[Federal Register Volume 59, Number 230 (Thursday, December 1, 1994)]
[Unknown Section]
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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]
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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.
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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