[Federal Register Volume 61, Number 17 (Thursday, January 25, 1996)]
[Rules and Regulations]
[Pages 2122-2137]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-1073]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Office of Inspector General
42 CFR Part 1001
RIN 0991-AA69
Medicare and State Health Care Programs: Fraud and Abuse; Safe
Harbors for Protecting Health Plans
AGENCY: Office of Inspector General (OIG), HHS.
ACTION: Final rule.
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SUMMARY: In accordance with section 14 of the Medicare and Medicaid
Patient and Program Protection Act of 1987, this final rule sets forth
various standards and guidelines for safe harbor provisions designed to
protect certain health care plans, such as health maintenance
organizations and preferred provider organizations, under the Medicare
and State health care programs' anti-kickback statute. These safe
harbor provisions were originally published in the Federal Register on
November 5, 1992 in interim final form. In response to the various
public comments received, this final rule revises and clarifies various
aspects of that earlier rulemaking.
Effective date: This rule is effective on January 25, 1996.
FOR FURTHER INFORMATION CONTACT:
Linda Grabel or Tom Hoffman, Office of the General Counsel, (202) 619-
0335
Joel Schaer, Office of Inspector General, (202) 619-3270.
Please send comments regarding the paperwork reduction and
information collection requirements discussed in section IV.B. of this
preamble in writing to: Joel Schaer, Regulations Officer, Office of
Inspector General, Room 5550 Cohen Building, 330 Independence Avenue
SW., Washington, D.C. 20201.
SUPPLEMENTARY INFORMATION:
I. Background
On November 5, 1992, we published an interim final rule with
comment period establishing two new safe harbors, and amending one
existing safe harbor, to provide protection for certain health care
plans, such as health maintenance organizations (HMOs) and preferred
provider organizations (PPOs) (57 FR 52723). The first new safe harbor
provision, set forth in Sec. 1001.952(l), protects certain incentives
to enrollees (including waiver of coinsurance and deductible amounts)
paid by health care plans. The second new provision, set forth in
Sec. 1001.952(m), protects certain negotiated price reduction
agreements between health care plans and contract health care
providers. In addition, the existing safe harbor addressing the waiver
of beneficiary coinsurance and deductible amounts, codified in
Sec. 1001.952(k), was amended to protect certain agreements entered
into between hospitals and Medicare SELECT insurers.
These safe harbors set forth various standards and guidelines that,
if met, allow specific business arrangements and payment practices of
certain health care plans not to be treated as criminal offenses under
section 1128B(b) of the Social Security Act (the Act) and not to serve
as a basis for a program exclusion under section 1128(b)(7) of the Act.
As with the other safe harbor provisions codified in Sec. 1001.95 of
the regulations, these new safe harbors placed no affirmative
obligation on any individual or entity.
Although the regulations were issued in final form and became
effective on their date of publication, we indicated in the preamble of
that November 5, 1992 document that we were allowing a 60-day public
comment period during which time interested parties could submit
comments and concerns regarding these safe harbors. An additional 60-
day extension to the public comment period was published in the Federal
Register on January 7, 1993 (58 FR 2989).
[[Page 2123]]
II. Summary of the Interim Final Rule
A. Section 1001.952(l)--Increased Coverage, Reduced Cost-Sharing
Amounts, or Reduced Premium Amounts Offered by Health Plan
As indicated above, a new safe harbor, set forth in
Sec. 1001.952(l), was created to protect certain incentives to
enrollees (including increased benefits and waiver of deductible and
coinsurance amounts) offered by health plans. This safe harbor
contained two parts designed to protect incentives offered by health
care plans under contract with the Health Care Financing Administration
(HCFA) or a State health care program.
The first part of this safe harbor protected risk-based health
plans, like HMOs, competitive medical plans (CMPs) and prepaid health
plans (PHPs), under contract with HCFA or a State health care program;
and operating (i) in accordance with section 1876(g) or 1903(m) of the
Act, (ii) under a Federal statutory demonstration authority, or (iii)
under other Federal statutory or regulatory authority. Under this part,
the only standard for such health plans was that the health care plan
could not discriminate in the offering of these incentives, but must
offer the same incentives to all enrollees unless otherwise
specifically approved by HCFA or a State health care program.
The second part of this safe harbor protected incentives offered to
enrollees by HMOs, CMPs, PHPs and health care prepaid plans (HCPPs)
that are under contract with HCFA or a State health care program, and
that are paid on a reasonable cost or similar basis. For these plans to
be under the safe harbor, two standards had to be met--(1) the same
incentives must be offered to all enrollees for all covered services,
and (2) the health plan may not claim the cost of these incentives as
bad debts or otherwise shift the burden of these incentives onto
Medicare, the State health care programs, other payers or individuals.
B. Section 1001.952(m)--Price Reductions Offered to Health Plans
The safe harbor in Sec. 1001.952(m) was created to protect certain
negotiated price reduction agreements between health care plans and
contract health care providers, and was set forth in three parts. The
first two parts were designed to protect risk-based and cost-reimbursed
health care plans that operate in accordance with a contract or
agreement with HCFA or a State health care program; the third part
established additional standards to protect health plans that do not
have contracts or agreements with HCFA or State health care programs.
In order to comply with this price reduction safe harbor, three
fundamental prerequisites were to be met in all cases--(1) the
protected remuneration was the contract health care provider's
reduction of its usual charges for the services; (2) the terms of the
agreement between the parties must be in writing; and (3) the agreement
must be for the sole purpose of having the contract health care
provider furnish enrollees items or services that are covered by the
health plan, Medicare or the State health care program.
The first part of this safe harbor (Sec. 1001.952(m)(1)(i))
protected risk-based HMOs, CMPs and PHPs under contract with HCFA or a
State health care program; and operating (i) in accordance with section
1876(g) or 1903(m) of the Act, (ii) under a Federal demonstration
authority, or (iii) under other Federal statutory or regulatory
authority. In addition to the three prerequisites mentioned above, in
order to be covered under the safe harbor risk-based contract health
plans under this part could not separately bill Medicare, Medicaid or
another State health care program for items and services furnished
under the agreement with the health plan (except as specifically
authorized by HCFA or the State health care program), and could not
otherwise shift the burden of the agreement onto Medicare, Medicaid,
other payers or individuals.
The second part (Sec. 1001.952(m)(1)(ii)) protected health care
plans that have executed a contract or agreement with HCFA or a State
health care program to have payment made on a reasonable cost or
similar basis. In addition to the three prerequisites, price reduction
agreements with contract health care providers under this safe harbor
were protected if (1) the term of the agreement was not less than one
year; (2) the agreement specified in advance the covered items and
services that the contract health care provider will furnish to
enrollees and the methodology for computing the payment to the contract
health care provider; (3) the health plan fully and accurately reported
to HCFA or the State health care program the amount it paid the
contract health care provider in accordance with the agreement; and (4)
the contract health care provider could not claim payment in any form
unless specifically authorized by HCFA or the State health care
program.
Lastly, the third part of this safe harbor
(Sec. 1001.952(m)(1)(iii)) protected reductions offered by contract
health care providers to all other health plans when six standards, in
addition to the three prerequisites, were met. The six standards set
forth required (1) the term of the price reduction agreement not be
less than one year; (2) the agreement specify in advance the covered
items and services, which party is to file claims or requests for
payment with Medicare, Medicaid and other State health care programs,
and the schedule of fees that contract provider will be paid; (3) the
schedule remain in effect throughout the term of the agreement (unless
a fee update is specifically authorized by HCFA or a State health care
program); (4) the party submitting claims for items or services under
the agreement not claim or request payment for amounts in excess of the
fee schedule; (5) full and accurate reporting of costs be made by the
health plan or the contract health care provider; and (6) a prohibition
on the party that is not responsible under the agreement for seeking
reimbursement from Medicare, Medicaid and any other State health care
program from claiming payment or otherwise shifting the burden of the
price reduction onto Medicare, Medicaid, other payers or individuals.
C. Section 1001.952(k)--Waiver of Beneficiary Coinsurance and
Deductible Amounts
The existing safe harbor in Sec. 1001.952(k), the waiver of
coinsurance and deductible amounts, was also amended to protect certain
agreements entered into between hospitals and Medicare SELECT insurers.
Medicare SELECT is a type of supplemental policy under which reduced
benefits may be paid for the use of an out-of-network health care
provider. Under this amended safe harbor, waivers or reductions of
inpatient hospital coinsurance and deductibles by a hospital in
accordance with an agreement with a Medicare SELECT insurer were
protected by amending the third of the existing 3 standards set forth
in Sec. 1001.952(k)(1). The prior standard required that the reduction
or waiver not result from an agreement between a hospital and a third-
party payer. The amended standard exempted agreements that are part of
a contract between a hospital and a Medicare SELECT insurer for
furnishing items or services to Medicare SELECT beneficiaries when (1)
the insurer issued a Medicare SELECT insurance policy under the terms
of section 1882(t)(1) of the Act, and (2) the waiver of coinsurance or
deductible amounts provided under the agreement were limited to
beneficiaries covered by the insurer's Medicare SELECT policy. The
other requirements of the existing safe
[[Page 2124]]
harbor still apply to such waivers or reductions.
III. Response to Comments and Summary of Revisions
As a result of our request for comments, we received a total of 42
timely-filed public comments from various health care associations,
health care plans and medical groups, professional and business
organizations, and insurance companies on how best to protect HMOs,
PPOs and other managed care plans. The comments included both general
and broad concerns about the impact of the regulations, and specific
comments on those areas and the safe harbor provisions about which we
invited public input. The following is a summary of the issues raised
through that public comment process, our response to those various
comments, and a summary of the specific revisions and clarifications
being made to these regulations.
A. General Comments
Comment: Commenters generally objected that the safe harbors would
inhibit or ``chill'' existing activities in which managed care plans
engage and thereby jeopardize numerous arrangements. They specifically
asserted that should HMOs and PPOs not receive safe harbor protection,
vast networks of providers would be at risk and would therefore refuse
to enter into discount arrangements with such entities.
Response: The commenters have misconstrued the effect of the safe
harbor provisions. The interim final rule did not expand the zone of
illegal conduct under the anti-kickback statute. Legally and logically,
the safe harbors can only make the zone of illegal conduct smaller. As
indicated above, compliance with the safe harbors is completely
voluntary. If a practice or arrangement does not fall within a safe
harbor, it has precisely the same legal risk that it had before the
safe harbor was promulgated. The safe harbors are designed to provide a
means through which plans and providers can be assured that their
arrangements are immune from potential criminal and administrative
sanctions under the anti-kickback statute.
Comment: Several commenters wrote that the regulations do not
address numerous activities that managed care entities engage in, and
thus imply that such activities could be considered unlawful or would
be subject to heightened scrutiny.
Response: Commenters should not infer that because a safe harbor
provision does not specifically refer to a particular arrangement or
activity, it is unlawful. Nor should they interpret that lack of a safe
harbor to mean that these activities will be subjected to heightened
scrutiny. Moreover, the safe harbors do not create affirmative
obligations on individuals or entities since compliance with these safe
harbors is purely voluntary. The failure to comply with a safe harbor
means only that the practice or arrangement does not have the absolute
assurance of protection from anti-kickback liability.
Comment: Certain commenters argued that the statute does not apply
to particular arrangements. For instance, one commenter claimed that a
hospital's agreement with a managed care plan to forego a deductible or
coinsurance does not violate the statute because ``payment'' is made to
a third party payer. Other commenters contended that since the statute
confers exempt status on health plans for all discounted transactions,
a safe harbor for price reduction agreements is unnecessary. Some
commenters further indicated that the statute does not apply to the
enrollment of persons in a health plan. These commenters opined that
the regulations erroneously indicate that HMOs, especially independent
practitioner association models, are ``providers'' in a position to
refer patients.
Response: We believe that the anti-kickback statute is broad enough
to potentially cover each of these types of arrangements. The statute
prohibits any remuneration which is in return for, or which is designed
to induce, the flow of Medicare and Medicaid program-related business.
Therefore, it could cover a hospital's agreement to forego or reduce
coinsurance or deductibles in exchange for increased program-related
business. It does not matter that the payment is made to a third party
rather than the beneficiary.
The current discount statutory exception and the discount safe
harbor are generally not applicable to the discounts involved in
managed care plans. The statutory exception covers discounts obtained
by buyers which are to be reported to the programs by such buyers with
costs and charges reduced appropriately to reflect the discounts. In
managed care plans, the provider is the ``seller'' who provides a
discount to the plan/patient ``buyer.'' Where the provider/seller
submits a claim to the program, the statutory requirements have not
been met and therefore, the discount is not exempted. The discount safe
harbor (which encompasses all conduct under the statutory discount
exception) also requires that the discount be offered to Medicare and
Medicaid. In the case of managed care contracts with providers, the
discount is offered only to the managed care plan. Since the discounted
fees are not offered to Medicare or Medicaid, the arrangement does not
fall within the parameters of the safe harbor. An additional safe
harbor is therefore necessary to protect discounts between managed care
plans and providers.
Enrollment in a health plan falls within the scope of the anti-
kickback statute where such enrollment involves Medicare or Medicaid
beneficiaries and results from various incentives offered to these
individuals by the managed care plan. The incentives offered to
beneficiaries constitute remuneration with the meaning of the statute.
Once enrolled, the plan is entitled to receive Medicare or Medicaid
reimbursement for the services directly provided to program
beneficiaries. Alternatively, the plan steers enrollees to certain
providers who furnish reimbursable services. The incentives offered to
program beneficiaries can be in return for obtaining reimbursable
program business and, therefore, are covered by the statute.
Moreover, one does not have to be a ``provider'' or make an actual
``referral'' to be covered by the anti-kickback statute. The statute
covers any persons who offer, pay, solicit, or receive any unlawful
remuneration. The scope of prohibited conduct includes not only that
which is intended to induce referrals, but also that which is intended
to induce the purchasing, leasing, ordering or arranging for any good,
facility, service or item paid for by Medicare or Medicaid.
Accordingly, the statute covers recommendations on which providers to
use, and would include the preferred or approved provider lists of HMOs
or PPOs, especially where such providers have agreed to discount their
fees in return for such designations.
Comment: Some commenters wanted the OIG to obtain industry input
before finalizing these safe harbor regulations.
Response: The interim final rule originally provided for a 60-day
public comment period. The OIG subsequently agreed to extend the
comment period an additional 60 days. Consequently, we do not believe
that further public comment is necessary before the regulations are
revised to take into account the public comments received.
Comment: One commenter requested that the OIG provide a mechanism
by which members of the public could seek advance rulings on whether
practices violate the anti-kickback statute or fall within the safe
harbor regulations.
[[Page 2125]]
Response: As we explained in the July 29, 1991 final safe
regulations setting forth the original safe harbor provisions, we
understand and appreciate the desire for legal security in parties'
business relations. However, we are unable to provide a mechanism
responding to individual requests for advisory opinions about the
legality of a particular business arrangement under the statute for
several reasons. The Department of Justice (DOJ) has exclusive
authority to enforce all criminal laws of the United States such as the
anti-kickback statute. (See 28 U.S.C. 516, 519 and 547.) Any advisory
opinions that we would issue would not be binding on DOJ and could
serve to impede the prosecution of a particular case. Moreover, the
statute requires proof of knowing and willful intent, which is
generally impossible to evaluate on the basis of written submissions
from interested requestors.
Comment: Certain commenters wrote that the OIG should publish a new
safe harbor exempting managed care entities from the 60/40 investor and
revenue provisions of the small entity safe harbor on investment
interests.
Response: These issues lie beyond the scope of this rulemaking and
would require separate notice and public comment in order to be
adopted. The OIG will consider whether circumstances warrant the future
revision of that safe harbor for managed care entities.
Comment: Some commenters addressed the issue of independent agents
and brokers in the managed care arena. They asserted that the OIG
should revise the existing safe harbor on personal or management
services or create an additional safe harbor to protect an HMO's or
PPO's use of independent agents and brokers. They believed that
independent broker representatives have been the most effective
marketing tool for Medicare coverage products. These commenters stated
that HMOs or PPOs cannot meet the personal services safe harbor because
they cannot establish the aggregate compensation element in advance of
a transaction.
Response: This issue is beyond the scope of the interim final rule
and would require separate notice and public comment in order to be
adopted. In addition, we disagree that the OIG should protect
independent agents or brokers used by HMOs or PPOs. Widespread abusive
practices have occurred in several States involving independent
contractors who misrepresent the nature of a plan's coverage in
attempting to enroll individuals. As discussed in the preamble to the
July 29, 1991 final safe harbor regulations, we are unpersuaded that
such contractors would be subject to adequate supervision or control
unless they become employees. We recognize that various personal
services arrangements are not covered by these regulations but
reiterate that the OIG must reasonably protect the Medicare and State
health care programs from abuse.
Comment: Some commenters requested that the OIG seek to amend the
anti-kickback statute to clarify its parameters and provide ample scope
to managed care entities for their contracting and pricing practices.
Response: The OIG clearly lacks authority in these regulations to
amend the anti-kickback statute, which only Congress may do. Therefore,
the commenters' suggestion falls outside the scope of this rulemaking.
The OIG will, however, continue to consider from time to time whether
additional safe harbors are appropriate or whether other specific
managed care contracting or pricing practices should be protected.
Comment: One commenter stated that the revised final rule should
clearly prohibit providers from balance billing Medicare patients any
amounts which exceed either Federal or State law. The commenter noted
that currently Federal law permits providers generally to balance bill
their patients up to 115 percent of the Medicare allowable amount and
that some States do not allow any balance billing whatsoever.
Response: The commenter raises an issue which is beyond the purview
of these managed care safe harbor regulations. Neither the new safe
harbors nor the amended Medicare SELECT provision addresses the balance
billing practices of providers. As the commenter indicates, Federal law
precludes providers from charging beneficiaries more than 15 percent
above the fee schedule or other allowable charge. The Medicare statute
includes a specific remedy for violations of the limitations on balance
billing. Moreover, some States like New York absolutely ban balance
billing and have mechanisms to enforce those requirements. Therefore,
we believe that both Federal and State law already adequately regulate
balance billing practices.
B. Comments Applicable to the Two New Safe Harbors
1. The Definition of ``Health Plan''
Comment: The vast majority of commenters objected to the scope of
the definition of health plan used in the regulations as being too
narrow and requested that it be broadened. Commenters specifically
requested that the definition should be expanded to include ERISA
plans, employer self-funded plans, union welfare funds, non-premium or
uninsured HMOs, exclusive provider organizations (EPOs), physician/
hospital organizations (PHOs), and PPOs which serve as intermediaries
between providers and plans or between providers and employers.
Response: We agree that the definition of health plan should be
broadened and have revised the definition to include two additional
categories of entities. We had not intended to exclude ERISA plans or
other company or union sponsored health plans, and we had specifically
mentioned these types of plans as legitimate health plans in the
preamble to the interim final rule. As we discussed in that preamble,
our primary concern in requiring a health plan to charge a premium and
in requiring State regulation of that premium was to exclude phony
insurance plans from protection. We still believe it is necessary for
the definition to exclude such phony insurance plans because if such
plans were not excluded, we would have lost a major tool to combat them
and, if they were immunized from liability under the anti-kickback
statute, we would have only limited ability to take effective action
against these types of abusive arrangements. For example, the
requirement is necessary to prevent entities from establishing
``insurance plans'' that charge only minimal premiums, such as $1.00,
that are unrelated to the cost or level of services provided. Often,
such plans are merely an attempt to legitimize an unlawful waiver of
coinsurance or deductibles. The requirement is also necessary to
prevent the creation and use of ``shell'' entities, which would qualify
as a health plan and would, in turn, subcontract all of its
responsibilities to other entities or insurance companies. We believe
the revisions we have made to the definition of health plan will allow
a wide variety of legitimate managed care health plans to qualify for
protection.
The revised definition maintains the requirement that the entity
furnish or arrange for the furnishing of items or services to enrollees
of the plan through contracts or agreements with health care providers,
or furnish insurance coverage for the provision of such items or
services. However, we have broadened the definition to provide that the
entity must furnish or arrange for the provision of items or services
to enrollees in exchange for either a
[[Page 2126]]
premium or a fee. The fee is designed to cover those situations where a
premium is not charged, such as where an employer negotiates directly
with providers the fees it will pay for the provision of health care
services. It would also cover situations where an entity establishes a
network of providers and markets that network to an employer or an
insurance company, in return for a fee for administering the plan. The
fee must reflect the fair market value of administering the plan or the
network.
Additionally, in order to qualify as a health plan, the entity must
fall within one of four categories. The entity must (1) operate in
accordance with a contract, agreement, or statutory demonstration
authority approved by HCFA or a State health care program; (2) charge a
premium and have its premium structure regulated under a State
insurance statute or a State enabling statute governing HMOs or PPOs;
(3) be an employer or a union welfare fund whose enrollees are current
or retired employees or union members, respectively; or (4) be licensed
in the State, be under contract with an employer, a union welfare fund,
or a health insurance company, which meets the requirements of (2) or
(3), and be paid a fee for the administration of the plan. The first
two categories were included in the original definition of health plan.
The third category is designed to cover ERISA plans, or other employer
or union plans which are self-insured or self-funded and which contract
directly with health care providers or insurance companies. In order to
exclude bogus or sham entities, we have required that the enrollees of
such plans be limited to current or retired employees or current union
members, and their families. By union welfare funds, we mean those
funds which are operated by bona fide labor organizations. The fourth
category is designed to cover entities such as PPOs that act as
intermediaries between contract health care providers and employers,
union welfare funds or insurance companies. Again, to exclude entities
that are not bona fide intermediaries, we have required that the entity
be furnishing or arranging for services under contract with a bona fide
insurance company, employer, or union welfare fund.
We elected to broaden the definition of health plan by referring to
categories of entities based on how they operate or arrange for
services rather than by specifically naming different types of common
managed care entities, such as HMOs, PPOs, EPOs, or PHOs. We believe
this is a preferable approach because there are no single or commonly
recognized definitions of each of these types of entities. Any
definition we might choose to use would likely be viewed as arbitrary
and would likely exclude some otherwise legitimate arrangements. We
believe that the majority of legitimate managed care entities will be
able to fit into one of the four categories contained in the
definition.
We would also point out that the broadening of the definition of
health plan to cover preferred provider organizations which act as
intermediaries does not provide automatic safe harbor protection for
the arrangement between the organization and the insurance company,
employer, or union welfare fund. It only enables such organizations to
qualify as a health plan for purposes of negotiating protected price
reduction agreements with contract health care providers. In order for
the PPO's intermediary arrangement to qualify for safe harbor
protection, it must meet the requirements of the personal services and
management contracts safe harbor in Sec. 1001.952(d).
Comment: A number of commenters argued that legitimate managed care
health plans can be identified through the accreditation process by
AAPI or NCQA or by requiring non-accredited entities to meet the
requirements of those bodies. They believed that the definition of
health plan should be revised to include all managed care plans and
that the safe harbor should require accreditation or that entities meet
the standards for such accreditation.
Response: We do not believe that it is appropriate to require
health plans to seek accreditation from private companies or require
them to comply with the standards developed by such private companies.
We would have no way to determine compliance with those standards if an
entity did not seek accreditation. Moreover, accreditation is not a
widespread practice and the standards used by such companies are not
universally recognized or accepted as minimum standards that should be
required for all managed care plans. Finally, we are not aware of any
evidence that health plans or entities that do not meet these
accreditation standards are abusive or illegitimate, nor do we have any
evidence that accredited plans are less likely than other managed care
plan to engage in practices that may violate the anti-kickback statute.
Therefore, we have declined to require or incorporate accreditation as
a part of the definition of a health plan or as a requirement of a safe
harbor.
Comment: Some commenters believed that the OIG should pursue
``sham'' arrangements via ``selective enforcement'' of Fraud Alert
standards rather than through limiting the definition of a health plan.
Response: We disagree that the OIG should allow any managed care
entity to qualify as a health plan because the OIG can effectively
pursue sham transactions through the selective enforcement of the Fraud
Alert standards. First, the Fraud Alerts issued by the OIG do not
establish standards which can be enforced. The standards that exist are
established by the anti-kickback statute or other federal statutes and
regulations. The Fraud Alerts only set forth practices that have been
identified as abusive or that may be potentially abusive depending on
the circumstances and the intent of the parties. The Fraud Alerts are
intended to provide guidance to the public on how they can avoid
violations of the statute. Second, the purpose of the safe harbor
regulations is both to identify practices or arrangements that fall
within the broad scope of the anti-kickback statute but that are not
abusive, and to immunize those practices or arrangements from criminal
or civil liability. Our intent in establishing these safe harbors is to
include only those practices or arrangements that we are confident are
not abusive. Accordingly, we believe it is appropriate to limit the
definition of health plans to exclude sham managed care plans or phony
insurance plans to ensure that such plans do not qualify for protection
under a safe harbor.
2. Shifting the Burden
Comment: The commenters universally objected to the interim final
rule's prohibition against plans ``shifting the burden'' of increased
coverage, reduced cost-sharing or price reductions onto other payers.
Most commenters asserted that this standard was unclear and imposed a
burdensome requirement on health plans that the government should not
be imposing. They argued that without the ability to shift the revenue
loss from incentives or discounts across their entire customer base,
health plans would be unable to offer incentives and providers would be
unwilling or unable to offer discounts.
Response: We continue to believe that enrollee incentives and
provider price reductions should be economically sensible, i.e., they
should not be driven by a motive to shift costs to the government or
other payers. A health plan should not be offering incentives or
provider discounts unless they believe
[[Page 2127]]
the cost of those incentives or discounts can be recovered through
lower operating costs resulting from increased volume, economies of
scale or other efficiencies. We also believe that practices should be
protected only if they do not cause harm to the Medicare and Medicaid
programs. Accordingly, we are only willing to protect incentives and
price reductions that do not result in increased costs to the programs.
In order to ensure that result, we believe it is necessary to include a
requirement which prohibits cost shifting to the Medicare and Medicaid
programs. We recognize that the prohibition as originally drafted went
beyond what was necessary to protect these Federal programs. We have
therefore narrowed the scope of the prohibition against cost shifting
to the Medicare and State health care programs and have clarified the
circumstances when cost shifting is considered to have occurred, i.e.
when an arrangement or agreement results in increased payments being
claimed from the Medicare or State health care programs.
Comment: Some commenters requested that the OIG set standards
establishing when cost shifting has occurred. They complained that
plans and providers have no way to tell if they are in compliance with
this requirement.
Response: We do not believe it would be possible to provide a
complete or exhaustive list of situations where cost shifting has
occurred. We believe that plans and providers make judgments that they
expect to forego income to maintain market share, or that they expect
to recover lost income resulting from incentives to enrollees or
discounts to plans. These plans and providers make judgments whether
those means involve allocating increased costs to other customers or
payers. Certainly, in any case where a plan or provider raises its
costs or fees to others or reduces the services it provides to others
as a result of an incentive or a discount, prohibited cost shifting has
occurred. Claiming certain costs, such as waivers of coinsurance or
deductibles, as bad debt would also constitute impermissible cost
shifting.
C. Provision-by-Provision Analysis of Safe Harbors
1. Waiver of Part A Deductible and Coinsurance Amounts in Accordance
With an Agreement Between a Hospital and a Medicare SELECT Insurer
Comment: Several commenters objected to the expansion of this safe
harbor provision being limited to Medicare SELECT plans for a variety
of different reasons. These included the fact that Medicare SELECT is
only available in 15 States; that other Medigap plans or preferred
provider plans provide no greater risk of abuse than do Medicare SELECT
plans; that Medicare SELECT was not intended to be the exclusive
mechanism for allowing new and innovative Medigap benefits; and that
preferred provider plans that existed prior to the enactment of
Medicare SELECT and that now have frozen enrollments due to the
standardization of Medigap policies should be allowed to continue to
arrange for waivers through agreements with hospitals.
Response: We believe that it continues to be appropriate to limit
the amendment of the safe harbor on inpatient hospital waivers of
coinsurance and deductibles to Medicare SELECT. As we noted in the
preamble to the interim final rule, the Medicare SELECT program is a
demonstration project, authorized in only 15 States, and scheduled to
operate only from January 1, 1992 until the end of 1994. In order to
provide any protection during the demonstration period, it was
necessary to publish the safe harbor promptly and in final form. Since
we had not previously received comments on this issue from managed care
entities, we did not believe a broad waiver was appropriate without
subjecting the proposal to notice and comment. Therefore, a limited
waiver was included in order to permit the demonstration projects to
enter into agreements with hospitals for the waiver of inpatient
deductibles and coinsurance amounts without fear of prosecution under
the anti-kickback statute. We also believe that the amendment was
appropriately limited to Medicare SELECT because the demonstration
project included an evaluation and report that would enable the OIG to
determine whether the amendment had any undesirable effects. We believe
that such evaluation will also provide a factual basis for the OIG to
decide whether the amendment should be continued or expanded to other
similar types of arrangements.
The demonstration project is still in progress and no final report
has yet been issued evaluating the different Medicare SELECT plans that
are operating in the 15 States participating in the demonstration
project. However, we have reviewed some of the preliminary results of
the evaluation. While the data indicate that most beneficiaries who
purchase a Medicare SELECT policy pay a lower premium than they would
pay for the same package of benefits under a regular supplemental
policy, in most cases the lower premiums are the result of the waiver
of inpatient hospital deductibles and coinsurance by hospitals rather
than the result of reduced utilization or improved management of care.
The amendment to the safe harbor permitting agreements between
hospitals and Medicare SELECT insurers for the waiver of these cost
sharing obligations seems to be the variable that enables Medicare
SELECT insurers to reduce claims and thereby offer lower premiums to
beneficiaries.
The evaluation of service utilization by beneficiaries with
Medicare SELECT policies is expected to take several months to
complete. We expect that this part of the evaluation will provide
information as to whether the amendment has affected costs to the
Medicare program or other payers, or whether it promotes or helps to
control overutilization or inappropriate utilization of inpatient
hospital or other services. Additionally, it will provide information
on whether the Medicare SELECT program is fulfilling the legislative
intent of establishing a ``managed care'' Medicare supplement
alternative. Specifically, the intent of Medicare SELECT was to give
beneficiaries some of the benefits of a managed care plan enrollment,
that is, case management, a primary care physician and cost effective
care; it was not intended to be a mere discounting arrangement between
hospitals and insurers.
Accordingly, we believe it is appropriate to reserve the option of
expanding, revising or rescinding the amendment until we have had an
opportunity to consider the complete results of the Medicare SELECT
evaluation report.
We do not see any basis for providing safe harbor protection to
non-SELECT plans which offer preferred provider provisions merely
because such plans predate the enactment of the Medicare SELECT program
or because their enrollment is frozen as the result of the new
standardized Medigap program rules. The mere existence of a practice or
arrangement is not a sufficient basis to exempt that practice or
arrangement from the reach of the anti-kickback statute. Our position
is that we will not provide safe harbor protection for any practice or
arrangement unless we are confident the practice or arrangement is not
abusive. We do not currently have any evidence to show that the waivers
negotiated by these plans are not abusive or harmful to the programs.
The fact that enrollment in these plans is frozen does not make the
waivers any less potentially abusive or any less risky. The enactment
of Medicare
[[Page 2128]]
SELECT and the standardization of Medigap benefits and policies did
nothing to affect or change the legal status of routine waivers of
coinsurance or deductibles. Consequently, they do not provide any
justification for an extension of the existing safe harbor.
We believe that the Medicare SELECT demonstration project is also
distinguishable from other preferred provider arrangements on other
grounds. First, section 1882(t) of the Social Security Act establishes
certain minimum standards that Medicare SELECT plans must meet. These
standards include a provider network to provide all services with
sufficient access, full benefits for emergency care, an ongoing quality
assurance program, and provisions to ensure that beneficiaries are
fully informed about the benefits and restrictions of the plan.
Medicare SELECT plans are also subject to the imposition of civil
monetary penalties for the failure to meet certain requirements,
including the failure to provide medically necessary services within
the provider network. No other Medigap plans or preferred provider
plans are subject to these standards or penalties. Finally, the
Medicare SELECT program is subject to ongoing evaluation and expires at
the end of 1994. We believe the requirements imposed on Medicare SELECT
plans and the time-limited nature of the demonstration provide
substantially more protection and less risk to both the Medicare
program and Medicare beneficiaries than do other plans.
Contrary to one commenter's belief, we do not view the Medicare
SELECT program to be the exclusive vehicle for providing new or
innovative Medigap benefit packages. Since it is an existing program,
we considered whether it was appropriate to provide any safe harbor
protection. To the extent that a State approves a new or innovative
Medigap benefit package, we would similarly consider whether any
additional safe harbor protection was necessary or appropriate. While
States may have the authority to approve the sale of certain non-
standardized benefit packages, they do not have the authority to exempt
any such benefit packages from the prohibitions of the anti-kickback
statute. As we were unwilling to provide a blanket exemption for the
Medicare SELECT program, we are unwilling to commit in advance to a
blanket exemption for any State-approved innovative benefit package.
The approval of additional benefits as part of a Medigap policy would
not necessarily implicate the anti-kickback statute and therefore no
automatic protection would be necessary. However, the arrangements that
insurers may enter into in order to be able to furnish those benefits
economically or without additional premium costs could be violative of
the anti-kickback statute.
Comment: Some commenters believed that this safe harbor should
allow inpatient waivers for agreements with third party payers for all
managed care entities. Other commenters requested that safe harbor
protection be extended to entities having risk or cost contracts with
HCFA.
Response: We disagree. At the present time, we do not believe there
is sufficient evidence to demonstrate that waivers that result from
agreements between hospitals and third party payers, such as insurers
or health plans, are not abusive. We believe there are significant
differences between waivers of deductibles and coinsurance offered by
hospitals directly to beneficiaries and those negotiated between
hospitals and health plans. When we promulgated the original safe
harbor provision, we noted that there is a limited risk of abuse
because of various factors. First, the Medicare program is not directly
harmed since hospitals receive a predetermined amount under the
prospective payment system for each admission regardless of their costs
or charges. Second, hospital admissions are subject to peer review and
there is a relatively fixed level of patient demand for hospital
services. Third, physicians, rather than patients, make the decision
whether admission is medically indicated and their practice patterns
and admitting privileges also affect the decision as to which hospital
will be selected. Therefore, we believed that a waiver of inpatient
beneficiary fees would not be likely to increase utilization
significantly, especially if hospitals could not discriminate on the
basis of length of stay or type of diagnosis.
These limiting factors do not exist where waivers result from
agreements between hospitals and insurers or plans. In contrast to the
effect of a waiver given to a beneficiary which affects only a single
admission, health plans or insurers have the capacity to direct the
flow of large numbers of admissions to specific hospitals by
designating them as preferred or exclusive providers in return for an
agreement to waive coinsurance and deductibles. Where this flow results
from the hospital's agreement to waive inpatient beneficiary fees or to
reduce its charges, or both, the practice can be abusive and anti-
competitive. Hospital reimbursement rates differ and the designation of
certain hospitals as preferred or exclusive providers in a particular
geographic area could result in a direct increase in the amounts paid
by the Medicare program for inpatient hospital costs. Thus, while the
plan or insurer would save money, the Medicare program would not.
Similarly, a health plan or insurer's designation of certain hospitals
could result in substantial decreases in the number of admissions to
other area hospitals and might eventually result in the closure of some
facilities, thus lessening competition. Reduced competition could lead
to increased charges by the remaining hospitals. Additionally, the
waiver of beneficiary fees or reduced charges that the hospital has
agreed to in order to obtain the health plan or insurer's business may
ultimately be passed along to the Medicare program or other payers.
Finally, we are concerned about the possibility of overutilization or
inappropriate use of services that may result from a waiver of
beneficiary fees. Where Medicare is the primary payer, a hospital's
waiver of inpatient deductible and coinsurance amounts results in the
insurer or health plan having no financial liability. Since the plan or
insurer has no financial stake, it may be less concerned about guarding
against the overutilization or inappropriate utilization of services.
We have made, however, a minor change to the regulation to clarify
the meaning of ``third party payer.'' There has been some question as
to whether that term would include PPOs that serve as intermediaries
between health care providers and insurers or employers, but who are
not responsible for the payment of claims for services provided to
beneficiaries. We have revised the regulation to indicate that a third
party payer includes any entity that meets the definition of a health
plan set forth in Sec. 1001.952(l)(2) of the regulation. With the
limited exception for Medicare SELECT, it is our intent, as discussed
in the preamble to the July 29, 1991 final safe harbor regulations, to
protect only those waivers that are given by hospitals directly to
beneficiaries. We did not intend to protect any waivers that resulted
from contractual agreements entered into by hospitals.
Comment: A number of commenters, including some who are Medicare
SELECT insurers, raised objections to the effect that even where
Medicare SELECT is in place, the safe harbor does not permit waiver of
coinsurance for a large number of services that are essential to cost-
efficient managed care networks (e.g., hospital outpatient services,
ambulatory surgical centers, physician services) because it is limited
to inpatient hospital services. They urged that the safe harbor be
expanded
[[Page 2129]]
to cover services reimbursed under Part B of Medicare.
Response: We do not believe that safe harbor protection is
appropriate for routine waivers of coinsurance and deductibles for
outpatient services covered under the Medicare Part B program. We also
do not believe that such waivers are necessary or essential to the
efficient or cost-effective operation of managed care plans. Managed
care plans are free to seek discounts or price reductions from
providers that lower the costs of providing services, as long as those
reductions are reflected as a lowering of the provider's total charge
for the service. We have expressly provided protection for this type of
discount in the safe harbor on price reductions offered to health
plans.
As we indicated in the preamble to the interim final rule, routine
waivers of coinsurance and deductibles are an area of significant abuse
in the Medicare program. Such waivers result in the submission of false
claims to the Medicare program because providers misstate their charges
on claims submitted to the program. For example, if a provider's usual
charge is $100 and he or she routinely waives the 20 percent
coinsurance, then the provider's actual charge for providing the
service is really only $80, the amount he or she expects to receive as
payment for the service. If the provider submits a claim to the
Medicare program for $100, he or she has misrepresented the actual
charge and the Medicare program will reimburse the provider a higher
than appropriate amount. If the Medicare program reimburses the
provider $80, then the program will have paid for the entire cost of
providing the service, rather than the 80 percent authorized by law. In
this single instance, the program would have overpaid the provider by
$16 (the difference between $80 and $64, which is 80 percent of the
provider's actual fee of $80). Thus, the waiver of coinsurance results
in substantially higher costs to the Medicare program. Similar problems
may arise with cost-based health care providers. We would also note
that the Secretary's authority to grant safe harbor protection extends
only to violations of the anti-kickback statute. The Secretary has no
authority to provide protection from criminal, civil, or administrative
liability arising from the submission of false claims to the Medicare
program.
We also believe that the routine waiver of coinsurance and
deductibles may result in overutilization or inappropriate utilization
of services. Cost sharing is an essential element of the Medicare
program. To the extent that beneficiaries have a financial stake in the
cost of services, they have a direct interest in seeking the most
efficient and economical providers and are deterred from seeking
unnecessary services. As a result, Medicare program expenditures are
lower. Where Medicare beneficiaries have no financial stake because a
provider has waived their coinsurance amount, they are less likely to
be concerned over whether the charge for the service is $10 or $100,
and are less likely to question the medical necessity of the item or
service provided or ordered. Similarly, where a health plan (or
insurer) is responsible for paying a Medicare beneficiary's coinsurance
or deductible amounts, it is concerned about the cost or necessity of
the services provided to their enrollees. However, where a health plan
negotiates a waiver of Medicare coinsurance or deductible amounts with
providers, it no longer has a financial stake because there are no
costs it incurs for the services provided by that provider to Medicare
beneficiaries. Once again, the Medicare program ends up paying for the
full cost of care.
We have no evidence to indicate that Medicare SELECT plans are
significantly different from other Medigap plans or other types of
managed care health plans in this respect, or that they will adequately
protect the Medicare program from higher costs or inappropriate
expenditures. Section 1882(t) of the Act does not provide any specific
safeguards against the abuses that occur from the waiver of Medicare
Part B coinsurance or deductibles. Thus, we continue to decline to
provide any expanded protection for Medicare SELECT plans.
Comment: One commenter indicated that the False Claims Act and
other laws, but not this rule, should address situations where waivers
of coinsurance and deductibles might result in inaccurate charges
billed to Medicare program.
Response: We disagree that abuses arising from the waiver of
coinsurance and deductibles should be addressed through the use of the
False Claims Act and other laws and regulations. One of the primary
purposes of the anti-kickback statute is to protect the Medicare
program from higher costs and overutilization that occur when financial
incentives are offered or given in order to obtain Medicare program
business. Thus, the anti-kickback statute is an appropriate mechanism
to deal with higher program costs resulting from inaccurate charges and
claims submitted to the Medicare program.
Moreover, the purpose of the safe harbor regulations is to exempt
from criminal or civil liability those practices which, although they
violate the anti-kickback statute, are not harmful to the Medicare or
State health care programs. As discussed above, routine waivers of
Medicare Part B coinsurance and deductible amounts are harmful and
abusive because they regularly lead to false claims and increased costs
and because they encourage overutilization or inappropriate utilization
of services. Thus, safe harbor protection is unwarranted and
inappropriate.
Finally, another purpose of the safe harbor regulations is to
provide standards which providers and other persons or entities can
comply with and be assured that they will not be subject to criminal or
civil prosecution or exclusion from program participation. We actively
encourage providers to come into compliance with applicable safe harbor
provisions. It would be unfair and misleading, if not an abuse of
discretion, for us to provide an exception under the anti-kickback
statute for certain behavior when compliance with that exception would
subject providers and plans or insurers to the very same criminal,
civil, and administrative sanctions under the False Claims Act or other
provisions. The mission of the OIG is to prevent fraud and abuse, not
to encourage it.
Comment: One commenter indicated that the OIG should, at a minimum,
publish a new Federal Register notice that lists examples of
coinsurance waiver arrangements that may not qualify for safe harbor
protection, but ``probably would not be pursued criminally or civilly
by the OIG.''
Response: We do not believe that there are any specific types of
situations involving a routine waiver of coinsurance or deductibles
that we would decline to pursue as a general rule. Thus, we believe
that publication of a new Federal Register notice is not necessary. In
the OIG Fraud Alert on this subject, we have indicated that waivers
were only appropriate on a case-by-case basis in consideration of a
patient's financial hardship or where a good faith effort to collect
has been made. We have not changed our position.
2. Incentives to All Enrollees
Comment: Some commenters maintained that a literal reading of the
enrollee incentive safe harbor would necessitate uniformity among all
products, thereby eliminating any incentive. The commenters encouraged
the OIG to eliminate the provision or restrict it to all enrollees of a
particular product.
[[Page 2130]]
Response: The purpose of the requirement that incentives be
provided to all enrollees was to restrict the ability of health plans
to target particular Medicare or Medicaid beneficiaries or groups of
such beneficiaries and induce them to enroll in the plan by providing
incentives. We were concerned that plans would target healthy
beneficiaries by offering them increased services or reductions in cost
sharing and attempt to avoid older or sicker beneficiaries or those
with expensive or chronic health conditions requiring a high
utilization of services by offering only the same services available
through a fee-for-service plan. Accordingly, we are reluctant to
eliminate this requirement from the safe harbor. We are also reluctant
to limit the regulation to a product-specific approach because we are
concerned that the same type of abuses could occur where health plans
offered several different products.
Comment: A number of commenters urged the OIG to restrict the scope
of ``enrollee'' only to members of the Medicare or State health care
programs. They believed that the inclusion of all enrollees was
unwarranted and exceeded the scope of the Medicare and Medicaid Patient
Program Protection Act (MMPPPA) of 1987.
Response: Although we do not agree that the scope of the provision
exceeded our authority under MMPPPA, we believe that these concerns can
be adequately addressed by limiting the provision to all enrollees who
are also beneficiaries of the Medicare and State health care programs.
Accordingly, we have revised the safe harbor on incentives to enrollees
to require that incentives offered by health plans be offered to all
Medicare or State health care program enrollees of the plan. We believe
that this limitation will adequately safeguard against the possibility
that health plans may improperly favor certain healthy beneficiaries or
use incentives to improperly encourage utilization when the item or
service is furnished.
3. Incentives by Non-Contract Health Plans
Comment: Several commenters believed that safe harbor protection
should be given to any managed care plan that offers a higher level of
benefits or services obtained from a contract provider. They believed
that protection should be given for all incentives by managed care
plans, including those providing Medicare supplemental coverage. Other
commenters indicated that coinsurance waivers and other financial
incentives to encourage the use of a preferred provider panel were
historically legitimate managed care incentives that do not cause harm
to Medicare or Medicaid and should therefore be recognized.
Response: We remain unpersuaded at this time that safe harbor
protection is appropriate for health plans that are not under contract
with HCFA or a Medicaid State agency. Unlike contract plans that are
limited to a few types of arrangements, non-contract plans consist of
widely varying arrangements and widely differing scopes of benefits.
These plans are subject to little oversight. Most of the commenters who
requested a broadening of the safe harbor failed to provide any
discussion of precisely how the Medicare and Medicaid programs would or
could be protected against abuses if all managed care plans were
permitted to offer any kind of incentives free of anti-kickback
liability. Nor did they provide any substantive evidence that the
majority of the existing managed care plans have effective mechanisms
and controls that would adequately protect the Medicare and Medicaid
programs against higher costs or overutilization. Finally, the
commenters did not suggest any standards we could impose which would
eliminate plans that do not have in effect adequate mechanisms to
protect the Medicare or Medicaid programs from abuse.
Moreover, we believe that the fact that the Medicare and Medicaid
programs reimburse services provided to enrollees of non-contract plans
on a fee-for-service basis makes these situations subject to the same
potential abuses and risks as exist with incentives offered by non-
managed care plans or providers. Where a health care provider who is
part of a preferred provider network treats a beneficiary and will be
paid for each service that he or she provides on a fee-for-service
basis by Medicare or Medicaid, that provider has no built-in incentive
not to overutilize. To the extent that the provider has agreed to
accept reduced fees for the treatment of plan enrollees, he or she may
have a direct incentive to increase the number of services to make up
for the reduction in fees. Similarly, if the beneficiary has reduced or
no cost sharing obligations, the beneficiary faces no disincentive to
overutilization. The plan does not prevent reimbursement for these
unnecessary services because the claims are directly submitted to and
paid by Medicare or Medicaid. Finally, where managed care providers
agree to accept Medicare payment as payment in full, the burden of the
reduced cost sharing incentives offered to beneficiaries comes at the
expense of the Medicare program, because the program will end up paying
100 percent of the provider's fee. Thus, these incentives can cause
harm to the Medicare and Medicaid programs.
Comment: Some commenters argued that incentives by non-contract
plans should be allowed because most managed care plans adequately
monitor for overutilization, and that many non-contract plans are
monitored either as Federally-qualified HMOs or as a result of
accreditation by independent organizations. They also argued that
Medicare and Medicaid patients cannot be carved out of a managed care
plan's incentive programs, and that a loss of administrative
efficiencies could result if plans need to handle program beneficiaries
differently than others covered under group plans.
Response: We do not believe that existing utilization review
mechanisms are sufficient to protect the Medicare and Medicaid programs
against abuses associated with self-referral. One major problem is that
there are no widely accepted definitions or standards governing
utilization review. This presents a major barrier to drafting a safe
harbor with clear, well-defined standards. Additionally, most
utilization review activity is focused on expensive procedures or on
patterns of care, and therefore does not address individual physician
decisions on diagnostic or other treatment services, where many self-
referral abuses occur. Utilization review is also designed to identify
and address medical care that falls outside of accepted medical
parameters or norms. Most of the problems we have observed in the area
of self-referral involve physician treatment decisions that are within
the range of accepted parameters or norms, but where financial
incentives may improperly influence or affect physician judgments.
Accordingly, we are not at all confident that utilization review will
cure or prevent self-referral problems that the anti-kickback statute
was intended to address. Therefore, it would be unwise to adopt
utilization review mechanisms as an appropriate standard for safe
harbor protection.
Where Medicare or Medicaid are responsible for paying for a portion
of the care rendered to enrollees of a managed care plan, the plan must
already have some procedures that are different from those used where
the plan is solely responsible for the cost of care. For example,
separate claims must be submitted to those programs either before or
after claims are submitted to the managed care health plan. We believe
that managed care plans can handle potential differences between
Medicare's and the plan's coinsurance amounts in ways that are
efficient and
[[Page 2131]]
economical as well as in compliance with the requirements of Federal
law.
Comment: One commenter specifically urged that safe harbor
protection should be limited to plans under contract with HCFA or a
State agency, arguing that if it is broadened it will result in unfair
competitive practices and illegal waivers of coinsurance and
deductibles. A second commenter agreed, but believed an exception
should be made for situations where dual coverage exists and the second
plan adopts a non-duplication of benefits or preservation of
deductibles and coinsurance posture.
Response: We share the concerns of the commenters that expansion of
the safe harbor provision could result in abusive or illegal practices.
As we indicated in an earlier response, we remain concerned that
because services provided to enrollees of non-contract plans are
reimbursed on a fee-for-service basis, the plans would pose the same
risks to the Medicare and Medicaid programs as typical fee-for-service
plans. In the case of contract plans, the reimbursement formulae take
into account the cost sharing obligations of beneficiaries that the
Medicare or Medicaid programs may require, so there is no problem with
illegal waivers of coinsurance or deductibles. We also believe that the
rules applicable to contract plans and the oversight provided by HCFA
or a State Medicaid agency should be sufficient to prevent anti-
competitive or other abusive practices from occurring in contract
plans.
We do not believe that a special safe harbor provision is necessary
or warranted at this time to deal with dual coverage situations. Dual
coverage is where a person is covered by more than one health insurance
policy. An example would be where a husband and wife are both employed
and each is covered by an employer policy that includes family members.
We do not believe that dual coverage (to be distinguished from Medicare
supplemental or Medigap coverage) is a problem that affects significant
numbers of Medicare or Medicaid beneficiaries. Companies are expressly
prohibited by law from selling Medicare beneficiaries health insurance
coverage that duplicates any existing coverage that they may have.
Medicaid is a payer of last resort and will not pay for services
covered by other health insurance or plans.
4. Price Reduction Agreements
Comment: One commenter questioned why the price reduction safe
harbor applicable to plans not under contract with HCFA or a Medicaid
State agency was drafted on a fee-for-service concept.
Response: The safe harbor was drafted in this manner because that
is how the Medicare and Medicaid programs almost exclusively pay for
services furnished to program beneficiaries by non-contract managed
care health plans or by providers who are affiliated with non-contract
plans. Such plans and providers are reimbursed for each separate
covered service provided to Medicare or Medicaid beneficiaries on the
basis of fee schedules or allowable charges. Capitated payment
arrangements and reasonable cost-related reimbursement are only
directly allowed in plans which are under contract. We have dealt with
those types of arrangements in the first two parts of the price
reduction safe harbor dealing with plans under contract with HCFA or a
Medicaid State agency. Therefore, we did not believe it was necessary
or appropriate to provide for safe harbor protection for other types of
payment mechanisms in the price reduction safe harbor for non-contract
plans.
Comment: Many commenters objected to the fact that this safe harbor
exempted only remuneration in the form of a reduction in the provider's
usual charge for the service, thereby not protecting capitation
agreements, bonuses, and withhold arrangements. These commenters
believed that the safe harbor should protect all HMO or PPO
compensation arrangements, including risk incentive pools and volume
rebates, so long as they were not linked to referrals of Medicare or
Medicaid patients.
Response: We have reconsidered our position that we did not need to
address capitated arrangements in the safe harbor for price reductions
in non-contract health plans. Although the Medicare and Medicaid
programs may pay for services on a fee-for-service basis, some health
plans contract with individual health care providers for the provision
of services using a variety of different mechanisms, including
capitation. Since the amount paid to a provider under a capitated
arrangement may represent a reduction in the amount he or she would
otherwise receive for treating a particular patient and the provider
agrees to accept such payment amount in return for an agreed upon or
anticipated flow of patients, the anti-kickback statute may be
implicated. Therefore, we believe that some protection for these
arrangements may be warranted.
Our experience has indicated that the most common risks that the
anti-kickback statute is directed toward preventing are not present in
the case of at-risk, capitated payment mechanisms. Where a provider is
paid a fixed amount for all the services provided to a patient, there
is no incentive for overutilization. If anything, there is an incentive
to underutilize. Accordingly, the Medicare and Medicaid programs face
little risk of overutilization or the increased costs that accompany
such overutilization where services are provided by a provider who is
paid solely on an at-risk or capitated basis. For these reasons, we
believe it would be appropriate for us to provide safe harbor
protection for such arrangements.
Accordingly, we have revised the price reduction safe harbor to add
a new category of price reduction agreement applicable to capitated
payment arrangements to providers. In order to qualify for safe harbor
protection, both the health plan and the contract health care provider
must comply with five standards. First, the term of the agreement must
be for not less than one year. Second, the agreement must specify the
covered items or services that will be furnished to enrollees of the
plan and the total amount per enrollee that the provider will be paid
for such covered items or services, including any copayments to be paid
by enrollees. The amount the provider will be paid per enrollee may be
expressed in a per month or other time period basis. Third, the payment
amount set forth in the agreement must remain in effect throughout the
term of the agreement. Fourth, the health plan and the provider must
fully and accurately report to the Medicare and State health care
programs upon request, the terms of the agreement and the amounts paid
in accordance with the agreement. Finally, the provider must not claim
or request payment in any form from the Department, a State health care
program or an enrollee (other than specified copayment amounts) for
covered items or services. Similarly, the health plan must not pay the
provider in excess of the amounts provided by the agreement for the
provision of covered items or services.
For the most part, the conditions applicable to this new category
of price reduction agreement are the same or comparable to those
applicable to fee-for-service arrangements. We believe these conditions
are necessary to prevent plans or providers from manipulating the terms
of the agreed upon arrangement and adjusting the level of reimbursement
or the scope of covered services for improper or illegal purposes. We
believe that providers and plans should take steps to ensure that they
have sufficient information concerning the costs of providing
[[Page 2132]]
services and the frequency and types of services that will be required
for the plan's enrollees before they enter into these types of
arrangements. We believe that the restrictions on seeking or paying
additional amounts for covered services and the requirements for
disclosure are necessary to ensure that the Medicare and Medicaid
programs are not being charged excessive or inappropriate amounts.
We have declined to provide specific safe harbor protection to
withhold pools, risk incentive pools, or other types of incentive
programs offered by non-contract managed care plans. One problem we
have with these types of arrangements is that there are no uniform
standards or definitions applicable to each of these different types of
mechanisms. Each health plan sets its own standards or risk pools and
determines the amounts that will be paid or withheld. Because these
types of arrangements vary so widely in amounts and scope, and because
there are no commonly accepted minimum standards as to what criteria an
incentive plan should include, we do not believe that it would be
feasible for us to set adequate or appropriate minimum standards for a
safe harbor. Moreover, because these types of payment mechanisms offer
additional remuneration to providers that is related to the volume or
value of services provided, their use is particularly vulnerable to
abuse. They can be used to manipulate provider payment levels and can
be used to inappropriately affect the flow of Medicare and Medicaid
reimbursable business. We are not confident that we could create a safe
harbor where we would be reasonably certain that any individual
incentive plan qualifying for protection would be non-abusive.
We also believe that withhold arrangements present additional
problems. We are concerned that in some cases providers subject to a
withhold may be submitting false claims to the Medicare and Medicaid
programs. If the provider does not ultimately receive the withheld
amount or does not have a reasonable expectation of receiving it, and
includes the full amount of the potential fee on the claim form, he or
she has misrepresented the amount of his or her fee and stands to be
overpaid by the Medicare or Medicaid programs. For example, if a
provider's agreed upon fee is $100 but the health plan has a 20 percent
withhold in place, he or she is only assured of receiving $80 in
payment for the services provided. If that provider submits a claim to
the Medicare program for $100 and is paid $80, that provider will have
received full payment from the Medicare program unless he or she also
receives the withheld amount. The net effect is the same as an express
waiver of coinsurance.
In some cases involving withholds, there is little likelihood that
the payment amounts withheld will actually be made to providers. We are
unwilling to protect any practice that may result in the submission of
false or improper claims to the programs.
Comment: Some commenters objected to the fact that this safe harbor
provision does not recognize compensation based on reasonable and
customary allowances, such as a discount from usual charges.
Response: We believe that reasonable and customary or usual charges
have no fixed meaning and are subject to change at the provider's
discretion and, therefore, subject to manipulation and abuse. We
believe it is necessary to have a fixed and identifiable list of
charges and services in order to be able to determine compliance with
the terms of the safe harbor. If the provider had a list of his or her
reasonable and customary or usual charges that was incorporated as a
part of the agreement with the health plan, and the agreement specified
that the agreed upon payment rate would be 80 percent of the charges on
the list, we believe that would be acceptable under the terms of the
safe harbor because the price for each service would be a fixed and
readily ascertainable amount. Of course, it would be the reduced amount
that is the provider's charge for services to the plan's enrollees, not
the reasonable and customary or usual charge, and that reduced amount
would be required to be submitted on any claims or requests for payment
to the Medicare or Medicaid programs for services rendered to plan
enrollees.
Comment: Some commenters objected to the prohibition against
submitting a claim in excess of the fee schedule because it prohibits
plans or intermediaries that operate by negotiating discounts with
providers and marking up the fees to the purchaser. This is the PPO's
mechanism for defraying its costs. They indicated that such
arrangements should be allowed because fees are still less than what
the purchaser would otherwise pay. Specifically, commenters stated that
the safe harbor should cover fees to providers that are a percentage of
charges billed by the contracting provider and are attributable to the
PPO's marketing services to third party payers.
Response: We believe any arrangements that set fees based on the
volume or value of services provided to patients are subject to abuse
and therefore, we decline blanket protection for them. We have seen
instances where such payments are really only thinly disguised attempts
to pay for referrals. Moreover, there is also no guarantee that the
marked-up charges submitted to the Medicare and Medicaid programs would
be any lower than the provider's usual charges to the programs. Thus,
there is no guarantee that the programs will benefit from allowing such
arrangements. We believe that there are enough other options a PPO can
employ to cover its administrative or marketing costs. The PPO can
include such costs in the premiums charged to plan enrollees or in fees
charged to insurers or employers where the PPO administers the plan for
such entities. The PPO is also free to enter into separate contracts
with providers for management services. Of course, in order to qualify
for safe harbor protection, such contracts would have to meet the terms
of the safe harbor on management or personal services contracts. We
also wish to emphasize that by not protecting such payment mechanisms
under the safe harbor, we do not prohibit them, as the commenters
believe. The failure to fall within a safe harbor means only that they
are subject to the anti-kickback statute in precisely the same manner
that they were prior to the issuance of the safe harbor.
Comment: Some commenters opposed the regulation's ``sole purpose''
requirement as being inconsistent with the structures of managed care
plans. These commenters argued that providers qualifying for the safe
harbors should be allowed to contribute activities such as pre-
enrollment screening, utilization review and quality assurance
services.
Response: Our intent in creating the safe harbor for price
reduction agreements was to protect only those discounts given by
contract health care providers for the items and services they furnish
to enrollees. In order to ensure that we can determine whether the
discounts given by providers comply with all of the requirements of the
safe harbor, it is necessary to have a separate agreement that covers
only the discounted arrangements that fall within the scope of the safe
harbor. We have not prohibited managed care entities from entering into
separate agreements with providers for other activities such as
utilization review, pre-enrollment screening or even marketing
activities. However, contracts for such activities will be scrutinized
separately
[[Page 2133]]
and will only be afforded safe harbor protection if they meet the
requirements of the existing management and personal services safe
harbor.
We are unwilling to expand the price reduction safe harbor to cover
these activities because, as we noted in the preamble to the interim
final rule, we have observed that some HMOs have abused their
contractual relationships with medical groups where individuals in the
groups have conducted abusive or illegal activities on behalf of the
HMO. For instance, various contract health plans have engaged in pre-
enrollment screening in order to deny or discourage relatively sick
beneficiaries from enrolling. Such activities in at least one case
resulted in a criminal conviction. Additionally, it is easy to
manipulate agreements for the provision of utilization review services
and other activities to make payments to reward providers for certain
actions or to provide additional reimbursement to certain providers in
violation of the anti-kickback statute. For these reasons, we believe
the standards of the management and personal services safe harbor
should continue to be applied to personal services contracts between
managed care entities and contract health care providers.
Comment: A number of commenters wanted the OIG to protect volume-
sensitive fee schedules, subject to ``possible pricing adjustments,''
if the schedule is stated in the contract and not increased during its
term. These commenters would like to render higher payment to providers
who service a greater number of managed care patients to ensure access
to care.
Response: We decline to protect volume-sensitive fee schedules. We
have found that volume-sensitive reimbursement levels are often
extremely abusive. These types of schedules offer increased incentives
for providers to overutilize, since the payments they receive will be
higher if they provide more services to more patients. We are not sure
what one of the commenters meant specifically by the term ``possible
pricing adjustments,'' but we are concerned that any such adjustments
could create a referral-driven mechanism that would not serve the
interests of the programs. We believe that other mechanisms exist
through which health plans may ensure that providers give adequate
coverage to patients or through which plans could reimburse providers
who agree to treat a larger number of plan enrollees. For example,
plans could require that providers agree to treat minimum numbers of
enrollees and set the amount of compensation based on that number.
Alternatively, providers could agree to treat all plan enrollees who
need services up to a certain number, with higher reimbursement levels
for larger numbers of patients.
Comment: Several commenters took exception to the one-year term
minimum requirement, contending that it excludes common contract terms,
such as reciprocal termination clauses and inhibits plans, that may
need to contract with a particular provider for less than one year.
Other commenters argued that the requirement unduly restricts HMOs and
does not allow for alterations based on changed circumstances. These
commenters asserted that a change during the contract year in the
percentage of fee schedule an HMO will pay is not a means of inducing
referrals of patients enrolled in a plan.
Response: We have found that reciprocal termination clauses can
result in parties engaging in ``sham'' contracts whereby they terminate
the contract and renegotiate terms to gain more favorable financial
positions. Alternatively, they may terminate contracts in order to
enter into contracts with more favorable financial terms with other
providers. These renegotiations may affect the flow of Medicare or
Medicaid reimbursable business. We believe it is necessary for the
contracts to have a fixed term of at least one year in order to avoid
such manipulations. We have adopted a one-year term for all of the safe
harbor provisions involving contracts. The commenters have not
demonstrated any reasons why managed care contracts necessitate a
different length. Accordingly, if parties alter contractual terms based
on purportedly changed circumstances, that alteration will not enjoy
safe harbor protection. Termination ``for cause'' clauses drafted in
compliance with Internal Revenue Service or other legal or regulatory
requirements should not jeopardize safe harbor status if the purpose of
the termination clause is to comply with these requirements and not to
facilitate renegotiation of contract terms. If a contract is terminated
in accordance with a legally enforceable termination clause, the
failure to renew the contract would indicate that the termination was
effectuated for a legitimate business purpose. As to other types of
termination clauses, the OIG will examine such conduct on a case-by-
case basis to assess whether it is abusive and harmful.
We acknowledge that health care providers may enter into short-term
service contracts for legitimate business reasons and not because of
referral opportunities. However, we cannot ensure that only legitimate
short-term contracts will be covered if we delete the one-year
requirement. We would also note that the one-year term does not refer
to the length of time that services will be necessarily provided, but
rather to the length of time within which the fees for the services
covered by the agreement may not be changed. So long as the contract
terms are not altered within a one-year period, an agreement that is
performed in less than one year will meet the one-year requirement in
the safe harbor provision.
Comment: Some commenters requested that the price reductions
allowed under the safe harbor should be limited to a specific amount,
e.g., a Medicare-approved rate or a percentage. They claimed that this
restriction is necessary to prevent providers from accepting below-cost
prices and increasing prices for non-managed care Medicare patients and
others.
Response: We understand that providers negotiate discounted prices
with health plans in order to increase the number of patients in their
practices. Providers may expect that they can make up for the
reductions in their charges by providing services to a greater number
of patients. Generally, providers may anticipate a certain number of
new patients as a result of entering into a contract with a managed
care plan. However, the commenters raise a valid concern that the price
reductions given, if great enough, may shift the burden of the price
reduction to others by resulting in increased prices for non-managed
care Medicare patients. We have specifically addressed that concern in
the safe harbor by including a prohibition against cost-shifting onto
the Medicare or State health care programs. Therefore, we are not
convinced that setting limitations on the amount of a discount a
provider may offer is necessary to prevent abuse. We also believe that
the wide variations in providers' rates and costs make identifying a
fixed ``below-cost'' point virtually impossible. We would have to
assess a provider's entire billing practice to determine whether, in a
given case, services were offered at rates below actual cost.
Comment: A number of commenters contended that managed care plans
cannot reasonably ensure that its contract providers are not submitting
claims which violate the contract's terms or claims that exceed the fee
schedule. According to these commenters, Medicare should recoup the
amounts erroneously paid to the provider rather than deprive both the
provider and the plan of safe harbor protection.
[[Page 2134]]
Response: We believe it is appropriate to condition the granting of
safe harbor protection on compliance by both plans and providers.
Managed care health plans have an ongoing relationship with contract
health care providers that includes monitoring and utilization review
of the services provided to plan enrollees. This relationship is
different from the usual relationship between buyers and sellers.
Because of this special, ongoing relationship, health plans have a
greater ability to monitor and ensure compliance with the requirements
of the safe harbor regarding the submission of claims to the Medicare
or Medicaid programs. Unless plans are held accountable in some way for
the propriety of claims submitted to the programs, they will have no
interest in ensuring the accuracy of those claims.
We also believe that health plans have available to them several
ways to monitor or ensure compliance. For example, plans may require
that the plan submit all claims to the Medicare or Medicaid programs.
Alternatively, as part of their contracts with providers, plans have
the ability to require providers to furnish copies of claims submitted
to the programs for plan enrollees or to allow a review of their
billing records. Plans can include as a contract term the requirement
to submit program claims according to the agreed upon fee schedule and
provide for termination of the contract for non-compliance. We would
also expect plans to report to the Medicare or Medicaid programs any
contract-related violations of which they become aware so the programs
can take appropriate steps to deal with the improper billing, including
recovery of any overpayments made to the provider. We would consider
the actions taken by the health plan in deciding whether any action was
warranted under the anti-kickback statute.
Comment: Several commenters wrote that the price reduction safe
harbor imposes unnecessary and impractical standards regarding advance
disclosure of covered fees and services, fee schedules and cost
shifting that will impede negotiations and increase costs. These
commenters urged the OIG to permit other methods of describing covered
items or services, such as incorporation by reference of benefit
summaries.
Response: We are uncertain how the requirement that the agreement
spell out the agreed-upon fees will result in an increase in costs or
will impede negotiations between health plans and providers. This safe
harbor merely requires that the agreement specify in writing what the
parties have already agreed upon, i.e., the items and services that
will be furnished to plan enrollees and the prices that the provider
will charge for them. We have no objections if the parties wish to
reference the covered items and services and the schedule of fees for
those services in an attachment to the contract. However, those
attachments must clearly indicate the specific amounts that will be
paid to the provider for each of the covered items and services he or
she furnishes to plan enrollees in order to comply with the safe
harbor. General summaries of plan benefit coverage and references to
percentages of usual charges will not suffice. We reserve the right to
closely scrutinize these attachments to ensure that the parties have
adequately identified these items or services. We believe it is
important for both the providers and the plans to know what the
contract covers and the amounts they are entitled to bill the plan, the
Medicare and Medicaid programs and the program beneficiaries.
Comment: One commenter objected to the safe harbor requirements on
the grounds that managed care contracts with providers rarely establish
fees for services covered by others nor do they specify billing
procedures for services not billable to the managed care plan.
Response: We believe that the commenter has misconstrued the safe
harbor's requirements. The safe harbor does not broaden the scope of
managed care plans' coverage to services covered by other plans nor
does it require a price reduction agreement between a managed care plan
and a provider to establish fees for services provided by others or for
services not billable to the plan. The agreement need only identify
those services that the provider will be paid for by the plan and only
those services that are covered by the plan and provided to plan
enrollees.
IV. Additional Information
A. Regulatory Impact Statement
The Office of Management and Budget (OMB) has reviewed this revised
final rule in accordance with the provisions of Executive Order 12866.
As indicated in the original safe harbor provisions published on July
29, 1991 and the interim final rule for these safe harbors published on
November 5, 1992, the safe harbor provisions set forth in this
rulemaking are designed to permit individuals and entities to freely
engage in business practices and arrangements that encourage
competition, innovation and economy. In doing so, these regulations
impose no requirements on any party. Health care providers and others
may voluntarily seek to comply with these provisions so that they have
the assurance that their business practices are not subject to any
enforcement action under the anti-kickback statute. As such, we believe
that the economic impact of these regulations is minimal and have no
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-
612). We believe that the majority of health care providers and
practitioners do not engage in illegal remuneration schemes, and that
the aggregate economic impact of this provision should, in effect, be
minimal, affecting only those who have chosen to engage in prohibited
payment schemes in violation of the statutory intent. As indicated
above, this revised final rule serves to clarify various aspects of the
safe harbor provisions originally published on November 5, 1992 to
enable entities to more easily immunize themselves from potential
criminal and administrative sanctions, and to eliminate potential
barriers to the provision of coordinated health care under the Medicare
and State health care programs. As a result, we have determined, and
the Secretary certifies, that this final rule will not have a
significant economic impact on a number of small business entities, and
we have, therefore, not prepared a regulatory flexibility analysis.
B. Paperwork Reduction Act
Under the Paperwork Reduction Act of 1995, agencies are required to
provide 60-day notice in the Federal Register and solicit public
comment before a collection of information requirement is submitted to
OMB for review and approval. In order to fairly evaluate whether an
information collection should be approved by OMB, section 3506(c)(2)(A)
of the Paperwork Reduction Act of 1995 requires that we solicit
comments on the following issues:
Whether the information collection is necessary and useful
to carry out the proper functions of the agency;
The accuracy of the agency's estimate of the information
collection burden;
The quality, utility and clarity of the information to be
collected; and
Recommendations to minimize the information collection
burden on the affected public, including automated collection
techniques.
As a result, we are soliciting public comment on the information
collection requirements being set forth in sections
[[Page 2135]]
1001.952(m)(1) (ii), (iii) and (iv) of these regulations.
Under the safe harbor for price reductions offered to health plans,
if a health plan is an HMO, competitive medical plan, health care
prepayment plan, prepaid health plan or other health plan that has
executed a contract or agreement with HCFA or a State health care
program to receive payment for enrollees on a reasonable cost or
similar basis, the health plan and the contract health care provider
must comply with four standards. One of those standards is that the
plan must fully and accurately report the amount it has paid the
contract health care provider under the agreement for the covered items
and services furnished to enrollees on the applicable cost report or
other claim form filed with the Department or the State health care
program (Sec. 1001.952(m)(1)(ii)).
Similarly, if a health plan is not described in section
1001.952(m)(1) (i) and (ii) of the regulations, and the contract health
care provider is not paid on an at-risk, capitated basis, both the plan
and contract provider must, among the six standards set forth, fully
and accurately report any cost report filed with Medicare or a State
health care program the fee schedule amounts charged in accordance with
the agreement (Sec. 1001.952(m)(1)(iii)).
In addition, under sections 1001.952(m)(1) (iii) and (iv), both the
health plan and the provider, upon request, must report to the Medicare
or State health care program the terms of the agreement and amounts
paid in accordance with the agreement.
We estimate that the current burden associated with the submitting
the data would be minimal, i.e., less than one hour per request.
Specifically, we anticipate that any data request will not involve the
creation of any new documents or the calculation of new figures by
entities. Rather, we would be seeking only copies of those agreements
that have already been executed by entities and those amounts paid to
individual providers that are already maintained for general business
and tax purposes. Since most plans maintain such information on
electronic data bases and have these contracts on file, we believe such
requests can be produced and provided in less than one hour's time.
Further, we believe that only a very small number of plans and
providers--less than 3 percent of the nation's health care plans and
contract providers--would be potentially impacted by this request.
Accordingly, we estimate that the total number of requests will be no
more than 10 to 12 per year since they will be made only where there is
a question of whether a specific plan or provider has violated the
statute and claims immunity based on these safe harbor regulations.
Based on an estimate of less than one dozen requests per year, the
estimated total burden on these entities will be under 20 hours.
This information collection and recordkeeping requirement is not
effective until it has been approved by OMB. A notice will be published
in the Federal Register when approval is obtained. As indicated in the
INFORMATION CONTACT section at the beginning of this preamble,
organizations and individuals wishing to submit comments on this
information collection and recordkeeping requirement should direct them
to the Office of Inspector General, Office of Management and Policy,
Room 5550, Cohen Building, Washington, D.C. 20201, Attention: Joel
Schaer, Regulations Officer.
C. Department of Justice Review
In accordance with the provisions of Public Law 100-93, these
regulations have been developed in consultation with the Department of
Justice.
List of Subjects in 42 CFR Part 1001
Administrative practice and procedure, Fraud, Health facilities,
Health professions, Medicare.
TITLE 42--PUBLIC HEALTH
CHAPTER V--OFFICE OF INSPECTOR GENERAL--HEALTH CARE, DEPARTMENT OF
HEALTH AND HUMAN SERVICES
42 CFR Part 1001 is amended as set forth below:
PART 1001--PROGRAM INTEGRITY--MEDICARE AND STATE HEALTH CARE
PROGRAMS
1. The authority citation for part 1001 is revised to read as
follows:
Authority: 42 U.S.C. 1302, 1320a-7, 1320a-7b, 1395u(j),
1395u(k), 1395y(e), and 1395hh.
2. Section 1001.952 is amended by republishing the introductory
text of both paragraph (k) and (k)(1) and revising paragraphs
(k)(1)(iii), (l), and (m) to read as follows:
Sec. 1001.952 Exceptions.
* * * * *
(k) Waiver of beneficiary coinsurance and deductible amounts. As
used in section 1128B of the Act, ``remuneration'' does not include any
reduction or waiver of a Medicare or a State health care program
beneficiary's obligation to pay coinsurance or deductible amounts as
long as all of the standards are met within either of the following two
categories of health care providers:
(1) If the coinsurance or deductible amounts are owed to a hospital
for inpatient hospital services for which Medicare pays under the
prospective payment system, the hospital must comply with all of the
following three standards--
* * * * *
(iii) The hospital's offer to reduce or waive the coinsurance or
deductible amounts must not be made as part of a price reduction
agreement between a hospital and a third-party payer (including a
health plan as defined in paragraph (l)(2) of this section), unless the
agreement is part of a contract for the furnishing of items or services
to a beneficiary of a Medicare supplemental policy issued under the
terms of section 1882(t)(1) of the Act.
* * * * *
(l) Increased coverage, reduced cost-sharing amounts, or reduced
premium amounts offered by health plans. (1) As used in section 1128B
of the Act, ``remuneration'' does not include the additional coverage
of any item or service offered by a health plan to an enrollee or the
reduction of some or all of the enrollee's obligation to pay the health
plan or a contract health care provider for cost-sharing amounts (such
as coinsurance, deductible, or copayment amounts) or for premium
amounts attributable to items or services covered by the health plan,
the Medicare program, or a State health care program, as long as the
health plan complies with all of the standards within one of the
following two categories of health plans:
(i) If the health plan is a risk-based health maintenance
organization, competitive medical plan, prepaid health plan, or other
health plan under contract with HCFA or a State health care program and
operating in accordance with section 1876(g) or 1903(m) of the Act,
under a Federal statutory demonstration authority, or under other
Federal statutory or regulatory authority, it must offer the same
increased coverage or reduced cost-sharing or premium amounts to all
Medicare or State health care program enrollees covered by the contract
unless otherwise approved by HCFA or by a State health care program.
(ii) If the health plan is a health maintenance organization,
competitive medical plan, health care prepayment plan, prepaid health
plan or other health plan that has executed a contract or agreement
with HCFA or with a State health care program to receive payment
[[Page 2136]]
for enrollees on a reasonable cost or similar basis, it must comply
with both of the following two standards--
(A) The health plan must offer the same increased coverage or
reduced cost-sharing or premium amounts to all Medicare or State health
care program enrollees covered by the contract or agreement unless
otherwise approved by HCFA or by a State health care program; and
(B) The health plan must not claim the costs of the increased
coverage or the reduced cost-sharing or premium amounts as a bad debt
for payment purposes under Medicare or a State health care program or
otherwise shift the burden of the increased coverage or reduced cost-
sharing or premium amounts to the extent that increased payments are
claimed from Medicare or a State health care program.
(2) For purposes of paragraph (l) of this section, the terms--
Contract health care provider means an individual or entity under
contract with a health plan to furnish items or services to enrollees
who are covered by the health plan, Medicare, or a State health care
program.
Enrollee means an individual who has entered into a contractual
relationship with a health plan (or on whose behalf an employer, or
other private or governmental entity has entered into such a
relationship) under which the individual is entitled to receive
specified health care items and services, or insurance coverage for
such items and services, in return for payment of a premium or a fee.
Health plan means an entity that furnishes or arranges under
agreement with contract health care providers for the furnishing of
items or services to enrollees, or furnishes insurance coverage for the
provision of such items and services, in exchange for a premium or a
fee, where such entity:
(i) Operates in accordance with a contract, agreement or statutory
demonstration authority approved by HCFA or a State health care
program;
(ii) Charges a premium and its premium structure is regulated under
a State insurance statute or a State enabling statute governing health
maintenance organizations or preferred provider organizations;
(iii) Is an employer, if the enrollees of the plan are current or
retired employees, or is a union welfare fund, if the enrollees of the
plan are union members; or
(iv) Is licensed in the State, is under contract with an employer,
union welfare fund, or a company furnishing health insurance coverage
as described in conditions (ii) and (iii) of this definition, and is
paid a fee for the administration of the plan which reflects the fair
market value of those services.
(m) Price reductions offered to health plans. (1) As used in
section 1128B of the Act, ``remuneration'' does not include a reduction
in price a contract health care provider offers to a health plan in
accordance with the terms of a written agreement between the contract
health care provider and the health plan for the sole purpose of
furnishing to enrollees items or services that are covered by the
health plan, Medicare, or a State health care program, as long as both
the health plan and contract health care provider comply with all of
the applicable standards within one of the following four categories of
health plans:
(i) If the health plan is a risk-based health maintenance
organization, competitive medical plan, or prepaid health plan under
contract with HCFA or a State agency and operating in accordance with
section 1876(g) or 1903(m) of the Act, under a Federal statutory
demonstration authority, or under other Federal statutory or regulatory
authority, the contract health care provider must not claim payment in
any form from the Department or the State agency for items or services
furnished in accordance with the agreement except as approved by HCFA
or the State health care program, or otherwise shift the burden of such
an agreement to the extent that increased payments are claimed from
Medicare or a State health care program.
(ii) If the health plan is a health maintenance organization,
competitive medical plan, health care prepayment plan, prepaid health
plan, or other health plan that has executed a contract or agreement
with HCFA or a State health care program to receive payment for
enrollees on a reasonable cost or similar basis, the health plan and
contract health care provider must comply with all of the following
four standards--
(A) The term of the agreement between the health plan and the
contract health care provider must be for not less than one year;
(B) The agreement between the health plan and the contract health
care provider must specify in advance the covered items and services to
be furnished to enrollees, and the methodology for computing the
payment to the contract health care provider;
(C) The health plan must fully and accurately report, on the
applicable cost report or other claim form filed with the Department or
the State health care program, the amount it has paid the contract
health care provider under the agreement for the covered items and
services furnished to enrollees; and
(D) The contract health care provider must not claim payment in any
form from the Department or the State health care program for items or
services furnished in accordance with the agreement except as approved
by HCFA or the State health care program, or otherwise shift the burden
of such an agreement to the extent that increased payments are claimed
from Medicare or a State health care program.
(iii) If the health plan is not described in paragraphs (m)(1)(i)
or (m)(1)(ii) of this section and the contract health care provider is
not paid on an at-risk, capitated basis, both the health plan and
contract health care provider must comply with all of the following six
standards--
(A) The term of the agreement between the health plan and the
contract health care provider must be for not less than one year;
(B) The agreement between the health plan and the contract health
care provider must specify in advance the covered items and services to
be furnished to enrollees, which party is to file claims or requests
for payment with Medicare or the State health care program for such
items and services, and the schedule of fees the contract health care
provider will charge for furnishing such items and services to
enrollees;
(C) The fee schedule contained in the agreement between the health
plan and the contract health care provider must remain in effect
throughout the term of the agreement, unless a fee increase results
directly from a payment update authorized by Medicare or the State
health care program;
(D) The party submitting claims or requests for payment from
Medicare or the State health care program for items and services
furnished in accordance with the agreement must not claim or request
payment for amounts in excess of the fee schedule;
(E) The contract health care provider and the health plan must
fully and accurately report on any cost report filed with Medicare or a
State health care program the fee schedule amounts charged in
accordance with the agreement and, upon request, will report to the
Medicare or a State health care program the terms of the agreement and
the amounts paid in accordance with the agreement; and
(F) The party to the agreement, which does not have the
responsibility under the agreement for filing claims or requests for
payment, must not claim or
[[Page 2137]]
request payment in any form from the Department or the State health
care program for items or services furnished in accordance with the
agreement, or otherwise shift the burden of such an agreement to the
extent that increased payments are claimed from Medicare or a State
health care program.
(iv) If the health plan is not described in paragraphs (m)(1)(i) or
(m)(1)(ii) of this section, and the contract health care provider is
paid on an at-risk, capitated basis, both the health plan and contract
health care provider must comply with all of the following five
standards--
(A) The term of the agreement between the health plan and the
contract health provider must be for not less than one year;
(B) The agreement between the health plan and the contract health
provider must specify in advance the covered items and services to be
furnished to enrollees and the total amount per enrollee (which may be
expressed in a per month or other time period basis) the contract
health care provider will be paid by the health plan for furnishing
such items and services to enrollees and must set forth any copayments,
if any, to be paid by enrollees to the contract health care provider
for covered services;
(C) The payment amount contained in the agreement between the
health care plan and the contract health care provider must remain in
effect throughout the term of the agreement;
(D) The contract health care provider and the health plan must
fully and accurately report to the Medicare and State health care
program upon request, the terms of the agreement and the amounts paid
in accordance with the agreement; and
(E) The contract health care provider must not claim or request
payment in any form from the Department, a State health care program or
an enrollee (other than copayment amounts described in paragraph
(m)(2)(iv)(B) of this section) and the health plan must not pay the
contract care provider in excess of the amounts described in paragraph
(m)(2)(iv)(B) of this section for items and services covered by the
agreement.
(2) For purposes of this paragraph, the terms contract health care
provider, enrollee, and health plan have the same meaning as in
paragraph (l)(2) of this section.
Dated: June 21, 1995.
June Gibbs Brown,
Inspector General.
Approved: September 12, 1995.
Donna E. Shalala,
Secretary, Department of Health and Human Services.
[FR Doc. 96-1073 Filed 1-24-96; 8:45 am]
BILLING CODE 4150-04-P