integrity benefit. We were concerned that such disruption could
unnecessarily inconvenience Medicare beneficiaries. Accordingly,
reviewing this subject more thoroughly, we are revising the definition
of ``set in advance.'' Compensation will be considered ``set in
advance'' if the aggregate compensation, or a time-based or unit-of-
service-based (whether per-use or per-service) amount, or a specific
formula for calculating certain fluctuating compensation, is set forth
in the initial agreement between the parties (and before the furnishing
of the items or services for which the compensation is to be paid).
Commenters on the January 1998 proposed rule expressed considerable
concern that the proposed reporting requirements were unduly
burdensome. In response, we are making a number of changes to the
reporting requirements. Most significantly, we are eliminating the
requirement to report periodically information regarding financial
relationships. Instead, we are requiring that entities retain certain
information regarding their financial relationships with referring
physicians and submit that information only upon request. The
information required to be retained is that which the entity knows or
should know about in the course of prudently conducting business,
including records that the entity is already required to retain in
accordance with the rules of the Internal Revenue Service, the
Securities and Exchange Commission, and the Medicare and Medicaid
programs. We are also specifying that ownership or investment interests
in publicly-traded securities and mutual funds need not be reported if
they satisfy the exceptions for such financial relationships in Sec.
411.356(a) and Sec. 411.356(b).
We considered maintaining the original reporting requirements, but
decided that periodic reporting would not be particularly helpful to
the agency. CMS and its contractors would be overwhelmed by the number
of reports and financial relationships that would need to be analyzed.
We decided that we would make better use of our available resources if
we collected information on financial relationships in a more focused
manner (such as during a fraud investigation of a particular provider
or group of providers).
In response to comments, we considered allowing a referring
physician to ``stand in the shoes'' of his group practice or wholly-
owned professional corporation (PC) when the only intervening entity
between the referring physician and the DHS entity is his or her PC.
Under such a rule, what would otherwise be analyzed as an indirect
compensation arrangement could instead be analyzed as a direct
compensation arrangement. We recognize in this interim final rule that
it is not necessary to treat a referring physician as separate from his
or her wholly-owned PC, and we have revised the definition of
``referring physician'' accordingly. However, we decided not to make
any changes to the Phase I rule with respect to the issue of indirect
compensation arrangements that are created when a group practice is an
intervening entity in the chain between the DHS entity and the
referring physicians who are members of the group. We believe that such
a change would unnecessarily complicate the final rule and create
confusion. Moreover, we believe such a change is unnecessary, since the
knowledge standard in the indirect compensation arrangements definition
and exception adequately protects DHS entities.
We have created an exception for certain referrals from a referring
physician to a DHS entity with which his or her immediate family member
has a financial relationship, if the patient being referred resides in
a rural area and there is no DHS entity available in a timely manner in
light of the patient's condition to furnish the DHS to the patient in
his or her home or within 25 miles of the patient's home. In creating
this exception for intra-family rural referrals, we considered
permitting such referrals regardless of whether the patient resides in
a rural area. Although intra-family referrals may be relatively
infrequent, we decided to limit the exception to rural referrals
because we cannot create a new regulatory exception if it poses any
risk of program or patient abuse. In drafting the exception, we also
considered using a 15-mile standard. Ultimately, we decided that a 25-
mile standard would be more consistent with similar standards elsewhere
in the regulation and would minimize any unfair competitive effect on
non-physician owned DHS entities that may seek to provide services in
rural areas.
As these examples demonstrate, our approach in Phase II of this
rulemaking is to address as many of the industry's concerns as
possible. As noted throughout this preamble, we considered a variety of
suggestions and alternatives, selecting only those that are consistent
with the statute's goals and directives and that will protect Federal
health care program beneficiaries' access to services.
XVI. Waiver of Proposed Rulemaking
Section 902 of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA) provides that, effective December 8,
2003, the Secretary, in consultation with the Director of the Office of
Management and Budget (OMB), shall establish and publish a regular
timeline for the publication of final regulations based on the previous
publication of a proposed regulation or an interim final regulation.
Section 902 further provides that the timeline may vary among different
regulations, but shall not be longer than three years except under
exceptional circumstances.
Part of this Phase II rule finalizes portions of a proposed rule
that was published in January 1998. Although we do not believe that
section 902 prohibits the Secretary from finalizing every proposed rule
that was published more than three years before December 8, 2003, we
recognize that section 902 may be susceptible to more than one
interpretation. Accordingly, out of an abundance of caution, we are not
publishing this rule as a final rule. Instead, we are waiving notice of
proposed rulemaking and publishing this rule as an interim final rule
with comment period. Under the Administrative Procedures Act (5 U.S.C.
553(b)), an agency may waive publication of a notice of proposed
rulemaking if the agency finds good cause that the notice and comment
procedure is impracticable, unnecessary, or contrary to the public
interest and the agency incorporates into the rule a statement of, and
the reasons for, such a finding. For the reasons discussed below, we
find that it would be impracticable and contrary to the public interest
to publish as a proposed rule approximately half of the material
contained in this interim final rule with comment period.
The physician self-referral prohibition is implicated in nearly
every financial relationship between and among physicians and entities
that furnish DHS. Violations of the law (regardless of the intent of
the parties) have substantial financial consequences, including denial
of payment (or refunding of payments received) for DHS claims; civil
monetary penalties; and program exclusion. The imposition of these
sanctions can result in multi-million dollar liability. Violations of
the physician self-referral prohibition may also be pursued under the
False Claims Act, 31 U.S.C. 3729-3733. Given the scope and strict
liability nature of the prohibition and the significant financial
consequences of noncompliance, the
[[Page 16126]]
industry has asked for ``bright-line'' rules and new regulatory
exceptions for nonabusive arrangements.
We believe it is impracticable and not in the public interest to
offer what would essentially constitute a third opportunity to comment
on much of the material in this rule and thereby delay finalizing
useful exceptions and the many ``bright-line'' rules necessary either
to protect the Medicare program from fraud and abuse or permit
nonabusive arrangements. We have already issued a proposed rule, major
portions of which were finalized upon publication of the Phase I final
rule with comment period and became effective on January 4, 2002. This
interim final rule responds to public comments received on the January
1998 proposed rule as well as public comments received on Phase I.
Phase I comments necessarily informed our rulemaking with respect to
finalizing the remainder of the January 1998 proposed rule because
those comments addressed definitions and other matters that apply
throughout the regulatory scheme. To publish yet another proposed rule
on this matter would prevent affected parties from using important new
or expanded exceptions. Even if we were able to finalize a proposed
rule in an expedited fashion, the inability to use the new or expanded
exceptions could expose DHS entities to significant financial liability
for otherwise nonabusive relationships. Moreover, the public will not
be denied the opportunity to comment on this rule because we are
publishing it as an interim final rule with comment period. In
accordance with section 902 of MMA, we are obligated to consider
comments on this interim final rule and publish a final rule addressing
those comments within three years.
In the Phase I preamble, we informed the public that we intended to
publish a second final rule with comment period (Phase II) that would
address the remainder of the proposed rule as well as comments on Phase
I. The additional regulatory definitions and new regulatory exceptions
in Phase II are inextricably intertwined with the Phase I final rule.
The industry has patiently and eagerly awaited the publication of a
single, comprehensive Phase II regulation that would provide the
guidance and finality necessary for physicians and health care
providers to structure their financial relationships in a manner that
assures each party's compliance with the statutory prohibition. It
would be contrary to the public interest to upset expectations by
publishing another proposed rule thereby denying affected parties the
clarity and finality they expected to obtain with this rule. In
addition, to extract a significant portion of the material in this
interim final rule (much, if not all, of which will not be
controversial) and to publish it separately in another proposed rule
would thwart our efforts to present the unified and complete regulatory
scheme necessary to support both compliance and enforcement efforts.
In addition, further delay could disrupt or hinder our programmatic
objective of improving beneficiaries' access to care. For instance,
this interim final rule with comment period creates a new exception for
certain payments made by a hospital or federally qualified health
center to a physician to retain the physician's medical practice in a
health professional shortage area. In addition, this interim final rule
creates an exception for intra-family rural referrals and obstetrical
malpractice insurance subsidies. Beneficiary access to care in
underserved or rural areas is a critical programmatic objective. It is
not in the public interest to delay finalizing the new exceptions
designed to serve this purpose.
For the reasons explained above, we find good cause to waive notice
of proposed rulemaking and to issue this rule as an interim final rule
with comment period.
In accordance with the provisions of Executive Order 12866, Phase
II of this rulemaking was reviewed by the Office of Management and
Budget.
List of Subjects
42 CFR Part 411
Kidney diseases, Medicare, Physician referral, Reporting and
recordkeeping requirements.
42 CFR Part 424
Emergency medical services, Health facilities, Health professions,
Medicare.
0
For the reasons set forth in the preamble, CMS amends 42 CFR chapter IV
as set forth below:
PART 411--EXCLUSIONS FROM MEDICARE AND LIMITATIONS ON MEDICARE
PAYMENT
0
1. The authority citation for part 411 continues to read as follows:
Authority: Secs. 1102 and 1871 of the Social Security Act (42
U.S.C. 1302 and 1395hh).
Subpart A--General Exclusions and Exclusion of Particular Services
0
2. In Sec. 411.1, paragraph (a) is republished to read as follows:
Sec. 411.1 Basis and scope.
(a) Statutory basis. Sections 1814(a) and 1835(a) of the Act
require that a physician certify or recertify a patient's need for home
health services but, in general, prohibit a physician from certifying
or recertifying the need for services if the services will be furnished
by an HHA in which the physician has a significant ownership interest,
or with which the physician has a significant financial or contractual
relationship. Sections 1814(c), 1835(d), and 1862 of the Act exclude
from Medicare payment certain specified services. The Act provides
special rules for payment of services furnished by the following:
Federal providers or agencies (sections 1814(c) and 1835(d)); hospitals
and physicians outside of the U.S. (sections 1814(f) and 1862(a)(4));
and hospitals and SNFs of the Indian Health Service (section 1880 of
the Act). Section 1877 of the Act sets forth limitations on referrals
and payment for designated health services furnished by entities with
which the referring physician (or an immediate family member of the
referring physician) has a financial relationship.
* * * * *
Subpart J--Financial Relationships Between Physicians and Entities
Furnishing Designated Health Services
0
3. The heading for subpart J is revised as set forth above, and subpart
J is revised to read as follows:
Subpart J--Financial Relationships Between Physicians and Entities
Furnishing Designated Health Services
Sec.
411.350 Scope of subpart.
411.351 Definitions.
411.352 Group practice.
411.353 Prohibition on certain referrals by physicians and
limitations on billing.
411.354 Financial relationship, compensation, and ownership or
investment interest.
411.355 General exceptions to the referral prohibition related to
both ownership/investment and compensation.
411.356 Exceptions to the referral prohibition related to ownership
or investment interests.
411.357 Exceptions to the referral prohibition related to
compensation arrangements.
411.361 Reporting requirements.
Subpart J--Financial Relationships Between Physicians and Entities
Furnishing Designated Health Services
Sec. 411.350 Scope of subpart.
(a) This subpart implements section 1877 of the Act, which
generally prohibits a physician from making a referral under Medicare
for designated
[[Page 16127]]
health services to an entity with which the physician or a member of
the physician's immediate family has a financial relationship.
(b) This subpart does not provide for exceptions or immunity from
civil or criminal prosecution or other sanctions applicable under any
State laws or under Federal law other than section 1877 of the Act. For
example, although a particular arrangement involving a physician's
financial relationship with an entity may not prohibit the physician
from making referrals to the entity under this subpart, the arrangement
may nevertheless violate another provision of the Act or other laws
administered by HHS, the Federal Trade Commission, the Securities and
Exchange Commission, the Internal Revenue Service, or any other Federal
or State agency.
(c) This subpart requires, with some exceptions, that certain
entities furnishing covered services under Medicare Part A or Part B
report information concerning ownership, investment, or compensation
arrangements in the form, in the manner, and at the times specified by
CMS.
Sec. 411.351 Definitions.
As used in this subpart, unless the context indicates otherwise:
Centralized building means all or part of a building, including,
for purposes of this subpart only, a mobile vehicle, van, or trailer
that is owned or leased on a full-time basis (that is, 24 hours per
day, 7 days per week, for a term of not less than 6 months) by a group
practice and that is used exclusively by the group practice. Space in a
building or a mobile vehicle, van, or trailer that is shared by more
than one group practice, by a group practice and one or more solo
practitioners, or by a group practice and another provider or supplier
(for example, a diagnostic imaging facility) is not a centralized
building for purposes of this subpart. This provision does not preclude
a group practice from providing services to other providers or
suppliers (for example, purchased diagnostic tests) in the group
practice's centralized building. A group practice may have more than
one centralized building.
Clinical laboratory services means the biological, microbiological,
serological, chemical, immunohematological, hematological, biophysical,
cytological, pathological, or other examination of materials derived
from the human body for the purpose of providing information for the
diagnosis, prevention, or treatment of any disease or impairment of, or
the assessment of the health of, human beings, including procedures to
determine, measure, or otherwise describe the presence or absence of
various substances or organisms in the body, as specifically identified
by the List of CPT/HCPCS Codes. All services so identified on the List
of CPT/HCPCS Codes are clinical laboratory services for purposes of
this subpart. Any service not specifically identified as a clinical
laboratory service on the List of CPT/HCPCS Codes is not a clinical
laboratory service for purposes of this subpart.
Consultation means a professional service furnished to a patient by
a physician if the following conditions are satisfied:
(1) The physician's opinion or advice regarding evaluation and/or
management of a specific medical problem is requested by another
physician.
(2) The request and need for the consultation are documented in the
patient's medical record.
(3) After the consultation is provided, the physician prepares a
written report of his or her findings, which is provided to the
physician who requested the consultation.
(4) With respect to radiation therapy services provided by a
radiation oncologist, a course of radiation treatments over a period of
time will be considered to be pursuant to a consultation, provided the
radiation oncologist communicates with the referring physician on a
regular basis about the patient's course of treatment and progress.
Designated health services (DHS) means any of the following
services (other than those provided as emergency physician services
furnished outside of the U.S.), as they are defined in this section:
(1) Clinical laboratory services.
(2) Physical therapy, occupational therapy, and speech-language
pathology services.
(3) Radiology and certain other imaging services.
(4) Radiation therapy services and supplies.
(5) Durable medical equipment and supplies.
(6) Parenteral and enteral nutrients, equipment, and supplies.
(7) Prosthetics, orthotics, and prosthetic devices and supplies.
(8) Home health services.
(9) Outpatient prescription drugs.
(10) Inpatient and outpatient hospital services.
Except as otherwise noted in this subpart, the term ``designated
health services'' or DHS means only DHS payable, in whole or in part,
by Medicare. DHS do not include services that are reimbursed by
Medicare as part of a composite rate (for example, ambulatory surgical
center services or SNF Part A payments), except to the extent the
services listed in paragraphs (1) through (10) of this definition are
themselves payable through a composite rate (for example, all services
provided as home health services or inpatient and outpatient hospital
services are DHS).
Does not violate the anti-kickback statute, as used in this subpart
only, means that the particular arrangement--
(1) Meets a safe harbor under the anti-kickback statute in Sec.
1001.952 of this title, ``Exceptions'';
(2) Has been specifically approved by the OIG in a favorable
advisory opinion issued to a party to the particular arrangement (e.g.,
the entity furnishing DHS) with respect to the particular arrangement
(and not a similar arrangement), provided that the arrangement is
conducted in accordance with the facts certified by the requesting
party and the opinion is otherwise issued in accordance with part 1008
of this title, ``Advisory Opinions by the OIG''; or
(3) Does not violate the anti-kickback provisions in section
1128B(b) of the Act.
A favorable advisory opinion for purposes of this definition means
an opinion in which the OIG opines that--
(1) The party's specific arrangement does not implicate the anti-
kickback statute, does not constitute prohibited remuneration, or fits
in a safe harbor under Sec. 1001.952 of this title; or
(2) The party will not be subject to any OIG sanctions arising
under the anti-kickback statute (for example, under sections 1128(a)(7)
and 1128a(b)(7) of the Act) in connection with the party's specific
arrangement.
Durable medical equipment (DME) and supplies has the meaning given
in section 1861(n) of the Act and Sec. 414.202 of this chapter.
Employee means any individual who, under the common law rules that
apply in determining the employer-employee relationship (as applied for
purposes of section 3121(d)(2) of the Internal Revenue Code of 1986),
is considered to be employed by, or an employee of, an entity.
(Application of these common law rules is discussed in 20 CFR 404.1007
and 26 CFR 31.3121(d)-1(c).)
Entity means--
(1) A physician's sole practice or a practice of multiple
physicians or any other person, sole proprietorship, public or private
agency or trust, corporation, partnership, limited liability company,
foundation, not-for-profit corporation, or unincorporated association
that furnishes DHS. An entity does not
[[Page 16128]]
include the referring physician himself or herself, but does include
his or her medical practice. A person or entity is considered to be
furnishing DHS if it-
(i) Is the person or entity to which CMS makes payment for the DHS,
directly or upon assignment on the patient's behalf; or
(ii) Is the person or entity to which the right to payment for the
DHS has been reassigned pursuant to Sec. 424.80(b)(1) (employer),
(b)(2) (facility), or (b)(3) (health care delivery system) of this
chapter (other than a health care delivery system that is a health plan
(as defined in Sec. 1001.952(l) of this title), and other than any
managed care organization (MCO), provider-sponsored organization (PSO),
or independent practice association (IPA) with which a health plan
contracts for services provided to plan enrollees).
(2) A health plan, MCO, PSO, or IPA that employs a supplier or
operates a facility that could accept reassignment from a supplier
pursuant to Sec. 424.80(b)(1) and (b)(2) of this chapter, with respect
to any designated health services provided by that supplier.
(3) For purposes of this subpart, ``entity'' does not include a
physician's practice when it bills Medicare for a diagnostic test in
accordance with Sec. 414.50 of this chapter (Physician billing for
purchased diagnostic tests) and section 3060.4 of the Medicare Carriers
Manual (Purchased diagnostic tests), as amended or replaced from time
to time.
Fair market value means the value in arm's-length transactions,
consistent with the general market value. ``General market value''
means the price that an asset would bring as the result of bona fide
bargaining between well-informed buyers and sellers who are not
otherwise in a position to generate business for the other party, or
the compensation that would be included in a service agreement as the
result of bona fide bargaining between well-informed parties to the
agreement who are not otherwise in a position to generate business for
the other party, on the date of acquisition of the asset or at the time
of the service agreement. Usually, the fair market price is the price
at which bona fide sales have been consummated for assets of like type,
quality, and quantity in a particular market at the time of
acquisition, or the compensation that has been included in bona fide
service agreements with comparable terms at the time of the agreement,
where the price or compensation has not been determined in any manner
that takes into account the volume or value of anticipated or actual
referrals. With respect to rentals and leases described in Sec.
411.357(a), (b), and (l) (as to equipment leases only), ``fair market
value'' means the value of rental property for general commercial
purposes (not taking into account its intended use). In the case of a
lease of space, this value may not be adjusted to reflect the
additional value the prospective lessee or lessor would attribute to
the proximity or convenience to the lessor when the lessor is a
potential source of patient referrals to the lessee. For purposes of
this definition, a rental payment does not take into account intended
use if it takes into account costs incurred by the lessor in developing
or upgrading the property or maintaining the property or its
improvements.
An hourly payment for a physician's personal services (that is,
services performed by the physician personally and not by employees,
contractors, or others) shall be considered to be fair market value if
the hourly payment is established using either of the following two
methodologies:
(1) The hourly rate is less than or equal to the average hourly
rate for emergency room physician services in the relevant physician
market, provided there are at least three hospitals providing emergency
room services in the market.
(2) The hourly rate is determined by averaging the 50th percentile
national compensation level for physicians with the same physician
specialty (or, if the specialty is not identified in the survey, for
general practice) in at least four of the following surveys and
dividing by 2,000 hours. The surveys are:
Sullivan, Cotter & Associates, Inc.--Physician
Compensation and Productivity Survey
Hay Group--Physicians Compensation Survey
Hospital and Healthcare Compensation Services--
Physician Salary Survey Report
Medical Group Management Association--Physician
Compensation and Productivity Survey
ECS Watson Wyatt--Hospital and Health Care
Management Compensation Report
William M. Mercer--Integrated Health Networks
Compensation Survey
Home health services means the services described in section
1861(m) of the Act and part 409, subpart E of this chapter.
Hospital means any entity that qualifies as a ``hospital'' under
section 1861(e) of the Act, as a ``psychiatric hospital'' under section
1861(f) of the Act, or as a ``critical access hospital'' under section
1861(mm)(1) of the Act, and refers to any separate legally organized
operating entity plus any subsidiary, related entity, or other entities
that perform services for the hospital's patients and for which the
hospital bills. However, a ``hospital'' does not include entities that
perform services for hospital patients ``under arrangements'' with the
hospital.
HPSA means, for purposes of this subpart, an area designated as a
health professional shortage area under section 332(a)(1)(A) of the
Public Health Service Act for primary medical care professionals (in
accordance with the criteria specified in part 5 of this title).
Immediate family member or member of a physician's immediate family
means husband or wife; birth or adoptive parent, child, or sibling;
stepparent, stepchild, stepbrother, or stepsister; father-in-law,
mother-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-
in-law; grandparent or grandchild; and spouse of a grandparent or
grandchild.
``Incident to'' services means those services that meet the
requirements of section 1861(s)(2)(A) of the Act, 42 CFR Sec. 410.26,
and section 2050 of the Medicare Carriers (CMS Pub. 14-3), Part 3--
Claims Process, as amended or replaced from time to time.
Inpatient hospital services means those services defined in section
1861(b) of the Act and Sec. 409.10(a) and (b) of this chapter and
include inpatient psychiatric hospital services listed in section
1861(c) of the Act and inpatient critical access hospital services, as
defined in section 1861(mm)(2) of the Act. ``Inpatient hospital
services'' do not include emergency inpatient services provided by a
hospital located outside of the U.S. and covered under the authority in
section 1814(f)(2) of the Act and part 424, subpart H of this chapter,
or emergency inpatient services provided by a nonparticipating hospital
within the U.S., as authorized by section 1814(d) of the Act and
described in part 424, subpart G of this chapter. ``Inpatient hospital
services'' also do not include dialysis furnished by a hospital that is
not certified to provide end-stage renal dialysis (ESRD) services under
subpart U of part 405 of this chapter. ``Inpatient hospital services''
include services that are furnished either by the hospital directly or
under arrangements made by the hospital with others. ``Inpatient
hospital services'' do not include professional services performed by
physicians, physician assistants, nurse practitioners, clinical nurse
specialists, certified nurse midwives, and certified registered nurse
anesthetists and qualified psychologists if Medicare reimburses the
services independently and not as part of the
[[Page 16129]]
inpatient hospital service (even if they are billed by a hospital under
an assignment or reassignment).
Laboratory means an entity furnishing biological, microbiological,
serological, chemical, immunohematological, hematological, biophysical,
cytological, pathological, or other examination of materials derived
from the human body for the purpose of providing information for the
diagnosis, prevention, or treatment of any disease or impairment of, or
the assessment of the health of, human beings. These examinations also
include procedures to determine, measure, or otherwise describe the
presence or absence of various substances or organisms in the body.
Entities only collecting or preparing specimens (or both) or only
serving as a mailing service and not performing testing are not
considered laboratories.
List of CPT/HCPCS Codes means the list of CPT and HCPCS codes that
identifies those items and services that are designated health services
under section 1877 of the Act or that may qualify for certain
exceptions under section 1877 of the Act. It is updated annually, as
published in the Federal Register, and is posted on the CMS Web site at
http://www.cms.gov/medlearn/refphys.asp.
Locum tenens physician means a physician who substitutes (that is,
``stands in the shoes'') in exigent circumstances for a physician, in
accordance with applicable reassignment rules and regulations,
including section 3060.7 of the Medicare Carriers Manual (CMS Pub. 14-
3), Part 3--Claims Process, as amended or replaced from time to time.
Member of the group or member of a group practice means, for
purposes of this subpart, a direct or indirect physician owner of a
group practice (including a physician whose interest is held by his or
her individual professional corporation or by another entity), a
physician employee of the group practice (including a physician
employed by his or her individual professional corporation that has an
equity interest in the group practice), a locum tenens physician (as
defined in this section), or an on-call physician while the physician
is providing on-call services for members of the group practice. A
physician is a member of the group during the time he or she furnishes
``patient care services'' to the group as defined in this section. An
independent contractor or a leased employee is not a member of the
group (unless the leased employee meets the definition of an
``employee'' under this Sec. 411.351).
Outpatient hospital services means the therapeutic, diagnostic, and
partial hospitalization services listed under sections 1861(s)(2)(B)
and (s)(2)(C) of the Act; outpatient services furnished by a
psychiatric hospital, as defined in section 1861(f) of the Act; and
outpatient critical access hospital services, as defined in section
1861(mm)(3) of the Act. ``Outpatient hospital services'' do not include
emergency services furnished by nonparticipating hospitals and covered
under the conditions described in section 1835(b) of the Act and
subpart G of part 424 of this chapter. ``Outpatient hospital services''
include services that are furnished either by the hospital directly or
under arrangements made by the hospital with others. ``Outpatient
hospital services'' do not include professional services performed by
physicians, physician assistants, nurse practitioners, clinical nurse
specialists, certified nurse midwives, certified registered nurse
anesthetists, and qualified psychologists if Medicare reimburses the
services independently and not as part of the outpatient hospital
service (even if they are billed by a hospital under an assignment or
reassignment).
Outpatient prescription drugs means all prescription drugs covered
by Medicare Part B.
Parenteral and enteral nutrients, equipment, and supplies means the
following services (including all HCPCS level 2 codes for these
services):
(1) Parenteral nutrients, equipment, and supplies, meaning those
items and supplies needed to provide nutriment to a patient with
permanent, severe pathology of the alimentary tract that does not allow
absorption of sufficient nutrients to maintain strength commensurate
with the patient's general condition, as described in section 65-10 of
the Medicare Coverage Issues Manual (CMS Pub. 6), as amended or
replaced from time to time; and
(2) Enteral nutrients, equipment, and supplies, meaning items and
supplies needed to provide enteral nutrition to a patient with a
functioning gastrointestinal tract who, due to pathology to or
nonfunction of the structures that normally permit food to reach the
digestive tract, cannot maintain weight and strength commensurate with
his or her general condition, as described in section 65-10 of the
Medicare Coverage Issues Manual (CMS Pub. 6), as amended or replaced
from time to time.
Patient care services means any task(s) performed by a physician in
the group practice that address the medical needs of specific patients
or patients in general, regardless of whether they involve direct
patient encounters or generally benefit a particular practice. Patient
care services can include, for example, the services of physicians who
do not directly treat patients, such as time spent by a physician
consulting with other physicians or reviewing laboratory tests, or time
spent training staff members, arranging for equipment, or performing
administrative or management tasks.
Physical therapy, occupational therapy, and speech-language
pathology services means those particular services so identified on the
List of CPT/HCPCS Codes. All services so identified on the List of CPT/
HCPCS Codes are physical therapy, occupational therapy, and speech-
language pathology services for purposes of this subpart. Any service
not specifically identified as physical therapy, occupational therapy
or speech-language pathology on the List of CPT/HCPCS Codes is not a
physical therapy, occupational therapy, or speech-language pathology
service for purposes of this subpart. The list of codes identifying
physical therapy, occupational therapy, and speech-language pathology
services for purposes of this regulation includes the following:
(1) Physical therapy services, meaning those outpatient physical
therapy services (including speech-language pathology services)
described at section 1861(p) of the Act that are covered under Medicare
Part A or Part B, regardless of who provides them, if the services
include--
(i) Assessments, function tests and measurements of strength,
balance, endurance, range of motion, and activities of daily living;
(ii) Therapeutic exercises, massage, and use of physical medicine
modalities, assistive devices, and adaptive equipment;
(iii) Establishment of a maintenance therapy program for an
individual whose restoration potential has been reached; however,
maintenance therapy itself is not covered as part of these services; or
(iv) Speech-language pathology services that are for the diagnosis
and treatment of speech, language, and cognitive disorders that include
swallowing and other oral-motor dysfunctions.
(2) Occupational therapy services, meaning those services described
at section 1861(g) of the Act that are covered under Medicare Part A or
Part B, regardless of who provides them, if the services include--
(i) Teaching of compensatory techniques to permit an individual
with
[[Page 16130]]
a physical or cognitive impairment or limitation to engage in daily
activities;
(ii) Evaluation of an individual's level of independent
functioning;
(iii) Selection and teaching of task-oriented therapeutic
activities to restore sensory-integrative function; or
(iv) Assessment of an individual's vocational potential, except
when the assessment is related solely to vocational rehabilitation.
Physician means a doctor of medicine or osteopathy, a doctor of
dental surgery or dental medicine, a doctor of podiatric medicine, a
doctor of optometry, or a chiropractor, as defined in section 1861(r)
of the Act.
Physician in the group practice means a member of the group
practice, as well as an independent contractor physician during the
time the independent contractor is furnishing patient care services (as
defined in this section) for the group practice under a contractual
arrangement with the group practice to provide services to the group
practice's patients in the group practice's facilities. The contract
must contain the same restrictions on compensation that apply to
members of the group practice under Sec. 411.352(g) (or the contract
must fit in the personal services exception in Sec. 411.357(d)), and
the independent contractor's arrangement with the group practice must
comply with the reassignment rules at Sec. 424.80(b)(3) of this
chapter (see also section 3060.3 of the Medicare Carriers Manual (CMS
Pub. 14-3), Part 3--Claims Process, as amended or replaced from time to
time). Referrals from an independent contractor who is a physician in
the group practice are subject to the prohibition on referrals in Sec.
411.353(a), and the group practice is subject to the limitation on
billing for those referrals in Sec. 411.353(b).
Physician incentive plan means any compensation arrangement between
an entity (or downstream subcontractor) and a physician or physician
group that may directly or indirectly have the effect of reducing or
limiting services furnished with respect to individuals enrolled with
the entity.
Plan of care means the establishment by a physician of a course of
diagnosis or treatment (or both) for a particular patient, including
the ordering of services.
Professional courtesy means the provision of free or discounted
health care items or services to a physician or his or her immediate
family members or office staff.
Prosthetics, Orthotics, and Prosthetic Devices and Supplies means
the following services (including all HCPCS level 2 codes for these
items and services that are covered by Medicare):
(1) Orthotics, meaning leg, arm, back, and neck braces, as listed
in section 1861(s)(9) of the Act.
(2) Prosthetics, meaning artificial legs, arms, and eyes, as
described in section 1861(s)(9) of the Act.
(3) Prosthetic devices, meaning devices (other than a dental
device) listed in section 1861(s)(8) of the Act that replace all or
part of an internal body organ, including colostomy bags, and one pair
of conventional eyeglasses or contact lenses furnished subsequent to
each cataract surgery with insertion of an intraocular lens.
(4) Prosthetic supplies, meaning supplies that are necessary for
the effective use of a prosthetic device (including supplies directly
related to colostomy care).
Radiation therapy services and supplies means those particular
services and supplies so identified on the List of CPT/HCPCS Codes. All
services and supplies so identified on the List of CPT/HCPCS Codes are
radiation therapy services and supplies for purposes of this subpart.
Any service or supply not specifically identified as radiation therapy
services or supplies on the List of CPT/HCPCS Codes is not a radiation
therapy service or supply for purposes of this subpart. The list of
codes identifying radiation therapy services and supplies is based on
section 1861(s)(4) of the Act and Sec. 410.35 of this chapter, but
does not include nuclear medicine procedures.
Radiology and certain other imaging services means those particular
services so identified on the List of CPT/HCPCS Codes. All services so
identified on the List of CPT/HCPCS Codes are radiology and certain
other imaging services for purposes of this subpart. Any service not
specifically identified as radiology and certain other imaging services
on the List of CPT/HCPCS Codes, is not a radiology or certain other
imaging service for purposes of this subpart. The list of codes
identifying radiology and certain other imaging services includes the
professional and technical components of any diagnostic test or
procedure using x-rays, ultrasound, or other imaging services,
computerized axial tomography, or magnetic resonance imaging, as
covered under section 1861(s)(3) of the Act and Sec. 410.32 and Sec.
410.34 of this chapter but does not include--
(1) X-ray , fluoroscopy, or ultrasound procedures that require the
insertion of a needle, catheter, tube, or probe through the skin or
into a body orifice;
(2) Radiology procedures that are integral to the performance of a
nonradiological medical procedure and performed--
(i) During the nonradiological medical procedure; or
(ii) Immediately following the nonradiological medical procedure
when necessary to confirm placement of an item placed during the
nonradiological medical procedure; and
(3) Diagnostic nuclear medicine procedures.
Referral--
(1) Means either of the following:
(i) Except as provided in paragraph (2) of this definition, the
request by a physician for, or ordering of, or the certifying or
recertifying of the need for, any designated health service for which
payment may be made under Medicare Part B, including a request for a
consultation with another physician and any test or procedure ordered
by or to be performed by (or under the supervision of) that other
physician, but not including any designated health service personally
performed or provided by the referring physician. A designated health
service is not personally performed or provided by the referring
physician if it is performed or provided by any other person,
including, but not limited to, the referring physician's employees,
independent contractors, or group practice members.
(ii) Except as provided in paragraph (2) of this definition, a
request by a physician that includes the provision of any designated
health service for which payment may be made under Medicare, the
establishment of a plan of care by a physician that includes the
provision of such a designated health service, or the certifying or
recertifying of the need for such a designated health service, but not
including any designated health service personally performed or
provided by the referring physician. A designated health service is not
personally performed or provided by the referring physician if it is
performed or provided by any other person including, but not limited
to, the referring physician's employees, independent contractors, or
group practice members.
(2) Does not include a request by a pathologist for clinical
diagnostic laboratory tests and pathological examination services, by a
radiologist for diagnostic radiology services, and by a radiation
oncologist for radiation therapy, if--
(i) The request results from a consultation initiated by another
physician (whether the request for a consultation was made to a
particular physician or to an entity with which the physician is
affiliated); and
[[Page 16131]]
(ii) The tests or services are furnished by or under the
supervision of the pathologist, radiologist, or radiation oncologist,
or under the supervision of a pathologist, radiologist, or radiation
oncologist, respectively, in the same group practice as the
pathologist, radiologist, or radiation oncologist.
(3) Can be in any form, including, but not limited to, written,
oral, or electronic.
Referring physician means a physician who makes a referral as
defined in this section or who directs another person or entity to make
a referral or who controls referrals made by another person or entity.
A referring physician and the professional corporation of which he or
she is a sole owner are the same for purposes of this subpart.
Remuneration means any payment or other benefit made directly or
indirectly, overtly or covertly, in cash or in kind, except that the
following are not considered remuneration for purposes of this section:
(1) The forgiveness of amounts owed for inaccurate tests or
procedures, mistakenly performed tests or procedures, or the correction
of minor billing errors.
(2) The furnishing of items, devices, or supplies (not including
surgical items, devices, or supplies) that are used solely to collect,
transport, process, or store specimens for the entity furnishing the
items, devices, or supplies or are used solely to order or communicate
the results of tests or procedures for the entity.
(3) A payment made by an insurer or a self-insured plan (or a
subcontractor of the insurer or plan) to a physician to satisfy a
claim, submitted on a fee-for-service basis, for the furnishing of
health services by that physician to an individual who is covered by a
policy with the insurer or by the self-insured plan, if--
(i) The health services are not furnished, and the payment is not
made, under a contract or other arrangement between the insurer or the
plan (or a subcontractor of the insurer or plan) and the physician;
(ii) The payment is made to the physician on behalf of the covered
individual and would otherwise be made directly to the individual; and
(iii) The amount of the payment is set in advance, does not exceed
fair market value, and is not determined in a manner that takes into
account directly or indirectly the volume or value of any referrals.
Same building means a structure with, or combination of structures
that share, a single street address as assigned by the U.S. Postal
Service, excluding all exterior spaces (for example, lawns, courtyards,
driveways, parking lots) and interior loading docks or parking garages.
For purposes of this section, the ``same building'' does not include a
mobile vehicle, van, or trailer.
Specialty hospital means a subsection (d) hospital (as defined in
section 1886(d)(1)(B)) that is primarily or exclusively engaged in the
care and treatment of one of the following: Patients with a cardiac
condition; patients with an orthopedic condition; patients receiving a
surgical procedure; or any other specialized category of services that
the Secretary designates as inconsistent with the purpose of permitting
physician ownership and investment interests in a hospital. A
``specialty hospital'' does not include any hospital--
(1) Determined by the Secretary to be in operation before or under
development as of November 18, 2003;
(2) For which the number of physician investors at any time on or
after such date is no greater than the number of such investors as of
such date;
(3) For which the type of categories described above is no
different at any time on or after such date than the type of such
categories as of such date;
(4) For which any increase in the number of beds occurs only in the
facilities on the main campus of the hospital and does not exceed 50
percent of the number of beds in the hospital as of November 18, 2003,
or 5 beds, whichever is greater; and
(5) that meets such other requirements as the Secretary may
specify.
Transaction means an instance or process of two or more persons or
entities doing business. An isolated transaction means one involving a
single payment between two or more persons or entities or a transaction
that involves integrally related installment payments provided that--
(1) The total aggregate payment is fixed before the first payment
is made and does not take into account, directly or indirectly, the
volume or value of referrals or other business generated by the
referring physician; and
(2) The payments are immediately negotiable or are guaranteed by a
third party, secured by a negotiable promissory note, or subject to a
similar mechanism to assure payment even in the event of default by the
purchaser or obligated party. Sec. 411.352 Group practice.
For purposes of this subpart, a group practice is a physician
practice that meets the following conditions:
(a) Single legal entity. The group practice must consist of a
single legal entity operating primarily for the purpose of being a
physician group practice in any organizational form recognized by the
State in which the group practice achieves its legal status, including,
but not limited to, a partnership, professional corporation, limited
liability company, foundation, not-for-profit corporation, faculty
practice plan, or similar association. The single legal entity may be
organized by any party or parties, including, but not limited to,
physicians, health care facilities, or other persons or entities
(including, but not limited to, physicians individually incorporated as
professional corporations). The single legal entity may be organized or
owned (in whole or in part) by another medical practice, provided that
the other medical practice is not an operating physician practice (and
regardless of whether the medical practice meets the conditions for a
group practice under this section). For purposes of this subpart, a
single legal entity does not include informal affiliations of
physicians formed substantially to share profits from referrals, or
separate group practices under common ownership or control through a
physician practice management company, hospital, health system, or
other entity or organization. A group practice that is otherwise a
single legal entity may itself own subsidiary entities. A group
practice operating in more than one State will be considered to be a
single legal entity notwithstanding that it is composed of multiple
legal entities, provided that--
(1) The States in which the group practice is operating are
contiguous (although each State need not be contiguous to every other
State);
(2) The legal entities are absolutely identical as to ownership,
governance, and operation; and
(3) Organization of the group practice into multiple entities is
necessary to comply with jurisdictional licensing laws of the States in
which the group practice operates.
(b) Physicians. The group practice must have at least two
physicians who are members of the group (whether employees or direct or
indirect owners), as defined in Sec. 411.351.
(c) Range of care. Each physician who is a member of the group, as
defined in Sec. 411.351, must furnish substantially the full range of
patient care services that the physician routinely furnishes, including
medical care, consultation, diagnosis, and treatment, through the joint
use of shared office space, facilities, equipment, and personnel.
[[Page 16132]]
(d) Services furnished by group practice members. (1) Except as
otherwise provided in paragraphs (d)(3), (d)(4), (d)(5), and (d)(6) of
this section, substantially all of the patient care services of the
physicians who are members of the group (that is, at least 75 percent
of the total patient care services of the group practice members) must
be furnished through the group and billed under a billing number
assigned to the group, and the amounts received must be treated as
receipts of the group. ``Patient care services'' must be measured by
one of the following:
(i) The total time each member spends on patient care services
documented by any reasonable means (including, but not limited to, time
cards, appointment schedules, or personal diaries). (For example, if a
physician practices 40 hours a week and spends 30 hours a week on
patient care services for a group practice, the physician has spent 75
percent of his or her time providing patient care services for the
group.)
(ii) Any alternative measure that is reasonable, fixed in advance
of the performance of the services being measured, uniformly applied
over time, verifiable, and documented.
(2) The data used to calculate compliance with this ``substantially
all test'' and related supportive documentation must be made available
to the Secretary upon request.
(3) The ``substantially all test'' set forth in paragraph (d)(1) of
this section does not apply to any group practice that is located
solely in an HPSA, as defined in Sec. 411.351.
(4) For a group practice located outside of an HPSA (as defined in
Sec. 411.351), any time spent by a group practice member providing
services in an HPSA should not be used to calculate whether the group
practice has met the ``substantially all test,'' regardless of whether
the member's time in the HPSA is spent in a group practice, clinic, or
office setting.
(5) During the ``start up'' period (not to exceed 12 months) that
begins on the date of the initial formation of a new group practice, a
group practice must make a reasonable, good faith effort to ensure that
the group practice complies with the ``substantially all'' test
requirement set forth in paragraph (d)(1) of this section as soon as
practicable, but no later than 12 months from the date of the initial
formation of the group practice. This paragraph (d)(5) does not apply
when an existing group practice admits a new member or reorganizes.
(6)(i) If the addition to an existing group practice of a new
member who would be considered to have relocated his or her practice
under Sec. 411.457(e)(2) would result in the existing group practice
not meeting the ``substantially all'' test set forth in paragraph
(d)(1) of this section, the group practice will have 12 months
following the addition of the new member to come back into full
compliance, provided that--
(A) For the 12-month period the group practice is fully compliant
with the ``substantially all'' test if the new member is not counted as
a member of the group for purposes of Sec. 411.352; and
(B) The new member's employment with, or ownership interest in, the
group practice is documented in writing no later than the beginning of
his or her new employment, ownership, or investment.
(ii) This paragraph (d)(6) does not apply when an existing group
practice reorganizes or admits a new member who is not relocating his
or her practice.
(e) Distribution of expenses and income. The overhead expenses of,
and income from, the practice must be distributed according to methods
that are determined before the receipt of payment for the services
giving rise to the overhead expense or producing the income. Nothing in
this section prevents a group practice from adjusting its compensation
methodology prospectively, subject to restrictions on the distribution
of revenue from DHS under Sec. 411.352(i).
(f) Unified business. (1) The group practice must be a unified
business having at least the following features:
(i) Centralized decision-making by a body representative of the
group practice that maintains effective control over the group's assets
and liabilities (including, but not limited to, budgets, compensation,
and salaries); and
(ii) Consolidated billing, accounting, and financial reporting.
(2) Location and specialty-based compensation practices are
permitted with respect to revenues derived from services that are not
DHS and may be permitted with respect to revenues derived from DHS
under Sec. 411.352(i).
(g) Volume or value of referrals. No physician who is a member of
the group practice directly or indirectly receives compensation based
on the volume or value of referrals by the physician, except as
provided in Sec. 411.352(i).
(h) Physician-patient encounters. Members of the group must
personally conduct no less than 75 percent of the physician-patient
encounters of the group practice.
(i) Special rule for productivity bonuses and profit shares. (1) A
physician in a group practice may be paid a share of overall profits of
the group, or a productivity bonus based on services that he or she has
personally performed (including services ``incident to'' those
personally performed services as defined in Sec. 411.351), provided
that the share or bonus is not determined in any manner that is
directly related to the volume or value of referrals of DHS by the
physician.
(2) Overall profits means the group's entire profits derived from
DHS payable by Medicare or Medicaid or the profits derived from DHS
payable by Medicare or Medicaid of any component of the group practice
that consists of at least five physicians. Overall profits should be
divided in a reasonable and verifiable manner that is not directly
related to the volume or value of the physician's referrals of DHS. The
share of overall profits will be deemed not to relate directly to the
volume or value of referrals if one of the following conditions is met:
(i) The group's profits are divided per capita (for example, per
member of the group or per physician in the group).
(ii) Revenues derived from DHS are distributed based on the
distribution of the group practice's revenues attributed to services
that are not DHS payable by any Federal health care program or private
payer.
(iii) Revenues derived from DHS constitute less than 5 percent of
the group practice's total revenues, and the allocated portion of those
revenues to each physician in the group practice constitutes 5 percent
or less of his or her total compensation from the group.
(3) A productivity bonus should be calculated in a reasonable and
verifiable manner that is not directly related to the volume or value
of the physician's referrals of DHS. A productivity bonus will be
deemed not to relate directly to the volume or value of referrals of
DHS if one of the following conditions is met:
(i) The bonus is based on the physician's total patient encounters
or relative value units (RVUs). (The methodology for establishing RVUs
is set forth in Sec. 414.22 of this chapter.)
(ii) The bonus is based on the allocation of the physician's
compensation attributable to services that are not DHS payable by any
Federal health care program or private payer.
(iii) Revenues derived from DHS are less than 5 percent of the
group practice's total revenues, and the allocated portion of those
revenues to each physician in the group practice constitutes 5 percent
or less of his or her total compensation from the group practice.
(4) Supporting documentation verifying the method used to calculate
the profit share or productivity bonus under paragraphs (i)(2) and
(i)(3) of this section, and the resulting amount of
[[Page 16133]]
compensation, must be made available to the Secretary upon request.
Sec. 411.353 Prohibition on certain referrals by physicians and
limitations on billing.
(a) Prohibition on referrals. Except as provided in this subpart, a
physician who has a direct or indirect financial relationship with an
entity, or who has an immediate family member who has a direct or
indirect financial relationship with the entity, may not make a
referral to that entity for the furnishing of DHS for which payment
otherwise may be made under Medicare. A physician's prohibited
financial relationship with an entity that furnishes DHS is not imputed
to his or her group practice or its members or its staff; however, a
referral made by a physician's group practice, its members, or its
staff may be imputed to the physician, if the physician directs the
group practice, its members, or its staff to make the referral or if
the physician controls referrals made by his or her group practice, its
members, or its staff.
(b) Limitations on billing. An entity that furnishes DHS pursuant
to a referral that is prohibited by paragraph (a) of this section may
not present or cause to be presented a claim or bill to the Medicare
program or to any individual, third party payer, or other entity for
the DHS performed pursuant to the prohibited referral.
(c) Denial of payment. Except as provided in paragraph (e) of this
section, no Medicare payment may be made for a designated health
service that is furnished pursuant to a prohibited referral.
(d) Refunds. An entity that collects payment for a designated
health service that was performed under a prohibited referral must
refund all collected amounts on a timely basis, as defined in Sec.
1003.101 of this title.
(e) Exception for certain entities. Payment may be made to an
entity that submits a claim for a designated health service if--
(1) The entity did not have actual knowledge of, and did not act in
reckless disregard or deliberate ignorance of, the identity of the
physician who made the referral of the designated health service to the
entity; and
(2) The claim otherwise complies with all applicable Federal and
State laws, rules, and regulations.
(f) Exception for certain arrangements involving temporary
noncompliance. (1) Except as provided in paragraphs (f)(2), (f)(3), and
(f)(4) of this section, an entity may submit a claim or bill and
payment may be made to an entity that submits a claim or bill for a
designated health service if--
(i) The financial relationship between the entity and the referring
physician fully complied with an applicable exception under Sec.
411.355, Sec. 411.356, or Sec. 411.357 for at least 180 consecutive
calendar days immediately preceding the date on which the financial
relationship became noncompliant with the exception;
(ii) The financial relationship has fallen out of compliance with
the exception for reasons beyond the control of the entity, and the
entity promptly takes steps to rectify the noncompliance; and
(iii) The financial relationship does not violate the anti-kickback
statute (section 1128B(b) of the Act), and the claim or bill otherwise
complies with all applicable Federal and State laws, rules, and
regulations.
(2) Paragraph (f)(1) of this section applies only to DHS furnished
during the period of time it takes the entity to rectify the
noncompliance, which must not exceed 90 consecutive calendar days
following the date on which the financial relationship became
noncompliant with an exception.
(3) This paragraph (f) may only be used by an entity once every 3
years with respect to the same referring physician.
(4) This paragraph (f) does not apply if the exception with which
the financial relationship previously complied was Sec. 411.357(k) or
(m).
Sec. 411.354 Financial relationship, compensation, and ownership or
investment interest.
(a) Financial relationships. (1) Financial relationship means--
(i) A direct or indirect ownership or investment interest (as
defined in paragraph (b) of this section) in any entity that furnishes
DHS; or
(ii) A direct or indirect compensation arrangement (as defined in
paragraph (c) of this section) with an entity that furnishes DHS.
(2) A direct financial relationship exists if remuneration passes
between the referring physician (or a member of his or her immediate
family) and the entity furnishing DHS without any intervening persons
or entities. (3) An indirect financial relationship exists under the
conditions described in paragraphs (b)(5) and (c)(2) of this section.
(b) Ownership or investment interest. An ownership or investment
interest may be through equity, debt, or other means, and includes an
interest in an entity that holds an ownership or investment interest in
any entity that furnishes DHS.
(1) An ownership or investment interest includes, but is not
limited to, stock, stock options other than those described in Sec.
411.354(b)(3)(ii), partnership shares, limited liability company
memberships, as well as loans, bonds, or other financial instruments
that are secured with an entity's property or revenue or a portion of
that property or revenue.
(2) An ownership or investment interest in a subsidiary company is
neither an ownership or investment interest in the parent company, nor
in any other subsidiary of the parent, unless the subsidiary company
itself has an ownership or investment interest in the parent or such
other subsidiaries. It may, however, be part of an indirect financial
relationship.
(3) Ownership and investment interests do not include, among other
things--
(i) An interest in a retirement plan;
(ii) Stock options and convertible securities received as
compensation until the stock options are exercised or the convertible
securities are converted to equity (before this time the stock options
or convertible securities are compensation arrangements as defined in
paragraph (c) of this section);
(iii) An unsecured loan subordinated to a credit facility (which is
a compensation arrangement as defined in paragraph (c) of this
section); or
(iv) An ``under arrangements'' contract between a hospital and an
entity owned by one or more physicians (or a group of physicians)
providing DHS ``under arrangements'' with the hospital (such a contract
is a compensation arrangement as defined in paragraph (c) of this
section).
(4) An ownership or investment interest that meets an exception set
forth in Sec. 411.355 or Sec. 411.356 need not also meet an exception
for compensation arrangements set forth in Sec. 411.357 with respect
to profit distributions, dividends, or interest payments on secured
obligations.
(5) Indirect ownership or investment interest. (i) An indirect
ownership or investment interest exists if--
(A) Between the referring physician (or immediate family member)
and the entity furnishing DHS there exists an unbroken chain of any
number (but no fewer than one) of persons or entities having ownership
or investment interests; and
(B) The entity furnishing DHS has actual knowledge of, or acts in
reckless disregard or deliberate ignorance of, the fact that the
referring physician (or immediate family member) has some ownership or
investment interest (through any number of intermediary
[[Page 16134]]
ownership or investment interests) in the entity furnishing the DHS.
(ii) An indirect ownership or investment interest exists even
though the entity furnishing DHS does not know, or act in reckless
disregard or deliberate ignorance of, the precise composition of the
unbroken chain or the specific terms of the ownership or investment
interests that form the links in the chain.
(iii) Notwithstanding anything in this paragraph (b)(5), common
ownership or investment in an entity does not, in and of itself,
establish an indirect ownership or investment interest by one common
owner or investor in another common owner or investor.
(iv) An indirect ownership or investment interest requires an
unbroken chain of ownership interests between the referring physician
and the entity furnishing DHS such that the referring physician has an
indirect ownership or investment interest in the entity furnishing DHS.
(c) Compensation arrangement. A compensation arrangement is any
arrangement involving remuneration, direct or indirect, between a
physician (or a member of a physician's immediate family) and an
entity. An ``under arrangements'' contract between a hospital and an
entity providing DHS ``under arrangements'' to the hospital creates a
compensation arrangement for purposes of these regulations.
(1) A compensation arrangement does not include the portion of any
business arrangement that consists solely of the remuneration described
in section 1877(h)(1)(C) of the Act and in paragraphs (1) through (3)
of the definition of the term ``remuneration'' in Sec. 411.351.
(However, any other portion of the arrangement may still constitute a
compensation arrangement.)
(2) Indirect compensation arrangement. An indirect compensation
arrangement exists if--
(i) Between the referring physician (or a member of his or her
immediate family) and the entity furnishing DHS there exists an
unbroken chain of any number (but not fewer than one) of persons or
entities that have financial relationships (as defined in paragraph (a)
of this section) between them (that is, each link in the chain has
either an ownership or investment interest or a compensation
arrangement with the preceding link);
(ii) The referring physician (or immediate family member) receives
aggregate compensation from the person or entity in the chain with
which the physician (or immediate family member) has a direct financial
relationship that varies with, or otherwise reflects, the volume or
value of referrals or other business generated by the referring
physician for the entity furnishing the DHS, regardless of whether the
individual unit of compensation satisfies the special rules on unit-
based compensation under Sec. 411.354(d)(2) or (d)(3). If the
financial relationship between the physician (or immediate family
member) and the person or entity in the chain with which the referring
physician (or immediate family member) has a direct financial
relationship is an ownership or investment interest, the determination
whether the aggregate compensation varies with, or otherwise reflects,
the volume or value of referrals or other business generated by the
referring physician for the entity furnishing the DHS will be measured
by the nonownership or noninvestment interest closest to the referring
physician (or immediate family member). (For example, if a referring
physician has an ownership interest in company A, which owns company B,
which has a compensation arrangement with company C, which has a
compensation arrangement with entity D that furnishes DHS, we would
look to the aggregate compensation between company B and company C for
purposes of this paragraph (c)(2)(ii)); and
(iii) The entity furnishing DHS has actual knowledge of, or acts in
reckless disregard or deliberate ignorance of, the fact that the
referring physician (or immediate family member) receives aggregate
compensation that varies with, or otherwise reflects, the volume or
value of referrals or other business generated by the referring
physician for the entity furnishing the DHS.
(d) Special rules on compensation. The following special rules
apply only to compensation under section 1877 of the Act and subpart J
of this part.
(1) Compensation will be considered ``set in advance'' if the
aggregate compensation, a time-based or per unit of service based
(whether per-use or per-service) amount, or a specific formula for
calculating the compensation is set in an agreement between the parties
before the furnishing of the items or services for which the
compensation is to be paid. The formula for determining the
compensation must be set forth in sufficient detail so that it can be
objectively verified, and the formula may not be changed or modified
during the course of the agreement in any manner that reflects the
volume or value of referrals or other business generated by the
referring physician.
(2) Unit-based compensation (including time-based or per unit of
service based compensation) will be deemed not to take into account
``the volume or value of referrals'' if the compensation is fair market
value for services or items actually provided and does not vary during
the course of the compensation agreement in any manner that takes into
account referrals of DHS.
(3) Unit-based compensation (including time-based or per unit of
service based compensation) will be deemed to not take into account
``other business generated between the parties'' so long as the
compensation is fair market value for items and services actually
provided and does not vary during the course of the compensation
arrangement in any manner that takes into account referrals or other
business generated by the referring physician, including private pay
health care business (except for services personally performed by the
referring physician, which will not be considered ``other business
generated'' by the referring physician).
(4) A physician's compensation from a bona fide employer or under a
managed care or other contract may be conditioned on the physician's
referrals to a particular provider, practitioner, or supplier, so long
as the compensation arrangement--
(i) Is set in advance for the term of the agreement;
(ii) Is consistent with fair market value for services performed
(that is, the payment does not take into account the volume or value of
anticipated or required referrals);
(iii) Otherwise complies with an applicable exception under Sec.
411.355 or Sec. 411.357;
(iv) Complies with the following conditions:
(A) The requirement to make referrals to a particular provider,
practitioner, or supplier is set forth in a written agreement signed by
the parties;
(B) The requirement to make referrals to a particular provider,
practitioner, or supplier does not apply if the patient expresses a
preference for a different provider, practitioner, or supplier; the
patient's insurer determines the provider, practitioner, or supplier;
or the referral is not in the patient's best medical interests in the
physician's judgment; and
(v) The required referrals relate solely to the physician's
services covered by the scope of the employment or the contract and the
referral requirement is reasonably necessary to effectuate the
legitimate business purposes of the compensation relationship. In no
event may the physician be required to make referrals that relate to
services that are not provided by the physician under the scope of his
or her employment or
[[Page 16135]]
contract. Sec. 411.355 General exceptions to the referral prohibition
related to both ownership/investment and compensation.
The prohibition on referrals set forth in Sec. 411.353 does not
apply to the following types of services:
(a) Physician services. (1) Physician services as defined in Sec.
410.20(a) of this chapter that are furnished--
(i) Personally by another physician who is a member of the
referring physician's group practice or is a physician in the same
group practice (as defined in Sec. 411.351) as the referring
physician; or
(ii) Under the supervision of another physician who is a member of
the referring physician's group practice or is a physician in the same
group practice (as defined at Sec. 411.351) as the referring
physician, provided that the supervision complies with all other
applicable Medicare payment and coverage rules for the physician
services.
(2) For purposes of paragraph (a) of this section, sbull; physician
services'' include only those ``incident to'' services (as defined in
Sec. 411.351) that are physician services under Sec. 410.20(a) of
this chapter.
(3) All other ``incident to'' services (for example, diagnostic
tests, physical therapy) are outside the scope of paragraph (a) of this
section.
(b) In-office ancillary services. Services (including certain items
of durable medical equipment (DME), as defined in paragraph (b)(4) of
this section, and infusion pumps that are DME (including external
ambulatory infusion pumps), but excluding all other DME and parenteral
and enteral nutrients, equipment, and supplies (such as infusion pumps
used for PEN)), that meet the following conditions:
(1) They are furnished personally by one of the following
individuals:
(i) The referring physician.
(ii) A physician who is a member of the same group practice as the
referring physician.
(iii) An individual who is supervised by the referring physician
or, if the referring physician is in a group practice, by another
physician in the group practice, provided the supervision complies with
all other applicable Medicare payment and coverage rules for the
services.
(2) They are furnished in one of the following locations:
(i) The same building (as defined in Sec. 411.351), but not
necessarily in the same space or part of the building, in which all of
the conditions of paragraph (b)(2)(i)(A), (b)(2)(i)(B), or (b)(2)(i)(C)
of this section are satisfied:
(A)(1) The referring physician or his or her group practice (if
any) has an office that is normally open to the physician's or group's
patients for medical services at least 35 hours per week; and
(2) The referring physician or one or more members of the referring
physician's group practice regularly practices medicine and furnishes
physician services to patients at least 30 hours per week. The 30 hours
must include some physician services that are unrelated to the
furnishing of DHS payable by Medicare, any other Federal health care
payer, or a private payer, even though the physician services may lead
to the ordering of DHS; or
(B)(1) The patient receiving the DHS usually receives physician
services from the referring physician or members of the referring
physician's group practice (if any);
(2) The referring physician or the referring physician's group
practice owns or rents an office that is normally open to the
physician's or group's patients for medical services at least 8 hours
per week; and
(3) The referring physician regularly practices medicine and
furnishes physician services to patients at least 6 hours per week. The
6 hours must include some physician services that are unrelated to the
furnishing of DHS payable by Medicare, any other Federal health care
payer, or a private payer, even though the physician services may lead
to the ordering of DHS; or
(C)(1) The referring physician is present and orders the DHS during
a patient visit on the premises as set forth in paragraph
(b)(2)(i)(C)(2) of this section or the referring physician or a member
of the referring physician's group practice (if any) is present while
the DHS is furnished during occupancy of the premises as set forth in
paragraph (b)(2)(i)(C)(2) of this section;
(2) The referring physician or the referring physician's group
practice owns or rents an office that is normally open to the
physician's or group's patients for medical services at least 8 hours
per week; and
(3) The referring physician or one or more members of the referring
physician's group practice regularly practices medicine and furnishes
physician services to patients at least 6 hours per week. The 6 hours
must include some physician services that are unrelated to the
furnishing of DHS payable by Medicare, any other Federal health care
payer, or a private payer, even though the physician services may lead
to the ordering of DHS.
(ii) A centralized building (as defined in Sec. 411.351) that is
used by the group practice for the provision of some or all of the
group practice's clinical laboratory services.
(iii) A centralized building (as defined in Sec. 411.351) that is
used by the group practice for the provision of some or all of the
group practice's DHS (other than clinical laboratory services).
(3) They are billed by one of the following:
(i) The physician performing or supervising the service.
(ii) The group practice of which the performing or supervising
physician is a member under a billing number assigned to the group
practice.
(iii) The group practice if the supervising physician is a
``physician in the group practice'' (as defined at Sec. 411.351) under
a billing number assigned to the group practice.
(iv) An entity that is wholly owned by the performing or
supervising physician or by that physician's group practice under the
entity's own billing number or under a billing number assigned to the
physician or group practice.
(v) An independent third party billing company acting as an agent
of the physician, group practice, or entity specified in paragraphs
(b)(3)(i) through (b)(3)(iv) of this section under a billing number
assigned to the physician, group practice, or entity, provided the
billing arrangement meets the requirements of Sec. 424.80(b)(6) of
this chapter. For purposes of this paragraph (b)(3), a group practice
may have, and bill under, more than one Medicare billing number,
subject to any applicable Medicare program restrictions.
(4) For purposes of paragraph (b) of this section, DME covered by
the in-office ancillary services exception means canes, crutches,
walkers and folding manual wheelchairs, and blood glucose monitors,
that meet the following conditions:
(i) The item is one that a patient requires for the purposes of
ambulating, uses in order to depart from the physician's office, or is
a blood glucose monitor (including one starter set of test strips and
lancets, consisting of no more than 100 of each). A blood glucose
monitor may be furnished only by a physician or employee of a physician
or group practice that also furnishes outpatient diabetes self-
management training to the patient.
(ii) The item is furnished in a building that meets the ``same
building'' requirements in the in-office ancillary services exception
as part of the treatment for the specific condition for which the
patient-physician encounter occurred.
(iii) The item is furnished personally by the physician who ordered
the DME,
[[Page 16136]]
by another physician in the group practice, or by an employee of the
physician or the group practice.
(iv) A physician or group practice that furnishes the DME meets all
DME supplier standards located in Sec. 424.57(c) of this chapter.
(v) The arrangement does not violate the anti-kickback statute
(section 1128B(b) of the Act), or any Federal or State law or
regulation governing billing or claims submission.
(vi) All other requirements of the in-office ancillary services
exception in paragraph (b) of this section are met.
(5) A designated health service is ``furnished'' for purposes of
paragraph (b) of this section in the location where the service is
actually performed upon a patient or where an item is dispensed to a
patient in a manner that is sufficient to meet the applicable Medicare
payment and coverage rules.
(6) Special rule for home care physicians. In the case of a
referring physician whose principal medical practice consists of
treating patients in their private homes, the ``same building''
requirements of paragraph (b)(2)(i) of this section are met if the
referring physician (or a qualified person accompanying the physician,
such as a nurse or technician) provides the DHS contemporaneously with
a physician service that is not a designated health service provided by
the referring physician to the patient in the patient's private home.
For purposes of paragraph (b)(5) of this section only, a private home
does not include a nursing, long-term care, or other facility or
institution, except that a patient may have a private home in an
assisted living or independent living facility.
(c) Services furnished by an organization (or its contractors or
subcontractors) to enrollees. Services furnished by an organization (or
its contractors or subcontractors) to enrollees of one of the following
prepaid health plans (not including services provided to enrollees in
any other plan or line of business offered or administered by the same
organization):
(1) An HMO or a CMP in accordance with a contract with CMS under
section 1876 of the Act and part 417, subparts J through M of this
chapter.
(2) A health care prepayment plan in accordance with an agreement
with CMS under section 1833(a)(1)(A) of the Act and part 417, subpart U
of this chapter.
(3) An organization that is receiving payments on a prepaid basis
for Medicare enrollees through a demonstration project under section
402(a) of the Social Security Amendments of 1967 (42 U.S.C. 1395b-1) or
under section 222(a) of the Social Security Amendments of 1972 (42
U.S.C. 1395b-1 note).
(4) A qualified HMO (within the meaning of section 1310(d) of the
Public Health Service Act).
(5) A coordinated care plan (within the meaning of section
1851(a)(2)(A) of the Act) offered by an organization in accordance with
a contract with CMS under section 1857 of the Act and part 422 of this
chapter.
(6) A managed care organization (MCO) contracting with a State
under section 1903(m) of the Act.
(7) A prepaid inpatient health plan (PIHP) or prepaid ambulance
health plan (PAHP) contracting with a State under part 438 of this
chapter.
(8) A health insuring organization (HIO) contracting with a State
under part 438, subpart D of this chapter.
(9) An entity operating under a demonstration project under
sections 1115(a), 1915(a), 1915(b), or 1932(a) of the Act.
(d) [Reserved]
(e) Academic medical centers. (1) Services provided by an academic
medical center if all of the following conditions are met:
(i) The referring physician--
(A) Is a bona fide employee of a component of the academic medical
center on a full-time or substantial part-time basis. (A ``component''
of an academic medical center means an affiliated medical school,
faculty practice plan, hospital, teaching facility, institution of
higher education, departmental professional corporation, or nonprofit
support organization whose primary purpose is supporting the teaching
mission of the academic medical center.) The components need not be
separate legal entities;
(B) Is licensed to practice medicine in the State(s) in which he or
she practices medicine;
(C) Has a bona fide faculty appointment at the affiliated medical
school or at one or more of the educational programs at the accredited
academic hospital; and
(D) Provides either substantial academic services or substantial
clinical teaching services (or a combination of academic services and
clinical teaching services) for which the faculty member receives
compensation as part of his or her employment relationship with the
academic medical center. Parties should use a reasonable and consistent
method for calculating a physician's academic services and clinical
teaching services. A physician will be deemed to meet this requirement
if he or she spends at least 20 percent of his or her professional time
or 8 hours per week providing academic services or clinical teaching
services (or a combination of academic services or clinical teaching
services). A physician who does not spend at least 20 percent of his or
her professional time or 8 hours per week providing academic services
or clinical teaching services (or a combination of academic services or
clinical teaching services) is not precluded from qualifying under this
paragraph (e)(1)(i)(D).
(ii) The total compensation paid by all academic medical center
components to the referring physician is set in advance and, in the
aggregate, does not exceed fair market value for the services provided,
and is not determined in a manner that takes into account the volume or
value of any referrals or other business generated by the referring
physician within the academic medical center.
(iii) The academic medical center must meet all of the following
conditions:
(A) All transfers of money between components of the academic
medical center must directly or indirectly support the missions of
teaching, indigent care, research, or community service.
(B) The relationship of the components of the academic medical
center must be set forth in written agreement(s) or other written
document(s) that have been adopted by the governing body of each
component. If the academic medical center is one legal entity, this
requirement will be satisfied if transfers of funds between components
of the academic medical center are reflected in the routine financial
reports covering the components.
(C) All money paid to a referring physician for research must be
used solely to support bona fide research or teaching and must be
consistent with the terms and conditions of the grant.
(iv) The referring physician's compensation arrangement does not
violate the anti-kickback statute (section 1128B(b) of the Act), or any
Federal or State law or regulation governing billing or claims
submission.
(2) The ``academic medical center'' for purposes of this section
consists of--
(i) An accredited medical school (including a university, when
appropriate) or an accredited academic hospital (as defined at Sec.
411.355(e)(3));
(ii) One or more faculty practice plans affiliated with the medical
school, the affiliated hospital(s), or the accredited academic
hospital; and
(iii) One or more affiliated hospital(s) in which a majority of the
physicians on the medical staff consists of physicians who are faculty
members and a majority
[[Page 16137]]
of all hospital admissions are made by physicians who are faculty
members. The hospital for purposes of this paragraph (e)(2)(iii) may be
the same hospital that satisfies the requirement of paragraph (e)(2)(i)
of this section. For purposes of this provision, a faculty member is a
physician who is either on the faculty of the affiliated medical school
or on the faculty of one or more of the educational programs at the
accredited academic hospital. In meeting this paragraph (e)(2)(iii),
faculty from any affiliated medical school or accredited academic
hospital education program may be aggregated, and residents and non-
physician professionals need not be counted. Any faculty member may be
counted, including courtesy and volunteer faculty.
(3) An accredited academic hospital for purposes of this section
means a hospital or a health system that sponsors four or more approved
medical education programs.
(f) Implants furnished by an ASC. Implants furnished by an ASC,
including, but not limited to, cochlear implants, intraocular lenses,
and other implanted prosthetics, implanted prosthetic devices, and
implanted DME that meet the following conditions:
(1) The implant is implanted by the referring physician or a member
of the referring physician's group practice in a Medicare-certified ASC
(under part 416 of this chapter) with which the referring physician has
a financial relationship.
(2) The implant is implanted in the patient during a surgical
procedure paid by Medicare to the ASC as an ASC procedure under Sec.
416.65.
(3) The arrangement for the furnishing of the implant does not
violate the anti-kickback statute (section 1128B(b) of the Act).
(4) All billing and claims submission for the implants does not
violate any Federal or State law or regulation governing billing or
claims submission.
(5) The exception set forth in this paragraph (f) does not apply to
any financial relationships between the referring physician and any
entity other than the ASC in which the implant is furnished to, and
implanted in, the patient.
(g) EPO and other dialysis-related drugs furnished in or by an ESRD
facility. EPO and other dialysis-related drugs that meet the following
conditions:
(1) The EPO and other dialysis-related drugs are furnished in or by
an ESRD facility. For purposes of this paragraph (g): ``EPO and other
dialysis-related drugs'' means certain outpatient prescription drugs
that are required for the efficacy of dialysis and identified as
eligible for this exception on the List of CPT/HCPCS Codes; and
``furnished'' means that the EPO or dialysis-related drugs are
administered to a patient in the ESRD facility, or, in the case of EPO
or Aranesp (or equivalent drug identified on the List of CPT/HCPCS
Codes) only, are dispensed by the ESRD facility for use at home.
(2) The arrangement for the furnishing of the EPO and other
dialysis-related drugs does not violate the anti-kickback statute
(section 1128B(b) of the Act).
(3) All billing and claims submission for the EPO and other
dialysis-related drugs does not violate any Federal or State law or
regulation governing billing or claims submission.
(4) The exception set forth in this paragraph (g) does not apply to
any financial relationship between the referring physician and any
entity other than the ESRD facility that furnishes the EPO and other
dialysis-related drugs to the patient.
(h) Preventive screening tests, immunizations, and vaccines.
Preventive screening tests, immunizations, and vaccines that meet the
following conditions:
(1) The preventive screening tests, immunizations, and vaccines are
subject to CMS-mandated frequency limits.
(2) The arrangement for the provision of the preventive screening
tests, immunizations, and vaccines does not violate the anti-kickback
statute (section 1128B(b) of the Act).
(3) All billing and claims submission for the preventive screening
tests, immunizations, and vaccines does not violate any Federal or
State law or regulation governing billing or claims submission.
(4) The preventive screening tests, immunizations, and vaccines
must be covered by Medicare and must be listed as eligible for this
exception on the List of CPT/HCPCS Codes.
(i) Eyeglasses and contact lenses following cataract surgery.
Eyeglasses and contact lenses that are covered by Medicare when
furnished to patients following cataract surgery that meet the
following conditions:
(1) The eyeglasses or contact lenses are provided in accordance
with the coverage and payment provisions set forth in Sec.
410.36(a)(2)(ii) and Sec. 414.228 of this chapter, respectively.
(2) The arrangement for the furnishing of the eyeglasses or contact
lenses does not violate the anti-kickback statute (section 1128B(b) of
the Act).
(3) All billing and claims submission for the eyeglasses or contact
lenses does not violate any Federal or State law or regulation
governing billing or claims submission.
(j) Intra-family rural referrals. (1) Services provided pursuant to
a referral from a referring physician to his or her immediate family
member or to an entity furnishing DHS with which the immediate family
member has a financial relationship, if all of the following conditions
are met:
(i) The patient who is referred resides in a rural area as defined
in Sec. 411.356(c)(1);
(ii) Except as provided in paragraph (j)(1)(iii) of this section,
no other person or entity is available to furnish the services in a
timely manner in light of the patient's condition within 25 miles of
the patient's residence;
(iii) In the case of services furnished to patients where they
reside (for example, home health services or in-home DME), no other
person or entity is available to furnish the services in a timely
manner in light of the patient's condition; and
(iv) The financial relationship does not violate the anti-kickback
statute (section 1128B(b) of the Act), or any Federal or State law or
regulation governing billing or claims submission;
(2) The referring physician or the immediate family member must
make reasonable inquiries as to the availability of other persons or
entities to furnish the DHS. However, neither the referring physician
nor the immediate family member has any obligation to inquire as to the
availability of persons or entities located farther than 25 miles from
the patient's residence.
Sec. 411.356 Exceptions to the referral prohibition related to
ownership or investment interests.
For purposes of Sec. 411.353, the following ownership or
investment interests do not constitute a financial relationship:
(a) Publicly-traded securities. Ownership of investment securities
(including shares or bonds, debentures, notes, or other debt
instruments) that at the time the DHS referral was made could be
purchased on the open market and that meet the requirements of
paragraphs (a)(1) and (a)(2) of this section.
(1) They are either--
(i) Listed for trading on the New York Stock Exchange, the American
Stock Exchange, or any regional exchange in which quotations are
published on a daily basis, or foreign securities listed on a
recognized foreign, national, or regional exchange in which quotations
are published on a daily basis; or
(ii) Traded under an automated interdealer quotation system
operated
[[Page 16138]]
by the National Association of Securities Dealers.
(2) They are in a corporation that had stockholder equity exceeding
$75 million at the end of the corporation's most recent fiscal year or
on average during the previous 3 fiscal years. ``Stockholder equity''
is the difference in value between a corporation's total assets and
total liabilities.
(b) Mutual funds. Ownership of shares in a regulated investment
company as defined in section 851(a) of the Internal Revenue Code of
1986, if the company had, at the end of its most recent fiscal year, or
on average during the previous 3 fiscal years, total assets exceeding
$75 million.
(c) Specific providers. Ownership or investment interest in the
following entities, for purposes of the services specified:
(1) A rural provider, in the case of DHS furnished in a rural area
by the provider. A ``rural provider'' is an entity that furnishes
substantially all (not less than 75 percent) of the DHS that it
furnishes to residents of a rural area and, for the 18-month period
beginning on December 8, 2003 (or such other period as Congress may
specify), is not a specialty hospital. A rural area for purposes of
this paragraph (c)(1) is an area that is not an urban area as defined
in Sec. 412.62(f)(1)(ii) of this chapter.
(2) A hospital that is located in Puerto Rico, in the case of DHS
furnished by such a hospital.
(3) A hospital that is located outside of Puerto Rico, in the case
of DHS furnished by such a hospital, if--
(i) the referring physician is authorized to perform services at
the hospital;
(ii) effective for the 18-month period beginning on December 8,
2003 (or such other period as Congress may specify), the hospital is
not a specialty hospital; and
(iii) the ownership or investment interest is in the entire
hospital and not merely in a distinct part or department of the
hospital.
Sec. 411.357 Exceptions to the referral prohibition related to
compensation arrangements.
For purposes of Sec. 411.353, the following compensation
arrangements do not constitute a financial relationship:
(a) Rental of office space. Payments for the use of office space
made by a lessee to a lessor if there is a rental or lease agreement
that meets the following requirements:
(1) The agreement is set out in writing, is signed by the parties,
and specifies the premises it covers.
(2) The term of the agreement is at least 1 year. To meet this
requirement, if the agreement is terminated during the term with or
without cause, the parties may not enter into a new agreement during
the first year of the original term of the agreement.
(3) The space rented or leased does not exceed that which is
reasonable and necessary for the legitimate business purposes of the
lease or rental and is used exclusively by the lessee when being used
by the lessee (and is not shared with or used by the lessor or any
person or entity related to the lessor), except that the lessee may
make payments for the use of space consisting of common areas if the
payments do not exceed the lessee's pro rata share of expenses for the
space based upon the ratio of the space used exclusively by the lessee
to the total amount of space (other than common areas) occupied by all
persons using the common areas.
(4) The rental charges over the term of the agreement are set in
advance and are consistent with fair market value.
(5) The rental charges over the term of the agreement are not
determined in a manner that takes into account the volume or value of
any referrals or other business generated between the parties.
(6) The agreement would be commercially reasonable even if no
referrals were made between the lessee and the lessor.
(7) A holdover month-to-month rental for up to 6 months immediately
following an agreement of at least 1 year that met the conditions of
this paragraph (a) will satisfy this paragraph (a), provided the
holdover rental is on the same terms and conditions as the immediately
preceding agreement.
(b) Rental of equipment. Payments made by a lessee to a lessor for
the use of equipment under the following conditions:
(1) A rental or lease agreement is set out in writing, is signed by
the parties, and specifies the equipment it covers.
(2) The equipment rented or leased does not exceed that which is
reasonable and necessary for the legitimate business purposes of the
lease or rental and is used exclusively by the lessee when being used
by the lessee and is not shared with or used by the lessor or any
person or entity related to the lessor.
(3) The agreement provides for a term of rental or lease of at
least 1 year. To meet this requirement, if the agreement is terminated
during the term with or without cause, the parties may not enter into a
new agreement during the first year of the original term of the
agreement.
(4) The rental charges over the term of the agreement are set in
advance, are consistent with fair market value, and are not determined
in a manner that takes into account the volume or value of any
referrals or other business generated between the parties.
(5) The agreement would be commercially reasonable even if no
referrals were made between the parties.
(6) A holdover month-to-month rental for up to 6 months immediately
following an agreement of at least 1 year that met the conditions of
this paragraph (b) will satisfy this paragraph (b), provided the
holdover rental is on the same terms and conditions as the immediately
preceding agreement.
(c) Bona fide employment relationships. Any amount paid by an
employer to a physician (or immediate family member) who has a bona
fide employment relationship with the employer for the provision of
services if the following conditions are met:
(1) The employment is for identifiable services.
(2) The amount of the remuneration under the employment is--
(i) Consistent with the fair market value of the services; and
(ii) Except as provided in paragraph (c)(4) of this section, is not
determined in a manner that takes into account (directly or indirectly)
the volume or value of any referrals by the referring physician.
(3) The remuneration is provided under an agreement that would be
commercially reasonable even if no referrals were made to the employer.
(4) Paragraph (c)(2)(ii) of this section does not prohibit payment
of remuneration in the form of a productivity bonus based on services
performed personally by the physician (or immediate family member of
the physician).
(d) Personal service arrangements. (1) General--Remuneration from
an entity under an arrangement or multiple arrangements to a physician,
an immediate family member of the physician, or to a group practice,
including remuneration for specific physician services furnished to a
nonprofit blood center, if the following conditions are met:
(i) Each arrangement is set out in writing, is signed by the
parties, and specifies the services covered by the arrangement.
(ii) The arrangement(s) covers all of the services to be furnished
by the physician (or an immediate family member of the physician) to
the entity. This requirement will be met if all separate arrangements
between the entity and the physician and the entity
[[Page 16139]]
and any family members incorporate each other by reference or if they
cross-reference a master list of contracts that is maintained and
updated centrally and is available for review by the Secretary upon
request. The master list should be maintained in a manner that
preserves the historical record of contracts. A physician or family
member can ``furnish'' services through employees whom they have hired
for the purpose of performing the services; through a wholly owned
entity; or through locum tenens physicians (as defined in Sec.
411.351, except that the regular physician need not be a member of a
group practice).
(iii) The aggregate services contracted for do not exceed those
that are reasonable and necessary for the legitimate business purposes
of the arrangement(s).
(iv) The term of each arrangement is for at least 1 year. To meet
this requirement, if an arrangement is terminated during the term with
or without cause, the parties may not enter into the same or
substantially the same arrangement during the first year of the
original term of the arrangement.
(v) The compensation to be paid over the term of each arrangement
is set in advance, does not exceed fair market value, and, except in
the case of a physician incentive plan, is not determined in a manner
that takes into account the volume or value of any referrals or other
business generated between the parties.
(vi) The services to be furnished under each arrangement do not
involve the counseling or promotion of a business arrangement or other
activity that violates any State or Federal law.
(2) Physician incentive plan exception. In the case of a physician
incentive plan (as defined in Sec. 411.351) between a physician and an
entity (or downstream subcontractor), the compensation may be
determined in a manner (through a withhold, capitation, bonus, or
otherwise) that takes into account directly or indirectly the volume or
value of any referrals or other business generated between the parties,
if the plan meets the following requirements:
(i) No specific payment is made directly or indirectly under the
plan to a physician or a physician group as an inducement to reduce or
limit medically necessary services furnished with respect to a specific
individual enrolled with the entity.
(ii) Upon request of the Secretary, the entity provides the
Secretary with access to information regarding the plan (including any
downstream subcontractor plans), in order to permit the Secretary to
determine whether the plan is in compliance with paragraph (d)(2) of
this section.
(iii) In the case of a plan that places a physician or a physician
group at substantial financial risk as defined in Sec. 422.208, the
entity (and/or any downstream contractor) complies with the
requirements concerning physician incentive plans set forth at Sec.
422.208 and Sec. 422.210 of this chapter.
(e) Physician recruitment. (1) Remuneration provided by a hospital
to recruit a physician that is paid directly to the physician and that
is intended to induce the physician to relocate his or her medical
practice to the geographic area served by the hospital in order to
become a member of the hospital's medical staff, if all of the
following conditions are met:
(i) The arrangement is set out in writing and signed by both
parties;
(ii) The arrangement is not conditioned on the physician's referral
of patients to the hospital;
(iii) The hospital does not determine (directly or indirectly) the
amount of the remuneration to the physician based on the volume or
value of any actual or anticipated referrals by the physician or other
business generated between the parties; and
(iv) The physician is allowed to establish staff privileges at any
other hospital(s) and to refer business to any other entities (except
as referrals may be restricted under a separate employment or services
contract that complies with Sec. 411.354(d)(4)).
(2) The ``geographic area served by the hospital'' is the area
composed of the lowest number of contiguous zip codes from which the
hospital draws at least 75 percent of its inpatients. A physician will
be considered to have relocated his or her medical practice if--
(i) The physician moves his or her medical practice at least 25
miles; or
(ii) The physician's new medical practice derives at least 75
percent of its revenues from professional services furnished to
patients (including hospital inpatients) not seen or treated by the
physician at his or her prior medical practice site during the
preceding 3 years, measured on an annual basis (fiscal or calendar
year). For the initial ``start up'' year of the recruited physician's
practice, the 75 percent test in the preceding sentence will be
satisfied if there is a reasonable expectation that the recruited
physician's medical practice for the year will derive at least 75
percent of its revenues from professional services furnished to
patients not seen or treated by the physician at his or her prior
medical practice site during the preceding 3 years.
(3) Residents and physicians who have been in practice 1 year or
less will not be subject to the relocation requirement of this
paragraph, except that the recruited resident or physician must
establish his or her medical practice in the geographic area served by
the hospital.
(4) In the case of remuneration provided by a hospital to a
physician either indirectly through payments made to another physician
or physician practice, or directly to a physician who joins a physician
practice, the following additional conditions must be met:
(i) The written agreement in Sec. 411.357(e)(1) is also signed by
the party to whom the payments are directly made;
(ii) Except for actual costs incurred by the physician or physician
practice in recruiting the new physician, the remuneration is passed
directly through to or remains with the recruited physician;
(iii) In the case of an income guarantee made by the hospital to a
recruited physician who joins a physician or physician practice, the
costs allocated by the physician or physician practice to the recruited
physician do not exceed the actual additional incremental costs
attributable to the recruited physician;
(iv) Records of the actual costs and the passed through amounts are
maintained for a period of at least 5 years and made available to the
Secretary upon request;
(v) The remuneration from the hospital under the arrangement is not
to be determined in a manner that takes into account (directly or
indirectly) the volume or value of any actual or anticipated referrals
by the recruited physician or the physician practice (or any physician
affiliated with the physician practice) receiving the direct payments
from the hospital;
(vi) The physician or physician practice may not impose additional
practice restrictions on the recruited physician other than conditions
related to quality of care; and
(vii) The arrangement does not violate the anti-kickback statute
(section 1128B(b) of the Act), or any Federal or State law or
regulation governing billing or claims submission.
(5) This paragraph (e) applies to remuneration provided by a
federally qualified health center in the same manner as it applies to
remuneration provided by a hospital, so long as the arrangement does
not violate the anti-kickback statute (section 1128B(b) of the Act), or
any Federal or State law or
[[Page 16140]]
regulation governing billing or claims submission.
(f) Isolated transactions. Isolated financial transactions, such as
a one-time sale of property or a practice, if all of the following
conditions are met:
(1) The amount of remuneration under the isolated transaction is--
(i) Consistent with the fair market value of the transaction; and
(ii) Not determined in a manner that takes into account (directly
or indirectly) the volume or value of any referrals by the referring
physician or other business generated between the parties.
(2) The remuneration is provided under an agreement that would be
commercially reasonable even if the physician made no referrals.
(3) There are no additional transactions between the parties for 6
months after the isolated transaction, except for transactions that are
specifically excepted under the other provisions in Sec. 411.355
through Sec. 411.357 and except for commercially reasonable post-
closing adjustments that do not take into account (directly or
indirectly) the volume or value of referrals or other business
generated by the referring physician.
(g) Certain arrangements with hospitals. Remuneration provided by a
hospital to a physician if the remuneration does not relate, directly
or indirectly, to the furnishing of DHS. To qualify as ``unrelated,''
remuneration must be wholly unrelated to the furnishing of DHS and must
not in any way take into account the volume or value of a physician's
referrals. Remuneration relates to the furnishing of DHS if it--
(1) Is an item, service, or cost that could be allocated in whole
or in part to Medicare or Medicaid under cost reporting principles;
(2) Is furnished, directly or indirectly, explicitly or implicitly,
in a selective, targeted, preferential, or conditioned manner to
medical staff or other persons in a position to make or influence
referrals; or
(3) Otherwise takes into account the volume or value of referrals
or other business generated by the referring physician.
(h) Group practice arrangements with a hospital. An arrangement
between a hospital and a group practice under which DHS are furnished
by the group but are billed by the hospital if the following conditions
are met:
(1) With respect to services furnished to an inpatient of the
hospital, the arrangement is pursuant to the provision of inpatient
hospital services under section 1861(b)(3) of the Act.
(2) The arrangement began before, and has continued in effect
without interruption since, December 19, 1989.
(3) With respect to the DHS covered under the arrangement, at least
75 percent of these services furnished to patients of the hospital are
furnished by the group under the arrangement.
(4) The arrangement is in accordance with a written agreement that
specifies the services to be furnished by the parties and the
compensation for services furnished under the agreement.
(5) The compensation paid over the term of the agreement is
consistent with fair market value, and the compensation per unit of
service is fixed in advance and is not determined in a manner that
takes into account the volume or value of any referrals or other
business generated between the parties.
(6) The compensation is provided in accordance with an agreement
that would be commercially reasonable even if no referrals were made to
the entity.
(i) Payments by a physician. Payments made by a physician (or his
or her immediate family member)--
(1) To a laboratory in exchange for the provision of clinical
laboratory services; or
(2) To an entity as compensation for any other items or services
that are furnished at a price that is consistent with fair market
value, and that are not specifically excepted under another provision
in Sec. 411.355 through Sec. 411.357 (including, but not limited to,
Sec. 411.357(l)). ``Services'' in this context means services of any
kind (not just those defined as ``services'' for purposes of the
Medicare program in Sec. 400.202).
(j) Charitable donations by a physician. Bona fide charitable
donations made by a physician (or immediate family member) to an entity
if all of the following conditions are satisfied:
(1) The charitable donation is made to an organization exempt from
taxation under the Internal Revenue Code (or to a supporting
organization);
(2) The donation is neither solicited, nor made, in any manner that
takes into account the volume or value of referrals or other business
generated between the physician and the entity; and
(3) The donation arrangement does not violate the anti-kickback
statute (section 1128B(b) of the Act), or any Federal or State law or
regulation governing billing or claims submission.
(k) Non-monetary compensation up to $300. (1) Compensation from an
entity in the form of items or services (not including cash or cash
equivalents) that does not exceed an aggregate of $300 per year, if all
of the following conditions are satisfied:
(i) The compensation is not determined in any manner that takes
into account the volume or value of referrals or other business
generated by the referring physician.
(ii) The compensation may not be solicited by the physician or the
physician's practice (including employees and staff members).
(iii) The compensation arrangement does not violate the anti-
kickback statute (section 1128B(b) of the Act) or any Federal or State
law or regulation governing billing or claims submission.
(2) The $300 limit in this paragraph (k) will be adjusted each
calendar year to the nearest whole dollar by the increase in the
Consumer Price Index-Urban All Items (CPI-U) for the 12-month period
ending the preceding September 30. CMS intends to display as soon as
possible after September 30 each year, both the increase in the CPI-U
for the 12-month period and the new non-monetary compensation limit on
the physician self-referral Web site: http://cms.hhs.gov/medlearn/refphys.asp.
(l) Fair market value compensation. Compensation resulting from an
arrangement between an entity and a physician (or an immediate family
member) or any group of physicians (regardless of whether the group
meets the definition of a group practice set forth in Sec. 411.352)
for the provision of items or services by the physician (or an
immediate family member) or group of physicians to the entity, if the
arrangement is set forth in an agreement that meets the following
conditions:
(1) The arrangement is in writing, signed by the parties, and
covers only identifiable items or services, all of which are specified
in the agreement.
(2) The writing specifies the timeframe for the arrangement, which
can be for any period of time and contain a termination clause,
provided the parties enter into only one arrangement for the same items
or services during the course of a year. An arrangement made for less
than 1 year may be renewed any number of times if the terms of the
arrangement and the compensation for the same items or services do not
change.
(3) The writing specifies the compensation that will be provided
under the arrangement. The compensation must be set in advance,
consistent with fair market value, and not determined in a manner that
takes into account the volume or value of referrals or other business
generated by the referring physician.
(4) The arrangement would be commercially reasonable (taking into
account the nature and scope of the
[[Page 16141]]
transaction) and furthers the legitimate business purposes of the
parties.
(5) It does not violate the anti-kickback statute (section 1128B(b)
of the Act), or any Federal or State law or regulation governing
billing or claims submission.
(6) The services to be performed under the arrangement do not
involve the counseling or promotion of a business arrangement or other
activity that violates a State or Federal law.
(m) Medical staff incidental benefits. Compensation in the form of
items or services (not including cash or cash equivalents) from a
hospital to a member of its medical staff when the item or service is
used on the hospital's campus, if all of the following conditions are
met:
(1) The compensation is provided to all members of the medical
staff practicing in the same specialty (but not necessarily accepted by
every member to whom it is offered) without regard to the volume or
value of referrals or other business generated between the parties.
(2) Except with respect to identification of medical staff on a
hospital Web site or in hospital advertising, the compensation is
provided only during periods when the medical staff members are making
rounds or are engaged in other services or activities that benefit the
hospital or its patients.
(3) The compensation is provided by the hospital and used by the
medical staff members only on the hospital's campus. Compensation,
including, but not limited to, Internet access, pagers, or two-way
radios, used away from the campus only to access hospital medical
records or information or to access patients or personnel who are on
the hospital campus, as well as the identification of the medical staff
on a hospital Web site or in hospital advertising, will meet the ``on
campus'' requirement of this paragraph (m).
(4) The compensation is reasonably related to the provision of, or
designed to facilitate directly or indirectly the delivery of, medical
services at the hospital.
(5) The compensation is of low value (that is, less than $25) with
respect to each occurrence of the benefit (for example, each meal given
to a physician while he or she is serving patients who are hospitalized
must be of low value). The $25 limit in this paragraph (m)(5) will be
adjusted each calendar year to the nearest whole dollar by the increase
in the Consumer Price Index-Urban All Items (CPI-U) for the 12-month
period ending the preceding September 30. CMS intends to display as
soon as possible after September 30 each year both the increase in the
CPI-U for the 12-month period and the new limits on the physician self-
referral Web site: http://cms.hhs.gov/medlearn/refphys.asp.
(6) The compensation is not determined in any manner that takes
into account the volume or value of referrals or other business
generated between the parties.
(7) The compensation arrangement does not violate the anti-kickback
statute, (section 1128B(b) of the Act), or any Federal or State law or
regulation governing billing or claims submission.
(8) Other facilities and health care clinics (including, but not
limited to, federally qualified health centers) that have bona fide
medical staffs may provide compensation under this paragraph (m) on the
same terms and conditions applied to hospitals under this paragraph
(m).
(n) Risk-sharing arrangements. Compensation pursuant to a risk-
sharing arrangement (including, but not limited to, withholds, bonuses,
and risk pools) between a managed care organization or an independent
physicians' association and a physician (either directly or indirectly
through a subcontractor) for services provided to enrollees of a health
plan, provided that the arrangement does not violate the anti-kickback
statute (section 1128B(b) of the Act), or any Federal or State law or
regulation governing billing or claims submission. For purposes of this
paragraph (n), ``health plan'' and ``enrollees'' have the meanings
ascribed to those terms in Sec. 1001.952(l) of this title.
(o) Compliance training. Compliance training provided by an entity
to a physician (or to the physician's immediate family member or office
staff) who practices in the entity's local community or service area,
provided the training is held in the local community or service area.
For purposes of this paragraph (o), ``compliance training'' means
training regarding the basic elements of a compliance program (for
example, establishing policies and procedures, training of staff,
internal monitoring, reporting); specific training regarding the
requirements of Federal and State health care programs (for example,
billing, coding, reasonable and necessary services, documentation,
unlawful referral arrangements); or training regarding other Federal,
State, or local laws, regulations, or rules governing the conduct of
the party for whom the training is provided (but not including
continuing medical education).
(p) Indirect compensation arrangements. Indirect compensation
arrangements, as defined in Sec. 411.354(c)(2), if all of the
following conditions are satisfied:
(1) The compensation received by the referring physician (or
immediate family member) described in Sec. 411.354(c)(2)(ii) is fair
market value for services and items actually provided and not
determined in any manner that takes into account the value or volume of
referrals or other business generated by the referring physician for
the entity furnishing DHS.
(2) The compensation arrangement described in Sec.
411.354(c)(2)(ii) is set out in writing, signed by the parties, and
specifies the services covered by the arrangement, except in the case
of a bona fide employment relationship between an employer and an
employee, in which case the arrangement need not be set out in a
written contract, but must be for identifiable services and be
commercially reasonable even if no referrals are made to the employer.
(3) The compensation arrangement does not violate the anti-kickback
statute (section 1128B(b) of the Act), or any Federal or State law or
regulation governing billing or claims submission.
(q) Referral services. Remuneration that meets all of the
conditions set forth in Sec. 1001.952(f) of this title.
(r) Obstetrical malpractice insurance subsidies. Remuneration to
the referring physician that meets all of the conditions set forth in
Sec. 1001.952(o) of this title.
(s) Professional courtesy. Professional courtesy (as defined in
Sec. 411.351) offered by an entity to a physician or a physician's
immediate family member or office staff if all of the following
conditions are met:
(1) The professional courtesy is offered to all physicians on the
entity's bona fide medical staff or in the entity's local community or
service area without regard to the volume or value of referrals or
other business generated between the parties;
(2) The health care items and services provided are of a type
routinely provided by the entity;
(3) The entity's professional courtesy policy is set out in writing
and approved in advance by the entity's governing body;
(4) The professional courtesy is not offered to a physician (or
immediate family member) who is a Federal health care program
beneficiary, unless there has been a good faith showing of financial
need;
(5) If the professional courtesy involves any whole or partial
reduction of any coinsurance obligation, the insurer is informed in
writing of the reduction; and
[[Page 16142]]
(6) The arrangement does not violate the anti-kickback statute
(section 1128B(b) of the Act), or any Federal or State law or
regulation governing billing or claims submission.
(t) Retention payments in underserved areas. (1) Remuneration
provided by a hospital or federally qualified health center directly to
a physician on the hospital's or federally qualified health center's
medical staff to retain the physician's medical practice in the
geographic area served by the hospital or federally qualified health
center (as defined in paragraph (e)(2) of this section), if all of the
following conditions are met:
(i) Paragraphs 411.357(e)(1)(i) through 411.357(e)(1)(iv) are
satisfied;
(ii) The geographic area served by the hospital or federally
qualified health center is a HPSA (regardless of the physician's
specialty) or is an area with demonstrated need for the physician as
determined by the Secretary in an advisory opinion issued according to
section 1877(g)(6) of the Act;
(iii) The physician has a bona fide firm, written recruitment offer
from a hospital or federally qualified health center that is not
related to the hospital or the federally qualified health center making
the payment, and the offer specifies the remuneration being offered and
would require the physician to move the location of his or her practice
at least 25 miles and outside of the geographic area served by the
hospital or federally qualified health center making the retention
payment;
(iv) The retention payment is limited to the lower of--
(A) The amount obtained by subtracting (1) the physician's current
income from physician and related services from (2) the income the
physician would receive from comparable physician and related services
in the bona fide recruitment offer, provided that the respective
incomes are determined using a reasonable and consistent methodology,
and that they are calculated uniformly over no more than a 24-month
period; or
(B) The reasonable costs the hospital or federally qualified health
center would otherwise have to expend to recruit a new physician to the
geographic area served by the hospital or federally qualified health
center in order to join the medical staff of the hospital or federally
qualified health center to replace the retained physician;
(v) Any retention payment is subject to the same obligations and
restrictions, if any, on repayment or forgiveness of indebtedness as
the bona fide recruitment offer;
(vi) The hospital or federally qualified health center does not
enter into a retention arrangement with a particular referring
physician more frequently than once every 5 years and the amount and
terms of the retention payment are not altered during the term of the
arrangement in any manner that takes into account the volume or value
of referrals or other business generated by the physician;
(vii) The arrangement otherwise complies with all of the conditions
of this section; and
(viii) The arrangement does not violate the anti-kickback statute
(section 1128B(b) of the Act), or any Federal or State law or
regulation governing billing or claims submission.
(2) The Secretary may waive the relocation requirement of paragraph
(t)(1) of this section for payments made to physicians practicing in a
HPSA or an area with demonstrated need for the physician through an
advisory opinion issued according to section 1877(g)(6) of the Act, if
the retention payment arrangement otherwise complies with all of the
conditions of this paragraph.
(u) Community-wide health information systems. Items or services of
information technology provided by an entity to a physician that allow
access to, and sharing of, electronic health care records and any
complementary drug information systems, general health information,
medical alerts, and related information for patients served by
community providers and practitioners, in order to enhance the
community's overall health, provided that--
(1) The items or services are available as necessary to enable the
physician to participate in a community-wide health information system,
are principally used by the physician as part of the community-wide
health information system, and are not provided to the physician in any
manner that takes into account the volume or value of referrals or
other business generated by the physician;
(2) The community-wide health information systems are available to
all providers, practitioners, and residents of the community who desire
to participate; and
(3) The arrangement does not violate the anti-kickback statute,
(section 1128B(b) of the Act), or any Federal or State law or
regulation governing billing or claims submission. Sec. 411.361
Reporting requirements.
(a) Basic rule. Except as provided in paragraph (b) of this
section, all entities furnishing services for which payment may be made
under Medicare must submit information to CMS or to the Office of
Inspector General (OIG) concerning their reportable financial
relationships (as defined in paragraph (d) of this section), in the
form, manner, and at the times that CMS or OIG specifies.
(b) Exception. The requirements of paragraph (a) of this section do
not apply to entities that furnish 20 or fewer Part A and Part B
services during a calendar year, or to any Medicare covered services
furnished outside the United States.
(c) Required information. The information requested by CMS or OIG
can include the following:
(1) The name and unique physician identification number (UPIN) of
each physician who has a reportable financial relationship with the
entity.
(2) The name and UPIN of each physician who has an immediate family
member (as defined in Sec. 411.351) who has a reportable financial
relationship with the entity.
(3) The covered services furnished by the entity.
(4) With respect to each physician identified under paragraphs
(c)(1) and (c)(2) of this section, the nature of the financial
relationship (including the extent and/or value of the ownership or
investment interest or the compensation arrangement) as evidenced in
records that the entity knows or should know about in the course of
prudently conducting business, including, but not limited to, records
that the entity is already required to retain to comply with the rules
of the Internal Revenue Service and the Securities and Exchange
Commission and other rules of the Medicare and Medicaid programs.
(d) Reportable financial relationships. For purposes of this
section, a reportable financial relationship is any ownership or
investment interest, as defined in Sec. 411.354(b) or any compensation
arrangement, as defined in Sec. 411.354(c), except for ownership or
investment interests that satisfy the exceptions set forth in Sec.
411.356(a) or Sec. 411.356(b) regarding publicly-traded securities and
mutual funds.
(e) Form and timing of reports. Entities that are subject to the
requirements of this section must submit the required information, upon
request, within the time period specified by the request. Entities are
given at least 30 days from the date of the request to provide the
information. Entities must retain the information, and documentation
sufficient to verify the information, for the length of time specified
by the applicable regulatory requirements for the information, and,
upon request, must make that
[[Page 16143]]
information and documentation available to CMS or OIG.
(f) Consequences of failure to report. Any person who is required,
but fails, to submit information concerning his or her financial
relationships in accordance with this section is subject to a civil
money penalty of up to $10,000 for each day following the deadline
established under paragraph (e) of this section until the information
is submitted. Assessment of these penalties will comply with the
applicable provisions of part 1003 of this title.
(g) Public disclosure. Information furnished to CMS or OIG under
this section is subject to public disclosure in accordance with the
provisions of part 401 of this chapter.
PART 424--CONDITIONS FOR MEDICARE PAYMENT
0
1. The authority citation for part 424 continues to read as follows:
Authority: Secs. 1102 and 1871 of the Social Security Act (42
U.S.C. 1302 and 1395hh).
Subpart B--Certification and Plan of Treatment Requirements
0
2. In Sec. 424.22, paragraph (d) is republished to read as set forth
below.
Sec. 424.22 Requirements for home health services.
* * * * *
(d) Limitation on the performance of certification and plan of
treatment functions. The need for home health services to be provided
by an HHA may not be certified or recertified, and a plan of treatment
may not be established and reviewed, by any physician who has a
financial relationship, as defined in Sec. 411.351 of this chapter,
with that HHA, unless the physician's relationship meets one of the
exceptions in section 1877 of the Act, which sets forth general
exceptions to the referral prohibition related to both ownership/
investment and compensation; exceptions to the referral prohibition
related to ownership or investment interests; and exceptions to the
referral prohibition related to compensation arrangements.
(Catalog of Federal Domestic Assistance Program No. 93.773,
Medicare-Hospital Insurance; and Program No. 93.774, Medicare-
Supplementary Medical Insurance Program)
Dated: February 13, 2003.
Thomas A. Scully,
Administrator, Centers for Medicare & Medicaid Services.
Dated: October 23, 2003.
Tommy G. Thompson,
Secretary.
Note: The following attachment will not appear in the Code of
Federal Regulations.
Attachment--List of CPT \1\/HCPCS Codes for Purposes of Section 1877 of
the Social Security Act--Effective July 26, 2004
Clinical Laboratory Services
Include CPT codes for all clinical laboratory services in the
80000 series, except EXCLUDE CPT codes for the following blood
component collection services:
---------------------------------------------------------------------------
\1\ CPT codes and descriptions only are copyright 2003 American
Medical Association. All rights are reserved and applicable FARS/
DFARS clauses apply.
86890 Autologous blood process
86891 Autologous blood, op salvage
86927 Plasma, fresh frozen
86930 Frozen blood prep
86931 Frozen blood thaw
86932 Frozen blood freeze/thaw
86945 Blood product/irradiation
86950 Leukacyte transfusion
86965 Pooling blood platelets
86985 Split blood or products
Include the following CPT and HCPCS level 2 codes for other
clinical laboratory services:
0010T TB test, gamma interferon
0023T Phenotype drug test, hiv 1
0026T Measure remnant lipoproteins
0030T Antiprothrombin antibody
0041T Detect ur infect agnt w/cpas
0043T Co expired gas analysis
0058T Cryopreservation, ovary tiss
0059T Cryopreservation, oocyte
G0001 Drawing blood for specimen
G0027 Semen analysis
G0103 Psa, total screening
G0107 CA screen; fecal blood test
G0123 Screen cerv/vag thin layer
G0124 Screen c/v thin layer by MD
G0141 Scr c/v cyto, autosys and md
G0143 Scr c/v cyto, thinlayer, rescr
G0144 Scr c/v cyto, thinlayer, rescr
G0145 Scr c/v cyto, thinlayer, rescr
G0147 Scr c/v cyto, automated sys
G0148 Scr c/v cyto, autosys, rescr
G0306 CBC/diffwbc w/o platelet
G0307 CBC without platelet
G0328 Fecal blood scrn immunoassay
P2028 Cephalin floculation test
P2029 Congo red blood test
P2033 Blood thymol turbidity
P2038 Blood mucoprotein
P3000 Screen pap by tech w md supv
P3001 Screening pap smear by phys
P9612 Catheterize for urine spec
P9615 Urine specimen collect mult
Q0111 Wet mounts/ w preparations
Q0112 Potassium hydroxide preps
Q0113 Pinworm examinations
Q0114 Fern test
Q0115 Post-coital mucous exam
Physical Therapy, Occupational Therapy, and Speech-Language
Pathology
Include the following CPT codes for the physical therapy/
occupational therapy/speech-language pathology services in the 97000
series:
97001 Pt evaluation
97002 Pt re-evaluation
97003 Ot evaluation
97004 Ot re-evaluation
97010 Hot or cold packs therapy
97012 Mechanical traction therapy
97016 Vasopneumatic device therapy
97018 Paraffin bath therapy
97020 Microwave therapy
97022 Whirlpool therapy
97024 Diathermy treatment
97026 Infrared therapy
97028 Ultraviolet therapy
97032 Electrical stimulation
97033 Electric current therapy
97034 Contrast bath therapy
97035 Ultrasound therapy
97036 Hydrotherapy
97039 Physical therapy treatment
97110 Therapeutic exercises
97112 Neuromuscular reeducation
97113 Aquatic therapy/exercises
97116 Gait training therapy
97124 Massage therapy
97139 Physical medicine procedure
97140 Manual therapy
97150 Group therapeutic procedures
97504 Orthotic training
97520 Prosthetic training
97530 Therapeutic activities
97532 Cognitive skills development
97533 Sensory integration
97535 Self care mngment training
97537 Community/work reintegration
97542 Wheelchair mngment training
97545 Work hardening
97546 Work hardening add-on
97601 Wound(s) care, selective
97602 Wound(s) care, nonselective
97703 Prosthetic checkout
97750 Physical performance test
97755 Assistive technology assess
97799 Physical medicine procedure
Include CPT codes for physical therapy/occupational therapy/
speech-language pathology services not in the 97000 series:
64550 Apply neurostimulator
90901 Biofeedback train, any meth
90911 Biofeedback peri/uro/rectal
92507 Speech/hearing therapy
92508 Speech/hearing therapy
92526 Oral function therapy
92597 Oral speech device eval
92607 Ex for speech device rx, 1hr
92608 Ex for speech device rx addl
92609 Use of speech device service
92610 Evaluate swallowing function
92611 Motion fluoroscopy/swallow
92612 Endoscopy swallow tst (fees)
92614 Laryngoscopic sensory test
92616 Fees w/laryngeal sense test
93797 Cardiac rehab
93798 Cardiac rehab/monitor
94667 Chest wall manipulation
94668 Chest wall manipulation
95831 Limb muscle testing, manual
95832 Hand muscle testing, manual
95833 Body muscle testing, manual
95834 Body muscle testing, manual
[[Page 16144]]
95851 Range of motion measurements
95852 Range of motion measurements
96000 Motion analysis, video/3d
96001 Motion test w/ft press meas
96002 Dynamic surface emg
96003 Dynamic fine wire emg
96105 Assessment of aphasia
96110 Developmental test, lim
96111 Developmental test, extend
96115 Neurobehavior status exam
0029T Magnetic tx for incontinence
Include HCPCS level 2 codes for the following physical therapy/
occupational therapy/speech-language pathology services:
G0279 Excorp shock tx, elbow epi
G0280 Excorp shock tx other than
G0281 Elec stim unattend for press
G0283 Elec stim other than wound
Radiology and Certain Other Imaging Services
Include the following codes in the CPT 70000 series:
70100 X-ray exam of jaw
70110 X-ray exam of jaw
70120 X-ray exam of mastoids
70130 X-ray exam of mastoids
70134 X-ray exam of middle ear
70140 X-ray exam of facial bones
70150 X-ray exam of facial bones
70160 X-ray exam of nasal bones
70190 X-ray exam of eye sockets
70200 X-ray exam of eye sockets
70210 X-ray exam of sinuses
70220 X-ray exam of sinuses
70240 X-ray exam, pituitary saddle
70250 X-ray exam of skull
70260 X-ray exam of skull
70300 X-ray exam of teeth
70310 X-ray exam of teeth
70320 Full mouth x-ray of teeth
70328 X-ray exam of jaw joint
70330 X-ray exam of jaw joints
70336 Magnetic image, jaw joint
70350 X-ray head for orthodontia
70355 Panoramic x-ray of jaws
70360 X-ray exam of neck
70370 Throat x-ray & fluoroscopy
70371 Speech evaluation, complex
70380 X-ray exam of salivary gland
70450 Ct head/brain w/o dye
70460 Ct head/brain w/dye
70470 Ct head/brain w/o & w/dye
70480 Ct orbit/ear/fossa w/o dye
70481 Ct orbit/ear/fossa w/dye
70482 Ct orbit/ear/fossa w/o & w/dye
70486 Ct maxillofacial w/o dye
70487 Ct maxillofacial w/dye
70488 Ct maxillofacial w/o & w/dye
70490 Ct soft tissue neck w/o dye
70491 Ct soft tissue neck w/dye
70492 Ct sft tsue nck w/o & w/dye
70496 Ct angiography, head
70498 Ct angiography, neck
70540 Mri orbit/face/neck w/o dye
70542 Mri orbit/face/neck w/dye
70543 Mri orbt/fac/nck w/o & w/dye
70544 Mr angiography head w/o dye
70545 Mr angiography head w/dye
70546 Mr angiograph head w/o & w/dye
70547 Mr angiography neck w/o dye
70548 Mr angiography neck w/dye
70549 Mr angiograph neck w/o & w/dye
70551 Mri brain w/o dye
70552 Mri brain w/dye
70553 Mri brain w/o & w/dye
71010 Chest x-ray
71015 Chest x-ray
71020 Chest x-ray
71021 Chest x-ray
71022 Chest x-ray
71023 Chest x-ray and fluoroscopy
71030 Chest x-ray
71034 Chest x-ray and fluoroscopy
71035 Chest x-ray
71100 X-ray exam of ribs
71101 X-ray exam of ribs/chest
71110 X-ray exam of ribs
71111 X-ray exam of ribs/chest
71120 X-ray exam of breastbone
71130 X-ray exam of breastbone
71250 Ct thorax w/o dye
71260 Ct thorax w/dye
71270 Ct thorax w/o & w/dye
71275 Ct angiography, chest
71550 Mri chest w/o dye
71551 Mri chest w/dye
71552 Mri chest w/o & w/dye
71555 Mri angio chest w or w/o dye
72010 X-ray exam of spine
72020 X-ray exam of spine
72040 X-ray exam of neck spine
72050 X-ray exam of neck spine
72052 X-ray exam of neck spine
72069 X-ray exam of trunk spine
72070 X-ray exam of thoracic spine
72072 X-ray exam of thoracic spine
72074 X-ray exam of thoracic spine
72080 X-ray exam of trunk spine
72090 X-ray exam of trunk spine
72100 X-ray exam of lower spine
72110 X-ray exam of lower spine
72114 X-ray exam of lower spine
72120 X-ray exam of lower spine
72125 Ct neck spine w/o dye
72126 Ct neck spine w/dye
72127 Ct neck spine w/o & w/dye
72128 Ct chest spine w/o dye
72129 Ct chest spine w/dye
72130 Ct chest spine w/o & w/dye
72131 Ct lumbar spine w/o dye
72132 Ct lumbar spine w/dye
72133 Ct lumbar spine w/o & w/dye
72141 Mri neck spine w/o dye
72142 Mri neck spine w/dye
72146 Mri chest spine w/o dye
72147 Mri chest spine w/dye
72148 Mri lumbar spine w/o dye
72149 Mri lumbar spine w/dye
72156 Mri neck spine w/o & w/dye
72157 Mri chest spine w/o & w/dye
72158 Mri lumbar spine w/o & w/dye
72170 X-ray exam of pelvis
72190 X-ray exam of pelvis
72191 Ct angiograph pelv w/o & w/dye
72192 Ct pelvis w/o dye
72193 Ct pelvis w/dye
72194 Ct pelvis w/o & w/dye
72195 Mri pelvis w/o dye
72196 Mri pelvis w/dye
72197 Mri pelvis w/o & w/dye
72198 Mr angio pelvis w/o & w/dye
72200 X-ray exam sacroiliac joints
72202 X-ray exam sacroiliac joints
72220 X-ray exam of tailbone
73000 X-ray exam of collar bone
73010 X-ray exam of shoulder blade
73020 X-ray exam of shoulder
73030 X-ray exam of shoulder
73050 X-ray exam of shoulders
73060 X-ray exam of humerus
73070 X-ray exam of elbow
73080 X-ray exam of elbow
73090 X-ray exam of forearm
73092 X-ray exam of arm, infant
73100 X-ray exam of wrist
73110 X-ray exam of wrist
73120 X-ray exam of hand
73130 X-ray exam of hand
73140 X-ray exam of finger(s)
73200 Ct upper extremity w/o dye
73201 Ct upper extremity w/dye
73202 Ct uppr extremity w/o & w/dye
73206 Ct angio upr extrm w/o & w/dye
73218 MRI upper extremity w/o dye
73219 MRI upper extremity w/dye
73220 MRI uppr extremity w/o & w/dye
73221 MRI joint upr extrem w/o dye
73222 MRI joint upr extrem w/dye
73223 MRI joint upr extr w/o & w/dye
73500 X-ray exam of hip
73510 X-ray exam of hip
73520 X-ray exam of hips
73540 X-ray exam of pelvis & hips
73550 X-ray exam of thigh
73560 X-ray exam of knee, 1 or 2
73562 X-ray exam of knee, 3
73564 X-ray exam, knee, 4 or more
73565 X-ray exam of knees
73590 X-ray exam of lower leg
73592 X-ray exam of leg, infant
73600 X-ray exam of ankle
73610 X-ray exam of ankle
73620 X-ray exam of foot
73630 X-ray exam of foot
73650 X-ray exam of heel
73660 X-ray exam of toe(s)
73700 Ct lower extremity w/o dye
73701 Ct lower extremity w/dye
73702 Ct lwr extremity w/o & w/dye
73706 Ct angio lwr extr w/o & w/dye
73718 MRI lower extremity w/o dye
73719 MRI lower extremity w/dye
73720 MRI lwr extremity w/o & w/dye
73721 MRI jnt of lwr extre w/o dye
73722 MRI joint of lwr extr w/dye
73723 MRI joint lwr extr w/o & w/dye
73725 Mr ang lwr ext w or w/o dye
74000 X-ray exam of abdomen
74010 X-ray exam of abdomen
74020 X-ray exam of abdomen
74022 X-ray exam series, abdomen
74150 Ct abdomen w/o dye
74160 Ct abdomen w/dye
74170 Ct abdomen w/o & w/dye
74175 Ct angio abdom w/o & w/dye
74181 MRI abdomen w/o dye
74182 MRI abdomen w/dye
74183 MRI abdomen w/o & w/dye
74185 MRI angio, abdom w or w/o dye
74210 Contrst x-ray exam of throat
74220 Contrast x-ray, esophagus
74230 Cine/vid x-ray, throat/esoph
74240 X-ray exam, upper gi tract
74241 X-ray exam, upper gi tract
74245 X-ray exam, upper gi tract
74246 Contrst x-ray uppr gi tract
74247 Contrst x-ray uppr gi tract
74249 Contrst x-ray uppr gi tract
74250 X-ray exam of small bowel
74290 Contrast x-ray, gallbladder
74291 Contrast x-rays, gallbladder
74710 X-ray measurement of pelvis
75552 Heart mri for morph w/o dye
75553 Heart mri for morph w/dye
75554 Cardiac MRI/function
75555 Cardiac MRI/limited study
75635 Ct angio abdominal arteries
[[Page 16145]]
76000 Fluoroscope examination
76006 X-ray stress view
76010 X-ray, nose to rectum
76020 X-rays for bone age
76040 X-rays, bone evaluation
76061 X-rays, bone survey
76062 X-rays, bone survey
76065 X-rays, bone evaluation
76066 Joint survey, single view
76070 Ct bone density, axial
76071 Ct bone density, peripheral
76075 Dexa, axial skeleton study
76076 Dexa, peripheral study
76078 Radiographic absorptiometry
76082 Computer mammogram add-on
76083 Computer mammogram add-on
76090 Mammogram, one breast
76091 Mammogram, both breasts
76092 Mammogram, screening
76093 Magnetic image, breast
76094 Magnetic image, both breasts
76100 X-ray exam of body section
76101 Complex body section x-ray
76102 Complex body section x-rays
76120 Cine/video x-rays
76125 Cine/video x-rays add-on
76150 X-ray exam, dry process
76370 Ct scan for therapy guide
76375 3d/holograph reconstr add-on
76380 CAT scan follow-up study
76400 Magnetic image, bone marrow
76499 Radiographic procedure
76506 Echo exam of head
76511 Echo exam of eye
76512 Echo exam of eye
76513 Echo exam of eye, water bath
76514 Echo exam of eye, thickness
76516 Echo exam of eye
76519 Echo exam of eye
76536 Us Exam of head and neck
76604 Us exam, chest, b-scan
76645 Us exam, breast(s)
76700 Us exam, abdom, complete
76705 Echo exam of abdomen
76770 Us exam abdo back wall, comp
76775 Us exam abdo back wall, lim
76778 Us exam kidney transplant
76800 Us exam, spinal canal
76801 Ob us < 14 wks, single fetus
76802 Ob us < 14 wks, add'l fetus
76805 Ob us /= 14 wks, sngl fetus
76810 Ob us /= 14 wks, addl fetus
76811 Ob us, detailed, sngl fetus
76812 Ob us, detailed, addl fetus
76815 Ob us, limited, fetus(s)
76816 Ob us, follow-up, per fetus
76818 Fetal biophys profile w/nst
76819 Fetal biophys profil w/o nst
76825 Echo exam of fetal heart
76826 Echo exam of fetal heart
76827 Echo exam of fetal heart
76828 Echo exam of fetal heart
76856 Us exam, pelvic, complete
76857 Us exam, pelvic, limited
76870 Us exam, scrotum
76880 Us exam, extremity
76885 Us exam infant hips, dynamic
76886 Us exam infant hips, static
76970 Ultrasound exam follow-up
76977 Us bone density measure
76999 Echo examination procedure
Include the following CPT codes for echocardiography and
vascular ultrasound:
93303 Echo transthoracic
93304 Echo transthoracic
93307 Echo exam of heart
93308 Echo exam of heart
93320 Doppler echo exam, heart [if used in conjunction with 93303-
93308]
93321 Doppler echo exam, heart [if used in conjunction with 93303-
93308]
93325 Doppler color flow add-on [if used in conjunction with 93303-
93308]
93875 Extracranial study
93880 Extracranial study
93882 Extracranial study
93886 Intracranial study
93888 Intracranial study
93922 Extremity study
93923 Extremity study
93924 Extremity study
93925 Lower extremity study
93926 Lower extremity study
93930 Upper extremity study
93931 Upper extremity study
93965 Extremity study
93970 Extremity study
93971 Extremity study
93975 Vascular study
93976 Vascular study
93978 Vascular study
93979 Vascular study
93980 Penile vascular study
93981 Penile vascular study
93990 Doppler flow testing
Include the following CPT and HCPCS level 2 codes:
51798 Us urine capacity measure
78350 Bone mineral, single photon
91110 Gi tract capsule endoscopy
0028T Dexa body composition study
0042T Ct perfusion w/contrast, cbf
G0130 Single energy x-ray study
G0202 Screening mammography digital
G0204 Diagnostic mammography digital
G0206 Diagnostic mammography digital
G0288 Recon, CTA for surg plan
R0070 Transport portable x-ray
R0075 Transport port x-ray multipl
Radiation Therapy Services and Supplies
Include the following codes in the CPT 70000 series:
77261 Radiation therapy planning
77262 Radiation therapy planning
77263 Radiation therapy planning
77280 Set radiation therapy field
77285 Set radiation therapy field
77290 Set radiation therapy field
77295 Set radiation therapy field
77299 Radiation therapy planning
77300 Radiation therapy dose plan
77301 Radiotherapy dose plan, imrt
77305 Teletx isodose plan simple
77310 Teletx isodose plan intermed
77315 Teletx isodose plan complex
77321 Special teletx port plan
77326 Brachytx isodose calc simp
77327 Brachytx isodose calc interm
77328 Brachytx isodose plan compl
77331 Special radiation dosimetry
77332 Radiation treatment aid(s)
77333 Radiation treatment aid(s)
77334 Radiation treatment aid(s)
77336 Radiation physics consult
77370 Radiation physics consult
77399 External radiation dosimetry
77401 Radiation treatment delivery
77402 Radiation treatment delivery
77403 Radiation treatment delivery
77404 Radiation treatment delivery
77406 Radiation treatment delivery
77407 Radiation treatment delivery
77408 Radiation treatment delivery
77409 Radiation treatment delivery
77411 Radiation treatment delivery
77412 Radiation treatment delivery
77413 Radiation treatment delivery
77414 Radiation treatment delivery
77416 Radiation treatment delivery
77417 Radiology port film(s)
77418 Radiation tx delivery, imrt
77427 Radiation tx management, x5
77431 Radiation therapy management
77432 Stereotactic radiation trmt
77470 Special radiation treatment
77499 Radiation therapy management
77520 Proton trmt, simple w/o comp
77522 Proton trmt, simple w/comp
77523 Proton trmt, intermediate
77525 Proton treatment, complex
77600 Hyperthermia treatment
77605 Hyperthermia treatment
77610 Hyperthermia treatment
77615 Hyperthermia treatment
77620 Hyperthermia treatment
77750 Infuse radioactive materials
77761 Apply intrcav radiat simple
77762 Apply intrcav radiat interm
77763 Apply intrcav radiat compl
77776 Apply interstit radiat simpl
77777 Apply interstit radiat inter
77778 Apply interstit radiat compl
77781 High intensity brachytherapy
77782 High intensity brachytherapy
77783 High intensity brachytherapy
77784 High intensity brachytherapy
77789 Apply surface radiation
77790 Radiation handling
77799 Radium/radioisotope therapy
Include the following CPT and HCPCS level 2 codes classified
elsewhere:
31643 Diag bronchoscope/catheter
50559 Renal endoscopy/radiotracer
55859 Percut/needle insert, pros
61770 Incise skull for treatment
61793 Focus radiation beam
92974 Cath place, cardio brachytx
G0173 Stereo radiosurgery, complete
G0242 Multisource photon ster plan
G0243 Multisour photon stero treat
G0251 Linear acc based stero radio
G0338 Linear accelerator stero pln
G0339 Robot lin-radsurg com, first
G0340 Robt lin-radsurg fractx 2-5
EPO and Other Dialysis-Related Drugs
The physician self-referral prohibition does not apply to the
following codes for EPO and other dialysis-related drugs furnished
in or by an ESRD facility if the conditions in Sec. 411.355(g) are
satisfied:
J0630 Calcitonin salmon injection
J0636 Inj calcitriol per 0.1 mcg
J0895 Deferoxamine mesylate inj
J1270 Injection, doxercalciferol
J1750 Iron dextran
J1756 Iron sucrose injection
J1955 Inj levocarnitine per 1 gm
J2501 Paricalcitol
J2916 Na ferric gluconate complex
J2993 Reteplase injection
J2995 Inj streptokinase /250000 IU
J2997 Alteplase recombinant
J3364 Urokinase 5000 IU injection
P9041 Albumin (human), 5%, 50ml
P9045 Albumin (human), 5%, 250ml
P9046 Albumin (human), 25%, 20ml
[[Page 16146]]
P9047 Albumin (human), 25%, 50ml
Q4054 Darbepoetin alfa, esrd use
Q4055 Epoetin alfa, esrd use
Preventive Screening Tests, Immunizations and Vaccines
The physician self-referral prohibition does not apply to the
following tests if they are performed for screening purposes and
satisfy the conditions in Sec. 411.355(h):
76083 Computer mammogram add-on
76092 Mammogram, screening
G0103 Psa, total screening
G0107 CA screen; fecal blood test
G0123 Screen cerv/vag thin layer
G0124 Screen c/v thin layer by MD
G0141 Scr c/v cyto, autosys and md
G0143 Scr c/v cyto, thinlayer, rescr
G0144 Scr c/v cyto, thinlayer, rescr
G0145 Scr c/v cyto, thinlayer, rescr
G0147 Scr c/v cyto, automated sys
G0148 Scr c/v cyto, autosys, rescr
G0202 Screening mammographydigital
G0328 Fecal blood scrn immunoassay
P3000 Screen pap by tech w md supv
P3001 Screening pap smear by phys
The physician self-referral prohibition does not apply to the
following immunization and vaccine codes if they satisfy the
conditions in Sec. 411.355(h):
90655 Flu vaccine, 6-35 mo, im
90657 Flu vaccine, 6-35 mo, im
90658 Flu vaccine, 3 yrs, im
90732 Pneumococcal vaccine
90740 Hepb vacc, ill pat dose im
90743 Hep b vacc, adol, 2 dose im
90744 Hepb vacc ped/adol 3 dose im
90746 Hepb vaccine, adult, im
90747 Hepb vacc, ill pat 4 dose im
[FR Doc. 04-6668 Filed 3-25-04; 8:45 am]
BILLING CODE 4120-03-P