[Federal Register Volume 59, Number 230 (Thursday, December 1, 1994)] [Unknown Section] [Page 0] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 94-29559] [[Page Unknown]] [Federal Register: December 1, 1994] ======================================================================= ----------------------------------------------------------------------- DEPARTMENT OF HEALTH AND HUMAN SERVICES Office of Inspector General 42 CFR Part 1003 RIN 0991-AA45 Health Care Programs: Fraud and Abuse; Civil Money Penalties for Hospital Physician Incentive Plans AGENCY: Office of Inspector General (OIG), HHS. ACTION: Proposed rule. ----------------------------------------------------------------------- SUMMARY: This proposed rule would implement section 9313(c) of the Omnibus Budget Reconciliation Act (OBRA) of 1986, as amended by section 6003(g)(3)(D)(i) of OBRA of 1989 and sections 4204(a)(3) and 4731(b)(1) of OBRA of 1990, by prohibiting a hospital (or a rural primary care hospital) from knowingly making incentive payments to a physician as an inducement to reduce or limit services provided to Medicare or Medicaid program beneficiaries who are under the care of that physician. Both a hospital who knowingly makes such payments and the physician who knowingly accepts such incentive payments would each be subject to civil money penalties (CMPs) of up to $2,000 for each individual for whom payments are made DATES: To assure consideration, pubic comments mut be mailed or delivered to the address provided below by January 30, 1995. Comments are available for public inspection December 15, 1994. ADDRESSES: Address comments in writing to: Office of Inspector General, Department of Health and Human Services, Attention: LRR-45-P, room 5246, 330 Independence Avenue, SW., Washington, DC 20201. If you prefer, you may deliver your comments to room 5551, 330 Independence Avenue, SW., Washington, DC. In commenting, please refer to file code LRR-45-p. Comments will be available for public inspection in Room 5551, 330 Independence Avenue, SW., Washington, DC on Monday through Friday of each week from 9 a.m. to 5 p.m., (202) 619-3270. FOR FURTHER INFORMATION CONTACT: Joel J. Schaer, Office of Inspector General, (202) 619-0089. SUPPLEMENTARY INFORMATION: I. Background A. Prospective Payment System to Hospitals Prior to 1984, the Medicare and Medicaid programs generally paid hospitals their reasonable costs of providing covered medical services to program beneficiaries. The general concern over this payment method was that the reimbursement system did not give hospitals sufficient incentives to provide health care in an economical and efficient manner. Under the system, incentives existed for hospitals to encourage physicians to admit more program patients for longer hospital stays, and to utilize more services for patients while they were there. Public Law 98-21, the Social Security Amendments of 1983, established a new hospital prospective payment system (PPS) for reimbursing inpatient hospital services under Medicare. The prospective payment system has also been embraced by many State Medicaid programs. Under PPS, hospitals are paid a pre-established fee for treating program patients based on any of 492 diagnosis related groups (DRGs) that address a particular diagnosis. Under PPS, a hospital generally receives the same fee regardless of the patient's length-of-stay or the amount of services furnished the individual. This change in payment systems substantially altered hospital incentives in the provision of medical care. With PPS permitting hospitals to profit from Medicare and Medicaid patients when such patients are treated at a lower cost than the present payment level, many hospitals have had a new range of financial incentives made available to them for (1) underproviding services to program beneficiaries, and (2) shortening their length-of-stay by discharging them too early. B. Use of Physician Incentive Plans In recent years, hospitals have developed and employed a wide range of physician incentive plans that give physicians, as well as the hospital, financial incentives to reduce or limit services provided to program beneficiaries. Since it is the physician who ultimately controls the level, amount and duration of inpatient hospital services provided, many of these incentive plans have been designed to encourage physicians to alter their practice patterns and to reduce their patient's length-of-stay, as well as the quantity and medically necessary level of care provided these individuals, in order to increase the hospital's profitability. C. General Accounting Office Report Because of the close link between a physician's incentive payments and the treatment of individual patients, certain features of physician incentive plans that could compromise quality of care provided to beneficiaries prompted a General Accounting Office (GAO) review of a number of plans under which hospitals make incentive payments to physicians for lowering the costs of treatment. In its report, ``Physician Incentive Payments by Hospitals Could Lead to Abuse'' (HRD- 86-103), July 1986), GAO specifically set about reviewing a number of existing and proposed hospital physician incentive plan arrangements in an effort to assess their impact on the cost and care provided Medicare patients. The GAO report highlighted several general characteristics or aspects of physician incentive plans that, individually or collectively, have tended to give physicians an incentive to reduce quality of care to program beneficiaries. Among those characteristics cited by GAO as significantly affecting physicians' financial incentives to undertreat or provide substandard care were: (1) The length of the period over which the physician's cost performance is assessed to determine the level of incentive payment, (2) the number of physicians over which cost performance is calculated to determine if an incentive plan is paid, and (3) the use of arrangements under which the physician is paid a percentage of savings or profits. As a result of its report on physician incentive plans, GAO specifically recommended that:Such plan payments should be based on the cost performance of a group of physicians rather than by individual physicians. Payments should be based on performance over a relatively long period of time, e.g., over a one year period, as opposed to a single month or quarter. Incentive payments should not be based on the hospital's profits resulting from treating any individual patient. Any physician payment system of this type by a hospital should include a strong program of utilization and quality of care review. The GAO recommended that physician incentive plans that do not include these characteristics should be prohibited. However, the GAO also noted that no combination of characteristics in a physician incentive plan could guarantee that the plan would not be abusive. II. Provisions of the Proposed Rule A. The Omnibus Budget Reconciliation Act of 1986 The passage of Public Law 99-509, the Omnibus Budget Reconciliation Act (OBRA) of 1986, provided new authority (section 1128A(b) of the Social Security Act) to the Secretary to impose civil money penalties for certain incentive payments made to physicians by hospitals, risk- sharing health maintenance organizations (HMOs) and competitive medical plans. Specifically, section 9313(c) of OBRA 1986 prohibited the making of direct or indirect payments by a hospital or an eligible risk- sharing organization ``to a physician as an inducement to reduce or limit services provided'' to individuals entitled to Medicare or Medicaid program benefits ``under the direct care of the physician.'' Under this provision, hospitals and risk-sharing entities that knowingly made such payments, and physicians who knowingly received such payments, would be subject to civil money penalties of up to $2,000 for each individual for whom payments were made. Section 6003(g)(3)(D)(i) of Public Law 101-239, OBRA of 1989, amended this authority by including the term ``rural primary care hospitals'' under this provision. Sections 4204(a)(3) and 4731(b)(1) of Public Law 101-508, OBRA of 1990, repealed the prohibition of physician incentive plans in HMOs and other risk-sharing organizations and enacted requirements for regulating plans by these organizations. The statutory provisions regarding physician incentive plans in HMOs and other risk-sharing organizations are now set forth in section 1876(i) of the Social Security Act. The Department, through the OIG and the Health Care Financing Administration, has published in the Federal Register proposed regulations implementing the statutory provision regarding HMOs and other risk-sharing organizations (57 FR 59024, December 14, 1992). That rule is currently being finalized. These proposed regulations only address physician incentive plans by hospitals (and rural primary care hospitals), reflecting the present scope of section 1128A(b) of the Act. B. Civil Money Penalties for Hospital Physician Incentive Plans These proposed regulations would amend 43 CFR part 1003, Civil Money Penalties, Assessments and Exclusions, by codifying the OIG's authority to levy CMPs against any hospital (including a rural primary care hospital as defined in section 1861(mm(1) of the Act) and physician who knowingly violates the prohibition on the use of physician incentive plans. 1. Structure and Nature of Incentive Plans to be Prohibited The precise structure and application of a physician incentive plan will ultimately determine whether CMPs would be assessed against a hospital or physician under this provision. There are certain incentive payments to physicians, based on cost savings, that are specifically designed to limit or reduce services normally provided by a hospital to a patient. Such incentive plans, tied to the overall costs of patient treatment or on a patient's length-of-stay without regard to how specific reductions are made, could be viewed as inducements to reduce patient services, and thus may be subject to CMPs under these regulations. Most DRG incentive plans, for example, under which payment to individual physicians is tied to DRG reimbursement, appear to be based on payments designed as inducements to reduce or limit services provided once a patient has been admitted. This type of incentive plan might also serve to influence the type of patient admitted to a particular hospital, thereby encouraging the physician to admit patients with less complicated conditions to a hospital offering incentives and directing patients with more complicated conditions elsewhere. These types of incentive plans offered by hospitals to individual physicians related to the cost of services provided would be prohibited under this provision and subject to CMPs. 2. Incentive Plans Not Relating to Direct Patient Care These regulations would generally apply only to those physicians having direct care responsibilities. In the legislative history accompanying this provision, Congress stated its intention that the statutory prohibition ``not apply to hospital incentive arrangements with physicians who function in a management or supervisory capacity with respect to the operation of a hospital department (such as radiology or clinical laboratory services) insofar as the purpose of the arrangement is limited to encouraging efficiency in the operation of the department'' (House Report No. 99-727; page 445). Congress believed that incentive plan payments aimed at this group of physicians should be exempted as long as such arrangements encourage efficiency in the operation of a specific department and do not affect direct patient care responsibilities. We believe, for example, there may be certain types of hospital incentive plans to physicians, such as those designated to reward the timely review and completion of medical records which do not impact on direct patient care responsibilities or do not affect patient referral patterns, that may be acceptable and therefore not be subject to civil money penalties under this provision. We believe, however, that it is impossible and impractical for the OIG to specifically indicate in regulations what specific criteria may make up an acceptable hospital physician incentive plan. In setting forth these proposed regulations, we are adopting a similar approach to that which we have used for other existing CMP authorities of closely following the statutory language. As with all CMP cases, the OIG will review and assess the nature and scope of each suspect incentive plan on a case-by-case basis to determine its specific intent and acceptability. An alternative approach would be to specify those kinds of incentive plans that may be exempt from CMP liability. We welcome comments on identifying those types of incentive plans that may not specifically affect direct patient care responsibilities, and thus would not be implicated by the statute. III. Additional Information A. Regulatory Impact Statement The Office of Management and Budget has reviewed this proposed rule in accordance with the provisions of Executive Order 12866. As indicated above, these proposed regulations serve to promulgate the statutory requirement of establishing new CMP authorities against hospitals and physicians who engage in certain types of financial incentive plans that may increase program expenditures or reduce the quality of care provided to program beneficiaries. As indicated above, this proposed rule closely tracks the language and scope of the underlying statutory provision, and would serve primarily to clarify departmental policy with respect to the OIG's CMP and assessment authorities. The rulemaking would not substantially affect the scope of activity subject to CMPs by the statute. Specifically, the rule sets forth the penalties established by statute to be imposed against hospitals providing financial incentives to limit medical care to Medicare and Medicaid patients, and against physicians receiving such payments. Such payments place Medicare and Medicaid patients at risk due to the physicians' potential financial interest in limiting necessary medical care. This rule is not designed to curtail or jeopardize a hospital's legitimate cost-savings or competitive activities which do not provide financial incentives to limit services. We believe that the great majority of providers and practitioners do not engage in those types of prohibited practices addressed in these proposed regulations and the underlying statute. Therefore, we believe that the aggregate economic impact of these provisions should be minimal, and should only affect those who have engaged in behavior that violates the currently effective statute. As such, this proposed rule such have no direct effect on the economy or on Federal or State expenditures. In addition, we generally prepare a regulatory flexibility analysis that is consistent with the Regulatory Flexibility Act (5 U.S.C. 601 through 612), unless the Secretary certifies that a proposed regulation would not have a significant economic impact on a substantial number of small entities. We have determined, and the Secretary certifies, that this proposed rule would not have a significant economic impact on a number of small business entities, and therefore, we have not prepared a regulatory flexibility analysis. B. Response to Comments Because of the large number of comments we normally receive on proposed regulations, we cannot acknowledge or respond to such comments individually. However, in preparing the final rule, we will consider all comments received timely and respond to the major issues in the preamble of that rule. List of Subjects in 42 CFR Part 1003 Administrative practice and procedure, Fraud, Grant programs-- health, Health facilities, Health professions, Maternal and child health, Medicaid, and Medicare, Penalties. TITLE 42--PUBLIC HEALTH CHAPTER V--OFFICE OF INSPECTOR GENERAL--HEALTH CARE, DEPARTMENT OF HEALTH AND HUMAN SERVICES 42 CFR Chapter V, part 1003 would be amended as forth below: PART 1003--CIVIL MONEY PENALTIES, ASSESSMENTS AND EXCLUSIONS 1. The authority citation for part 1003 would continue to read as follows: Authority: 42 U.S.C. 1302, 1320a-7, 1320a-7a, 1320b-10, 1395u(j), 1395u(k), 1395dd(d)(1), 1395mm, 1395ss(d), 1396b(m), 11131(c) and 11137(b)(2). 2. Section 1003.100 would be amended by republishing paragraph (b)(1) introductory text; by adding and reserving paragraphs (b)(1)(viii) through (b)(1)(xi); and by adding new paragraph (b)(1)(xii) to read as follows: Sec. 1003.100 Basis and purpose. (b) Purpose. * * * (1) Provides for the imposition of civil money penalties and, as applicable, assessments against persons who-- * * * * * (viii)-(xi) [Reserved] (xii) Have participated in a prohibited hospital physician incentive plan as set forth in section 1128A(b) of the Act. 3. Section 1003.101 would be amended by adding a definition for the terms hospital and prohibited arrangement alphabetically to read as follows: Sec. 1003.101 Definitions. * * * * * Hospital means a hospital as defined in section 1861(e) of the Act, or a rural primary care hospital as defined in section 1861(mm)(1) of the Act. * * * * * Prohibited arrangement means the making of payments, directly or indirectly, overtly or covertly, in cash or in kind, to a physician--or the acceptance of such payments by the physician--as an inducement to reduce or limit services provided to individuals entitled to Medicare or Medicaid benefits who are under the direct care of the physician. * * * * * 4. Section 1003.102 would be amended by republishing paragraph (b) introductory text; by adding and reserving paragraphs (b)(9) through (b)(10); by adding new paragraphs (b)(11) and (b)(12); and by revising paragraph (c)(2) to read as follows: Sec. 1003.102 Basis for civil money penalties and assessments. * * * * * (b) The OIG may impose a penalty, and where authorized, an assessment against any person (including an insurance company in the case of paragraphs (b)(5) and (b)(6) of this section) whom it determines in accordance with this part-- * * * * * (9)-(10) [Reserved] (11) Is a hospital who knowingly makes a payment, directly or indirectly, overtly or covertly, in cash or in kind, to a physician as an inducement to reduce or limit services provided to an individual who is eligible for Medicare or Medicaid benefits and who is under the direct care of the physician that knowingly accepts receipt of such payment. (12) Is a physician who knowingly receives a payment as described in paragraph (b)(11) of this section. (c) * * * (2) In any case in which it is determined that more than one person was responsible for: (i) Presenting, or causing to be presented, a request for payment; (ii) Participating in a prohibited arrangement; or (iii) Giving false or misleading information as described in paragraph (b) of this section, each such person may be held liable for the penalty prescribed in this part. * * * * * 5. Section 1003.103 would be amended by revising paragraph (a) to read as follows: Sec. 1003.103 Amount of penalty. (a) Except as provided in paragraphs (b) through (f) of this section, the OIG may impose a penalty of not more than $2,000 for each item or service, or for each individual for whom payment under a prohibited arrangement was made, that is subject to a determination under Sec. 1003.102. * * * * * 6. Section 1003.106 would be amended by adding a new paragraph (a)(6); and by revising paragraph (b) introductory text; paragraph (b)(2) introductory text; and paragraph (b)(2)(ii) to read as follows: Sec. 1003.106 Determinations regarding the amount of the penalty and assessment. (a) * * * (6) In determining the amount of any penalty in Sec. 1003.102(b)(11) or (b)(12), the Department will take into account-- (i) The nature of the payment designed to reduce or limit services and the circumstances under which it was made; (ii) The extent to which the payment encouraged the limiting of medical care or the premature discharge of the patient; (iii) The extent to which the prohibited arrangement caused actual or potential harm to program beneficiaries; (iv) The number of program beneficiaries affected by such incentive payment; (v) The extent and prior history of offenses by the hospital and the physician(s) making or accepting such payment; (vi) The financial condition of the hospital (or physician) involved in the offering (or acceptance) of such prohibited incentive payments; and (vii) Such other matters as justice may require. (b) Determining the amount of the penalty or assessment. In taking into account the factors listed in paragraphs (a)(1) and (a)(5) of this section, the following circumstances are to be considered-- * * * * * (2) Degree of culpability. It should be considered a mitigating circumstance if the claim or request for payment for the item or service or incident was the result of an unintentional and unrecognized error in the process the respondent followed in presenting claims or requesting payment, and corrective steps were taken promptly after the error was discovered. It should be considered an aggravating circumstance if-- * * * * * (ii) The respondent knew that the items or services were furnished during a period that he or she had been excluded from participation and that no payment could be made as specified in Sec. 1003.102(a)(3), because payment would violate the terms of an assignment or an arrangement with a State agency or other agreement or limitation on payment under Sec. 1003.102(b), or the prohibited arrangement as set forth in Sec. 1001.102(b)(11) caused harm to program beneficiaries or actually limited services. * * * * * Dated: August 5, 1994. June Gibbs Brown, Inspector General. Approved: August 17, 1994. Donna E. Shalala, Secretary. [FR Doc. 94-29559 Filed 11-30-94; 8:45 am] BILLING CODE 4150-04-M