[Federal Register Volume 62, Number 82 (Tuesday, April 29, 1997)]
[Rules and Regulations]
[Pages 23140-23144]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-11024]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of Inspector General

42 CFR Part 1004

RIN 0991-AA86


Health Care Programs: Fraud and Abuse; Revised PRO Sanctions for 
Failing To Meet Statutory Obligations

AGENCY: Office of Inspector General (OIG), HHS.

ACTION: Final rule.

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SUMMARY: This final rule addresses revised procedures governing the 
imposition and adjudication of program sanctions, based on 
recommendations from State utilization and quality control peer review 
organizations (PROs), resulting from enactment of sections 214 and 
231(f) of the Health Insurance Portability and Accountability Act 
(HIPAA) of 1996.

EFFECTIVE DATE: These regulations are effective on April 29, 1997.

FOR FURTHER INFORMATION CONTACT: Joel J. Schaer, Office of Counsel to 
the Inspector General, (202) 619-0089.

SUPPLEMENTARY INFORMATION:

I. Background

The PRO Sanctions Process

    Section 1156 of the Social Security Act imposes specific statutory 
obligations on health care practitioners and other persons to furnish 
medically necessary services to Medicare and State health care program 
beneficiaries that meet professionally recognized standards of health 
care. The statute authorizes the Secretary--based on a PRO's 
recommendation--to impose sanctions on those who fail to comply with 
these statutory obligations.
    Under the PRO sanctions process as originally established, no 
practitioner or other person was subject to a program exclusion or a 
momentary penalty until the practitioner or other person had received 
notice of the proposed sanction and had an opportunity to respond, 
including a discussion with the PRO. After the receipt of a 
recommendation from a PRO, the OIG, delegated the Secretary's 
authority, was authorized to impose an exclusion or a monetary penalty 
after a careful review of all

[[Page 23141]]

relevant documentation and upon making the determination that the 
practitioner or other person (1) Violated the statutory obligations to 
render medically necessary and appropriate care or failed to provide 
evidence of medical necessity and quality, and (2) was unwilling or 
unable to comply with these obligations. A practitioner or other person 
excluded from Medicare and any State health care program, or assessed a 
monetary penalty, on the basis of a PRO recommendation, was entitled to 
administrative and judicial review after such sanction was imposed.

Recent Revisions to the OIG PRO Sanction Regulations

    As a result of various statutory changes to section 1156 of the 
Social Security Act resulting from section 6 of Public Law 100-93 (the 
Medicare and Medicaid Patient and Program Protection Act), section 4095 
of Public Law 100-203 (the Omnibus Budget Reconciliation Act (OBRA) of 
1987), section 4205 of Public Law 101-508 (OBRA of 1990) and section 
156 Public Law 103-432 (the Social Security Amendments of 1994), on 
December 12, 1995 the OIG published final regulations (60 FR 63634) 
that set forth a comprehensive revision of 42 CFR part 1004, the 
regulations that govern the imposition and adjudication of sanctions 
against practitioners and other persons resulting from a PRO 
recommendation.
    Among other revisions, the regulations (1) Eliminated the 
procedural distinction between ``substantial'' violations and ``gross 
and flagrant'' violations, (2) provided that any violations of the 
obligations identified during a corrective action plan would be used to 
support a PRO's recommendation regarding unwillingness or inability, 
and (3) allowed the OIG to consider any prior problems that a 
practitioner or other person had with any State health care program as 
a factor in determining an appropriate exclusion. In addition, the 
regulations also provided practitioners and other persons with the 
option of informing their patients directly of a sanction taken against 
them as an alternative to the current approach of published public 
notification by the OIG.

The Health Insurance Portability and Accountability Act of 1996

    Sections 214 and 231(f) of HIPAA set forth a number of changes to 
section 1156 of the Act with regard to sanctioning practitioners and 
other persons for their failure to comply with statutory obligations.
1. Monetary Penalty
    Prior to the enactment of HIPAA, section 1156(b)(3) of the Social 
Security Act authorized the imposition of a monetary penalty on a 
practitioner or other person as an alternative to exclusion from 
participation in the Medicare and State health care programs when it 
was determined, based on a PRO recommendation, that medically improper 
or unnecessary services were either provided or ordered. The penalty 
amount was not to be more than the ``actual or estimated cost of the 
medically improper or unnecessary services so provided'' (section 
1156(b)(3) of the Act). The authority to impose a monetary penalty in 
lieu of exclusion from participation in Medicare and State health care 
programs was enacted prior to the establishment of the Medicare 
prospective payment system for hospitals, and it was often difficult to 
determine the ``actual or estimated cost'' of substandard or 
unnecessary services for purposes of imposing a monetary penalty. 
Further, the amount of such a penalty was frequently very small and 
therefore had little deterrent value. The penalty amount was also 
usually disproportionally small compared to the Government's costs in 
processing such a case.
    Under section 231(f) of HIPAA, the penalty sanction amount against 
practitioners and other persons who fail to comply with the statutory 
obligations has now been changed from ``the actual or estimated cost'' 
to ``up to $10,000 for each instance of medically improper or 
unnecessary services provided.''
2. Determination of Unwillingness or Inability
    Prior to the enactment of HIPAA, section 1156(b)(1) of the Social 
Security Act authorized the sanctioning of a practitioner or other 
person who was found, based on a PRO recommendation, to have violated 
certain statutory violations and was determined to ``have demonstrated 
an unwillingness or a lack of ability substantially to comply with such 
obligations.'' This provision created unnecessary obstacles to the 
sanctioning of practitioners and other persons who had failed to comply 
with the statutory obligations since it was often difficult to assess 
evidence on the separate issue of unwillingness or inability.
    In accordance with section 214(b) of HIPAA, section 1156 of the Act 
has been now amended to state that in making a determination on whether 
to sanction a practitioner or other person for failure to comply with 
statutory obligations relating to quality and medical necessity of 
health care services, the Secretary will no longer be required to prove 
that the practitioner or other person was either unwilling or unable to 
comply with such obligations.
3. Minimum Exclusion Period
    Section 1128 of the Social Security Act authorizes the Secretary to 
impose mandatory and permissive exclusions of individuals and entities 
from participation in the Medical and State health care programs. In 
the case of mandatory exclusions, minimum periods of exclusion are set 
forth. Section 1156 of the Act set forth no specified minimum period of 
exclusion from the programs.
    Section 214(a) of HIPAA now mandates that the Secretary impose a 
minimum 1 year period of exclusion for all practitioners and other 
persons who fail to meet statutory obligations under section 1156 of 
the Act.

II. Revisions to 42 CFR Part 1004

    As a result of Public Law 104-191, we are making a number of 
technical revisions to the OIG's PRO sanction regulations at 42 CFR 
part 1004, specifically amending Secs. 1004.20, 1004.80, 1004.100 and 
1004.110. The changes to Sec. 1004.20, Sanctions, reflect the 
establishment of the 1 year minimum exclusion period and the revised 
monetary penalty amount. Sections 1004.80(b)(8) (regarding the 
corrective action plan contents), 1004.80(c)(6) (regarding the PRO 
report recommendations to the OIG), 1004.100(b)(3) (OIG review of the 
PRO report), and 1004.100(d)(7) (regarding the OIG's decision to 
sanction) are either being revised or deleted to address the deletion 
from the statute of the unwillingness and inability requirement.
    An additional technical revision is also being made to 
Secs. 1004.110 (d)(1)(i) and (d)(2)(i) with regard to public notice of 
a sanction. While the public notice of sanction will continue to 
identify the sanctioned practitioner or other person, the finding that 
the obligation has been violated, and the effective date of the 
sanction, we are deleting the word ``duration'' from these paragraphs. 
The duration of an exclusion is dependent upon the reinstatement of the 
practitioner or other person, which is not automatic and therefore not 
known in advance. This change is consistent with the content of public 
notices for exclusions under 42 CFR part 1001 that are currently 
published in the Federal Register.

[[Page 23142]]

III. Waiver of Proposed Rulemaking

    In developing this final rule, we are waiving the usual notice of 
proposed rulemaking and public comment procedures set forth in the 
Administrative Procedure Act (APA) (5 U.S.C. 553). The APA provides an 
exception to the notice and comment procedures when an agency finds 
there is good cause for dispensing with such procedures on the basis 
that they are impracticable, unnecessary or contrary to the public 
interest. We have determined that under 5 U.S.C. 553(b)(3)(B) good 
cause exists for dispensing with the notice of proposed rulemaking and 
public comment procedures for this rule. Specifically, this rulemaking 
comports, for the most part, with the statutory requirements set forth 
in Public Law 104-191, with no issues of policy discretion. 
Accordingly, we believe that opportunity for prior comment is 
unnecessary and contrary to the public interest, and are issuing these 
revised regulations as a final rule that will apply to all future cases 
under this authority.

IV. Regulatory Impact Statement

    As indicated above, the provisions contained in this final 
rulemaking set forth technical revisions to the OIG PRO sanctions 
process in compliance with statutory changes resulting from the Health 
Insurance Portability and Accountability Act of 1996. The great 
majority of individuals, organizations and entities addressed through 
these regulations do not engage in such prohibited activities and 
practices, and as a result, we believe that any aggregate economic 
impact of these revised regulations will be minimal, affecting only 
those limited few who may engage in prohibited behavior in violation of 
the statute. As such, the changes contained in this final rule should 
have no effect on Federal or State expenditures. The Office of 
Management and Budget (OMB) has reviewed this final rule in accordance 
with the provisions of Executive Order 12866.

Regulatory Flexibility Act

    In addition, we generally prepare a regulatory flexibility analysis 
that is consistent with the Regulatory Flexibility Act (5 U.S.C. 601-
612), unless we certify that a regulation will not have a significant 
economic impact on a substantial number of small business entities. 
While some penalties may have an impact on small entities, it is the 
nature of the violation and not the size of the entity that will result 
in an action by the OIG, and the aggregate economic impact of this 
rulemaking on small business entities should be minimal, affecting only 
those few who have chosen to engage in prohibited arrangements and 
schemes in violation of statutory intent. Therefore, we have concluded 
and certify, that this final rule will not have a significant economic 
impact on a substantial number of small business entities, and that a 
regulatory flexibility analysis is not required for this rulemaking.

Paperwork Reduction Act

    Sections 1004.80 and 1004.110 of this rulemaking contain 
information collection requirements that require approval by OMB. We 
are required to solicit public comments under section 3506(c)(2)(A) of 
the Paperwork Reduction Act of 1995. Specifically, we are inviting 
comments on (1) whether the collection of information is necessary for 
the proper performance of the functions of the agency, including 
whether the information will have practical utility; (2) the accuracy 
of the estimate of the burden of the collection of information; (3) 
ways to enhance the quality, utility and clarity of the information 
collected; and (4) ways to minimize the burden of the collection of 
information on practitioners and other persons, including through the 
use of automated collection techniques or other forms of information 
technology.
    Title: PRO Sanction Process.
    Summary of the collection of information: In conjunction with 
section 1156(b)(1) of the Social Security Act, Sec. 1004.80 requires 
the PRO to submit a report and recommendation to the OIG if the 
violation(s) identified by the PRO have not been resolved. The report 
must include the following information--
     Identification of the practitioner or other person, and 
when applicable, the name of the director, administrator or owner of 
the entity involved;
     The type of health care services involved;
     A description of each failure to comply with an 
obligation;
     Pertinent documentary evidence;
     Copies of written correspondence and, if applicable, a 
copy of the verbatim transcript of the meeting with the practitioner or 
other person;
     The PRO's finding that an obligation has been violated and 
that the violation is substantial and has occurred in a substantial 
number of cases or is gross and flagrant;
     A case-by-case analysis and evaluation of any additional 
information provided by the practitioner or other person in response to 
the PRO's initial finding;
     A copy of the correction action plan that was developed 
and documentation of the results of such plan;
     The number of admissions by the practitioner or other 
person reviewed by the PRO during the period in which the violations(s) 
were identified;
     The professional qualifications of the PRO's reviewers; 
and
     The PRO's sanction recommendations.
    The PRO must specify in its report the amount of monetary penalty 
and period of exclusion recommended, the availability of alternative 
sources in the community along with supporting information, and the 
county (or counties) in which the practitioner or other person 
furnishes services.
    Section 1004.110 of these regulations set forth an alternative 
sanctions notification process that allows sanctioned practitioners or 
other persons the option of informing all their patients directly of 
the sanction action taken against them. If they select this option and 
comply with its requirements in a timely fashion, sanctioned 
practitioners and other persons will be exempted from the requirement 
of public notice. Practitioners or other persons are required to 
certify to the Department that they have taken action to inform all 
their patients of the sanction and, in the case of exclusion, that they 
will notify new patients before furnishing services. Each sanctioned 
practitioner or other person opting for this alternative notice 
procedure must alert both existing patients and all new patients 
through written notification based on a suggested, non-mandatory model 
provided by the OIG. The model patient notification letter indicates 
the effective date of the exclusion, the programs from which the 
practitioner or other person has been excluded, and the period of time 
for that exclusion. A copy of this model notification letter is 
available from the OIG upon request.
    Respondents: The ``respondents'' for the collection of information 
described in Sec. 1004.80 are the individual PROs recommending a 
sanction action. The ``respondents'' under Sec. 1004.110 are those 
practitioners or other persons who have been sanctioned under section 
1156 of the Act and who opt for the alternative notice procedure 
through written notification to their patients.
    Estimated number of respondents: Over the last several years, the 
OIG has received less than ten PRO sanction recommendations for action. 
We believe that the number of PRO sanction cases and requests for the 
alternative notification process will remain low.

[[Page 23143]]

    Estimated number of responses per respondent: 1
    Estimated total annual burden on respondents: We believe that the 
burden on PROs of preparing the report to the OIG will vary widely 
because of the differences in the scope and type of information 
included and the complexity of the circumstances that have led to the 
PRO recommendation. We estimate that the average burden for each 
submitted report to the OIG will be in the range from 2 to 10 hours. We 
further believes that the burden for most PROs will be closer to the 
lower end of the range, with an average of 4 hours per respondent. The 
total burden for this information collection is estimated to be 28 
hours.
    In addition, we estimate that the alternative notification 
procedure selected by sanctioned practitioners or other persons will be 
minimal, averaging from 1 to 2 hours per respondent. Total burden for 
this activity is estimated not to exceed 10 hours.
    Comments on these information collection activities should be sent 
to both:

Cynthia Agens Bauer, OS Reports Clearance Officer, ASMB Budget Office, 
Room 503-H Humphrey Building, 200 Independence Avenue, S.W., 
Washington, D.C. 20201, FAX: (202) 690-6352;
Allison Herron Eydt, OIG Desk Officer, Office of Management and Budget, 
Room 10235, New Executive Office Building, 725 17th Street, N.W., 
Washington, D.C. 20053, FAX: (202) 395-6974.

    Comments on these paperwork reduction requirements should be 
submitted to the above individuals within 30 days following the Federal 
Register publication of this final rule. The information collection 
requirements will not be in effect until approval by OMB. Public notice 
will be provided when OMB approval is obtained.

List of Subjects in 42 CFR Part 1004

    Administrative practice and procedure, Health facilities, Health 
professions, Medicare, Peer Review Organizations, Penalties, Reporting 
and recordkeeping requirements.

    Accordingly, 42 CFR part 1004 is amended as set forth below:

PART 1004--IMPOSITION OF SANCTIONS ON HEALTH CARE PRACTITIONERS AND 
PROVIDERS OF HEALTH CARE SERVICES BY A PEER REVIEW ORGANIZATION

    1. The authority citation for part 1004 continues to read as 
follows:

    Authority: 42 U.S.C. 1302 and 1320c-5.

    2. Section 1004.20 is revised to read as follows:


Sec. 1004.20  Sanctions.

    In addition to any other sanction provided under the law, a 
practitioner or other person may be--
    (a) Excluded from participating in programs under titles V, XVIII, 
XIX, and XX of the Social Security Act for a period of no less than 1 
year; or
    (b) In lieu of exclusion and as a condition for continued 
participation in titles V, XVIII, XIX, and XX of the Act, if the 
violation involved the provision or ordering of health care services 
(or services furnished at the medical direction or on the prescription 
of a physician) that were medically improper or unnecessary, required 
to pay an amount of up to $10,000 for each instance in which improper 
or unnecessary services were furnished or ordered (or prescribed, if 
appropriate). The practitioner or other person will be required either 
to pay the monetary assessment within 6 months of the date of notice or 
have it deducted from any sums the Federal Government owes the 
practitioner or other person.
    3. Section 1004.80 is amended by republishing the introductory text 
of paragraphs (b) and (c), revising paragraphs (b)(8), (c)(4), and 
(c)(5), and removing paragraph (c)(6) to read as follows:


Sec. 1004.80  PRO report to the OIG.

* * * * *
    (b) Content of report. The PRO report must include the following 
information--
* * * * *
    (8) A copy of the CAP that was developed and documentation of the 
results of such plan;
* * * * *
    (c) PRO recommendation. The PRO must specify in its report--
* * * * *
    (4) The availability of alternative sources of services in the 
community, with supporting information; and
    (5) The county or counties in which the practitioner or other 
person furnishes services.
    4. Section 1004.100 is amended by republishing the introductory 
text of paragraph (d), revising paragraphs (b), (d)(6), and (d)(7), and 
removing paragraph (d)(8) to read as follows:


Sec. 1004.100  Acknowledgement and review of report.

* * * * *
    (b) Review. The OIG will review the PRO report and recommendation 
to determine whether--
    (1) The PRO has followed the regulatory requirements of this part; 
and
    (2) A violation has occurred.
* * * * *
    (d) Decision to sanction. If the OIG decides that a violation of 
obligations has occurred, it will determine the appropriate sanction by 
considering--
* * * * *
    (6) Any prior problems the Medicare or State health care programs 
have had with the practitioner or other person; and
    (7) Any other matters relevant to the particular case.
* * * * *
    5. Section 1004.110 is amended by revising paragraphs (d)(1)(i) and 
(d)(2) to read as follows:


Sec. 1004.110  Notice of sanction.

* * * * *
    (d) Patient notification. (1)(i) The OIG will provide a sanctioned 
practitioner or other person an opportunity to elect to inform each of 
their patients of the sanction action. In order to elect this option, 
the sanctioned practitioner or other person must, within 30 calendar 
days from receipt of the OIG notice, inform both new and existing 
patients through written notice--based on a suggested (non-mandatory) 
model provided to the sanctioned individual by the OIG--of the sanction 
and, in the case of an exclusion, its effective date. Receipt of the 
OIG notice is presumed to be 5 days after the date of the notice, 
unless there is a reasonable showing to the contrary. Within this same 
period, the practitioner or other person must also sign and return the 
certification that the OIG will provide with the notice. For purposes 
of this section, the term ``all existing patients'' includes all 
patients currently under active treatment with the practitioner or 
other person, as well as all patients who have been treated by the 
practitioner or other person within the last 3 years. In addition, the 
practitioner or other person must notify all prospective patients 
orally at the time such persons request an appointment. If the 
sanctioned party is a hospital, it must notify all physicians who have 
privileges at the hospital, and must post a notice in its emergency 
room, business office and in all affiliated entities regarding the 
exclusion. In addition, for purposes of this section, the term ``in all 
affiliated entities'' encompasses all entities and properties in which 
the hospital has a direct or indirect ownership interest of 5 percent 
or more and any management, partnership or control of the entity.
* * * * *

[[Page 23144]]

    (2) If the sanctioned practitioner or other person does not inform 
his, her or its patients and does not return the required certification 
within the 30-day period, or if the sanctioned practitioner or other 
person returns the certification within the 30-day period but the OIG 
obtains reliable evidence that such person nevertheless has not 
adequately informed new and existing patients of the sanction, the 
OIG--
    (i) Will see that the public is notified directly of the identity 
of the sanctioned practitioner or other person, the finding that the 
obligation has been violated, and the effective date of any exclusion; 
and
    (ii) May consider this failure to adhere to the certification 
obligation as an adverse factor at the time the sanctioned practitioner 
or other person requests reinstatement.
* * * * *
    Dated: December 12, 1996.
June Gibbs Brown,
Inspector General, Department of Health and Human Services.

    Approved: December 27, 1996.
Donna E. Shalala,
Secretary.
[FR Doc. 97-11024 Filed 4-28-97; 8:45 am]
BILLING CODE 4150-04-M