[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
MEDICARE SELF-REFERRAL LAWS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH
of the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
MAY 13, 1999
__________
Serial 106-54
__________
Printed for the use of the Committee on Ways and Means
U.S. GOVERNMENT PRINTING OFFICE
65-695 CC WASHINGTON : 2000
_______________________________________________________________________
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC
20402
COMMITTEE ON WAYS AND MEANS
BILL ARCHER, Texas, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
BILL THOMAS, California FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York SANDER M. LEVIN, Michigan
WALLY HERGER, California BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana JIM McDERMOTT, Washington
DAVE CAMP, Michigan GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota JOHN LEWIS, Georgia
JIM NUSSLE, Iowa RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania KAREN L. THURMAN, Florida
WES WATKINS, Oklahoma LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
A.L. Singleton, Chief of Staff
Janice Mays, Minority Chief Counsel
------
Subcommittee on Health
BILL THOMAS, California, Chairman
NANCY L. JOHNSON, Connecticut FORTNEY PETE STARK, California
JIM McCRERY, Louisiana GERALD D. KLECZKA, Wisconsin
PHILIP M. CRANE, Illinois JOHN LEWIS, Georgia
SAM JOHNSON, Texas JIM McDERMOTT, Washington
DAVE CAMP, Michigan KAREN L. THURMAN, Florida
JIM RAMSTAD, Minnesota
PHILIP S. ENGLISH, Pennsylvania
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
in electronic form. The printed hearing record remains the official
version. Because electronic submissions are used to prepare both
printed and electronic versions of the hearing record, the process of
converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S
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Page
Advisory of May 4, 1999, announcing the hearing.................. 2
WITNESSES
Health Care Financing Administration, Kathleen A. Buto, Deputy
Director, Center for Health Plans and Providers................ 13
U.S. Department of Health and Human Services, D. McCarty
Thornton, Chief Counsel to the Inspector General, Office of the
Inspector General.............................................. 16
------
American College of Radiology, J. Bruce Hauser, M.D.............. 71
American Medical Group Association, and Scott & White Health
Plan, C. David Morehead, M.D................................... 67
Northwestern Memorial Hospital, Mitchell J. Wiet................. 60
Teplitzky, Sanford V., Ober, Kaler, Grimes and Shriver, and
National Health Lawyers Association............................ 55
------
SUBMISSIONS FOR THE RECORD
Alliance for Referral Integrity, Alexandria, VA, et. al, joint
statement...................................................... 80
Alliance Imaging, Inc., Anaheim, CA, Russell Phillips, letter.... 81
American Academy of Family Physicians, statement................. 84
American Academy of Ophthalmology, William Rich, III, statement.. 88
American Association of Ambulatory Surgery Centers, Chicago, IL,
statement and attachment....................................... 89
American Association of Orthopaedic Surgeons, Rosemont, IL,
William W. Tipton, Jr., statement.............................. 91
American Clinical Laboratory Association, statement.............. 94
American College of Cardiology, Bethesda, MD, statement.......... 95
American College of Physicians-American Society of Internal
Medicine, statement............................................ 96
American Hospital Association, statement......................... 102
American Medical Association, E. Ratcliffe Anderson, Jr., letter
and attachment................................................. 105
American Physical Therapy Association, Alexandria, VA, statement. 110
American Society of Clinical Pathologists, statement............. 113
American Society of Echocardiography, Raleigh, NC, statement..... 114
American Urological Association, Inc., Baltimore, MD, Lloyd H.
Harrison, letter............................................... 116
Anderson, E. Ratcliffe, Jr., American Medical Association, letter 105
Association of American Medical Colleges, statement.............. 117
Association of Freestanding Radiation Oncology Centers, Laguna
Beach, CA, statement........................................... 119
Cenac, Dwight S., Home Care Association of America, Jacksonville,
FL, statement.................................................. 125
Federation of American Health Systems, statement................. 120
Harrison, Lloyd H., American Urological Association, Inc.,
Baltimore, MD, letter.......................................... 116
Home Care Association of America, Jacksonville, FL, Dwight S.
Cenac, statement............................................... 125
Joint Council of Allergy Asthma and Immunology, Palatine, IL,
statement...................................................... 127
Mauro, Matthew A., Society of Cardiovascular and Interventional
Radiology, Fairfax, VA, letter................................. 142
McLane, James W., NovaCare, Inc., King of Prussia, PA, statement. 136
Medical Group Management Association, statement.................. 129
National Coalition for Quality Diagnostic Imaging Services,
Houston, TX, statement......................................... 133
NovaCare, Inc., King of Prussia, PA, James W. McLane, statement
and attachments................................................ 136
Outpatient Ophthalmic Surgery Society, Bellevue, WA, statement... 138
Phillips, Russell, Alliance Imaging, Inc., Anaheim, CA, letter... 81
Premier, Inc., James L. Scott, letter............................ 141
Rich, William, III, American Academy of Ophthalmology, statement. 88
Scott, James L., Premier, Inc., letter........................... 141
Society of Cardiovascular & Interventional Radiology, Fairfax,
VA, Matthew A. Mauro, letter................................... 142
Stark Law Coalition, statement................................... 143
Tipton, William W., Jr., American Association of Orthopaedic
Surgeions, Rosement, IL, statement............................. 91
Waldheger Coyne, a Legal Profession Association,
Cleveland, OH, statement....................................... 149
MEDICARE SELF-REFERRAL LAWS
----------
THURSDAY, MAY 13, 1999
House of Representatives,
Committee on Ways and Means,
Subcommittee on Health,
Washington, DC.
The Subcommittee met, pursuant to notice, at 1:02 p.m., in
room 1100, Longworth House Office Building, Hon. William Thomas
(Chairman of the Subcommittee) presiding.
[The advisory announcing the hearing follows:]
ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
SUBCOMMITTEE ON HEALTH
CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
May 4, 1999
No. HL-5
Thomas Announces Hearing on
Medicare ``Self-Referral'' Laws
Congressman Bill Thomas (R-CA), Chairman, Subcommittee on Health of
the Committee on Ways and Means, today announced that the Subcommittee
will hold a hearing on the Health Care Financing Administration's
(HCFA) implementation of the Medicare self-referral laws and its impact
on the health care marketplace. The hearing will take place on
Thursday, May 13, 1999, in the main committee hearing room, 1100
Longworth House Office Building, beginning at 1:00 p.m.
In view of the limited time available to hear witnesses, oral
testimony at this hearing will be from invited witnesses only. However,
any individual or organization not scheduled for an oral appearance may
submit a wirtten statement for consideration by the Committee and for
inclusion in the printed record of the hearing.
BACKGROUND:
``Self-referral'' is the term used to describe the situation where
a physician or other provider refers a patient to a medical facility in
which the physician has a financial interest. In the Omnibus Budget
Reconciliation Act of 1989 (OBRA 89, P.L. 101-508), the Congress passed
what became known as ``Stark I'' after the main sponsor, Rep. Pete
Stark (D-CA). Under that law, in general, if a physician has a
financial relationship with a clinical laboratory, that physician
cannot make a referral to the laboratory for the furnishing of services
for which Medicare pays. The Omnibus Budget Reconciliation Act of 1993
(OBRA 93, P.L. 103-66) extended the law to apply to referrals for 10
``designated health services'' in addition to clinical laboratory
services. This law became known as ``Stark II.'' Five years after
passage of Stark II, on January 9, 1998, HCFA issued a proposed rule to
implement it. Today, after an additional 17 months, HCFA seems no
closer to issuing a a final rule on the Federal statute.
The guiding principle for the self-referral laws was to prevent
physicians from inappropriately referring patients based on the
potential for financial gain. Yet, the health care delivery system has
changed profoundly since passage of the first self-referral laws. Since
1989, the health care system has rapidly moved away from the
traditional fee-for-service way of delivering medical care. Today, the
health care system has moved towards a more coordinated, integrated
approach.
The Balanced Budget Act of 1995 (BBA95) included several amendments
to the self-referral laws. The two major changes were the repeal of the
prohibitions based on compensation arrangements and the revision of the
list of facilities subject to the ban. BBA95 was vetoed by President
Clinton on December 6, 1995.
In announcing the hearing, Chairman Thomas stated: ``Physicians and
hospitals are subject to a bewildering array of overlapping State and
Federal statutes. Many of the steps physicians and hospitals take to
integrate their practices are subject to a multitude of laws, including
self-referral law, anti-kickback law, Federal tax law regulating the
conduct of tax-exempt organizations, State referral bans, corporate
practice of medicine prohibition and the Federal False Claims Act. The
fact that it has taken the HCFA more than 6 years to put out a final
rule is further evidence that these laws are in need of an overhaul.''
FOCUS OF THE HEARING:
The hearing will focus on implementation of existing self-referral
statutes and on areas for reform. The Subcommittee will also consider
proposals put forward by the Administration and Members of Congress.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Any person or organization wishing to submit a written statement
for the printed record of the hearing should submit six (6) single-
spaced copies of their statement, along with an IBM compatible 3.5-inch
diskette in WordPerfect 5.1 format, with their name, address, and
hearing date noted on a label, by the close of business, Thursday, May
27, 1997, to A.L. Singleton, Chief of Staff, Committee on Ways and
Means, U.S. House of Representatives, 1102 Longworth House Office
Building, Washington, D.C. 20515. If those filing written statements
wish to have their statements distributed to the press and interested
public at the hearing, they may deliver 200 additional copies for this
purpose to the Subcommittee on Health office, room 1136 Longworth House
Office Building, at least one hour before the hearing begins.
FORMATTING REQUIREMENTS:
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comments must conform to the guidelines listed below. Any statement or
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1. All statements and any accompanying exhibits for printing must
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The above restrictions and limitations apply only to material being
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and the public during the course of a public hearing may be submitted
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Note: All Committee advisories and news releases are available on
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noted above.
Chairman Thomas [presiding]. The Subcommittee will please
come to order.
Today, we revisit the issue of the Federal Government's
physician self-referral laws. Few laws have been as vexing for
physicians and hospitals, and I dare say, apparently for
bureaucrats as well. The cost of complying with this daunting
law is considerable and has an impact on seniors' ability to
gain access to coordinated systems of medical care. And, after
all, that is what we are supposed to be focusing on, the
ability of seniors to get care.
Self-referral is the term used to describe the situation
where a physician refers a patient to a medical facility in
which the physician has a financial interest.
The first legislative measures aimed at the potential
problem of self-referrals were passed as part of the 1989
Budget Reconciliation Act. That statute applied only to
physicians and clinical laboratories. In 1993, the self-
referral ban was extended to 10 other designated health
services, including, for example, hospital services, outpatient
drugs, durable medical equipment, and home health services.
Five years after passage of the second self-referral law,
HCFA finally published a proposed rule in 1998. Today, after
yet another year, HCFA seems no closer to issuing a final rule
on self-referral law.
I have been told that a final rule is a week or so away, or
a year or so away, or, fill in the blank.
The guiding principle for the self-referral laws was to
prevent physicians from inappropriately referring patients
based on the potential for financial gain. These laws were
meant to provide a bright-line test, and yet we are further
from clarity in this area of the law than probably any other
area of health policy.
At a time when physicians and hospitals are subject to
heightened scrutiny by Federal investigators, they have a right
to know, I think, what the law is. One legal writer paraphrased
Sir Thomas Moore when talking about the self-referral laws, he
said, ``It is unjust to bind the people by a set of laws that
are too many to be read and too obscure to be understood.''
To further complicate matters, physicians and hospitals are
subject to a bewildering array of overlapping State and Federal
statutes. Many of the steps physicians and hospitals take to
integrate their practices are subject to Federal self-referral
as well as a multitude of other Federal and State laws,
including the Federal anti-kickback law, Federal False Claims
Act, Federal tax-exempt law, and the State self-referral bans.
Representatives from the Health Care Financing
Administration and the Office of Inspector General will testify
today that the self-referral laws are a weapon in the Federal
Government's arsenal against fraud and abuse. And yet not a
single case has been prosecuted under the self-referral laws.
The Federal Government has used non-compliance with these laws
as a threat, but it has never once prosecuted a case.
And this tells me two things. First, I mean, the law is not
really an effective weapon in the fight against fraud and
abuse; otherwise the Inspector General and the Justice
Department would have made enforcement of the self-referral
laws a priority as they have with the False Claims Act and the
Federal anti-kickback statute.
Second, since Federal investigators use the self-referral
law to threaten physicians and hospitals, even though the
status of the law is unclear, that seems to me a tacit
admission that compliance is virtually impossible and that it
only serves as a means to bully providers.
While today we will be considering the various options of
reforming self-referral law, let me remind everyone that over
the past several years this Subcommittee has built a pretty
good record on fighting Medicare fraud and abuse. In both the
Health Insurance Portability and Accountability Act of 1996,
HIPAA, and in the Balanced Budget Act of 1997, we have
stiffened penalties, beefed up the resources of both the
Inspector General and HCFA.
Today, we have enacted 65 statutory provisions to preserve
the integrity of the Medicare Trust Funds, and I would ask
unanimous permission to put in the 65 concrete steps that we
have used to fight waste, fraud, and abuse.
[The information follows:]
65 Concrete Steps to Fight Health Care, Waste, Fraud, and Abuse
Summary of HIPAA of 1996 and BBA of 1997 Anti-fraud
The Health Insurance Portability and Accountability Act of 1996
(HIPAA)
1. Provides significant new funding to combat waste, fraud,
and abuse: Over $5 billion through 2003 appropriated to fight
fraud and abuse through the new Health Care Fraud and Abuse
Control and the Medicare Integrity Programs.
2. Increases the number of investigators on the street by
31 percent: New programs have resulted in increasing the number
of full-time federal investigators fighting health care fraud
and abuse from 1,187 to 1,553 in the past two years.
3. Expands Medicare and Medicaid fraud and abuse penalties:
Makes Medicare and Medicaid program-related fraud penalties
applicable to other federal health care programs, such as the
Civilian Health and Medical Program of the Uniformed Services
(CHAMPUS).
4. Increases civil penalties for fraud and abuse: Increases
civil monetary penalties for health care fraud and abuse from
$2,000 to $10,000 for each item and service subject to a
violation.
5. New penalties for illegally retaining ownership or
control in a health care entity: Imposes new civil monetary
penalties on individuals excluded from Medicare or State health
care programs who maintain ownership or control interest in
entities participating in Medicare or Medicaid.
6. New penalties for improper billing: Imposes new civil
monetary penalties against persons who submit bills for more
expensive services than provided or for services that are not
medically necessary.
7. New penalties for improper inducement: Imposes new civil
monetary penalties against persons offering improper financial
incentives to induce beneficiaries to obtain services from a
particular provider or supplier.
8. New penalties for false certification of home health
services: Imposes new civil monetary penalties of the greater
of $5,000 or three times the amount incorrectly paid for false
certification by a physician of the need for home health
services.
9. Adds new criminal penalties for fraud and abuse: New
federal criminal penalties for fraud and abuse violations
specifically related to both the private market and public
health care programs are added to Title 18 of the United States
Code.
10. New penalties for health care theft or embezzlement:
Provides for fines and/or imprisonment of up to 10 years for
theft or embezzlement relating to health care programs.
11. New penalties for false statements: Provides for fines
and/or imprisonment of up to 5 years for false statements
relating to health care matters.
12. New penalties for obstruction of justice: Provides for
fines and/or imprisonment of up to 5 years for obstruction of
criminal health care investigations.
13. New penalties for money laundering: Specifically makes
it a crime to launder money that comes from the commission of a
federal health care offense.
14. Injunctive relief in health care offenses: Authorizes
injunctive relief and freezing of assets in cases involving
federal health care offenses.
15. New authority to issue subpoenas: Authorizes the
issuance and enforcement of subpoenas of records and testimony
by the Attorney General for investigation of health care
offenses.
16. New forfeiture authority: Authorizes the forfeiture of
property related to the commission of a health care offense,
with amounts recovered to be deposited into the hospital
insurance trust fund.
17. New penalties for wrongful disclosure of confidential
health information: Provides that obtaining disclosing, or
using individually identifiable health information is
punishable by fines of up to $50,000 and/or imprisonment of up
to one year, with additional fines of up to $250,000 and up to
10 years imprisonment for the intent to sell or transfer such
information for commercial advantage, personal gain, or
malicious harm.
18. New mandatory exclusion from participation in Medicare
and State health programs for felonies: Adds new mandatory
exclusions from Medicare and Medicaid for felony convictions
related to health care fraud or controlled substances.
19. New permissive exclusion authority for misdemeanors:
Authorizes new discretionary exclusions from Medicare and
Medicaid for misdemeanor convictions related to health care
fraud or controlled substances.
20. New mandatory minimum exclusionary periods: Establishes
a 3-year minimum exclusionary period for criminal misdemeanors
related to health care fraud or controlled substances or
conviction of obstruction of a health care investigation, and a
minimum exclusionary period due to license revocation or
suspension commensurate with the length of such revocation or
suspension.
21. New permissive exclusion of individuals with ownership
or control interest in sanctioned entities: Adds new permissive
exclusion from Medicare and Medicaid for individuals who have
an ownership or control interest, or who are managing
employees, of a sanctioned entity.
22. New sanctions against practitioners for failure to
comply with quality requirements: Establishes a one-year
minimum exclusionary period for practitioners who fail to meet
Medicare or Medicaid quality standards or who fail to complete
peer review corrective action plans.
23. Establishes the new Fraud and Abuse Control Program:
This program coordinates federal, state, and local law
enforcement efforts against fraud and abuse in federal and
private health care programs.
24. Establishes the new Medicare Integrity Program: This
program authorizes the Department of Health and Human Services
(HHS) to enter into contracts with private entities with
expertise in rooting out waste, fraud, and abuse to perform
audits and reviews of provider payments.
25. Establishes the new Beneficiary Incentive Program: This
program provides incentives for beneficiaries to ferret out
waste, fraud and abuse by authorizing the Secretary of HHS to
share monetary recoveries with beneficiaries reporting health
care fraud and abuse.
26. New data for law enforcement: Establishes the Health
Integrity and Protection Data Bank to report final adverse
actions against health care providers.
27. Provides guidance to providers seeking to comply with
the law: Requires the Secretary of HHS to issue binding
advisory opinions regarding whether a proposed transaction
would violate the anti-kickback rules.
28. Provides additional funds for investigation and re-
certification: Authorizes the Health Care Financing
Administration to collect fees from physicians to cover the
costs of investigation and issuance of program identifiers.
The Balanced Budget Act of 1997 (BBA)
29. Three strikes and you are out: Requires that providers
convicted of three program-related offenses be excluded
permanently from Medicare and other federal health programs,
and that providers convicted of two program-related offenses be
excluded from federal health programs for at least 10 years.
30. Excludes convicted felons from Medicare: Authorizes the
Secretary to refuse to enter into provider agreements with
persons or entities convicted of prior felonies.
31. Excludes practitioners and entities excluded from
Medicare from an health care programs: Expands the scope of
Medicare exclusions to include exclusion from all other federal
and state health care programs, other than the Federal
Employees Health Benefit Program
32. Clearly identifies Medicare providers: Requires
providers to provide the Secretary with their Social Security
Number or Employer Identification Number as a condition of
participation in the Medicare program.
33. Prevents transfer of illicit businesses to family
members: Authorizes the Secretary to exclude entities from the
Medicare program in which ownership or control is transferred
to immediate family members in anticipation of, or following, a
conviction or exclusion action.
34. Further increases civil penalties: Imposes new civil
monetary penalties of up to $50,000 per act for providers who
violate anti-kickback rules.
35. Penalizes providers who do businesses with other
providers excluded from Medicare: Imposes new civil monetary
penalties on providers who hire or contract with persons or
entities the provider ``knows or should know'' have been
excluded from the Medicare program.
36. New sanctions for providers not reporting to data bank:
Imposes new civil monetary penalties for failure to report
adverse fraud actions to the Health Integrity and Protection
Data Bank.
37. $50,000 surety bonds for certain Medicare providers and
suppliers: Requires home health agencies, durable medical
equipment suppliers, CORFs, and rehabilitation agencies to post
surety bonds of at least $50,000 and to disclose ownership and
control information.
38. Expansion of $50,000 surety bond requirement: Provides
authority to the Secretary to extend surety bond requirements
to other Part A and Part B providers.
39. Itemized bills for services: Requires providers to
furnish beneficiaries with itemized bills for Medicare services
upon request.
40. Sanctions for failure to provide itemized bills:
Imposes civil monetary penalties of up to $100 for failure of
providers to respond to beneficiaries' request for itemized
bills.
41. Toll-free hotline for beneficiaries to fight waste,
fraud and abuse: Requires the Inspector General to establish a
toll-free hotline for Medicare beneficiaries to report fraud
and billing irregularities.
42. Disclosure to beneficiaries of provider financial
interest: Requires hospitals to disclose to beneficiaries
requiring post-acute care any provider in which the hospital
has a financial interest.
43. Maintenance and disclosure of information on post-
hospital home health agencies and other entities: Requires
hospitals that have a financial interest in a home health
agency or other entity to which they refer beneficiaries to
disclose to the Secretary and the public the nature of the
financial interest, the number of individuals discharged from
the hospital requiring home health services,, and the
percentage of those individuals,who receive home health care
from the related provider.
44. Disclosure of ownership information for durable medical
equipment suppliers: Prohibits the Secretary of HHS from
issuing or renewing provider numbers for DME suppliers unless
the supplier provides the Secretary on a continuing basis with
full and complete information about the identity of each person
with an ownership or control interest in the supplier or in any
subcontractor in which the supplier has an ownership interest.
45. New authority to prevent Medicare overpayment: Provides
the Secretary with new authority to reduce Medicare
reimbursement where the current payment amount is grossly
excessive and inherently unreasonable.
46. New sanctions for durable medical equipment suppliers
who engage in coercive or abusive practices: Authorizes the
Secretary of HHS to establish sanctions, including program
exclusions, for DME suppliers who engage in sales practices
designed to coerce beneficiaries to purchase ``upgraded''
durable medical equipment.
47. Better direction for providers: Requires the Secretary
to issue advisory opinions regarding the physician self-
referral rules.
48. Home health payment changes to reduce waste and abuse:
Requires the Secretary to move from ``cost-based''
reimbursement to a prospective payment systems for home health
agencies by October 1, 1999.
49. Better data on home health visits to prevent waste and
abuse: Requires that home health claims contain the
identification number for the prescribing physician and
information on length of service (as measured in 15 minute
increments).
50. Ends payment advances for home health agencies:
Eliminates periodic interim payments to home health agencies.
51. Better definition of skilled nursing and home health
benefits: Includes statutory definition of ``part-time'' and
``intermittent'' skilled nursing and home health aide services.
52. Prevents abuse of home health benefits: Requires the
Secretary to conduct a study to clarify when a beneficiary is
``homebound.''
53. Prevents home health agency payment abuses: Requires
home health agencies to submit claims on the basis of the
location where a service is actually furnished, and not where
the home health agency billing office is located.
54. Prevents unnecessary use of home health agency
services: Authorizes the Secretary to establish national
guidelines to prevent unnecessary billing for home health
services.
55. Prevents unnecessary use of home health agency
services: Clarifies that a person could not qualify for
Medicare's home health benefit on the basis of their simply
needing a nurse to draw a blood sample.
56. Skilled nursing payment changes to reduce waste and
abuse: Requires the Secretary to replace ``cost-based''
reimbursement with a prospective payment system for skilled
nursing facility services by July 1, 1998.
57. Prevents unnecessary ordering of equipment and
supplies: Eliminates Medicare payments for unnecessary durable
medical equipment and supplies by requiring nursing homes to
use consistent coding and directly bill for these services.
58. Requires additional diagnostic information for better
accountability: Includes non-physician practitioners in the
requirement to provide diagnostic codes when ordering items or
services to be furnished by another health entity.
59. Better data on skilled nursing visits to prevent waste
and abuse: Requires physicians who visit patients in nursing
homes to include the facility's identification number on their
claim to make detection of inappropriate visits easier to
track.
60. Annual audit to protect against fraud in the
Medicare+Choice program: Requires the Secretary of HHS to
conduct an annual audit of the financial records of at least
one-third of Medicare+Choice organizations offering
Medicare+Choice plans and for the General Accounting Office to
evaluate the results of such audits.
61. New right to inspect, audit, and evaluate the quality
of services provided by Medicare+Choice contractors: Provides
authority to the Secretary of HHS to inspect and evaluate the
quality, appropriateness, and timeliness of services provided
under a Medicare+Choice plan and the solvency and capacity of
such plan.
62. Expansion of sanctions to protect beneficiaries
enrolled in Medicare+Choice plans: Makes the same sanctions
applicable to physicians and entities improperly billing
beneficiaries under traditional fee-for-service Medicare
applicable to physicians and entities improperly billing
beneficiaries enrolled in Medicare+Choice plans.
63. New sanctions for Medicare+Choice Plans to protect
beneficiaries: Authorizes new intermediate sanctions, including
civil monetary penalties, for Medicare+Choice organizations
that fail to provide medically necessary items or services,
impose excess premiums, deny or discourage enrollment by
eligible individuals, furnishes false information to
beneficiaries or the Secretary of HHS, employs or contracts
with excluded providers, or fails to comply with
Medicare+Choice consumer protections and balance billing
limitations.
64. Additional penalties for Medicare+Choice organizations
failing to meet contract terms: Imposes additional civil
monetary penalties for Medicare+Choice organizations that
substantially fail to fulfill their contract with the Medicare
program, carry out the contract in a manner inconsistent with
the efficient administration of the Medicare program, or no
longer meet conditions of participation in the Medicare+Choice
program.
65. New exclusionary authority' for Medicare+Choice
organizations: Authorizes the Secretary to terminate contracts
with Medicare+Choice organizations in accordance with formal
investigation and compliance procedures.
Chairman Thomas. I would also like to remind everyone that
a number of other people have called for simplification of
these statutes, including, I might add, my friend and
distinguished Ranking Member, Mr. Stark. In July 1998, he
issued a press release and a letter to the Institute of
Medicine asking for input on, ``fundamentally simpler ways to
prevent abuse in referrals.'' And I would ask unanimous consent
to place that in the record as well.
[The information follows:]
Stark Seeks Ideas for Improvement and Simplification of Referral Laws
Citing complexity of the laws and regulations governing
physician referrals to services in which the physician has an
ownership or compensation arrangement, Rep. Pete Stark (D-CA)
is calling for ideas on how to stop referral abuses while
simplifying the rules on doctors.
``Numerous studies have shown that when doctors have an
ownership or compensation arrangement with an ancillary
service, they tend to order more services and more expensive
services,'' said Stark. ``It is an abuse of the Medicare Trust
Fund, the taxpayer, and the patient who is subjected to
questionable and unnecessary tests.''
``Stopping these abuses--which include the abuse of hospitals
which have an ownership interest in downstream services--is
complex,'' said Stark. ``I am asking the health community for
ideas on how we can improve and simplify the current laws
without opening Medicare to abuse.''
Stark released a letter he sent to the Institute of
Medicine outlining possible ideas to improve the referral
rules.
``The Institute will probably not be able to do work in this
area without appropriate funding,'' said Stark. ``But I hope
that the ideas I've raised in the letter will encourage others
to offer suggestions directly to me on ways to improve this
area of Medicare law without weakening our efforts against
abuse of the program.''
[The letter follows:]
June 8, 1998
Dr. Kenneth I. Shine, M.D.
President, Institute of Medicine
Washington, D.C.
Dear Dr. Shine:
In the mid-80s, the Institute of Medicine helped start the national
debate on the ethical issue of physician referral of patients to
services from which the physician could profit. Nearly fifteen years
later, the regulation of referrals remains a difficult issue, and new
issues involving referrals by hospitals and other institutions to post-
acute care services have developed.
A series of laws have been passed that tried to address the
physician referral conflict of interest. Five years after the last of
these laws was passed, the Health Care Financing Administration has
finally issued proposed rules to implement those laws. The regulations
are controversial, with many individual doctors and groups complaining
that they will interfere with the delivery of efficient and ethical
medical care, increase costs, and micro-manage doctors' offices. Yet we
know from past studies and certain on-going investigations that the
problem of abusive referral is a real problem--one that abuses the
public as both patient and as taxpayer. There is also some evidence
that areas where the law was not applied have been subject to abuse and
that ethical issues also arise in hospital referrals. In the meantime,
staff at HCFA have indicated that to process the comments they are
receiving on the regulation will require at least another year, and
possibly more, before final regulations can be issued. In short, the
controversy drags on and many providers who seek to do the right thing
find themselves caught in uncertainty.
Therefore, I request that the Institute of Medicine convene a work
group, hopefully late this summer, on the issue of how best to address
referral problems and whether there may be a way to reach consensus on
fundamentally simpler ways to prevent abuse in referrals. Specifically,
would it be possible to:
eliminate a number of the designated health services in
the physician referral laws, and replace them with a system where a
doctor may refer for the service, but through the use of actual
acquisition cost or other payment changes, remove excessive financial
incentives to over-refer and over-test? A related question is whether
physician practice expense payments are sufficient to make profit
margins on in-office services unnecessary?
allow a physician to have any ownership or compensation
arrangement the physician desires in exchange for accepting a
``normative practices screen.'' Under this approach, a physician could
have, for example, an ownership interest in a lab partnership, but if
he or she does not exceed the norms of testing (adjusted by specialty,
severity of patient, etc.) of those with no ownership or compensation
relationship, then there would be no problem. If the norm were
exceeded, however, there would be potential recovery with penalty by
the public insurers (Medicare/Medicaid), if practices were found to be
without clinical indication.
other ways to simplify the current Physician Referral laws
without abandoning their ability to stop the abuses documented in the
late 1980's and early 1990's?
ways to address the problem of referral by institutions?
Thank you for your consideration of this request. I would like to
work with you on how such a Working Group could include the key
physician organizations and develop a consensus for improvement of the
regulations or amendments to the law.
Sincerely,
Pete Stark
Member of Congress
Chairman Thomas. But with all due respect, we may be asking
the wrong question. The law says that a physician who owns an
interest in a clinical laboratory cannot refer a patient to the
clinical laboratory and then bill Medicare. But, if that same
physician purchases that same lab equipment and, instead, puts
it in his or her own office, that same physician can bill
Medicare all he or she wants without self-referral problems.
Asking about referral patterns and asking the Federal
regulators to micro-manage physicians practices may be
pointless or impossible, when the real issue is not referrals
but the appropriateness of the medical care provided.
Members of the Subcommittee can agree, I hope, that the
overarching goal is to provide to our seniors the proper
medical care in the proper setting. The healthcare delivery
system today is very different from when the first self-
referral laws were considered now a decade ago.
For example, the emergence of utilization review and other
coordinated-care models in both managed care and fee-for-
service provided, are, I believe, a more appropriate method of
checking any potential abuses with regard to self-referrals.
And prior to recognizing the panel, I will turn the mike
over to the gentleman from California, Mr. Stark.
Mr. Stark. Thank you, Mr. Chairman. I am not sure I ever
would have chosen to have my name associated with this law. I
would much rather be known for extending health insurance to
the uninsured. But I don't have that much choice.
I would note that the impetus for this law started with
antifraud officials in the Reagan Administration and then was
continued by those in the Bush Administration. It was a
bipartisan effort to fight waste, fraud and over-utilization in
the Medicare system. And it was proven that those problems
existed and still exist today.
In spite of the problems with the law, it's been a success.
As the OIG will testify, we have prevented billions of dollars
worth of business deals which would have ended up abusing
patients through over-testing and unnecessary services. And in
this sense, the law has been self-enforcing.
In other ways, the complexity of the law has been an
embarrassment. The law purports to be simple: Don't create
temptation to make a medical judgment based on the money you
get. That ought to be the golden rule, like the AMA code of
ethics against referral.
But it is the medical shysters, and the exemptions designed
to allow people to end-run the law and make money in special
situations that have made the law complicated. Every time we
have attempted to define the law's parameters, we have just
created an opportunity for unscrupulous attorneys to create a
loophole based on our exemptions. And the beat goes on.
As we try and make the law more definitive, this creates
ways to get around it. And now there are even new issues, where
you have hospitals buying referrals.
I don't know what that does for medical care. I will tell
you this, it steals the taxpayers' money.
We have a court case that was outlined in the healthcare
fact sheet we got this morning of a doctor who was brought to a
town by a hospital. Let's assume there is more than one
hospital. I don't know. He was given a $20,000-a-month
guarantee--that is $240,000 a year--$15,000 in moving expenses,
$10,000 in a signing bonus, and 25,000 bucks a year in free
office rent.
Now that all ends up being paid for by the taxpayers
through Medicare. And I don't know that if anybody tries to
tell me with a straight face that that hospital just did this
out of the goodness of their heart, not anticipating that they
were going to get referrals from this doctor, then I think you
have got to believe in the tooth fairy and the boiling seas.
There are thousands more examples. If this money had come
from a pharmaceutical company, we would say, ``Oh my goodness,
they are giving this doc all this money to use their
pharmaceuticals,'' which does happen, I might add. The oncology
profession has quadrupled their fees through the high markups
of drugs which they think only they can administer. And
Medicare is paying the bill, and I know no way that the
patients are advantaged by the extra profits these doctors are
making on the pharmaceuticals. And I can assure you the
taxpayers are being disadvantaged.
Now, I suspect that a doctor in jail would have the same
meritorious effect that one of our colleagues in jail would
have, and that we would all clean up our act and they will as
well. We are seeing it with Columbia. My hope is that Columbia
executives will rot in jail for a while, and then we won't have
to do so much legislating because other hospital executives
will get the message that if you steal from the Government, you
do hard time.
So this is basically a bunch of specialists, and mostly
their attorneys, dreaming up ways to get money to which they
are not entitled. And it is difficult to write laws to keep
abreast of people who have creative genius in stealing money
from the Government.
We have, in the tax field, as we all know, a new loophole
every year created by some creative genius who is figuring out
a way to get around the law. And it is why the Tax Code is this
thick. Not because we decided to make it complicated. It is
because of the innate greediness of those who don't want to pay
their fair share.
So it is, and we will hear from the Government about the
number of pending fraud cases and the fact that we ought to
give HCFA some more money to go after these people and round
them up. Perhaps if they found that they would go to jail if
they steal or harm our patients by over-utilization of
services, or, on the managed-care side, under-utilization, that
the profession would self-police.
But I do not think that the answer is just every time it is
inconvenient for some physician to not get all the money to
which they feel they are entitled, to send their lawyers here
to bleed all over the place and say the law is complicated.
I just say, don't take the money. You make enough money as
a physician just getting the fee to which you are entitled. And
when you start to branch out--if you want to go into another
business--quit billing Medicare for your medical practice and
go into the other business. It's a free country.
But I do not see that we ought to encourage under any
circumstances the bundling of services or the increase in the
provision of services. And I agree with the Chair, we shouldn't
allow a lot of physicians to buy the equipment and operate it
in their office if it isn't good medical practice.
That is beyond the ability of this Committee to determine,
but my sympathies lie largely with the Inspector General's
Office and the bureaucrats who are overworked and underpaid in
trying to keep ahead of a group who use their ill-gotten gains
to hire fancy attorneys and accountants to get around the laws.
So we will hear today from the bleeding hearts about they
aren't making enough money off Uncle Sam, and I look forward
with great interest to their protestations.
[The opening statement of Hon. Jim Ramstad follows:]
Statement of Hon. Jim Ramstad, a Representative in Congress from the
State of Minnesota
Mr. Chairman, thank you for calling this important hearing
on the Medicare self-referral laws.
As elected government officials, we try to solve problems
that are brought to us by our constituents. Many times we are
able to help, and that is our job. Some other times, however,
we may overshoot our mark and actually enact legislation that
unintentionally causes a series of other problems. It is then
our responsibility to revisit our efforts and undo as much of
the damage as we can.
Such is the case before us today. While the self-referral
laws were intended to
remove potential conflicts of interest from physician decision
making, we are seeing that they are actually raising health
care costs, interfering in the practice of medicine and
disrupting the development of new, innovative approaches for
delivering health care services to America's seniors.
In addition, it is my understanding that hospitals and
physicians are subject to a myriad of other over-lapping
federal and state laws that are also aimed at rooting out
fraud, abuse and kickbacks within the health care system. This
prompts one to consider whether these laws, with all their
unintended and problematic consequences, are appropriate and
necessary anyway.
The famous health care creed is ``first do no harm.'' If
our policies are doing more harm than good, it is imperative
that we as health care policy makers find ways to fix them.
Thank you again, Mr. Chairman, for calling this important
hearing. I look forward to hearing from today's witnesses on
ways we can provide relief from any unnecessary government
rules and regulations without compromising the integrity of the
Medicare system.
Chairman Thomas. A public service announcement. This
doesn't necessarily apply to the panel I am about to introduce.
From the Health Care Financing Administration, we have gotten
Kathleen Buto, who has been a long-time professional in this
area, a civil service servant who has been through a number of
administrations, and we look forward to her testimony.
We also have Mr. McCarty Thornton, who is back with us
again from the Office of Counsel to the Inspector General and
has been involved, directly with the question of medical
integrity.
So, any written testimony will be a part of the record, and
you can address this in any way you see fit. Start with Ms.
Buto, and then go to Mr. Thornton.
STATEMENT OF KATHLEEN A. BUTO, DEPUTY DIRECTOR, CENTER FOR
HEALTH PLANS AND PROVIDERS, HEALTH CARE FINANCING
ADMINISTRATION
Ms. Buto. Thank you very much, Chairman Thomas, Congressman
Stark and distinguished Subcommittee Members. Thank you for
inviting us to discuss limits on physician self-referral.
These limits are based on numerous studies, as others have
already pointed out, showing that physicians made far more
referrals when they had a financial interest in a testing or
treatment facility. They were enacted in law with leadership
from this Subcommittee to prevent increased costs and potential
harm to beneficiaries from unnecessary treatments.
However, important exceptions to these limits are needed to
protect beneficiaries' access to care and to take into account
the many detailed financial arrangements in today's healthcare
delivery system.
Adequately defining these exceptions and determining
whether new exceptions are warranted has proven to be a
daunting task. We have spent a great deal of time meeting and
talking with industry associations, individual providers, and
their attorneys in an effort to deal fairly and proactively
with the many issues subject to interpretation. And we are
continuing to do so.
We have taken steps in our proposed rules to clarify the
law and create appropriate flexibility. One of the most
important steps establishes that compensation arrangements are
generally permissible as long as they meet fair-market value
standards, further a legitimate business purpose, and are not
tied to the volume or value of physician referrals.
This exception goes a long way in simplifying the policy
under the law. Our proposed rules also significantly limit the
information that physicians are required to report for
financial relations related to the 10 new designated services
added to the law in 1993.
We are not asking physicians to submit information
regarding these financial relationships, as we did for clinical
lab services. Instead, physicians need only keep on file the
kind of information that they would normally maintain to meet
IRS, SEC, and other Medicare and Medicaid rules. This would be
sufficient to demonstrate compliance in the event of a
complaint investigation or a spot audit.
No other type of enforcement actions will be taken until
outstanding questions are resolved and a final rule is
published.
We continue to evaluate the 12,800 comments we have
received on the proposed rules and are open to ideas to further
simplify the regulations and the law itself in ways that do not
undermine its intent. We are considering a wide range of
clarifications and other suggestions to determine whether they
would meet the statutory requirement that exceptions not create
a risk of program or patient abuse.
But we must take care to uphold the law's intent and
prevent arrangements that would increase cost to taxpayers and
subject beneficiaries to possible harm from unnecessary tests
and procedures.
I am pleased that we were able to issue, pretty much in
record time, an interim final rule with comment to implement
the advisory opinion provisions in the Balanced Budget Act and
that we have already begun to process a number of requests for
advisory opinions. Some 20 have been received, and we have
issued two opinions. Currently we are looking at about eight
that remain in the workload.
We greatly appreciate the good-faith efforts made by
physicians to comply with the law and to work with us to
address the issues that it raises. We look forward to
continuing to work with these groups and with the Subcommittee
to resolve remaining issues.
I thank you for holding this hearing, and I am happy to
answer your questions.
[The prepared statement follows:]
Statement of Kathleen A. Buto, Deputy Director, Center for Health Plans
and Providers, Health Care Financing Administration
Chairman Thomas, Congressman Stark, distinguished
Subcommittee Members, thank you for inviting us to discuss
limits on physician self-referrals for Medicare and Medicaid
beneficiaries. These limits were enacted into law, with
leadership from this Subcommittee, to prevent increased program
costs and potential harm to beneficiaries from unnecessary
tests and treatments. They are based on numerous studies
showing that physicians made far more referrals when they had a
financial interest in a testing or treatment facility. Some
studies also found higher prices and lower quality with self-
referrals. The American Medical Association has declared self-
referral unethical in most instances.
Self-referral limits play an important role in bolstering
our successful efforts against fraud, waste, and abuse.
However, we would all agree that we must take great care in
translating this important legislation into policy. Important
exceptions are needed to protect beneficiaries' access to care,
and we must take into account the many detailed financial
arrangements in today's health care delivery system. We would
also all agree that physicians and other health care entities
have by and large made a good faith effort to comply with the
law without final regulations to clarify many issues.
We have taken steps in our proposed regulations to clarify
the law and create appropriate flexibility. One of the most
important provisions establishes that referrals to an entity
with which a physician has a compensation arrangement are
generally permissible as long as the compensation is at ``fair
market value,'' furthers a legitimate business purpose, and is
not tied to the volume or value of physician referrals. This
exception goes a long way in simplifying the policy under the
law.
We are evaluating the 12,800 comments we received on these
proposed regulations, and are open to ideas to further simplify
the regulations and the law itself in ways that do not
undermine its intent. But we must take care to uphold its
intent and prevent arrangements that would increase costs to
taxpayers and subject beneficiaries to possible harm from
unnecessary tests and procedures.
Background
Concern about the ethical risks inherent in physician self-
referral dates back at least to a 1986 Institute of Medicine
study. A 1989 HHS Inspector General study documented that
physicians who owned or invested in independent clinical
laboratories referred Medicare patients for 45 percent more
laboratory services than did physicians who did not have such
financial interests. In 1991, the American Medical Association
Council on Ethical and Judicial Affairs concluded that
physicians should not refer patients to a health care facility
outside their office at which they do not directly provide
services and in which they have a financial interest. And in
1992, the American Medical Association House of Delegates voted
to declare self-referral unethical in most instances.
Limits on self-referral were first enacted into law as part
of the Omnibus Budget Reconciliation Act of 1989. The law took
effect January 1, 1992. It bars referral of Medicare patients
to clinical laboratories by physicians who have, or whose
family members have, a financial interest in those
laboratories. The Omnibus Reconciliation Act of 1993 expanded
the scope of the ban on self-referral to 10 additional
designated health services, including:
physical therapy;
occupational therapy;
radiology services;
radiation therapy services and supplies;
durable medical equipment and supplies;
parenteral and enteral nutrients, equipment and supplies;
orthotics, prosthetics, and prosthetic devices and
supplies;
home health services;
outpatient prescription drugs; and
inpatient and outpatient hospital services.
The 1993 law also expanded and clarified exceptions, and
applied the referral limits to Medicaid. Provisions related to
the new designated health services were effective January 1,
1995.
The self-referral law works differently from the law
against kickbacks, which was enacted as part of the Social
Security Amendments of 1972. Enforcement of the anti-kickback
law requires proof of ``knowing'' and ``willful'' illegal
remuneration, such as bribes or rebates, for patient referrals,
and it can result in criminal sanctions. Self-referral laws, on
the other hand, are generally self-enforcing. The simple
existence of an improper financial relationship is subject to
loss of Medicare payment or a civil fine. This creates a
powerful incentive to proactively comply with the law through
due diligence efforts to avoid financial arrangements that may
unethically lead to substantial increases in use of services.
The law's preventive nature makes a highly effective
contribution to our increasingly successful efforts to protect
Medicare and Medicaid program integrity.
Exceptions
As mentioned above, the law includes many important
exceptions. It also gives the Health and Human Services
Secretary authority to create new exceptions through
regulations as long as they do not create a risk of program or
patient abuse. One of the most important exceptions is for most
services physicians provide in their own offices or through
their group practices. There are more than a dozen additional
exceptions, including ones for managed care plans, rural
providers, and isolated financial transactions.
Adequately defining these exceptions and determining
whether new exceptions are warranted has proven to be a
daunting task. We have spent a great deal of time meeting and
talking with industry associations, individual providers, and
their attorneys in efforts to deal fairly and proactively with
the many issues subject to interpretation. We are continuing
these efforts.
Regulations
We published proposed regulations for the clinical
laboratories referral ban on March 11, 1992, and a final rule
with comment period on August 14, 1995. These regulations have
been in effect since September 13, 1995.
We published proposed regulations for the other designated
services on January 9, 1998. These proposed regulations were
generally well received. The American Hospital Association has
said they make it easier for physicians and hospitals to work
together in integrated systems. The proposed regulations
include several clarifications and create new exceptions,
providing flexibility for physicians while not compromising the
intent of the law. They:
create a ``fair market value'' exception to make clear
that compensation arrangements are generally permissible as long as
they are at fair market value, further a legitimate business purpose
and are not tied to the volume or value of physician referrals.
Physicians must simply put in writing the terms of their arrangements,
the items or services the physician will provide, and the time period
involved. The agreement must be commercially reasonable and not based
on the volume or value or referrals made, and must comply with the
anti-kickback statute;
state that token gifts, such as free parking at a
hospital, are allowed as long as the value is $50 or less with an
annual maximum of $300 and there is no direct link to patient
referrals.
clarify that physicians can provide crutches to patients
as long as the physicians do not profit;
allow for discounts as long as they are passed along to
the patient or insurer with no benefit to the physician;
clarify that a financial transaction qualifies for the
``isolated'' exception only if another financial relationship does not
occur within six months; and
clarify an exception for recruitment payments made by
hospitals to encourage physicians to relocate to the hospital's
geographic area, and invite comments on how that geographic area should
be defined.
The Omnibus Reconciliation Act of 1997 instructed the
Health Care Financing Administration to issue, upon request,
advisory opinions as to whether particular arrangements would
violate self-referral policy. We published a final regulation
implementing this provision January 9, 1998. To date, we have
issued two such advisory opinions and are working on several
others.
Reporting and Enforcement
Our proposed regulations also significantly limit the
information that physicians are required to report for
financial relations related to the 10 new designated services.
Also, we are not asking physicians to submit information
regarding these financial relationships as we did for clinical
laboratory services. Instead, physicians need only keep on file
the kind of information that they would normally maintain to
meet Internal Revenue Service, Securities Exchange Commission,
and other Medicare and Medicaid rules. This would be sufficient
to demonstrate compliance in the event of a complaint
investigation or spot audit. No other type of enforcement
actions will be taken until outstanding questions are resolved
and a final rule is published.
Conclusion
While the general response to our proposed regulations was
positive, many outstanding issues remain. We extended the
public comment period by two months in order to provide more
time for interested parties to respond. The public comment
period closed on March 10, 1998. We are reviewing the 12,800
comments we received and continuing to evaluate how we should
address the many concerns that have been raised in final
regulations. Many comments involve issues related to physicians
in multi-specialty group practices and to a requirement in the
law for direct supervision by physicians of services provided
in physician offices. We are considering a wide range of
clarifications and other suggestions to determine whether they
can be addressed through regulations and would meet the
statutory requirement that exceptions not create a risk of
program or patient abuse.
We greatly appreciate the good faith efforts made by
physicians to comply with the law and to work with us to
address the many issues raised by this complex legislation. We
look forward to continuing to work with physician groups and
this Subcommittee to resolve remaining issues. I thank you for
holding this hearing, and I am happy to answer your questions.
Chairman Thomas. Thank you very much, Ms. Buto. Mr.
Thornton.
STATEMENT OF D. McCARTY THORNTON, CHIEF COUNSEL TO THE
INSPECTOR GENERAL, OFFICE OF THE INSPECTOR GENERAL, U.S.
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Mr. Thornton. Thank you, Mr. Chairman. In 1989, OIG
conducted the very first study on physician ownership from
healthcare entities to which they make referrals. We found that
patients of referring physicians who own or invest in clinical
labs receive 45 percent more of such services than all Medicare
patients in general.
Nine more studies have appeared in the professional
literature, including four in the New England Journal of
Medicine and three in the Journal of the American Medical
Association. They support and expand on our original 1989
findings, often finding significant increases in utilization
where there is a financial reward for doing so.
The studies have been subject to criticism, in that most of
them do not measure other factors, such as whether the
additional referrals are medically necessary. However, it
should be noted that some of the studies do address such
issues.
For example, the 1992 study in the New England Journal
found that self-referring physicians ordered medically
unnecessary MRI scans about 36 percent of the time more often
than physicians making referrals where they had no financial
arrangement.
While these studies may not be conclusive, taken as a
whole, they strongly support, we believe, the proposition that
many physicians respond to financial rewards for ordering
ancillaries.
Now, before the enactment of section 1877, which I will
refer to as ``the section,'' the only statute available to
handle the self-referral issue was the anti-kickback statute, a
broadly-worded statute which requires proof of ``knowingly and
willfully'' paying anything of value to induce the referral of
Federal program business. It was and is very unrealistic to
rely on the anti-kickback statute as a means to control self-
referral.
The difficulty in proving knowing and willful behavior
cannot be underestimated, as it requires proof of the mental
thoughts and motivations of particular human beings.
The serious limitations of the anti-kickback statute can be
illustrated by our case against the Hanlester Network, where we
had, we thought, very strong evidence of intent to pay for
referrals. For example, only physicians in a position to refer
were solicited for investments in the labs. And the numbers of
shares offered to each physician were related to the expected
amount of referrals from each doctor.
The labs harassed investors if referrals were lower than
expected and even expelled some investors who did not refer
enough. However, when our case reached the Ninth Circuit, they
disagreed and vacated our case.
By contrast, the section is a condition of Medicare and
Medicaid payment with no mental element. I note that the
Hanlester joint ventures that I just spoke of were formed
before the section went into effect. Under the section, section
1877, none of the complicated evidence I described regarding
intent would be needed.
Under the section, billings for clinical lab services
ordered by physician-investors were as of then not payable.
Very simple.
While the section contains areas of ambiguity, it has
established certain core principles for Medicare and Medicaid
providers which we believe have been a great benefit to the
programs. Most of these principles are relatively clear and
unambiguous. For example, under the section, one cannot bill
the programs for a designated health service from a joint
venture owned by a disparate group of physician-investors.
Similarly, one cannot enter a personal-services contract
with a referring physician for more than fair-market value. Nor
can the compensation vary according to the volume or value of
referrals.
These core principles have been largely effective. For
example, while questionable joint ventures were proliferating
in the late eighties and early nineties, they are much less
common today. Much of the credit for this development must be
given to the section.
Another positive feature of the section is that it is, to a
large degree, self-enforcing. Healthcare companies being
purchased, merged, or refinanced, which has certainly been a
predominant trend in this decade, are legally required to
undergo a due-diligence examination, including an examination
of current contracts with physicians and ancillary providers.
To sum up, the research on physician behavior indicates
that financial incentives do increase the rate at which
physicians order items and services, although, obviously, this
does not apply to every physician.
It may now be appropriate to revisit the section, to assess
whether its objectives could be achieved with simpler
provisions. It would also be appropriate to determine if there
are any significant loopholes.
Our recommendation is that whatever changes are considered,
the section should continue to function as a bulwark against
inappropriate incentives to physicians.
Thank you, sir.
[The prepared statement follows:]
Statement of D. McCarty Thornton, Chief Counsel to the Inspector
General, Office of the Imspector General, U.S. Department of Health and
Human Services
Good morning Mr. Chairman and members of the Subcommittee.
I am D. McCarty Thornton, Chief Counsel to the Inspector
General for the Office of Inspector General (OIG) at the
Department of Health and Human Services. We appreciate the
opportunity today to address the law concerning physician self
referral, i.e, situations where physicians obtain financial
incentives which may increase their ordering of items and
services paid by Federal health care programs.
Much has been learned since 1989 about the issue of self-
referral, when it became a matter of attention by this
committee and the Congress, and by our office. We suspected
then-that physician referral of patients to health care
entities like clinical laboratories with which they have a
financial interest creates a situation where the financial
reward can insinuate itself into patient care, and possibly
lead to inappropriate use of medical services. Now we are
convinced that self referral has consequences in the real
world. Our own law enforcement experience, and the findings of
ten studies published in the professional literature, indicate
that many (but certainly not all) physicians respond to
financial incentives by increasing their ordering of medical
items and services. If unaddressed, this situation could result
in unnecessarily higher costs to patients, insurers, and the
Medicare and Medicaid programs, and can prevent patients from
receiving the best quality of care. It could also expose
patients to unnecessary medical procedures.
In response to this issue, in 1989 the Congress enacted
Section 1877 of the Social Security Act, and in 1993 enacted
significant amendments thereto. This statute, also known as the
``Stark Law,'' established certain core concepts regarding self
referral which have proved effective in preventing many abusive
arrangements. For example, one cannot ``joint venture'' a
clinical laboratory with a group of physicians whose only
relationship to the laboratory is to refer laboratory work and
share investment profits. Because this law is a condition of
payment under the Medicare program, it is largely self
enforcing, and it is accomplishing much of its basic purpose.
Section 1877 has been subject to considerable criticism,
resulting from ambiguity in how the law applies to certain
particular types of business arrangements among physicians and
other health providers. In addition, we are well aware that the
structure of medical practice is becoming increasingly complex,
as physicians and other medical care entities try to deliver
patient care through managed care and other integrated systems.
We can well appreciate how complicated is the task of those
physicians, medical service providers, and members of Congress
who wish to reduce the potentially harmful incentives of
physician ownership, while encouraging the development of
modern medical care systems. Yet the statute and the proposed
regulations of the Health Care Financing Administration do
contain many exceptions intended to accommodate these concerns.
While it may be time to revisit the statute to see if its
objectives can be achieved in simpler, more understandable
ways, we would caution against changes which would allow
arrangements to flourish which give financial rewards to
physicians who may inappropriately increase their ordering of
items and services separately paid by Medicare and Medicaid.
Concerns About Self-Referral
The overall concern about self-referral is that when a
physician sits down with a Medicare or Medicaid beneficiary,
that the medical decisions made should be on the basis of what
is in the best medical interest of that beneficiary. That is
what the beneficiaries have a right to expect, and do expect.
They want to be assured that financial interests are not
affecting physician decisions about their medical care.
There are other related concerns, including: over-
utilization, patient choice, and competition. The over-
utilization issue relates to the items and services ordered for
patients which would not be ordered if the physician had not
been rewarded financially. Such over-utilization becomes a
direct cost to the health care system, including Medicare and
Medicaid. The patient choice issue concern relates to the
steering of patients to a less convenient, lower quality, or
more expensive provider, just because that provider is
rewarding the doctor. And lastly, where referrals are
controlled by those sharing profits, the medical marketplace
suffers since new competitors can no longer win the business
with superior quality, service or price.
Inspector General's Report
In the late 1980's, a trend developed where various kinds
of ancillary providers, such as laboratories, MRI facilities,
physical therapy clinics and others, would syndicate or joint
venture themselves with physicians in a position to refer
business, often in exchange for only a nominal investment. In
June 1988, the Congress mandated that the OIG conduct a study
on physician ownership and compensation from health care
entities to which they make referrals. We published the report
in May 1989. (Financial Arrangements Between Physicians and
Health Care Businesses, OAI-12-88-01410.)
Our methodology included surveys of health care providers
and analysis of claims information. First, we conducted two
surveys of health care providers to determine the prevalence of
physician financial involvement with other health care entities
and the nature of such arrangements. One survey was sent to
physicians; the other to independent clinical laboratories,
independent physiological laboratories, and durable medical
equipment manufacturers. We used claims information from HCFA's
Part B Medicare Annual Data files for 1987 to assess
utilization patterns for patients of physician-owners
identified through our survey of health care businesses.
(Physicians with designated specialty codes indicating
radiology or pathology were dropped from the analysis of
clinical and physiological labs since these physicians are not
in a position to refer patients.) Finally, we interviewed State
officials, industry representatives, health care experts, and a
sub-sample of provider respondents to our survey.
We found that 12 percent of physicians were owners of
entities to which they referred patients and eight percent had
compensation arrangements with such entities. Twenty-five
percent of independent clinical laboratories, 27 percent of
independent physiological laboratories, and eight percent of
durable medical equipment companies were owned at least in part
by physicians who made referrals of items or services to them.
We found that patients of referring physicians who own or
invest in clinical laboratories received 45 percent more such
services than all Medicare patients in general, regardless of
place of service. We estimated that this increased utilization
of services provided by independent clinical laboratories by
patients of physician-owners cost the Medicare program $28
million in 1987. The projected costs of the increased
utilization of these services by patients of physician-owners
would be $103 million in 1995, if there were no change in
utilization patterns.
The study also found that patients of physicians known to
be owners or investors of independent physiological
laboratories use 13 percent more physiological testing services
than all Medicare patients in general. We found no difference
in number of durable medical equipment services. However, our
study did not examine cost differences for either physiological
tests or durable medical equipment, nor did we examine
differences in the kinds of medical equipment provided to
patients of physician-owners and non-owners. In other words, we
did not study the question of whether owners ordered more
expensive tests or equipment compared to non-owners.
Additional Studies of the Effect of Self-Referral
Since our initial study in 1989, nine more major studies
have appeared in the professional literature, including four in
the New England Journal of Medicine and three in the Journal of
the American Medical Association. They support and expand upon
our original 1989 findings. For example, a quite comprehensive
study published in September 1991 by the Florida Health Care
Cost Containment Board found that 93 percent of diagnostic
imaging facilities in Florida were joint ventures with
physicians. It also found that compared to non-doctor
affiliated facilities of the same type, doctor-affiliated
clinical labs, diagnostic imaging facilities, and physical
therapy facilities: performed more procedures on a per-patient
basis; charged higher prices; and were not located in rural or
urban under served areas.
Additional studies have found increased utilization for a
variety of services when the physicians have ownership
interests in the entities to which they refer their patients,
including clinical laboratory services, radiology services
(particularly for high costs services such as MRI and CT
scans), physical therapy and rehabilitation, radiation therapy
and psychiatric evaluation. I have attached a synopsis of the
various studies on this subject.
The studies have been subject to criticism in that most of
them do not eliminate or measure other factors besides
financial rewards which could influence a physician to use more
of an ancillary item or service. Some physicians have sicker
patient populations than others. Some physicians are more
familiar with and thus may be higher utilizers of certain
ancillaries than other physicians. Most of the studies do not
attempt to assess medical necessity of the ancillary items or
services delivered. However, some of the studies address such
issues. For example, a 1992 study in the New England Journal of
Medicine by Swedlow, et al., assessed the medical
appropriateness of MRI scans. The study found that self-
referring physicians ordered medically inappropriate MRI scans
about 36 percent more often than physicians making referrals
where they had no financial arrangement.
A 1990 nationwide study by Hillman, et al. in the New
England Journal of Medicine compared the frequency and costs of
the use of diagnostic imaging for four clinical presentations
(acute upper respiratory symptoms, pregnancy, low back pain, or
(in men) difficulty in urinating) as performed by physicians
who used imaging equipment in their offices (self-referring)
and as ordered by physicians who always referred patients to
radiologists (radiologist-referring). The authors concluded
that self-referring physicians used imaging examinations at
least four times more often than radiologist-referring
physicians and the charges were usually higher when the imaging
was done by the self-referring physicians. Significantly, the
authors reported that these differences could not be attributed
to differences in the mix of patients, the specialties of the
physicians or the complexity of the imaging examinations
performed.
Despite their shortcomings, these studies taken as a whole
strongly support the proposition that many physicians respond
to financial rewards. We are not aware of any body of
professional literature to the contrary, nor is it likely the
New England Journal of Medicine and Journal of the American
Medical Association would publish a total of seven studies on
this topic if the studies lacked probity. Moreover, our law
enforcement experience tells us that some physicians respond
inappropriately to financial rewards. Not infrequently, when we
find cases of abnormally high and questionable utilization,
there is a financial reward at work.
Federal Legislation Prohibiting Medicare Payment for
Self-Referred Services
Before the enactment of section 1877 of the Social Security
Act, the only statute available to handle the self-referral
issue was the Medicare and Medicaid anti-kickback statute (42
U.S.C. Sec. 1320a7b(b)). This is a broadly-worded, criminal
statute which requires proof of ``knowingly and willfully''
paying anything of value in exchange for the referral of
Federal program business. The statute is also a basis for
exclusion from Medicare and Medicaid.
As of 1989, the anti-kickback statute had never been
applied to the area of physician investment in ancillary
facilities where the physician was sending patients. In April
1989, we issued a Fraud Alert on Joint Venture Arrangements,
which specified those types of investment interests between
physicians and the providers of ancillary medical facilities
which we considered to be clearly violative of the anti-
kickback law. This Fraud Alert was intended as a warning to
those engaging in abusive self-referral schemes, and we sent a
copy to each and every provider of health care services to the
Medicare program.
Nevertheless, it was and is very unrealistic to rely on the
anti-kickback statute as a means to control self referral.
First, as noted above, in a kickback case the burden of proof
on the government is to establish a mental element--``knowingly
and willfully'' intending to induce referrals. The difficulty
in proving such a subjective notion cannot be underestimated,
as it requires proof of the mental thoughts and motivations of
particular human beings. This difficulty is compounded by the
fact that the Federal Courts of Appeal have adopted at least
three distinctly different interpretations of the term
``willfully'' as used in the anti-kickback statute. [Contrast
Hanlester Network v. Shalala, 51 F.3d 1390 (9th Cir. 1995),
U.S. v. Jain, 93 F.3d 436 (8th Cir. 1996), cert denied, 520
U.S. 1273, 117 S.Ct. 2452, 138 L.Ed.2d 210 (1997), and U.S. v.
Starks, 157 F.3d 833 (11th Cir. 1998).]
The serious limitations of the anti-kickback statute can be
illustrated by our case against the Hanlester Network, which
set up three clinical laboratory companies in Southern
California which were largely shell labs--most of the actual
testing was performed at a large SmithKline lab. Only
physicians in a position to refer were solicited for
investment, shares were offered in nominal total amounts, and
the numbers of shares offered to each physician were related to
the expected amount of referrals from them. Physicians were
bared from investing in any other labs, and were required to
sell back their shares if they ceased being in a position to
refer. Very high rates of return (up to 300-400 percent) were
discussed if the physicians would follow through with
referrals. The laboratories monitored referrals from all the
investors, harrassed them if referrals were lower than
expected, and even expelled some investors who did not refer
enough. We believed that we had sufficient proof of a kickback
violation, but the Ninth Circuit disagreed. See Hanlester
Network, supra. The court held that we had to show that the
defendants specifically knew about the anti-kickback statute
and specifically intended to violate that statute.
The Hanlester joint ventures were formed before Section
1877 went into effect in 1992. Under Section 1877, none of the
above evidence regarding intent would be needed to handle the
situation; billings for such clinical laboratory services
ordered by physician investors were then not payable, period.
With the realization that the anti kickback statute would
not handle the self referral issue, and based in part on the
results of our 1989 study, in November, 1989, Congress passed
Section 1877 of the Social Security Act (``Stark I''). Section
1877 prohibited Medicare payment for clinical laboratory
services where the physician (or immediate family member) who
orders the service has a ``financial relationship'' with the
laboratory. The statute defined the term ``financial
relationship'' to include both ownership or investment
interests in an entity (which may be through equity, debt or
other means) and compensation arrangements with an entity
(which are defined as arrangements involving any remuneration
between a physician and an entity). The statute contained a
number of detailed exceptions to the definition of financial
relationship to provide for legitimate arrangements between
physicians and laboratories.
In the Omnibus Budget Reconciliation Act of 1993 (OBRA
'93), Congress expanded the scope of section 1877 to include 10
additional services--so-called ``designated health services.''
(These amendments are often referred to as ``Stark II.'') In
addition to clinical laboratory services, the statute now
covers:
physical therapy services;
occupational therapy services;
radiology services, including MRIs, CAT scans and
ultrasound services;
radiation therapy services and supplies;
durable medical equipment and supplies;
parenteral and enteral nutrients, equipment, and supplies;
prosthetics, orthotics, and prosthetic devices and
supplies;
home health services;
outpatient prescription drugs; and
inpatient and outpatient hospital services.
In addition, the statute was expanded from applying to just
Medicare to apply to Medicaid as well. OBRA '93 also added new
exceptions and revised the existing exceptions so that
legitimate arrangements between entities and physicians can be
accommodated.
Significantly, Section 1877 is a condition of Medicare and
Medicaid payment; in other words, by law a provider must be in
compliance in order to be entitled to be paid by the programs.
Those not in compliance with Section 1877 may not bill the
programs, and if they have, they are liable to return program
payments. For this basic remedy, the government need not prove
that the defendant ``knowingly and willfully'' intended to
induce referrals, as it must under the anti-kickback statute.
While Section 1877 contains areas of ambiguity, the statute
has established certain core principles for Medicare and
Medicaid providers which have been of great benefit to these
programs and their beneficiaries. Most of these principles are
relatively clear and unambiguous. For example, under Section
1877, one cannot bill the programs for clinical laboratory
services from a joint venture owned by a disparate group of
physician investors. The same simple rule applies to the other
designated health services, and there are some reasonable
exceptions, such as for physician ownership in whole hospitals.
Similarly, one cannot enter a personal services contract with a
referring physician for more than fair market value, nor can
the compensation vary according to the volume or value of
referrals.
The importance of these core principles should not be
underestimated. They have made it much more difficult to
structure business relationships in the health care industry to
financially reward physicians for referrals. For example, while
questionable joint ventures were proliferating in the late
1980's and early 1990's, they are much less common today. Much
of the credit for this development must be given to Section
1877.
Another positive feature of Section 1877 is that it is to a
large degree self-enforcing. As noted above, the primary remedy
for Section 1877 is denial of payment, with no mental element
of the offense. This simple approach has lead to self
enforcement through the actions of accountants and attorneys
performing due diligence examinations in connection with health
care corporate restructuring and financing. Health care
companies being purchased, merged or refinanced, which has
certainly been a predominant trend in the 1990's, are legally
required to undergo a ``due diligence'' examination, including
an examination of current contracts with physicians and
ancillary providers. We are informed that compliance with
Section 1877, being a payment requirement, is commonly one of
the subjects carefully studied by those performing due
diligence.
On the other hand, it is comparatively rare that OIG finds
evidence of violations sufficient to meet the strict legal
standard in the civil monetary penalty authorities in Section
1877, which require the government to establish that an offense
was committed with the following states of mind: that the
improper claim was filed with
actual knowledge, recklessness, or conscious disregard of the
law. All these tests require proof of a mental element. Where
evidence sufficient to meet this standard is uncovered, the
case usually involves offenses other than Section 1877, and the
cases are handled by the Department of Justice under the False
Claims Act (which has the identical mental element to prove an
offense).
Conclusion
The research on physician behavior indicates that financial
incentives do increase the rate at which physicians order items
and services. Obviously, this conclusion does not apply to
every physician. But as a general matter, section 1877 does
address an issue which has a real potential cost to the
Medicare and Medicaid programs and their beneficiaries and
could adversely affect quality of care. It may be appropriate
to revisit the statute to assess whether its objectives could
be achieved with any simpler provisions, but it would also be
appropriate to determine if there are any significant
loopholes. Our recommendation is that whatever changes are
considered, the statute should continue to function as a
bulwark against inappropriate financial incentives for
physicians to order ancillary items and services. We are ready
to assist the subcommittee in evaluating proposed changes to
the statute.
Attachment
Self-Referral Studies
A. Financial Arrangements Between Physicians and Health
Care Businesses: Office of Inspector General--OAI-12-88-01410
(May 1989)
In 1989, the Office of Inspector General (OIG) issued a
study on physician ownership and compensation from entities to
which they make referrals. The study found that patients of
referring physicians who own or invest in independent clinical
laboratories received 45% more clinical laboratory services
than all Medicare patients in general, regardless of place of
service. OIG also concluded that patients of physicians known
to be owners or investors in independent physiological
laboratories use 13% more physiological testing services than
all Medicare patients in general. Finally, while OIG found
significant variation on a State by State basis, OIG concluded
that patients of physicians known to be owners or investors in
durable medical equipment (DME) suppliers use no more DME
services than all Medicare patients in general.
B. Physicians' Responses to Financial Incentives--Evidence from
a For-Profit Ambulatory Care Center, Hemenway D, Killen A,
Cashman SB, Parks CL, Bicknell WJ. New England Journal of
Medicine, 1990;322;1059-1063
Health Stop, a chain of for-profit ambulatory care centers,
changed its compensation system from a flat hourly wage to a
system where doctors could earn bonuses that varied depending
upon the gross income they generated individually. A comparison
of the practice patterns of fifteen doctors before and after
the change revealed that the physicians increased the number of
laboratory tests performed per patient visit by 23% and the
number of x-ray films per visit by 16%. The total charges per
month, adjusted for inflation, grew 20%, largely due to an
increase in the number of patient visits per month. The authors
concluded that substantial monetary incentives based on
individual performance may induce a group of physicians to
increase the intensity of their practice, even though not all
of them benefit from the incentives.
C. Frequency and Costs of Diagnostic Imaging in Office
Practice--A Comparison of Self-Referring and Radiologist-
Referring Physicians; Hillman BJ, Joseph CA, Mabry MR, Sunshine
JH, Kennedy SD, Noehter M: New England Journal of Medicine,
1990;322:1604-1608
This study compared the frequency and costs of the use
diagnostic imaging for four clinical presentations (acute upper
respiratory symptoms, pregnancy, low back pain, or (in men)
difficulty in urinating) as performed by physicians who used
imaging equipment in their offices (self-referring) and as
ordered by physicians who always referred patients to
radiologists (radiologist-referring). The authors concluded
that self-referring physicians use imaging examinations at
least four times more often than radiologist-referring
physicians and that the charges are usually higher when the
imaging is done by the self-referring physicians. These
differences could not be attributed to differences in the mix
of patients, the specialties of the physicians or the
complexity of the imaging examinations performed.
D. Joint Ventures Among Health Care Providers in Florida: State
of Florida Cost Containment Board (September 1991)
This study analyzed the effect of joint venture
arrangements (defined as any ownership, investment interest or
compensation arrangement between persons providing health care)
on access, costs, charges, utilization, and quality. The
results indicated that problems in one or more of these areas
existed in the following types of services: (1) clinical
laboratory services; (2) diagnostic imaging services; and (3)
physical therapy services-rehabilitation centers. The study
concluded that there could be problems or that the results did
not allow clear conclusions with respect to the following
health care services: (1) ambulatory surgical centers; (2)
durable medical equipment suppliers; (3) home health agencies;
and (4) radiation therapy centers. The study revealed no effect
on access, costs, charges, utilization, or quality of health
care services for: (1) acute care hospitals; and (2) nursing
homes.
E. New Evidence of the Prevalence and Scope of Physician Joint
Ventures; Mitchell JK Scott E: Journal of the American Medical
Association, 1992;268:80-84
This report examines the prevalence and scope of physician
joint ventures in Florida based on data collected under a
legislative mandate. The results indicate that physician
ownership of health care businesses providing diagnostic
testing or other ancillary services is common in Florida. While
the study is based on a survey of health care businesses in
Florida, it is at least indicative that such arrangements are
likely to occur elsewhere.
The study found that at least 40% of Florida physicians
involved in direct patient care have an investment interest in
a health care business to which they may refer their patients
for services; over 91% of the physician owners are concentrated
in specialties that may refer patients for services. About 40%
of the physician investors have a financial interest in
diagnostic imaging centers. These estimates indicate that the
proportion of referring physicians involved in direct patient
care who participate in joint ventures is much higher than
previous estimates suggest.
F. Physicians' Utilization and Charges for Outpatient
Diagnostic Imaging in a Medicare Population; Hillman BJ, Olson
GT, Griffith PE, Sunshine JH, Joseph CA, Kennedy SD, Nelson WR,
Bernhardt LB: Journal of the American Medical Association,
1992, 268:2050-2054
This study extends and confirms the previous research
discussed in section C, above, by focusing on a broader range
of clinical presentations (ten common clinical presentations
were included in this study); a mostly elderly, retired
population (a patient population that is of particular interest
with respect to Medicare reimbursement); and the inclusion of
higher-technology imaging examinations. The study concluded
that physicians who own imaging technology employ diagnostic
imaging in the evaluation of their patients significantly more
often and as a result, generate 1.6 to 6.2 times higher average
imaging charges per episode of medical care than do physicians
who refer imaging examinations to radiologists.
G. Physician Ownership of Physical Therapy Services: Effects on
Charges, Utilization, Profits, and Service Characteristics;
Mitchell JM, Scott E: Journal of the American Medical
Association, 1992; 268:2055-2059
Using information obtained under a legislative mandate in
Florida, the authors evaluated the effects of physician
ownership of freestanding physical therapy and rehabilitation
facilities (joint venture facilities) on utilization, charges,
profits, and service characteristics. The study found that
visits per patient were 39% to 45% higher in facilities owned
by referring physicians and that both gross and net revenue per
patient were 30% to 40% higher in such facilities. Percent
operating income and percent markup were significantly higher
in joint venture physical therapy and rehabilitation
facilities. The study concluded that licensed physical
therapists and licensed therapist assistants employed in non-
joint venture facilities spend about 66% more time per visit
treating patients than those licensed workers in joint venture
facilities. Finally, the study found that joint ventures also
generate more of their revenues from patients with well-paying
insurance.
H. Consequences of Physicians, Ownership of Health Care
Facilities--Joint Ventures in Radiation Therapy; Mitchell JM,
Sunshine JH: New England Journal of Medicine, 1992;327;1497-
1501
This study examined the effects of the ownership of
freestanding radiation therapy centers by referring physicians
who do not directly provide services (``joint ventures'') by
comparing data from Florida (where 44% of such centers were
joint ventures during the period of the study) to data from
elsewhere (where only 7% of such centers were joint ventures).
The frequency and costs of radiation therapy treatments at
free-standing centers were 40% to 60% higher in Florida than in
the rest of the United States; there was no below-average use
of radiation therapy at hospitals or higher cancer rates to
explain the higher use or higher costs. In addition the
analysis shows that the joint ventures in Florida provide less
access to poorly served populations (rural counties and inner-
cities) than non-joint venture facilities. Some indicators
(amount of time spent by radiation physicists with patients and
mortality among patients with cancer) show that joint ventures
cause either no improvement in quality or a decline.
I. Increased Costs and Rates of Use in the California Workers'
Compensation System as a Result of Self Referral by Physicians;
Swedlow A, Johnson G, Smithline N, Milstein A: New England
Journal of Medicine, 1992;327;1502-1506
The authors analyzed the effects of physician self-referral
on three high-cost medical services covered under California's
workers' compensation: physical therapy, psychiatric evaluation
and magnetic resonance imaging (MRI). They compared the
patterns of physicians who referred patients to facilities of
which they were owners (self-referral group) to patterns of
physicians who referred patients to independent facilities
(independent-referral group). The study found that physical
therapy was initiated 2.3 times more often by the self-referral
group than those in the independent-referral group (which more
than offset the slight decrease in cost per case). The mean
cost of psychiatric evaluation services was significantly
higher in the self-referral group (psychometric testing, 34%
higher; psychiatric evaluation reports 22% higher) and the
total cost per case of psychiatric evaluation services was 26%
higher in the self-referral group than in the independent-
referral group. Finally, the study concluded that of all the
MRI scans requested by the self-referring physicians, 38% were
found to be medically inappropriate, as compared to 28% of
those requested by physicians in the independent-referral
group. There were no significant differences in the cost per
case between the two groups.
J. Medicare: Referrals to Physician-Owned Imaging Facilities
Warrant HCFA's Scrutiny (GAO Report No. B-253835; October 1994)
The U.S. General Accounting Office (GAO) issued a report
regarding: (1) referrals by physicians with a financial
interest in joint-venture imaging centers; and (2) referrals
for imaging provided within the referring physicians' practice
settings. The analyzes are based on information collected by
researchers in Florida for the Florida Health Care Cost
Containment Board and include information on 1990 Medicare
claims for imaging services ordered by Florida physicians. GAO
analyzed approximately 1.3 million imaging services performed
at facilities outside the ordering physicians' practice
settings and approximately 1.2 million imaging services
provided within the ordering physicians' practice settings.
These results are significant because they are based on a
large-scale analysis of physician referral practices.
GAO found that physician owners of Florida diagnostic
imaging facilities had higher referral rates than nonowners for
almost all types of imaging services. The differences in
referral rates were greatest for costly, high technology
imaging services: physician owners ordered 54% more MRI scans,
27% more computed tomography (CT) scans, 37% more nuclear
medicine scans, 27% more echocardiograms, 22% more ultrasound
services, and 22% more complex X rays. Referral rates for
simple X rays were comparable for owners and nonowners. In
addition, while referral practices among specialties differed,
physician owners in most specialties had higher referral rates
than nonowners in the same specialty.
GAO also compared the imaging rates of physicians who have
in-practice imaging patterns (i.e., more than 50% of the
imaging services they ordered were provided within their
practice affiliations) with physicians with referral imaging
patterns (i.e., more than 50% of the imaging services they
ordered were provided at facilities outside their practice
affiliations). GAO found that physician with in-practice
imaging patterns had significantly higher imaging rates than
those with referral imaging patterns--the imaging rates were
about 3 times higher for MRI scans; about 2 times higher for CT
scans; 4.5 to 5.1 times higher for ultrasound,
echocardiography, and diagnostic nuclear medicine imaging; and
about 2 times higher for complex and simple X rays.
Chairman Thomas. Thank you very much. I guess you went up
the hill and then came down again.
One of the difficulties I have in dealing with what it is
that we are going to do with this is, in large part, the
testimony you just gave, that this is a very important
provision. However, if we are going to change it, we ought to
make sure that we change it in a way that it doesn't diminish
and so forth, and so forth. And what we need to do ultimately
is figure out what you folks are going to do with it.
When are we going to get something that could be used? And
I want to put it in this context because I believe everybody in
this effort is attempting honestly to make the law work. In
fact, as I said in my opening comments, we, in 1996 and 1997,
gave you enormous new tools. And I know on a couple of them you
fought--kind of resisted accepting them. I think you are now
comfortable with them.
Let me ask the question this way: If we had the HIPAA
provisions and the BBA provisions in place today, and the
proposal was the legislation called self-referral legislation,
1993, what hole would the self-referral legislation fill, if we
had the 1996 and 1997 laws on the books, as we have now? What
would you want it to look like to give you a more complete
arsenal, but not difficult to administer, overlapping, or
confusing, or impossible to implement provisions?
Either one of you. I don't mind.
Mr. Thornton. Mr. Chairman, I think as a practical matter,
the vast majority of the questionable physician-incentives
schemes that we used to see would be legalized and probably
would come back into being if there was no self-referral law.
The HIPAA statute and BBA statute, although they contained many
very laudable provisions, do not address this issue.
And neither does the anti-kickback statute. As a practical
matter, the anti-kickback statute would be available to attack
a self-referral scheme only if it was egregious.
Chairman Thomas. If we are really trying for what the
lawyers call a ``bright-line structure,'' it makes some sense,
I think, on the ownership question. I mean, I think there you
can draw lines and it is fairly easy to determine.
Are you basically saying then that you are going back to
1993 and defending in its entirety--because I thought at the
end of your testimony I didn't hear that--defending in its
entirety the self-referral law? Or is it possible for us to
discuss that the ownership aspect is an important part, but it
is the compensation attempt to figure out what the bright lines
are in an ever-changing, modifying relationship that is causing
you most of the problems? Is that an accurate statement?
Would it be OK if the law was just the ownership part, or
would you still have holes if it was just that?
Mr. Thornton. The basic problem is that this issue is a
little bit like squeezing on a balloon: If we squeezed only on
the ownership part of the balloon, the other part would get
bigger in volume. By that, I mean that it would be relatively
simple to reward physicians through compensation arrangements
if there were controls only on, say, joint-venture investments.
Just an example, the group practice exception, if it didn't
exist at all, could be used to reward doctors for referrals
that wouldn't be in the form of ownership; it would be another
form but economically the same thing.
Ms. Buto. If I could just add to what Mac was saying. I
think one of the things that we tried to do in our proposed
rule on designated health services was to simplify as much as
possible the compensation test to fair-market value, not
related to volume and value of referrals. We have gotten some
comments on that and other suggestions we are taking a look
at--by and large, the fir market value exception was very well
received as a way to simplify the compensation side of these
provisions and as a way to apply, if you will, a common-sense
approach to it.
So we feel like that has assisted a great deal in terms of
the complexity of what we see on the compensation side.
Chairman Thomas. Well, Ms. Buto, in your testimony, both on
page 1 and on page 3, you talk about exceptions. And when you
take a look at trying to write these regulations, you start
with a general prohibition of any referral by a doctor to a
facility with which a doctor has a financial relationship. Then
you have four
exceptions on the ownership and compensation provision, four
exceptions to the law's investment provision, and eight
exceptions to the law's financial arrangement. You have, right
there, 16 different
exceptions.
And it sounds to me that the way you are going to be
finally getting this thing structured is to simply continue to
make exceptions. At what point do all of the exceptions that
you have structured, swallow the idea of trying to write a
general rule that works?
Ms. Buto. Well, that has obviously been the tough part of
writing the regulation. And I think the way I have approached
it, and I know the staff have done this in working with medical
groups and others, is that we actually believe there is some
evidence on the joint venture side in terms of some of the
abuses that were pre-1989, that the law actually has a real
due-diligence effect. What we are trying to do, and actually we
are doing this very much at the urging of medical associations,
medical groups, and others, is to craft the law in a way that
recognizes legitimate, bona fide relationships. And that is why
there are exceptions. If we were not to have them, I think the
law would really be too blunt an instrument. We do need to
recognize legitimate arrangements.
Chairman Thomas. Just let me leave you with this thought,
because I think my colleague from Louisiana is going to pursue
a line of questioning which will also reinforce my argument:
that if there was a belief that Republicans, as a new majority,
were not interested in going after crooks, if we weren't
interested in making sure that fraud and abuse were eradicated,
we would not have done a number of things that we did.
In fact, I would still continue to pursue Dr. Gonzalez, who
was convicted of Medicare fraud in New York and was supposed to
go to prison and fled this country and went to the Dominican
Republic, and your Administration has refused to extradite him.
I have written letter after letter to try to get, as the
gentleman from California said, a public hanging, figuratively,
I assume, which would be very helpful in this area.
I have a nominee. Only trouble is, he is down in Santo
Domingo. He was convicted and should be in prison and was
required to reinstate $3.2 million worth of money.
I think that would be a far better example to chill fraud
and abuse if you could get the Administration to extradite him
so that we can illustrate that we are all interested in
eradicating fraud and abuse.
But your example of trying to create legitimate exceptions
to try to make a law work still doesn't make sense to me. When
I first encountered geometry, I spent a summer trying to draw a
triangle that had more or less than 180 degrees. At what point,
do we
decide that maybe we ought to take a look at what we now have
on the books, as I indicated at the beginning of this
discussion, and where would it be best to structure it in a way
that maximizes our ability to do this and get some regs out and
then enforce the law?
I don't know that the way you are going about it will ever
produce a really useful took in conjunction with the newer
tools that we have given you. The purpose of this hearing is to
ask what I consider to be a fairly fundamental question.
Even if this was a good idea in 1993, if we have what we
now have on the books that we passed in 1996 and 1997, what
would you be asking for to provide you with the tools that we
would get into place relatively quickly and that we could write
regs for?
And that may be an adjustment to the 1993 law so that we
can move forward. I think the idea that you are trying to
justify a position that 5 years after you still can't write a
reg for, except with exceptions, proves the point.
And that is all I hope we can get out of these hearings.
Our goal is the same. Your defense of an indefensible position
I think is relatively difficult, unless, of course, you want to
provide us with the regs. And if you don't, I think it is self-
evident.
The gentlewoman from Connecticut wishes to inquire?
Mrs. Johnson of Connecticut. Why did it take 6 years? I
want to try to keep the answers short so we get through the
whole thing.
You know, just briefly, here we are 6 years after the law
was written and no regs. In a nutshell, why?
Ms. Buto. Well, in a nutshell, we actually focused on
getting the first self-referral regs out on lab services. And
we did that. Our
notion was that there were some basic definitions, like
definitions of group practice, that needed to get on the books.
Those were published in 1995.
We then began to work with the designated health services,
and I have to say that going from labs to 10 different health
services, including home health and outpatient hospital
services, and inpatient services, and DME, and so on was not 10
times more difficult, but involved a lot of other
considerations----
Mrs. Johnson of Connecticut. In other words, in a word, it
was terribly complex?
Ms. Buto. Well, it is just the number of organizations
involved and the interests that they had were important to
listen to. I actually think it is good we took that time
because I think the rule and the fair-market value exception
grew out of those series of discussions----
Mrs. Johnson of Connecticut. So, in fact, one-size-did-not-
fit-all?
Ms. Buto. Well, actually, on the fair-market value rule, we
moved to simplify a lot of the compensation exceptions based on
the fact that a number of folks from different suppliers
pointed out that we needed that simplification.
Mrs. Johnson of Connecticut. Rule of thumb, it is my belief
that if any law takes 6 years to write into regulations, it is
much too complicated and your regulations are going to be
almost impossible for the real-world person to comply with. You
are asking a small VNA who wants to merge with another small D
and VNA to understand what you are doing here. And it has taken
you 6 years to figure it out, and you haven't finished.
So I would really say when I hear testimony, Mr. Thornton,
from you saying areas of ambiguity? After 6 years. So go back
to that anti-kickback standard. Of course it has a high
standard: It is criminal. So it has to be willful and knowing.
If you want a lower standard in a civil area, let's get a
simpler, lower standard. But we have a model.
And of fraudulent payment, that is our interest here. Just
because you are ownership doesn't mean it is fraudulent. If you
are in a small town--we went through this years ago when we
passed this. And the only people who can afford to invest in
the MRI or the cat scan originally were the physicians. They
had to do it to keep medical practice up, to give people
options.
And we came forward and said that is criminal. See so this
was hard to write because it doesn't work across the board in
every single area. So I think, you know, in all fairness to the
real world, when you are still sitting here testifying that
there are areas of ambiguity, that you had, what was it, 1,200
comments still. I appreciate your diligence.
Ms. Buto. Twelve thousand.
Mrs. Johnson of Connecticut. Twelve thousand. But that
tells you, 6 years later you still have 12,000 comments. So
progress? What did you have the first time, 120,000 comments?
Ms. Buto. No. I have forgotten what the number was, but it
wasn't even--I don't think it was even as high as 12,000 the
first time.
Mrs. Johnson of Connecticut. My concern is, when you saw us
passing the BBA of 1997, you will remember that one of our big
interests was to encourage the whole medical sector to develop
a provider-sponsored network because we want to be able to have
somebody to compete with the insurance company, and, frankly,
cut the insurers out. So there wouldn't be insurers second-
guessing medical decisions.
How can you develop a provider-sponsored network with your
interpretation of this law, and particularly without it being
clarified? I mean how could you do that?
And then second, how can you guard against--I mean, we do
have good fraud statutes that do seem to be guarding against
fraud at the same time, at least in certain sectors,
collaborative relationships are developed. I want to see more
collaborative relationships develop among providers so we don't
have the question of insurance issues, of an insurer making
medical decisions.
How can we do that, and especially when you don't have any
clear path laid out that a small little group could follow?
Ms. Buto. If I could address the PSO issue. The Medicare-
plus choice plans, as I am sure you know, and PSO's that are
Medicare capitated plans are exempt from the self-referral
provision.
Mrs. Johnson of Connecticut. See. What does that tell you?
What does that tell you? Those are the systems in the private
sector that are the majority, I mean, if you are just looking
at the real world out there. And they are the ones we hope to
grow. But if you want the providers out there that are serving
the current fee-for-service clients, to do this, to be part of
groups, to create groups, to get into them, how can they do it
with this? How can hospitals talk to local physicians with this
law?
Ms. Buto. Well, we think that the law actually allows a lot
of collaboration, and that is one reason why, although it has
taken a long time, we have spent the time to work with those
organizations to try to make it possible for those kinds of
legitimate arrangements that apply.
Mrs. Johnson of Connecticut. Yes. And I appreciate that.
You worked with us in writing the law to help recognize some of
those relationships. But it does raise very significant
questions in my mind that you are having to adjust to what is
happening in the real world. And you are. And I appreciate
that. I appreciate your thinking about these things and hearing
that input.
But what it has meant is that we can't get clear law on the
books because the law no longer fits what is happening in the
world. So I would go back to my Chairman's original question,
given what is on the books, like anti-kickback standards and
such, and given what is happening, where is that simple hole
that you need. Because not all self-referral is a bad thing,
and that is why we have a lot of exceptions.
Certainly collaboration is a good thing. It is one of the
ways we are cutting administrative costs. And that is a good
thing. So I would urge you to really help us look at how do we
wipe the complexity off the books and start with some simple
way of attacking the remainder, instead of trying to attack
something that is endemic and systemic to the kind of change
that in the end is going to be the future.
You are, in a sense, legislating what would be a
diminishing group. They have already diminished way down in the
under-65 group. And they will diminish way down once we get
ourselves established better in the modern programs for seniors
because that is the only way to manage chronic illness. And so
that is what is going to happen.
So you are legislating to a diminishing problem. We have
strong, now, fraud and abuse--we didn't have those. We didn't
have fraud and abuse capability when this law was written that
we have now.
So I will relinquish my time. I know we have to go vote.
But I would ask you--OK. We will recess the hearing so we can
go vote. But I would ask you to take seriously the Chairman's
admonition that after 6 years of regulation-writing and 12,000
more comments, that ought to tell us that this is a path that
by the time we ever get to the end of it, it will be so
anachronistic that we ought to be thinking about the right path
to go down, not the wrong path to go down.
It just paralyzes the kind of, the development of the
collaborative
relationships that are so vital to us. Medicine has changed. So
regulation and law has to change. And it is a little
discouraging to hear you so tied up with doing something that
just is already a mindset away from where we have to go.
And I notice, Mr. Thornton, none of you answered clearly
Mr. Thomas' question, what is that hole? what is that piece
that the new tools don't let you get at, that this law you
might need to get at. You need to do that for us.
Mr. Thornton. May I respond?
Mrs. Johnson of Connecticut. Yes.
Mr. Thornton. I think the percentage of Medicare
beneficiaries in managed-care plans is 17 percent now, and I
think CBO's estimate is that it goes to 34 percent. But whether
that is right or wrong, there is going to be a considerable
Medicare population still in fee-for-service for quite a long
time. And we are of the opinion that the Stark Law does address
basically a fee-for-service problem. So yes, it is a
diminishing problem but still a very substantial one.
Mrs. Johnson of Connecticut. Well, it is diminishing and it
is substantial. I would certainly agree with that. It is also
true that the law hasn't been in force all these 6 years
because there have been no regulations. So we are getting both
some bad over-effects and some under-effects. And I don't see--
I mean, tell me when you are going to do this. Are you going to
be done in 6 months? Are you going to be done in a year? Are
you going to be done in 2 years? Twelve thousand comments is a
lot of comments.
Ms. Buto. Yes. Let me try to address that. It is always
hard to predict when a regulation is going to come out.
Mrs. Johnson of Connecticut. Right.
Ms. Buto. But we are committed to getting it done in HCFA
within the next 6 months, and we hope to get it published
within the next year. We are going to try very hard to do that.
We are certainly well aware that it has been too long, and we
will proceed to try to do that on that schedule.
Mrs. Johnson of Connecticut. Well, I hope that in doing it,
you really will make space for the development of the
collaborative relationships that are essential. There will be
parts of the country where managed care will not serve. Still,
they will need collaborative relationships of a different type
than we have had in the past. We simply can't, we can't reward,
in a sense, the isolation of services that the old system
tended to develop.
And in your regulations, I think you have to be very, very
careful to allow rural to collaborate. And when providers
collaborate, there is integration of reward systems--of
compensation systems. And so, representing an area that is
quite rural, and watching the inability--I mean, they don't
have the legal resources and I tell them well they can get an
advisory opinion now, this does not make them feel good. They
don't have time for that.
This is big change in the next year, the next 2 years in
our rural systems and our small hospital systems. And you are
compromising the quality of that change. It must go on. And it
is going to go on faster. If you are going to take year before
these are final, so much will happen in this next year. So I do
worry about your not being willing to say this is the little
piece we need given these new pieces.
So, I know it is a big question and with little time, but I
am appalled that we, in government, could pass a law and not
tell people what we mean by it for 6 years, and particularly 6
years at a time of really extraordinary change.
We will recess just for a minute, I must go vote, and then
resume our questioning.
[Recess.]
Mr. McCrery [presiding]. The Committee will come to order.
Thank you for being patient. We hope we won't be interrupted
again this afternoon.
I would like to follow up on some of the line of
questioning regarding advisory opinions because I know as we
have considered the advisability of advisory opinions in the
past, I think first in 1995 and then more recently in 1997,
those of you who have worked in HCFA and around Medicare for
awhile, resisted that. And I understand some of the reasons for
that.
But, now that we have that available to the marketplace and
considering the complexity that you all have discovered in
trying to write regulations that cover every conceivable
development in the marketplace, do you now think that maybe
advisory opinions are a little more advisable than they were a
few years ago?
Mr. Thornton.
Mr. Thornton. Sir, we did express our concerns about
advisory opinions very strongly, but we have done our best
since 1996 to implement that authority. At the Inspector
General's Office, it is our responsibility to issue advisory
opinions under the anti-kickback statute and the other major
sanction statutes. And HCFA was
recently given the authority to issue advisory opinions under
the Stark Law.
I think our advisory opinion process was set up in a way,
working with the staff of this Committee and with some advice
from the industry, in which some of our concerns have been
alleviated. And I believe that any commentator would have to
agree that we have implemented in good faith. We have issued 31
advisory opinions to date; 24 of them have been favorable to
the requestors. And we established an office to handle these
advisory opinions.
We still have some concern that they may prove to be a
problem in some kickback cases. But I would say to you that it
has not been a significant problem so far.
So, yes, the process has not been as fraught with problems
as we had feared.
Mr. McCrery. Ms. Buto, it is going to be HCFA's
responsibility to issue the advisory opinions under the self-
referral rules, what do you expect to be the volume this year
of advisory opinions coming out of HCFA?
Ms. Buto. We have received over the past year or so about
20 requests for advisory opinions. A number of those, it turned
out, didn't actually have to do with self-referral or
designated health services, and they were essentially
withdrawn. We have about eight right now that we are working
on. And we have issued two opinions that were favorable to the
requestors.
I think they serve a useful purpose, and they certainly
alleviate concerns that requestors have. As long as they
understand, you know, the context in which the advice is given,
I think they are very helpful.
Mr. McCrery. As Mr. Thomas pointed out earlier, there are
four exceptions to the ownership and compensation provisions,
four exceptions to the investment provisions, eight exceptions
to the financial arrangement provisions, and, I understand, you
are working on more exceptions. Physicians are worried that
they can't even accept meals at a place where they might refer
patients for fear that that would be financial arrangement.
And I understand that you are in the process of maybe
crafting a small-item exception, which is all swell, but it
just seems to me that you would welcome advisory--the
opportunity to respond to requests from physicians for advisory
opinions, knowing that you cannot possibly anticipate every
situation and craft and exception for.
You would be--I mean, you would be doing nothing but
writing exceptions to regulations which aren't even finalized
yet.
It just seems to me that if you all aren't already, you
should advertise the availability of advisory opinions among
those in the marketplace. And that may relieve you of the
burden of trying to craft all these exceptions. And you could
use the advisory opinion instead.
Ms. Buto. I agree. We are very aware of the fact that we
need to get the regulations out because a number of the
advisory-opinion requests go to, now what is fair-market value?
This was a proposal we made to simplify the compensation part
of these exceptions. We would like to be able to give some
advice on that, but until we
finalize the regulations, which I hope we will do, as I said,
within the schedule I laid out, it is hard to give any
definitive advice.
So I think you are right that once the regulations are out,
it will be a vehicle that we want to use to clarify.
Mr. McCrery. Mr. Thornton, you talked a little bit about
the kinds of arrangements that physicians might have with, say,
a clinical lab that would not be an ownership interest but
would be some sort of compensation that would fall under the
self-referral prohibition. Could you give me an example of
that?
Mr. Thornton. Well, one area is compensation arrangements
which are functionally the same as joint ventures, which causes
concern. Am I in the right ballpark?
Mr. McCrery. Yes. Explain.
Mr. Thornton. Sir?
Mr. McCrery. Explain.
Mr. Thornton. Yes, sir. I call it clinics without walls, or
group practices without walls. We recognize that legitimate
group practices should have an exception. But if that exception
is too large, too loose, then physicians who are unrelated and
who don't even know each other can be brought into a legal
entity, not as investors, but brought in under contracts,
compensation contracts. Ancillaries can be established in the
middle of this wheel of referrals, if I could be metaphorical
for a second, and that the doctors could proceed to profit,
split the profits of what they order from the set of ancillary
facilities in the middle of the wheel.
That is sort of a basic description of a joint venture, but
it can be legally created using compensation arrangements. That
is one concern.
Mr. McCrery. You also referred to an arrangement, or maybe
it was Ms. Buto that referred to this, an arrangement in which
a physician would be compensated based on the volume of
referrals. That would fall under the self-referral prohibition?
Is that right?
Ms. Buto. Yes. You are talking about physicians who benefit
from the volume of referrals?
Mr. McCrery. Yes.
Ms. Buto. Yes. That is essentially one of the underpinnings
of the self-referral statute. That is one of the things that
the law is intended to try to discourage. Now, there are some
exceptions, as people have pointed out, like the in-office
ancillary exception, which allows a solo practitioner to order
tests and perform them in his or her own office. And that is
obviously a benefit from referral, but that exception is
clearly spelled out in the statute.
Group practices also have the ability to benefit as a group
from referrals within the group. So, again, that is a group
practice exception.
Mr. McCrery. Do you think that these types of arrangements
are distinguishable from those that are meant to be covered by
the anti-kickback statute?
Mr. Thornton. Yes, sir.
Mr. McCrery. That seems pretty close to me that, I mean, if
you paid based on the number of referrals, that is tantamount
to a kickback.
Mr. Thornton. Well, I can only tell you, having tried to
construct many kickback cases over my career, that proving
knowing and willful conduct in a criminal trial beyond a
reasonable doubt is really quite a burden and is really only
practical where the proof is very obvious and very egregious.
It is simply not a violation of the kickback statute per se to
have one of these clinics without walls that I referred to or a
typical joint venture.
And as I described in my testimony, we found a joint
venture in California, the Hanlester group, where we thought we
had a lot of other evidence of intent to induce referrals by
payment of money. We had tapes of sales pitches. We had lots of
good evidence about what was going on, and yet, the courts hold
us to a very high standard with respect to anti-kickback
statutes, as they probably should.
I believe the Ninth Circuit was inappropriately selective,
shall we say, or inappropriately burdensome in their analysis
of what we had to prove, but they have the last word.
Mr. McCrery. Well, let me just close by saying that I agree
with you that courts should hold us, hold the Government to a
high standard in proving its case. Maybe we should think about
the same standard when we are talking about self-referral, not
assuming that all physicians are in it to make the maximum
amount of money. Not all physicians are crooks. So maybe we
should keep that in mind as we go through fashioning these
regulations.
Mr. Stark.
Mr. Stark. Thank you, Mr. Chairman.
I know earlier, Chairman Thomas referred to someone who is
hiding out in the Dominican Republic, and I share his concern
over a guy named Recarey from Florida, who allegedly gave
$74,000 to Jeb Bush as a kind of a bribe, is hiding out in
Spain after stealing millions of dollars from the Government.
We know where he is, but we are unable to extradite him as
well.
I am sure that there are a lot of examples where we could
be more strenuous in law enforcement, and I certainly would
join with Chairman Thomas--maybe we can get Jeb Bush to call
him [Recarey] up and ask him to come back for a visit.
But, be that as it may, I suppose there are bad apples in
every barrel.
Ms. Buto, in view of the President's commitment against
fraud, waste, and abuse in Medicare, will you commit to us that
you are going to assign the staff to this project and get it
done in the year 2000?
Ms. Buto. Yes, I am willing to make that commitment, and I
will do everything we can to make sure we can get that done.
Mr. Stark. Thank you. I am sure you will make a lot of
people happy, and maybe one or two people unhappy in getting it
done.
Ms. Buto. I think they are sitting right behind me.
Mr. Stark. Mr. Thornton, you indicated that you had about
30 or 40 cases of people who asked for advisory opinions, and
that about three-quarters of the people who asked for those got
approval and about a quarter did not. Why would somebody then
go and hire a law firm to do due diligence when they could just
get a letter from you?
Mr. Thornton. Yes, sir. Well, actually those are two, I
think, quite different functions. Any time a healthcare entity
is sold or merged or refinanced, the purchasing company, the
merging company, or the bank, or whoever, for their own legal
protection, does what we call a due diligence examination.
Mr. Stark. But could they, if they were worried about
something that was involved in referrals or kickbacks in that
combination, wouldn't you give them a ruling on that?
Mr. Thornton. We certainly would if they asked.
Mr. Stark. How much do you charge?
Mr. Thornton. A very reasonable rate, sir. We--[Laughter.]
We issue our advisory opinions for a couple of thousand.
Mr. Stark. So what you are telling me is that HCA and
Columbia's attorneys should have come to you instead of going
to whomever they paid before they got into trouble because it
would have been a lot cheaper. Right?
Mr. Thornton. I had better not comment on that question,
sir. But one of the next witnesses does a lot of due diligence
work, and compliance with section 1877 is one of the primary
things that they look at. And they don't--and my point is that
the court----
Mr. Stark. They charge more than you do?
Mr. Thornton. Well, they certainly see more than I do, but
the core concepts of section 1877, which we believe are
relatively clear and unambiguous, are looked at in those due
diligence examinations, and many corrections are made.
Mr. Stark. Let me try this: In the American Medical
Association's code of medical ethics, this is a statement, ``In
general, physicians should not refer patients to a healthcare
facility which is outside their office practice and at which
they do not directly provide care or services when they have an
investment in that facility.''
Now, if you don't agree to that, you are ineligible for the
AMA. If that were changed to say, ``any financial interest or
remuneration''--in other words, if you broadened that or said
that an investment interest can very quickly be turned into a
compensation agreement, would you say that simple AMA medical
ethics would cover most of the cases that you see?
Mr. Thornton. Well, it clearly would. That would basically
keep physicians completely isolated from relationships with
other medical providers----
Mr. Stark. Financially isolated.
Mr. Thornton. Yes, sir. I think that that would be going
too far, that section 1877 sets up certain core principles
which are useful but allow many types of compensation and
investment interests, and that the AMA should be applauded, as
we have stated to them, for coming out with their ethical
standards along those lines.
Mr. Stark. Can you outline for us some of the loopholes
that you have seen evolve since 1993, and might you care to
make any recommendations about what we should do about closing
those loopholes?
Mr. Thornton. Yes, sir. As we say, we have learned a lot
since 1993, and the statute could be made both more flexible
and there are a couple of loopholes that we would recommend
attention to, such as the exception to the investment or
ownership provisions, which relate to a hospital. I believe the
statute says that what is excepted is an investment in a
hospital itself, but not a subdivision of a hospital.
What we are seeing, Mr. Stark, more and more is what is
called a ``hospital within a hospital,'' that a wing of the
hospital will be separately incorporated and syndicated with
the physicians who practice in that particular part of the
hospital. That is a problem. That is a way to circumvent the
intent of this exception.
But there are other ways where the statute could probably
be made more flexible as well, sir.
Mr. Stark. Thank you. Thank you both for your work in this,
and, in the face of a lot of criticism, for continuing to serve
the taxpayers, at least patients, well.
Mr. Thornton. Thank you, sir.
Mr. McCrery. Mrs. Johnson.
Mrs. Johnson of Connecticut. We could argue about whether
this does, in fact, serve the patients well in a number of
instances. But, I wanted to ask you about your logic in the
issue of ambulance restocking and interpreting restocking as an
inducement. Why do you think it is an inducement?
Mr. Thornton. Well, the advisory opinion said that we could
not exclude that practice from being an inducement. Now, we
were asked whether it could----
Mrs. Johnson of Connecticut. That doesn't make you include
it as an inducement.
Mr. Thornton. Well, we could only give a favorable advisory
opinion if we could conclude that the restocking of ambulances
was incapable of influencing where the ambulance goes. And we
could not reach that conclusion. We didn't say it was violative
of the anti-kickback statute, but we could not conclude that it
was never, ever a problem.
Mrs. Johnson of Connecticut. This is a perfect case in
point. You referred to, in your testimony, to ambiguity.
Because of the ambiguity, and you could not rule this out,
hospitals in self-defense have had to stop restocking. That
means that if an ambulance delivers a patient to the hospital,
in the old days, whatever equipment was used in that trip was
restocked by the hospital. And the ambulance was ready to
answer the next call.
Now, they have to go--remember, a lot of these are
volunteer organizations. They have to go through the system,
restock, and only then are they ready for the next call.
Furthermore, they don't get the low cost that the hospitals get
in the purchase. So this is increasing costs for the taxpayer
and reducing responsiveness of the system.
Now, maybe my area of Connecticut is unique, but in the
rural areas, there is no choice of hospitals. And in the urban
area, there is very little. I mean, clearly, if you had a
person with a certain kind of extreme complexity, you would go
to one of the big Hartford hospitals, or you might go to Yale
if you are closer. But to think that restocking is an
inducement--furthermore, if you get restocking in any hospital
you go to, then it is not inducement.
So what you have done by refusing to recognize it, as long
as this is everywhere, it is not preferential.
Mr. Thornton. We actually have issued several advisory
opinions that hold just that, actually, that where there is a
system for restocking ambulances, everybody does it, and there
is not the potential problem of one hospital offering
restocking and influencing people to come to just that one
hospital. Where you have an EMS system in place that the
ambulances go to and all the hospitals restock, we have
approved, I think, two or three arrangements just like that.
Mrs. Johnson of Connecticut. But see, you have to approve
them one by one. This is a very big nation. You know, why are
you putting that burden on the system when there is no evidence
at all that this has ever worked to do that? On paper, of
course, it might possibly. No evidence at all. The problem with
this law is that it comes to influence situations like this in
which there is no evidence of inducement, there is no evidence
of fraud.
And yet, furthermore, there is evidence of efficiency, of
better service, of more responsiveness. But when you take that
limited approach, which you feel you have to under this law, it
frankly hurts the healthcare system. It hurts access and it
hurts cost.
Now, recognizing this and having made some favorable
rulings, do you or do you not have the authority to say, this
is off the table, under this law?
Mr. Thornton. Well, we would have that authority under the
advisory opinion procedure.
Mrs. Johnson of Connecticut. Can you do an advisory opinion
for the Nation on this subject?
Mr. Thornton. No. We do advisory opinions for particular
people, although all of our advisory opinions are posted on the
Internet and are good advice for everyone.
Mrs. Johnson of Connecticut. I understand. Yes. But that is
not sufficient. It really isn't. In this case, would you have
the authority under the law to say that we do not see this as a
situation of inducement?
Mr. Thornton. And we have several opinions.
Mrs. Johnson of Connecticut. I don't mean that. I am saying
blanketly across the country. If you can't, I want to see the
examples of situations in which you proved that it is an
inducement.
Mr. Thornton. Well, we just said that giving away the
products was an inducement. If the hospital were to charge the
ambulance company and they were to pay, that would be perfectly
legal.
Mrs. Johnson of Connecticut. Well, as I say, I would like
to see some examples of where this is proved to be an
inducement, where you see it as an inducement. Give me an
example; not right now, but please give me an example of a
system where you decided this was an inducement.
Mr. Thornton. I would be happy to provide what information
we have about this----
Mrs. Johnson of Connecticut. Well, I want information on a
specific example. If you are making a ruling like this that is
making it harder for every little ambulance company throughout
the district and, particularly, the volunteers, to operate, I
want an example of where it has worked against the taxpayer and
against the patient because I see it, your decisions working
against the taxpayer and against the patient.
So just give me, afterward--I know you can't do it off the
top of your head--an example of how the law in this instance is
protecting us, the taxpayer and the patient. I would appreciate
that. Thank you.
Mr. Thornton. All right. We will get back to you.
[The letter and advisories follow:]
Department of Health & Human Services
Washington, D.C., May 2, 1999
The Honorable Nancy L. Johnson
U.S. House of Representatives
Washington, D.C.
Dear Ms. Johnson:
During my testimony at the hearing on May 13, 1999, regarding the
physician self-referral statute (the ``Stark Law''), you asked me to
provide you with further information relating to the issue of ambulance
restocking. In particular, you requested examples of abusive ambulance
restocking arrangements.
By way of background, the ambulance restocking issue arises under
the Federal anti-kickback statute. The anti-kickback statute, section
1128B(b) of the Social Security Act, is a criminal statute that
prohibits the intentional payment of remuneration to induce or reward
referrals of Federal health care program business. By contrast, as you
know, the Stark Law is a civil authority limited to self-referral by
physicians.
Pursuant to a congressional directive, the Office of Inspector
General (``OIG'') issues advisory opinions addressing whether
particular existing or proposed arrangements potentially violate the
anti-kickback statute, and, if so, whether the OIG would subject them
to sanctions, including civil money penalties and program exclusion. In
essence, we are asked to opine as to the anti-kickback implications of
a particular set of facts presented by the requesting party. Advisory
opinions must be issued within a relatively short time frame that
precludes independent OIG investigation of the facts.
One of the difficulties of the advisory opinion process is that we
are required to respond to all proper requests based on the facts
presented, irrespective of whether we believe the subject matter
represents a significant fraud and abuse problem. Thus, issuance of an
advisory opinion in and of itself is not necessarily indicative of an
OIG enforcement priority. This was the case with ambulance restocking.
I am unable to provide you with any specific examples of fraudulent or
abusive restocking programs, largely because ambulance restocking
programs have not been the subject of OIG enforcement activity.
In crafting an advisory opinion, the OIG does not determine the
intent of the parties based on their documentary submissions. We issue
a favorable opinion only where we conclude that an arrangement includes
safeguards sufficient to ensure there is little or no risk of program
fraud or abuse, regardless of the parties' intent. Accordingly, an
unfavorable opinion is not a determination that an arrangement violates
the statute; it means only that (i) the arrangement may violate the
statute if the requisite intent to induce referrals is present and (ii)
we are not satisfied that the arrangement as described by the party
requesting the opinion poses only a minimal risk of fraud or abuse.
In many respects, ambulance restocking raises issues that fit
squarely within established anti-kickback jurisprudence. The restocking
of supplies and medications without charge constitutes the provision of
free goods by the hospital to the ambulance provider. The OIG's concern
with the provision of free goods to potential referral sources is
longstanding and clear: such arrangements are highly suspect. To take a
clear hypothetical example, the provision of free goods to a referral
source pursuant to a written contract that expressly conditions the
free goods on referrals of Federal program beneficiaries would violate
the anti-kickback statute. In other words, if a hospital were to enter
into a written contract with an ambulance provider that stated that the
hospital would give the ambulance company free supplies and medications
if the ambulance company agreed to steer Medicare patients to the
hospital, the provision of free supplies and medications pursuant to
such contract would clearly constitute prohibited remuneration under
the statute.
The medical center that requested the first advisory opinion
dealing with ambulance restocking (OIG Advisory Opinion 97-6) described
a particular set of facts that clearly implicated the anti-kickback
statute. Based on the facts presented, we could not reasonably conclude
that the anti-kickback statute was not implicated. Indeed, it appears
that the hospital sought a negative opinion to justify terminating a
restocking arrangement, so as to lower hospital costs.
Following publication of Advisory Opinion 97-6, we heard from many
representatives of ambulance companies, municipal emergency medical
services (``EMS'') providers, and hospitals concerned about the
legality of ambulance restocking arrangements. In our many
conversations with these providers, three general facts emerged. First,
a wide range of ambulance restocking arrangements exists. Second, some
hospitals were threatening to eliminate restocking programs, creating a
potential financial issue for volunteer and municipal EMS providers.
Third, the perception of many ambulance providers was that some
hospitals were looking for reasons to eliminate costly restocking
programs.
To allay some of these concerns, we issued a clarifying letter to
the American Ambulance Association on November 25, 1997, clearly
stating that ambulance restocking arrangements are not all potentially
illegal, and we made several suggestions for compliance with the anti-
kickback statute. For example, if the ambulance company reimburses the
hospital at fair market value for the restocked goods, the anti-
kickback concern is alleviated. A copy of that letter is enclosed.
In the ensuing months we received three additional requests from
hospitals engaged in ambulance restocking programs. The facts described
in these requests were markedly different from the first request. All
three of the new requests involved ambulance restocking programs
conducted pursuant to comprehensive, coordinated EMS delivery systems
involving all of an area's ambulance providers and hospitals. With the
limited exception of one part of one of the three programs, we approved
all of these arrangements because we were persuaded that they posed
little or no risk of Federal health care program fraud or abuse.\1\ We
have received no further advisory opinion requests on the topic of
ambulance restocking and very few further informal inquiries. Copies of
these favorable opinions are enclosed.
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\1\ See OIG Advisory Opinions Nos. 98-7, 98-13, and 98-14.
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I hope this information is helpful. If you or your staff have
further questions, please contact me or Kevin McAnaney, Chief, Industry
Guidance Branch.
Sincerely,
D. McCarty Thornton
Chief Counsel to the Inspector General
Enclosures
Advisory Opinion No. 98-7
Ladies and Gentlemen:
We are writing in response to your request for an advisory
opinion, in which you ask whether an ambulance restocking and
continuing education arrangement (the ``Arrangement'' \1\)
constitutes prohibited remuneration under the anti-kickback
statute, section 1128B(b) of the Social Security Act (the
``Act'') and, if so, whether the Arrangement constitutes
grounds for the imposition of sanctions under the anti-kickback
statute, section 1128B(b) of the Act, the exclusion authority
related to kickbacks, section 1128(b)(7) of the Act, or the
civil monetary penalty provision for kickbacks, section
1128A(a)(7) of the Act.
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\1\ Specifically, the Arrangement includes (1) a ``drug box''
exchange program; (2) a linens and medical supply exchange program; (3)
a ``pedi bag'' exchange program for pediatric supplies; and (4) a
continuing emergency medical services education program.
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You have certified that all of the information you provided
in your request, including all supplementary letters, is true
and correct, and constitutes a complete description of the
material facts regarding the Arrangement. In issuing this
opinion, we have relied solely on the facts and information you
presented to us. We have not undertaken any independent
investigation of such information. This opinion is limited to
the facts presented. If material facts have not been disclosed,
this opinion is without force and effect.
Based on the facts certified in your request for an
advisory opinion, we conclude that the Arrangement could
constitute prohibited remuneration under the anti-kickback
statute if the requisite intent to induce referrals were
present, but that the OIG will not subject the Arrangement, as
described in the request and supplemental submissions, to
sanctions arising under the anti-kickback statute pursuant to
sections 1128B(b), 1128(b)(7), or 1128A(a)(7) of the Act.
This opinion may not be relied on by any persons other than
the addressees and is further qualified as set out in Part III
below and in 42 C.F.R. Part 1008.
I. Factual Background
The requesters of this advisory opinion are twenty non-
profit hospitals located in ten counties in the City A area of
State B (the ``Hospitals'') and the City A Hospital Association
(the ``Association''), a non-profit corporation exempt from
federal income tax pursuant to section 501(c)(6) of the
Internal Revenue Code.\2\ The Hospitals represent all of the
hospitals in the City A area.
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\2\ The Hospitals are all members of the Association. The
Association has presented itself as an additional requestor on the
ground that it facilitates the uniform participation of the Hospitals
in the Arrangement. Although trade associations are not typically
appropriate requesters on behalf of their members, see 42 C.F.R.
Sec. 1008.11, a trade association may be a proper requestor if it is
itself a party to an arrangement that is the subject of a request for
an advisory opinion.
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The Hospitals and the Association are dues paying members
of the Region C Emergency Medical Services Council, Inc. (the
``Council''), a State B nonprofit and tax exempt corporation
founded in 1972, whose membership also includes all private and
public ambulance providers in the area, local educational
institutions, physicians, and at-large community members. The
Council's mission is to coordinate the efforts of public and
private ambulance service pre-hospital care providers, hospital
emergency department staff, and consumers to ensure the best
possible pre-hospital medical care for the victims of sudden
illness or injury. The Council develops protocols for, and
conducts ongoing evaluation and improvement of, the local
emergency medical services (``EMS'') delivery system, performs
EMS quality assurance audits, distributes drug boxes to the
local ambulances, provides continuing education to EMS
personnel, sponsors education programs related to EMS for the
general public, acts as an information clearinghouse for EMS
activities, and otherwise seeks to promote high quality EMS
care for the region.
Under the Council's auspices and pursuant to Council-
developed protocols, the Hospitals and EMS organizations in the
City A area have engaged in various drug and medical supply
exchange programs in connection with emergency medical
transports since approximately 1973. Typically under these
exchange programs, a receiving hospital restocks an ambulance
with medications and supplies used in connection with emergency
medical pre-hospital services provided to the transported
patient. The ambulance providers are not charged, and do not
pay, for the restocked items. Drugs are exchanged through a
``drug box'' program, pursuant to which EMS squads exchange
depleted drug boxes used during a patient run for fully-stocked
boxes provided by the receiving hospital. Hospital pharmacists
review the used drug boxes, replenishing used, outdated, or
improperly sealed items, and return them to inventory for
future exchange.\3\
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\3\ The drug box exchange program has been approved by the State B
Board of Pharmacy and complies with [code section redacted], which
provides a mechanism for EMS units to obtain drug stocks legally ``on a
replacement basis'' from hospitals to which patients are delivered. We
have previously stated our belief that ambulance restocking performed
pursuant to a state law mandate would not violate the anti-kickback
statute. However, because [code section redacted] permits, but does not
require, drug restocking by hospitals, the statute is insufficient by
itself to foreclose the possibility of improper intent to induce
referrals.
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Under the linens and medical supplies exchange program,
receiving hospitals restock ambulances with linens and medical
supplies used on patients during emergency pre-hospital
services. The program enables ambulances to be fully stocked at
all times and ensures standardization of supplies, so that, for
example, tubing used by EMS units can be connected to hospital
systems without interruption.
The continuing education programs in which the Hospitals
participate serve to update EMS personnel on the latest
techniques in patient care. These programs also enable EMS
personnel to remain current with emergency room protocols in
the Hospitals. Hospital personnel also visit EMS squads to test
the skills of EMS personnel, as required by regional standing
orders pertaining to EMS certification.
Also under the Arrangement, Hospital Z in City A, the
area's children's specialty hospital and a requestor of this
opinion, distributes ``pedi bags'' to EMS providers to ensure
that EMS units carry a variety of pediatric-sized airway tubes
and related equipment for use with children. These bags have
been distributed to all EMS squads in the City A area. Private
EMS squads pay a nominal start-up fee of $100 per bag. Hospital
Z provides the bags to community and volunteer EMS squads at no
charge. As with the other exchange programs, the supplies
within the bags are restocked on an exchange basis, and all
adult hospitals in the area keep on hand a small supply of
these children's items.
II. Legal Analysis
A. Law
The anti-kickback statute makes it a criminal offense
knowingly and willfully to offer, pay, solicit, or receive any
remuneration to induce referrals of items or services
reimbursable by any Federal health care program.
See 42 U.S.C. Sec. 1320a-7b(b). Where remuneration is paid
purposefully to induce referrals of items or services for which
payment may be made by a Federal health care program, the anti-
kickback statute is violated. By its terms, the statute
ascribes criminal liability to parties on both sides of an
impermissible ``kickback'' transaction.
The statute has been interpreted to cover any arrangement
where one purpose of the remuneration was to obtain money for
the referral of services or to induce further referrals. United
States v. Kats, 871 F.2d 105 (9th Cir. 1989); United States v.
Greber, 760 F.2d 68 (3d Cir.), cert. denied, 474 U.S. 988
(1985). ``Remuneration'' for purposes of the anti-kickback
statute includes the transfer of anything of value, in cash or
in kind, directly or indirectly, covertly or overtly. Violation
of the statute constitutes a felony punishable by a maximum
fine of $25,000, imprisonment up to five years, or both.
Conviction will also lead to automatic exclusion from Federal
health care programs, including Medicare and Medicaid. This
Office may also initiate administrative proceedings to exclude
persons from Federal and state health care programs or to
impose civil monetary penalties for fraud, kickbacks, and other
prohibited activities under sections 1128(b)(7) and 1128A(a)(7)
of the Act.\4\
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\4\ Because both the criminal and administrative sanctions related
to the anti-kickback implications of the Arrangement are based on
violations of the anti-kickback statute, the analysis for purposes of
this advisory opinion is the same under both.
---------------------------------------------------------------------------
This Office's concern with the provision of goods and
services for free or at below-market rates to potential
referral sources is longstanding and clear: such arrangements
are suspect under the anti-kickback statute. The provision of
free or below-market rate goods or services to a referral
source may violate the anti-kickback statute if one purpose of
the gift is to induce referrals of Federal health care program
business.
The provision by a hospital of free supplies, medications,
and services to an ambulance service fits squarely within the
meaning of remuneration for purposes of the anti-kickback
statute. An inference may be drawn that one purpose of such
remuneration is to induce the ambulance company to bring
patients to the hospital. However, the strength of that
inference may vary with the circumstances of the specific
arrangement.
In assessing the potential risk of fraud or abuse under the
anti-kickback statute, our concerns are principally fourfold:
increased risk of over utilization, increased program costs,
patient freedom of choice, and unfair competition. Because it
is limited to emergency medical services, the Arrangement does
not increase the risk of over utilization and is unlikely to
lead to increased costs to Federal health care programs.
Neither the number of Federal program beneficiaries requiring
emergency transport in the City A area, nor the treatment these
patients will require or receive at the Hospitals, is related
to the existence or operation of the Arrangement.\5\
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\5\ This advisory opinion only relates to drugs, supplies, and
educational programs provided by the Hospitals that directly relate to
the provision of emergency pre-hospital services in the City A area.
Restocking of drugs or supplies used in the course of non-emergency
services and educational programs not directly related to emergency
medical services are outside the scope of this opinion.
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With respect to freedom of choice and unfair competition,
under the Arrangement it appears that emergency ambulance crews
have relatively limited opportunities to steer patients to
particular hospitals. In life threatening cases, the selection
of a receiving hospital will be dictated by the patient's
condition. In other circumstances, the choice of receiving
hospital will frequently be dictated by the patient, the
patient's physician, or the patient's insurer. Notwithstanding,
there will inevitably be situations in which ambulance company
personnel would be able to steer patients who do not have a
preference to a particular facility. In the circumstances
presented here, however, there would appear to be no financial
reason arising from the Arrangement for ambulance personnel to
steer patients to a particular hospital, since all area
hospitals participate in the Arrangement.
However, the mere fact that all hospitals may be restocking
ambulances without charge does not immunize conduct that might
otherwise violate the anti-kickback statute. Some institutions
may well participate in the restocking because of fear of
adverse competitive consequences if they do not. In short,
remuneration that is given to retain or maintain existing
referrals may violate the anti-kickback statute.
We previously addressed the application of the anti-
kickback statute to an ambulance restocking arrangement in OIG
Advisory Opinion 97-6 (October 8, 1997). Based on the specific
facts presented by the hospital requestor, we found that,
notwithstanding a state administrative regulation that required
ambulances to transport patients to the facility of the
patient's choice except in exigent circumstances, the
hospital's proposed arrangement for free restocking of supplies
and medications posed a risk of improper steering and unfair
competition. Accordingly, we concluded that the arrangement
could potentially violate the anti-kickback statute if the
requisite intent to induce referrals were present.
The facts presented here differ in material respects from
those presented in OIG Advisory Opinion 97-6. First, the
Arrangement is not a unilateral arrangement; rather, it was
developed and implemented pursuant to an ongoing effort by the
Council and its members to maintain and improve a regional
emergency medical system through a comprehensive program that
coordinates all EMS components. The Council, a non-profit
corporation founded in 1972, is open to all hospitals and
emergency ambulance providers in the area, as well as local
educational institutions, physicians, and other community
members. Regional EMS councils, like the one at issue here,
were formed in the early 1970s in response to a growing
recognition of the inadequacy of then existing emergency
medical care and the high cost in human lives and physical
disabilities due to accidents and sudden illness and injury.\6\
EMS councils were established to coordinate emergency care
among all levels of a region's EMS system, including public
safety organizations, private and hospital-based ambulance
services, hospitals and other critical care facilities, and
local physicians and community groups.
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\6\ See, e.g. Accidental Death and Disability: The Neglected
Disease of Modern Society, National Academy of Sciences and National
Research Council (September 1966).
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Second, the restocking aspects of the Arrangement are not
free-standing; the Arrangement is part and parcel of a
comprehensive and coordinated regional effort to integrate and
improve all aspects of the emergency medical care system. In
addition to the drug and supply exchange programs, the Council
establishes protocols addressing various aspects of the
emergency medical system and otherwise administers the exchange
and educational programs.\7\ It also conducts ongoing
evaluation and improvement of the local EMS delivery system,
performs EMS quality assurance audits, sponsors educational
programs related to EMS for the general public, acts as an
information clearinghouse for EMS activities, and otherwise
seeks to promote high quality EMS care for the region.
---------------------------------------------------------------------------
\7\ The ``pedi bag'' program is administered by the local
children's medical center, but is part of the comprehensive regional
EMS system and is included in the Arrangement for purposes of this
advisory opinion.
---------------------------------------------------------------------------
Third, regional and local programs to improve and
coordinate the delivery of quality emergency medical services
have been actively encouraged and promoted by the Federal
government over the past twenty-five years. In 1973--the year
the first exchange program began in the City A area--the
Federal government enacted the Emergency Medical Services
Systems Act of 1973 (``EMSSA''), Pub. L. 93-154, 87 Stat. 594
(1973), which provided federal funding for the development of
regional EMS systems at the state, regional, and local
levels.\8\ These regional systems were to develop
comprehensiveprograms to improve such areas as communications
(including ``911'' systems); transportation; provision and
training of emergency personnel; facilities; critical care
units; use of public safety agencies; accessibility to care;
consumer participation, education, and information; transfer of
patients; standard medical record keeping; independent review
and evaluation of EMS; disaster linkage; and mutual aid
agreements among communities. EMSSA was one of several Federal
legislative efforts to promote EMS delivery systems, including
the Highway Safety Act of 1966, Pub. L. 89-594, 80 Stat. 731
(1966), which established an EMS program in the Department of
Transportation; the Emergency Medical Services for Children
Program, under the Public Health Act, Pub. L. 98-555, 99 Stat.
2854 (1984), which provided funds for enhancing pediatric EMS;
and the Trauma Care Systems Planning and Development Act of
1990, Pub. L. 101-590, 104 Stat. 2915 (1990).
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\8\ EMSSA defined ``emergency medical services system'' as ``a
system which provides for the arrangement of personnel, facilities, and
equipment for the effective and coordinated delivery in an appropriate
geographical area of health care services under emergency conditions .
. . and which is administered by a public or nonprofit private entity
which has the authority and the resources to provide effective
administration of the system.'' 87 Stat. at 595.
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Finally--and importantly--the Arrangement is likely to have
a positive impact on the quality of patient care. By providing
a mechanism to ensure that ambulances are fully stocked with
current medications and appropriate supplies compatible with
all local hospital emergency rooms and that EMS personnel are
adequately trained, the Arrangement is likely to foster fast,
efficient, and effective pre-hospital emergency care for the
City A area community. This significant community benefit,
coupled with the conditions, requirements, and limitations
outlined above, persuade us that the Arrangement poses minimal
risk of fraud and abuse under the anti-kickback statute, and
therefore the OIG would not subject it to sanction.
III. Conclusion
The advisory opinion process is a ``means of relating the
anti-kickback statute to the particular facts of a specific
arrangement.'' 62 Fed. Reg. 7350, 7351 (February 19, 1997). The
advisory opinion process permits this Office to protect
specific arrangements that contain limitations, requirements,
or controls that give adequate assurance that Federal health
care programs cannot be abused.'' Id. In evaluating an
arrangement's potential to lead to fraud or abuse of Federal
health care programs, no one fact or element is necessarily
dispositive. Here, we are persuaded that the Arrangement is
likely to result in substantial community benefit consistent
with longstanding national policy objectives. We are further
persuaded that, taken as a whole, the aspects of the
Arrangement described above--including, but not limited to, the
Arrangement's relationship to a coordinated regional EMS
system, the role of the regional Council, the Arrangement's
limitation to emergency medical services, and the uniformity of
the Arrangement acrossproviders--create sufficient limitations,
requirements, or controls so as to give adequate assurance that
the Arrangement will not lead to program abuse under the anti-
kickback statute.\9\
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\9\ We express no opinion regarding liability of the requesters
under the False Claims Act or other legal authorities in connection
with any improper billing or claims submission directly or indirectly
related to, or arising from, the Arrangement.
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Accordingly, we conclude that while the Arrangement might
technically violate the anti-kickback statute if the requisite
intent to induce referrals were present, the OIG will not
impose sanctions on the requesters under sections 1128(b)(7)
(as it relates to kickbacks) or 1128A(a)(7) of the Act, based
on the facts certified in the requesters' request for an
advisory opinion.
IV. Limitations
The limitations applicable to this opinion include the
following:
This advisory opinion is issued only to the
requesters listed on the Attached Distribution List, which are
the requesters of this opinion. This advisory opinion has no
application, and cannot be relied upon, by any other individual
or entity.
This advisory opinion may not be introduced into
evidence in any matter involving an entity or individual that
is not a Requestor to this opinion.
This advisory opinion is applicable only to the
statutory provisions specifically noted in the first paragraph
of this advisory opinion. No opinion is herein expressed or
implied with respect to the application of any other Federal,
state, or local statute, rule, regulation, ordinance, or other
law that may be applicable to the Arrangement.
This advisory opinion will not bind or obligate
any agency other than the U.S. Department of Health and Human
Services.
This advisory opinion is limited in scope to the
specific arrangement described in this letter and has no
applicability to other arrangements, even those which appear
similar in nature or scope.
This opinion is also subject to any additional limitations
set forth at 42 C.F.R. Part 1008.
The OIG will not proceed against the requesters with
respect to any action that is part of the Arrangement taken in
good faith reliance upon this advisory opinion as long as all
of the material facts have been fully, completely, and
accurately presented, and the Arrangement in practice comports
with the information provided. The OIG reserves the right to
reconsider the questions and issues raised in this advisory
opinion and, where the public interest requires, modify or
terminate this opinion. In the event that this advisory opinion
is modified or terminated, the OIG will not proceed against any
requestor with respect to any action taken in good faith
reliance upon this advisory opinion, where all of the relevant
facts were fully, completely, and accurately presented and
where such action was promptly discontinued upon notification
of the modification or termination of this advisory opinion.
Sincerely,
D. McCarty Thornton
Chief Counsel to the Inspector General
Advisory Opinion No. 98-13
Ladies and Gentlemen:
We are writing in response to your request for an advisory
opinion, in which you ask whether an ambulance restocking
program, coordinated through a local emergency medical services
council (the ``Program''), constitutes prohibited remuneration
under the anti-kickback statute, section 1128B(b) of the Social
Security Act (the ``Act''), and, if so, whether the Program
constitutes grounds for the imposition of sanctions under the
anti-kickback statute, section 1128B(b) of the Act, the
exclusion authority related to kickbacks, section 1128(b)(7) of
the Act, or the civil monetary penalty provision for kickbacks,
section 1128A(a)(7) of the Act.
You have certified that all of the information you provided
in your request, including all supplementary information, is
true and correct, and constitutes a complete description of the
material facts regarding the Program. In issuing this opinion,
we have relied solely on the facts and information you
presented to us. We have not undertaken any independent
investigation of such information. This opinion is limited to
the facts presented. If material facts have not been disclosed,
this opinion is without force and effect.
Based on the facts certified in your request for an
advisory opinion, we conclude that the Program could constitute
prohibited remuneration under the anti-kickback statute if the
requisite intent to induce referrals were present, but that the
OIG will not subject the Program, as described in the request
and supplemental submissions, to sanctions arising under the
anti-kickback statute pursuant to sections 1128B(b),
1128(b)(7), or 1128A(a)(7) of the Act.
This opinion may not be relied on by any persons other than
the addressees and is further qualified as set out in Part IV
below and in 42 C.F.R. Part 1008.
I. Factual Background
The requesters of this advisory opinion are eight fire
departments (listed on the attached distribution list) and The
County X Ambulance District located in County X, State Y. All
of the fire departments and the ambulance district are owned
and operated by municipal governments and provide emergency
medical services (``EMS'').
The requesters are members of the County X Emergency
Medical Services Council (the ``Council''), a non-profit
association founded in 1980. The Council is an advisory and
coordinating organization whose mission is to promote and
advance EMS throughout County X. Membership on the Council
includes those who are providing EMS and those who are
interested in furthering the goals of the Council. The
Council's current membership includes public and private
ambulance providers, hospitals, medical directors, and local
educational facilities. The Council's goals include:
standardization of EMS practices and equipment; provision of
education and training for EMS providers; and improvement of
EMS capabilities in the Council's service area. Through its
Executive Committee, the Council may appoint working committees
to accomplish its goals. One such committee is a practice
committee.
The practice committee has oversight of the restocking
Program and is responsible for standardizing the Program within
the local EMS community, educating Council members regarding
the Program, and disseminating information about the Program.
The Program has been in operation in County X for eighteen
years. The Program provides for the free exchange of drugs and
medical supplies used by EMS providers when they bring an
individual to a hospital for emergency treatment. Currently,
all hospitals and EMS providers in the County X service area
participate in the Program. Under the Program protocol, the
hospital that receives the patient restocks the ambulance with
the medications and supplies used in connection with the
patient's emergency medical treatment. Both an EMS provider and
a representative of the receiving hospital fill out and sign an
emergency medical response for each patient (the ``Report'').
One copy of the Report is placed in the patient's record and
one copy of the Report is used for inventory documentation of
the expended drugs and medical supplies. The ambulance
providers are not charged, and do not pay, for restocked items.
The cost of the drugs and medical supplies is charged to the
patient by the receiving hospital in the manner of other
billing for the services to the patient.
II. Legal Analysis
The anti-kickback statute makes it a criminal offense
knowingly and willfully to offer, pay, solicit, or receive any
remuneration to induce referrals of items or services
reimbursable by any Federal health care program. See section
1128B(b) of the Act. Where remuneration is paid purposefully to
induce referrals of items or services for which payment may be
made by a Federal health care program, the anti-kickback
statute is violated. By its terms, the statute ascribes
criminal liability to parties on both sides of an impermissible
``kickback'' transaction. For purposes of the anti-kickback
statute, ``remuneration'' includes the transfer of anything of
value, in cash or in-kind, directly or indirectly, covertly or
overtly.
The statute has been interpreted to cover any arrangement
where one purpose of the remuneration was to obtain money for
the referral of services or to induce further referrals. United
States v. Kats, 871 F.2d 105 (9th Cir. 1989); United States v.
Greber, 760 F.2d 68 (3d Cir.), cert. denied, 474 U.S. 988
(1985). Violation of the statute constitutes a felony
punishable by a maximum fine of $25,000, imprisonment up to
five years, or both. Conviction will also lead to automatic
exclusion from Federal health care programs, including Medicare
and Medicaid.
This Office may also initiate administrative proceedings to
exclude persons from Federal and state health care programs or
to impose civil monetary penalties for fraud, kickbacks, and
other prohibited activities under sections 1128(b)(7) and
1128A(a)(7) of the Act.
This Office's concern with the provision of goods and
services for free or at below-market rates to potential
referral sources is longstanding and clear: such arrangements
are suspect under the anti-kickback statute. The provision of
free or below-market rate goods or services to a referral
source may violate the anti-kickback statute if one purpose of
the gift is to induce referrals of Federal health care program
business.
The provision by a hospital of free supplies and
medications to an ambulance provider fits squarely within the
meaning of remuneration for purposes of the anti-kickback
statute. An inference may be drawn that one purpose of such
remuneration is to induce the ambulance provider to bring
patients to the hospital. However, the strength of that
inference may vary with the circumstances of the specific
arrangement.
In assessing the potential risk of fraud or abuse under the
anti-kickback statute, our concerns are principally fourfold:
increased risk of over utilization, increased program costs,
patient freedom of choice, and unfair competition. Because it
is limited to emergency medical services, the Program does not
increase the risk of over utilization and is unlikely to lead
to increased costs to Federal health care programs. Neither the
number of Federal program beneficiaries requiring emergency
transport in County X, nor the treatment these patients will
require or receive at a hospital, is related to the existence
or operation of the Program.
With respect to freedom of choice and unfair competition,
emergency ambulance crews have relatively limited opportunities
to steer patients to particular hospitals. In life threatening
cases, the selection of a receiving hospital will be dictated
by the patient's condition. In other circumstances, the choice
of receiving hospital will frequently be dictated by the
patient, the patient's physician, or the patient's insurer.
Notwithstanding, there will inevitably be situations in which
ambulance provider personnel would be able to steer patients
who do not have a preference to a particular facility. In the
circumstances presented here, however, there would appear to be
no financial reason arising from the Program for ambulance
personnel to steer patients to a particular hospital, since all
area hospitals participate in the Program.
However, the mere fact that all hospitals may be restocking
ambulances without charge does not immunize conduct that might
otherwise violate the anti-kickback statute. Some institutions
may well participate in the restocking because of fear of
adverse competitive consequences if they do not. In short,
remuneration that is given to retain or maintain existing
referrals may violate the anti-kickback statute.
We previously addressed an ambulance restocking arrangement
that raised concerns under the anti-kickback statute in OIG
Advisory Opinion 97-6 (October 8, 1997). Based on the specific
facts presented by the hospital requester, we found that,
notwithstanding a state administrative regulation that required
ambulances to transport patients to the facility of the
patient's choice except in exigent circumstances, the
hospital's proposed arrangement for free restocking of supplies
and medications posed a risk of improper steering and unfair
competition. Accordingly, we concluded that the arrangement
could potentially violate the anti-kickback statute if the
requisite intent to induce referrals were present.
The facts presented here differ in material respects from
those presented in OIG Advisory Opinion 97-6 for the following
reasons:
First, the Program is not a unilateral arrangement; rather,
it is part of an ongoing effort by the Council and its members
to maintain and improve EMS throughout the County X service
area. The Council, a non-profit association founded in 1980, is
open to all hospitals and emergency ambulance providers in the
area, as well as local educational institutions, physicians,
and other community members. Regional EMS councils, like the
one at issue here, were formed in the early 1970s in response
to a growing recognition of the inadequacy of then existing
emergency medical care and the high cost in human lives and
physical disabilities due to accidents and sudden illness and
injury. EMS councils were established to coordinate emergency
care among all levels of a region's EMS system, including
public safety organizations, private and hospital-based
ambulance providers, hospitals and other critical care
facilities, and local physicians and community groups.
Second, the restocking aspects of the Program are not free-
standing; the Program is part and parcel of a coordinated
regional effort to integrate and improve the emergency medical
care system. In addition to the drug and supply exchange
programs, the Council promotes the standardization of practices
and equipment within the emergency medical system and provides
education and training for EMS providers. It also evaluates and
supports requests for improvements to the local EMS delivery
system, sponsors educational programs related to EMS, and
otherwise seeks to promote high quality EMS care for the
region.
Third, regional and local programs to improve and
coordinate the delivery of quality EMS have been actively
encouraged and promoted by the Federal government over the past
twenty-five years. In 1973 the Federal government enacted the
Emergency Medical Services Systems Act of 1973 (``EMSSA''), Pub
L. 93-154, 87 Stat. 594 (1973), which provided federal funding
for the development of regional EMS systems at the state,
regional, and local levels. These regional systems were to
develop comprehensive programs to improve such areas as
communications (including ``911'' systems); transportation;
provision and training of emergency personnel; facilities;
critical care units; use of public safety agencies;
accessibility to care; consumer participation, education, and
information; transfer of patients; standard medical record
keeping; independent review and evaluation of EMS; disaster
linkage; and mutual aid agreements among communities. EMSSA was
one of several Federal legislative efforts to promote EMS
delivery systems, including the Highway Safety Act of 1966,
Pub. L. 89-594, 80 Stat.731 (1966), which established an EMS
program in the Department of Transportation; the Emergency
Medical Services for Children Program, under the Public Health
Act, Pub. L.98-555, 99 Stat. 2854 (1984), which provided funds
for enhancing pediatric EMS; and the Trauma Care Systems
Planning and Development Act of 1990, Pub. L. 101-590,104 Stat.
2915 (1990).
Finally--and importantly--the Program is likely to have a
positive impact on the quality of patient care. By providing a
mechanism to ensure that ambulances are fully stocked with
current medications and appropriate supplies, the Program is
likely to foster fast, efficient, and effective pre-hospital
emergency care for the County X service area. These significant
community benefits, coupled with the conditions, requirements,
and limitations outlined above, persuade us that the Program
poses minimal risk of fraud and abuse under the anti-kickback
statute, and therefore the OIG would not subject it to
sanction.
III. Conclusion
The advisory opinion process is a ``means of relating the
anti-kickback statute to the particular facts of a specific
arrangement.'' 62 Fed. Reg. 7350,7351 (February 19, 1997). The
advisory opinion process permits this Office to protect
specific arrangements that ``contain limitations, requirements,
or controls that give adequate assurance that Federal health
care programs cannot be abused.'' Id. In evaluating an
arrangement's potential to lead to fraud or abuse of Federal
health care programs, no one fact or element is necessarily
dispositive. Here, we are persuaded that the Program is likely
to result in substantial community benefit consistent with
longstanding national policy objectives. We are further
persuaded that, taken as a whole, the aspects of the Program
described above--including, but not limited to, the Program's
relationship to a coordinated regional EMS system, the role of
the regional Council, the Program's limitation to emergency
medical services, and the uniformity of the Program across
providers--create sufficient limitations, requirements, or
controls so as to give adequate assurance that the Program will
not lead to program abuse under the anti-kickback statute.
Accordingly, we conclude that while the Program might
technically violate the anti-kickback statute if the requisite
intent to induce referrals were present, the OIG will not
impose sanctions on the requesters under sections 1128(b)(7)
(as it relates to kickbacks) or 1128A(a)(7) of the Act, based
on the facts certified in the requesters' request for an
advisory opinion.
IV. Limitations
The limitations applicable to this opinion include the
following:
This advisory opinion is issued only to the requesters
listed on the Attached Distribution List, which are the
requesters of this opinion. This advisory opinion has no
application, and cannot be relied upon, by any other individual
or entity.
This advisory opinion may not be introduced into evidence
in any matter involving an entity or individual that is not a
requester to this opinion.
This advisory opinion is applicable only to the statutory
provisions specifically noted in the first paragraph of this
advisory opinion. No opinion is herein expressed or implied
with respect to the application of any other Federal, state, or
local statute, rule, regulation, ordinance, or other law that
may be applicable to the Program.
This advisory opinion will not bind or obligate any agency
other than the U.S. Department of Health and Human Services.
This advisory opinion is limited in scope to the specific
arrangement described in this letter and has no applicability
to other arrangements, even those which appear similar in
nature or scope.
This opinion is also subject to any additional limitations
set forth at 42 C.F.R. Part 1008.
The OIG will not proceed against the requesters with
respect to any action that is part of the Program taken in good
faith reliance upon this advisory opinion as long as all of the
material facts have been fully, completely, and accurately
presented, and the Program in practice comports with the
information provided. The OIG reserves the right to reconsider
the questions and issues raised in this advisory opinion and,
where the public interest requires, rescind, modify or
terminate this opinion. In the event that this advisory opinion
is modified or terminated, the OIG will not proceed against any
requester with respect to any action taken in good faith
reliance upon this advisory opinion, where all of the relevant
facts were fully, completely, and accurately presented and
where such action was promptly discontinued upon notification
of the modification or termination of this advisory opinion. An
advisory opinion may be rescinded only if the relevant and
material facts have not been fully, completely, and accurately
disclosed to the OIG.
Sincerely,
D. McCarty Thornton
Chief Counsel to the Inspector General
Advisory Opinion No. 98-14
Ladies and Gentlemen:
We are writing in response to your request for an advisory
opinion, in which you ask whether an existing pharmaceutical
restocking program (the ``Drug Program'') and a proposed
medical supplies restocking program (the ``Supply Program'')
(collectively, the ``Arrangements'') constitute prohibited
remuneration under the anti-kickback statute, section 1128B(b)
of the Social Security Act (the ``Act''), and, if so, whether
the Arrangements constitute grounds for the imposition of
sanctions under the anti-kickback statute, section 1128B(b) of
the Act, the exclusion authority related to kickbacks, section
1128(b)(7) of the Act, or the civil monetary penalty provision
for kickbacks, section 1128A(a)(7) of the Act.
You have certified that all of the information you provided
in your request, including all supplementary information, is
true and correct, and constitutes a complete description of the
material facts regarding the Arrangements. In issuing this
opinion, we have relied solely on the facts and information you
presented to us. We have not undertaken any independent
investigation of such information. This opinion is limited to
the facts presented. If material facts have not been disclosed,
this opinion is without force and effect.
Based on the facts certified in your request for an
advisory opinion, we conclude that the Arrangements described
in your advisory opinion request and supplemental submissions
could constitute prohibited remuneration under the anti-
kickback statute, if the requisite intent to induce referrals
of Federal health care program business were present, but that
the OIG will not subject the Drug Program, as described in the
request and supplemental submissions, to sanctions arising
under the anti-kickback statute pursuant to sections 1128B(b),
1128(b)(7), or 1128A(a)(7) of the Act.
This opinion may not be relied on by any persons other than
the addressees and is further qualified as set out in Part IV
below and in 42 C.F.R. Part 1008.
I. Factual Background
The requesters of this advisory opinion are four hospital
providers located in four counties in the northeast of State X
(the ``Hospitals''). The first requester is Hospital One
(``Hospital One''), which operates one hospital in County A,
State X, and three hospitals in County B, State X. The second
requester is Hospital Two (``Hospital Two''), which operates
one hospital in County A, State X, one hospital in County B,
State X, and one free-standing emergency facility in County C,
State X. The third requester is Hospital Three (``Hospital
Three'') located in County D, State X. The final requester is
Hospital Four (``Hospital Four'') located in County B, State X.
These Hospitals represent all of the hospital providers in the
greater [four county] metropolitan emergency medical services
area (the ``Four County EMS Area'').\1\
---------------------------------------------------------------------------
\1\ There are other hospitals in the four-county area that are
geographically distant from the Hospitals and therefore not part of the
Four County EMS Area.
---------------------------------------------------------------------------
Each Hospital is a member of at least one of the three
emergency medical services (``EMS'') councils operating in the
four-county area (the ``EMS Councils''). The first EMS council
is Council F (``Council F''), which operates in County A.
Council F's mission is, among other things, to coordinate the
various levels of EMS, educational programs, and interaction
between pre-hospital care providers and other health care
providers in the county and to encourage the implementation of
EMS standards and criteria pursuant to local, state, and
national guidelines. Hospital One and Hospital Two are members
of Council F. The second EMS council is Council G (``Council
G''), which operates in Counties B and D. Council G's mission
includes upgrading emergency medical care in the region;
serving as a central coordinating body; and implementing and
monitoring systems of quality assurance for EMS in the region.
Hospitals One, Two, Three, and Four are all members of Council
G. The third EMS council is Council H (``Council H''). Council
H was formed to oversee pre-hospital emergency medical care in
the county, including promulgating standard, community-wide
pre-hospital EMS operating protocols. Hospital Two is a member
of Council H. Each EMS Council has diverse membership,
including, among others, local physicians, hospital
representatives, paramedics, EMS technicians, consumer
representatives, EMS education providers, and local officials.
The Hospitals participate in a pharmaceutical restocking
program (the ``Drug Program'') with area ambulance providers in
connection with emergency medical transports. Typically under
the Drug Program, a receiving hospital restocks an ambulance
with the medications used in connection with emergency pre-
hospital services provided by the ambulance provider to the
transported patient. The EMS units are not charged, and do not
pay, for restocked items. As part of the exchange, the EMS unit
must provide documentation of the drugs used during the
ambulance run. All hospitals in the Four County EMS Area
participate in the Drug Program; any other hospital located
within the four-county area may participate. The restocked
pharmaceuticals are provided to any ambulance provider that
transports an emergency patient to the hospital.
Council F, Council G, and Council H have facilitated the
Drug Program within the four-county area in various ways. The
EMS Councils' activities have included, for example: initiating
drug exchange programs; approving policies and protocols that
govern drug exchange programs; creating and implementing
protocols for the administration of drugs used during patient
transport; and coordinating efforts between public and private
pre-hospital providers, hospital emergency staff, and consumers
to promote the highest quality medical care for victims of
sudden illness or injury.
The Hospitals also propose a limited medical supplies
restocking program (the ``Supply Program''), pursuant to which
the Hospitals would restock certain supplies used by ambulance
providers during emergency pre-hospital transportation. To
initiate, coordinate, and monitor the Supply Program, the
Hospitals have established a joint committee, comprised of the
EMS coordinator or a higher level employee from each Hospital.
Any hospital located within the four-county area may
participate. The restocked medical supplies will be provided to
any ambulance provider that transports an emergency patient to
a participating hospital.
The Hospitals want to establish a limited supply exchange
program targeting specific supplies that they believe will
enhance efficient coordination and integration between their
emergency rooms and emergency pre-hospital care providers. To
this end, the joint committee developed the following list of
medical supplies to be restocked under the auspices of the
Supply Program: intravenous solutions; intravenous tubing;
intravenous catheters and needles; oxygen cannulas and oxygen
masks; endotracheal tubes; tuberculin, intramuscular and 10 cc
syringes; blood collection tubes; and linens.\2\
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\2\ Linens are included to ensure appropriate compliance with
sanitization requirements for laundering linens used by hospital and
ambulance patients.
---------------------------------------------------------------------------
The Supply Program will allow ambulances to be fully
stocked with a standard complement of these supplies, making it
easier, for example, for patients arriving by emergency
ambulance to be connected to Hospital emergency room systems
without interruption.
II. Legal Analysis
The anti-kickback statute makes it a criminal offense
knowingly and willfully to offer, pay, solicit, or receive any
remuneration to induce referrals of items or services
reimbursable by any Federal health care program. See section
1128B(b) of the Act. Where remuneration is paid purposefully to
induce referrals of items or services for which payment may be
made by a Federal health care program, the anti-kickback
statute is violated. By its terms, the statute ascribes
criminal liability to parties on both sides of an impermissible
``kickback'' transaction. For purposes of the anti-kickback
statute, ``remuneration'' includes the transfer of anything of
value, in cash or in kind, directly or indirectly, covertly or
overtly.
The statute has been interpreted to cover any arrangement
where one purpose of the remuneration was to obtain money for
the referral of services or to induce further referrals. United
States v. Kats, 871 F.2d 105 (9th Cir. 1989); United States v.
Greber, 760 F.2d 68 (3d Cir.), cert. denied, 474 U.S. 988
(1985). Violation of the statute constitutes a felony
punishable by a maximum fine of $25,000, imprisonment up to
five years, or both. Conviction will also lead to automatic
exclusion from Federal health care programs, including Medicare
and Medicaid. This Office may also initiate administrative
proceedings to exclude persons from Federal and state health
care programs or to impose civil monetary penalties for fraud,
kickbacks, and other prohibited activities under sections
1128(b)(7) and 1128A(a)(7) of the Act.\3\
---------------------------------------------------------------------------
\3\ Because both the criminal and administrative sanctions related
to the anti-kickback implications of the Arrangements are based on
violations of the anti-kickback statute, the analysis for purposes of
this advisory opinion is the same under both.
---------------------------------------------------------------------------
This Office's concern with the provision of goods and
services for free or at below-market rates to potential
referral sources is longstanding and clear: such arrangements
are suspect and may violate the anti-kickback statute if one
purpose is to induce referrals of Federal health care program
business.
The provision by a hospital of free supplies and
medications to an ambulance provider fits squarely within the
meaning of remuneration for purposes of the anti-kickback
statute. An inference may be drawn that one purpose of such
remuneration is to induce the ambulance provider to bring
patients to the hospital. However, the strength of that
inference may vary with the circumstances of the specific
arrangement.
With respect to the Drug Program, the factual circumstances
presented here are substantially similar to those present in
the factual circumstances addressed by OIG Advisory Opinions
98-7 and 98-13. Thus, for the reasons stated in those opinions,
we conclude that the OIG would not subject the Drug Program, as
described in the request letter and supplemental submissions,
to sanctions under section 1128B(b), 1128(b)(7), or 1128A(a)(7)
of the Act.\4\ As in those opinions, the involvement of the
entire EMS community in the Drug Program, including hospitals,
EMS physicians, ambulance providers, paramedics, EMS education
providers, consumer representatives, and local officials,
provides adequate assurance that the plan is designed to
improve and enhance the delivery of EMS in the Four County EMS
Area for the benefit of the entire community.
---------------------------------------------------------------------------
\4\ This advisory opinion only relates to the restocking of drugs
and supplies directly related to the provision of emergency pre-
hospital services. Restocking of drugs or supplies used in connection
with non-emergency services are outside the scope of this opinion.
---------------------------------------------------------------------------
While we recognize that the Supply Program may also provide
a community benefit, we are unable to reach a similar
conclusion with respect to the application of the anti-kickback
statute to that program. The Supply Program would be
implemented under the auspices of a committee formed
exclusively of Hospital representatives, rather than an EMS
council or similar group more broadly representative of the EMS
community at large. The involvement of a broad range of
representatives of the EMS community provides substantial
assurance that an ambulance restocking program will operate for
the benefit of the local community and will not be undertaken
solely for the benefit of a single provider or group of
providers.
We wish to make clear that this opinion does not mean that
the Supply Program (or similar ambulance restocking programs)
would violate the anti-kickback statute. Rather, because it
involves the provision of free goods to potential referral
sources, the Supply Program might violate the statute if one
purpose of the Program is to induce Federal health care program
business. Thus, whether the proposed Supply Program would, in
fact, be unlawful requires a case-by-case determination of the
actual intent of the parties based on all relevant facts and
circumstances. We cannot determine intent based solely on
documentary submissions; accordingly, a determination of intent
is beyond the scope of the advisory opinion process. See 62
Fed. Reg. 7351 (Feb. 19, 1997).
III. Conclusion
The advisory opinion process is a ``means of relating the
anti-kickback statute to the particular facts of a specific
arrangement.'' 62 Fed. Reg. 7350, 7351 (Feb. 19, 1997). The
advisory opinion process permits this Office to protect
specific arrangements that ``contain[] limitations,
requirements, or controls that give adequate assurance that
Federal health care programs cannot be abused.'' Id. In
evaluating an arrangement's potential to lead to fraud or abuse
of Federal health care programs, no one fact or element is
necessarily dispositive. We are further persuaded that, taken
as a whole, the aspects of the Drug Program described above--
including, but not limited to, the Hospitals' relationships
with coordinated regional EMS systems, the role of the regional
EMS councils, and the Program's limitation to emergency medical
services--create sufficient limitations, requirements, or
controls so as to give adequate assurance that the Drug Program
will not lead to program abuse under the anti-kickback
statute.\5\ The Supply program does not contain similar
safeguards.
---------------------------------------------------------------------------
\5\ We express no opinion regarding liability of the requesters
under the False Claims Act or other legal authorities in connection
with any improper billing or claims submission directly or indirectly
related to, or arising from, the Arrangements.
---------------------------------------------------------------------------
Accordingly, we conclude that while the Arrangements might
technically violate the anti-kickback statute, if the requisite
intent to induce referrals were present, the OIG will not
impose sanctions on the requesters in connection with the Drug
Program under sections 1128(b)(7) (as it relates to kickbacks)
or 1128A(a)(7) of the Act, based on the facts certified in the
requesters' request for an advisory opinion. The OIG cannot
give a similar assurance that the Supply Program would not be
subject to sanction if the parties were to have the requisite
intent to induce referrals of Federal health care program
business.
IV. Limitations
The limitations applicable to this opinion include the
following:
This advisory opinion is issued only to the Hospitals
listed on the Attached Distribution List, which are the
requesters of this opinion. This advisory opinion has no
application, and cannot be relied upon, by any other individual
or entity.
This advisory opinion may not be introduced into evidence
in any matter involving an entity or individual that is not a
requester to this opinion.
This advisory opinion is applicable only to the statutory
provisions specifically noted in the first paragraph of this
advisory opinion. No opinion is herein expressed or implied
with respect to the application of any other Federal, state, or
local statute, rule, regulation, ordinance, or other law that
may be applicable to the Arrangements.
This advisory opinion will not bind or obligate any agency
other than the U.S. Department of Health and Human Services.
This advisory opinion is limited in scope to the specific
arrangements described in this letter and has no applicability
to other arrangements, even those which appear similar in
nature or scope.
This opinion is also subject to any additional limitations
set forth at 42 C.F.R. Part 1008.
The Office of Inspector General (``OIG'') will not proceed
against the requesters with respect to any action that is part
of the Arrangements taken in good faith reliance upon this
advisory opinion as long as all of the material facts have been
fully, completely, and accurately presented, and the
Arrangements in practice comport with the information provided.
The OIG reserves the right to reconsider the questions and
issues raised in this advisory opinion and, where the public
interest requires, rescind, modify or terminate this opinion.
In the event that this advisory opinion is modified or
terminated, the OIG will not proceed against any requester with
respect to any action taken in good faith reliance upon this
advisory opinion, where all of the relevant facts were fully,
completely, and accurately presented and where such action was
promptly discontinued upon notification of the modification or
termination of this advisory opinion. An advisory opinion may
be rescinded only if the relevant and material facts have not
been fully, completely, and accurately disclosed to the OIG.
Sincerely,
D. McCarty Thornton
Chief Counsel to the Inspector General
Chairman Thomas [presiding.] Inquiries briefly?
Mr. Stark. Yes. I was just going to say, was there not a
case, a case you were talking about in Ohio for restocking?
Mr. Thornton. Yes. The subject of some of the restocking
opinions have come from Ohio. That is correct.
Mr. Stark. And where hospitals were offering to restock
free?
Mr. Thornton. For free, right. If the hospitals were
charging fair-market value for what they restocked, that would
be perfectly legal. That would be perfectly fine.
Mr. Stark. Is that any different than, you know, offering a
physician a free tank of gas every time he comes to call on a
patient in the hospital? It seems to me that you could get into
the question of whether you are just restocking the driver's
coffee or whether you are restocking thousands of dollars worth
of pharmaceutical products. And it would depend on--it would
seem to me you either force all hospitals to do that or you are
offering an inducement.
Now I don't care whether--if it's not an inducement--what
if you offered the driver of the ambulance frequent flier miles
for every patient they bring in? So you come to the Little
Sisters of Mercy Hospital, we'll give you 5,000 free United
Airline miles. Is that an inducement? Is that legal?
Mr. Thornton. It would certainly not be--we could not write
an advisory opinion that it is legal for sure.
Mr. Stark. Yes. It could be that there are some things that
are de minimis, but my suspicion is that it was other hospitals
who complained that it [the restocking] was unfair and/or that
it was, in fact, an inducement, a commission. I don't care what
you want to call it. Now, the amount of that might, it might be
de minimis. I guess that is always a problem.
But there is no question that the hospital benefits by
getting business, patients if you will. And therefore, it seems
to me--and I don't know how many examples the gentlelady would
like, but this has happened and the question is, is that
proper. That is the issue.
Mr. Thornton. And we didn't say it was a violation of the
anti-kickback statute. The advisory opinion process crafted by
this Committee, was carefully done. It excluded questions of
intent. We are not to rule on questions of intent. So when an
advisory opinion comes in, we don't deal with intent. We are
asked on these facts, could this ever be a kickback or not.
OK? And we work with requestors, and oftentimes they will
make adjustments in their requests so that we can give them a
favorable result. We have done that three-quarters of the time,
including some ambulance services and ambulance response
systems, including a city down in Texas that was putting into
effect a new EMS system. We worked with them.
But having intent off the table, the question is, could a
hospital ever intend to induce ambulance companies to favor
them by giving away things, well they could. They could.
Mr. Stark. Of course.
Mr. Thornton. But under some circumstances, well, many
circumstances, it could be done legally. And we volunteered
that advice to the people too. All that has to be done is the
items have to be paid for, or if every hospital in the locality
is doing it according to a standard EMS system. That is OK too.
Mr. Stark. Makes good sense to me. Thank you.
Mrs. Johnson of Connecticut. I think you did not
understand----
Chairman Thomas. The gentlewoman from Connecticut.
Mrs. Johnson of Connecticut. Thank you. Thank you very
much, Mr. Chairman.
I think you did not understand the intent of my line of
questioning. First of all, when you are 6 years behind on the
regulations, you frankly don't have time to do a waiver by
waiver on this particular kind of issue. Where you clearly see
a pattern--it would be all right if you pay or be all right if
everybody does it. So it is not an inducement.
What I was asking you was, do you have the power then,
either through an exception in this or some kind of power of
the central government to say, if these two patterns are met,
don't come to us for a waiver because this is legal.
Mr. Thornton. Yes. We do.
Mrs. Johnson of Connecticut. So you create certainty. See,
you didn't create certainty through your first ruling saying
this isn't necessarily so. See. And you don't have to prove
intent on a self-referral. So intent is irrelevant.
Mr. Thornton. That's right. Everything that we in the
Inspector General's Office does is on the anti-kickback
statute. HCFA has total charge of the self-referral statute.
All of my advisory opinions are under anti-kickback. And we do
have the authority to make safe harbors, which is exactly what
you are referring to.
Mrs. Johnson of Connecticut. But you haven't done that yet,
have you?
Mr. Thornton. Not for ambulance restocking.
Mrs. Johnson of Connecticut. Why not?
Mr. Thornton. Actually, we are considering a safe harbor
for that practice resulting from what----
Mrs. Johnson of Connecticut. This has been going on--this
has been a big problem for a year and a half. It is not hard to
see that it is an easy safe harbor if you are all doing it or
if you are paying. Why didn't you have that done like 6 months
ago, 9 months ago, a year ago? Why are you letting them hang
out there?
Mr. Thornton. We have eight safe harbors just about to come
out. That is not one of them, but we have identified several
ways to make arrangements legal and publish them, put it up on
our Web site.
Mrs. Johnson of Connecticut. I think my point is made, and
I hope sometime you will act on it.
Chairman Thomas. Thank the gentlewoman. I apologize for not
being here. I was over at a meeting with the Speaker, but I
have been informed by staff and others that maybe some
statements were made that, if not gratifying, would at least be
comforting. I understand, Mr. Thornton, in partial response to
the gentleman from Louisiana's question in reference to the
comment I made before we started the program, that when we were
trying to deal with advisory opinions, you were somewhat
vociferous about how it would, if not be the end of the world,
be damn close.
And my question to you just recently before we started this
was, if you knew then what you know now, would you have been as
opposed to the idea of advisory opinions? And you said, well, I
won't put words in your mouth. What did you say?
Mr. Thornton. I said, honestly, yes.
Chairman Thomas. OK. Would it be useful, since you have
mentioned now several times that you only have the advisory
opinion power in the area of anti-kickback, if you had advisory
opinion in the area of self-referral?
Mr. Thornton. That is actually on the books. And since HCFA
has responsibility for that section, they have that authority.
Chairman Thomas. I notice you divided that very neatly. But
in part, all of the trends of these questions are going in
exactly the direction that I think I, unfortunately, was
talking about when I left. And I don't know if we have made
much progress.
If you haven't put the regs out and people give horrendous
examples of the kinds of things they could be punished for, for
example, parking, meals, et cetera, and you have indicated that
you are going to be carving out various exceptions for these,
again trying to figure out where the bright line is, then where
do you stop? For example, everyone would agree free parking
doesn't make a whole lot of sense in terms of somehow providing
a self-referral, an inducement.
What about picking you up in a limousine and dropping him
off in a limousine? Does that cross the line?
Ms. Buto. I am sorry. I didn't quite hear that.
Chairman Thomas. Well, we are talking about inducements.
And the problem is, if you catch my drift, I can begin asking
you examples which are only gradations above the one that you
feel comfortable with now, saying that is de minimis and we are
going to go ahead and say, free parking is not an inducement,
meals are not an inducement.
Are we talking about meals in the hospital cafeteria? What
about meals at the nicest restaurant in town? What about, as I
said, picking up and being dropped off by a limousine?
The point I am trying to make is, if you start down that
road with a law which forces you to begin to do that, you
simply will never keep up with the people who are as at least
as clever as you are, but who are paid a whole lot more. So
they will probably burn the midnight oil to stay ahead of you.
And I do not understand why you just absolutely want to
stay where you are in a situation where, even if you are able
to play the fringe arrangements, are you going to require
hospitals to report any of these kinds of activities?
Ms. Buto. No.
Chairman Thomas. You are not going--how do you know they
are going on then if you don't require them to report them?
Ms. Buto. What we want to do is, I think what I hear you
saying you want to do, is to simplify the rules in a way that--
--
Chairman Thomas. No. I want to change or drop the law, if
you didn't understand that from my opening statement. I think
the compensation part you can chase but you can never catch.
Now, here is the second part: Are you still going to require
hospitals to submit to you information about the financial
relationships with physicians?
Ms. Buto. No. We are not. We are not going to ask hospitals
or other providers and suppliers to submit information to us.
We are essentially, saying that we expect them to keep the same
records on their relationships that they would keep for the IRS
or the SEC or for Medicare and Medicaid generally that we look
for in an audit.
And we are not going to ask them to be submitting this
information to us. Now many of them want advisory opinions on
whether something is permissible.
Chairman Thomas. Yes.
Ms. Buto. That is fine. They come into us and we will take
a look at it. But we are not asking for reporting.
Chairman Thomas. And would that advisory opinion be
restricted only to that particular relationship, or would it go
up on the net so that everybody now has a kind of a safe
harbor?
Ms. Buto. We want to publicize and make available the
advisory opinions, just as the Inspector General does, to
anyone who is interested in these opinions.
Chairman Thomas. And would that then be a rebuttable
presumption in terms of them being covered if they argue that
that is what they are doing? Or do they do it at their own
risk?
Ms. Buto. Again, unless we either have a complaint or we do
an audit and we challenge what they are doing, we are assuming
that they are complying. We are assuming the providers are
complying with the statute. Our experience is they are
complying with the statute. They are all essentially, from the
standpoint of due diligence, looking at what they are
responsible for in Medicare and Medicaid and they are following
those rules.
Chairman Thomas. One of the difficulties I have is, is even
in the opening statement of my friend and, obviously, we all
have our particular views of this. I honestly think the genesis
of this legislation was exactly the opposite of the statement
that you just made. That, in fact, these health care
professionals, by and large, are crooks. And that what you have
got to do is set up a procedure which allows you to show they
are crooks.
And that what you are forced to do, is to examine a series
of relationships and say, ``yes'' or ``no.''
The ownership side, I can understand how you can follow
that. The compensation side I think you will never, ever be
able to get on top of unless you write so many exceptions that
it is a nonsense. Or, you tell them, keep accurate records just
like the IRS because we may pounce at any time.
That kind of a veiled threat hanging over someone who is
trying to be creative and save dollars but deliver health care
the best way they can, is nonsense in today's world, as well as
the changing relationship of the mix of healthcare delivery
structures and the pattern of healthcare delivery.
And I just don't know why we can't get together and talk
about where we can create a very solid enforcement structure to
get at fraud and abuse without the kind of harassing and
worrying structure that this kind of a self-referral law
produces.
That, I think, is the bottom line.
Now, I thank you very much for your testimony. If there are
no other questions, thanks. And, Mr. Thornton, I look forward
to you coming before this Committee with me as Chairman in a
couple of years saying, ``If I knew then what I know now, the
change that we made in the self-referral laws was a good one,''
because we are going to make one.
Thanks a lot.
Mr. Thornton. We are ready to help you, sir.
Chairman Thomas. If we could ask the second panel to come
forward. Thank you for your patience.
The next panel consists of Mr. Sanford Teplitzky who has
immersed himself in this area as a past president of the
National Health Lawyers Association; Mr. Mitchell Wiet. I will
only say that he is representing Northwestern University
Memorial Hospital in Chicago because the gentleman from
Illinois, Mr. Crane, wishes to provide a more complete personal
introduction. And he will be here in just a moment.
And then we have Dr. David Morehead, who is chief executive
officer of Scott and White, who is a pediatrician, and Dr.
Bruce Hauser with the American College of Radiology.
Any written testimony that you will have will be made a
part of the record. And you can address us in the time you have
in any way you see fit. And we will start with Mr. Teplitzky
and move across the line.
STATEMENT OF SANFORD V. TEPLITZKY, PARTNER, OBER, KALER, GRIMES
& SHRIVER, AND PAST PRESIDENT, NATIONAL HEALTH LAWYERS
ASSOCIATION
Mr. Teplitzky. Mr. Chairman, Mr. Stark, and other Members
of the Subcommittee, my name is Sanford Teplitzky, and I appear
before you today as a lawyer in private practice who is asked
to answer questions regarding the self-referral legislation on
a daily basis.
Approximately 20 years ago, I was in the general counsel's
office of what was then known as the Department of Health,
Education, and Welfare. I actually predate HCFA, which is a
scary thought to me. But that experience has provided me with a
perspective on the development, implementation, and enforcement
of fraud and abuse laws.
It is why I have been very active in advocating for laws
that are straight forward and unambiguous, and penalties that
are severe enough to punish wrongdoers and to deter others who
might steal from the Federal taxpayer.
I have been the Chairman of the National Health Lawyers
Association annual health care fraud and abuse program for
approximately 10 years and I am a past president of the
National Health Lawyers Association.
In our efforts to secure laws that are clear, and
responsible government action with respect to those laws, we
advocated strenuously for the advisory-opinion legislation
which has been the subject of earlier discussion today. And I
am pleased to see that legislation is bringing us the results,
the exact results, that we intended at the time. It didn't
bring about the end of the world. Rather, for the first time
real and substantive guidance is being provided to the health
care industry.
I have clients that both support and oppose the self-
referral legislation. But their problems are identical, they
don't understand the law. Even those who support the law call
me with questions about it on a daily basis.
There are four particular concerns I would like to raise
with you today in my very brief time. First, the original
intent of the law has been unmet. It is very clear that the
framers of the legislation wanted a bright-line rule. The law
has brought no bright-line rule to this area.
This is a copy of the proposed regulations issued by HCFA
under this statute. This is what I have to look at everyday
when someone calls with a question. The law was effective in
1995. We are in 1999. There are still no final implementing
regulations.
Second, the law and proposed regulations are ambiguous and
confusing. A document was published by the National Health
Lawyers Association in cooperation with six law firms with
extensive experience in this area. This publication consists of
54 single-spaced pages and addresses questions that either the
proposed regulations didn't answer or questions that were
created by the proposed regulations.
Third, the law is inconsistent with recent government
initiatives. The development of integrated systems and the
change in reimbursement systems by the Federal Government
itself are inconsistent with the concept that physicians and
other healthcare providers can have no financial relationships
with each other. In fact, the incentives that the Government
has created are intended to push providers closer together to
identify new ways to deliver health care in this country.
And finally, the current law both duplicates and is
inconsistent with other Federal and State provisions. The anti-
kickback statute, which was the subject of earlier testimony,
addresses the issue of financial compensation relationships
between healthcare entities. Further, many of the States in
this country have enacted their own self-referral laws, and I
would suggest to you that each of those laws is different in
some respects from the Federal self-referral legislation.
There are provisions that are different. There are
prohibitions that are different. There are exceptions that are
different. For example, the Federal self-referral legislation
has an exception for equipment rentals. The Maryland statute
does not. So how does the provider determine whether or not the
relationship is appropriate?
Going back to the original intent of the statute, we know
that there were perceived abuses at the time based upon a
number of studies that indicated that physician involvement
increased utilization. Those studies did not indicate, however,
that the increased utilization was wrong; only that there was
increased utilization.
There was a concern that the anti-kickback statute was too
broad and, therefore, could not be understood. To some extent,
that has changed. This committee and Congress created a civil
penalty under the anti-kickback statute, and has allowed the
Inspector General to move in that direction. As I said earlier,
advisory opinions have also provided much needed guidance.
With respect to the attempt to identify a bright line, I
have before me a chart which identifies the path we take as
private attorneys in answering questions for our clients. It is
not a bright line. It can't be a bright line.
When one works with the anti-kickback statute, after awhile
you tend to ``get it.'' Advisory opinions help you understand
it. However, I don't ``get'' the self-referral law and I work
with it almost everyday. And my clients don't get it, even the
clients that support the law.
I can't even scratch the number of questions that exist.
For example, is lithotripsy a designated health service? Is
cardiac catheterization a designated health service?
How can a teaching hospital provide critical support to a
faculty practice plan to ensure the future of academic
medicine? The answer is that it can't under the way the
proposed regulations are written. The proposed regulations will
kill academic medicine in this country.
And the Chairman has already mentioned the issues of free
parking and free coffee and the like.
If the Congress and the Administration want to truly
develop a bright line, which can be understood by all, the
current legislation cannot remain unchanged.
I do not seek to destroy the ability of the Federal
healthcare programs to protect themselves against fraud and
abuse. Rather, I advocate for a system of laws which can be
understood by all so that those who seek to comply can do so,
and those who choose not to comply, will be consistently and
severely punished.
Thank you for allowing me to appear before you today.
[The prepared statement follows:]
Statement of Sanford V. Teplitsky, Partner, Ober, Kaler, Grimes &
Shriver, and past President, National Health Lawyers Association
Mr. Chairman and Members of the Committee, my name is
Sanford Teplitzky and I appear before you today as a private
attorney who is asked to answer questions about how to
interpret and comply with the self-referral legislation on a
daily basis. More than twenty five years ago, I worked in the
General Counsel's office in what was then the Department of
Health, Education & Welfare. That experience has given me a
perspective on the development, implementation and enforcement
of laws and administrative policies aimed at protecting the
federal health care programs and their beneficiaries. During my
tenure in the government, I was assigned primary responsibility
for the implementation of the Medicare and Medicaid fraud and
abuse amendments of 1977. That law significantly expanded both
the scope and nature of the Medicare and Medicaid anti-kickback
statute.
My work with federal and state fraud and abuse legislation
has continued in private practice. I am the Chair of the Annual
Health Care Fraud and Abuse Program sponsored by the American
Health Lawyers Association, formerly the National Health
Lawyers Association. Additionally, I served as President of the
National Health Lawyers Association in 1993 and 1994.
I believe that a majority of health care providers in this
country strive to comply fully with all applicable laws. In
this regard, I have continually advocated for laws that are
straightforward and unambiguous, and for penalties that are
severe enough to punish the wrongdoers and to deter those who
would abuse the federal taxpayer. Clarity of the law is crucial
in my view, and that is why I advocated strenuously for the
advisory opinion legislation which this Committee and the
Congress approved as part of HIPAA and the Balanced Budget Act
of 1997. This legislation has already served to provide
critical guidance to the industry with respect to the federal
anti-kickback statute and the self-referral legislation, which
is the subject of today's hearing. Let me briefly summarize the
concerns I have with the current self-referral legislation:
I. The original intent of the law is unmet:
LTo address the possibility of over utilization or
increased costs resulting from physician ownership of ancillary
health care providers;
LThe law was designed to, but has not developed, a
``bright line'';
LThe law became effective for services furnished on
or after January 1, 1995--HCFA did not publish proposed
regulations until January, 1998--final regulations may be two
additional years;
II. The law and proposed regulations are ambiguous and
confusing:
LThe proposed regulations were 400 double-spaced
pages;
LThe proposed regulations raise a number of
questions that were not answered;
LProviders implementing corporate compliance
programs must have answers--it is not sufficient to await
enforcement actions by the government or qui tam actions by
private litigants;
III. The law is inconsistent with other government
initiatives:
LHCFA and other payors are encouraging the
development of integrated delivery systems with physician
participation;
LThe current self-referral law serves as a hurdle to
physician participation;
LThe law generally requires the establishment of a
fixed fair market value payment--integrated delivery systems
requires incentives to provide more efficient health care
services.
IV. The current law duplicates other federal provisions:
LThe anti-kickback statute addresses compensation
relationships and has been amended to authorize the imposition
of civil money penalties;
LNumerous states have enacted provisions that are
different than, and often inconsistent with, the federal anti-
self-referral law.
I believe that it is critical for this Subcommittee to
review the original intent behind the self-referral legislation
and the perceived abuses that were the subject of the
legislation. As stated by its sponsors, this legislation was
intended to prevent physicians from abusing the trust of their
patients by receiving an economic benefit based upon the
services they prescribe for their patients.
In the late 1980s and early 1990s, there was concern in
Congress and the Administration that the laws in effect at that
time were insufficient to punish providers who place their
personal financial gain over the interests of their patients.
The Medicare and Medicaid anti-kickback statute was viewed as
overly broad and difficult to enforce, and its penalties were
limited to criminal fines and jail or exclusion from the
Medicare and Medicaid programs. Additionally, little guidance
had been issued by the OIG regarding the types of arrangements
that would be viewed as violating the anti-kickback statute.
You may recall the statement of Congressman Stark regarding
the purpose of the self-referral legislation:
What is needed is what lawyers call a bright line rule to
give providers and physicians unequivocal guidance as to the
types of arrangements that are permissible and the types that
are prohibited. If the law is clear and the penalties are
severe, we can rely on self-enforcement in the great majority
of cases.
Unfortunately, the existing self-referral legislation does
not establish a bright line rule. In fact, it is now clear to
me that it may simply not be possible to establish a bright
line rule in the face of a dynamic regulatory environment. The
Medicare and Medicaid rules continue to change every year. Both
the Congress and Federal Government have moved away from
traditional fee-for-service payment methodologies in favor of
reimbursement mechanisms that are designed to challenge
providers to fundamentally change the manner in which health
care services are provided. Such initiatives include the
development of prospective payment systems, fee schedules, and
other initiatives intended to encourage and promote the
delivery of cost effective high quality health care services
for Medicare beneficiaries.
Behind me is a chart that indicates the chronology of the
development of the self-referral legislation. You will note
that the original law was enacted in 1989 with an effective
date of January 1, 1992. Even before that effective date,
certain amendments were passed in 1990.
A major amendment to the statute was enacted in 1993 with
an effective date of January 1, 1995, and again almost
immediately, in 1994, additional changes to the law were
enacted. Thus, it is clear that Congress itself has struggled
with the concept of defining a bright line.
Furthermore, we now sit here almost six years after the
passage of the law, and four years after the effective date of
the law, without definitive guidance from HCFA. I have before
me a copy of the proposed regulations that were published in
January of 1998. Additionally, I have a copy of an analysis of
the proposed regulations that were issued by the American
Health Lawyers Association. The document was drafted through a
cooperative effort of at least six different law firms with
extensive experience in fraud and abuse and self-referral
issues. The document is 54 pages single-spaced and raises
numerous questions that were either unanswered by the proposed
regulations or, in some cases, generated by the proposed
regulations.
If we can return for a moment to the original intent of the
statute, I want to raise a number of particularly troublesome
issues. As I noted earlier, the original intent of the statute
was to address situations in which a physician's conflict of
interest is resolved in favor of the physician's economic
interests and against the health care interests of the patient.
However, the original legislation included an exception for
services provided in the physician's own office. In other
words, while the law would prohibit the referral of a patient
by the physician to an outside entity, that physician could
provide the exact same services within his or her own office
and be paid for those services. The area in which the potential
conflict of interest is probably most apparent was immediately
exempted from the prohibitions of the statute.
Moreover, it is clear that the legislation has become a
tool of competition and turf battles. Throughout the years,
various groups have advocated or opposed, the inclusion, or
exclusion, of certain designated health services. Are these
health care groups generally thinking of the health care
interests of Medicare and Medicaid beneficiaries? I think not.
Rather, they are assessing their role in the health care
delivery system and the desire to preclude physicians and
others from becoming competitors.
I noted earlier that the legislation, at least in my view,
resulted from a belief that existing laws could not address the
abuses sought to be prohibited by this legislation. However,
even that world has changed. For example, the OIG published
regulations in 1991 describing business relationships that
would not be subject to sanctions under the statute. These
regulations are known as the safe harbor regulations. I
understand that they are currently working on another set of
safe harbor regulations.
Let me return for a moment to the issue of the concept of a
bright line. I must tell you that having worked with the
federal anti-kickback statute for many years, you tend to ``get
it.'' There is a rationale to the statute, and in part due to
the advisory opinions issued by the OIG over the last two
years, a recognizable analysis that is applied to all health
care business transactions in order to determine whether they
conflict with the anti-kickback statute.
Unfortunately, the same cannot be said for the self-
referral legislation. I could be asked a question at 9:00
o'clock in the morning and I will have to fight my way through
the maze of the proposed regulations. If that same question is
asked at 1:00 o'clock in the afternoon, I simply can't remember
the path I took to respond to the question earlier in the day
and I must go through the exercise again. I am getting older,
but I do not believe that my age has anything to do with this
condition. Behind me is a chart of the machinations that are
required to analyze any fact pattern under the self-referral
legislation.
I have appeared on numerous panels with representatives of
HCFA and the OIG during which this legislation has been
discussed. Those individuals have been quite honest and candid
in responding to questions. However, their responses have not
constituted for the most part, answers. Rather, they respond
with their own questions, assumptions, and predictions of what
the final regulations might look like. This is simply
unacceptable to the great majority of providers who want, need,
and deserve answers. I cannot provide definitive guidance to my
clients.
I cannot even scratch the surface of the types of questions
I receive on a daily basis regarding this legislation. For
example, is lithotripsy a designated health service; is cardiac
catheterization a designated health service?
How can a teaching hospital provide critical support to
physicians in a faculty practice plan to ensure the future of
academic medicine? And, issues that appear as trivial as can a
hospital provide free parking to physicians.
If Congress and the Administration truly want to develop a
bright line which can be understood by all, the current
legislation cannot remain unchanged. I advocate for a system of
laws that can readily be understood by all.
I look forward to your questions. Thank you.
Chairman Thomas. Thank you very much.
Mr. White.
STATEMENT OF MITCHELL J. WIET, J.D., VICE PRESIDENT AND GENERAL
COUNSEL, NORTHWESTERN MEMORIAL HOSPITAL, CHICAGO, ILLINOIS
Mr. Wiet. Thank you very much, Chairman Thomas, Ranking
Minority Member Stark, and other distinguished Members of the
Subcommittee. I am Mitchell Wiet, vice president and general
counsel at Northwestern Memorial Hospital. Thank you for the
opportunity to testify here today.
Northwestern Memorial Hospital is a 750-bed academic
medical center located in downtown Chicago and is the primary
teaching hospital affiliated with Northwestern University
Medical School. As with many academic medical centers, our
full-time faculty is organized in a 450-physician, multi-
specialty group practice called the Northwestern Medical
Faculty Foundation. NMFF, as we call it, is completely
independent of the hospital.
My goal today is to do my best to give you a snapshot of
what it is like on a day-to-day basis for one hospital, albeit,
a major academic medical center, to try to comply with the
self-referral laws.
At Northwestern, we take our patients-first philosophy very
seriously. We try to provide very high-quality and cost-
effective care to our patients in the most appropriate
settings. At times, the self-referral laws become insuperable
obstacles to our efforts to meet the needs of our patients and
the physicians who care for them.
Most troublesome in our view is that the self-referral
prohibitions are absolute. If the law is implicated, an
exception must apply or the arrangement is illegal. Intent is
irrelevant. The element of knowledge or scienter plays no role.
There is no consideration of motive. No room for judgment. No
margin of error. The law is a strict liability statute, and the
penalties are severe.
In my view, that absoluteness is the fatal flaw of the
current self-referral law and regulations and is also what
drives what is to me the mind-boggling complexity and volume of
the rules published to date and those under consideration as
further proposed rules.
The self-referral law's motives are good: prevent waste in
our system by eliminating financial arrangements that put
physicians' and/or hospitals' self-interests above the patients
and patient care and lead to health resource utilization with
questionable medical need.
In attempting to achieve this goal, however, the law has
added tremendous costs to the system. The law has resulted in
organizations incurring significant costs to determine to the
best of their ability through exhaustive review and scrutiny
whether common, well-meaning arrangements comply with this law.
We spend hundreds of thousands of dollars in staff time, in
outside counsel expenses to comply with this law. Almost
everyday clinicians and administrators contact me and my staff
seeking assurance that their plans to improve patient care are
not in violation of a law they do not understand.
Please allow me to provide the following example that arose
last year. This example has been simplified for the purpose of
illustration of what was at the time an extremely complex
issue.
We have a comprehensive breast center with a skyrocketing
demand for mammography. Current reimbursement for mammography
from Medicare as well as managed-care payers, has not caught up
with the extraordinary advances in mammography technology that
find smaller and smaller tumors.
Reimbursement also fails to recognize how much more labor-
and resource-intensive this new technology is. Therefore,
inadequate reimbursement is a reality for hospitals and
physicians in this area.
Our patient-care goal in the breast center was to assure
that we had an adequate number of radiologists so that we could
meet the growing needs of our patients for mammograms. We were
looking for a way to support our radiologists in order to
provide high-quality, ever-increasing demand levels of care to
our patients.
We entered into negotiations with the faculty practice
plan. This entailed inside counsel review, then outside counsel
consultation, looking at the statutory language, the proposed
regulations, and legislative history and intent. We had
memorandums back and forth between their self-referral expert
and ours for weeks on end.
I provide this example for two reasons. First, after all
this work by all these lawyers, we still couldn't agree on how
to structure a deal to comply with the self-referral law.
As a result, we have not expanded our mammography services
to meet the community's needs. In fact, we lost two
mammographers, and only after 6 months have been able to
replace them.
The wait time has increased dramatically in the breast
center for an initial screening. And we continue to have a
patient care demand we struggle to meet.
Second, both the hospital and the group practice spent
thousands of dollars on outside counsel. This escalated to the
point where we had dueling lawyers with opposite
interpretations of what we could or could not do. Both sides
opinions were supported by contradictory language in the
proposed regulations, comments, and legislative history.
Those thousands of dollars collectively would have been
much better spent on getting the mammography services to our
patients. And the answer was, nothing was done.
Am I allowed further time?
Chairman Thomas. Very briefly.
Mr. Wiet. Pardon me.
Chairman Thomas. You can sum it up.
Mr. Wiet. Very well. Our suggestions. The current self-
referral laws are hopelessly and irremediably unhelpful and
counterproductive and wasteful. My strong recommendation is
that what is commonly referred to as Stark II be replaced with
clearer, simpler, and user-friendly measures. I suggest
removing the absolute character of these laws and reintroducing
the elements of intent and scienter.
The fraud and abuse laws are a good model. Then trust the
courts and the legal process.
The ethical principles on which the self-referral laws are
founded and which they seek to safeguard are not only correct,
they are critically important, and should be retained, but in a
far more balanced, much simpler and more practically helpful
form that will facilitate ready compliance based on bright-line
guidance.
Thank you, Mr. Chairman, Members of the Committee for the
opportunity----
[The prepared statement follows:]
Statement of Mitchell J. Wiet, Vice President and General Counsel,
Northwestern Memorial Hospital, Chicago, Illinois
Chairman Thomas, Ranking Minority Member Stark, Congressman
Crane and other distinguished Members of the Subcommittee, I am
Mitchell Wiet, Vice President and General Counsel at
Northwestern Memorial Hospital. Thank you for the opportunity
to testify today.
Northwestern Memorial Hospital (NMH) is a 750 bed academic
medical center located in downtown Chicago, and is the primary
teaching hospital affiliated with Northwestern University
Medical School. As with many academic medical centers, our
full-time faculty is organized in a 450 physician multi-
specialty group practice, called the Northwestern Medical
Faculty Foundation (NMFF). NMFF is completely independent of
NMH. In addition, while a part of (under common control with)
the Northwestern Memorial corporate system, separately
incorporated is the Northwestern Memorial Physicians Group, a
50-physician primary care practice. It is in the context of the
hospital relationship with these two physician groups, that
many of the self-referral issues arise.
My goal today is to give you a snapshot of what it is like
for one hospital, albeit a major academic medical center, on a
day-to-day basis to try to comply with these self-referral
laws. At Northwestern we take our Patients First philosohy very
seriously. We try to provide the best possible care to our
patients in the most appropriate settings. At times, the self-
referral laws become insuperable obstacles to our efforts to
meet the needs of our patients and physicians who care for
them.
Every arrangement entered into between a hospital and a
physician, no matter how large or small, must be, and is,
analyzed for compliance under the self-referral law. Hospitals
are burdened in this manner largely because of four factors:
1. The law applies to all compensation arrangements between health
care facilities and their physicians;
2. Designated health services include all inpatient and outpatient
hospital services;
3. Notwithstanding the law's breadth and ambiguity, the law is
absolute in its prohibitions; and
4. Unhelpful (dizzyingly complex and non-beneficial) exceptions
which are narrow and apply to few common arrangements.
All Compensation Arrangements
The self-referral law applies to all financial
arrangements, which include not only ownership or investment
interests, but also all compensation arrangements. In the
language of Stark, a compensation arrangement means ``any
arrangement involving any remuneration, direct or indirect,
between a physician or a member of a physician's immediate
family.'' Remuneration means ``any payment, discount,
forgiveness of debt, or other benefit made directly or
indirectly, overtly or covertly, in cash or in kind.''
Therefore, the transfer of anything of value implicates the
law. We joke that the provision of free coffee and doughnuts in
the physicians' lounge may violate the law. But how much
further can you go before the law applies. Discounted meals?
Free meals? Discounted parking?
Inpatient and Outpatient Hospital Services
Designated health services include all inpatient and
outpatient hospital services. Therefore, every physician who is
on staff at a hospital, unless the physician is inactive,
refers patients to the hospital for inpatient and outpatient
services. Every one. Therefore, no physician on the medical
staff of a hospital is exempt from the law's scope--any
transaction the hospital does with any physician on staff must
be vigorously scrutinized.
Absolute Prohibitions
Most troublesome to us is that the Stark Law's prohibitions
are absolute. If the law is implicated, an exception must apply
or the arrangement is illegal. Intent is irrelevant. The
element of knowledge or scienter plays no role. There is no
consideration of motive. No room for judgment. No margin of
error. The law is a strict liability statute and the penalties
are severe. In my view, that absoluteness is the fatal flaw of
the current self-referral law and regulations and is what
drives the mind numbing complexity and volume of the rules
published to date.
The Result
The self-referral law's motives are good--prevent waste in
our system by eliminating financial arrangements that put
physicians' and/or hospitals' financial self-interests above
patient care and lead to health resource utilization with
questionable medical need. In attempting to achieve this goal,
however, the law has added tremendous costs to the system. The
law has resulted in organizations' incurring significant costs
to determine to the best of their ability through exhaustive
review and scrutiny whether common, well-meaning arrangements
comply with the law. We spend hundreds of thousands of dollars
in staff time and outside counsel expenses to comply with the
law.
For hospitals and other providers, the law applies to
anything we do for or with any physician on our staff. Because
of its absolute prohibition, there is zero tolerance for non-
compliance. Therefore, every day clinicians and administrators
contact me and my staff seeking assurance that their plans to
work together with physicians to improve patient care are not
in violation of a law they do not understand.
To give you an understanding of the types of arrangements
that we must analyze on a day-to-day basis, I submit the
following real life issues that general counsels all over the
country face and must analyze for compliance and then make core
decisions about whether the application of the self-referral
law is triggered by any of the following:
May we provide physicians the free use of certain
equipment in providing osteoporosis-screening services to the
community?
May we pay for a physician's transportation costs to a
community event that will promote wellness services that include
hospital and physician services?
May we recruit a trauma surgeon to a community in order to
maintain a Level III trauma designation and then pay the physician a
per surgery amount?
May we advertise in our hospital's community newsletter
that a new physician has joined our medical staff, including his office
location, telephone number and hours?
May we pay physicians on an hourly basis for taking time
away from their practices and attending meetings related to the
improvement of care in their clinical specialty?
May we enter into exclusive arrangements with medical
directors to manage and provide clinical oversight for hospital
departments?
May we pay physicians for helping us achieve appropriate
cost savings in the hospital (commonly called ``gainsharing'')?
Each and every one of these questions has been asked. All
of them implicate the self-referral law. Do they comply with
the self-referral law? In some cases, we can develop arguments
that they do. However, we struggle to achieve great comfort in
the strict liability context of the self-referral laws. In
other cases, even HCFA personnel have indicated that they do
not know or that there is a difference of opinion. What is
certain is that we spend a significant amount of time and money
trying to comply, but often we have no answer as to whether we
have complied or we have failed. At other times, our review has
led to the scuttling of initiatives from which the community
would benefit.
Please allow me to provide the following example that arose
last year. This example has been simplified for the purpose of
illustration of what was at the time an extremely complex
issue. We have a comprehensive Breast Center with a
skyrocketing demand for mammography. Current reimbursement for
mammography, from Medicare as well as managed care payers, has
not caught up with the extraordinary advances in mammography
technology that find smaller and smaller tumors. Reimbursement
also fails to recognize how much more labor and resource
intensive this new technology is. Therefore, inadequate
reimbursement is a reality for hospitals and physicians in this
area.
Our patient care goal in the Breast Center was to assure
that we had an adequate number of radiologists so that we could
meet the growing needs of our patients for mammograms. We were
looking for a way to support our radiologists in order to
provide high quality ever increasing demand levels of care to
our patients. We entered into negotiations with the faculty
practice plan. This entailed inside counsel review, then
outside counsel consultation looking at the statutory language,
proposed regulations, and legislative intent. We had
memorandums back and forth between outside counsel for both
parties for weeks on end.
I provide this example for two reasons. First, after all
this work by all these lawyers, we still couldn't agree on how
to structure a deal to comply with the self-referral law. As a
result, we have not expanded our mammography services to meet
the community's needs. In fact, we lost two mammographers and
only after 6 months have been able to replace them. The wait
time has increased dramatically in the Breast Center for an
initial screening. And we continue to have a patient care
demand we struggle to meet.
Second, both the hospital and the group practice spent
thousands of dollars on outside counsel. This escalated to the
point where we had dueling lawyers with opposite
interpretations of what we could or could not do. Both sides
opinions were supported by contradictory language in the
proposed regulations, comments and legislative history. Those
thousands of dollars collectively would have been much better
spent on getting the mammography services to our patients and
the answer was nothing was done. All the costs were spent and
no resolution of the issues was achieved.
What is clear is that we need a simple and effective way of
analyzing arrangements. However, without the ability to
articulate clearly those arrangements that the law should
prevent, we as lawyers and our organizations' compliance
officers, are left without the practically beneficial means to
advise our clients effectively. The self-referral law is an
over-broad, unbelievably complex law that results in difficult,
uncertain and, often, ineffective policing of arrangements.
Clear, simple guidance will enable us to enforce more
effectively the law because we will be better equipped to apply
it.
Our suggestions for how to simplify? The current self-
referral law and rules are hopelessly and irremediably
unhelpful, counter-productive and wasteful. My strong
recommendation is that what is commonly referred to as Stark II
be replaced with clear, simpler and user-friendly measures. I
suggest removing the absolute character of this law and
reintroducing the elements of intent and scienter. The Fraud
and Abuse laws are a good model. Then, trust the courts and the
legal process to help produce clearer and simpler bright line
guidance rather than create an endless morass of rules in an
attempt to individually address a potentially infinite number
of exceptions and exceptions to exceptions.
The ethical principles on which the self-referral laws are
founded and which they seek to safeguard are not only correct,
they are critically important and should be retained, but in a
far more balanced, much simpler and practically helpful form
that will facilitate ready compliance based on bright line
guidance.
Thank you Chairman Thomas and Members of the Subcommittee
for the opportunity to testify. I am pleased to answer any
questions that you may have.
Chairman Thomas. Thank you, Mr. Wiet. Your written
testimony will be made a part of the record. And now for an ATT
introduction, that is after-the-testimony introduction.
The gentleman from Illinois, our colleague, Mr. Crane.
Mr. Crane. I thank you very much, Mr. Chairman. And it is
indeed a pleasure to welcome Mitchell Wiet, vice president and
general counsel of Northwestern Memorial Hospital in Chicago.
In addition to his duties at Northwestern, Mr. Wiet is a member
of the graduate legal education practitioner faculty of the
Health Law Institute of Loyola University, Chicago School of
Law. He is also a faculty member of the Cook County Graduate
School of Medicine.
Northwestern is an urban academic medical center located in
the heart of downtown Chicago. It is the principal adult care
teaching affiliate of the Northwestern Medical School.
As Mr. Wiet can attest to, Northwestern is one of the
finest medical facilities in the country and is providing the
best cutting-edge health care for tens of thousands of
Illinoisans of every income level each year. To that end last
month, Northwestern opened a state-of-the-art facility that
surpasses anything we have seen in the Chicago area.
We are all expecting even greater things from Northwestern
in the future.
With Mr. Wiet's professional credentials and Northwestern's
recognized commitment to providing all-around health care, Mr.
Wiet is uniquely qualified to comment on today's topic, and I
am grateful that I got back here in time to hear his testimony.
And I apologize to all of you for being suddenly moved over
into the Speaker's office for a quickie meeting.
But I want to also add one footnote. My dad got his medical
degree at Northwestern Medical School, and we lived on Superior
Street. Now, where we lived was an apartment building that has
long since been razed, but those were good days in Chicago. And
I remember vividly riding my tricycle through the alley and
back and forth, up and down the streets.
But Mr. Wiet, it is certainly good to have you here today.
Thank you.
Chairman Thomas. Thank you very much.
And Dr. Morehead, you may proceed.
STATEMENT OF C. DAVID MOREHEAD, M.D., PRESIDENT, SCOTT & WHITE
HEALTH PLAN, TEMPLE, TEXAS, ON BEHALF OF THE AMERICAN MEDICAL
GROUP ASSOCIATION
Dr. Morehead. Thank you. I am Dr. Dave Morehead. I have
been a physician for over 35 years, and most of my career has
been spent at Scott & White. Mr. Chairman, I ask permission to
submit written testimony to the Committee and permission to
abbreviate that testimony for my oral presentation.
Chairman Thomas. Without objection.
Dr. Morehead. I represent the American Medical Group
Association, which is the leading advocacy group on behalf of
the Nation's larger multi-specialty group practices. I work for
Scott & White, which is a regional medical center located in
central Texas, composed of a hospital of over 400 beds, over
500 physicians who practice with the clinic, and a health plan
of over 165,000 members, twenty thousand of which are Medicare
enrollees.
I appreciate very much the opportunity to testify because
group practices, including my own are uniquely affected by this
physician self-referral law.
First of all, although my comments will sound rather harsh,
I don't want them to be misinterpreted because, as someone who
has watched the practice of medicine for a long time, I have
seen, as a result of this statute, the disappearance of some
imprudent business arrangements which emerged during the
1980's. The AMGA and I recognize the good that the law has
accomplished.
On the other hand, 10 years is a long time. Medicine has
changed greatly during the past decade and some of the vagaries
of the law have surfaced. Section 1877 needed to be revised.
AMGA's two major concerns are the ambiguity of section 1877
as well as the shifting regulatory interpretations of what the
law actually means. Specifically, testimony will focus on two
provisions of the physician self-referral law--the provision
covering the definition of a group practice, and the
compensation arrangements.
First, the definition of group practice. This is very
important because, the only definition of group practice found
in the Medicare law is located in section 1877.
Most of the groups that I know of can meet the statutory
requirements for group practices as they now stand. But we are
concerned about the shift in the definition about what group
practice is. Will we qualify in the future? Let me cite two
examples.
In the HCFA rules proposed in January 1998, the definition
of group practice changed. For example, contracted physicians
were included as members of the group in the original law, but
were excluded in the most recent provisions.
Second, if the 1998 provisions become final, Scott & White
will be forced as an organization to change the accounting
methods we employ for our regional clinics. These are examples
of shifts in the interpretation of what the law means that
cause group practices great concern.
The AMGA requests that Congress restrict the ability of
regulatory agencies to reinterpret the meaning of the law as it
relates to defining group practice.
Second, provisions covering compensation arrangements in
section 1877 cause group practices considerable distress. Our
group qualifies for the exception to the compensation
arrangement under the in-house ancillary services provision.
However, the provision also states that no member of the group
can be remunerated based on the volume or value of his or her
referrals.
Prohibiting remuneration based on volume of referrals
places all compensation formulas that I know of in great
jeopardy because it is the physicians that see the most
patients who order the most tests, i.e., initiate the most
referrals. They are the heavy hitters who work the hardest and
who expect and deserve a greater percentage of the net revenue
at the end of the year.
In order to attract the best and the brightest to our rural
community, we must pay competitive salaries. And to do that, we
must connect compensation to the production of the individual
physicians. Those who refer the most make the most money--are
we in violation?
Let me close with a hypothetical but accurate example. I
will describe a place that I might be.
In this scenario, I am practicing in a small rural
community of 4,000 citizens in west Texas. I grew up in this
community, and I have a strong sense of obligation to its
citizens. These are my people.
As in other parts of rural America, most of my patients are
elderly and poor. Many live in the local skilled nursing home,
and a large number suffer with heart disease. The closest major
hospital and group practice is 75 miles away; I usually send my
patients there because they provide good care.
I work 7 days a week and I close my office on Wednesday
afternoons. Suddenly I have a great idea. What if I could
convince that group practice 75 miles away to send a
cardiologist twice a month to use my facilities while I am off
on Wednesday afternoons and provide care to the frail patients
who cannot easily travel 75 miles for care.
I also need to borrow a Holter monitor, a tool which would
allow me to monitor my patients' heart rates to help the
cardiologist when he comes.
There are a number of problems with this arrangement. The
clinic may or may not be interested in providing a cardiologist
because they will lose money doing so. They may comply but just
to help the community. They probably won't be willing to pay
for my office space, and I cannot afford to purchase the Holter
monitor.
The right thing to do is for the large clinic to provide
both the cardiologist and the monitor and for me to provide my
office space free of charge. But for the clinic to enter the
arrangements they will have to hire a group of lawyers who will
assess the situation and perhaps structure a deal that does not
violate the self-referral law. The legal work is expensive and
unnecessary.
Some have suggested that there is a lot of money in
medicine but I assure you that there is no more money than is
necessary. Every single dollar we waste on legal fees, are
dollars we cannot use to develop patient-care programs.
American group practices recognize our obligation to comply
with the law. We obey to the very best of our understanding.
What we ask, is that the law be clarified so that that we
understand the rules before we are judged by them.
Thank you very much for your attention. I will be happy to
answer questions.
[The prepared statement follows:]
Statement of C. David Morehead, M.D., President, Scott & White Health
Plan, Temple, Texas, on behalf of the American Medical Group
Association
Chairman Thomas, Mr. Stark and Members of the Subcommittee,
my name is David Morehead. I am President of the Scott & White
Health Plan in Temple, Texas. I have spent 35 years in
medicine, including 28 years with Scott & White. Scott & White
is a fully integrated multi-specialty group practice of 500
salaried physicians. Scott & White Hospital is a nonprofit
hospital of 400 beds located immediately adjacent to the Clinic
on our main campus in Temple. The Scott & White Health Plan is
a nonprofit HMO with over 165,000 enrollees, including 20,000
Medicare beneficiaries enrolled in our Medicare Health Plan.
I am here today on behalf of the American Medical Group
Association. AMGA is the leading advocacy group on behalf of
the nation's larger multi-specialty group practices. Our
membership is uniquely affected by the physician self-referral
law (Section 1877 of the Social Security Act) and we appreciate
the opportunity to submit our views on this law.
We would note at the outset that this is not the first time
we have testified before this subcommittee on this issue. Just
a little over four (4) years ago, this subcommittee held a
hearing on the self-referral law. In reviewing what we said
that day, we are struck by the fact that none of the concerns
we raised on that occasion have been addressed yet. While our
concerns were more than adequately addressed by provisions
drafted by this subcommittee, and approved by both the House
and Senate in the Balanced Budget Act of 1995, as you may
recall, this legislation was vetoed by the President for other,
unrelated reasons. Now to make matters worse, new concerns have
arisen as a result of the proposed rule issued by the Health
Care Financing Administration on January 9, 1998.
Our testimony today will focus on those matters that are of
particular concern to group practices. As we noted at the
outset, we believe group practices are uniquely impacted by the
law.
Definition of Group Practice
There is a common misperception that there is a ``group practice''
exception under the statute. That is not correct. The important
distinction to make is that there are several exceptions that are
specifically designed to accommodate a group practice. They do not
always protect services provided by group practices. In fact in many
circumstances they interfere with group practice integration and
provision of services. Because of those exceptions, the statute has
contained a definition of ``group practice'' from the very outset. It
has been a continuing source of confusion.
Several examples from the preamble to the January 9, 1998 proposed
rule will illustrate the problem:
A single shareholder professional corporation may not be a
``group practice'' even though it may employ many physicians. (63 FR
1687).
A group practice must be ``one legal entity'' but can have
members who are professional corporations or individuals who are
incorporated (63 FR 1687).
In the final rule implementing, the first iteration of the
self-referral law, HCFA stated that independent contractors would count
as ``members'' of the group. In the new proposed rule, they do not. (63
FR 1689).
``Substantially all'' of the services of group members
must be furnished through the group and billed under the group's
billing number. HCFA has defined ``substantially all'' to mean 75%
based on time spent on ``patient care services.'' (63 FR 1688).
Overhead expenses of and the income from the practice must
be distributed ``according to methods that indicate that the practice
is a unified business.'' In other words, a group's internal accounting
methods ``must reflect centralized decision making, a pooling of
expenses and revenues, and a distribution system that is not based on
each satellite office operating as if it were a separate enterprise.''
This requirement is not found anywhere in the statute, but HCFA claims
it can put it in place anyway because HCFA has the authority to add new
standards to the group practice definition under the statute. (63 FR
1690).
Mr. Chairman, these are just a few examples involving just this one
issue. We could supply you with many others if you wish.
As the foregoing examples illustrate, the definition of a group
practice is something of a moving target. This causes us great
discomfort. We would like some certainty brought to this process. For
example, Scott & White has been around for over a hundred years as a
group practice of physicians servicing the population of central Texas.
We believe that no reasonable person could ever dispute that we are a
``group practice'' under the statute. But we are uncertain about our
status as a group practice under the regulations and in the eyes of
HCFA.
We cannot overemphasize enough the importance of this matter. If a
group fails to meet the ``group practice'' definition, then it is at
tremendous risk for being found in violation of the self-referral
prohibition. For many groups, that would be a death knell.
We urge Congress to address this matter legislatively.
Specifically, we would request that Congress delete HCFA's authority to
create additional criteria beyond those that are found in the statute
for defining what a group practice is.
Compensation Arrangements
In a more general vein, we wish to reiterate a recommendation we
made four years ago. We strongly urge Congress to amend the self-
referral law to limit its applicability to ownership interests. If this
were done, the vast majority of group practices in this country could
provide needed patient care unencumbered by the fear that its legal
counsel had misinterpreted the statute and the application of the many
exceptions.
Both the anti-kickback law and the compensation provisions of the
self-referral law seek to prohibit payments in exchange for referrals
and the associated potential for over utilization of services. It is
unclear how the compensation aspect of the self-referral law provides
any real benefit over the anti-kickback law. In fact, its existence is
having the negative effect of impairing legitimate marketplace
transactions. Deleting the compensation provision, while preserving the
ownership prohibition, would maintain the law's integrity and remove
its detrimental effect on the market.
AMGA recommends that the physician referral statute be clarified by
eliminating the compensation arrangement provision.
Analysis of compensation arrangements under the law is a daunting
task. Currently providers must analyze fourteen different anti-kickback
safe harbors, and sixteen different self-referral exceptions for every
ownership, compensation or other financial relationship involving a
physician or a member of the physicians family. Each of the safe
harbors in the case of the anti-kickback law and the exceptions in the
case of the self referral law are technically complex. Some overlap in
the area of risk-sharing arrangements, with vastly different technical
requirements.
The reality of the self referral law is that the rules implementing
the law have been structured so that the exceptions apply to only very
narrow classes of arrangements. Since the law is a prohibitory statute,
and a provider has to disclose any unlawful referral within 60 days
that the provider ``knew or should have known'' was unlawful, the
narrowness of HCFA's reading of each exception creates enormous
potential liability for health care providers, and enormous difficulty
in providing needed and medically necessary care particularly to under-
served populations.
In the following text I will describe six areas of the law where
HCFA has faithfully applied the terms and meaning of the statute, but
in so doing has undermined the intent of the law.
Compensation Related to the Volume or Value of Services
In order for a compensation relationship between parties to a
practice to qualify for an exception in the law, most of the exceptions
require that the compensation not be based upon the volume or value of
referrals. This was believed by most analysts of the law to mean that
(1) payments cannot vary with referrals; and (2) payments must be fair
market value for the items or services purchased, with no additional
mark-up to reflect the value of referrals. The proposed regulations
added another interpretation of the statute that further interferes
with our ability to integrate patient services. The new interpretation
of the statute states that there can be no requirement even within a
group practice, to refer to the group practice. This interpretation
will lead to the prohibition of exclusive contracts and non-compete
restrictions that enable desirable efficiencies and allow for improved
patient care. The value of multi-specialty organizational arrangements
for patients is the convenience of one stop healthcare. The exclusivity
of the arrangements allows groups to maintain a unified patient record,
and coordinate utilization of services. The result is more
conservative, evidence-based medicine, better outcomes of patient care,
and measurably more satisfied patients.
Referrals to Affiliated Independent Contractor Physicians
Under the proposed rule a physician in a group practice may not
refer to an affiliated independent contractor physician unless the
nonmember physician services are provided ``under the personal
supervision'' of another member of the group. This means that another
group practice physician is legally responsible for monitoring the test
or the designated service, and must be available to assist and
supervise the physician who is furnishing the service, doubling the
cost of the professional component of the service. Why two physicians
are necessary to deal with the service is unfathomable, but required.
Compensation not Related to Designated Health Services
The physician ownership and self referral law provides an exception
for payments by a hospital to a physician for services that are not
related to designated health services. The regulations, on the other
hand, indicate that payment by a hospital to purchase a heart valve is
sufficiently related to hospital services, which are designated health
services, so that it does not qualify for an exception. The proposed
regulations indicate that the items or services purchased by the
hospital must be ``completely'' unrelated to a designated health
service. Since all hospital services are designated services, it is
difficult to imagine a legitimate purchase by a hospital that is not
somehow indirectly related to hospital services.
The Discount Mark-Up Prohibition
In the proposed rule HCFA assumes that any purchase of an item or
service by a physician at a discount from an entity which provides
designated health services means that the acquisition was not
consistent with fair market value. This assumption totally ignores the
ordinary and customary distinction between doing business at wholesale
and doing business at retail. If a physician or a group practice is
able to purchase items at a discount because of the volume of such
purchases, and the price paid is consistent with what others pay,
including non-physicians who purchase a comparable quantity of the
item, then there would appear to be no basis for the conclusion that
such purchase price terms are not consistent with fair market value. In
fact, purchasing items at the same price paid by someone else who is
purchasing fewer items or services would be inconsistent with fair
market value. Thus, if a group practice were to purchase chemotherapy
drugs from a pharmacy on price terms consistent with what other
purchasers pay for comparable quantities of drugs, such as hospitals,
the price terms are clearly consistent with fair market value.
Personal Productivity Bonuses
In the January 9 rule HCFA has proposed limiting the scope of
permitted personal productivity bonuses for employees to bonuses which
are not ``directly related to the volume or value of a physician's own
referrals.'' HCFA also noted elsewhere that ``directly'' should be
interpreted as ``directly or indirectly.'' With that in mind virtually
any bonus would be precluded for employed physicians in certain
specialties outside of a group practice, such as radiologists and
pathologists whose entire practice or a substantial majority of it is
dedicated to the provision of designated health services. Surely HCFA
can not intend a prohibition that prevents fair compensation for the
services provided by employed physicians.
Stark Law Prohibitions Against Providers Offering Fee-for-Service and
Managed Care Services in the Same Network
The prepaid health plan exception under the statute protects all
services any provider may make available to enrollees of a prepaid
health plan. But providers are only protected if they have a contract
directly with the prepaid health plan. Downstream arrangements with
subcontracting providers are not protected unless they fall within the
personal services exception. Moreover, a prepaid health plan
arrangement might taint any fee-for-service relationship involving the
same providers. HCFA has taken the position that if a provider has a
contract with a health plan to provide prepaid healthcare services to
enrollees of the health plan that provider or physician could not refer
fee-for-service patients to the other providers or physicians within
the health care delivery system providing services to enrollees because
of the managed care relationship. If such arrangements are within the
scope of the physician ownership and self referral statute, and are not
protected by any exceptions then it is impossible for providers to make
available both fee-for-service and managed care services within the
same network of care. This does not make sense from any public policy,
regulatory, or business point of view. In fact, it restricts a
patient's choice of care arrangements.
The physician ownership and self-referral statute is a strict
liability law that physicians, group practice leaders, attorneys and
regulators can't figure out. This is an unfair situation because the
penalties are so severe. But even more unfair, and unrealistic, is that
it drives up the costs of providing services and, especially in under-
served and difficult to serve areas, may determine if services are
provided at all.
I would like to conclude this testimony but describing the actual
circumstances of a group practice in a rural part of the country. The
group practice is a community-governed, tax exempt health care
organization that employs approximately 160 physicians, located in 10
sites, in two predominantly rural states. Its main campus includes a
large clinic and hospital, and, from that base, the clinic's
specialists and sub-specialists work with the few providers located in
rural and frontier communities often hundreds of miles away to provide
care to many older patients with chronic conditions who have difficulty
traveling. The group practice offers approximately 60 outreach clinics,
involving 9 different specialties, in sites all over this vast, under-
served area. The group practice provides these services because of its
public mission to serve under-served areas. The group practice loses
money by offering these outreach services; its direct costs exceed
direct outreach revenue expenses.
The physician ownership and self-referral law has made providing
health care in this difficult situation more difficult by increasing
the economic costs and legal risks of providing services in those
areas. It should be simple enough:
the local clinic or hospital should be able to make space
available for free to the group practice for outreach clinics,
recognizing that, because of fluctuating need, clinics by particular
specialists may be in operation sporadically;
the group practice should be able to make equipment
available for free to monitor patients with heart disease or manage
diabetes, even if those patients are referred to the central campus for
services that are designated health services;
the group practice should be able to recruit providers and
manage part-time practices in these areas without having to fear
whether they are meeting all of the criteria of the exceptions for
equipment and space leases and providing personal services.
Applying the physician ownership and self-referral law to
these situations is difficult. Lawyers frequently answer with
``arguably yes and arguably no'' when asked if the law applies.
The problem of vagueness of application is compounded by the
fact that the exceptions to the physician ownership and self-
referral law often do not make sense financially. For instance,
it is apparently illegal under the physician ownership and
self-referral law to vary the amount of reimbursement by actual
productivity or the number of patients served at each site, if
productivity is related to designated health services. In
difficult to serve areas, setting compensation terms for a year
at a time, without regard to productivity, can be a formula for
an economic failure. But that is what the law requires.
This is what should happen. The clinic administrator or
sole family practice provider in a town or county with 3,000
residents, located 200 miles from a hospital with more than 50
beds, in a town with no significant lab or radiology, and no
other providers, should be able to call the main campus and
say, ``We seem to have an outbreak of rashes. Could you please
run some tests in your lab and send a dermatologist up for a
day.'' Or, ``We've got at least 10 people out here with heart
disease and many are frail and in the local skilled nursing
home. If you could lend us a Holter monitor and send a
cardiologist out every 3 months, that would be a great
service.'' The clinic should be able to respond to such simple
requests without having to do what it currently does--the
general counsel hires an outside attorney to do an analysis
under the physician ownership and self-referral laws which
taeks needed resources from patient care, and then the parties
sign written agreements with terms that make little economic
sense. The clinic is obliged to do this because anything less
not only potentially violates the physician ownership and self-
referral law, but is potentially a violation of the False
Claims Act.
In complex situations, involving recruitment of providers
and the management of rural practices where the group practice
would like to offer outreach clinics and provide some simple
monitoring, lab, and diagnostic equipment, the difficulty of
applying the physician ownership and self-referral laws and the
additional expense of complying with those laws, may make it
impossible to do--even though the group practice wants to do
so, and it would clearly be beneficial to the community.
Conclusion
Mr. Chairman, the group practices of America recognize
their obligation to comply with the physician ownership and
self-referral law. We do our best every day to comply with the
law as we understand it. To its credit the Health Care
Financing Administration has done the best in drafting
regulations that comport with the statute that it could have
under the circumstances. The statute was written with good
intentions applicable to the perceived situation at the time.
Since that time the business environment for health care has
changed, and we have found that the anti-kickback statute
effectively enables federal prosecution of compensation
arrangements that are inappropriately intended to induce
referrals.
It is only fair, however, that we KNOW WHAT THE LAW MEANS
AND WHAT THE RULES ARE before we are held accountable for them.
The original version of this law is now almost ten years old,
and we still don't know how to apply them to deliver needed
care in our communities.
It is too easy to just assign blame for this regulatory
failure. AMGA would rather live in the solution than live in
the problem. We believe the solution lies in a further
legislative effort to (1) delete HCFA's authority to create
additional criteria beyond those found in the statute for
defining what a group practice is; and (2) eliminate the
compensation arrangement provision in current law.
Thank you for your attention. I'll be happy to try to
answer any questions you might have.
Mr. McCrery [presiding]. Dr. Hauser.
STATEMENT OF J. BRUCE HAUSER, M.D., FACR, MEMBER, BOARD OF
CHANCELLORS, AMERICAN COLLEGE OF RADIOLOGY
Dr. Hauser. Good afternoon. Thank you, Mr. Chairman. My
name is Bruce Hauser, and I am a practicing radiologist from
Roanoke, Virginia. I am testifying today on behalf of the
American College of Radiology, a 30,000-member organization of
which I am a member of its board of chancellors.
It is an honor to be with you today, and as we did in 1995,
we appreciate being invited again to share our views on this
important matter.
The American College of Radiology has been a strong
proponent of prohibiting the practice of self-referral. This
position is shared by numerous physicians and healthcare
organizations, including the American Medical Association.
This strong stance has helped lead to the enactment of the
self-referral prohibition legislation we are discussing today.
However, prior to the enactment of this legislation, numerous
studies, including studies conducted by the General Accounting
Office, showed the physicians that referred patients to outside
entities, where they had a financial interest, were much more
likely to order tests than physicians who did not have such
investment interests.
These investigations clearly showed that this type of
market control leads to increased utilization, higher prices,
and lower quality while generating large profits. This practice
also resulted in higher costs for government programs such as
Medicare and Medicaid, as well as private insurers.
At the time of its passage in 1993, self-referral
prohibition was slated to save the Federal Government $350
million over the next 5 years. In 1995, when Congress was
considering changes to the self-referral law, the Congressional
Budget Office estimated that those changes would cost taxpayers
$400 million over 7 years.
Obviously, the college continues to believe that self-
referral prohibitions are still necessary, although the delay
in the implementation of the final rule is troublesome. The ACR
agrees that HCFA must double its effort to implement the
regulations. HCFA urgently needs to provide physicians some
guidance on structuring their financial and referral
relationships to comply with the statute. In addition, the
proposed rule has many technical and substantive problems that
should be addressed.
However, an imperfect regulatory process does not merit
weakening the underlying law. As for those in the medical
community who argue that the current trend toward managed care
has lessened the need for self-referral prohibitions, we
respectfully disagree. Although managed-care organizations have
established varying levels of market influence throughout the
Nation, over 80 percent of Medicare beneficiaries still do not
belong to managed-care health plans.
Most Medicare beneficiaries still receive their medical
care on a fee-for-service basis. We acknowledge that the
healthcare system has become more integrated since self-
referral legislation was first enacted in 1989, yet the
landscape has not shifted so dramatically as to eliminate the
medical and economic costs of self-referral.
In conclusion, the ACR believes that the market forces that
led to Congress enacting self-referral prohibitions have not
disappeared in the past several years. Furthermore, the college
finds it troublesome that during a time when the Federal
Government is devoting millions of dollars to fighting fraud
and abuse in the Medicare system, it would consider diminishing
the effect of self-referral prohibition, one of the most
effective Federal efforts developed to stem fraud and abuse.
Therefore, the ACR finds no justification for substantially
modifying restrictions against abuse of self-referral
arrangements.
Thank you, Mr. Chairman for the opportunity to present our
view. I will be happy to answer any questions the Subcommittee
may have.
[The prepared statement follows:]
Statement of J. Bruce Hauser, M.D., FACR, Member, Board of Chancellors,
American College of Radiology
The American College of Radiology, which represents 30,000
physician and physicist members, is pleased to present the
following statement regarding the status of the physician self-
referral prohibitions in the Social Security Act as passed
under the Omnibus Budget Reconciliation Act of 1993 (OBRA
1993).
Historically, the ACR has held that self-referral
arrangements lead to inappropriate utilization of medical
services and that the justification for development of these
arrangements is largely contrived. Since 1985, we have
advocated the ethical principle that physicians should not have
a direct or indirect financial interest in facilities to which
they refer patients. We continue to support legislative and
regulatory efforts that would eliminate this conflict of
interest by prohibiting such ownership arrangements in health
care. This position is shared by numerous physician and health
care organizations including the American Medical Association
(AMA).
Compelling evidence of fraudulent and abusive referrals has
been recognized and documented by the Inspector General and the
General Accounting Offices. Moreover, studies from prestigious
peer-reviewed scientific publications such as the New England
Journal of Medicine (NEJM)and the Journal of the American
Medical Association (JAMA) have repeatedly found that where
referring physician joint ventures exist, the normal economic
forces of competition do not apply. These investigations
clearly showed that this type of market control leads to
increased utilization, higher prices and lower quality, while
generating large profits.
The College still believes that the self-referral
prohibitions that resulted from these studies and
investigations are still necessary, although the delay in the
implementation of a final rule is troublesome. The ACR agrees
that HCFA must double its effort to implement Stark II
regulations. HCFA urgently needs to provide physicians some
guidance on structuring their financial and referral
relationships to comply with the statute. In addition, the
proposed rule has many technical and substantive problems that
should be addressed. However, an imperfect regulatory process
does not merit weakening the underlying law. Furthermore, HCFA
has pledged to review controversial provisions in the rule and
modify them where regulatory changes will not compromise the
congressional intent in protecting against patient or program
abuse.
As for those in the medical community who argue that the
current trend towards managed care has lessened the need for
self-referral prohibitions, we respectfully disagree. Although
managed care organizations have established varying levels of
market influence throughout the nation, over 80 percent of
Medicare beneficiaries still do not belong to managed care
health plans--only 16.6 percent enrolled as of 1998. Most
Medicare beneficiaries still receive their medical care on a
fee-for-service basis. We acknowledge that the health care
system has become more integrated since Stark I was enacted in
1989, yet the landscape has not shifted so dramatically as to
eliminate the medical and economic costs of self-referral. The
market forces that led to Congress enacting self-referral
prohibitions have not disappeared in the past several years.
Therefore, the ACR finds no justification for substantially
amending, let alone repealing, restrictions against abusive
self-referral arrangements.
ACR Policy
The current position of the American College of Radiology is based
on our members' experience with such financial arrangements. As these
joint ventures proliferated in the early 1980's, the ACR debated the
merits and disadvantages of these arrangements. In 1984, our policy-
making council initially adopted the position that radiologists could
ethically participate in financial arrangements, such as joint
ventures, in order to provide diagnostic and therapeutic care to
patients. But our position also warned our members of the potential for
abuse in financial arrangements that involved referring physicians.
With that caution, we believed that financial arrangements to fund
imaging centers and radiation oncology centers could be constructed to
avoid conflict of interest, fraud, and abuse of patient confidence.
We found we were wrong. In 1988, our council recognized that it
needed to reconsider this position. In the four years between 1984 and
1988, we found that the potential for, and exploitation of patients by
unethical practices and the flagrant disregard of physicians' ethical
responsibilities to the patient to be so great and so pervasive, we
subsequently strengthened our policy.
Our policy adopted in 1988 and again strengthened in 1992 states:
The practice of physicians referring patients to health care
facilities in which they have a financial interest is not in
the best interest of patients. This practice of self-referral
may also serve as an improper economic incentive for the
provision of unnecessary treatment of services. Even the
appearance of such conflicts or incentives can compromise
professional integrity. Disclosing referring physicians'
investment interests to patients or implementing other
affirmative procedures to reduce, but not completely eliminate,
the potential for abuse created by self-referral is not
sufficient . . . The American College of Radiology believes
that radiologists and radiation oncologists should make efforts
to restructure the ownership interests in existing imaging or
radiation therapy facilities because self-referral may
improperly influence the professional judgments of those
physicians referring patients to such facilities.
AMA Ethical Policy
The scope of these problems has also been recognized in the AMA's
Council on Ethical and Judicial Affairs report on physician conflicts
of interest, as adopted in 1991 and reaffirmed in late 1992. The
report, which remains part of the AMA's code of ethics, holds that the
practice of self-referral is ``presumptively inconsistent with
physicians' fiduciary duty'' to their patients. These ethical
guidelines state that ``only when a physician can demonstrate both the
absence of adequate facilities--a plain medical need--and absence of
alternative financing should referral take place.'' But even when such
a need may exist, the AMA also recommends that physician-owned
facilities meet nine additional requirements to ensure that over
utilization and patient exploitation will not occur.
Costs
While we support efforts to provide high quality patient care
through the more cost-effective delivery mechanisms, we must urge
caution in proposing any modification in the laws which could create
loop holes for referring physicians' financial involvement in health
facilities. If facilities currently in operation are allowed to simply
declare themselves as extensions of group practices or private
physician offices, the intent of the legislation will have been
circumvented because referring physicians will continue to self-refer.
The problem with increased utilization in referring physician owned
facilities will be simply changed to a problem of increased utilization
of services within physician's offices.
Unfortunately, there will always be those who will want to create
new elaborate kickback schemes and abusive referral arrangements to
augment their income as the Congress seeks to restrict the growth of
the federal health programs and the market restricts income from
private sources. But the passage of the referral prohibitions in the
Social Security Act has already had a substantial impact in reducing
over-utilization of radiologic and other designated health services,
thus saving tax payer as well as private sector dollars.
It must also be recognized that the costs of modifying, weakening
or repealing these self-referral prohibitions will be borne by the
American tax payer. In 1995, when Congress was considering changes to
the self-referral law, the Congressional Budget Office (CBO) estimated
that those changes would cost tax payers $400 million over seven years.
When this was combined with another provision that would have weakened
the government's ability to prosecute fraud and kickback scams, CBO
estimated that the overall cost would be $1.1 billion.
The self-referral ban in Medicare and Medicaid has also had an
indirect effect of eliminating similar corresponding costs in the
private sector. In short, we believe that alternate methods for
controlling the fraudulent and abusive referrals will cost the U.S.
health care systems and the federal government more.
We believe that any consideration in modifying these laws should
not create an incentive or circumstance where services are provided by
untrained or unskilled physicians, who are either unconcerned with or
unaware of proper practice standards. In the best interest of patients,
we should assure access to medical care from physicians qualified to
provide the service.
Conclusion
The American College of Radiology recognizes that many of these
abusive referral practices arise from the pressures of the highly
competitive health care marketplace and we empathize with the desire to
form legislative managed care arrangements. However, we believe
strongly that exploitive and unethical practices should not be condoned
under the guise of competition. These arrangements hamper rather than
encourage competition and should not be allowed.
Mr. McCrery. Thank you, Dr. Hauser. And thank all of you
for your testimony. Being a graduate of the LSU Law School, I
am not sure what weight should be given to Mr. Teplitzky's
testimony. He is a Tulane grad. [Laughter.]
However, I do have a question for you, Mr. Teplitzky. And
we talked about this a little bit with the HCFA and the
Inspector General's Office, and that is the burden of proof
that is required under the self-referral law and the burden of
proof that is required under criminal statutes.
Do you have any thoughts on how the self-referral law might
be modified in terms of the burden of proof required of the
Government?
Mr. Teplitzky. Yes, I do, sir. The current self-referral
law does not consider the issue of intent, which is an
interesting approach because the law makes it clear to me that
not all self-referral is bad. There are approximately 14
exceptions. I understand that additional exceptions are being
proposed to recognize that, in fact, there are situations when
the physicians are the people who know best what can be done,
and what should be done, for their patients.
The law does not prohibit physician ownership in health
care entities. It prohibits the referral of Medicare and
Medicaid patients to those entities. Thus, if a physician in
good faith develops a high-quality service at a reasonable
price, every patient in that community can receive that service
except that physician's own patients.
I believe that there probably should be some level of
intent to determine whether there is a potential for abuse.
Mr. Thornton indicated that of the advisory opinions they
issued, 24 of them were favorable. It is interesting to note
that in many of those, the OIG found that the transaction
described was a technical violation of the law, but
notwithstanding that violation, because of the safeguards built
into the transaction, the OIG chose not to impose sanctions.
They don't--neither HCFA nor the OIG has that same ability
under the current self-referral law. If it is a technical
violation of the law, it can't happen, even if it is being done
for all the right reasons.
So I believe an intent standard different from a criminal
statute, i.e., a lesser standard, would be appropriate.
Mr. McCrery. Perhaps something akin to a negligence
standard, he should have known that this would be in violation,
or something like that.
Mr. Teplitzky. Exactly the same standard that this
Committee and the Congress enacted as part of HIPAA with
respect to civil money penalties, ``know or should know.''
Yes, sir.
Mr. McCrery. Thank you. Not bad for a Tulane grad.
[Laughter.]
Mr. Teplitzky. We never could beat you in football.
[Laughter.]
Mr. McCrery. Dr. Morehead, I want to explore with you a
little bit more of the impact that the self-referral rules have
had on group practice. Most economists that we talk to, agree
that physician practices, group practices, are good for the
consumer, good for the patient, as well as good for
expenditures in the healthcare system in terms of holding costs
down.
Have self-referral laws, in your opinion, undermined the
formation of group practices?
Dr. Morehead. Yes, I think so. It has become much more
complex to make our decisions as a group practice. For example,
as physicians bond into groups, or as groups grow, the
complexities increase in order of magnitude. For example, the
number of arrangements, the number or payers that one must deal
with, the number of locations where facilities are required,
and so forth, all of these increase the complexity and cause us
to have to test each of these decisions against the self-
referral law, the provisions thereof.
So, I think it has been a deterrent because it is so
expensive and so consuming of energy and time to make the
decisions about how we can accomplish something.
Mr. McCrery. You say in your testimony, the definition of a
group practice is something of a moving target. What do you
mean by that? Can you elaborate?
Dr. Morehead. In the original law, there were certain
provisions to define a group practice, but the last provision
was any other criteria that the Secretary should adopt in terms
of defining a group practice. So with each iteration,
additional criteria of what constitute a group practice has
emerged.
That causes great concern. We can comply today. It causes
us concern because it, again, is one exception or one rule that
may be good for a certain situation but it is--makes it
difficult for the other situations.
So we would propose that the Secretary's ability to do
this, that is, to change the definition, be struck from the
law. We find that burdensome. Just keeping up with it is
expensive and consuming.
Mr. McCrery. Thank you. Mr. Stark.
Mr. Stark. Thank you, Mr. Chairman. Mr. Wiet, I am sorry to
hear that your hospital has trouble with its legal
complexities. It seemed to me, I was advised by HCFA that for a
thousand bucks they could have gotten an advisory opinion that
would have saved all that high-priced lawyers fees, but they
can do whatever they choose, I guess.
It is important to note that Florida Hospital Association
has endorsed what are referred to as the Stark I and Stark II
laws. I quote here from their statement for the record on
behalf of the 230-member hospitals and healthcare systems who
serve their communities throughout the State: ``The Florida
Hospital Association urges Congress to maintain the critical
consumer protections''--I haven't heard anything about consumer
protections today; just taking care of rich doctors--``provided
in the Omnibus Budget Reconciliation Act, and in Stark I and
II.''
And they go on to suggest that this has been vital in
Florida. So maybe things operate differently in Illinois, but
at least that hospital group thinks we should continue the way
we are going.
I think it is also important to note that it was suggested
earlier by my colleague from Connecticut that there was a
problem with the Visiting Nurses Association. And I would like
to point out that the Visiting Nurses Association of
Philadelphia is very supportive, and I am quoting from them,
over the Stark II position: ``We believe the law is sound
public policy and we are pleased the proposed rules
implementing the law were finally published. We are dismayed
that it is May--as am I--and no final rule has appeared.''
But it seems that, even though the gentlelady from
Connecticut may not like it, the Visiting Nurses do.
Chairman Thomas [presiding]. Of Philadelphia.
Mr. Stark. Of Philadelphia. And I believe that that is true
of all of the lobbying groups for the Visiting Nurses
Association, but I don't have a letter from all of them.
Further, and I would like to direct this to Dr. Hauser.
This is something that I heard years ago and I thought that
people would now understand. There was a reference to the fact
that without the investment of primary-care physicians into
diagnostic, electronic diagnostic equipment like MRI's there
wouldn't ever have been any. That we needed this private
investment from referring physicians to allow the poor
underpaid, undercapitalized radiologists to go out and buy MRI
equipment.
Now I would ask Dr. Hauser if he knows of any radiologist
in this country when MRI's came out that wouldn't have had all
the assistance they need from General Electric Finance Corp. to
get them an MRI overnight to, either on a lease or low terms or
any other way.
Was there any shortage of capital available, Dr. Hauser, to
your knowledge for diagnostic equipment?
Dr. Hauser. No, sir. I do not believe so. MRI was
developed by a radiologist, and radiology was instrumental in
developing the locations for it and distributing it. And it
would appear that only after the value of it was finally
discerned by the public and by the medical community that such
joint ventures started to become more in fact.
Mr. Stark. One other question, Doctor. Has it ever come to
your attention, or would you find it reasonable to assume that
there is any problem along the North Shore of Chicago for a
woman to get a high-quality mammogram at a reasonable price.
Any shortage of that service that you know of?
Dr. Hauser. I can't speak to the exact nuances of the North
Shore of Chicago, but----
Mr. Stark. Evanston, Chicago, you know, around in that
area.
Dr. Hauser. I would not think so. I would think that they
would be readily available, Mr. Stark that is certainly my
understanding of the problem.
Mr. Stark. Well, as I say, I don't know where this hearing
goes. I guess I come back to the question that nobody has
suggested that beneficiaries are having trouble finding
services. Eight-four percent of them as you indicated, Dr.
Hauser, are still getting their service through fee-for-
service.
The American Medical Association has suggested that it is
unethical to have an ownership interest. I guess I will just
close by saying, if somebody wanted to make the distinction
that a compensation arrangement doesn't have the same benefits
as an investment, my guess is that they ought to go back and
either take accounting or economics all over again.
I can't see the difference between how you receive the
money. You can call it a salary or a fee or a limited-
partnership distribution or anything else you want, but it
seems to me that when those fees relate to, as the American
Medical Association says, a service outside the physician's
office or outside his practice, that there is always a suspect
issue there. And we know that it costs the taxpayers more.
And we have heard no evidence that we get any better
quality. All we know is that we end up spending more money on
outrageous legal bills, on stockholder dividends, on high chief
executive officer profits, and no better medical care. And the
taxpayers end up paying more.
And it seems to me that we should urge HCFA, as the
Chairman has suggested, to get the regulations out in a timely
fashion, be tough. I think--I still think we ought put a few
people in jail now and again just to set a good example.
I don't think we have any trouble understanding
compensation arrangements. We operate under them here. The
Chairman makes me pay for parking. I don't know why I have to,
but I got to have my income taxed for the parking I get, which
used to be free. I understand it. It is simple. I mean I know
the numbers. You can do that with your shoes and socks on.
So we know where we are limited to outside compensation,
and under what circumstances we can receive it or not. We have
had a couple of Speakers, on both sides of the aisle, who have
tried to circumvent those regulations, I think to their dismay.
So, it works in every profession. And usually the greedy
people get caught, and I just hope we keep going after those
physicians who ought to tend to their patients and not worry
about dipping into the public till for unjust enrichment.
I appreciate your having this hearing, Mr. Chairman. Thank
you.
Chairman Thomas. Thank you very much. Although this may not
interest many people in this room, the reason you pay for your
parking is because when your party was in control, the
gentleman from California, Mr. Matsui, was out looking for ways
to pay for one of his ideas and the offsetting revenue was to
charge members for parking.
So I believe the gentleman might have some concern with his
colleague from Sacramento. Go travel 80 and visit with him. He
may let you park for free; then again, he may not.
Perhaps, also, I did not say consumers, but in my opening
statement I said Members of the Subcommittee can agree, I hope,
that the overarching goal is to provide to our seniors the
proper medical care in the proper setting.
One of my concerns from the very beginning was that the
underpinning of this law was based upon some studies whose
methodology I, to this day, do not understand how they support
the arguments that were made when the gentleman's party was in
the majority. And I will just give you an illustration as far
as I am concerned of how that methodology worked.
Dr. Hauser, if this law were not in place, would your
professional job be better off or worse off? That is, would
there be other people doing what you do now more so, or less
so?
Dr. Hauser. I believe that there would be more people doing
parts of what I do. There are parts that I do that others
cannot provide.
Chairman Thomas. So, am I to interpret that to say that if
the law were not in place, you would not be doing as much as
you would be doing otherwise, but since the law is in place,
you are doing more than you would do otherwise?
Dr. Hauser. That may only be one factor----
Chairman Thomas. No, no, no. I am just trying to figure it
out. I mean if you did a straight study of the volume of work
that you do under the law versus the volume of work that you
would do if the law wasn't there, you'd do more volume under
the law as opposed to if the law wasn't there.
Dr. Hauser. I believe that I do more volume under the law.
Chairman Thomas. Fine. That was exactly the methodology
that was used to determine whether or not we should go after
people. The conclusion is the problem that I have. And the
conclusion was these people, therefore, did that because they
wanted to make money.
You are here, Dr. Hauser, using the same assumptions
because you are simply motivated by economic self-interest. And
you are in support of this law because you make bucks with it
in place. And if it weren't in place, you wouldn't make bucks
with it. So I can clearly understand why you are in front of
this Committee, you are fighting to keep your game structured
to advantage you.
Now I don't think that is fair, do you?
I don't think that is a fair analysis of why you are here,
but that was the analysis of people who spent to find out about
equipment, and then decided that since they found out about the
equipment and thought it was a good idea, used it more. There
was never an attempt to find out whether or not the total cost
of care increased or decreased utilizing the equipment.
They never determined whether the diagnosis was more
accurate more often and, therefore, didn't have to put the
patient a far more traumatic procedure to determine what the
appropriate problem was.
None of that was done in methodology to put this law in
place. They simply compared volume and drew a conclusion that
they were crooks. I will not draw the conclusion that you came
here to testify because if this law stays in place you make
more money then you would otherwise.
I don't think that is fair. But that is exactly the
methodology that was used as outlined to justify this law. And
I don't think that serves beneficiaries. I don't think that
serves providers. I don't think we ought to create a war or pit
providers against beneficiaries. I think, as I said in my
opening statement, that I hope the Subcommittee members can
agree that the overarching goal is to provide to our seniors
the proper medical care in the proper setting.
And since we became the majority, we have passed very tough
laws to go after fraud and abuse. And it just seems to me at
some point we have to re-examine something that is not in place
that causes real concerns because of the intense structure, as
brought out by my colleague from Louisiana, and that still
after all this time does not have final regs in place. And I
would be willing to offer anyone a bet on when they are in
place, and how long they would last, how useful they are going
to be, when you are chasing a bright line that can never stay
in one place.
Unfortunately, this law will produce a laser show, and with
bright lights going off in all directions, or exceptions carved
out to make it work, at some point I hope people will say,
``Why don't we quit carving out exceptions, examine the law,
get the intent right, create advisories off of this so people
can know what it is that they are supposed to do, and move
forward with delivering care in the proper context and catching
people who are crooks.''
We will catch the crooks. What we ought not to do is put up
a net that prohibits responsible, reasonable, and appropriate
delivery of care.
And Dr. Morehead's example of the west Texas town is right
on top of something that ought to be allowed that can't be
because you wanted to, if I wanted to continue the analogy,
have the advantage slanted your way. I don't think that is
fair.
Now, any other members have any questions? I want to thank
all of you for coming. I will be looking for assistance as we
begin to look at what is an appropriate response to trying to
make sure that, at some point, filling whatever gap there is,
if this law were not on the books, since it can't be enforced.
No one has been prosecuted. Putting in place something that
does work, that does get after ownership, and that does make
sure that people who do want to break the rules willfully will
be caught.
Thank you very much.
The Subcommittee stands adjourned.
[Whereupon, at 3:40 p.m., the hearing was adjourned.]
[Submissions for the record follow:]
Statement of the Alliance for Referral Integrity, Alexandria, VA
We, the member organizations of the Alliance for Referral
Integrity (ARI), an ad hoc grouping of concerned organizations
representing the ``designated health services'' defined by the
self-referral statute, write to express our opposition to
dismantling the current law restricting physician self-referral
under the Medicare and Medicaid programs.
ARI asks the Committee to stand firm against efforts to
dismantle or devalue this important statute which seeks to
eliminate incentives for physicians to over utilize health care
services for the purpose of personal financial gain.
``Self-referral'' occurs when a health care provider refers
a patient to a facility in which they have a direct or indirect
financial interest. Physician self-referral is inappropriate
because physicians who have a financial relationship with such
facilities earn greater returns as referrals to the ventures
increase. Providers who invest in health care facilities have
an incentive to refer more patients to the facility. As a
result, increased health care costs are incurred by the health
care system.
In 1993, when the scope of the Federal physician self-
referral law was expanded, the Congressional Budget Office
(CBO) projected that the Medicare program would save $350
million over five years. The CBO estimated that amendments to
the self-referral law included as part of the proposed Balanced
Budget Act of 1995 would have cost the Medicare program some
$400 million over seven years. The cost of dismantling this
important deterrent to fraud and abuse would be even higher
today.
Perhaps even more significant than the budgetary
implications is the breach of the public trust that would
result from weakening the self-referral law. Consumers of
health care services should not need to question whether the
services they are receiving are being provided due to medical
necessity or for the personal financial gain of the physician
referring the service.
While the statute must be preserved and enhanced, it is
necessary to highlight the failure of the Health Care Financing
Administration to issue timely regulations that would provide
guidance to the health care community on how to comply with the
intent of the statute. ARI urges the immediate promulgation of
final regulations relating to the existing ban.
As an alliance of concerned health care organizations, ARI
asks the Committee to maintain the prohibition on self-referral
and preserve the public trust with respect to the delivery of
quality health care services under the Medicare program.
Thank you for your consideration of our views on this
important matter.
Member Organizations of the Alliance for Referral Integrity
Alliance for Referral Integrity
American Clinical Laboratory Association (ACLA)
American Federation of HomeCare Providers (AFHCP)
American Orthotic and Prosthetic Association (AOPA)
American Pharmaceutical Association (APhA)
American Physical Therapy Association (APTA)
American Occupational Therapy Association (AOTA)
American Society for Clinical Laboratory Science (ASCLS)
National Association of Chain Drug Stores (NACDS)
National Association for Home Care (NAHC)
National Community Pharmacists Association (NCPA), formerly known
as the National Association of Retail Druggists (NARD)
Opticians Association of America (OAA)
Alliance Imaging, Inc.
Anaheim, CA,
May 25, 1999
A.L. Singleton
Chief of Staff, Committee on Ways and Means
U.S. House of Representatives
Washington, D.C.
Dear Mr. Singleton:
I write on behalf of Alliance Imaging, Inc. with comments for the
printed record of May 13, 1999 hearing on the Health Care Financing
Administration (HCFA) implementation of the Medicare self-referral laws
and its impact on the health care marketplace. I trust you will find
these very focused and brief comments helpful. Alliance Imaging and its
subsidiaries collectively operate over 285 mobile and fixed site MRI
systems, 34 CT systems, and 12 (mobile) lithotripsy systems. My
comments fall into two categories: (1) The proposed ``Stark II''
regulations and the comments in the preamble concerning mobile imaging
and other mobile services in relation to the ``in-office ancillary
services'' exception are unsound as a matter of policy and inconsistent
with Congressional intent. (2) Lithotripsy should be expressly included
as a ``designated health service'' under Stark II.
(1) Mobile Services
The proposed Stark II regulations risk rendering mobile
imaging services unavailable to physician groups, which could
reduce competition and have disruptive, anti-competitive and
inflationary effects for all payors, not just Medicare. There
is a Stark II exception for ``in-office'' referral of ancillary
services within a group practice. However, the proposed
regulations would preclude ancillary services that are provided
in a mobile unit parked just outside a group practice's office
from being considered ``in-office.'' This aspect of the
proposed regulations represents unsound policy, and is
inconsistent with Congressional intent that mobile imaging and
ambulatory facilities be deemed part of a group practice's
building even if operated on an adjacent parking lot. My
comments emphasize mobile MRI systems because that is Alliance
Imaging's largest business segment, although the principles
apply with equal force to other modalities such as CT scans,
lithotripsy, and ultrasound.
Unsound Policy
Mobile diagnostic imaging businesses have brought a number
of benefits. They make sophisticated diagnostic services
available where they would not otherwise be available at all;
because mobile systems can operate in a number of locations,
more sophisticated equipment can be economically viable than
would be the case at a fixed site used by a small population;
and they provide competitive alternatives to in-house systems
such as those operated by hospitals and large physician groups,
and independent imaging centers.
The proposed regulations may have the anti-competitive
effect of leaving hospitals and independent imaging centers as
the only viable location for MRI exams. In some circumstances
it would not be feasible to have a mobile unit make two stops
in the same community, one at the hospital and another at the
local physician group, because a certain number of scans must
be performed in order to make each stop economically viable,
and there are a number of site preparation tasks and costs
required, including a pad to support the weight of the trailer
and equipment, utility hook-ups, securing trained and licensed
personnel, and the like.
Another potential anti-competitive effect is that the
reduced availability of mobile services may enhance the market
position of an in-house MRI unit in a smaller community
(irrespective of whether the unit is in a hospital or non-
hospital imaging center). Such in-house systems may not be of
the same technological quality of a shared mobile unit, because
they cannot spread their costs over as large population base of
potential patients. The market may not be large enough to
justify a competitor's capital investment in a new in-house
installation. Accordingly, if physician groups cannot contract
for shared mobile service there may not be meaningful
competition in communities with an existing in-house MRI unit,
especially if the in-house unit is at the local hospital.
Although Medicare may not be terribly concerned about these
potential effects on competition because it pays for imaging
services and other diagnostic tests in accordance with the
physician fee schedule (and in the case of outpatient hospital
services, under a prospective payment system beginning next
year), Medicare is a relatively small proportion of total
volume. Other payors may end up paying more than would have
been the case, if choice in a community is limited to in-house
hospital systems and to mobile providers that service
hospitals. And, if the new Medicare prospective payment system
for hospital outpatient services sets reimbursement for imaging
services higher than for the same service under the physician
fee schedule, the proposed regulations will have the effect of
driving utilization in favor of higher cost hospital providers,
and away from lower cost physician providers.\1\
---------------------------------------------------------------------------
\1\ Given the fact that a service performed in a hospital will
usually cost more than the same service rendered in a physician's
office, it is reasonable to believe that prospective payments to
hospitals for outpatient diagnostic imaging services will be higher
than the physician fee schedule pays for the same service.
---------------------------------------------------------------------------
Another unfortunate effect of the proposed regulations
could be to induce more physician groups to acquire in-house
MRI systems of their own. While this would tend to counteract
the competitive concerns, it would spawn two other negative
consequences.
First, in a locale in which the size of the population
indicates that mobile service is more cost effective, if a
physician group installs an in-house unit it may cut corners on
the quality of the unit and installation. In contrast, because
utilization of mobile systems is spread over a larger number of
users, a higher and more effective level of technology can be
available at a lower cost per procedure.
The second and even worse effect from Medicare's standpoint
is that once a physician group makes an investment in an in-
house unit, it will have a much greater incentive to
overutilize the unit would than be the case with respect to a
mobile unit. In this regard, I note that the studies relied
upon and referred to in the Federal Register preamble to the
proposed regulations apparently involved situations in which
the physicians owned the facilities and were put in the
position of having to recover their investment in an expensive
fixed site unit.\2\ In contrast, in the mobile imaging business
mobile providers such as Alliance Imaging typically charge the
physician group a per procedure price, or per diem rent, so
that the physician group is not in a position of having to
generate utilization in order to recover a substantial
investment that may have been made out of the pockets of the
individual physicians. Notably, the proposed regulations do not
preclude physician groups from installing and operating in-
house systems, as long as they meet the definition of a group
practice and satisfy the requirements with respect to location.
---------------------------------------------------------------------------
\2\ Federal Register, Friday, January 9, 1998 at page 1661.
---------------------------------------------------------------------------
I believe the risk of overutilization decreases when MRI
exams are performed on a mobile system, due to the fact that a
patient has to adjust his or her schedule to coincide with the
scheduled day of mobile MRI service. Additionally, MRI patients
are typically in pain, possibly ``anxious'' or truly
claustrophobic, and an MRI exam can be time consuming and
uncomfortable. The risk of overutilization by an ordering
physician is virtually nonexistent due to the nature of the
patient's physical symptoms, anxiety or inconvenience.
Legislative History
The present version of the anti-referral statute describes
the in-office ancillary service exception as applicable where
(subject to compliance with other rules such as the definition
of a group practice) the services are rendered ``in a building
in which the referring physician (or another physician who is a
member of the same group practice) furnishes physicians'
services unrelated to the furnishing of designated health
services, or . . . in another building which is used by the
group practice . . . for the centralized provision of the
group's designated health services . . . '' \3\ The proposed
regulations take the ``same building'' and ``building''
concepts even further by stating that the ``same building''
means the same physical structure, with one address, and not
multiple structures connected by tunnels or walkways.'' \4\ The
preamble to the proposed regulations is directly hostile to
mobile imaging and diagnostic testing businesses: ``In
addition, we believe 'the building' consists of parts of the
physical structure that are used as office or other commercial
space. For example, mobile x-ray van that is pulled into the
garage of the building would not be part of that building.''
\5\
---------------------------------------------------------------------------
\3\ Social Security Act, Section 1877(b)(2), codified at 42 U.S.C.
Section 1395nn.
\4\ Federal Register, Friday, January 9, 1998 at page 1723.
\5\ Id. At page 1695.
---------------------------------------------------------------------------
This hostility to the mobile diagnostic imaging business
finds no support in the legislative history of the 1993
amendments to the anti-referral statute. Furthermore, if one
goes back to the original adoption of the anti-referral
legislation, there is no compelling legislative history on that
point. The original anti-referral legislation was adopted in
1989.\6\ The law as then enacted applied only to clinical
laboratory services; consequently, there was no need for the
legislative history to address the question of mobile imaging
or similar services.\7\ The law originated in the House of
Representatives, and in the form that passed the House would
have applied to a broad spectrum of health services, not just
clinical laboratory services. The House report on the broader
version of the bill stated: ``The committee intends that
services in a building physically connected to the building
housing the practice, or in the case of services provided by a
mobile unit, immediately adjacent to the building housing the
practice, would also be accepted under [the in-office ancillary
services exception.]'' \8\ In the face of this quite clear
expression of Congressional intent when the anti-referral law
was originally adopted in 1989, combined with the absence of
any contrary intent in the 1993 amendments and legislative
history relating thereto, I believe the proposed regulations
and related passage in the Federal Register preamble violate
Congressional intent to the extent that mobile imaging services
are rendered ineligible for the in-office ancillary services
exception.
---------------------------------------------------------------------------
\6\ Omnibus Budget Reconciliation Act of 1989. Public Law 101-239.
\7\ See House Conference Report No. 101-386 at page 853.
\8\ House Report No. 101-247 at page 1039.
---------------------------------------------------------------------------
Mobile MRI systems are based in large tractor trailers that
are in effect buildings on wheels, with independent telephone,
computer, heating and air conditioning systems. Congress never
intended that they be disqualified from the in-office ancillary
services exception, and such disqualification would increase
rather than decrease health care costs.
Consequently, I urge that a technical correction be made to
Stark II, to accord with Congress' original intent. This could
be accomplished simply by amending the definition of ``in-
office ancillary services'' so that section
1877(b)(2)(A)(ii)(I) of the Social Security Act reads ``in a
building (or in a mobile unit housing diagnostic or therapeutic
facilities while it is stationed reasonably proximate to such
building) in which the referring physician . . . .'' And clause
(II) reads ``. . . in another building (or in a mobile unit
housing diagnostic or therapeutic facilities while it is
stationed reasonably proximate to such building) . . . .'' The
addition of the clauses in parentheses would be the only change
necessary to the effect this correction.
(2) Lithotripsy Should Be Covered By Stark II
Lithotripsy is not currently included among the list of
``designated health services'' subject to Stark II. If
performed in the hospital setting, however, it is included as a
``hospital service'' and therefore it is in the somewhat
anomalous position of being covered or not depending on the
setting. I believe that it should be specifically included as a
designated health service, so that it would be covered in all
settings. Although I recognize that lithotripsy does not seem
prone to overutilization, there are two considerations that
favor subjecting lithotripsy to Stark II.
First, in general I believe that Medicare laws and
regulations should not reflect bias in favor or against
services being performed in a particular setting--i.e.,
hospital or non-hospital--unless there is a particular reason
for doing so. In the case of lithotripsy, permitting referring
physicians to have financial relationships with lithotripsy
providers that are not-hospital based, while prohibiting the
same relationship if the provider is a hospital, creates an
unsound incentive. The choice as to whether a particular
procedure is performed in a hospital or non-hospital setting
should be driven by factors such as clinical considerations and
cost efficiencies, and not by a physician's economic interest.
Second, by permitting referring physicians to have
financial relationships with a non-hospital lithotripsy
provider the current version of Stark II is anticompetitive.
The physicians who control referral patterns can be locked up
by those who would engage in financial relationships with the
physicians. This effectively forecloses other entrants into a
market.
You will have noticed that there is a consistent theme to
my comments on mobile services, and my comments on
lithotripsy--both encourage development of the law in a way
that encourages competition. That is the best way to assure the
highest quality care at the lowest cost.
I would be happy to answer any questions that you might
have.
Very truly yours,
Russell Phillips
General Counsel
Statement of the American Academy of Family Physicians
This statement on the Medicare self-referral law and its
rulemaking is submitted on behalf of the 88,000 members of the
American Academy of Family Physicians.
The Academy is concerned that Medicare self-referral laws,
as written, no longer serve the purpose they were originally
intended to address, which was to eliminate ``inappropriate''
referrals by physicians to health care facilities where they
had financial interests. In addition, the proposed rulemaking
to implement the law, as it was published in January, 1998, is
far too complicated to ever provide the ``bright line'' of
clarity sought by its sponsor. The Academy believes that
Medicare self-referral laws are not serving their intended
purpose and have been superseded by more recently enacted
federal statutes addressing fraudulent and inappropriate
referral practices. It is important to note that these newly
enacted statutes achieve the same ends sought by the Medicare
self-referral laws without federal mandates on private business
practices.
Academy members are family physicians practicing primary
care. As a group, they practice in perhaps the widest variety
of settings of any single medical specialty society. These can
range from school clinics and solo practice to large multi-
specialty groups. Therefore, the range of concerns that family
physicians have with self-referral laws are numerous and
complex. This statement contains explanations of the Academy's
more specific concerns with provisions of the proposed rule.
Background
Medicare self-referral laws were enacted by Congress to
address reports that some physicians with financial interests
in health care services facilities were ``inappropriately''
referring to those facilities. However, the Medicare self-
referral laws passed in 1989 and amended in 1993, and again in
1994, are extremely confusing, inconsistent and fail to
recognize the realities of the current health care delivery
environment. The Health Care Financing Administration's (HCFA)
proposed rulemaking would create a great deal of confusion for
family physicians practicing in an extremely competitive
environment. It is both so burdensome and so difficult to
understand that physicians would expend a tremendous effort
simply trying to determine if they were in compliance.
Likewise, the proposed rule could cause excessive costs for the
federal government as it pursued compliance and enforcement
efforts. The Academy has asked HCFA to withdraw this rule until
it can be implemented in a clear and consistent manner.
The Academy requests that Congress reassess whether the
myriad of health fraud and abuse laws passed and implemented in
the last decade are already stopping the abusive practices that
self-referral laws were intended to address.
Recent Federal Laws and Regulations Addressing Fraud & Abuse
The Health Insurance Portability and Accountability Act of
1996 (HIPAA) contained an assortment of provisions to give HCFA
increased authority and enhanced ability to provide oversight
of Medicare health care providers. Specifically, HIPAA
increased funding for Medicare program safeguards. This new
funding is divided between the Office of the Inspector General
(OIG) and the Department of Justice (DOJ) to coordinate
federal, state and local health care law enforcement programs;
conduct investigations, audits, evaluations and inspections
relating to the delivery and payment of health care; help
facilitate enforcement of civil, criminal and administrative
statutes on health care fraud and abuse; and provide guidance
to the health care industry on fraudulent health care
practices.
HIPAA also established the Medicare Integrity Program
(MIP), which is intended to ``promote the integrity of the
Medicare program by entering into contracts'' with private
entities, among its other responsibilities, to review the
activities of providers furnishing items and services
reimbursable under Medicare, including medical and utilization
review and fraud review.
More recently, under the Balanced Budget Act of 1997 (BBA
'97), HCFA now has authority to apply the federal anti-kickback
statute prohibiting remuneration for referral of Medicare or
Medicaid patients. In addition, HCFA carriers have established
computer claims payment edits to alert them to areas of
overutilization by screening practice patterns.
These new enforcement tools are already reaping significant
increases in identification of fraudulent claims and adverse
actions against those who make them. Just within the first six
months of HCFA's and DOJ's new authority, nearly 3,000
individuals and entities were excluded from Medicare and
Medicaid. That is a 93% increase in program exclusions in the
first six months of 1997, compared to all of 1996. During this
same reporting period, the OIG reported $1.2 billion in
recouped moneys through investigations and an additional $125
million through disallowing questioned costs. In addition, in
1998, the OIG reported 215 convictions for criminal activities
and 1,255 civil settlements.
All of the enforcement tools outlined above represent more
than enough authority and resources to address Congress'
original concern about physician self-referral. It is time to
revisit the basis upon which self-referral legislation was
founded, and compare those concerns with the current regulatory
environment.
While unnecessary overutilization should be targeted and
penalties imposed where it exists, unintended underutilization
is also a very real consequence of the proposed regulation as
it is written. In fact, underutilization is a far greater
threat to Congress' intent of assuring access and quality
health care to all Medicare and Medicaid beneficiaries.
Concerns With Proposed Rulemaking On Self-Referral
With regard to the proposed rule, the Academy has concerns
with the rule's intrusion on compensation arrangements and the
definition of a group practice. Below are outlined the
Academy's specific concerns with the proposed regulation. Until
these concerns are favorably resolved, the Academy must
reiterate its support for the withdrawal of this regulation in
its entirety.
1. Definition of ``Direct Supervision''
Medicare self-referral law contains an exception for ``in office
ancillary services.'' To qualify, the services must be furnished
personally by a referring physician or another physician in the same
group practice, or be furnished by individuals ``directly supervised''
by one of these physicians. ``Direct supervision'' is defined as
supervision by a physician who is present in the office suite and
immediately available to assist and direct the ``designated service.''
The exception does not apply to services performed in a location
separate and distinct from where the physician conducts his or her own
everyday activities. The rule will allow for physician time away for
brief unexpected emergencies and short breaks (lunch).
AAFP Recommendation: (a) The Academy strongly objects to the
definition of ``direct supervision'' and suggests it be replaced with
``general supervision'' or a revised definition of ``direct
supervision'' such as that recommended by the American College of
Physicians-American Society of Internal Medicine, which reads as
follows:
The physician or group is legally responsible for the
services performed by non-physician personnel and for ensuring
that such personnel meet licensure and certification
requirements, if any, applicable under other provisions of the
law. Direct supervision does not require that physicians be
physically present when an item or service is provided.
In a small family physician office of one to three physicians, it
is likely that activities such as deliveries or surgical assisting,
combined with scheduled days off or vacations, could lead to periods of
time when there is no physician in the office. It is extremely
reasonable to expect that other office personnel, such as nurse
practitioners and physician assistants would be available to provide
appropriate services to patients. However, this rule would preclude
such care being rendered to Medicare and Medicaid patients. Physicians
often do not provide direct supervision of noninvasive procedures on a
regular basis, and imposing such a requirement will increase costs
while limiting patient access during the period when physicians are not
present. The proposed rule would be particularly problematic in rural
areas where access to care is already a major concern. In many states,
medical and nurse practitioner acts enable mid-level providers to
practice without onsite physician supervision, enabling care to be
provided in rural communities where it would not otherwise be
available.
(b) The Academy strongly recommends, based on the definition
described above, a shared facility exemption from the self-referral
prohibitions. It is common practice for several solo practitioners to
have corporations and share office space, labs, call, etc. This
exemption would permit two or more physicians in independent practices
to share ancillary services, enabling them to provide more
comprehensive patient services, reduce practice overhead (shared space,
equipment and personnel) and provide high quality care without creating
increased potential for fraud, abuse or waste. This is a position the
Academy has long supported in relation to ``shared labs.'' The proposed
rule would again have the potential to reduce access to patient care
and increase the cost of care by criminalizing many common and
legitimate business arrangements.
2. Discounts
The proposed regulations would create a new exception for discounts
made to a physician that are passed on either to the patient or to the
patient's insurer, including Medicare, and that do not ``inure'' to the
benefit of the referring physician. However, discounts that do ``inure
to the benefit of the referring physician,'' such as discounts on drugs
given to patients during their visit, would not qualify for the
exception, or meet the ``fair market value'' requirement and would be
considered a self-referral violation. The elimination of many common
discounting practices could be disruptive for many physician practices,
compromise effective patient care and reduce compliance with
medications. The most effective way to ensure that a patient begins a
drug regimen is to do so during the visit to the physician, and ensure
that the drug is priced at a cost he or she can afford.
AAFP Recommendation: Physicians should be able to charge patients
at least the Average Wholesale Price (AWP) on drugs purchased and
administered as part of routine care to their patients, regardless of
the discount they were able to negotiate with their suppliers. If the
physician has no incentive to purchase wisely, savings will accrue to
the pharmaceutical manufacturer or distributor, not the patient. AWP is
standard and published. If physicians have to track actual acquisition
costs and provide documentation, there is an administrative cost that
will ultimately discourage physicians from providing medications in
their offices and again, decrease access to care.
3. Physician Recruitment Exception
In the regulations, there is an exception for hospitals to
pay costs associated with a physician's relocation, but it only
applies when the physician resides outside the geographic area
and must actually relocate in order to join the hospital staff.
The physician cannot be required to refer patients to the
hospital, and the remuneration must not be tied to the volume
or value of any referrals.
AAFP Recommendation: It is not clear why similar
inducements should not be provided to other physicians in the
area, or residents in order to retain them in the area. We
recommend a written legal agreement clearly address the
referral and remuneration issues.
4. Definition of ``Referral''
The Stark law carefully defines the key term ``referral'' to
include any ``request by a physician for an item or service for which
payment may be made under Part B . . .'' and the Preamble to the
proposed regulation clarifies the definition by adding ``even if the
physician furnishes (the referred service) personally.'' Therefore, for
a physician to order a designated health service covered by Part B for
the physician's own patient from an entity with which the physician has
a financial relationship, he or she must meet an applicable exception.
AAFP Recommendation: This provision is often referred to as the
``group practice exception,'' however, the definition means that a solo
practitioner who provides ``designated services'' in his or her office
must meet an exception (e.g., ``in-office ancillary services exception)
and all of its requirements (e.g., direct supervision definition) to
avoid a self-referral violation. The rule creates layers of complexity
for these physicians that seem unreasonable and unnecessary. The
Academy recommends that HCFA redefine ``referral'' to simplify the
requirements for physicians who ``refer'' to themselves for ``incident
to'' and ``in office ancillary services'' (also, see the following
comments on ``in-office ancillary services).''
5. In-Office Ancillary Services Exception, Site of Service
The in-office ancillary services exception, as modified by the
proposed regulations, requires that services be ``furnished . . . in a
building in which the referring physician furnishes physicians'
services unrelated to furnishing of designated health services. . . .''
The Preamble to the proposed regulations indicates that a service is
``furnished'' wherever the procedure is actually performed on a
patient, or in the location in which a patient receives and begins
using an item. Any item that is given to a patient, but is meant for
use at home, or outside the physician's office would not be deemed to
be ``furnished'' in the physician's office, according to the proposed
rule. This proposed interpretation, if adopted in final form, could
eliminate completely physician dispensing of covered self-administered
drugs to Medicare and Medicaid patients, a result never intended by
Congress. Additionally, durable medical equipment (DME) is excluded
from in-office ancillary services by statute, further impeding patient
access to needed products and services.
Finally, the Preamble proposes that the ``same building''
requirement means one physical structure with one address.
Consequently, physician offices with multiple structures that are
connected by walk ways or tunnels are specifically excluded from HCFA's
interpretation in the proposed regulations.
AAFP Recommendation: Interpretation of the in-office ancillary
services exception would, if adopted as proposed, cause serious
disruptions in many ordinary arrangements in family physician offices.
The Academy requests that HCFA support a legislative remedy to exclude
outpatient prescription drugs as a designated health service, as well
as durable medical equipment. Other safeguards to prevent fraud and
abuse relating to these services have been previously articulated in
our introductory comments. Their inclusion as designated services will
result in additional delays in treatment and barriers to access for the
nation's poor and elderly populations.
The Academy strongly encourages HCFA to create a more flexible rule
in lieu of the ``same building'' definition. This definition will
result in ongoing confusion for physicians, subjective, and thus
differing, carrier interpretations, and unnecessary dislocation,
disruptions and excessive cost for physicians attempting to comply.
6. Definition of Group Practice
The statute defines group practice as two or more physicians
organized as a professional corporation or association. HCFA indicates
that both the shareholders in a group practice and the physician
employees of the group practice will be considered as members of the
group. The proposed regulation also indicates that a group of
physicians practicing together will not qualify under the definition of
group practice unless at least two of the physicians are shareholders,
thus disqualifying the many group practices consisting of a single
physician shareholder and one or more employed physicians.
AAFP Recommendation: The Academy believes that this is an
artificial differentiation in the definition of group practice, and
that HCFA should modify the final regulation to define group practice
to include single shareholder groups with multiple employed physicians
otherwise meeting the definition. There are numerous single shareholder
groups, including those established in states with corporate practice
of medicine acts. A physician corporation with two shareholders, and
which employs additional physicians, should be treated no differently
than a single shareholder physician corporation which employs
additional physicians.
Conclusion
The Academy appreciates this opportunity to provide a
statement to the Ways and Means Committee Subcommittee on
Health on the Medicare self-referral laws and proposed
rulemaking. In summary, we believe that self-referral laws have
added unnecessarily to the complexity of rules governing
physician behavior in their business arrangements and trust
that the Subcommittee will carefully consider all the comments
received and take appropriate action. The committee's attention
to our suggestions will be greatly appreciated by the nation's
family physicians and their
patients.
Statement of William Rich, III, M.D., American Academy of Ophthalmology
(AAO)
Dear Chairman Thomas and other distinguished Members of the
Subcommittee, on behalf of the American Academy of
Ophthalmology, I am pleased to provide comment regarding the
proposed rule on physician referrals to health entities in
which they have ownership, also known as Stark II. The American
Academy of Ophthalmology represents over 16,000 eye physicians
and surgeons nationwide. Over fifty-one percent of most
ophthalmologists' practices consist of Medicare services.
Because of the significant impact that these regulations would
impose on our members, we urge the Subcommittee to take the
following recommendations into consideration.
This proposal has been of grave importance to the
ophthalmic community, as well as the entire physician
community, for many years. We had hoped that clarity would be
provided in the publishing of last year's Notice of Proposed
Rulemaking (NPRM); however, we have found that the number of
questions relating to ownership and referrals have increased.
The current law includes untenable obstacles for
ophthalmologists and their patients. In addition, the proposed
rule raises uncertainty about some of the basic definitions
relating to ownership. The NPRM, if implemented to expand upon
current law would make understanding and enforcing the self-
referral laws virtually impossible. In essence, the law and the
NPRM undermine their intended purpose merely on the basis of
confusion. For example, according to the NPRM, a referral
includes a physician-employee relationship where for example, a
physician employs an optometrist or optician. Was this
definition accurate? An employer-employee relationship should
not be considered a referral.
Even HCFA isn't sure how to interpret the law. This can be
seen from the fact that throughout the comment period, HCFA
staff were unable to interpret the proposed rule, adding to its
unworkable and often contradictory nature. HCFA was expected in
the NPRM to offer advisory opinions from physicians, and no
opinions would serve as applicable to any other situation. HCFA
does not have the staff time, nor is it efficient for the
government to impose a law that would require each physician
and health care entity in the US which might be affected by
Stark II to seek an opinion. HCFA ultimately realized the
problems with the NPRM when the proposed rule was rescinded and
HCFA announced that it was re-evaluating the proposal.
Congress' perceived intention was to limit blatant self-
referral problems under the Medicare system. Instead, the
varied interpretations of the Stark II law have led to an
unworkable law that cannot be enforced by the agency directed
to oversee it.
Our concerns, specific to ophthalmology, are two-fold and
we urge Congress to guide HCFA in reconsidering its actions.
First, we seek the exclusion of post-cataract eyeglasses and
contact lenses from the list of designated health services.
Second, we urge that the definition of direct supervision be
amended so that patient quality of care and access are not
needlessly impeded.
Exemption of Ophthalmic Goods
Since the consideration of self-referral legislation began, Rep.
Stark has repeatedly stated that post-cataract eyeglasses and contact
lenses should be excluded from the list of designated health services.
Post-cataract eyewear is a one-time benefit provided by Medicare and
has a limited reimbursement rate. Ophthalmologists who own optical
shops are required by law to advise patients of their freedom to buy
their eyeglasses anywhere they please (FTC). Given the fact that only
one pair of lenses is available to each beneficiary, the opportunity
for fraudulent activity is highly unlikely. The chance of beneficiary
coercion or lack of choice in who provides this optical service is
addressed by the Federal Trade Commission (57 FR 18822). In addition,
in a recent informal survey of ophthalmologists who own optical shops,
we found that post-cataract lenses only account for an average 4% of
total medical and optical practice income.
Definition of Direct Supervision
The NPRM indicates that a physician must directly supervise an
employee, providing a service in a medical practice. We understand
HCFA's desire to maintain consistency across definitions throughout the
agency's policies; however, the definition of direct supervision makes
it almost impossible for certain practices to remain in compliance with
Stark II and will gravely impact patient care. For example, if a post-
cataract patient wanted to buy his or her eyeglasses from the
physician's optical shop, he or she could only do so when a physician
is readily available to provide assistance if necessary. This means
that on days when the physician is in surgery, the Medicare patient
would be denied service because the physician was not readily
available. This practice would single-out Medicare patients in a
potentially embarrassing manner, essentially telling them that because
they have Medicare they cannot get the same level of care as all other
patients. The Balanced Budget Act of 1997 included numerous provisions
that would expand access, choice and quality for Medicare patients. The
definition of direct supervision, as it reads in the NPRM, would
prohibit a patient from benefiting from those provisions in the BBA.
We understand that Medicare defines a physician as a ``doctor of
medicine or osteopathy . . . doctor of dental surgery or dental
medicine . . . a doctor of optometry, and a chiropractor'' (Section
1877, 1861(r)). Because of this, we are very concerned that the
definition of direct supervision is inconsistent with state scope-of-
practice laws relating to opticians. Opticians generally are permitted
by state law to fit, grind and dispense eyeglasses without physician
supervision--direct or indirect. Requiring a physician to be present to
meet the direct supervision requirement would nullify laws permitting
opticians to dispense without physician oversight. We agree that in
certain medical situations, some level of supervision should be
required, but in the case of opticians, this requirement is over-
reaching and inappropriate.
Conclusion
Mr. Chairman, the current self-referral law is cumbersome and the
proposed Stark II provisions will make it nearly impossible for a
physician to know whether or not they are in compliance with federal
law. Many lawyers have indicated that they are experiencing great
difficulty in interpreting the regulations and will not know how to
advise their clients. We believe that the compounding requirements for
compliance will add to the current over-burdening of work that HCFA is
experiencing as a result of the Balanced Budget Act of 1997. The
overlapping requirements surely will increase the number of requests
for advisory opinions, and the volume of calls to HCFA staff.
Physicians are intimidated and nervous about these proposed changes and
they will by-pass their own legal counsel and contact HCFA directly for
guidance. Already, we have a number of calls seeking information about
applying for the opinions. In closing, the American Academy of
Ophthalmology strongly recommends that HCFA: (1) exempt eyeglasses and
contact lenses from the list of designated health services as a
prosthetic device on the basis that post-cataract eyeglasses are a very
limited Medicare benefit and already subject to oversight regarding
fair business practices; and (2) Revise and clarify the definitions of
certain terms such as ``Referral'' and ``Direct Supervision.'' Thank
you for the opportunity to present comment on this important issue. We
look forward to working with Congress and HCFA staff in any way
possible. Should you have any questions, please contact Kim Colman, our
Reimbursement Policy Manager.
Statement of the American Association of Ambulatory Surgery Centers,
Chicago, Illinois
The American Association of Ambulatory Surgery Centers
(AAASC) is a professional medical association of physicians,
nurses, and administrators who specialize in providing surgical
procedures in cost-effective outpatient environments, primarily
in Medicare-certified ambulatory surgery centers (ASCs). In
fact, a substantial number of our members either own or perform
surgery in a Medicare-certified ASC. As such, our membership is
very interested in potential changes to Medicare physician
self-referral laws, particularly as they would affect ASCs.
The physician ``self-referral'' provisions were enacted, in
large part. because several studies suggested that physicians
who have financial arrangements with entities to which they
refer patients may increase utilization. However, these studies
lacked evidence that physician ownership increases utilization
of ASC services. In fact, a number of studies, including the
noted Florida Cost Commission Review of physician self-referral
patterns, examined services provided in the ASC setting and
concluded that there was no ascertainable abuse with respect to
the referral of patients by operating surgeons to ASCs in which
they have an ownership interest.
As such, when Congress first devised the physician ``self-
referral'' provisions, and subsequently the 1993 amendments, it
did not include ASC services among the list of designated
health services. Nonetheless, because of the broad way in which
the law was written and subsequently interpreted, it
potentially applies to physician investments in ASCs.
While Congress clearly did not intend for the physician
self-referral ban to apply to services performed in the ASC
setting, the law could be read to apply to certain services
provided in ASCs. For example, prosthetics, orthotics, and
prosthetic devices are designated health services. Many common
implants--e.g., intraocular lenses, prosthetic implants after
mastectomy procedures, testicular prostheses, and tympanotomy
tubes in children--are considered prosthetics. Thus, the
physician-self referral ban could be interpreted to reach
situations where surgeons implant prosthetics in ASCs which
they own and to which they refer their patients and for which
Medicare is not making separate reimbursement because it's a
component of the facility fee. Likewise, radiology services,
which also are designated health services, could be interpreted
to include any procedure which involves imaging, which would
include a number of endoscopy and arthroscopy procedures.
AAASC is pleased that HCFA recognized that there is no risk
of program or patient abuse when a physician refers a patient
to his or her ASC, and that the Agency is proposing to
expressly exempt from the physician self-referral proscriptions
services performed in ASCs. See 63 Fed. Reg At 1666 (Jan. 9,
1998) and 42 C.F.R. Sec. 411.355(d)(1) (proposed). Nonetheless,
for the following reasons we urge Congress to codify an express
exception for ASC services in the statute. First, HCFA's
proposed regulation remains in proposed form and apparently
will not be finalized for at least another year. Until then,
physician investment in ASCs is an uncertain endeavor.
Physicians who choose to invest in ASCs take a calculated risk
based on HCFA's stated approval of these arrangements, but
expose themselves to possible prosecution should HCFA change
its view of these arrangements or choose not to include the
express exception in the final regulations. Congress should
express its approval of physician ownership of ASCs and ensure
that these arrangements are exempt from the self-referral
prohibition by including and express exception in the statute.
Second, if physician self-referral restrictions were to
prohibit doctor ownership of ASCs, there would be virtually no
ASCs left. More than two-thirds of the ASCs in the country have
been developed and owned by physicians to achieve control of
the surgical environment (lacking in the hospital), convenience
for their patients, and reduced costs.
Third, unlike services provided by clinical laboratories
and diagnostic imaging centers, surgical services performed in
an ASC are subject to a utilization review by peer review
organizations; as such, there is a check on in appropriate
utilization.
Fourth, the physician operates in the ASC as an extension
of his or her office, much like an internist might offer in-
office ancillary laboratory or radiology services. The surgeon
is not a passive investor; a ``referral'' is not really taking
place.
Finally, ASCs save the Medicare program hundreds of
millions of dollars each year. Medicare payments to ASCs for
outpatient surgical procedures are usually substantially lower
than payments to hospitals (both on an inpatient and outpatient
basis). In fact, according to the Medicare Payment Advisory
Commission (MedPAC), the median payment to a hospital for a
cataract removal procedure (i.e., CPT code 66984) in 1996 was
approximately $1,150, while the median payment to an ASC for
that same procedure was only $903, a savings of $247. Or more
than 20% (See MedPAC Report to Congress, June 1998). Moreover,
ASCs have brought the benefits of competition to the entire
outpatient surgery market: the opening of an ASC in a
particular area has frequently been followed by a significant
reduction in the charges of local hospitals for outpatient
surgery, as well as increased attention on the part of the
hospitals to quality of care and patient satisfaction.
AAASC supports clear, unambiguous physician self-referral
prohibitions that prevent unethical financial relationships and
reinforce the critical element of trust in the physician-
patient relationship. However, these prohibitions need not and
should not apply to services provided in the ASC setting.
Congress should clarify the physician self-referral statute to
expressly exclude ASCs from it. Specifically, we recommend that
Congress adopt the language it approved in Sec. 8204(f) of the
``Balanced Budget Act of 1995,'' H.R. 2491 (vetoed), which
expressly excluded ASC services from the self-referral law.
AAASC appreciates the opportunity to present this testimony
to the Subcommittee. Please do not hesitate to contact
Washington counsel, Michael Romansky, if you have any questions
about this matter.
[Note: Attachment is being retained in the Committee
files.]
Statement of William W. Tipton, Jr., American Association of
Orthopaedic Surgeons, Rosemont, Illinois
Mr. Chairman and members of the Committee, I am William W.
Tipton, Jr, MD, an orthopaedic surgeon and Executive Vice-
President of the American Association of Orthopaedic Surgeons.
On behalf of the 15,000 board-certified fellows of the
Association, thank you for the opportunity to present testimony
before your Committee on the physician ban on self-referral
statute, otherwise known as the ``Stark'' provisions.
Let me begin by saying that the Association shares the
Committee's concern about fraud and abuse in the Medicare
program. In addition, we support fully what we understand to be
the original intent of the ``Stark'' provisions--prevention of
fraud and the over-utilization of services. Nonetheless, the
Association believes that the ``Stark'' provisions produced
several unintended consequences. Specifically, many common in-
office procedures that orthopaedic surgeons provide to their
patients are now technical violations of Federal law as a
direct result of these ``Stark'' provisions.
Unfortunately, the proposed rule published by the Health
Care Financing Administration (HCFA) in the Federal Register on
January 9, 1998 did little to correct or clarify the unintended
consequences of the law. Instead, the proposed rule created
even more ambiguities to the ``Stark'' provisions.
We believe that Congressional action is now needed to
correct this matter, since the self-referral ban is so broad
that its implementation impedes the normal practice of
medicine, including that of orthopaedics. Equally, we believe
the law's prohibition on self-referral is unnecessarily
burdensome to honest physicians and the patients under their
care.
Let me highlight the main problems and areas of confusion
that we believe the ``Stark'' provisions are causing for
practicing orthopaedic surgeons. Our concerns cover the
following issues:
Definition of a referral
Durable medical equipment used as part of in-office ancillary care
Shared facilities
Shared employees
Compensation arrangements
Definition of Referral
The most important issue in determining whether or not an
arrangement is prohibited under the ``Stark'' provisions is identifying
whether a referral for a designated health service has taken place.
Under the law, a ``referral'' is defined as: ``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--including the request or
establishment of a plan of care by a physician that includes the
provision of a designated health service.''
There has been a great deal of confusion surrounding this issue,
especially in regard to referrals made among members of the same group
practice. HCFA's interpretation, as illustrated by its proposed rule,
is that a referral is subject to the ``Stark'' provisions whenever a
physician requests any designated health service covered by Medicare,
even if that physician furnishes the services personally, unless a
specific exemption is met.
Instead of a definition that cannot be implemented fairly, we
believe a reasonable and impartial standard for determining when a
referral takes place should be adopted, such as the policy covering
solo practitioners. Under this standard, those activities that a solo
practitioner performs as an ordinary and essential part of patient care
are not considered a referral. The Association believes this definition
could be expanded to cover physicians in any practice or business
arrangement.
Durable Medical Equipment
Another area of great concern is the continued exclusion of durable
medical equipment (DME) from the in-office ancillary services
exception.
The typical orthopaedic practice uses a wide range of DME, as well
as orthotics, prosthetics, and other supplies in the office. These
items are an integral part of orthopaedic practice, yet the use of many
of these items would constitute a violation of the ``Stark''
provisions.
In its proposed rule, HCFA tried to address this issue by
specifically carving out an exception for crutches, indicating it
regards them as different from other DME because a patient often needs
them immediately after treatment from an injury or an unexpected
traumatic event. While we are pleased that HCFA recognized that
crutches are an integral part of patient care, this did not go far
enough. For example, a walker may be more appropriate than crutches,
yet walkers are prohibited under the ``Stark'' provisions.
Mr. Chairman, I would like to share with you the following examples
that illustrate why the ``Stark'' provisions are problematic in regard
to DME:
In the first example, a 70-year-old female twists her foot
and is brought to the office in a wheel chair, unable to walk
because of pain in the lateral aspect of her foot. X-rays
reveal a fracture at the base of the 5th metatarsal. Proper
treatment includes a compression wrap to minimize pain and
control swelling, a wooden-soled sandal to distribute weight
across the uninjured part of the foot to allow limited weight
bearing, and either crutches or a walker to aide in independent
ambulation. The physician must provide instruction to the
patient in proper application of the compression wrap, proper
wearing of the sandal, and training in use of the crutch or
walker. If crutches are used, the physician may dispense these
in his or her office. However, if the physician determines that
a walker is more appropriate for this elderly patient, under
the ``Stark'' provisions, she must travel to a DME supplier
several miles away.
In the second illustration, a 65-year-old female patient with
a wrist fracture that has been placed in a short arm cast comes
in for follow up X-rays. The physician finds that the fracture
has healed sufficiently that another cast is not required, but
a wrist brace or splint is required for a week or two to allow
the patient's wrist to become stronger. Under the ``Stark''
provisions, this device may not be dispensed in the physician's
office, so the patient is either given a prescription to
purchase a splint at a surgical supply store several miles
away, or the patient is referred to Occupational Therapy to
have an orthosis custom-made, at a much greater cost.
In the third instance, a 66-year-old male develops severe
neck pain with radiation of the pain down one arm with tingling
numbness to the fingertips. Examination and review of X-rays
assists in the diagnosis of acute cervical radiculitis (pinched
nerve). Appropriate treatment is rest, medication, and a
cervical collar. Under the ``Stark'' provisions, the physician
is unable to dispense this item in his or her office or provide
instruction in its use, so the patient must travel several
miles to a DME supplier. If the cervical collar is not properly
sized or the patient does not receive appropriate instruction,
the result will be additional pain to the patient.
Finally, a 70-year-old male tennis player injures his knee,
and examination and treatment reveal a hemarthrosis requiring
knee aspiration. However, pain precludes walking and knee
motion. Appropriate treatment is the use of crutches and a knee
immobilizer splint. The crutches are dispensed in the office;
however, under the ``Stark'' provisions, the patient must
travel several miles to a DME supplier.
In the interest of patient safety, convenience and quality care,
orthopaedists and other physicians should be allowed to give out these
commonly used items immediately in their offices. Yet, if they did so,
they would probably be in violation of the ``Stark'' provisions.
Shared Facilities
The next problem I would like to speak about involves shared
facilities. A shared facility is a practice arrangement in which
orthopaedic surgeons and other physicians deliver services in a defined
and separate facility that may contain X-ray equipment, physical
therapy, a cast application room, and all essential nursing and
administrative support.
Under this arrangement, these physicians are not part of a group
practice, but retain their independence through separate billing
numbers with insurance carriers. Though separation is maintained
through different billing numbers, the physicians share the costs of
the common facility, including rent nursing and office expenses, as
well as costs and revenue for X-ray and physical therapy services on a
pre-determined basis.
A shared facility is the most common type of integrated health care
delivery arrangement and it behaves exactly like a group practice. Yet,
it is not covered by the ``group practice'' exemption under the
``Stark'' provisions.
Let me cite an example of why this jeopardizes quality patient
care.
A Medicare patient comes to a shared facility for an X-ray. Since
these types of practice arrangements are not exempt under the ``Stark''
provisions, the patient cannot be X-rayed in a separate room in the
common facility, but has to go to a separate facility for the X-ray,
and then back to the orthopaedist for diagnosis and treatment.
Likewise, if the patient has a broken bone, and the orthopaedic surgeon
decides to treat the fracture without surgery, the patient must return
to the outside facility for another X-ray and then back to the
orthopaedist to determine if the treatment was successful.
Mr. Chairman, I am sure you will agree that shuttling patients
between the X-ray facility and the orthopaedist is not in the best
interest of the patient, nor is it cost-effective or quality service.
Yet, if the patient gets his or her X-ray at the orthopaedist's office,
it may be a violation of the ``Stark'' provisions.
Shared Employees
Mr. Chairman, another problem for orthopaedic surgeons and other
physicians involves the issue of shared employees.
Orthopaedic surgeons have developed arrangements with DME
suppliers, wherein the suppliers rent DME closets in the orthopaedists'
offices at fair market value (meeting the leasing exemption). The
technicians who measure for braces or other DME supplies are shared
employees of the orthopaedists and the suppliers, and the suppliers pay
for the time the technicians spend measuring braces and supplying the
DME to patients.
In this situation, the orthopaedists bill for a Level 1 visit only
if they see the patient and provide professional services (beyond those
provided by the technician). Otherwise, the orthopaedist does not bill
Medicare, and is not in any way involved in a financial arrangement,
since the billing is done by the vendor and the technician is a part-
time employee of the vendor.
This type of common practice arrangement contributes to effective
and convenient patient care, yet it may be a violation of the ``Stark''
provisions.
Compensation Arrangements
Mr. Chairman, another problem for orthopaedic surgeons and other
physicians involves compensation arrangements.
The ``Stark'' provisions contain a presumption that if a physician
is receiving a payment of any kind from any other provider of
designated health services, the physician should not refer the patient
to that service provider, with some very limited exceptions.
We believe that these exceptions are not broad enough to include
the myriad of compensation arrangements that do not pose a risk of
program or patient abuse. Examples of these arrangements are as
follows:
Installment payments over a period of time--An orthopaedic
surgeon or group practice sells a ``designated health service''
facility (such as an MRI or physical therapy center), and
continues to send patients to the facility. Installment
payments are made over a period of time, at a fixed price (fair
market value), and not based upon volume of referrals to that
sold facility.
Independent contractors--One day per week, a physical
therapist (non-employee, independent contractor) rents space in
the office of a physician or group practice. The physician(s)
charge rent (at fair market value) to the independent
contractor, and refer patients. There is no additional
compensation for making such referrals.
Therefore, we believe a process needs to be established
whereby compensation arrangement can be evaluated on a case-by-
case basis using clear criteria to determine whether or not
they are appropriate.
In conclusion, Mr. Chairman and members of the Committee,
the American Association of Orthopaedic Surgeons believes that
the ``Stark'' provisions are unclear and confusing. As a
result, HCFA has been unable to provide any comprehensive and
understandable guidelines for complying with it.
While the Association has not taken a position on the
repeal of the ``Stark'' provisions, we believe that your
Committee should at least consider approving the amendments to
the ``Stark'' provisions which were included in the Balanced
Budget Act of 1995, which were approved by both the full House
of Representatives and the Senate, but were never enacted into
Public Law. Moreover, before any final rule is published by
HCFA, Congress must make changes in the law so that an undue
burden is not placed on honest physicians and their patients.
Mr. Chairman, the Association stands ready to work with
your Committee to correct these unintended consequences of the
``Stark'' provisions. Thank you again for the opportunity to
present testimony to your Committee on this important issue.
Statement of the American Clinical Laboratory Association
The American Clinical Laboratory Association (``ACLA'') is
pleased to have this opportunity to submit testimony with
regard to the Subcommittee's consideration of issues related to
physician self-referral. ACLA is an association of federally-
regulated independent clinical laboratories located throughout
the United States. All ACLA members are directly affected by
the prohibition on physician self-referral contained in Section
1877 of the Social Security Act. In our statement, we will
review the basis for the current self-referral prohibition on
laboratory services, discuss the current status of the self-
referral law as it applies to laboratory services and provide
ACLA's views on some possible modifications of the law.
I. Self-Referral of Clinical Laboratory Services Should Continue
to be Prohibited
Congress enacted the prohibition on self-referral for
laboratory services in 1989, as part of OBRA '89. This was the
first time Congress had prohibited self-referral on a large
scale. While Congress did not apply the prohibition to other
services at that time, it found the record amply demonstrated
the need for a limitation on self-referral of clinical
laboratory services.
When Congress passed the self-referral prohibition on
laboratory services, it did so based on a number of significant
studies. In 1989, the Office of Inspector General (``OIG'')
conducted a study entitled ``Financial Arrangements Between
Physicians and Health Care Businesses.'' That study concluded
that physicians who owned or invested in independent clinical
laboratories ordered 34% more clinical laboratory services than
did physicians who had no ownership or investment interest in a
laboratory. Moreover, in testimony before this Subcommittee,
then-Inspector General Kusserow estimated that this increased
testing was ``quite troubling'' and a ``cause for concern to
the Medicare Program.'' Subsequent studies in Florida also
found increases in clinical laboratory utilization among
physician-owned facilities. In that study, laboratories that
were owned by referring physicians performed almost twice as
many diagnostic tests per patient as similar non-joint venture
laboratories. Not surprisingly the study also found that the
higher utilization per patient led to significantly higher
gross revenues per patient.
ACLA recognizes that such studies do not specifically show
that the clinical laboratory services performed at physician
owned laboratories were unnecessary. Still, on balance, there
appears little justification for higher utilization of
laboratory services at physician-owned laboratories than at
non-physician owned facilities. There is no clinical rationale
that explains why a patient would need more services when the
referring physician was an owner of the laboratory performing
the test than when the physician did not have such an interest.
Nor is there any clinical reason that physicians with an
ownership interest in a laboratory should order more services
than physicians without such an interest. The simplest, and
most plausible explanation, is that physicians respond to the
incentives for additional profit by ordering more services.
It was in response to its concern about such incentives
that Congress enacted the initial self-referral prohibition on
laboratory services. Under the original Stark I provision,
which became effective in January 1992, physicians were
prohibited from referring their Medicare patients' testing to
clinical laboratories with which they had an ownership or
investment interest or a compensation arrangement. Final
regulations covering the prohibition of self-referral of
laboratory services have been in effect since August, 1995.
Thus, unlike other services that were added by OBRA '93, the
health care system has, for the most part, had time to adapt to
the self-referral prohibition on laboratory services.
ACLA continues to believe that a prohibition on self-
referral for clinical laboratory services is crucial to
controlling unnecessary utilization of clinical laboratory
services. ACLA believes it would be inadvisable, at this time,
to eliminate the law's prohibition on self-referral of
laboratory services, even if changes are made in the list of
other services covered by the prohibition. Although we
recognize that managed care is a greater presence in the health
care market place today than it was when the self-referral law
was originally passed, the vast majority of services furnished
to Medicare patients are still paid for on a fee-for-service
basis and it is to these services that the law primarily
applies. Thus, ACLA believes the law continues to serve a very
important role in curbing increased utilization.
In sum, although ACLA recognizes that some have called for
removing certain services from the list of ``designated health
services'' that was added to Section 1877 by OBRA '93, ACLA
does not believe it would be appropriate to remove clinical
laboratory services from that list.
II. Some Lmited Modifications May be Necessary
ACLA does recognize that the statute as implemented is a
complex one to interpret and enforce. Therefore, ACLA members
do recognize that some modification may be necessary to
ameliorate the technical problems that have been identified and
to simplify the application and interpretation of Section 1877.
Some of ACLA's concerns are set out below.
ACLA recognizes that the compensation provisions have been
the most difficult to apply for many providers. In the Notice
of Proposed Rulemaking (``NPRM'') for Stark II, issued in
January 1998, HCFA proposed a number of provisions to simplify
the application of the compensation arrangement provisions.
Among the proposals considered were a de minimis exception and
a provision to make the self-referral law more consistent with
the safe harbors provisions interpreting the antikickback law.
ACLA believes that some modifications in the application of the
compensation arrangement provisions, including those proposed
by HCFA in the Stark II NPRM, may be appropriate.
ACLA also is concerned about the reporting requirements
that may be adopted to enforce the self-referral provision.
HCFA stated in the January 1998 NPRM it would develop a new
reporting form, although it has not yet done so. ACLA believes
it is very important that any reporting requirements be
carefully tailored to avoid adding new reporting
responsibilities to those that already apply to most health
care providers participating in Medicare.
ACLA appreciates the opportunity to comment on these
issues. We would be happy to work with the Subcommittee on
helping to resolve any of these issues.
Statement of the American College of Cardiology, Bethesda, MD
The American College of Cardiology (ACC), which represents
nearly 25,000 cardiovascular specialists, appreciates the
opportunity to present the following statement regarding the
Medicare physician ``self-referral'' law, commonly referred to
as Stark II (enacted as part of the Omnibus Budget
Reconciliation Act of 1993 [P.L. 103-66]).
As a professional medical society and educational
institution, the ACC's mission is to foster optimal
cardiovascular care and disease prevention through professional
education, promotion of research, and leadership in the
development of standards and guidelines and the formulation of
health policy.
Over five years ago, Congress was motivated to enact
legislation with the good intention of preventing abuses in
physician referral patterns resulting from economic self-
interest. Although the ACC understands the rationale that
prompted enactment of the law in 1993, we strongly believe the
vast changes in the health care marketplace that have since
occurred, including the broad use of specific utilization
controls and documentation requirements, have rendered the need
for additional regulatory controls unnecessary and burdensome.
In addition, before publication of the proposed regulations in
1998, HCFA and the Office of the Inspector General published
rules addressing a range of issues, including anti-kickbacks,
that overlap with the proposed Stark II regulations.
Furthermore, the ACC believes that the proposed regulations
implementing the Stark II law contradict congressional intent
by interpreting the law in such a convoluted, incomprehensible,
and irrational manner as to render even ethical and necessary
medical practice arrangements potentially unacceptable.
For example, the proposed regulations include an overly
broad definition of what constitutes a ``compensation
arrangement'' that would thereby trigger a referral
prohibition. The definition would include any kind of
``indirect'' remuneration, without qualification or limitation.
This unrestricted definition would encompass virtually any
benefit received, on any level, and is much broader than needed
to combat fraud and abuse. In addition, the definition of
``radiology services'' under the list of designated health
services has been vaguely interpreted so that it is not clear
whether this definition includes certain invasive procedures
that are not subject to abuse. In fact, the use of these types
of procedures in daily practice provides unique and essential
information for the treatment of patients with cardiovascular
disease and ensures a continuum of care for patients. The
definition of radiology services also continues to include
ultrasound, which is not a radiology service, and has not been
found subject to abuse.
The ACC thanks the subcommittee for taking steps to examine
the complexity of the statute and the proposed regulations. We
believe that congressional interest is only in eliminating true
fraud and abuse to protect patients and the Medicare program,
not in exposing physicians and other providers to criminal
penalties resulting from an ambiguous and unnecessary new set
of rules. We look forward to working with you to enact any
meaningful changes to the law.
Statement of the American College of Physicians--American Society of
Internal Medicine
The American College of Physicians--American Society of
Internal Medicine (ACP-ASIM), the nation's largest medical
specialty society, representing over 116,000 physicians who
specialize in internal medicine and medical students,
appreciates the opportunity to submit a statement for the
record to the Committee on Ways and Means Subcommittee on
Health on how the Stark I and Stark II physician Self-referral
laws and their corresponding regulations are having a negative
impact on the practice of medicine.
ACP-ASIM is concerned that many of the issues we raised in
our comments on the Stark I final rule of August 14, 1995, and
that we hoped would be clarified in the Health Care Financing
Administration's (HCFA) proposed rule of January 9, 1998, were
not satisfactorily addressed. Furthermore, several new problems
have arisen in this proposed rule as well. Our overall
impression of the rule is that it is confusing, inconsistent,
and does not reflect the current health care delivery
environment. For these reasons, we have asked that HCFA rectify
the concerns discussed in these comments before a final rule is
published, implemented, and enforced. HCFA's current proposal
will create serious enforcement and compliance problems and
generate significant unnecessary financial costs for physicians
and other entities that attempt to comply, as well as for HCFA,
the Department of Health and Human Services (HHS) Office of
Inspector General (OIG), and the Medicare carriers. Ultimately,
the proposed rule will create unintended access and quality of
care problems for Medicare and Medicaid beneficiaries
attempting to receive the following Stark II ``designated
health services:''
Clinical laboratory services.
Physical therapy services.
Occupational therapy services.
Radiology services, including magnetic resonance imaging,
computerized axial tomography scans, and ultrasound services.
Radiation therapy services and supplies.
Durable medical equipment and supplies.
Parenteral and enteral nutrients, equipment, and supplies.
Prosthetics, orthotics, and prosthetic devices and
supplies.
Home health services.
Outpatient prescription drugs.
Inpatient and outpatient hospital services.
The Stark I and II self-referral legislation was enacted by
Congress in response to reports that certain health care services were
being ``abused'' by physicians with financial interests or investments
in entities that provided the service(s). Congress passed legislation
that prohibited physicians from referring to those entities in which
they (or an immediate family member) had such an interest or
investment. Congress subsequently added safeguards and revisions to
Medicare and Medicaid reimbursement polices involving referral
activities.
Alternative Approaches to Reducing Program Abuse
ACP-ASIM is pleased that Congress called the above hearing to re-
examine the Stark I and II laws, given the fact that HCFA, the Office
of Inspector General (OIG), and the Department of Justice (DoJ), have
numerous other tools to target abusive practices. Without changes to
the Stark laws themselves, any rule proposed by HCFA is likely to
introduce a degree of regulatory complexity and rigidity that will
interfere with legitimate arrangements between physicians and health
care facilities. Other legislative and regulatory approaches can
instead be used by HCFA to target abusive arrangements.
The False Claims Act (FCA), enacted over a hundred years ago,
imposes civil liability on any person or entity who submits a false or
fraudulent claim for payment to the United States government. The False
Claims Act also allows an individual who knows about a person or entity
who is submitting false claims to bring a suit, on behalf of the
government, and to share in the damages recovered as a result of the
suit. A person who violates the FCA must repay three times the amount
of damages suffered by the government plus a mandatory civil monetary
penalty (CMP) of at least $5,000 and no more than $10,000 per claim.
The Anti-kickback Statute (enacted in 1972) provides criminal
penalties for individuals or entities that knowingly and willfully
offer, pay, solicit, or receive remuneration to induce the furnishing
of items or services covered by Medicare or State health care programs
(including Medicaid, and any State program receiving funds under titles
V or XX of the Act). A CMP of up to $50,000 plus up to three times the
amount of remuneration offered, paid, solicited or received could be
levied for each violation of the anti-kickback provisions of title XI
of the Social Security Act (as amended by the Balanced Budget Act of
1997--``BBA '97'').
Furthermore, in the interim between the enactment of the Stark II
legislation and the publication of the Stark II proposed rule, Congress
and HCFA have taken numerous steps to reduce abusive self-referral
practices. The BBA '97, and the Health Insurance Portability and
Accountability Act of 1996 (HIPAA) are two major legislative efforts
designed to increase and enhance the scrutiny of providers of health
care services to Medicare recipients. The BBA '97 increases penalties
associated with fraud and abuse, revises payment to skilled nursing
facilities, and improves communication with beneficiaries.
HIPAA has increased funding for Medicare program safeguards. HIPAA
funding is divided between the OIG and the DoJ to coordinate federal,
state and local health care law enforcement programs; conduct
investigations, audits, evaluations and inspections relating to the
delivery and payment of health care; help facilitate enforcement of
civil, criminal and administrative statutes on health care fraud and
abuse; provide guidance to the health care industry on fraudulent
health care practices; and establish a national data bank to receive
and report final adverse actions against health care providers.
HCFA's contractors were also allocated additional resources to
educate the provider billing community, including hospitals,
physicians, home health agencies and laboratories about Medicare
payment rules and fraudulent activity. This education covers current
payment policy, documentation requirements and coding changes through
quarterly bulletins, fraud alerts, seminars and through local medical
review policy.
HIPAA also established the Medicare Integrity Program (MIP), which
is intended to ``promote the integrity of the Medicare program by
entering into contracts'' with private entities to: (1) review the
activities of providers furnishing items and services reimbursable
under Medicare, including medical and utilization review and fraud
review; (2) audit cost reports; (3) educate providers, beneficiaries,
and other persons with respect to program integrity and benefit quality
assurance issues; and (4) develop and periodically update a list of
items of durable medical equipment which are subject to prior
authorization.
In addition, HCFA carriers have established computer claims payment
edits to alert them to areas of overutilization by screening practice
patterns. The National Practitioner Data Bank and the National
Suppliers Clearinghouse were founded to provide information on
physicians and other health care providers, including information on
exclusions from plan participation due to fraudulent and abusive
activities. Finally, inappropriate referrals of Medicare and Medicaid
patients to outside laboratoires and other designated diagnostic
facilities are already prohibited under the Federal anti-kickback law.
The enhancements to the Medicare and Medicaid programs described
above should help allay Congress' original concern about physician
self-referral. ACP-ASIM thus strongly supports Congress' revisiting of
the premises upon which the self-referral legislation was founded and
comparing those premises to the current regulatory environment to
determine if there still is a need for the broad regulatory provisions
of this proposed rule.
A consequence of the lack of specificity in some sections of the
Stark II proposed rule is that both the health care industry and
federal government will have to expend tremendous resources on
compliance and enforcement activities. Seeking legal counsel or OIG
advisory opinions will cost physicians an enormous amount of time and
money to determine if they are in compliance with this proposed rule
that was intended to give physicians a ``bright line'' to guide their
business arrangements. Ultimately much of this effort will be wasted
because the proposed rule is confusing and open to multiple conflicting
interpretations. ACP-ASIM has obtained seven different legal briefs
analyzing the proposed rule and many of the legal interpretations
differ substantially. Furthermore, there is no guarantee that any of
these interpretations will be the same as the OIG's interpretation.
Should physicians and providers assume a more conservative approach
in the delivery of any of the Stark II designated health services as a
result of the proposed rule, the impact on patient access and the
quality of health care would certainly suffer. While unnecessary
overutilization should be targeted and penalties imposed, unintended
underutilization is a potential consequence of the proposed rule that
creates a far greater threat to Congress' interest in assuring access
and quality health care to the Medicare/Medicaid enrollees.
Issues Unresolved by the Stark II Proposed Rule
ACP-ASIM has previously asked HCFA to modify the proposed
regulation to: (1) accommodate a shared facilities exception; (2)
substitute the definition of ``general supervision'' for ``direct
supervision'' in the in-office ancillary exception; (3) support
Congressional legislation to eliminate the group practice compensation
requirements; and (4) revise the definition of a group practice. We had
hoped that the Stark II proposed rule would address these issues. The
proposed rule did little to address ACP-ASIM's concerns, providing no
mention of shared facilities, making virtually no change in the
supervision definition, expanding rather than eliminating the
regulations for group compensation requirements, and adding more
confusion to the group practice definition. To rectify these problems
that originated with the Stark I final rule, ACP-ASIM urges legislative
or regulatory relief to allow the four changes to the Stark II proposed
self-referral rule described below.
1. Create a shared facility exemption
ACP-ASIM is extremely disappointed that HCFA did not create
a separate shared facility exemption in the Stark I final rule,
published on August 14, 1995, or in the January 9, 1998
proposed rule. We believe that creating such an exemption is
within the authority of the Secretary. Furthermore, ACP-ASIM
disagrees with HCFA's assertion that the risk of program or
patient abuse associated with a shared facilities exemption
would be significant--no sufficient data to support this
conclusion have yet been offered by HCFA. ACP-ASIM urges HCFA
to reconsider its position on creating a shared facility
exemption for shared laboratories and other designated health
services; barring such a change, we feel a legislative remedy
is clearly indicated.
ACP-ASIM has repeatedly called for a narrowed shared
facility exception to the Stark self-referral regulations to
alleviate the Stark I burden placed on thousands of physicians'
practices. Many solo practitioners want to continue to share
equipment, rental space, and personnel in order to control
their overhead costs while providing a necessary service to
their patients. The absence of a shared facility arrangement in
the Stark I regulation has disrupted physician practices.
Without an exception for in-office facilities shared between
two or more physicians who are not members of a group,
physicians are seemingly left with one of two options: form or
become part of a group practice (which are exempted under the
Stark laws); or, close their shared facilities. While the lack
of a shared facility exemption in the Stark I rule adversely
affected access to clinical laboratory services only, the lack
of such an exception in the Stark II proposed rule places
numerous other shared facilities--those that are included on
the list of designated health services--at risk.
ACP-ASIM believes that a narrowed shared facilities
exception will not violate the intent of the self-referral
statute. HCFA stated in the Stark I final rule that the ``in-
office ancillary'' exception would provide the necessary
protections for sharing of certain facilities between two or
more physicians who do not meet the definition of a group
practice. However, ACP-ASIM continues to believe that a shared
facility exception is necessary because the current in-office
ancillary exception is not broad enough for the variety of
shared facility arrangements that physicians wish to create to
reduce overhead cost, while providing service to their own
patients, and that do not pose any threat of patient or program
abuse.
ACP-ASIM's position has been supported by legislation that
passed the Congress in 1995 (but was subsequently vetoed for
unrelated reasons) and by the HHS Practicing Physicians
Advisory Council (PPAC). ACP-ASIM urges that this be rectified
in either a Stark II final rule from HCFA, or through
legislative remedy. ACP-ASIM supports the following language as
it appeared in the BBA '95:
A general exception from the self-referral prohibition would
be established for shared in-office ancillary services that are
furnished:
(i) personally by the referring physician who is a shared
facility physician or personally by an individual directly
employed or under the general supervision of such a physician;
(ii) by a shared facility in a building in which the
referring physician furnishes substantially all of the services
of the physician that are unrelated to the furnishing of shared
facility services; and
(iii) to a patient of a shared facility physician; and
(iv) that is billed by the referring physician or a group
practice of which the physician is a member.
2. Change the in-office ancillary services exception governing
supervision
The Stark I final rule provided a modest exception for in-office
ancillary services. A requirement of this exception was that the
physician had to personally perform or ``directly supervise''
laboratory tests ordered under Medicare Part B. The direct supervision
requirement was interpreted in the Stark I final rule to mean that the
physician must be ``. . . present in the office suite and immediately
available to provide assistance and direction throughout the time
services are being performed.''
ACP-ASIM believes that HCFA's direct supervision requirement is
unreasonable and unnecessary. Direct supervision imposes significant
hardship and unrealistic demands on all physicians with in-house shared
facilities. If physicians are required to spend their days supervising
the work of their technicians--trained employees whose performance is
constantly evaluated--they will be hard pressed to find time to see
patients and make hospital rounds. Additionally, this requirement is
unnecessary because physicians already assume legal responsibility for
all work performed in their shared facilities.
ACP-ASIM has previously asked HCFA to change the direct supervision
requirement to a general supervision requirement or that HCFA adopt the
more flexible definition of direct supervision contained in the
Clinical Laboratory Improvement Amendments of 1988 (CLIA). This
definition states that ``. . . the physician or group is legally
responsible for the services performed by the testing personnel and for
ensuring that such personnel meet licensure and certification
requirements, if any, under other provisions of the law.'' The
physician, or person responsible for overseeing the testing in question
(e.g., the lab director or general supervisor in the case of the CLIA
regulations) should be available, but not necessarily on-site, when
testing occurs, in case testing personnel need assistance.
The current direct supervision requirement clearly conflicts with
the intent of the conferee language accompanying the Stark II Self-
Referral provisions in the Omnibus Budget Reconciliation Act of 1993,
which specified that: ``The conferees intend that the requirement for
direct supervision by a physician would be met if the lab is in a
physician's office which is personally supervised by a lab director, or
a physician, even if the physician is not always on site.'' (emphasis
added).
The Stark II proposed rule does not provide any changes in the
direct supervision definition in the manner requested by ACP-ASIM. It
does, however, provide for short, emergency and routine absences by the
physician. The appropriate length of these absences is left to the
carriers to determine on an individual basis. This modest change in the
definition of general supervision is inadequate. ACP-ASIM has urged
HCFA to replace ``direct supervision'' with ``general supervision'' in
the in-office ancillary services exception language in the Stark II
final rule. If HCFA decides instead to maintain a ``direct
supervision'' requirement, then we would seek legislative relief for a
change in the definition as follows:
The physician or group is legally responsible for the
services performed by non-physician personnel and for ensuring
that such personnel meet licensure and certification
requirements, if any, applicable under other provisions of the
law. Direct supervision does not require that physicians be
physically present when an item or service is provided.
This definition would allow physicians to perform all of
their professional duties while continuing to be personally
responsible for the services provided by the laboratory
personnel.
We are greatly troubled that after directly quoting
language from the conferees' report, HCFA went to great length
to explain why Congress did not really intend to allow the
physician to be at an alternative site when the tests are being
performed. The conferees' report is unambiguous; Congress
clearly intended for the direct supervision requirement to be
met ``even if the physician is not always on site.''
3. Eliminate the prohibition on referrals based on compensation
arrangements
The Stark II proposed rule retains a prohibition on certain
compensation arrangements and contains a number of new provisions that
address how a group practice must distribute group costs and revenues.
Group practices are required to have a method of distributing costs and
revenue that has been ``previously determined.'' Group practice
payments to individual group members may not be made on the basis of
the value or volume of that individual member's referrals. The Stark II
proposed rule does not allow for the distribution of profits that
belong to a particular specialty or subspecialty because of concern
that such specialty profit pools could result in payments for
referrals. A physician in a group practice may be paid a share of the
overall profits of the group, or a productivity bonus based on services
personally performed or services ``incident-to'' the personally
performed services.
Physicians in a group practice should be allowed to devise their
compensation arrangements without unnecessary government intrusion into
their business practices. The ability to structure compensation
arrangements within a group by taking into account varying services at
different sites, along with associated differences in expense
structure, is vital to any business. The group practice compensation
requirement, as retained and expanded in the Stark II proposed rule,
represents an onerous and unnecessary intrusion into the internal
affairs of physician practices, and is impossible to implement in a
fair and equitable manner.
As a practical matter, it is impossible for group practices to
redistribute income from ancillary services without at least indirectly
taking into account the volume or value of the referrals made by the
physicians within that group. The ambiguous language of the Stark II
proposed rule, however, will cause group practices to question whether
the distinctions, no matter how well drawn, are appropriate. ACP-ASIM
urges HCFA to provide clear, bright-line standards if the group
compensation requirements are retained in the final rule.
Finally, these prohibitions force physicians to arrange their
financial affairs differently for the Stark II designated health
services than for all other health services they provide (which may
include the designated health services for non-Medicare/Medicaid
patients). This will increase the administrative burden and costs to
comply for physicians, and could lead to problems of patient access
should physicians become overly conservative in their practice patterns
as a result of the proposed rule's interpretations of group
compensation arrangements. ACP-ASIM seeks elimination of as much of the
group practice compensation arrangement prohibitions from the proposed
regulation as is allowed under the current law and would support a
legislative repeal of this entire portion of the Stark law.
4. Revise the definition of a group practice
The definition of ``group practice'' is critical to compliance with
the Stark in-office ancillary exceptions. Unfortunately, the Stark I
final regulation poorly defined membership in a group practice.
Although most group practices consider only those who are owners and/or
employees of the practice as a group member, the Stark I final
regulation included all independent contractors, regardless of the
amount of time that they spent at the practice, as members of a group
practice. Consequently, many group practices would have difficulty
meeting HCFA's regulation that ``substantially all'' of the services
provided by the group be done so by members of that group practice.
The Stark II proposed rule now appropriately excludes independent
contractors from the definition of group membership. However, the
revised definition now creates a new problem--it also proposes to no
longer allow independent contractors to supervise the provision of
designated health services under the in-office ancillary services
exception. ACP-ASIM has asked HCFA to revise this definition in the
Stark II final rule to allow independent contractors to supervise the
provision of designated health services under the in-office ancillary
services exception--but continue to not count the independent
contractors as true members of the group under the patient-care
``substantially all'' requirement. If HCFA is unwilling to make this
change, then we would ask that it be effected with a legislative change
by Congress.
New Problems Created by the Stark II Proposed Rule
The Stark II proposed rule creates several new problems that will
be a detriment to patient access to timely medical care. ACP-ASIM has
previously asked HCFA to make the following four changes to the Stark
II proposed self-referral rule described in detail below to rectify
these new problems with the proposed regulation: (1) reduce the number
of Stark II prohibited designated services (under the authority given
the Secretary to exempt services that do not pose a risk of program or
patient abuse); (2) do not include prescription drugs administered in
the physician's office as ``outpatient prescription drugs;'' (3) create
an exception for durable medical equipment provided in the physician
office; and (4) eliminate the group practice attestation requirements.
If HCFA is unwilling to make these changes, then we would ask that
Congress implement them through legislative changes.
1. Reduce the number of Stark II prohibited designated services
A number of services covered by the Stark II prohibition
have not been associated with Medicare program abuse, and offer
little or no opportunity for overutilization. ACP-ASIM believes
that their inclusion on the list of designated services is
disruptive and interferes with patient access to care,
producing the unintended consequence of underutilization. We
thus urge that the list of designated health services be
reduced, thereby increasing access to care. We would
specifically recommend that all services from the designated
health services list be exempted, with the exception of
clinical laboratory services, radiology, physical therapy, and
occupational therapy.
2. Do not include prescription drugs administered in the
physician's office as ``outpatient prescription drugs''
The above recommendation asked HCFA to reduce all Stark II
designated services to lab, radiology, physical and
occupational therapy. If this were not administratively or
legislatively possible, ACP-ASIM would request the exclusion of
drugs administered in the physician's office from HCFA's
current definition of outpatient prescription drugs and to
create an exception for durable medical equipment (DME)
provided in the physician's office (described in recommendation
3 below) as well.
The Stark II proposed rule defines outpatient prescription
drugs as ``those drugs (including biologicals) that a patient
can obtain from a pharmacy with a prescription (even if
patients can only receive the drug under medical supervision),
and that are furnished to an individual under Medicare Part
B.'' Erythropoietin (EPO) and other drugs furnished as part of
a dialysis treatment for an individual who dialyzes at home or
in a facility are excluded.
Without further instruction from Congress on what
constitutes ``outpatient prescription drugs,'' HCFA has assumed
that Congress intended to include only drugs furnished to
individuals under the Medicare Part B benefit and to exclude
drugs furnished by providers under Medicare Part A. HCFA's
definition includes a variety of prescription drugs given in
the physician's office which are administered during the
patient's visit. Such drugs would include treatments for
cancer, antibiotics, renal therapy, and vaccines. Prohibiting
the prescription of such drugs in the physician's office would
clearly create serious patient access problems.
3. Create an exception for durable medical equipment provided
in the physician office
Similar to our concerns regarding outpatient prescription drugs
delivered to the patient in the physician office, the January 9, 1998
proposed rule prohibits the delivery of DME, which are integral to the
practice of office-based medicine. Without the ability of physicians to
provide these essential therapeutic services, patient care will suffer
as access to care is delayed. These in-office services have not been
associated with program abuse and offer little or no opportunity for
overutilization. The inclusion of these services on the designated
services list is disruptive and interferes with patient access to care,
producing the unintended consequence of underutilization. ACP-ASIM's
position has been supported in the 1995 Balanced Budget Conference
Agreement, the 1995 ``Blue Dog'' Democratic budget alternative (H.R.
2530) and in President Clinton's FY '97 proposed budget. Furthermore,
HCFA's inclusion of crutches as an exception under the DME in-office
ancillary services proposal suggests that HCFA is aware of the problems
that will be created if patients are denied access to DME in their
physicians' office.
4. Eliminate the group practice attestation requirements
ACP-ASIM has urged HCFA to eliminate the group practice attestation
requirements contained within the proposed rule. These requirements are
overly burdensome and time consuming. The administration in its 1995
``Reinventing Health Care Regulations'' initiative, determined that
similar physician attestation requirements to certify the accuracy of
hospital diagnosis-related group (DRG) coding were cumbersome and
resulted in billing delays. Consequently, HCFA eliminated the physician
attestation requirement in hospitals and instead hold hospitals
responsible for the accuracy of their diagnoses and procedures. The
same logic should be adopted for the proposed attestation requirements
for group practices.
Conclusion
The health care industry continues to be in flux,
characterized by the variety of ways health care is being
delivered and financed. Managed care consolidation and
integration of physician practices are increasingly having an
impact on accessibility and affordability of health care
services, as well as methods of payment and operation. By
accepting substantial financial risks, physicians in these
types of arrangements have no incentive for overutilization or
inappropriate referrals.
Efforts by Congress to maintain and ensure federal health
care program integrity must take into account the dynamics
within the health care industry that have an impact upon the
delivery and quality of patient care. In developing the final
rule, ASIM urges HCFA to carefully consider these and other
fundamental changes in the health care marketplace.
ACP-ASIM believes that the Stark II proposed rule is
confusing, does not provide appropriate relief within its
regulatory jurisdiction, does not consider changes in the
current health care delivery environment, and needs to be
substantially revised prior to implementation. Without a
comprehensive re-evaluation of the Statute and the proposed
rule, serious compliance and oversight problems will be created
that will likely have a negative impact on patient access to
health care. We believe this type of intrusive overregulation
is unnecessary given the changes that have occurred in the
health care marketplace and programs recently designed and
instituted within the federal health care programs to ensure
the integrity of such programs.
Statement of the American Hospital Association
The American Hospital Association (AHA) represents nearly
5,000 hospitals and health systems, networks and other
providers of care. We appreciate this opportunity to submit our
views on Medicare ``Self -Referral'' laws.
Physician self-referral is an important issue to hospitals
and health systems. AHA members believe that getting patients
the right care in the right setting should guide referrals, not
financial self-interest.
AHA members have demonstrated their desire to fully comply
with Federal health program fraud and abuse statutes by
adopting comprehensive compliance plans. However, achieving
full compliance with the myriad of federal and state laws,
regulations and program instructions is already difficult. The
voluminous, complex and confusing proposed rule implementing
the Medicare self-referral law would add to that burden.
Currently, hospitals, health systems and networks must
spend significant resources obtaining legal opinions to make
sure they comply with the requirements of physician self-
referral legislation. The physician self-referral law is a
strict liability statute, so no provider would dare risk moving
forward with a transaction or arrangement without legal advice.
While an advisory opinion process, strongly lobbied for by AHA,
exists, it cannot always provide the timely response necessary
in our rapidly changing health care delivery system.
Hospitals, health systems and networks have a tremendous
variety of financial relationships and arrangements with
physicians as they seek to provide high quality, efficient
health care services. The goal of self-referral legislation
should be to guard against inappropriate referrals without
impeding arrangements that will improve the quality of health
care, increase access and be cost effective.
Any proposed changes to the physician self-referral law
should:
Support current and emerging systems of care.
Support physicians' ability to collaborate with hospitals
and health systems.
Support the delivery of efficient, high quality health
care and allow physicians to make decisions that are best for their
patients
Promote a level playing field that fosters competition
among providers.
Simplify compliance.
Given the great diversity within our health care delivery
system, finding a simple approach that encompasses these
principles is difficult.
AHA recommends reducing the complexity of the law by
removing provisions that relate to compensation arrangements.
The existing anti-kickback statute, which allows for both civil
as well as criminal penalties, can be used to police any
abusive arrangements. The remaining provisions of the Medicare
self-referral law would continue to prohibit physician referral
to entities in which they have an ownership or investment
interest for certain designated health services.
This approach would allow the statute to focus on its
original purpose: a ban on physicians inappropriately referring
to entities they own. It would also eliminate many pages of the
voluminous proposed rule. Providers would not have to hire
attorneys to navigate the maze created by the current law and
the proposed regulations. The Health Care Financing
Administration would not have to micromanage health care
contracts by regulation. The government would retain a powerful
enforcement tool, the anti-kickback statute. And limited
provider resources could be used for patient care rather than
legal opinions.
This change would also strike a more appropriate balance.
It would guard against inappropriate referrals while still
supporting the desire of hospitals, health systems and
physicians to work together to reduce health care costs, while
also improving the quality of health care we deliver to our
patients.
The AHA commented on HCFA's proposed rule implementing the
Medicare self-referral law, published on January 9, 1998, and
would like to reiterate some of our specific comments that
Congress could also address as part of any legislative changes
to the statute.
Physician Ownership of Hospitals That Provide Non-Hospital Services
The Medicare self-referral law contains an exception for physician
ownership interests in a hospital if the referring physician is
authorized to perform services at the hospital and the ownership or
investment interest is in the hospital itself and not merely in a
subdivision of the hospital. This exception applies only to designated
health services that are furnished by the hospital and does not apply
to designated health services furnished by another health care provider
the hospital may own (e.g., a hospital-owned home health agency or a
skilled nursing facility).
There does not appear to be a rationale for making this distinction
when the exception allows referral for the designated services listed
in the Medicare self-referral law provided by the hospital. Such
disparate treatment imposes an unreasonable barrier for hospitals
seeking to provide a full continuum of care. The interpretation by HCFA
appears to contradict the intention of the hospital ownership
exception.
Treatment of physicians with financial relationships with
hospitals, whether contractual or ownership, should not vary unless
there is a significant public policy reason for doing so. Hospitals and
their physician owners should not face an artificial impediment to
providing the full array of health services to patients whether
directly through the hospital itself, or other hospital-owned
providers.
Managed Care and Integrated Health Care Delivery Systems
The Balanced Budget Act of 1997, created the ``Medicare+Choice''
program and authorized provider sponsored organizations (PSOs) to
directly contract with the Medicare program. Similar to health
maintenance organizations contracting with Medicare under Sec. 1876,
those PSOs participating in Medicare+Choice will receive a capitated
payment from the Medicare program. Therefore, as similar risk-based
entities, clearly they should be included in the same exception as
HMO's contracting with Medicare.
Any arrangement that involves significant risk-sharing such as
PPOs, PHOs and IPAs should come within the exception. A centerpiece of
AHA's and its members' vision for reform of the health care delivery
system is the PSO. These are community-based integrated networks of
providers that offer a spectrum of care, including at least hospital
and physician care. As provider-driven organizations, PSOs can uniquely
respond to the twin demands for control of health care costs and
delivery of quality services. They can achieve the cost efficiencies
necessary to hold down health care costs by directly managing both the
use of services and the cost of providing those services. They put
clinical decisions in the hands of those most capable of balancing
efficiency and patient care-local community-based health care
providers.
PSOs can take many forms and may be accomplished through various
organizational structures that represent different degrees of
integration. Those that are more integrated and have begun entering
into contracts to accept responsibility for managing utilization will
share a significant economic interest through common ownership or
control, or substantial shared financial risk. Such integration should
lead to better coordination of care among providers and to greater
efficiency. Depending on the circumstances, a PSO may be paid on a full
risk or a partial risk basis (e.g. flat capitation, budget target with
risk corridor, or withholds). A variety of payment methods may be used
within a PSO. Intrinsic to the design of PSOs is the need to align the
economic incentives of the providers who constitute the PSO and the
need for control over where and from whom a patient receives care. In
the absence of protection through an exception to the self-referral
prohibition, PSOs will bear the unreasonable risk that arrangements and
relationships essential to coordination of care and cost control will
be inhibited. This is particularly significant with the Medicare self-
referral law which imposes a ``bright line'' test.
Congress should grant an exception to provider organizations
sharing risk through a variety of means as mentioned above, full
capitation, partial capitation, withholds and/or bonuses, to cite a few
examples. Whether these entities contract directly with the Medicare
program or with the Medicaid program, or health plans that are risk
contractors under those programs, beneficiaries should be able to
select community-based delivery systems to coordinate their care. The
Medicare self-referral law should not create an unnecessary barrier to
such choices.
Physician Incentive Plans
The Medicare self-referral law provides an exception for personal
service arrangements between an entity and physicians that meets
certain requirements. The personal services exception states that the
compensation paid under a personal services arrangement cannot be
determined in a manner that takes into account the ``volume or value of
referrals'' for designated health services or other business between
the parties. However, this prohibition is qualified for a physician
incentive plan so long as the requirements for physician incentive
plans which are applicable to Medicare and Medicaid risk contracting
arrangements are met. A ``physician incentive plan'(PIP) is defined 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 furnished with respect to individuals
enrolled with the entity.''
The Proposed Regulation states that the physician incentive plan
qualification applies only when the entity paying the physician or
physician group is the kind of entity that enrolls its patients, such
as HMOs. We believe that this is an overly narrow provision. There
exist many provider-based organizations contracting with entities that
enroll beneficiaries, such as Physician Hospital Organizations (PHOs),
using a variety of managed care payment techniques such as capitation,
withholds, bonus corridors or per diems, that should also qualify for
this exception through their use of physician incentive plans.
Physician Recruitment Exception
The Medicare self-referral law includes an exception for
remuneration provided by a hospital to an individual physician to
induce the physician to relocate to the geographic area served by the
hospital in order to be a member of the medical staff of the hospital,
provided that the physician is not required to refer patients to the
hospital, the amounts paid under the arrangements are not determined in
a manner that takes into account the volume or value of referrals, and
other applicable regulatory requirements are met.
The current exception for remuneration provided by a hospital to a
physician to induce the physician to relocate to the hospital's
geographic area to join the hospital's medical staff should be expanded
to include physicians who are new to the practice of medicine. They do
not have a referral base of patients, just as a physician new to a
geographical area does not bring along patient business. Including new
physicians in the recruitment exception meets the public policy
requirement embodied in the existing recruitment exception for
physicians already practicing medicine, which is limited to those new
to the hospital's geographic area. That is, they are not recruited for
their existing referral base. This expansion of the exception would
provide institutions training physicians or other hospitals in the same
geographic area where the physician is trained, the same opportunity to
recruit medical residents in training as hospitals in a different
geographic area.
Indirect Compensation
The Proposed Rule published by HCFA greatly expands the financial
relationships affected by the Medicare self-referral law and would have
consequences beyond the intent of the statute. The example cited by
HCFA is that of a hospital that has contracted with a group practice
for the group to furnish physician services and to otherwise staff the
hospital. The hospital pays the group practice for these services under
a personal services arrangement. The group practice pays the physicians
a salary. HCFA takes the position that each physician has been
indirectly compensated by the hospital and therefore the physicians
have a compensation arrangement with the hospital. Accordingly, each
physician in the group practice must also meet an exception.
This is an overly broad interpretation of the statute. The indirect
compensation from the hospital to the individual physicians in the
group practice is not based on their referrals if the hospital contract
with the group practice meets the personal services exception. Once the
compensation arrangement between the hospital and the group employing
the physicians is determined not to be based on the volume or value of
referrals, the individual physicians employed by the group practice
should not be required to meet additional exceptions.
Reporting Requirements
The Medicare self-referral law requires entities providing
Medicare-covered designated health services to report to HCFA the
covered items and services provided by the entity and the identity of
physicians or the immediate relatives of physicians with ownership or
investment interests, or compensation arrangements. The Medicare self-
referral law states that the reporting requirements apply only to
ownership or investment interests as defined by Section 1877(a)(2)(A)
and compensation arrangements as defined by Section 1877(a)(2)(B).
These two sections include only those interests and compensation
arrangements that fail to meet the Stark exceptions under Section
1877(c), (d) or (e).
However, the Proposed Regulations would require entities to report
all financial relationships, whether or not they meet an exception. The
Preamble states that the reporting requirement applies to all financial
relationships the entity ``knows or should know about in the course of
prudently conducting business.'' We believe this goes well beyond the
statute and Congressional intent and should not be implemented by HCFA.
This expansive and somewhat vague reporting requirement would place
an extraordinary burden on providers without providing any significant
benefit. Such a reporting requirement would apply to every hospital and
divert significant resources away from patient care to unnecessary
administrative overhead. HCFA itself acknowledges that it could be
``overwhelming and perhaps impossible'' for entities providing
designated health services to comply with the reporting requirement
require reporting only for those financial relationships that do not
meet an exception to the Medicare self-referral law.
Additional Exceptions For Anti-kickback Safe Harbors
The Medicare self-referral law should provide an exception for any
practice that falls into a safe harbor under the anti-kickback statute.
Financial arrangements meeting the criteria necessary to come within a
safe harbor are determined to pose no risk to the Medicare and Medicaid
programs and are therefore immune from prosecution. Consequently, the
safe harbors are narrow in scope, and arrangements falling outside a
safe harbor do not necessarily violate the anti-kickback statute. This
is in sharp contrast to the Medicare self-referral law which
establishes a ``bright line'' test. Arrangements failing to meet the
requirements of the Medicare self-referral law automatically result in
prohibited referrals for designated health services. There is no reason
protections extended under the anti-kickback statute should not be
allowed under the physician self-referral statute.
Conclusion
Only one of the changes or clarifications AHA recommends
relates to the ownership provisions of the Medicare self-
referral law. The other changes or clarifications we seek
concern compensation arrangements. Thus if Congress would
modify the self-referral statute by eliminating compensation,
hospitals would have the flexibility to collaborate with
physicians, while the anti-kickback statute will serve to
protect the Medicare program and its beneficiaries from any
abusive or fraudulent arrangements.
We look forward to working with members of the Subcommittee
to improve the Medicare self-referral law in a way that
provides our members the flexibility necessary to provide
quality health care to patients in a rapidly changing health
care delivery system. We also seek a law that will provide
clear guidance for hospitals and other health care providers.
American Medical Association
May 12, 1999
The Honorable William Thomas,
Chairman, Committee on Ways and Means
Subcommittee on Health
U.S. House of Representatives
Washington, D.C.
Dear Chairman Thomas:
On behalf of our 300,000 physicians and medical student members,
the American Medical Association (AMA) would like to thank you for
holding tomorrow's hearing to discuss possible changes to the self-
referral statute. As you know, this statute has significant patient
access implications, and it adversely affects the vast majority of
physicians.
We are pleased that you and the Committee are addressing possible
self-referral changes. While the AMA developed the ethical standards
relating self-referrals, we believe that the law and the proposed
regulations go too far. If implemented, they would result in many
physicians having to completely restructure their practices to ensure
that Medicare beneficiaries obtain designated health care services from
other entities. This will inconvenience millions of patients in order
to meet burdensome regulatory requirements that do not address the
concerns Congress was originally trying to address in passing these
laws.
The self-referral statute and the proposed regulations are so
complex, as they now stand, that congressional action is needed to
streamline the statute. Even attorneys specializing in self-referral
issues and other experts cannot give physicians definitive answers
concerning the law's implications. In this era of heightened scrutiny
of physicians by law enforcement agencies, it is especially vital to
provide physicians with clarity regarding self-referral prohibitions.
The Health Care Financing Administration (HCFA) has acknowledged the
complex nature of the statute, but has exacerbated physicians' concerns
by issuing a 400 page Notice of Proposed Rulemaking (NPRM) on January
9, 1998 (six years after the statute was enacted) which actually made
many issues even more confusing. The AMA urges Congress to enact
changes to the statute before final regulations are promulgated so that
patients and physicians are not forced into untenable situations.
The AMA believes that Congress should also reevaluate the self-
referral law in light of the significant changes in the marketplace
that have occurred since the 1993 expansion of the original self-
referral law (previously applicable just to clinical laboratory
services). In an era when medical practice configurations and health
care coverage arrangements are changing at an increasingly rapid rate,
the overly complex and questionable requirements imposed by the self-
referral law and its lack of clarity create added and substantial
difficulties for physicians, with only questionable benefits for
patients.
The Committee should also consider that physicians are subject to
severe civil and criminal penalties if they receive any type of
remuneration for the referral of Medicare-covered services under the
anti-kickback statute. This is a body of law still being developed in
the courts, where numerous ``safe harbors'' have been established, and
where the Office of the Inspector General (OIG) of the Department of
Health and Human Services has begun to issue advisory opinions. Unlike
the self-referral law, the anti-kickback statute applies to purposeful
behavior, and physicians and others must satisfy an intent standard to
be in violation of the statute. The self-referral law exposes business
activities that would be considered routine outside of the health care
environment to high civil monetary penalties and possible additional
false claims prosecutions.
The AMA believes that the changes that this Committee approved in
1995 as part of the Omnibus Budget Reconciliation Act of 1995 are a
good starting point to ameliorating the unintended consequences of this
statute. We have attached to this letter our key concerns with the
statute and the proposed regulations promulgated by HCFA. The AMA
submitted 29 pages of written comments to HCFA last year, which more
thoroughly explain our concerns with the proposed regulation. We would
be happy to share with you and members of the Committee.
The AMA appreciates your dedication to this and other health care
related issues. We look forward to working with the Committee to
examine the market realities and to revising the self-referral statute
to ensure that inappropriate referrals do not occur, while stopping
short of imposing significant inconveniences on our patients as a
result of physicians being required to restructure their practices.
Respectfully,
E. Ratcliffe Anderson, Jr., MD
Key Concerns with Proposed Regulations on Self-Referral
This document outlines several of the AMA's concerns with
the self-referral statute and how its implementation as
proposed would encroach upon the day-to-day activities of
patients and physicians. For a more complete picture of the
AMA's concerns, please contact the AMA's Washington Office
(789-7409) for a copy of our written comments on the Notice of
Proposed Rulemaking (NPRM) submitted to the Health Care
Financing Administration (HCFA) on May 11, 1998.
Designated Health Services
The self-referral law applies only to designated health
services. These are defined in statute as:
clinical laboratory services;
physical therapy services;
occupational therapy services;
durable medical equipment and supplies;
parenteral and enteral nutrients, equipment, and supplies;
prosthetics, orthotics, and prosthetic devices and
supplies;
home health services;
outpatient prescription drugs; and
inpatient and outpatient hospital services.
HCFA has interpreted these categories too broadly and has
drawn illogical distinctions between certain designated health
services. For instance, under the durable medical equipment
category, crutches would be exempt, but the designation would
apply to all other types of durable medical equipment and
supplies. Intraocular lenses and corrective glasses would be
considered prosthetic devices even though they could still be
provided in certain circumstances under an ambulatory surgical
center exception to the self-referral law. In addition, HCFA
has construed the physical therapy definition much more broadly
than intended by Congress. In the NPRM, HCFA stated that
physical therapy would be any ``assessment or treatment''
designed to alleviate pain or disability. This could
inappropriately subject large areas of physicians' practices to
self-referral constraints. Some of the situations that would
result from these arbitrary distinctions that HCFA has made
between designated health services are the following:
A Medicare patient who breaks her foot could
receive crutches in her physician's office at the time of
diagnosis, but if the physician decides that a walker would be
more appropriate for the patient, she would have to travel to
another location to obtain the walker.
A Medicare patient who has undergone cataract
surgery and is entitled to Medicare coverage of one pair of
corrective glasses or contact lenses would not be able to
purchase those glasses from the physician completing the
surgery. This is the case, even though the Federal Trade
Commission (FTC) has stated that an ophthalmologist or
optometrist must give the patient a copy of the patient's
prescription immediately following the eye exam so that the
patient can shop anywhere he chooses but specifically allows
physicians to dispense if that is the patient's choice. These
FTC rules have been in place for decades and current
arrangements have not limited patients' ability to obtain
corrective glasses or contacts from other locations.
The AMA strongly supports the 1995 amendments to the self-
referral law which would have clarified that only the following
areas would be classified as designated health services:
clinical laboratory tests; parenteral and enteral nutrient,
equipment, and supplies; magnetic resonance imaging and
computerized tomography services; and outpatient physical or
occupational therapy services.
Compensation Exceptions
Under the self-referral law, a compensation relationship between
the referring physician and the entity providing a designated health
service can trigger a violation of the statute. Although HCFA has set
forth several helpful exceptions in the NPRM, the AMA remains troubled
by several areas of the statute and regulation which are overly broad
and extremely confusing to physicians.
The AMA is concerned with HCFA's interpretation of the
compensation test for group practices. It appears that the NPRM would
require that profits from designated health services be distributed
without regard to practice needs or even how revenues were generated.
This would preclude a group from allocating different expenses to
different sites or different physicians and considering different
revenue streams. This section of the NPRM would regulate the internal
workings of group practices, and would have little or no impact on
referrals of designated health services.
The fair market value exception to compensation
arrangements would be of very limited application as it would apply
only when compensation or compensation methods of fair market value are
set in advance, and are not related to the volume or value of referrals
(either Medicare/Medicaid or outside of the programs) or other business
between the parties. This exception is so narrow that it would not
allow anyone to take any type of business relationship into
consideration when setting up compensation arrangements. Since the
transaction must be at fair market value in all instances, it is
unclear why the volume and value of referral language is necessary.
We believe that the language in the NPRM would incorrectly
require a physician practice owned or controlled by a hospital to meet
the ``personal services'' exception for compensation arrangements. If
the group is owned by, or is a non-profit entity controlled by a
hospital, and the only financial relationship between the physician and
group is an employment relationship, then there should be no need for
the financial arrangement between the group and the hospital to meet
any other exception, because the relationship is between two hospital-
affiliated entities. The personal services exception should only be
required for financial relationships between a hospital and a
physician-owned group.
In reviewing the legislative history for this section of the
statute, it is clear that Congress was not as concerned with the
internal compensation relationships within integrated medical groups,
but rather with the use of compensation between a physician and an
entity which was a sham compensation relationship solely for the
purpose of inducing referrals. The AMA believes that the compensation
requirements and their exceptions are the most complex portion of this
statute and are largely redundant of the anti-kickback laws. We
strongly support the 1995 amendments' elimination of the compensation
arrangement provisions, which would limit the definition of a financial
relationship to an ownership interest in debt or equity.
Supervision of Independent Contractors--Component #1 of the In-Office
Ancillary Services Exception
The statute states that to qualify for the in-office ancillary
services exemption, designated health services (other than most durable
medical equipment and parenteral and enteral nutrients, equipment and
supplies) that are referred either by a solo practitioner or by a
member of a group practice must be furnished either by:
(i) the referring physician;
(ii) another physician in the same group practice as the referring
physician; or
(iii) an individual directly supervised by the referring physician
or another member of the same group practice. (emphasis added)
In the NPRM, HCFA states that ``directly supervised'' means that
the supervising physician must be in the same office suite and
immediately available (except for very brief absences) to provide
assistance and direction at the time the services are furnished. While
this may seem a small inconvenience, it would have the effect of
forcing physicians to restructure their practices and decreasing the
facilities' hours of operation for patients, while having no impact on
the self-referrals for designated health services.
For instance, physicians who hire independent contractors to work
as technicians or physical therapists would have to be present in the
office suite at all times that the independent contractor was seeing
patients. There are many instances when physicians are operating or
otherwise seeing patients away from the office, that patients come to a
practice for follow-up x-rays or lab tests, that the physician does not
need to see the patient. HCFA's interpretation could lead many
physicians to inconvenience patients by closing their offices whenever
they are providing care in other settings to ensure that they are not
in violation of the self-referral law.
The AMA supports the 1995 amendment provision stating that general
supervision requirements would be met if the physician or group is
legally responsible for the services performed by the individual
regardless of whether or not the physician is physically present when
the individual furnishes an item or service.
Site of Service Requirement--Component #2 of the In-Office Ancillary
Services Exception
The second component needed to qualify for the in-office
ancillary services exception is that the designated health
services must be furnished in either:
(i) the same building where the referring physician or another
member of his group practice furnishes physician services unrelated to
designated health services; or
(ii) a building used by the group practice for all or some of the
group's clinical lab services; or
(iii) a building used by the group practice for the centralized
provision of the group's designated health services, other than
clinical lab services. (emphasis added)
In the NPRM, HCFA has interpreted this site of service
requirement to mean that the service would not qualify for the
in-office ancillary services exception if the referring
physician's building and the second building are connected via
tunnels or walkways. This interpretation would curtail the
operations of larger medical complexes where the group practice
refers a patient for tests in the next building which is
connected to the physician's office building above or below
ground or by a walkway, but which is not part of the same
building.
In addition, HCFA has stated that it considers
``furnished'' at the site of service to mean that the service
must be performed on the patient at that location or that the
patient must receive and begin using an item in that location.
With this interpretation, it is possible that covered
outpatient prescription drugs, such as those used by patients
undergoing chemotherapy, would not be eligible for the in-
office ancillary exception, as many patients begin to take
these drugs while they are at home. The AMA believes that
HCFA's view is contrary to congressional intent, since it would
make Medicare drugs that in some circumstances may be self-
administered, much more difficult to obtain. Self-referral
policy should not have the effect of countermanding Medicare
coverage policy.
The AMA believes that Congress should address the issues
surrounding shared facilities, which are the most common way
for physicians to save resources by sharing overhead for common
equipment rather than setting up duplicate facilities in the
same building. For example, physicians often share x-ray
machines, and other in-office diagnostic equipment with other
physicians in their office building so they can provide their
patients with on-site health services, such as EKGs and
ultrasounds. Under HCFA's current interpretation, shared
facilities would not be entitled to the in-office ancillary
services exception.
The AMA supports the 1995 amendment provisions in this area
as a starting point and suggests broadening the shared facility
exception to ensure that physicians referring to an entity
within the same medical complex would not be in violation of
the self-referral law.
Group Practice Definition--Component #3 of the In-Office Ancillary
Services Exception
Unless a physician is a solo practitioner, the only way to
qualify for the in-office ancillary services exception is to
meet the definition of a group practice. The self-referral
statute states that to qualify as a group practice, the
practice must consist of two or more physicians legally
organized as a single partnership, professional corporation,
foundation, not-for-profit corporation, faculty practice plan,
or similar association. The AMA believes that Congress should
clarify that a practice can qualify as a group practice as long
as the physician owner hires at least one other physician to
work in her practice as either a partner or an employee.
If this proposed regulatory definition remains, many
practice structures will be disrupted. In the medical
community, more established physicians often bring in younger
physicians as employees until they are invited to become a
partner in the practice. HCFA's overly expansive proposed
interpretation of the statute would micromanage the inner
workings of physician practices in a manner that is wholly
unrelated to the provision of designated health services.
The AMA supports clarifying the statute to ensure that a
physician practice can qualify as a group practice as long as
it has at least one physician owner and other physician
employees.
Reporting Requirements and Civil Monetary Penalties (CMP)
The reporting requirements set forth in the NPRM both exceed HCFA's
statutory authority and would exponentially increase physicians'
regulatory burdens. The statute requires entities providing Medicare-
covered designated health services to provide HCFA with two types of
information:
(i) covered items and services provided by the entity; and
(ii) the identity of physicians or the immediate relatives of
physicians, with ownership or investment interests, or compensation
arrangements
According to the statute, physicians should not have to
report ownership or investment interests that qualify under the
group practice or compensation exception. However, the NPRM
would require entities to report all financial relationships
regardless of whether the relationship meets an exception.
First, the AMA believes that the administrative and
recordkeeping tasks such broad reporting would entail are
significant and far outweigh any benefit that may be derived
from such expansion. Second, the exposure to a $10,000 civil
monetary penalty per day under the statute for failing to
submit this information is exorbitant and disproportionate to
the offense. We urge Congress to eliminate this CMP.
The AMA supports the 1995 amendments' language which would
abolish the civil monetary penalties for not reporting this
information. The existing civil monetary penalty of $15,000 per
improper designated health service is an extremely effective
deterrent to physicians violating the self-referral statute,
and the additional reporting civil monetary penalty is
unneeded.
Statement of the American Physical Therapy Association, Alexandria, VA
Mr. Chairman and Subcommittee members, the American
Physical Therapy Association (APTA) wishes to express its
continuing support for the elimination of financial incentives
within the Medicare program that encourage the over utilization
and inappropriate use of physical therapy services. APTA
believes that the existing ban, while imperfect, is an
appropriate mechanism to achieve this goal. APTA wishes to work
with the Subcommittee to improve the existing statue, but urges
the Subcommittee not to reverse the progress that has been made
thus far through the existing ban.
APTA is the national association representing more than
73,000 physical therapists, physical therapist assistants, and
students of physical therapy. APTA shares the desire of the
American public, political leaders and other health care
providers to make quality health services more accessible and
affordable for all Americans.
Seven years ago, APTA appeared before this Subcommittee to
testify in support of expanding a ban on physician self-
referral under Medicare to include physical therapy services.
APTA encourages the Subcommittee not to retreat from this
important public policy, and to ask that the Subcommittee urge
the Administration to speed its implementation and strong
enforcement.
While APTA is supportive of the intent of the existing ban,
the Association wishes to express its disappointment with the
Administration's inability to promulgate final regulations
relating to the self-referral ban. Regulations are needed to
enforce the prohibition and aid health care providers in their
efforts to comply with the existing law.
In 1993, Congress expanded the ban on physician self-
referral to include physical therapy services. This action was
based upon strong empirical data illustrating excessive
utilization associated with self-referral arrangements. Nowhere
is this better documented than in the 1992 study of the
California Workers' Compensation program conducted by William
M. Mercer, Inc.
This study found that if an injured worker received initial
treatment from a physician with an ownership interest in
physical therapy services, that patient received a referral to
physical therapy 66% of the time. If, on the other hand, the
injured worker received initial treatment from a physician with
no ownership interest in physical therapy services, the patient
was referred to physical therapy 32% of the time or less than
half of that of the owner frequency.
In the face of such findings, patients and the public are
left with much cause for concern. The crucial question is
whether Medicare beneficiaries should have to wonder whether
the care they are receiving is based upon medical necessity or
economic motivation.
The Mercer study concluded that financial incentives played
a major role in these decisions. According to the study, the
added incentive for investing physicians to refer to physical
therapy generated approximately $233 million per year in
services delivered for economic rather than clinical reasons.
These are costs neither our nation's health care system nor our
nation's Medicare beneficiaries should be asked to bear.
Consumer Choice
The issue of consumer choice is of critical importance. The
Subcommittee must ask itself the following questions: ``What types of
choices are available to Medicare beneficiaries today?'' ``What types
of choices would be available to these beneficiaries without the
existing ban on physician-self referral?'' ``Prior to the ban, were
patients given the freedom to choose their physical therapist, or were
they simply referred to a facility in which their physician maintained
a financial interest?''
The existing ban, while imperfect, has provided Medicare
beneficiaries with enhanced choices regarding the care they receive.
With the elimination of the financial incentive to refer services to
external facilities, the physician is free to refer patients based upon
proximity to the patient and the quality of care provided. Competition
in the Medicare program, based upon the quality of care provided is a
positive outcome of the prohibition.
Additional Valuable Studies
Several other studies demonstrate that physician self-referral
drives up utilization and health care costs. In 1989, the Florida
legislature mandated that its Health Care Cost Containment Board
examine the impact of joint ventures in health care on the cost,
quality, and access to services in Florida. Physical therapy services
were surveyed in two settings: free-standing physical therapy
facilities and comprehensive rehabilitation centers that provide
physical therapy services. The findings were dramatic.
Joint-ventures that are physician-owned physical therapy facilities
provided 43% more visits per patient than did nonjoint-venture (or non-
physician owned) physical therapy facilities. Consequently, the
physician-owned joint-ventures generated approximately 31% more revenue
per patient than in nonjoint-venture facilities. At comprehensive
rehabilitation facilities, 35% more physical therapy visits were
provided per patient in joint-venture facilities than in non-joint-
venture facilities.
More importantly, the Florida study found that quality of care in
physician owned joint-venture facilities was lower than in nonjoint-
venture facilities, and that joint-venture facilities did not increase
access to services. In fact, the nonjoint-venture facilities offered
increased access to a wider range of clients. Higher quality of care
and increased access to services are often cited as rationales to
defend joint-ventures. Clearly these arguments do not hold water in the
face of objective data.
Subsequent to the study conducted in the State of Florida, the
Center for Health Policy Studies located in Columbia, Maryland,
estimated the impact of physician joint-ventures on medical care costs
in Florida. Estimates for 1991 were developed based on findings from an
analysis of Medicare claims data, results from the report by the
Florida Health Care Cost Containment Board, and from other sources. The
estimated 1991 cost impact of joint-ventures for physical therapy
services was $10.9 million. This figure is likely underestimated given
that only additional costs for users of physical therapy were
estimated.
Direct Physician Supervision
APTA opposes any attempt to amend the physician supervision
requirement of non-physician personnel. Current law calls for ``direct
supervision,'' but recommendations have been made to replace this
requirement with a ``general supervision'' requirement. The direct
supervision requirement reduces the incentive for a physician to abuse
his or her referral power with respect to services provided by non-
physician practitioners under the physician's employment.
The incentive for a physician to refer to outside facilities in
which he or she might have an investment interest is not the only
problem regarding self-referral. In fact, physicians stand to profit
even more directly by expanding their individual or group practices to
offer physical therapy or one or more of the various other health
services to which they control access through their power of referral.
A study of physician self-referral was presented to Virginia's
Joint Commission on Health Care in January 1993 by Virginia's Deputy
Secretary of Health and Human Services. One of the findings was that
Blue Cross/Blue Shield claims-paid-data indicated 60% of physical
therapy claims were paid to physician provider numbers. That amounted
to $8.3 million out of $14 million.
Additionally, the Of fice of Inspector General found that in almost
four out of five cases reimbursed as physical therapy in physician's
offices do not represent true physical therapy services. The studv
found that $47 million was inasoroPriately paid in 1991.
Removal of Physical Therapy from the List of Designated Health Services
APTA is opposed to any proposal that would eliminate physical
therapy from the list of designated health services under the current
statute. As we have shown today, numerous studies indicate the
relationship between physicians and referrals to physical therapy
services in which they have a financial interest leads to increased
utilization and significantly higher cost to the payer. To remove
physical therapy from the list of regulated services would allow this
over utilization to go unchecked, costing the American people and the
Medicare program many millions of dollars. To eliminate physical
therapy from the designated health service list would increase Medicare
costs unnecessarily and create further problems for a system that is
already struggling.
Investment in Rehabilitation Facilities
APTA understands rehabilitative care is a growing segment of the
health care industry and that physicians would want to invest in or
possibly own a physical therapy center. The self-referral statute does
not preclude such investments or ownership. However, we cannot support
an expansion of the exceptions for physician ownership in hospitals to
include ownership in other facilities such as surgery centers,
hospices, nursing homes, dialysis facilities, and Comprehensive
Outpatient Rehabilitation Facilities (CORFs). The law merely provides
some reasonable assurances to the consumer that investment or ownership
interest will not impede a health provider's judgement when referring
to physical therapy and other health services. Physical a therapists do
not wish to limit physician's investment opportunities; only to ensure
that physicians do not misuse their referral powers to such facilities
in order to increase their own profit.
Reporting Requirements
APTA strongly opposes proposals to eliminate or in any way weaken
reporting requirements under the current statute. These requirements
provide information necessary to effectively enforce the law and must
be maintained. These requirements are reasonable, particularly in light
of the objective data which demonstrates the existing abuse of referral
power for financial gain. To eliminate this nortion of the statute is
to repeal the current ban on physician self-referral.
Preemption of State Laws
APTA firmly opposes the preemption of state laws governing
physician ownership and referral. The legislatures of at least 30
states found this problem troubling enough that they passed their own
prohibitions on self referral. State legislatures addressed the problem
in numerous and creative ways. Some states, such as California, Nevada,
Illinois, Maryland, and Georgia, have banned referrals by various
health care providers to outside entities in which the provider (or
sometimes a member of his immediate family) has a financial interest,
or is an investor. Other states, such as Connecticut, Louisiana, and
Maryland have laws requiring the provider to disclose his financial
interest in the facilities where his patients are referred.
Additionally, California and Montana enacted separate bans under its
Worker's Compensation Program. Texas and Rhode Island enacted anti-
kickback laws stating that a person can neither pay nor accept
remuneration for securing or soliciting patients. Federal preemption of
these state laws interferes with the states' ability to enact cost-
saving legislation critical to their budget processes.
Necessary Improvements to the Existing Ban
While the ban has been successful in eliminating incentives for
physicians to refer services to external facilities in which they
maintain a financial interest, exceptions to the prohibition raise
doubts about its overall effectiveness. Presently, a physician is
allowed to refer physical therapy and other health-related services to
employees of their solo or group practice. This ``backroom'' or captive
referral is not considered an illegal self-referral due to the ``in-
office ancillary care'' exception of the existing ban. APTA fails to
understand how this type of referral is in any way different than
external referrals for identical services, and feels strongly that an
appropriate change in the statute is needed to remedy this loophole.
APTA finds it disturbing that in its impact analysis on p. 1717 of
the Federal Register for the January 9, 1998 proposed regulation
relating to the ban, the Health Care Financing Administration (HCFA)
states that the economic impact of the regulations will be minimal
because this statute contains exceptions that will allow physicians to
continue to refer to any entity furnishing designated health services
if certain criteria are met. HCFA states that physicians will
reconfigure their practices to fit within exceptions. In fact, HCFA
provides an example of how a practice could be reorganized to meet the
in-office ancillary group practices exception.
Physicians that once may have held ownership in an external
physical therapy clinic to which they referred services for financial
gain, now merely employ physical therapists and non-physical therapists
who provide services within their solo or group practice which are then
billed to Medicare under the physician's provider number.
In 1997, with the help of this Subcommittee, APTA pushed for
necessary changes in the manner in which physical therapy services are
provided in physician practices. Passage of the ``Outpatient Physical
Therapy Standards Act'' now requires physician practices to meet almost
all of the same coverage guidelines which physical therapy private
practices have operated under for some time. Unfortunately, HCFA failed
to require that a physical therapist provide or supervise services when
not provided directly by the physician. This means that a physician can
refer ``physical therapy services'' to any employee, including clerical
help, and bill those services under his/her physician provider number.
HCFA has also recently concluded that physician assistants and nurse
practitioners can refer and provide physical therapy services. APTA
asks for the Subcommittee's assistance in remedying these concerns.
While it is hoped that the Outpatient Physical Therapy Standards
Act will improve the quality of care provided in physician practices,
APTA feels that it is also necessary to eliminate financial incentives
that encourage over utilization of physical therapy services in
physician practices.
Therefore, APTA proposes that the ban on physician self-referral be
amended to narrow the ``in-office ancillary care exception.''
Specifically, APTA feels that the self-referral restrictions should
apply with respect to a physician's referral to an employee or
independent contractor for physical therapy services. To achieve this
end, APTA urges the Subcommittee to require physical therapy services
to be billed under Medicare utilizing the provider number of the
licensed physical therapist that provided the service. In addition,
physical therapy should be made an excention to the ``in-office
ancillary care'' exception.
The impact of this policy would be significant. In addition to
eliminating the financial incentive for physicians to refer for
physical therapy services, these proposed changes would place
responsibility for billing, and ultimately for the quality of care
provided, in the hands of the practitioner that actually provided the
service. These changes are necessary, practical, and overdue.
Conclusion
APTA continues to support the current prohibition on physician
self-referral and encourages the Subcommittee to urge the
Administration to actively implement and enforce the existing law. APTA
stands ready to assist the Subcommittee in any manner to ensure
appropriate delivery of necessary physical therapy services. APTA
appreciates the opportunity to share its views on this subject.
Statement of the American Society of Clinical Pathologists
The American Society of Clinical Pathologists (ASCP) is a
nonprofit medical specialty society organized for educational
and scientific purposes. Its 75,000 members include board
certified pathologists, other physicians, clinical scientists
and certified medical technologists and technicians. These
professionals recognize the Society as the principal source of
continuing education in pathology and laboratory medicine, and
as the leading organization for the certification of laboratory
personnel.
ASCP believes the practice of physician self-referral for
profit is a conflict of interest that threatens the quality and
cost of patient care. ASCP supports limitations on physician
referrals to clinical laboratories or other health care
facilities in which the referring physician or immediate family
has a financial interest.
ASCP recognizes the importance of and the complexities
associated with interpreting Sections 1877 of the Social
Security Act added by the Omnibus Budget Reconciliation Act of
1989 (OBRA 89, P.L. 101-508) and revised by the Omnibus Budget
Reconciliation Act of 1993 (OBRA 93, P.L. 103-66).
The proposed regulatory interpretation of OBRA 93 (Federal
Register January 9, 1998) revises the ``members of a group''
definition, from its original interpretation (60 FR 41914) of
the OBRA 89 law. The new interpretation includes only owner and
employee physicians as ``members of a group,'' thus eliminating
contractors.
The January 9, 1998, proposed regulatory interpretation
gives exception to the referral ban for members of a group
practice when an in-office ancillary service is performed or
supervised by a member of the group practice.
In-office ancillary services ``must be furnished personally
by the referring physician, a physician who is a member of the
same group practice as the referring physician, or an
individual who is directly supervised by the physician or by
another physician in the group'' (Federal Register January 9,
1998 pg. 1655).
If a contractor, potentially a pathologist, is not
considered a member of the group practice, he or she will
potentially be in violation of the law as defined by the in-
office ancillary services definition. Meaning, a group practice
will be in violation of the self-referral ban because a
pathologist on contract to advise a physician's clinical
laboratory will be rendering or supervising the service.
This contractor exclusion presents a problem to the
practice of pathology and laboratory medicine. ASCP recommends
maintaining the ``members of a group'' definition to include
contractors, as noted in the original interpretation (60 FR
41914) of the OBRA 89 law.
Thank you for this opportunity to share the views of the
American Society of Clinical Pathologists.
Statement of the American Society of Echocardiography, Raleigh, NC
The American Society of Echocardiography (``ASE''), is
delighted to have this opportunity to submit written testimony
with regard to the federal prohibition on physician self-
referrals (the ``Stark Law'').
Our comments with regard to the Stark Law may be summarized
as follows:
The Stark Law includes as a designated health
service ``radiology, including MRI, CAT, and ultrasound.''
(Emphasis added). Because echocardiography is cardiac
ultrasound, the Health Care Financing Administration's (HCFA's)
proposed rules include echocardiography as a designated health
service. ASE does not believe that the inclusion of
echocardiography as a designated health service subject to the
Stark Law is appropriate. ASE requests the Stark Law be amended
to delete any reference to ultrasound as a designated health
service and to narrowly define those radiology services that
are considered designated health services. We understand that
this Committee did in fact approve the elimination of
ultrasound in H.R. 2425, which was incorporated into H.R. 2491
on October 26, 1995 in the Omnibus Budget Reconciliation Act of
1995.
If ultrasound services remain subject to the Stark
Law, those ultrasound services that are performed by a non-
radiologist as the result of a request for a consultation by
another physician should be exempted from the scope of the
statute, just as radiology procedures performed by a
radiologist as the result of a request for a consultation from
another physician is considered exempt from the statute.
Even if echocardiography technical component
services are included within the scope of the Stark Law,
professional component services are physicians' personal
services that should not be included within the scope of the
statutory prohibition.
ASE also urges the Committee to adopt the other provisions
approved in 1995 in H.R. 2425. These provisions would, among
other things, repeal those sections of the Stark Law that
preclude physician compensation arrangements with entities to
which they refer Medicare and Medicaid patients.
I. Echocardiography Is Not A Radiology Service And Therefore Should Not
Be Subject To The Stark Law
The Stark Law includes as a designated health service
``radiology services, including magnetic resonance imaging,
computerized axial tomography scans, and ultrasound services .
. .'' Social Security Act, Sec. 1877(h)(6)(D) (emphasis added).
While echocardiography is an ultrasound service, it
unequivocally is not a radiology service. Echocardiography is a
service developed primarily by cardiologists, performed
primarily by cardiologists, provided primarily in the
cardiology departments of hospitals, billed under cardiology
CPT codes, and performed for cardiologists' patients.
Echocardiography involves the use of diagnostic ultrasound
to evaluate the structure and function of the heart and great
vessels; however, since the technique requires a detailed
understanding of the cardiac anatomy and physiology, the
service is generally provided by cardiac sonographers and
cardiologists. With regard to cardiac sonographers, it should
be noted that specialized training is required, and that the
registration process for cardiac sonographers is a rigorous one
that includes a formal examination and ongoing CME
requirements; there is no reciprocity between registration as a
diagnostic cardiac sonographer and registration in other
ultrasound modalities.
In addition, the interpretation of echocardiograms requires
specialized physician training. The current training guidelines
of the American College of Cardiology stipulate that to be able
to interpret transthoracic studies independently, a trainee
must devote a minimum of five months to echocardiography;
supervision of an echocardiography laboratory requires an
additional six months of training; and a large number of
cardiology training programs provide third and fourth years of
cardiology training devoted exclusively to echocardiography.
Review of HCFA data for echocardiographic services indicates
that the great majority of all echocardiographic studies are
performed by cardiologists, and review of the Index Medicus
indicates that over 75% of all medical literature on
echocardiography were published by cardiologists. In addition,
the technologic advances in the field have been developed
almost exclusively by cardiologists.
ASE also notes that a number of other specialists are
routinely involved in the performance of ultrasound services,
and it is clear that a number of such ultrasound services are
not radiology services. For example, ophthalmic ultrasound
services are performed exclusively by ophthalmologists and are
never performed by radiologists; it would therefore stretch
credulity to categorize these services as ``radiology''
services simply because ultrasound is used. We urge Congress to
clarify this matter by deleting any reference to ultrasound as
a ``radiology'' service and by specifically defining those
radiology services subject to the physician self-referral
limitations or as a service that is subject to the Stark Law in
any manner.
II. Echocardiography Services Supervised By Cardiologists and Performed
Pursuant To a Request For A Consultation By Another Physician Should Be
Exempt From The Scope Of The Stark Law
If the Stark Law remains applicable to echocardiography
services and other ultrasound services that are routinely
supervised and interpreted by cardiologists and other non-
radiologists, the exemption provided by Sec. 1877(h)(5)(C)
should be extended to cardiologists and other non-radiologists
on the same terms available to radiologists. The Stark Law
provides that the term ``referral'' does not apply to the
request by a radiologist for a radiology service where the
radiology service is performed under the radiologist's
supervision and is performed pursuant to a request for a
consultation by another physician. Social Security Act,
Sec. 1877(h)(5)(C). If the governing statute continues to
categorize all ultrasound as a ``radiology'' service,
regardless of whether it is performed by a radiologist, the law
should be amended to enable a non-radiologist who supervises an
ultrasound service performed pursuant to a consultation
requested by another physician to qualify for this exception,
rather than limiting the exception to ``radiologists.''
In this regard, it should be noted that general internists
often request cardiologists who specialize in the
interpretation of echocardiograms to supervise and interpret
echocardiographic studies in much the same manner as an
internist or other non-radiologist might request a radiologist
to supervise and interpret an MRI, CT, or other radiological
study. Where a cardiologist supervises the performance of an
echocardiogram pursuant to a consultation requested by another
physician, the performance of the study does not raise a
potential for abuse and should not be considered a ``self-
referral'' within the meaning of the Stark Law.
III. Professional Services Should Not Be Subject To The Stark Law
We also note that HCFA has interpreted the term radiology
services to include both the professional and the technical
components of ultrasound services. We do not believe that the
Stark Law was intended to apply where a cardiologist interprets
an echocardiogram performed on his own patients where the
echocardiogram is performed at a hospital with which the
cardiologist has no prohibited financial relationship; yet,
this would appear to be the result if echocardiography
professional services were considered ``designated health
services.'' We urge Congress to clarify this matter in any
legislation enacted to amend the Stark Law.
IV. Other Issues
The Stark Law is extraordinarily complex and unnecessarily
confusing insofar as it attempts to regulate physicians'
compensation relationships with entities to which the refer
Medicare and Medicaid patients. For example, this legislation
includes three different formulas that may be applicable to a
physician's compensation--one that is applicable where the
physician is also an owner of a group practice, one that is
applicable to physician employees and one that is applicable to
physician independent contractors. Each of these formulas is
ambiguous and they are in some respects internally
inconsistent--each in its own way. Health care lawyers differ
among themselves in interpreting these and other important
terms of this complicated law.
In our view, the anti-kickback provisions of the Medicare/
Medicaid Fraud and Abuse Law already provide sufficient
authority for the Government to proceed against physicians who
have entered into inappropriate compensation relationships with
entities to which they refer patients. This is especially true
in light of the efforts that have been made by Congress to
improve the remedies available to prosecutors and agencies for
violations of the anti-kickback provisions and by the law
enforcement officials to improve enforcement efforts. In light
of these developments, we believe that it would be most
appropriate for Congress to repeal the compensation-related
provisions of the Stark Law altogether--an action approved by
this Committee in 1995.
If you have any questions regarding ASE's position on this
matter, please contact ASE's Washington counsel, Diane S.
Millman, at (202) 756-8021.
American Urologocial Association, Inc.
Baltimore, MD
May 13, 1999
The Honorable William M. Thomas
Chairman, Subcommittee on Health
Committee on Ways and Means
U.S. House of Representatives
Washington, D.C.
Dear Chairman Thomas:
The American Urological Association (AUA), representing 9,200
American urologists, is pleased to have the opportunity to offer its
views on physician self-referral laws, commonly known as Stark I and
Stark II. We request that this letter be made part of the
Subcommittee's record for its May 13 hearing on this subject.
Physician self-referral legislation was enacted in response to
concerns that physicians may overutilize certain medical services in
which they have a financial interest. Studies conducted in the late
1980s and early in this decade suggested that physician ownership of
diagnostic services, such as laboratory and x-ray, was associated with
patterns of higher utilization. The self-referral laws were designed to
address this situation and clarify which activities would be
permissible. For a number of reasons discussed below, the AUA feels
that these laws are now less relevant and need to be substantially
revised, if not repealed.
The exponential growth of managed care has dramatically changed the
medical practice landscape. In an effort to reduce health care
spending, managed care has selectively contracted for a variety of
services, such as lab and imaging, thus substantially reducing the
opportunity for physicians to make financially advantageous referrals.
In Medicare, the development of the sustainable growth rate and other
curbs on service volume effectively limit growth that may be fueled by
ownership and investment.
The pressures on the medical marketplace have also forced
physicians, hospitals and other providers of care to seek new, more
cost effective business arrangements. However, the move to greater
efficiency has been hampered by the complexity of the Stark statutes
and the proposed regulations. Instead of providing guidance, the law
and regulation have confused attorneys, accountants and providers
alike. It has made it virtually impossible for AUA to help its members
comply with the law. If market-based solutions to health-care costs are
to be achieved, then Congress needs to let the market evolve. The
breadth of the self-referral laws and the resulting confusion over
their applicability to different situations inhibit the development of
new, efficient arrangements. This has delayed the cost efficiency
sought by all parties.
Extracorporeal Shock Wave Lithotripsy (ESWL)
The law has had unintended consequences on one of the most
effective and widely used urology services, extracorporeal shock wave
lithotripsy (ESWL). ESWL is nowhere mentioned in the statute, but is
caught up in the regulatory web. ESWL is a non-invasive procedure that
uses shock waves to fragment ureteral and kidney stones. At the time of
its introduction to the United States in 1984, it offered a welcome
alternative to invasive surgery, which was the traditional method for
removing kidney stones. ESWL usually requires no anesthesia, offering
the advantages over surgery of reduced pain and suffering for patients,
a rehabilitation time of only 1-2 days, and reduced risk and expense.
In fact, former HCFA Administrator Gail Wilensky noted in 1991 that
lithotripsy was one of the few instances in which a new medical
technology decreased rather than increased health care costs.
Because many hospitals did not originally have the financial
resources required to purchase lithotriptors, urologists often pooled
their own resources to finance the substantial capital costs required
to obtain and operate a lithotriptor. Physician ownership of
independent lithotriptors is still common today, and the procedure is
usually performed on an outpatient basis in either fixed-site or
mobile-unit facilities serving hospitals and ambulatory surgical
centers (ASCs). Because lithotripsy services for Medicare beneficiaries
are usually billed through a hospital outpatient department, ESWL is
considered by HCFA to be an ``outpatient hospital service,'' causing it
to fall into the realm of prohibited services under Stark II.
Therefore, ESWL is covered by the Stark II law simply because of the
Medicare billing arrangement that HCFA originally recommended.
If HCFA's proposed rule is finalized as written, urologists with
ownership interests in lithotriptors will not be able to treat Medicare
and Medicaid patients at that facility, but will be forced to refer
these patients to a different facility. This will almost certainly lead
to disruptions in patient access by forcing patients to travel to
another lithotriptor not owned by the treating physician. In some
states there are no lithotriptors not owned by urologists, so patients
would potentially have to leave the state to receive treatment.
This is particularly unfair to the elderly population, and it
interferes with the continuity of care that usually accompanies
lithotripsy treatment, since the practicing physician is responsible
for all aspects of treatment, including pre-treatment diagnosis, the
treatment itself, and post-treatment care.
Additionally, some non-urologist owned facilities could become
flooded with Medicare and Medicaid patients, leading to delays in
service for patients waiting in pain. This could create a two-tiered
health care system, with non-Medicare patients having the same access
and convenience as before while Medicare patients suffer because of the
ban. Also, because capitated arrangements are excepted under Stark II,
Medicare fee-for-service patients will be affected more than those in
managed care.
Even Rep. Pete Stark, primary author of the laws, has indicated
during debate on the House floor and in written communications to HCFA
that Congress did not intend for lithotripsy to be covered by the self-
referral law.
Heat therapy treatments for BPH
An additional concern about the proposed rule on physician self-
referral is the possible chilling effect it may have on new
technologies that treat benign prostatic hyperplasia (BPH). BPH, or
enlarged prostate, is a very common disease, which afflicts about 13
million men over the age of 50 in the United States. There are now
promising new technologies to treat BPH, such as transurethral
microwave thermotherapy (TUMT), transurethral needle ablation (TUNA)
and interstitial laser coagulation (ILC). These therapies use heat to
destroy enlarged prostate tissue. Similar to ESWL, the equipment needed
to perform these procedures represents a considerably large capital
investment, with some heat therapy units costing over $200,000. Many
physicians are considering whether to purchase the equipment to enhance
patient care, but it is uncertain if the Stark II proposed rule would
allow physicians to own this expensive equipment under common
arrangements.
Although several urologists in a community could share this
equipment, it is not clear if this cost-effective arrangement would be
possible unless the physicians qualified as a group practice. Thus, the
ability of smaller practices to join together to acquire this equipment
is constrained by the statute, and the law will have the effect of
increasing expenditures for this equipment because sharing will be
virtually impossible.
TUNA, TUMT and ILC are well suited for the office setting. If
physicians have ownership interests in the equipment used to perform
these services in the office, it is our understanding that the in-
office ancillary services exception would exempt these procedures from
Stark II. However, we are concerned that these procedures--like ESWL--
may end up in the outpatient hospital services category by default if
insufficient practice expense reimbursements force physicians to
perform them in an outpatient setting. If such a situation does occur,
TUNA, TUMT and ILC should be exempt from the definition of outpatient
hospital services, since they are therapeutic procedures that do not
pose a risk for overutilization.
In closing, AUA believes that the federal physician self-referral
laws have been rendered obsolete by the passage of time and the
dramatic changes in the medical system. We urge the Subcommittee to
consider substantial revisions, or repeal of, the self-referral laws
this year.
Sincerely,
Lloyd H. Harrison, MD
President, American Urological Association
Statement of the Association of American Medical Colleges
On behalf of over 400 major teaching hospitals and 80,000
faculty physicians, the Association of American Medical
Colleges welcomes this opportunity to comment on possible
changes to the Physician Self-Referral Statute, (section 1877
of the Social Security Act, 42 USC section 1395nn). The May 13
hearing held by the Health Subcommittee of the House Ways &
Means Committee made clear that while the original intent of
the Physician Self-Referral remains laudable, the law may no
longer be appropriate to the way in which health care is
provided. As will be explained below, this is particularly true
for academic faculty practice plans where transfers of funds
among various entities of the academic health delivery system
(comprising the medical school, the faculty practice plan and
the teaching hospital(s), and other entities such as research
centers) are essential to support the core missions of
teaching, research and patient care. The term ``faculty
practice plan'' describes an academic physician group practice
arrangement, whereby the group's physicians serve as the full-
or part-time clinical faculty of a medical school.
Whether it be through a major overhaul of the law, focused
amendments to the existing legislation, or a regulation, it is
essential that the academic institutions and faculty physicians
are not inadvertently harmed by the implementation of the
Physician Self-Referral Law. The AAMC urges the Subcommittee to
ensure either that the law is changed to allow faculty practice
plans to function as they must, or to direct HCFA to create a
broad exception for practice plans and their organizational
partners.
The remainder of these comments: (1) address the structure
of faculty practice plans; (2) discuss the ways in which funds
are transferred; and (3) briefly examine further problems
created by the Self-Referral Law.
An Exception for Faculty Practice Plans
The AAMC wishes to ensure that physicians who are members
of faculty practice plans will not violate the law. The AAMC
believes that many faculty practice plans may not qualify for
an existing or proposed exception, even though opportunities
for program and patient abuse by faculty physicians are
extremely limited. Due to the complexities of legal structures
and monetary transfers among clinical departments in the
practice plan as well as other medical center entities, the
``group practice exception'' may not be available to many
faculty practice plans. For instance, in the proposed
regulation HCFA retains the requirement that to be considered a
group for purposes of a number of exceptions, there must be
only one legal entity. In academic settings, it is not uncommon
to find multiple entities, each of which may be compensating
the physician and to which the physician may make referrals for
designated health services. Additionally, many contractual
relationships exist between the faculty practice plan and other
parts of what compose the academic health delivery system.
Regardless of the legal structure, in most instances a full-
time faculty physician's entire practice occurs within the
scope of the department (e.g., internal medicine or obstetrics/
gynecology) in which the physician practices.
Legal Structure of Faculty Practice Plans
The AAMC has collected data on the various legal structures of
faculty practice plans for many years. We find that a majority of
faculty practice plans (47%) are not separate legal entities, but
rather ``part of the medical school/university,'' not-for-profit legal
organization. Other practice plans (38%) are legally structured as
``separate,'' not-for-profit entities. The remaining medical schools,
practice plans (15%) are organized legally in a variety of ways,
including departmental professional corporations (PC's), for-profit
limited liability partnerships, etc. Financially speaking, it is not
unusual for there to be multiple fund transfers among the different
entities that comprise today's integrated academic health delivery
systems.
Transfers in an Academic Practice
A further complicating factor in academic health delivery systems
is that many funds transfers have the potential for creating unintended
violations of the physician self-referral regulations due to the fact
that such transfers may be direct or indirect compensation. Also, it is
likely that referrals will be made for designated health services among
specialty departments, the teaching hospital and perhaps other delivery
sites within the system. The majority of medical schools use revenues
and taxes to ``redistribute'' individual faculty revenues. It is
typical for all income generated by the faculty to be pooled at the
departmental (i.e., specialty) level and distributed as follows:
A dean's tax is paid to support teaching, research and the
infrastructure expenses. For example, there also may be cross-
subsidization by higher earning departments of lower-earning
departments. Also, some medical schools will transfer funds to other
organizations in the delivery system to support their teaching mission.
This may include funds for a medical library, classroom space or
special laboratories, for example.
Faculty compensation. Typically the compensation of an
academic faculty physician has three components: (1) the base salary is
for teaching and research and generally is paid according to a
contractually agreed amount; (2) the clinical supplement is for patient
care and is usually divided among members of a department on a
predetermined formula typically not related to productivity; and (3) an
incentive bonus which generally is based on a predetermined
productivity formula and is the smallest portion of the physician's
total compensation. A majority of practice plan income funds components
2 and 3 of a faculty physician's total compensation.
In addition to funds transfers, there may be donations of equipment
from one entity in the academic setting to another with the intent of
supporting teaching, patient care and research. Such a transfer could
be considered indirect compensation and thus may violate the Physician
Self-Referral Law.
Incentive Plans
A further problem with the law is that it does not allow
for the use of incentive plans that are designed to reward
desirable behavior such as minimizing the use of tests and
other costly interventions without compromising the quality of
care, customer satisfaction, peer evaluation of clinical
performance, and support of colleagues and patients by promptly
seeing patients when requested. Each of these behaviors is
laudable and should be encouraged, even when it is related to
designated health services. Such compensation plans should be
allowed by amending the legislation or making provisions in the
final regulations.
Conclusion
HCFA has acknowledged that faculty practice plans are
unique organizations that require supportive and special rules
under the Medicare program. An upcoming Medicare carrier
instruction (MCM 3060.3D) on the reassignment of physician
payments under the Medicare program to be published soon by
HCFA reinforces the proposition that faculty practice plans are
unique and deserve special treatment. It was created because
many faculty practice plans were unable to fit into the four
exceptions already available and is available to any practice
plan that meets the 9 criteria listed.
The AAMC believes that among the unintended consequences of
the Physician Self-Referral Law is the possibility that faculty
practice plans will violate the law if they continue to
transfer funds or find other ways in which to support the
missions of teaching, research and patient care as they always
have. Also of concern is that at a time when resources are
diminishing, and all payers seeking to provide better quality,
more efficient care, there will be no opportunity to reward
physicians for providing just this type of care. As long as
what occurs in an academic health delivery system--or
elsewhere--does not increase the volume or value of referrals,
or give Medicare or Medicaid beneficiaries care that is
unnecessary or inappropriate, it should be permitted. The
government has sufficient and varied enforcement tools to
protect beneficiaries and to discipline providers who abuse the
system. Even if major changes are not made to the Physician
Self-Referral Law, it should not be used to restrict the
activities of academic practices since they are the places
providing care that is unavailable elsewhere, training the next
generation of physicians and other health care practitioners,
and conducting research that improves the care that is
available to all.
Statement of the Association of Freestanding Radiation Oncology
Centers, Laguna Beach, CA
I. The Association of Freestanding Radiation Oncology Centers
The Association of Freestanding Radiation Oncology Centers
(``AFROC'') is an association of over 150 freestanding
radiation oncology centers located throughout the country.
Freestanding radiation oncology centers are health care
facilities organized and operated to provide high quality,
cost-efficient radiation oncology services to patients in their
communities outside the hospital setting.
There are approximately 2,400 radiation oncologists
practicing in the United States; about half work in
freestanding facilities. Most freestanding radiation oncology
facilities are owned by the radiation oncologists who provide
professional services there. It is estimated that there are
approximately 300 to 350 freestanding radiation oncology
centers located throughout the country.
II. Physician Self-Referral and Radiation Oncology
While certain provisions of the existing physician self-
referral law undoubtedly require clarification and revision,
AFROC believes that self-referral restrictions remain critical
for radiation therapy services.
Radiation oncologists work strictly on a referral basis.
The cancer diagnosis is most commonly made by a surgeon,
internist, or medical oncologist, who sends the patient to a
radiation oncologist for examination and determination of
whether radiation is an appropriate treatment. Where a
referring physician has a financial interest in a radiation
therapy facility, a serious conflict of interest exists which
may interfere with the referring physician's judgment
concerning the most appropriate center for the provision of
radiation oncology services. A 1992 study in the New England
Journal of Medicine illustrated the negative effects of this
conflict of interest. The Journal study found that, where
referring physicians had an ownership interest in radiation
therapy facilities, the frequency and costs of treatment were
40-60% higher than at facilities without referring physician
ownership. Moreover, personnel of joint-ventured radiation
therapy facilities were found to spend 18% less time in quality
control activities than their counterparts at facilities
without referring physician ownership.
Current physician self-referral proscriptions are generally
sufficient to limit the risk of over-utilization of radiation
oncology services. Radiation oncologists themselves cannot
engage in self-referral because radiation oncology is entirely
dependent on referrals from the diagnosing physician, and the
number of treatments that can be given to a particular area of
the body is narrowly limited by effectiveness of dose on the
one hand and tolerance of normal surrounding tissues on the
other.
For these reasons, AFROC continues to strongly support
physician ``self-referral'' restrictions for providers of
radiation therapy services.
III. Recommendations
Existing Medicare-Medicaid anti-kickback statutes and safe
harbor guidelines alone are inadequate to deter self-referral
of radiation oncology services. Voluntary ethical guidelines
are also insufficient to contain self-referral. Federal
legislation and regulations explicitly banning self-referral
for radiation therapy services are needed. Again, while some
criticisms of Stark II are merited, the prohibition on self-
referral for radiation therapy remains valid and important.
If Congress does modify the self-referral restrictions, we
urge Congress to take great care to ensure that such
modifications do not inadvertently preclude radiation
oncologists from owning their own facilities. Because a
radiation oncologist's ownership of his or her own facility
does not raise the types of conflicts of interest issues raised
by medical oncologist or surgeon ownership of these facilities,
radiation oncologists' ownership arrangements are currently
exempt from the physician self-referral restrictions. This
exemption should remain intact, with minor technical revisions.
For example, the current exemption applies only where a
radiation oncologist supervises the radiation oncology services
that he or she prescribes and does not, by its terms, apply
where these services are supervised by a member of the same
group practice as the referring radiation oncologist. This
provision should be clarified to enable the supervision to be
provided by a group practice member.
We would be delighted to help draft appropriate amendments,
but believe that the basic self-referral prohibitions should
remain applicable to radiation oncology services. If you have
any questions concerning physician self-referral or AFROC,
please do not hesitate to call AFROC's President, Jeffrey
Lopez, M.D., at (800) 225-8161.
Statement of the Federation of American Health Systems
The Self-Referral Statute is an extremely complicated law
that consumes a great deal of resources to analyze and
implement both for the government and for providers. It is an
anachronism in today's health care environment. It was drafted
to regulate physician relationships in the fee-for-service
world and makes little sense in the current health care
environment. Because of its rigidity it cannot be adapted to
meet the changing shape of current and future health care.
The Self-Referral Statute has had a marked impact on the
health care marketplace. It has created an uneven playing field
between types of providers whose services fall within the
designated health care services covered by the law and
providers whose services do not. Furthermore, providers covered
by the Self-Referral Statute have had to struggle to structure
their arrangements to qualify for an exception.
As a result, the Statute has discouraged more innovative
arrangements that could lead to reduced costs or improved
quality simply because they cannot fit the exact specifications
of the exceptions, and therefore are prohibited.
The Statute has created a great deal of confusion, stemming
not only from the complexity of the law itself, but also from
its overlap with other health care statutes, such as the Anti-
Kickback Statute, state laws, etc. Health care providers have
ended up with two (and sometimes more) different approaches and
two (and sometimes more) different sets of requirements
regulating the same conduct or arrangement.
For example, both the Anti-Kickback Statute and the Self-
Referral Statute regulate financial relationships between
doctors and hospitals in situations where the doctors are
making patient referrals to the hospital. However, they take
two different approaches. The Anti-Kickback Statute starts with
a presumption that a referral is not problematic unless it is
determined that the arrangement provides an improper
inducement. It has safe harbors that grant approval of certain
arrangements under specified circumstances, but failing to meet
a safe harbor does not necessarily mean the referral is
prohibited or subject to penalty.
On the other hand, the Self-Referral Statute starts with a
presumption that absolutely prohibits referrals by physicians
with financial relationships with the hospital, unless the
parties can fit their arrangements precisely within the
enumerated exceptions. Therefore, what you find is that for any
given arrangement, there may be both a safe harbor under the
Anti-Kickback Statute and an exception under the Self-Referral
Statute, but there are slightly different criteria set forth in
each. This is true, for example, with respect to personal
service arrangements and employment relationships.
We are concerned that because of the Self-Referral Law's
presumption prohibiting referrals in all situations which do
not fit into an exception, numerous standard, non-abusive
arrangements are prohibited and subject providers--sometimes
for very technical reasons--to harsh penalties. Unlike the
Anti-Kickback Statute, the Self-Referral Statute is not intent-
based and providers can violated it unwittingly. There is no
allowance made for minor, insignificant variations or
inadvertent noncompliance with the statute's rigid
requirements, thus potentially subjecting innocent parties to
devastating civil monetary penalties.
For example, there are exceptions for leases and personal
services contracts. These require, among other things, signed,
written agreements with a term of at least one year. If a
hospital leases a medical office to a physician for a five year
term and it expires while the parties are negotiating the
renewal terms, then the lease no longer complies with the law,
even if the physician continues to pay fair market rent during
the period between when the original lease expires and the
renewal is signed. In such a circumstance, every referral made
by the physician during that interim period would technically
be a violation of the Self-Referral Statute and would subject
the physician and hospital to liability for return of all
payment received from Medicare for those referrals. In
addition, civil money penalties of $15,000 for each service
billed in violation of the Self-Referral Statute would also
apply, not to mention the potential for a civil and/or criminal
False Claims Act action, initiated by either a government
representative or a qui tam relator. This seems to be a very
harsh result for a minor oversight.
Similarly, a completely legitimate hospital medical
director agreement might inadvertently (and unknown to the
physician) not be signed by the hospital CEO until one month
after the physician begins to provide services and receive
payment under the agreement. Technically, the medical director
agreement would not meet an exception during the first month.
Any referrals made by the physician that month would violate
the law, and if the hospital billed for them, substantial
penalties could be imposed. Certainly these types of
inadvertent violations do not raise the issues that the Self-
Referral Statute was meant to address and should not be subject
to the Self-Referral Statute's harsh penalties.
There are also numerous instances in which parties are
unable to enter into reasonable, legitimate arrangements,
simply because no exception is available. If a physician moves
into a new area six months before the remodeling of the
physician's permanent office space is scheduled for completion,
the physician would not be able to enter into a six month
office lease with a nearby hospital to meet the physician's
interim needs, even if the lease were legitimate and
commercially reasonable in every respect, because of the one
year requirement in the lease exception. Also, physicians (and
their immediate family members) may not sell supplies or other
items to a hospital, even on commercially reasonable terms, at
fair market prices, because there is no exception in the law
for such arrangements (although there is an exception that
permits physicians to purchase items).
The confusion caused by the Self-Referral Statute has been
compounded by the delay in publication of implementing
regulations.
Specific Proposals for Reform
In light of these concerns regarding the difficulties of
analyzing and implementing the Self-Referral Statute, FAHS
would like to work with the Chairman, Congressman Stark and
others on the Committee and throughout Congress to consider
potential reforms. We will discuss some of the issues we are
exploring below, going from the broadest based reforms to the
more technical. Several of these proposals were contained in
the Balanced Budget Act of 1995.
Repeal Application of Statute to Compensation Arrangements
The Anti-Kickback Statute provides the government with
ample firepower to combat improper compensation arrangements.
Any payment intended to induce the referral of patients for the
provision of any goods or services reimbursable by a federal
health care program is a crime under the Anti-Kickback Statute.
42 U.S.C. 1320a-7b(b).
In addition, the Balanced Budget Act of 1997 added a civil
basis for liability, providing for the imposition of
substantial civil monetary penalties for violations of the
Anti-Kickback Statute. With the addition of these civil
penalties, the government can now prove its case under the
Anti-Kickback Statute by a preponderance of the evidence, thus
giving enforcement agencies added leverage in enforcing this
statute against parties to abusive compensation arrangements.
We know this was a provision included by the Chairman in
the Balanced Budget Act of 1995 (BBA 95). Given the addition of
the new civil monetary penalty for violations of the Anti-
Kickback Statute and in light of the common purpose of the
Self-Referral Statute and the Anti-Kickback Statute--to
prohibit and penalize improper inducements to make referrals--
we believe there is even greater justification for repealing
the Self-Referral Statute's application to compensation
arrangements today than there was during BBA 95.
In addition, the compensation provisions of the Self-
Referral Statute are clearly the area that has caused the
greatest amount of confusion in implementation. For example, if
you look at the proposed rule, you will note that the great
majority of that voluminous rule relates to tortured
interpretations of the compensation provisions. Thus, it seems
that the Self-Referral Statute is much more effective at
accomplishing its purpose, without creating unnecessary
complications and confusion for the industry and those who
regulate it, when it is limited to ownership/investment
interests.
To the extent that Congress would repeal the compensation
provisions, a number of the more specific proposals below would
no longer be needed.
Clarify Reporting Requirements
There is an urgent need to clarify the reporting
requirements under the Self-
Referral Statute. HCFA initially interpreted the Self-Referral
Statute as requiring Medicare providers, such as hospitals, to
report their financial relationships with physicians only if
they did not meet an exception under the law. However, in the
proposed rule, HCFA contemplates a requirement that providers
be prepared to report all their financial relationships with
physicians (and their relatives)--whether or not they comply
with an exception--if the provider ``knows or should know''
about the relationship ``in the course of prudently conducting
business.''
This requirement would be overwhelming and would require
providers to devote enormous time, effort and resources into
tracking hundreds, thousands or even tens of thousands of
completely lawful, benign relationships with shareholders,
bondholders, vendors, services providers, employees, landlords,
tenants, etc., each of whom might be a relative of a physician
who refers to the provider. Even then, a provider could be
found in violation of the law for failing to report a single,
innocuous financial relationship that it was unaware if the
provider ``should have'' known of the relationship.
There has been some suggestion by HCFA that it will not
require reporting of information, and providers need only
retain on file information to respond to a spot audit, at least
until a final rule is issued. Unfortunately, providers will
have problems whether HCFA ultimately requires providers to
report all of this information, or simply track it, or even
limits the reporting requirement to non-compliant financial
relationships.
A requirement to report all financial relationships with
physicians (or their relatives) is overwhelming and infeasible
at worst, and extremely time consuming, burdensome and costly
at best. On the other hand, a requirement to report to HCFA
those financial arrangements with physicians (or their
relatives) that do not meet a Self-Referral Statute exception,
requires a clarity of understanding about what complies with
and what violates the Self-Referral Statute that has been
unachievable, even for the government. In addition, there is an
inherent unfairness in mandating that people report their own
violations. Certainly, it is inconsistent with the concept of
voluntary disclosure, which the health care community believes
holds great potential to revolutionize and facilitate self-
policing, if a stronger process can be developed. Furthermore,
providers would rightfully be concerned that reports of non-
compliant arrangements, even those which are only technical
violations or even beneficial arrangements which just can't fit
neatly into an existing exception, would then serve as a basis
for assessing fines and penalties, if not as a beacon
attracting other investigation and prosecution.
A much clearer and more rational policy could be
established if the compensation portion of the Self-Referral
Statute is repealed, since then entities would be faced with
the more manageable task of reporting only ownership and
investment interests (although presumably there should be some
minimum threshold, such as 5% ownership, to avoid the
complications involved in reporting every stockholder in a
publicly traded company).
Effective Date
Change the effective date for ``Stark II'' to one year
after the regulations become final. It is unfair to enforce the
Self-Referral Statute before final regulations are issued,
given the enormous confusion caused by the statute (which HCFA
itself notes is ambiguous and contains many undefined terms);
the length of time it has taken to develop and publish proposed
regulations; the enormous volume of comments submitted in
response to the draft regulations (because they raise almost as
many questions as they answer); and the severe penalties
imposed even for innocent violations of the statute by well-
meaning persons who misinterpreted ambiguities in the law.
Also, once the regulations are final, providers will need
time to restructure or unwind arrangements that they believed
complied with the statute, but which do not meet any exception
in the regulations as finally published or in the statute as it
is ultimately interpreted in the final regulations.
Fair Market Value Exception
If the Self-Referral Statute continues to apply to
compensation arrangements, then a new ``fair market value
compensation'' exception should be added to the statute. The
new exception should be designed to protect all compensation
arrangements for items or services that meet certain minimum
requirements. The exception should protect any legitimate,
commercially reasonable compensation arrangement that is set
forth in a written agreement, signed by the parties, which
describes the items and services provided, establishes a
timeframe for the agreement, and provides for compensation that
is consistent with fair market value contract, without taking
referrals into account.
HCFA included such an exception in its proposed rule,
although one of the requirements included in HCFA's version
introduces an element of uncertainty that would undermine
providers' ability to rely on the exception. Specifically, the
proposed rule requires that the arrangement comply with the
Anti-Kickback Statute. The Anti-Kickback Statute, as described
above, is an intent-based statute. Requiring compliance with
the Anti-Kickback Statute introduces the concept of intent into
the Self-Referral Statute, thus casting doubt on the exception.
For example, a hospital could innocently enter into an
apparently legitimate compensation arrangement with a physician
that meets all of the other requirements of HCFA's proposed
exception. However, if the physician (unknown to the hospital)
has a bad ``intent'' under the Anti-Kickback Statute, then the
hospital, even if it has no bad intent, and no way of knowing
that the physician had a bad intent, would be unable to use the
exception under the Self-Referral Statute.
Furthermore, until the proposed rule becomes final (which
will be at least a year from now), physicians and providers
have no general compensation exception to protect their fair,
legitimate, and reasonable arrangements that do not meet any of
the other, specific exceptions. We believe this is such a
crucial exception that it should be a statutory, rather than a
regulatory provision, especially in light of the potential
delay involved in waiting for finalization of the regulation.
Notwithstanding the potential value of this type of
exception, it is important to recognize that it is not a
reasonable alternative to actually repealing the Self-Referral
Statute's application to compensation arrangements. This
exception, for example, would not protect legitimate unwritten
compensation arrangements. Also, providers would continue to
struggle with one of the most vexing issues under the Self-
Referral Statute -what services and items, which often are not
covered by written agreement, must be counted as
``compensation'' to physicians (e.g., free parking, coffee,
computer or library access, training, etc).
Physician Recruitment
The Physician Recruitment Exception currently requires the
physician to ``relocate to the geographic area served by the
hospital.'' However, in certain circumstances, practitioners
establishing new practices might already be within a hospital's
geographic area. Hospitals should be permitted to recruit such
physicians so long as they do not have an existing patient base
and compensation does not vary based on the volume or value of
referrals. At a minimum, a hospital should be permitted to
recruit a resident or fellow who is already in the hospital
service area, but does not have any private practice and wishes
to start one in that geographic area. In such cases, there is
little likelihood of abuse, because the physician, although
practicing medicine in the area, is in the same position as a
physician from outside the area in that he or she has no
existing patients to refer to the hospital.
The current wording of this exception penalizes entities
who accept responsibility for training residents and fellows,
since these residents and fellows cannot subsequently be
recruited by the hospital that trained them, and can only be
recruited by more distant hospitals. This creates great
inefficiency, with hospitals recruiting residents from other,
distant hospitals, because they cannot recruit local residents,
even though the local residents might prefer to stay where they
did their residency. This requirement also has a negative
impact on smaller towns and more rural areas, because they are
more likely to find a good match with residents, fellows and
physicians who have spent time in that town or area and know
they will like it there.
Hospital Ownership Exception
Clarify that the exception for physician ownership of a
hospital applies to all designated health services provided by
the hospital, not just hospital services (i.e., if the hospital
also owns a clinic, a home health agency, or has a distinct
part skilled nursing facility, etc., than a physician with an
ownership interest in the hospital that meets the Self-Referral
Statute exception may also refer to the hospital for these
other services). Although the exception in the Self-Referral
Statute seems to apply to all services provided by a physician-
owned hospital, HCFA has construed it more narrowly in the
proposed rule, as permitting referrals for hospital services,
but not other services. There is no policy reason for this
distinction, and puts physician-owned hospitals at an unfair
disadvantage.
Federal Preemption
Mandate federal preemption of state law in this area. Not
only must providers comply with numerous complex federal
statutes regulating their financial relationships with
physicians and others, many states have also adopted physician
self-referral statutes. These state statutes create a set of
duplicative, overlapping, and confusing requirements that
substantially increase the time, effort and expense required to
comply with the law, without providing commensurate benefit to
the public in protecting against abusive financial
arrangements.
Anti-Kickback Statute Safe Harbors
Another important reform to the compensation provisions
would be to establish a statutory exception in the Self-
Referral Statute for arrangements that fall within a safe
harbor to the Anti-Kickback Statute. Under the Anti-Kickback
Statute the safe harbors are drawn quite narrowly with the
understanding that just because you are not in the safe harbor
does not mean your conduct violates the Anti-Kickback Statute,
it just means you will not receive safe harbor protection.
Arrangements that are able to qualify for the safe harbors have
met a very high standard and therefore deserve protection under
the Self-Referral Statute as well. This becomes particularly
important in light of the fact that there are often safe
harbors under the Anti-Kickback Statute and exceptions under
the Self-Referral Statute that deal with the same issues and/or
arrangements, but due to their separate development, and
interpretation by different agencies (OIG versus HCFA), they
contain differences which make them hard to reconcile. It would
also be very beneficial for providers and physicians who are
trying to respond to the shift to managed care to be able to
rely on the new shared risk exception under the Anti-Kickback
Statute for purposes of the Self-Referral Statute also.
Hospital Inpatient and Outpatient Services
Hospital inpatient and outpatient services should be
removed from the list of designated health services. By and
large, the other designated health services were all identified
in studies that demonstrated increased utilization when
physicians had a financial relationship with the provider of
the service. To our knowledge, no such studies demonstrate a
correlation for hospital services in general. Moreover, in most
cases, there is little risk of over-utilization of hospital
services, which tend to be emergency services, major surgery,
or similar services of the type that are not generally over-
used.
Thank you for the opportunity to provide our comments for
the record. We appreciate the Subcommittee's interest in this
subject and believe reform is vitally needed in order to
clarify and better target the rules at true fraud.
Statement of Dwight S. Cenac, Home Care Association of America,
Jacksonville, FL
Mr. Chairman and Members of the Committee: Thank you for
the opportunity to offer written testimony on the critical
subject of Medicare Self-Referral Laws. My name is Dwight Cenac
and I am the Chairman of the Board of Home Care Association of
America (HCAA). HCAA represents several hundred freestanding
home health agencies across the United States.
Mr. Chairman, as I did in my recent written testimony
regarding the Medicare Coverage Decisions and Beneficiary
Appeals, let me again urge you to schedule hearings (perhaps in
June) regarding the issue of the Interim Payment System for
home health care. At last count, over 2000 home health agencies
have been forced out of business, causing the patients of those
agencies to be forced into more costly nursing homes, more
costly emergency rooms, or worse, left at home without
receiving necessary patient care.
While the GAO and others are conducting studies pertaining
to access to home health services, this committee must address
the fact that the BBA of 1997 has placed an unfunded mandate on
the states. By the federal government placing a per-beneficiary
cap on home health care, agencies across the U.S. are filing
for bankruptcy and discharging their patients. Clearly this was
not the intent of Congress.
In addition, due to recent press reports regarding privacy
issues pertaining to the OASIS data collection effort, it seems
possible that HCFA will not be able to comply with implementing
PPS for home health care as mandated on October 1, 2000. It is
imperative that you ask HCFA Administrator Nancy Ann Min-
DeParle if indeed HCFA will be able to implement PPS for home
health care on October 1, 2000. It would also be beneficial to
ask Administrator Min-DeParle how the implementation of PPS for
skilled nursing is progressing.
Mr. Chairman, I understand that your primary concern is
adequate access for doctor-certified Medicare beneficiaries,
however, it is important to understand that the most recent CBO
numbers show that home health care has been cut $48 billion
dollars over 5 years. This is far greater of a cut than
Congress intended. On behalf of the members of HCAA I urge you
hold hearings in the very near future on home health issues
including the viability of a co-pay on home health, the impact
of the IPS on home health agencies, and the recent data from
the CBO that $48 billion has been cut from the home health
benefit.
It is also frustrating for me to hear from members of
Congress to say that Congress is powerless over HCFA. It is
time for Congress to conduct serious oversight hearings on HCFA
and hold to HCFA accountable for their failures. The MTS
computer debacle; the IPS for home health care that has forced
thousands of honorable home health agencies out of business;
the ill-conceived PPS for skilled nursing; and the privacy
issue regarding data collection pertaining to OASIS (which is
so severe, that Vice-President Gore is now involved), are just
a few examples of a HCFA run amok.
I would appreciate the opportunity to personally testify
before this committee on home health issues in the future.
I. The Stark Laws Are Not Obsolete
Mr. Chairman, with all due respect, I find this paragraph
from your advisory to be humorous:
The guiding principle for the self-referral laws was to
prevent physicians from inappropriately referring patients
based on the potential for financial gain. Yet, the health care
delivery system has changed profoundly since passage of the
first self-referral laws. Since 1989, the health care system
has rapidly moved away from the traditional fee-for-service way
of delivering medical care. Today, the health care system has
moved towards a more coordinated, integrated approach.
``Since 1989, the health care system has rapidly moved away from
the traditional fee-for-service way of delivering medical care.'' Mr.
Chairman, thousands of Medicare patients have been displaced because
patients are rapidly moving AWAY from HMO's, and other ``brainchild's''
(PHO's PSO's and Medicare-Choice plans) of the Administration and the
Republican leadership.
``A more coordinated, integrated approach?'' Mr. Chairman, that
sounds strangely familiar to the Clinton big-government plan that
failed in 1992/1993! If you recall, the Clinton plan was to put our
nation's health care (\1/7\th of our economy) into the hands of 7
``regional alliances.'' These alliances would be in charge of
distributing Medicare dollars to providers for services rendered. Mr.
Chairman, as a registered Republican, I urge you and your Republican
colleagues to reject this warmed over version of the Clinton one-size-
fits-all big-government take-over of our health care system!
Mr. Chairman and Members of this Committee, the question is, have
HMO's, PHO's and the Medicare-Choice programs been a success The answer
is ``no.'' Thousands of Medicare beneficiaries have been displaced
because quite frankly, the profit margin for HMO's was not as great as
originally predicted. Because of this fact, some HMO's opted not to
renew their Medicare contracts because HCFA would not allow them to
make financial adjustments to make the HMO even more profitable. This
clearly shows me that the primary motive for some HMO's may be PROFIT,
not patient care! This is the danger of having stockholders holding
company executives accountable for return on investment!
Regarding PHO's and PSO's, I have read news accounts here in my
state of Florida that these ``brainchild's'' are also not profitable,
that doctor's, hospital's and other entities are having difficulty
keeping doctors in the programs, and patients are having difficulty
getting access to specialists It saddens me to hear, ``If we only give
them more money'' or, ``HCFA hasn't educated beneficiaries well
enough.'' The truth is that in most cases, Medicare beneficiaries
prefer the traditional fee-for-service Medicare program Sure, when
beneficiaries are well, HMO's are very attractive, and yes, they
provide much needed services (prescription drugs) that are not covered
by fee-for-service Medicare, but when a Medicare beneficiary is sick,
seriously sick, the traditional fee-for-service Medicare plan seems to
be the plan of choice!
Mr. Chairman, allow me to refer you and your colleagues to an OIG
``Special Fraud Alert'' entitled, ``Hospital Incentives to
Physicians.''
In this OIG Special Fraud Alert, it states,
The Office of Inspector General has become aware of a variety
of hospital incentive programs used to compensate physicians
(directly or indirectly) for referring patients to the
hospital. These arrangements are implicated by the anti-
kickback statute because they can constitute remuneration
offered to induce, or in return for, the referral of business
paid for by Medicare or Medicaid. In addition, they are not
protected under the existing ``safe harbor'' regulations.
These incentive programs can interfere with the physician's
judgment of what is the most appropriate care for a patient.
They can inflate costs to the Medicare program by causing
physicians to overuse inappropriately the services of a
particular hospital. The incentives may result in the delivery
of inappropriate car to Medicare beneficiaries and Medicaid
recipients by inducing the physician to refer patients to the
hospital providing financial incentives rather than to another
hospital (or non-acute facility) offering the best or more
appropriate care for that patient.
Mr. Chairman and members of the subcommittee, in this
Special Fraud Alert, there are several examples of potentially
unlawful activity which are outlined:
Payment of any sort of incentive by the hospital
each time a physician refers a patient to the hospital
The use of free or significantly discounted office
space or equipment (in facilities usually close to the
hospital)
Provision of free or significantly discounted
billing, nursing, or other staff services
Guarantees which provide that, if the physician's
income fails to reach a predetermined level, the hospital will
supplement the remainder up to a certain amount
Payment of the cost of a physician's travel and
expenses for conferences
Payment for services (which may include
consultations at the hospital) which require few, if any,
substantive duties by the physician, or payment for services in
excess of the fair market value of services rendered
Mr. Chairman, it is clear that this OIG Special Fraud Alert
gives significant reasons why the Stark laws (and other laws to
prevent undue costs to the Medicare program) must remain
intact. In fact, it is imperative that laws pertaining to
hospital self-referrals regarding home health care must be
enforced Hospitals have a ``captive-patient'' when it comes to
home health referrals. In some cases the hospital discharge
planner may ``steer'' a relatively healthy Medicare patient
into the hospital-based home health agency, while allowing the
sicker, more medically complex home health patient into a
freestanding agency in the community This helps the hospital
financially under the severely flawed Interim Payment System
(IPS) for home health care that was included in the BBA of
1997.
Mr. Chairman, an OIG report entitled ``Hospital Stays for
Medicare Beneficiaries Who are Discharged to Home Health
Agencies,'' dated August 1998 (OEI-02-94-00321) also discusses
the self-referral issue. Under the paragraph entitled,
``Discharge Planning Referral'' it states:
Medicare requires hospitals to have a discharge planning
process that identified patient's post-hospital needs soon
after admission and puts in place a plan that will ensure a
safe discharge from the hospital. Section 1802 of the Social
Security Act seeks to ensure that free choice is guaranteed to
all Medicare patients in choosing a post-hospital provider,
such as a home health agency. When there is hospital ownership
of post-hospital services, it raises concerns about the
discharge planning process. First, will patients be given the
freedom to choose a post-hospital provider in an environment
where the hospital discharge planner works for an organization
which also owns post-hospital services? And secondly, in an
effort to maximize Medicare reimbursement, will hospitals use
the discharge planning process inappropriately to shorten
patient hospital stays and transfer patients to post-hospital
services they own?
One topic that the OIG overlooks in this report is the
influence that the physician has in this important process.
Doctor's certify the patient for home health services. If a
doctor has a financial interest in the hospital, if bonuses are
tied to hospital profit, it may be a strong incentive for the
doctor to refer patients to the hospital-based home health or
skilled nursing facility.
Mr. Chairman and members of this subcommittee, I sincerely
hope that your intention is to maintain and enforce laws to
prohibit self-referrals by doctors and hospitals, not to loosen
such laws. It is my concern that under the guise of Medicare-
Choice, an attempt will be made to loosen self-referral laws. I
hope that members of this subcommittee make such self-referrals
laws more clear and strongly enforce 42 CFR 424.22 pertaining
to hospital self-referrals.
In conclusion, I deeply appreciate the opportunity to share
my thoughts with the subcommittee on the critical issue of
self-referrals. If members of Congress are successful in
weakening the Stark self-referral laws, you will see the
results in higher Medicare outlays. I urge you to inform the
proper authorities to enforce current Stark laws and I urge
this committee to avoid weakening these appropriate laws.
Once again, I would welcome the opportunity to personally
testify before this committee on home health care issues in the
future.
Statement of the Joint Council of Allergy Asthma and Immunology,
Palatine, IL
Mr. Chairman: The Joint Council of Allergy, Asthma and
Immunology (``JCAAI'') appreciates this opportunity to submit
testimony on the effect of the proposed rule implementing the
Stark II law. JCAAI is an organization sponsored by the
American Academy of Allergy, Asthma and Immunology and the
American College of Allergy, Asthma and Immunology. Its members
are over 4,000 physicians board-certified in allergy, asthma
and immunology. JCAAI members practice in a wide variety of
arrangements including solo practices, single-specialty groups,
multi-specialty groups and large university faculty practice
plans.
1. Applicability of Law to Pulmonary Function Tests
JCAAI is concerned that the proposed rule inadvertently
includes pulmonary function tests or spirometry as a
``designated health service.'' While pulmonary function tests
or general diagnostic tests are not defined as designated
health services by the Physician Referral statute (Stark law),
physical therapy services are included in such term. HCFA is
proposing to define ``physical therapy services'' with
reference to another Medicare regulation which describes the
types of services which are covered by Medicare in
comprehensive outpatient rehabilitation facilities (``CORFs'').
That regulation (42 C.F.R. Sec. 410.100(b)) defines ``physical
therapy services'' to include:
Testing and measurement of the function or dysfunction of the
neuromuscular, musculoskeletal, cardiovascular, and respiratory
systems, (emphasis added).
Pulmonary function tests are tests for the measurement of
the function of the respiratory system. However, they have
nothing to do with physical therapy. Allergists specializing in
the care of asthma patients frequently perform these tests in
their office to determine if a patient has asthma and the
severity of the asthma. The test itself is not therapeutic in
nature. Nor does it result in a referral of the patient for
physical therapy.
We do not believe that Congress intended that pulmonary
function tests be included in the definition of ``physical
therapy services.'' In fact, we note that Congress specifically
deleted the language in the 1993 law which defined designated
health services to include radiology ``and other diagnostic
tests.'' That provision now covers only certain types of
radiology tests including MRIs, CAT scans and ultrasound. There
is nothing in the law which suggests Congress intended to treat
pulmonary function tests as a ``designated health service'' for
purposes of the Stark law.
We have recommended that HCFA modify the definition of
``physical therapy services'' to delete the reference to
respiratory tests in our comments on the Stark II rule and if
HCFA did not follow this recommendation we would urge Congress
to so provide through amendments to the statute.
2. Applicability of Stark II Law to Antigens
Antigens are prepared by physicians in solution to be used
by injection to provide immunotherapy to patients with a
diagnosis of significant allergic reactions. Antigens are
extracts of pollens or venoms, for example, and are defined in
the Food Drug and Cosmetic Act as biologicals not drugs.
Historically, antigens have not been prescribed for preparation
and provision by pharmacies. We do not believe Congress
intended to include antigens as outpatient prescription drugs
and therefore as covered designated health services. There is
also no evidence of abuse by physicians of utilizing antigens
and immunotherapy which could justify an extension of this
definition of outpatient prescription drugs to antigens.
In the Stark II proposed regulations of January 1998,
however, HCFA states, in its discussion of the definition of
``outpatient prescription drugs, that this category of
designated health services could include antigens covered under
section 1861(s)(2)(G). HCFA's test for whether a drug or
biological covered by Medicare on an outpatient basis is
included in the definition of ``outpatient prescription drugs''
is whether the product could be obtained from a pharmacy with a
prescription.
Although current practice is for the physician to prepare
antigens for allergy immunotherapy in the office, we believe is
likely that in the future they may also be provided through a
pharmacy under a physician's prescription especially as managed
care organizations and large integrated health delivery systems
seek to consolidate the delivery of services.
In this regard, we note that, in accordance with section
1861(s)(2)(G), Medicare only covers antigens which are prepared
by a physician. That provision of the law provides coverage for
antigens as follows:
(G) antigens (subject to quantity limitations prescribed in
regulations by the Secretary) prepared by a physician, as
defined in section 1861(r)(1), for a particular patient,
including antigens so prepared which are forwarded to another
qualified person (including a rural health clinic) for
administration to such patient, from time to time, by or under
the supervision of another such physician;
Thus, even if antigens were available by prescription from
an institutional pharmacy, they would not be covered by
Medicare. For this reason, we do not believe the Stark
prohibitions would apply since the Stark law only prohibits
referrals ``for which payment otherwise may be made under this
title. . . .'' Section 1877(a)(1)(A).
However, it is possible that state Medicaid agencies would
elect to cover antigens furnished by a pharmacy even though
they would not be covered by Medicare. HCFA states in the
commentary to the regulations that a physician has made a
referral if he or she requests a Medicaid covered designated
health service that is ``comparable to a service covered under
Part B of Medicare. . . .'' (January 9 Federal Register at p.
1692.) However, HCFA also states that the State Plan's
definition of a service will take precedence even if the
definition will encompass services that are not covered under
Medicare. (January 9 Federal Register at p. 1673.) These
statements seem inconsistent. It is unclear how HCFA would
treat antigens furnished by a pharmacy which are covered under
a state plan.
In order to promote consistency in the application of the
Stark law to Medicare and Medicaid and to avoid confusion, we
believe the policy with respect to Medicaid should conform to
Medicare. Thus, since antigens would not be covered by Medicare
if provided by a pharmacy, we believe they should not be
treated as a designated health service for Medicaid purposes
even if provided by a pharmacy.
We have therefore requested that HCFA either establish an
exception in the regulatory definition of ``outpatient
prescription drugs'' for antigens covered under Section
1861(a)(2)(G) or clarify in the commentary to the final Stark
II regulation that even if antigens were to become available
from pharmacies under a physician prescription, they would not
be considered designated health services for purposes of the
Stark law because they would not be covered by Medicare Part B.
Further, with respect to Medicaid, we have asked that HCFA
clarify that if a Medicaid agency were to cover antigens
furnished through a pharmacy, this would not be considered a
``designated health service'' because it is not comparable to a
service covered by Medicare.
Without this change in the regulation or clarification,
there is likely to be confusion as to whether antigens are a
designated health service for purposes of both Medicare and
Medicaid.
If these changes are not adopted by HCFA, we would urge
that Congress specifically include such clarifications in
Medicare legislation this year.
3. Definition of Group Practice
We are also concerned about the definition of group
practice and its implications for the ways that physicians in
groups deal with compensation. HCFA's proposed definition of
group practice fundamentally alters the basic way that
physicians in group practice organize themselves economically.
The new ``unified business test'' which is not found in the
statute, puts at risk many longstanding and legitimate
practices. Its purpose seems to be to prevent practices from
qualifying as groups under Stark if they treat different
specialties, departments or office sites as separate cost
centers. There is nothing in the law or legislative history
which suggests that Congress believed a group was not a ``true
group'' simply because expenses are allocated by department or
by physician.
Moreover, it is unclear from the commentary to the proposed
rule which types of compensation methodologies are permitted
and which are prohibited. Although the statute clearly permits
productivity bonuses, HCFA appears to have interpreted it in a
way which renders it almost meaningless. The agency's position
is that designated health services which are personally
performed by the physician must be treated as profits of the
entire group. We do not believe Congress intended that
physicians could not be compensated for services they perform
personally.
Further, we do not believe the law requires that, in order
to meet the definition of group practice, group practice
revenue cannot be distributed based on cost centers or
departments. We urge that HCFA carefully consider the
disruptive effects these aspects of the proposed rule will have
on legitimate and longstanding group practice arrangements.
If HCFA finalizes the proposed rule without change, we
would urge Congress to pass legislation eliminating the unified
business test recommended by HCFA and clarifying permitted
payment methodologies as we have recommended.
Statement of the Medical Group Management Association
Introduction
Mr. Chairman and Members of the Subcommittee, the Medical
Group Management Association (MGMA) is pleased to submit this
statement regarding the Medicare self-referral law and its
regulations. MGMA members confront the complexities and
ambiguities surrounding the Medicare self-referral law and its
accompanying regulations on a daily basis.
MGMA is the oldest and largest organization representing
physician group practices with more than 8,300 health care
organizations nationwide in which over 209,000 physicians
practice medicine. MGMA's membership reflects the full
diversity of physician organizational structures today,
including world-renowned tax-exempt integrated delivery
systems, taxable multi-specialty clinics, small single
specialty practices, hospital-based clinics, academic practice
plans, integrated delivery systems, management service
organizations, and physician practice management companies.
While physicians understand that they must comply with the
self-referral statute, it is the medical practice managers who
most often are responsible for the unenviable task of trying to
understand the complexities of the law to ensure proper
compliance. In fact, many small and medium practices, which
comprise a vast majority of overall group practices, do not
have a formally designated compliance officer. Therefore, in
addition to the responsibility of managing the day-to-day
business of the group practice, practice managers are
responsible for monitoring activities that may involve the
self-referral law.
MGMA supports fully the intent behind the self-referral
law--to prevent physicians from ordering unnecessary ancillary
services in order to profit from the Medicare and Medicaid
programs. However, the self-referral law has gone far beyond
its original intent and it now interferes with the delivery of
efficient, quality health care. At this time, the law and its
proposed regulations are so confusing and complex, it is
virtually impossible to conclusively determine whether certain
ancillary service arrangements are or are not in violation of
the self-referral law.
During the Medicare reform debate of 1995, your
Subcommittee addressed several concerns which would be of value
to MGMA members (e.g., limiting the number of designated
services, removing the compensation arrangement prohibition in
the definition of financial relationship, etc.). At this time,
MGMA believes that by focusing on the following proposals,
Congress would provide tremendous relief to a broad set of
providers in a variety of health care settings. This would
enable physician group practices, clinics, hospitals, and other
providers to provide care in the most efficient manner
possible.
MGMA requests that Congress remove the
``compensation arrangement'' prohibition of the law. This will
enable group practices, clinics, hospitals, and other providers
that exist in the constantly evolving health care marketplace
to provide care in the most efficient manner possible.
MGMA requests that Congress clarify the definition
of ``group practice'' to allow for the diversity and
flexibility of physician group practices as they grow and
change to meet the needs of the evolving health care
marketplace.
``Compensation Arrangement''
MGMA believes that Congress should remove the
``compensation arrangement'' provision in the ``financial
relationship'' definition of the physician self-referral law.
Section 1877 of the Social Security Act prohibits certain
referrals where a physician has a financial relationship with
the entity to which a patient is referred. ``Financial
relationship'' is defined as either ``an ownership or
investment in the entity'' or a ``compensation arrangement.''
When applied to the practice of medicine for medical groups,
the inclusion of this prohibition as it relates to compensation
arrangements is extremely confusing and unworkable. The broad
sweep of this definition precludes many business activities
which are essential to the successful operation of
multifaceted, integrated health care organizations.
Under the self-referral statute, it is often unclear
whether a compensation relationship, either by employment or
contract, is directly or indirectly related to a physician's
referral. As medicine evolves and entities move to integrate
and create diverse health care delivery systems, various
complex financial interrelationships occur, raising many
questions regarding the self-referral law's applicability. The
statute becomes an impediment to innovation causing routine
transactions to be questioned in terms of their potential
indirect relationships throughout the integrated system.
The compensation exceptions have two major requirements:
A. The compensation arrangement must not directly or indirectly
relate to the volume or value of referrals or other business generated
between the parties; and
B. The compensation arrangement must meet a fair market value test.
The difficulty posed by the physician self-referral statute
is that it is virtually impossible to meet the first
requirement because it forces one to prove a negative. This
makes it extremely difficult to determine with certainty
whether or not a compensation arrangement complies with the
law.
Example 1: A hospital-based practice has multiple financial
relationships (e.g., leases, medical director fees, physician practice
income guarantees, shared use of equipment). Does the compensation
generated through these complex interrelationships have an indirect
relationship to referrals? Often, the answer is ``yes.'' Theoretically,
ancillary revenue would be indirectly used in various compensation
situations resulting in numerous technical violations of the physician
self-referral law. In addition, in many cases it is impossible to
determine fair market value. For example, the shared use of diagnostic
equipment. How can a fair market value be assigned to segments of
shared ancillary services? Again, in the absence of a method to measure
``fair market'' value, it is impossible to know for certain if the
arrangement complies with the statute.
Example 2: In the case of a hospital employed physician, a hospital
wants to pay a physician more than the physician's professional service
collections during the first year of employment. The hospital will do
so in order to compensate the physician at a level which is competitive
with the local marketplace. Under this example, the hospital must use
funds from other sources. How can one prove that this money was not
directly or indirectly derived from hospital inpatient or outpatient
services ordered by that same physician? Even if the physician's salary
meets a fair market value measure of other physicians in the area, it
is impossible to know for certain if the arrangement complies with the
law.
Example 3: Group A is a primary care physician group practice which
provides certain specialized nuclear medicine testing. Group B is an
unrelated cardiology group practice. Group A contracts with Group B to
provide the professional interpretation of the nuclear tests which the
Group A physicians order and Group B's physicians come to Group A's
facility on a regular basis to provide these services. In addition,
there are referrals back and forth between the two groups which are
unrelated to this particular contract.
Group A pays Group B based on the number of tests
interpreted on a flat fee per test basis. Under this scenario,
if a test is ordered by a Group A physician, the compensation
arrangement likely will qualify for the personal services
exception to the compensation arrangement prohibition in the
physician self referral law. However, if the Group B specialist
orders an additional test that he thinks is necessary for a
Group A patient and interprets that test result under this
contract, the exception likely would not apply because now the
payment for the interpretation does relate directly to the
Group B specialist's own referral.
In order to address this potential violation of the
statute, Group A may enter into a fixed fee per month
compensation arrangement not based on the number of
interpretations provided by Group B. However, given that there
are other referral relationships between the two practices
which may include other designated services, how can Group A be
certain that even this fixed fee payment contract does not
reflect indirectly the volume of value of additional referrals
for other designated services?
One may take this example a step further to highlight the
complexities and inequities in the statute. If Group B is a radiology
practice and Group A first refers a patient to Group B for a
consultation, and the radiologist then orders an additional test, that
order is not a considered a ``referral'' according to the physician
self-referral law. In fact, the payment arrangement would not be
acceptable in the case of the cardiologist, but it would be permissible
in the case of the radiologist.
Definition of Group Practice
MGMA requests that Congress clarify the definition of
``group practice'' to allow for the diversity and flexibility
of physician group practices as they grow and change to meet
the needs of the evolving health care marketplace.
The physician self-referral law is the only place in the
entire Medicare statute in which the term ``group practice'' is
defined. Thus, it is very important that the definition be
clear. The law must assure a uniform application to the broad
spectrum of physician group practices that exist today; it
should not impede the ongoing evolution of group practices in
an ever-changing marketplace. The definition of ``group
practice'' should contain only those elements necessary to give
effect to the other provisions of the self-referral law in
which the term is used.
The compensation test in the statute and the newly defined
unified business test in HCFA's proposed self-referral rule
illustrate the problems with the current definition of group
practice. These restrictive provisions go well beyond the
intent of addressing abusive referrals in the Medicare and
Medicaid programs. Simply put, they dictate how group practices
must operate as businesses. MGMA knows of no other federal law
which dictates how businesses, small or large, must distribute
revenue and account for overall income and expenses in order to
meet a government--rather than a market--definition of what
constitutes that particular type of business entity.
Compensation Test: The compensation test within the definition of
group practice highlights the inequity with which the statute and
proposed regulations treat physicians practicing in different settings.
For example, using the law's ``in-office ancillary exception,'' a
single specialty group of internists would be able to retain 100% of
the compensation derived from designated health services. The same
physicians practicing in a multi-specialty setting, however, would be
required to bring those same revenues up to the level of the entire
group and share them as ``profits'' with all members of the multi-
specialty practice. In this example, no referral patterns have changed,
only the type of group where the services are delivered.
Other Standards: The law authorizes the Secretary to add by
regulation and without limitation, any other standards to the
definition of ``group practice,'' above and beyond those detailed in
the legislation. This open-ended delegation defeats any kind of
regulatory certainty for group practices and invites regulatory
intrusion into the basic structure and operation of thousands of
private practices throughout the country.
Under the proposed regulations issued in January of 1998, for
example, HCFA would require groups to operate as ``unified
businesses.'' The exact meaning of this standard is far from clear. It
is a standard that Congress did not believe was necessary when
considering the legislation. It exists nowhere else in Medicare law or
regulation. There is nothing in the statute to suggest that Congress
considered a practice to be any less of a group practice simply because
certain expenses are allocated to different sites or departments, or
indeed to individual physicians, or where physicians in certain
departments or sites enjoy autonomy over certain aspects of their
practices. As groups become larger, more sophisticated, and more
diverse in their mix of locations, specialties, and capabilities, there
is a greater need to allocate and apportion both direct and indirect
costs to the separate areas of the practice in which the costs are
incurred, and similarly to allocate revenue streams to various
components of the practice in which those revenues are generated.
Otherwise, certain specialties would be placed at a tremendous
disadvantage when joining multi-specialty practices as compared to
their peers in solo or single specialty practices.
These narrow, inflexible provisions in the group practice
definition penalize physicians practicing in certain types of
group practices. As a result, physicians in large integrated
practices are at a disadvantage to physicians practicing in
single site and/or single specialty practices. In addition,
physicians in group practices generally are at a disadvantage
to solo practitioners who provide the same routine ancillary
services in the office setting.
Example: A multi-specialty, multiple location practice with family
practitioners, general internists, and several sub-specialties of
internal medicine provides various ancillary services covered by the
statute. At one office location are the family practitioners who
practice primarily in the office setting and rely heavily on routine in
office lab and x-ray. Across town are the sub-specialists who are
heavily geared toward hospital inpatient services and use only very
specialized diagnostic equipment that relates specifically to the sub-
specialty.
Under the compensation test and unified business test, the family
practitioners at one practice location must pool their ancillary
revenues and divide them with the members at all practice locations,
regardless of specialty and utilization of services. In addition, under
the unified business test, they must allocate income and expenses at
the group level, not at a specific practice location. This would hold
true for each specialty operating at the three practice sites.
Again, as described above, the bias in the law is illustrated by
the fact that, if these separate locations were three separate single
specialty practices, the physicians would be permitted to retain the
very same ancillary revenues within each site and/or specialty. In
other words, members of a single specialty group with one office would
retain 100% of their ancillary revenues while the same members in a
multi-specialty group with multiple offices would have to distribute
the very same revenues to the various physicians at different practice
sites. In addition, the individual locations could not allocate overall
operating income and expensed at the site which they practice. These
must be allocated at the overall group level. This prevents the group
from controlling expenses by operating each site as its own profit and
loss center. Again to further illustrate the inequity of the law, if
these physicians were solo practitioners, each could retain 100% of the
ancillary revenues for the services they provided in their own office
and allocate overall income and expenses to fit their business and
investment needs.
Conclusion
The physician self-referral law is a maze that group
practices must navigate on a daily basis. MGMA recognizes the
importance of eradicating the health care system of fraud and
abuse. However, while the intentions behind the self-referral
law are commendable, it has created unintended consequences.
The self-referral law shackles group practices and often
prevents them from meeting patients' needs. As a result of the
law, group practices cannot evolve and integrate in a manner
which would enable them to provide patients with the most
convenient, high quality care. Furthermore, group practices
spend an inordinate amount of time and money trying to decipher
the complexities and ambiguities of the self-referral law,
while they should be focusing their efforts on providing care.
Today, the health care marketplace is more complex than
ever. This is due not only to the integration of the health
care system but also to the numerous rules and regulations that
govern the delivery of health care. Physician group practices
are a vital component of this complex health care system.
However, it has become increasingly more difficult for group
practices to provide efficient, high quality health care.
MGMA urges Congress to make these legislative changes to
the self-referral law. Specifically, MGMA requests Congress
clarify the definition of ``group practice'' and remove the
``compensation arrangement'' provision of the law. These
changes would provide significant relief for all providers who
must comply with the self-referral law and the patients they
serve.
MGMA looks forward to working with Congress to addresses
this important health care issue. If you should have any
questions, please contact Aaron Krupp, Government Affairs
Representative.
Statement of the National Coalition for Quality Diagnostic
Imaging Services, Houston, TX
The National Coalition for Quality Diagnostic Imaging
Services (``NCQDIS'') is delighted to have this opportunity to
submit this written testimony with regard to the prohibition on
physician self-referrals set forth in Sec. 1877 of the Social
Security Act (the ``Stark Law''). NCQDIS is an association of
both public and private companies dedicated to the conduct of
high quality diagnostic imaging services in outpatient
settings.
NCQDIS applauds the objectives of the Stark Law and firmly
believes that physicians' decisions regarding the facilities to
which they refer should be driven by considerations of quality,
patient convenience, and cost efficiency, and should not be
influenced by financial incentives. However, we do have a
number of concerns regarding the potential impact of this
complex law on diagnostic imaging centers' legitimate financial
relationships with radiologists and other physicians.
More specifically, NCQDIS believes that Congress should
consider a new exception for certain public companies with less
than $75 million in shareholders equity and clarification of a
number of other provisions of the exception for public
companies. In addition, NCQDIS believes that Congress should
clarify the definition of ``referral'' as that term applies to
a radiologist's request for radiology services; clarify the
impact of the Stark Law on diagnostic imaging services
supervised or interpreted by non-radiologists; modify the
medical supervision requirements that must be met under the in-
office ancillary services exception; modify the in-office
ancillary service exception to make this exception more readily
available to clinics that utilize mobile units for the
provision of diagnostic imaging services to their patients; and
modify the compensation provisions in the personal services
exception. Each of these issues is discussed at further length
below.
I. Publicly Traded Securities Exception
The Stark Law provides no exception for public companies
with less than $75 million in shareholder equity. Yet, such
companies do not have access to sufficient information
concerning the identity of their shareholders to assure
compliance with the Stark Law. For example, it is impossible
for a public company of any size to assure that no family
member of a referring physician purchases its stock. A public
company's inability to provide absolute assurances of its
compliance with the Stark Law may affect its ability to obtain
capital and may interfere with audit and other financial and
other disclosure obligations. Moreover, it is unclear how such
a company can comply with the reporting requirements set forth
in the proposed regulations issued by the Health Care Financing
Administration in January, 1998 (the Proposed Regulations),
especially reporting requirements applicable to financial
relationships that are eligible for an exception.
II. Designated Health Services
A. Exclusion of Radiology Services Requested By a Radiologist
Pursuant To a Request For a Consultation By Another Physician
The Stark Law excludes from the definition of a ``referral'' a
request by a radiologist for the provision of radiology services ``if
such services are furnished by (or under the supervision of) such . . .
radiologist . . . pursuant to a consultation requested by another
physician.'' Social Security Act Sec. 1877(h)(5)(C). NCQDIS believes
that this exclusion is intended to exempt from the scope of the Stark
Law radiology services provided by a diagnostic imaging center where
such services are performed pursuant to a referral by a physician who
has no financial relationship with the diagnostic imaging center, even
where the referral is made to the center itself and not to a particular
radiologist. We also believe that this exception applies where the
services are performed by a diagnostic imaging center and then
interpreted by the radiologist who is an independent contractor for the
center. Finally, we believe that this exception is applicable where the
interpretive report is communicated to the referring physician, even
where the radiologist himself does not explicitly ``request'' the
performance of the study or bill for a ``consultation.'' We request
that Congress modify the language of Sec. 1877(h)(5)(C) to reflect this
understanding of the intent underlying this important exception.
Also, if the Stark Law is to be extended to imaging services that
are routinely supervised and interpreted by cardiologists,
neurologists, and other non-radiologists on the grounds that such
services are nonetheless ``radiology'' services, the exemption provided
by Sec. 1877(h)(5)(C) should be extended to non-radiologists on the
same terms as are available for radiologists. As HCFA notes in the
preamble to the Proposed Regulations, the Stark Law provides that the
term ``referral'' does not apply to the request by a radiologist for a
radiology service where the radiology service is performed under the
radiologist's supervision and is performed pursuant to a request for a
consultation by another physician. Social Security Act,
Sec. 1877(h)(5)(C). While the Proposed Regulations provide that a
number of imaging services that are routinely performed or interpreted
by non-radiologists (e.g., echocardiography services) as ``radiology''
services, they do not enable non-radiologists who supervise such
services to qualify for the exception that would be applicable if the
imaging service were supervised by a radiologist.
In this regard, it should be noted that referring physicians often
request non-radiologists who specialize in the interpretation of
various diagnostic studies to supervise and interpret those studies in
much the same manner as an internist or other non-radiologist might
request a radiologist to supervise and interpret an MRI, CT, or other
radiological study. Where a non-radiologist specialist supervises the
performance of a diagnostic study pursuant to a consultation requested
by another physician, the performance of the study does not raise a
potential for abuse and should not be considered a ``self-referral''
within the meaning of the Stark Law.
B. Definition of Radiology Services Included As Designated Health
Services
The Proposed Regulations have resulted in considerable
confusion regarding the meaning of the term ``radiology
services'' as used in the Stark Law. For example, confusion has
arisen regarding whether invasive radiology procedures are
included within the scope of the Stark Law, whether the Stark
Law applies where an imaging procedure is performed primarily
by non-radiologists, and where the use of an imaging modality
is incidental to a surgical procedure. Accordingly, we request
that Congress more precisely define those ``radiology''
services that are subject to the Stark Law.
In this regard, it should be noted that, under the Proposed
Regulations, HCFA is proposing to include the professional
component of radiology services as a ``designated heath
service.'' We urge Congress HCFA to clarify that professional
services were not intended to be included within the scope of
the Stark Law.
III. Medical Supervision Requirements
Order to be exempt from the Stark Law under the in-office
ancillary services exception, a radiology service must be
performed under the ``direct supervision'' of a ``group
practice member.'' The Proposed Regulations would define
``direct supervision'' to require that a group practice member
be on site and available during the performance of the service
but would preclude a physician engaged by the group as an
independent contractor for the interpretation of the study from
providing such supervision, since independent contractors are
not considered ``group practice members'' for Stark Law
purposes.
We believe that this language should be modified to delete
the term ``direct supervision'' and to substitute ``clinically
appropriate level of supervision'' and that the language should
be further amended to clarify that the supervision can be
provided by an independent contractor. In final rules published
on October 31, 1997 HCFA categorized diagnostic tests into
three categories, based on the level of medical supervision
that is considered clinically necessary. It would be
inappropriate and extremely confusing for HCFA to impose
supervision requirements under the Stark Law that are
potentially in conflict with the supervision requirements
imposed for Medicare coverage purposes.
Also, while we understand that HCFA excluded independent
contractors from the definition of ``group practice member'' in
order to make it easier for some groups to meet the ``75%
test'' (i.e., the requirement that at least 75% of the services
of group practice members be provided through the group), this
modification would also preclude independent contractors from
supervising designated health services provided to the group's
patients. Thus, for example, a radiologist who is engaged by a
group practice as an independent contractor to interpret
radiological studies would not be permitted to supervise the
performance of those studies. In our view, this result simply
makes no sense and, for this reason, we would suggest that the
Stark Law be modified to allow independent contractors to be
considered group practice members for the purposes of the
``direct supervision'' requirement of the in-office ancillary
services exception. regardless of how they are treated for the
purposes of the 75% test.
IV. Location Requirements Under Group Practice Exception
The Preamble to the Proposed Regulations exception suggests
that services provided by a mobile unit will not be considered
to be provided at the same location as a physician's office,
for the purposes of meeting the location requirements of the
in-office ancillary services exception. This interpretation
will make it significantly more difficult for group practices
to qualify for this exception. Mobile units provide needed
access to costly services in rural and medically underserved
areas, and mobile units often provide these services in close
proximity to the medical group whose patients are being
treated. We do not believe that there is any reason to preclude
services that are performed for a group's patients in a mobile
unit in the group's parking facilities from being considered
part of the group's office for the purposes of the ``location''
requirements of the in-office ancillary services exception, and
we respectfully request that Congress modify the language of
the Stark Law to ensure that mobile units brought into an area
to provide needed services to physicians patients be treated as
part of the physician's office for the purposes of the ``in
office ancillary services'' exception.
V. The ``Personal Services'' Exception
The Proposed Regulations require that, in order to meet the
requirements of the personal services independent contractor
exception, payment to independent contractors must be
determined in advance. This requirement may have to be met in
order for radiologist to be retained on an independent
contractor basis to interpret studies performed for a
diagnostic imaging centers.
Unlike the language used in the new proposed ``fair market
value'' exception--which requires only that the formula for
determining compensation be determined in advance--the language
used in the independent contractor exception appears to require
that actual (presumably aggregate) compensation be determined
in advance. Interpreted in this manner, the Proposed
Regulations would appear to preclude physicians engaged as
independent contractors from providing interpretations of
radiological studies on a fee schedule, percentage of revenues,
or other productivity basis, since aggregate compensation
cannot be determined in advance under such productivity-based
formulas.
The legislative history of the Stark Law specifically
suggests that Congress intended to allow independent
contractors to be paid on a fee schedule basis, and we would
suggest that the Stark Law be modified to allow independent
contractors to be paid on the basis of fee schedules,
percentage of revenue formulas and other productivity-based
methods. Unless this modification is made, it may prove
difficult, if not impossible, for diagnostic imaging centers
and hospitals to obtain high quality interpretations of
diagnostic studies on a cost efficient basis.
* * * * * * *
If you have any questions regarding this testimony, please
do not hesitate to contact NCQDIS counsel, Diane Millman at
(202) 756-8021.
Statement of James W. McLane, NovaCare, Inc., King of Prussia, PA
On behalf of NovaCare, Inc., a leading national provider of
rehabilitation and human resource management services, we
commend the Subcommittee on Health for providing an opportunity
to comment on the Medicare ``self-referral'' laws. We are
particularly focused on the implementation of Section 13562 of
the Omnibus Budget Reconciliation Act of 1993 (Public Law 103-
66) and Section 152 of the Social Security Amendments of 1994
(Public Law 103-432). These laws held the promise that the
Health Care Financing Administration would implement a
regulatory environment that would assure fair competition in
the delivery of designated health services including physical
and occupational therapy services. Unfortunately, delays in
implementation, haphazard attention to enforcement and changing
market conditions have undermined confidence that fair
competitive systems in the provision of physical therapy and
occupational therapy will be assured by public policy.
We call to the committee's attention three specific issues:
There is a continued need for government to establish fair
guidance to prevent unwarranted self-referrals and to assure
competitive delivery of physical and occupational therapy services:
The changing health market environment does not alter the
need for government to establish fair guidance preventing unwarranted
self-referral of patients. Furthermore, we believe Congress must
consider tightening the statute which currently exempts certain
physician owned ancillary services. We believe the limited exemptions
permitted under the law have become a loophole for physicians to self-
refer in securing physical and occupational therapy services. Given the
vagueness of the statute and the lack of meaningful enforcement, the
exemption is being abused.
As Dennis Weissman wrote in the preface to the Washington G-2
report's manuscript, Federal Limits on Physician Referrals:
. . . a bright line between what is legal and what is not -
that's what health care providers were promised when the
federal government was concerned over fraudulent or abusive
over-utilization of medical services reimbursable under its
health care programs began curbing referrals by physicians to
entities with which they have a financial relationship . . . .
But the bright line promised by the Stark law never
materialized. Instead the statutory prohibitions and the
exceptions have lead to much uncertainty, confusion and
frustration among affected providers over how to structure
their business arrangements in order to comply with federal
requirements.'' \1\
---------------------------------------------------------------------------
\1\ Dennis W. Weissman, Publisher & President, Washington G-2
Reports; Preface, Federal Limits on Physician Referrals--How the Stark
Law Affects Your Business Arrangements.
Fairness and the balance of cost and quality of care
continue to be necessary goals of health public policy. We are
experiencing critical periods of changes where there have been
major dislocations, especially in the health care services
ancillary sector because of the radical changes enacted as part
of the Balanced Budget Act of 1997. Within the therapy sector,
the BBA altered acute hospital discharge practices, imposed new
payment systems on skilled nursing facilities, home health
agencies and rehabilitation hospitals, and capped outpatient
Part B therapy services. The labor market for professional
therapists is in free-fall, with salaries dropping over 25% for
those professionals successful in finding jobs. The lack of
realistic rules for competition has added to the market chaos.
We are experiencing the worst of all worlds -lack of clarity,
incentives for manipulation, avoidance of the self-referral
requirements, and indifference about enforcement.
The failure to promulgate rules decisively and to enforce
those rules has created an environment of ``opportunistic
venturing,'' eroding the intent of Congress. Absent final
regulations, providers such as NovaCare whose reputations for
compliance and integrity are paramount in the values by which
the company operates are cautious in execution. Unfortunately,
those who are prepared to cross the line are taking full
advantage of the delayed implementation.
We strongly urge the committee to press the Health Care
Financing Administration to promulgate the appropriate self-
referral rules and to provide meaningfully enforcement of the
law.
Government must curb abuses of the in-office
ancillary exception.
There is a need to assure a level playing field in
interpreting the in-office ancillary exception. In a number of
markets where we provide outpatient rehabilitation, we are
witnessing widespread disregard of the exemption restrictions
and flagrant violations of the intent of the self-referral law.
The litanies of abuses are astonishing. For instance, we have
heard of doctors restricting referrals to their own exclusive
relationships, of invitations to our existing staffs to leave
our employment and create split fee relationships with
physician practices, and of ``dummy'' relationships that abuse
``incident to'' relationships to bill non-qualified services as
professional therapy.
The statute is very clear in stating that the referring
physician, a member of his/her medical group, or an individual
directly supervised by the referring physician or another
qualified group member, must perform services, such as physical
therapy and occupational therapy, personally. The direct
supervision is scoffed at by many physicians. While HCFA has
recently promulgated strict interpretations for supervision of
PTs and OTs, it has proposed through program memorandums
stringent interpretations of CPT4 code instructions.
Unfortunately, the enforcement focus has been focused
myopically at the provision of outpatient therapy services in
the outpatient clinic and nursing home settings and has ignored
the requirements for physician based services.
The law is specific that the services must be furnished in
a building in which the physician and/or his/her medical group
provide physician services unrelated to designated health
services. This additional exception for in-office ancillary
services was viewed as a way to facilitate group practices.
Unfortunately, we periodically learn of relationships that are
at best creative and at worst violate the location requirement.
In some markets, we are observing physicians purchasing
existing CORFs and outpatient therapy clinics and running them
as if they meet the medical group exemption.
Both the statute and regulations are explicit in defining
bonafide employment relationships. We support the HCFA
interpretation for leased employees such as occur under a
contractual relationship with a professional employee
organization (PEO) or a temporary staffing agency.
Unfortunately, we encounter relationships that are far less
structured and appear to be nothing more than physicians
providing billing camouflage for therapy services. In the most
questionable form, the physician is employing individuals who
are not qualified under state practice acts to perform therapy
services. Attached is a summary of 2 recent court decisions in
Pennsylvania where the courts concluded that in-office
ancillary service exceptions provided the physician the
opportunity to use unlicensed personnel.
Relaxed enforcement creates potential for abuse of
therapy services in physician offices.
Implementation of Section 4541 of the BBA of 1997 has
created an illusion that HCFA no longer has a concern about
over-utilization of Part B therapy services in physician
offices because the arbitrary therapy cap creates a limit on
program liability.
As data which we have shared with the committee shows, the
impact of the cap is most severe on individuals with the most
acute rehabilitation needs. These are not the individuals who
are seen in physician offices. In fact, the relaxation of
utilization criteria for physician services will have
significant cost as the per capita billings for the types of
rehabilitation required by beneficiaries being served in
physician settings fall well below the mean of total per capita
expenditures for Part B rehabilitation services. While there
has been modest statutory direction to establish a level
playing field for the provision of physical and occupational
therapy, enforcement is non-existent.
Conclusion
The failure to have rules promulgated in a timely manner
and uneven enforcement of existing rules leaves an unfair
advantage and an unsettled market environment. HCFA's delay in
issuing the rules and enforcing the law exacerbates competitive
forces. Rehabilitation agencies are besieged with new
requirements and stringent enforcement. HCFA is so focused on
select issues affecting the delivery of rehabilitation services
that it is ignoring some of the most important issues.
Putting appropriate self-referral rules in place and
assuring that they are properly implemented and monitored must
become a priority for the Congress and the Health Care
Financing Administration.
[Attachments are being retained in the Committee files.]
Statement of the Outpatient Ophthalmic Surgery Society, Bellevue, WA
The Outpatient Ophthalmic Surgery Society (OOSS), an
organization composed of approximately 600 ophthalmologists
dedicated to providing high-quality ophthalmic surgical care in
various outpatient settings, is delighted to present testimony
to the House Ways & Means Subcommittee on Health regarding
physician ownership and referral laws. Over three hundred of
OOSS members own and operate ambulatory surgery centers that
serve Medicare patients undergoing cataract surgery, and are
therefore both familiar with, and qualified to comment on,
physician self-referral restrictions in these settings.
Ambulatory Surgery Centers
For purposes of Medicare reimbursement, an ambulatory
surgery center (ASC) is defined as a distinct facility that
provides exclusively outpatient surgical services, and meets
certain Medicare conditions of participation.
ASCs have proliferated since the 1980s. At the end of 1983,
there were 239 Medicare certified-ASCs. Today, there are nearly
2,500 ASCs. The number of procedures performed in the ASC
setting has grown, too. In 1996, more than 1.5 million Medicare
allowed services were performed in the ASC setting. Nearly 50%
of those procedures were ophthalmic services. Congress and the
Health Care Financing Administration (HCFA) have helped promote
ASC industry growth, recognizing that ASCs provide a patient-
friendly, high-quality, low-cost alternative to hospital-based
surgery.
ASCs save the Medicare program hundreds of millions of
dollars each year. Medicare payments to ASCs for outpatient
surgical procedures are usually substantially lower than
payments to hospitals (both on an inpatient and outpatient
basis). In fact, according to the Medicare Payment Advisory
Commission (MedPAC), the median payment to a hospital for a
cataract removal procedure (i.e., CPT code 66984) in 1996 was
approximately $1,150, while the median payment to an ASC for
that same procedure was only $903, a savings of $247, or more
than 20% (See MedPAC Report to Congress, June 1998). Moreover,
ASCs have brought the benefits of competition to the entire
outpatient surgery market: the opening of an ASC in a
particular area has frequently been followed by a significant
reduction in the charges of local hospitals for outpatient
surgery, as well as increased attention on the part of the
hospitals to quality of care and patient satisfaction.
OOSS supports clear, unambiguous physician self-referral
prohibitions that prevent unethical financial relationships and
reinforce the critical element of trust in the physician-
patient relationship. However, these prohibitions need not and
should not apply to services provided in the ASC setting. As
discussed above, ASCs save the Medicare program hundreds of
millions of dollars. Moreover, a number of studies, including a
noted Florida Cost Commission Review of physician self-referral
patterns, examined services provided in the ASC setting and
concluded that there was no ascertainable abuse with respect to
the referral of patients by operating surgeons to ASCs in which
they have an ownership interest. Indeed, the Office of the
Inspector General has issued a proposed safe harbor which
explicitly protects the physician investment in the ASC, and
HCFA has proposed that physician investments in ASCs be
specifically exempt from the self-referral proscription.
Specifically, HCFA said the following in the preamble to its
proposed regulation regarding the physician self-referral law:
``The Secretary has determined . . . that referrals for . . .
[designated health] services furnished in an ambulatory
surgical center . . . do not pose a risk of Medicare program or
patient abuse.'' (63 Fed. Reg. at 1666, Jan. 9, 1998).
Why is the ASC different from other ventures with regard to
which fraud and abuse is more likely to occur? There are
several reasons. First, more than two-thirds of the ASCs in the
country have been developed and owned by physicians to maximize
patient safety and optimize clinical results through control of
the surgical environment, which oftentimes is lacking in the
hospital. Indeed, if physician self-referral restrictions were
to prohibit doctor ownership of ASCs, there would be virtually
no ASCs left. Second, unlike services provided by clinical
laboratories and diagnostic imaging centers, surgical services
performed in an ASC are subject to a utilization review by peer
review organizations; as such, there is a check on
inappropriate utilization. Finally, the physician operates in
the ASC as an extension of his or her office, much like an
internist might offer in-office ancillary laboratory or
radiology services. The surgeon is not a passive investor; a
``referral'' is not really taking place. Moreover, unlike in
situations involving in-office laboratory or radiology
services, where the physician performs little of the ancillary
work, in cases of surgery, the physician him or herself is
actually performing the work for which the patient was sent to
the surgery center.
While Congress clearly did not intend for the physician
self-referral ban to apply to services performed in the ASC
setting, the law could be read to apply to certain services
provided in ASCs. For example, prosthetics, orthotics, and
prosthetic devices are designated health services. Many common
implants--e.g., intraocular lenses--are considered prosthetics.
Thus, the physician-self referral ban could be interpreted to
reach situations where surgeons implant prosthetics in ASCs
which they own and to which they ``refer'' their patients and
for which Medicare is not making separate reimbursement because
it's a component of the facility fee.
OOSS is pleased that HCFA recognized that there is no risk
of program or patient abuse when a physician refers a patient
to his or her ASC, and that the Agency is proposing to
expressly exempt from the physician self-referral proscriptions
services performed in ASCs. See 63 Fed. Reg. At 1666 (Jan. 9,
1998) and 42 C.F.R. Sec. 411.355(d)(1) (proposed). Nonetheless,
we urge Congress to codify this exception in the statute.
HCFA's proposed regulation remains in proposed form and
apparently will not be finalized for at least another year.
Until then, physician investment in ASCs is an uncertain
endeavor. Physicians who choose to invest in ASCs take a
calculated risk based on HCFA's stated approval of these
arrangements, but expose themselves to possible prosecution
should HCFA change its view of these arrangements or choose not
to include the express exception in the final regulations.
Congress should express its approval of physician ownership of
ASCs and ensure that these arrangements are exempt from the
self-referral prohibition by including an express exception in
the statute. Specifically, we recommend that Congress adopt the
language it approved in Sec. 8204(f) of the ``Balanced Budget
Act of 1995,'' H.R.2491 (vetoed), which expressly excluded ASC
services from the self-referral law.
Intraocular Lens, Eyeglasses and Contact Lenses
In devising the original self-referral statute, and its
subsequent 1993 amendments, Congress set forth a list services
to which the self-referral prohibition applies. This list of
``designated health services'' includes, among other things,
``prosthetics, orthotics, and prosthetic devices and
supplies.'' HCFA has interpreted the term ``prosthetic
devices'' to include eyeglasses and contact lenses furnished
subsequent to cataract surgery. (63 Fed. Reg. at 1722, Jan. 9,
1998). HCFA has defined ``prosthetic devices'' in this way
because Sec. 1861(s)(8) of the Social Security Act defines the
term ``prosthetic devices,'' for coverage purposes, as
``including one pair of conventional eyeglasses or contact
lenses furnished subsequent to each cataract surgery with
insertion of an intraocular lens.''
Congress should amend the statute to expressly exclude
eyeglasses and contact lenses furnished subsequent to cataract
surgery from the definition of ``prosthetic devices.'' There is
no incentive to overutilize or abuse this post-cataract surgery
benefit since (1) one pair of conventional eyeglasses or
contact lenses has been acknowledged by HCFA to be medically
necessary under such circumstances, (2) Medicare payment for
post-cataract eyeglasses or contact lenses is on a reasonable
charge basis, and (3) Medicare covers only one pair of
eyeglasses or contact lenses, and only when following cataract
surgery. Moreover, there is no evidence of which we are aware
that a physician is more likely to order eyeglasses or contact
lenses because he or she operates an optical shop. These
optical dispensaries exist for the convenience of the patient
and as a modest source of revenue to the owner-physicians. They
are generally operated as an integral part of the physician's
private practice. Furthermore, patients are certainly aware of
the myriad of alternative sources of eyeglasses and contact
lenses from national chains to local opticians.
OOSS also urges Congress to exempt intraocular lenses
(IOLs) from the definition of prosthetic devices. While HCFA
did not propose to include IOLs in this definition of
prosthetic devices in its proposed regulation, there remains
ambiguity as to whether the statute likewise includes IOLs.
Intraocular lenses replace the natural lens of the eye that is
removed during cataract surgery. As cataract surgeons, OOSS
members know--perhaps better than anyone--the extraordinary
benefits that have resulted from the development and refinement
of this cutting-edge technology. Instead of the thick ``Coke
bottle'' glasses with which cataract patients once had to
contend, patients who receive an IOL during cataract surgery
often have vision that is better than what they had as
teenagers. Moreover, IOL technology has dramatically reduced
the trauma and complications associated with the cataract
procedure itself; recent developments have made it possible to
perform cataract surgery through an incision so small that it
can be closed without even a single stitch. And research now
underway will likely make it possible to implant lenses with
multiple focal lengths, further reducing the need for
eyeglasses in the post-cataract patient. Over one million
Medicare beneficiaries receive this remarkable vision-restoring
procedure each year.
IOLs should not be considered a prosthetic device. Rather
IOLs should be considered a component of ASC facility services,
especially for physician self-referral purposes. The
implementing regulations for ASC services (42 C.F.R.
Sec. 416.61) include IOLs in the definition of ASC facility
services. Thus, IOLs implanted in ASCs are covered as a
component of ASC ``facility services'' and are distinguishable
from other ``prosthetic devices,'' under the governing statute
and implementing regulations.
Moreover, reimbursement for IOLs is made through the ASC
facility payment, and pre-set by Congress at $150. As noted
above, ``[t]he Secretary found no risk of abuse when payment
for . . . services was included in the ambulatory surgical
center payment rate . . . .'' (63 Fed. Reg. at 1666, Jan. 9,
1998).
Finally, any application of the physician ``self-referral''
provision to IOLs implanted in ASCs could have a substantial,
devastating impact on ASCs, the Medicare beneficiaries they
serve, and the Medicare program. Virtually all cataract
procedures are performed for Medicare patients and require the
implantation of an IOL. Cataract facility services performed in
ASCs are provided at substantially lower cost than in hospital
outpatient departments. Therefore, applying the physician
``self-referral'' provisions to IOLs implanted in ASCs would
likely jeopardize the financial viability of ASCs throughout
the country and result in a significant increase in Medicare
outlays for cataract facility services. This result is neither
intended by Congress nor required by the express terms of the
physician ``self-referral'' provisions.
OOSS strongly recommends that Congress clarify the statute
to expressly provide that the implantation of an intraocular
lens during cataract surgery does not represent the provision
of a designated health service (i.e., ``prosthetic devices''),
triggering Stark referral restrictions, and to provide that
``eyeglasses or contact lenses'' also are not subject to the
physician self-referral ban. Specifically, OOSS suggests that
Congress accomplish this objective in one of two ways:
Delete ``prosthetics, orthotics, and prosthetic
devices and supplies'' as a designated health service, as
Congress did in Sec. 8202 of the ``Balanced Budget Act of
1995,'' H.R.2491 (vetoed), or
Amend Sec. 1877(h)(6)(H) of the Social Security
Act to read ``prosthetics, orthotics and prosthetic devices and
supplies, other than an intraocular lens inserted during or
subsequent to cataract surgery, eyeglasses, or contact
lenses.''
The latter approach was suggested by Congressman Stark in a
proposed bill that he introduced in 1995.
Direct Supervision
Finally, OOSS urges Congress to amend the section of the
in-office ancillary services exception to clarify the meaning
of ``direct supervision. Section 1877(b)(2) provides a general
exception to both ownership and compensation arrangements for
certain services (i.e., in-office ancillary services, subject
to certain exceptions) that are, among other things, furnished
personally by the referring physician, personally by a
physician who is a member of the same group practice as the
referring physician, or personally by individuals who are
directly supervised by the physician or by another physician in
the group practice. HCFA proposed to define the ``direct
supervision'' criterion to require that the supervising
physician be on site and immediately available when a
designated health service is provided (although brief absences
are permitted). See 63 Fed. Reg. at 1684 (Jan. 9, 1998) and
Sec. 411.351 (proposed).
HCFA's proposed definition of the ``direct supervision''
criterion would impose unnecessary burdens on Medicare
beneficiaries in certain instances. For example, in the
situation where an ophthalmologist and optometrist are in
practice together, and jointly own and operate an optical shop
within their office, the ophthalmologist would not be able to
refer Medicare beneficiaries to that optical shop for Medicare-
covered post-cataract surgery eyeglasses unless the physician
personally fitted the glasses or was on site and immediately
available when the optometrist fitted the glasses. On days when
the ophthalmologist performed surgery, he or she could not be
considered to be ``immediately available'' to the optometrist,
and thus could not offer his or her patients the convenience of
purchasing post-cataract surgery eyeglasses from the optical
shop within his or her office.
This limitation discriminates against Medicare
beneficiaries and Medicaid enrollees. Private pay patients
would be permitted to purchase eyeglasses right in the
physician's office while Medicare beneficiaries and Medicaid
enrollees would be forced to purchase eyeglasses from another
location.
Moreover, it is unnecessarily restrictive. Optometrists, or
optometrists in conjunction with opticians are generally
permitted by state law to fit, grind, and dispense eyeglasses
without physician supervision. Requiring direct supervision
from an ophthalmologist in this instance serves no medical
purpose.
Furthermore, HCFA's interpretation of the statute appears
to be inconsistent with Congressional intent. The Conferees to
the amendments to the Stark legislation enacted in 1993 stated
as follows:
The Conferees intend that the requirement that direct
supervision . . . by a physician would be met if the lab is in
a physician's office which is personally supervised by a lab
director, or a physician, even if the physician is not always
on site. Cong. Rec. at H6003 (Aug. 4, 1993) (emphasis added).
OOSS urges Congress to amend this section of the statute to
clarify that the supervising physician need not be on site at
all times. Specifically, Congress should replace
Sec. 1877(b)(2)(A) with the following:
``(A) that are furnished personally by the referring physician,
personally by a physician who is a member of the same group practice as
the referring physician, or personally by individuals who are under the
general supervision of the physician or of another physician in the
group practice, and.''
Additionally, Congress should add at the end of
Sec. 1877(h) the following new paragraph:
``(7) General Supervision.--An individual is considered to be
under the `general supervision' of a physician if the physician
(or group practice of which the physician is a member) is
legally responsible for the services performed by the
individual and for ensuring that the individual meets licensure
and certification requirements, if any, applicable under other
provisions of law, regardless of whether or not the physician
is physically present when the individual furnishes an item or
service.''
The amendments suggested above were included the ``Balanced Budget
Act of 1995,'' H.R. 2491 (vetoed), as Sec. 8204(a)(1).
The Outpatient Ophthalmic Surgery Society appreciates the
opportunity to present this testimony to the Subcommittee. Please do
not hesitate to contact Washington counsel, Michael Romansky at (202)
756-8069, if you have any questions about this matter.
Premier, Inc.
May 27, 1999
The Honorable William M. Thomas
Chairman, Subcommittee on Health
Committee on Ways and Means
U.S. House of Representatives
Washington, D.C.
Dear Chairman Thomas:
On behalf of the Premier, Inc., I am submitting the following
statement for the record of the hearing held May 13 on the ``Medicare
Self-Referral Law'' before the Health Subcommittee of the Committee on
Ways and Means.
Premier, Inc., represents over 220 owner hospitals and hospital
systems that own or operate 700 healthcare institutions and have
purchasing affiliations with another 1,200. Premier owners operate
hospitals, HMOs and PPOs, skilled nursing facilities, rehabilitation
facilities, home health agencies, and physician practices. We
appreciate the opportunity to urge your support to make the federal
physician self-referral prohibition laws more reflective of today's
healthcare market place.
Hospitals and physicians are changing the way in which they
organize themselves and their approach to healthcare delivery. The
impetus of this change comes from private and government initiatives
that challenge us to deliver high quality care at the lowest possible
cost. Integration of service delivery, a central component of health
system change, promotes the coordination of care in a manner that is
both cost effective and a higher quality.
Hospitals are concerned about the adverse consequences of
physicians choosing to refer solely based on financial self-interest.
However, the laws against self-referral have created substantial
obstacles to hospital and physician integration. The current physician
self-referral law (Stark II) and the related proposed implementation
rules are far too complex and confusing. The proposed rule published
January 9, 1998 by HCFA took five years to write and drew 13,000
comment letters. HCFA does not expect the final rule to be published
until 2000. Even though HCFA is working to address the concerns raised
in the comment letters, we believe a more reasonable approach is to
simplify the law.
A fundamental problem is that the law is built on precise
exceptions to a general prohibition of any referral by a doctor to an
entity with which he or she has a ``financial relationship.''
Regardless of intent, an arrangement can be deemed illegal if it does
not fit into an exception. One way to minimize the complexity of the
self-referral law would be the elimination of the compensation
restrictions. This provision is unnecessary in that it essentially
duplicates the relevant provisions of the Federal Medicare and Medicaid
anti-kickback law. The anti-kickback statute addresses compensation
relationships and has been amended to authorize the imposition of civil
money penalties. Hospital fraud and abuse compliance programs provide a
more appropriate method of checking any potential abuses.
Thank you for the opportunity to share our perspectives on the
physician self-referral prohibition law. The result of the compensation
provision is confusion and the loss of hospital and physician
opportunities to advance the integration of delivery that benefits our
patients.
Sincerely,
James L. Scott
President
Society of Cardiovascular & Interventional Radiology
Fairfax, VA
May 27, 1999
The Honorable Bill Thomas
Chairman, Subcommittee on Health
House Ways and Means Committee
Washington, D.C.
Dear Mr. Chairman:
The Society of Cardiovascular & Interventional Radiology (SCVIR),
which represents more than 3,200 physicians who specialize in the field
of minimally invasive or interventional procedures, requests that the
following statement be entered into the record for the May 13, 1999,
hearing regarding the physician self-referral prohibitions included in
the Social Security Act.
SCVIR supports the elimination of financial incentives within the
Medicare program that encourage the over-utilization of medical
services. The provision of medically unnecessary and inappropriate care
that results from over-utilization compromises the public's perception
of the medical profession as well as the physician decision-making
process in rendering medical care to patients. Providing appropriate
medical care should be of foremost concern to all physicians. Financial
incentives that compromise the treatment decisions of physicians should
be discouraged and eliminated. The physician self-referral ban was
intended to accomplish that objective and for that reason SCVIR
continues to support some restrictions on physician self-referrals.
The physician self-referral ban was also intended to provide
clarity to the health care profession by establishing ``bright lines''
to guide physician and provider conduct and financial relationships.
This laudable goal has yet to be achieved due to the failure of the
Health Care Financing Administration (HCFA) to implement timely and
readily understood regulations that would provide insight into areas
that may be confusing or unclear under the statute. The failure to
promulgate a final rule has generated considerable uncertainty for
physicians and others who seek guidance on how to structure ownership
or compensation arrangements that do not violate the statute.
SCVIR would urge the Subcommittee to direct HCFA to issue final
rules to implement the physician self-referral ban for designated
health services as soon as possible. By so doing, HCFA will greatly
assist physicians and providers in understanding how to structure
relationships that comply with the law. Allowing over five years to
elapse between passage of the prohibitions and implementation of the
statute is clearly unacceptable where the penalties for non-compliance
can be severe.
SCVIR also suggests that the Subcommittee revisit the statute to
review the efficacy of its provisions. While supporting restrictions on
physician self-referrals to entities in which the physician has a
financial relationship, SCVIR believes that the statute should take
into account intent or distinguish between truly minor violations and
the abuse that contributed to the adoption of the statute in this first
place. While many physicians are frustrated by the labyrinth of the
exceptions that must be navigated to determine compliance, the original
purpose of the statute was to ensure that physicians provide high
quality medical care unmotivated by ownership or compensation
arrangements. The statute also protects the taxpayer dollar. SCVIR
believes that the original purpose and need for the statute should not
forgotten in the frustration over HCFA's inability to develop clear and
understandable regulations.
Thank you for taking the time to consider our views and for
providing the opportunity to submit this statement.
Sincerely,
Matthew A. Mauro, M.D.
President, SCVIR
Statement of the Stark Law Coalition
This testimony is submitted by the Stark Law Coalition (the
``Coalition'') and sets forth the Coalition's recommendations
with regard to possible amendments of Sec. 1877 of the Social
Security Act, as amended (``the Stark Law''). The Stark Law
Coalition is a Coalition of medical groups and physician
practice management companies (``PPMCs'') that have coalesced
around issues of common concern that are raised by the Stark
Law. Members of the Coalition include a number of clinics,
physician practice management companies and physician practices
in a number of medical specialty areas.
1. Publicly-Traded Securities Exception
The Stark Law should be modified to exempt publicly-traded companies
with less that $75 million in stockholder equity or to authorize PPMCs
to sell shares to referring physicians in de minimus amounts.
Approximately 10% of all physicians actively practicing in
the United States have their practices managed by a physician
practice management company (``PPMC''). Many PPMCs acquire the
non-medical assets of physician practices and then provide
those assets back to the practices under long term management
contracts. Many such PPMCs do not have $75 million in
shareholder equity and therefore are not eligible for an
exception to the Stark Law.
These PPMCs typically pay for the non-medical assets of
such practices with a combination of cash, notes and stock of
the PPMC. If stock issued to a physician in connection with
such a PPMC transaction does not meet the Stark Law's publicly-
traded securities exception, then the physician-stockholder is
prohibited under the Stark Law from referring Medicare/Medicaid
patients to the PPMC for designated health services.
In addition, if PPMC stock issued to a physician does not
meet the publicly-traded securities exception, then that
physician may be prohibited from referring Medicare/Medicaid
patients for designated health services to physicians in other
groups affiliated with the PPMC, particularly if the group that
receives the referral pays a percentage of revenues to the PPMC
as a management fee. Under such arrangements, each referral to
the affiliated group generates revenue for the PPMC under the
management agreement, which, in turn may increase the value of
the PPMC stock owned by the referring physician. The publicly-
traded securities exception, when applicable, would appear to
protect such cross-referrals among physicians or groups
affiliated with a PPMC. Where stock is actively and publicly
traded on a recognized stock exchange, it generally does not
provide significant inducement for referrals. We believe that
the current exception should be extended to companies with less
than $75 million in shareholder equity, where the company's
stock is actively and publicly traded on a recognized stock
exchange, regardless of the amount of shareholder equity.
In addition, to qualify for the publicly-traded securities
exception under Sec. 1877(c)(1), the physician's (or immediate
family member's) investment must be an ownership interest
(whether through debt, equity or other means) ``which may be
purchased on terms generally available to the public.'' The
Proposed Regulations also indicate that ownership in investment
securities are only protected if ``at the time they were
obtained [they] could be purchased on the open market.''
Section 411.356(a). Taken together these provisions would deny
the public company exception to a physician who acquired shares
through the exercise of options or who acquired stock before
the company became public. Neither of these results are
necessary to preserve the integrity of the self-referral law.
We believe that a physician (or immediate family member)
holding up to 5% of any publicly-traded security (and any
investment instrument, such as a stock option, from which that
publicly-traded security is derived) should qualify for the
publicly-traded securities exception regardless of whether the
securities were acquired before the company became public
(assuming the other requirements of the publicly-traded
security exception are met), as long as neither the amount of
securities so obtained, nor any distribution made with respect
to such securities, is based on the volume or value of
designated health services referred by the physician (or
immediate family member) to the company or its affiliates. We
select a 5% threshold because that is the standard used by the
SEC for public reporting of ``control'' interests. Less than a
5% interest is considered to be a ``drop in the bucket''--a
non-control interest--and any referrals by a less than 5%
physician-owner should similarly be viewed as having an
inconsequential impact on the profitability of a publicly-
traded company (and hence on the physician-owner's incentive to
refer to that company).
2. In-Office Ancillary Services Exception
(a) The Stark Law's definition of ``group practice'' should be
liberalized to preclude HCFA from unnecessarily interfering in the
compensation formulas adopted by physician groups.
Under the in-office ancillary services exception
(Sec. 1877(b)(2)) a physician may refer Medicare/Medicaid
patients for certain designated health services to a group
practice in which the physician has a financial relationship.
However, in the Proposed Regulations, HCFA has interpreted the
Stark Law in a number of ways that interfere unnecessarily with
physician compensation formulas within groups, even where the
compensation is unrelated to referrals for designated health
services.
First, the Proposed Regulations would add the following new
``unified business'' requirement to the definition of a ``group
practice:''
The overhead expenses of and the income from the practice are
distributed according to methods that indicate that the
practice is a unified business. That is, the methods must
reflect centralized decision making, a pooling of expenses and
revenues, and a distribution system that is not based on each
satellite office operating as if it were separate enterprise.
This is a new requirement promulgated by the Secretary
under the purported authority of Sec. 1877(b)(4)(A)(vi). It is
unclear under this new definitional provision when a practice
will be considered to be a ``unified business.'' In particular,
what does it mean to have a ``distribution system'' based on
``each satellite office operating as separate enterprise?''
This language could be interpreted broadly to disqualify any
medical group that employs profit center accounting on an
office specific basis, from receiving Medicare/Medicaid
referrals for designated health services from its physician-
owners. Many medical groups employ profit center accounting on
an office specific basis. These groups are nonetheless bona
fide group practices.
Second, HCFA has proposed the following new condition to
qualify as a ``group practice:''
The overhead expenses of and income from the practice are
distributed according to methods that are determined prior to
the time period during which the group has earned the income or
incurred the cost.'' Proposed Regulation Sec. 411.351, Group
Practice Definition, Section (3).
This new provision appears to permit changes in
compensation methodologies, but only if the change is effective
for income and expenses incurred after the date the change is
implemented. This new ``prior to incurrence'' requirement will
therefore limit the ability of groups to make retroactive
adjustments in compensation methodologies, even if such
adjustments do not result in distribution of funds based on the
volume or value of referrals for Medicare/Medicaid designated
health services.
Third, a physician may spend a significant amount of time
supervising the provision of designated health services that
are provided ``incident to'' that physician's services, for his
or her own patients. The statutory language of the in-office
ancillary services exception, on its face, would appear to
authorize the payment of productivity bonuses based in part on
such ``incident-to'' services. Yet, the Proposed Regulations
would appear to preclude a group practice from taking these
services into account in determining the physician's
productivity bonus, if the ``incident to'' services are
provided for a physician's own patients.
Finally, we are concerned about implications in the
preamble to the Proposed Regulations that suggest that payment
to a physician-employee may be ``related to the volume or value
of referrals'' even if compensation is fixed, if the
continuation of the payment arrangement depends on the
physician's explicit or implicit commitment to refer payments
to the entity. This reading of the statute would enable law
enforcement officials to look behind even the most reasonable
payment arrangements to examine the underlying intent of the
parties. While such an approach may be warranted under the
anti-kickback provisions, it is not warranted under the Stark
Law, which is not an intent-based statute.
We believe that medical groups should have flexibility to
utilize cost center or profit center accounting and to adjust
compensation methodologies prospectively or retroactively, as
necessary, to assure equitable distributions among group
members. We further believe that group practices should be free
to pay group practice members productivity bonuses based on
designated health services personally performed by those
physicians or performed ``incident to'' those physicians'
services. Where no physician member of a physician group
receives compensation based on the volume or value of
designated health services that he refers to the group but does
not perform or supervise, the Stark Law should not apply. We
request that Congress clarify the statutory language to make
this clear.
(b) Congress should repeal the requirement for ``direct
supervision'' of designated health services under the in-office
ancillary services exception.
The Stark Law requires that designated health services be
furnished by ``individuals who are directly supervised by the
physician or by another physician in the group practice.'' 42
U.S.C. Sec. 1395nn(B)(2)(A)(i). The Proposed Regulations
interpret this language to require that the supervising
physician be on site and immediately available when a
designated health service is provided (although brief absences
are permitted).
The Stark Law makes reference to the need for a physician
to ``directly supervise'' a person who performs a designated
health service. Congress may have intended ``direct
supervision'' in this context to be interpreted in the same
manner that that term is interpreted for coverage purposes.
However, enshrining in legislation a coverage standard that may
have existed at the time the Stark Law was enacted means that
if coverage standards change, inevitably inconsistencies will
develop between the standards for Stark and for coverage.
Indeed, this has already occurred as a result of regulations
finalized in the Federal Register on October 31, 1997,\1\ in
which HCFA established three levels of supervision for
diagnostic tests, most of which are designated health services.
Under these regulations, codified at 42 C.F.R. Sec. 410.32, a
diagnostic test may require general supervision (which does not
require a physician's presence on-site); direct supervision
(which does require a physician's presence on-site and which,
unlike the definition of ``direct supervision'' in the Proposed
Regulations, does not provide any allowance for ``brief
absences''); or personal supervision (which requires that the
physician not only be on-site but in the room where the
diagnostic test is being performed). In light of the foregoing,
we recommend that Congress delete the direct supervision
requirement in the in-office ancillary services exception to
the Stark Law and instead require that the services meet the
coverage requirements of the Medicare program or, in the case
of a Medicaid patient, the Medicaid program.
---------------------------------------------------------------------------
\1\ 62 Fed. Reg. 59047 at 59057-59070.
(c) The Stark Law should be modified to enable independent
---------------------------------------------------------------------------
contractors to supervise designated health services.
Historically, many group practices have contracted with
specialists, such as radiologists, to supervise and interpret
more complex diagnostic tests which are commonly rendered (for
efficiency and patient convenience) within a group practice.
For example, an ob/gyn group may retain a radiologist on an
independent contractor basis to supervise and interpret fetal
ultrasounds performed on women with high-risk pregnancies. Such
arrangements are fully consistent with Medicare's coverage
rules for physician office-based diagnostic and therapeutic
services. Yet, under the Proposed Regulations, a radiologist
retained as an independent contractor by a group practice would
not be able to supervise a group's in-office imaging services,
since designated health services must be supervised by group
practice members and independent contractors do not qualify as
group practice members. To address this anomalous result, we
recommend that the statutory language be amended to clarify
that independent contractors may supervise the provision of
designated health services, under the in-office ancillary
services exception.
3. Compensation Provisions
(a) The compensation provisions of the Stark Law should be repealed.
Our comments thus far have related to amendments that we
believe are necessary to address problems with the provisions
of the Stark Law that apply to ownership interests. However
with respect to those provisions of the law which apply to
compensation relationships we urge outright repeal, as Congress
has previously voted to do. We strongly urge Congress to vote
again to repeal the compensation provisions as it did once
before in the Balanced Budget Act of 1995.
The provisions of Stark that apply to compensation have
created a regulatory nightmare both for the provider community
and HCFA in applying them in everyday business dealings. While
the law contains a number of exceptions, they are by and large
narrow and fall far short of permitting parties to enter into
an array of perfectly legitimate transactions that are
unobjectionable under the fraud and abuse statutes. Unlike that
statute which is intent based, the Stark Law is completely
arbitrary in the sense that if there is no specific exception
that protects the compensation relationship, no referrals are
permitted. The bona fides of the parties or the benefit to the
community are irrelevant. These provisions have resulted in
substantial barriers to the clinical and financial integration
of the health care delivery system. For example, if a hospital
recruits a physician to a medically underserved community, the
recruitment payments to the physician may be protected by an
exception. However, if the physician is already in a community,
such as a resident graduating from a training program in that
community, the recruitment payments would not be protected and
the physician might be unable to serve the Medicare and
Medicaid patients of that community.
The original impetus for the Stark Law were studies which
purported to show a relationship between physician ownership
interests in clinical laboratories and imaging centers and
increased levels in numbers of tests ordered. There have never
been any studies linking compensation with increased numbers of
tests. Indeed, this may be one reason why states that have
adopted their own self-referral laws have generally limited
them to ownership relationships. Repeal of the compensation
provisions would greatly aid the provider community in freeing
it from the arbitrariness of the Stark Law but would not lead
to abuse. In light of the legal tools available to prosecutors
and governmental agencies, and in light of the increased
resources dedicated to enforcement of the anti-kickback
provisions of the Medicare/Medicaid Fraud and Abuse Law, the
compensation provisions of the Stark Law are not necessary to
guard against obscure financial arrangements between providers
and referring physicians.
(b) Compensation Exception Reforms
In the event that the compensation provisions of the Stark
Law are not repealed, the members of the coalition urge that
the compensation exceptions be reformed to expand the rural
exception to include compensation and to create a statutory
fair market value exception.
(1) The rural exception should be expanded to include
compensation relationships. The same considerations that led
Congress to provide an exception to the ownership prohibition
for investment interests in entities located in and serving
primarily a rural population, support an extension of the
exception to compensation relationships. In many instances
health care providers and physicians, particularly group
practices, may wish to share services that may include
designated health services to achieve efficiencies and
economies of scale but, for tax and other considerations, do
not want to do so through a separate legal entity. The Stark
Law currently would likely be interpreted by HCFA as precluding
such arrangements if they involved the provision of designated
health services. As long as such arrangements are consistent
with the fraud and abuse laws, they should be permitted in
order to facilitate the delivery of cost-effective care in
rural communities.
(2) Congress should create an exception to the compensation
prohibition for all ``fair market value'' transactions. As
discussed above, the major difficulty with the compensation
prohibition is that it covers all arrangements whether they
pose a risk of overutilization or not. Only those transactions
for which Congress saw fit to provide an exception are
protected. While the Law includes eight exceptions specific to
compensation, they are limited and narrowly drawn. The
inevitable consequence of legislating in this manner is that
many appropriate and beneficial transactions may be prohibited
because they do not fit into one of these exceptions. HCFA has
recognized this problem with the Stark Law by proposing a
generic ``fair market value'' exception. The members of the
coalition support the creation of such an exception and urge
Congress to specifically provide for such an exception in the
law itself to eliminate any ambiguities concerning the
Secretary's authority to create such a wide ranging exception.
4. Designated Health Services
(a) The definition of ``designated health services'' should be amended
to exclude eyeglasses and contact lenses from the term ``prosthetic
devices'' as that term is used in the Stark Law
Under the Proposed Regulations, ``prosthetic device'' is
defined to include ``one pair of conventional eyeglasses or
contact lenses furnished subsequent to each cataract surgery
with insertion of an intraocular lens.'' 42 C.F.R. Sec.
411.351 (definition of prosthetic device). There is no
incentive to overutilize or abuse this post-cataract surgery
benefit since one pair of conventional eyeglasses or contact
lenses has been acknowledged by HCFA to be medically necessary.
We therefore urge Congress to revise the definition of
``prosthetic device,'' as that term is used under the Stark Law
to exclude eyeglasses and contact lenses.
(b) Congress should clarify the radiology services subject to
the Stark Law.
A number of significant issues have arisen with respect to
the definition of ``radiology services'' as designated health
services. The Proposed Regulations would define the term
``radiology'' expansively to include the professional component
and the technical component of virtually all imaging services.
Accordingly, we request that Congress amend the statute to
narrowly limit the radiology services subject the physician
self-referral prohibition, to exclude the professional
component of radiology services as a designated heath service,
and to exclude imaging services that are interpreted by
nonradiologists (e.g., A and B scans interpreted by
ophthalmologists or echocardiograms interpreted by
cardiologists).
In this regard, we note that, in general, the Stark Law was
not intended to, and does not, prohibit physicians from
benefiting from the fruits of their own labor (except that
productivity bonuses to group practice members may not be based
on the volume or value of Medicare/Medicaid designated health
services referred by the physician).
(c) Drugs furnished ``incident-to'' physician services should
be excluded from the definition of ``outpatient prescription
drugs'' under the Stark Law
The Proposed Regulations include chemotherapeutic agents
and other drugs administered ``incident to'' physicians'
services within the definition of ``outpatient prescription
drugs'' subject to the Stark Law. However, such drugs are
covered by the Medicare program only as a component of a
physician's service, and physicians' services were never
intended to be included within the Stark Law prohibition.
Moreover, the administration of chemotherapeutic drugs is not a
service that is subject to abuse, since it is highly unlikely
that a physician would administer such drugs unnecessarily. In
fact, the administration of chemotherapy in physicians' office
settings is significantly less costly to the Medicare program
than the administration of such drugs in hospital settings, and
for this reason it would be contrary to sound public policy to
subject physicians who provide this service in their offices to
significant regulatory constraints. For these reasons, we
request that Congress exclude drugs furnished ``incident to''
physicians' services from the scope of the Stark Law.
5. Definition Of ``Referral''
The Proposed Regulations should not preclude cross-referrals for
designated health services among physician-owners of a PPMC.
In the Proposed Regulations, HCFA suggests defining a prohibited
``ownership interest'' to include direct or indirect ownership ``no
matter how many levels removed from a direct interest.'' HCFA also
proposes to define a prohibited ``indirect compensation relationship''
to include ``any payment to a physician that passes from an entity that
provides for the furnishing of designated health services, no matter
how many intervening 'levels' the payment passes through or how often
it changes form.'' In addition, the Stark Law's definitional language
specifically provides that the term ``referral'' includes a ``request
by a physician 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 combination of these definitional provisions may be interpreted
to prohibit certain physician cross-referral arrangements within PPMCs.
Generally, physician-owned PPMCs acquire a number of physician
practices within a targeted geographic area; generally, too, the
purchase price for each physician practice's assets is comprised of
some combination of PPMC stock, notes, and cash. The practices, each of
which may remain legally separate, then enter into long-term management
contracts with the PPMC, under which the PPMC is often compensated for
its management services on the basis of a percentage of each practice's
revenues or net operating income.
In order to succeed in their business objectives, a PPMC must
increase the productivity and efficiency of the practices it manages.
Often, this can be accomplished by consolidating the provision of
services and unifying operations among the practices to the extent
possible. The Stark Law may impede the consolidation of services by
precluding certain cross-referrals among the affiliated practices. For
example, the Stark Law may be interpreted to prohibit an internist
whose practice is managed by a PPMC from referring a Medicare/Medicaid
patient to a cardiologist whose practice is likewise managed by the
same PPMC, if both of the physicians have an ownership interest in the
PPMC and if the PPMC's management fee is determined based in part on a
percentage of the cardiologist' revenues. In this event, the
internist's referral of a patient to the cardiologist may generate
income from designated health services which is shared with the PPMC by
way of a percentage-based management fee paid by the cardiologist to
the PPMC. It could be argued that, because the PPMC's value is likely
to grow as the result of such revenues, the internist in this example
is indirectly receiving compensation from his or her referrals to the
cardiologist for Medicare/Medicaid designated health services and that
the entire arrangement is prohibited under the Stark Law.
In order to simplify the administration of the Stark Law and in
order to ensure that legitimate business arrangements among physicians
whose practices are managed by a PPMC are not impeded, we would
recommend that the Stark Law be amended to make it clear that an
ownership interest in an entity that does not directly provide
designated health services will not be treated as an indirect
compensation relationship under the Stark Law.
6. Clarification of Prepaid Plan Exception
The prepaid plan exception is an exception to both
ownership and compensation. However, the scope of the
exception, particularly as it applies to ``downstream''
contractual arrangements between physicians who have accepted
financial risk and entities with which the physician may
contract for services, is unclear. In the proposed regulations,
HCFA has attempted to clarify that the exception does protect
downstream arrangements. Nonetheless, we urge Congress to
consider amending the exception to specifically provide that
any and all arrangements entered into by entities that have
assumed financial risk to obtain services for their managed
care patients will be protected. For example, it should be
clear that a physician group which has accepted full risk for
all services required by an HMO's enrollees, including hospital
services, may negotiate for discounts from a hospital with
respect to such enrollees in return for referring all such
enrollees to the hospital. Group practices and other entities
assuming risk under HMO arrangements need to have certainty
that their contractual arrangements do not run afoul of the
Stark Law.
7. Disclosure In Lieu of Prohibition On Physician Ownership
We also believe that the time has come for Congress to
consider substituting a comprehensive disclosure requirement
for the Stark Law's prohibition on physician ownership. Where a
physician discloses his ownership interest in an entity to
which he refers and also provides a list of alternative
providers, the patient's health care choices are maximized, ad
market forces will ensure the quality of the services provided.
Such an approach is likely to prove far more effective than the
Stark Law's complex regulatory scheme in ensuring that
physician financial interests do not increase the cost or
adversely affect the quality of health care services rendered
to Medicare and Medicaid patients.
8. Retroactive Application of the Stark Law
Finally, we urge Congress to amend the Stark Law to
preclude its enforcement prior to the issuance of final
implementing regulations by HCFA. In light of the harshness of
the sanctions that may be imposed under the Stark Law and the
ambiguity of the statutory language, it would be manifestly
unjust for HCFA to enforce this statute before adopting legally
binding regulations.
9. Reporting Requirements
Congress should limit the reporting requirements imposed under
the Stark Law to unprotected financial relationships.
Section 1877(f) of the Stark Law requires that each entity
that provides Medicare-covered services report to the Secretary
the entity's ownership, investment and compensation
arrangements with physicians and their immediate family
members. Under the Proposed Regulations, HCFA would require
that an entity report this information annually. HCFA indicates
it is leaning towards requiring the entity to report all
ownership and compensation arrangements with physicians
regardless of whether those arrangements are protected by an
exception. While it is highly questionable whether HCFA has the
authority under the current statutory language to impose this
requirement, we urge Congress to clarify this matter by
amending the Stark Law's reporting requirements to clarify that
the obligation to report financial relationships pertains only
to those arrangements that are not protected by a statutory
exception.
10. Group Practice Attestation Requirements
Since the group practice attestation requirement provides no
useful information to HCFA, increases the burdens of reporting
and does not materially increase the array of sanctions which
can be brought to bear against those who submit claims in
violation of the Stark Law, the requirement should be
eliminated.
Section 411.360 of the Stark I final regulations (42 C.F.R.
Sec. 411.360) contains a requirement that an entity which
believes it qualifies as a group practice, or, in the case of a
new entity believes it will qualify as a group practice, must
annually submit to its carrier a written attestation that the
entity meets or will meet the requirements to qualify as a
group practice as set forth in Sec. 411.351. The regulation
also requires that the attestation be signed by an authorized
representative of the group who is knowledgeable about the
group. The Proposed Regulations retain the physician
attestation requirement with only a few modifications. As
revised, the Proposed Regulations would require that the
attestation contain a statement that the information furnished
in the attestation is true and accurate to the best of the
representative's ``knowledge and belief.'' In addition, the
Proposed Regulations also recite that any person filing a false
statement may be subject to criminal and/civil penalties. In
light of the all too evident ambiguities in the statutory and
regulatory language involved, we request Congress to direct
HCFA to refrain from implementing the group practice
attestation requirement.
The foregoing are the principal issues of concern for
members of the Coalition. If you require any further
information regarding the matters addressed in this testimony,
or if we can be of further assistance, please contact the
Coalition's Washington counsel, Diane S. Millman.
Statement of Waldheger Coyne, A Legal Professional
Association, Cleveland, OH
Waldheger Coyne submits this statement as a
physician-focused law firm which represents several thousand
physicians and their professional practices. Our physician
clientele ranges from solo practitioners to large multi-
specialty clinics to regionally dispersed physician networks.
Our attorneysare frequently asked to answer questions about how
to interpret and comply with the self-referral law.
We believe that the self-referral law is unfair in its
application, is not an effective means to eliminate or reduce
fraud and waste in the health care system, and chills
development and innovation in health care delivery.
The self-referral law is unfair in its application because
it is a strict liability statute. The law does not attempt to
determine whether a particular relationship is abusive, but
instead creates classes of ``acceptable'' and ``unacceptable.''
The illogical result is that an ``acceptable'' relationship
under the statute could be abusive, and an unacceptable
relationship under the statute could be non-abusive. For
example, a three physician group practice can purchase and
operate an x-ray machine and overutilize without ever running
afoul of the self-referral law. Three independent physicians,
however, who create a new joint venture entity to purchase and
operate an x-ray machine for their patients, would violate the
law even if they did not overutilize. Contrast this arbitrary
standard with the intent-based standards imposed by the Anti-
Kickback Statute and False Claims Act under which specific
activities are evaluated by analyzing the intent of the
parties. Additionally, by failing to include an element of
intent in the statute, a planning opportunity is created for
ill-intentioned actors to work around the law and create an
abusive relationship which is acceptable under the law.
The self-referral law is not an effective means to
eliminate or reduce fraud and waste in the health care system
because it does not directly target abusive or wasteful
behavior, but instead generalizes certain classes of
relationships. The False Claims Act targets false and
fraudulent billing. The Anti-Kickback Statute targets kickbacks
and other abusive payment arrangements. While not perfect,
these laws are rational, and a plausible rationale explains
their application. The self-referral law, on the other hand,
generally prohibits a class of relationships on the theory that
abusive behavior will be eliminated. By not focusing on
specific abusive or wasteful behavior, the self-referral law
fails to effectively curb that type of behavior.
The self-referral law chills development and innovation in
health care delivery by restricting and discouraging the people
in the best position to improve the health care system--
physicians--from pursuing many opportunities. Physicians are
faced with extensive civil monetary penalties and exclusion
from federal payment programs for violating the self-referral
law. Accordingly, rather than pursuing new ventures which could
ultimately improve the health care system, such as a joint
venture with a hospital to bring a new service to patients,
physicians often-times elect to maintain the status quo and the
system suffers.
In short, we believe that the self-referral law is
unnecessary. Other federal and state laws are better suited to
correcting abuses and waste within the system without unfairly
treating physicians and unnecessarily chilling the industry.