[Federal Register Volume 62, Number 237 (Wednesday, December 10, 1997)]
[Proposed Rules]
[Pages 65049-65053]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-32150]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of Inspector General

42 CFR Part 1001


Solicitation of New Safe Harbors and Special Fraud Alerts

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

ACTION: Notice of intent to develop regulations.

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SUMMARY: In accordance with section 205 of the Health Insurance 
Portability and Accountability Act (HIPAA) of 1996, this notice 
solicits proposals and recommendations for developing new and modifying 
existing safe harbor provisions under the Federal and State health care 
programs' anti-kickback statute, as well as developing new OIG Special 
Fraud Alerts. The purpose of developing these documents is to clarify 
OIG enforcement policy with regard to program fraud and abuse.

DATES: To assure consideration, public comments must be delivered to 
the address provided below by no later than 5 p.m. on February 9, 1998.

ADDRESSES: Please mail or deliver your written comments to the 
following address: Office of Inspector General, Department of Health 
and Human Services, Attention: OIG-21-N, Room 5246, Cohen Building, 330 
Independence Avenue, S.W., Washington, D.C. 20201. We do not accept 
comments by facsimile (FAX) transmission. In commenting, please refer 
to file code OIG-21-N. Comments received timely will be available for 
public inspection as they are received, generally beginning 
approximately 3 weeks after publication of a document, in Room 5541 of 
the Office of Inspector General at 330 Independence Avenue, S.W., 
Washington, D.C., on Monday through Friday of each week from 8:00 a.m. 
to 4:30 p.m.

FOR FURTHER INFORMATION CONTACT: Joel Schaer, (202) 619-0089, OIG 
Regulations Officer.

SUPPLEMENTARY INFORMATION:

I. Background

A. The OIG Safe Harbor Provisions

    Section 1128B(b) of the Social Security Act (the Act) (42 U.S.C. 
1320a-7b(b)) provides criminal penalties for individuals or entities 
that knowingly and willfully offer, pay, solicit or receive 
remuneration in order to induce business reimbursed under the Federal 
or State health care programs. The offense is classified as a felony, 
and is punishable by fines of up to $25,000 and imprisonment for up to 
5 years.
    The types of remuneration covered specifically include kickbacks, 
bribes, and rebates, whether made directly or indirectly, overtly or 
covertly, or in cash or in kind. In addition, prohibited conduct 
includes not only remuneration intended to induce referrals of 
patients, but remuneration intended to induce the purchasing, leasing, 
ordering, or arranging for any good, facility, service, or item paid 
for by Federal or State health care programs.
    Since the statute on its face is so broad, concern has been 
expressed for many years that some relatively innocuous commercial 
arrangements are technically covered by the statute and are, therefore, 
subject to criminal prosecution. As a response to the above concern, 
the Medicare and Medicaid Patient and Program Protection Act of 1987, 
section 14 of Public Law 100-93,

[[Page 65050]]

specifically required the development and promulgation of regulations, 
the so-called ``safe harbor'' provisions, designed to specify various 
payment and business practices which, although potentially capable of 
inducing referrals of business under the Federal and State health care 
programs, would not be treated as criminal offenses under the anti-
kickback statute (section 1128B(b) of the Act; 42 U.S.C. 1320a-7b(b)) 
and would not serve as a basis for a program exclusion under section 
1128(b)(7) of the Act; 42 U.S.C. 1320a-7(b)(7). The OIG safe harbor 
provisions have been developed ``to limit the reach of the statute 
somewhat by permitting certain non-abusive arrangements, while 
encouraging beneficial and innocuous arrangements'' (56 FR 35952, July 
29, 1991). 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 or program exclusion authority.
    To date, the OIG has developed and codified in 42 CFR 1001.952 a 
total of 13 final safe harbors that describe practices that are 
sheltered from liability, and is continuing to finalize 8 additional 
safe harbor provisions (see the OIG notice of proposed rulemaking at 58 
FR 49008, September 21, 1993).

B. OIG Special Fraud Alerts

    In addition, the OIG has also periodically issued Special Fraud 
Alerts to give continuing guidance to health care providers with 
respect to practices the OIG regards as unlawful. These Special Fraud 
Alerts serve to notify the health care industry that the OIG has become 
aware of certain abusive practices that the OIG plans to pursue and 
prosecute, or to bring civil and administrative action, as appropriate. 
The Special Fraud Alerts also serve as a tool to encourage industry 
compliance by giving providers an opportunity to examine their own 
practices. The OIG Special Fraud Alerts are intended for extensive 
distribution directly to the health care provider community, as well as 
those charged with administering the Medicare and Medicaid programs.
    In developing these Special Fraud Alerts, the OIG has relied on a 
number of sources and has consulted directly with experts in the 
subject field, including those within the OIG, other agencies of the 
Department, other Federal and State agencies, and those in the health 
care industry. To date, eight individual Special Fraud Alerts have been 
issued by the OIG and subsequently reprinted in the Federal Register on 
December 19, 1994 (59 FR 65372), August 10, 1995 (60 FR 40847) and June 
17, 1996 (61 FR 30623).

C. Section 205 of Public Law 104-191

    In accordance with the Health Insurance Portability and 
Accountability Act of 1996 (Public Law 104-191), the Department is now 
required to provide additional formal guidance regarding the 
application of the anti-kickback statute and the safe harbor 
provisions, as well as other OIG health care fraud and abuse sanctions. 
In addition to accepting and responding to requests for advisory 
opinions to outside parties regarding the interpretation and 
applicability of certain statutes relating to the Federal and State 
health care programs, section 205 of Public Law 104-191 requires the 
Department to develop and publish an annual notice in the Federal 
Register formally soliciting proposals for (1) modifying existing safe 
harbors, and (2) developing new safe harbors and OIG Special Fraud 
Alerts. After considering such proposals and recommendations, the 
Department, in consultation with the Department of Justice, will 
consider the issuance of new or modified safe harbor regulations, as 
appropriate. In addition, the OIG will consider the issuance of 
additional Special Fraud Alerts.
    On December 31, 1996, the Department published the first of these 
annual Federal Register notice solicitations (61 FR 69060) addressing 
proposals and recommendations for developing new and modifying existing 
safe harbor provisions under the Federal and State health care 
programs' anti-kickback statute, as well as developing new OIG Special 
Fraud Alerts. As a result, the OIG received a total of 32 timely-filed 
public comments from a cross-section of organizations, associations and 
other outside entities. In response to that solicitation, respondents 
raised a number of issues and comments on a variety of areas, including 
general comments concerning application of the existing safe harbor 
provisions, and specific concerns over the existing safe harbors 
presently codified in 42 CFR 1001.952 and those proposed in our 
September 1993 notice of proposed rulemaking. Respondents also 
recommended new safe harbors for, among other practices and 
arrangements: (1) physician ownership of hospitals; (2) provider 
sponsorship or support of continuing education programs for health care 
practitioners and facilities; (3) provision of cataract surgery-related 
prosthetic devices; (4) loans between parties in a position to refer or 
arrange for the referral of Medicare covered items; (5) de minimis 
gifts to beneficiaries for recommending new patients; (6) 
intercorporate transfers among entities delivering health care through 
integrated delivery systems; and (7) payments for purposes of physician 
retention.
    Special Fraud Alerts were also suggested to address such areas as: 
(1) financial arrangements between hospitals and hospital-based 
physicians; (2) billing management consultants; (3) hospital discharges 
and transfers; (4) food vendor ``value added'' services; and (5) 
demands for discounts by Medigap insurers.
    The array of proposals and recommendations received for new safe 
harbors and Special Fraud Alerts are summarized below, and are still 
under review within the OIG. When the OIG has fully assessed the merits 
of these recommendations, we will consider the promulgation of formal 
proposed regulations to create new safe harbors for those proposals 
deemed appropriate.

II. Summary of Previously Submitted Recommendations for New Safe 
Harbors and OIG Special Fraud Alerts

    Set forth below is a summary of the major topics previously 
submitted for consideration in the OIG development of new safe harbors 
and Fraud Alerts. This listing serves to outline the major concepts and 
specific proposals received by this office as a result of the December 
1996 solicitation notice. The OIG is currently taking these 
recommendations under advisement, and is not seeking additional public 
comment on these proposals at this time.

A. Proposed New Safe Harbors

Interface With the Stark Law
    Commenters indicated that physician groups are closely regulated by 
both the anti-kickback statute and the physician self-referral laws, 
i.e., the Stark provisions. Since many existing safe harbors are 
similar but not identical to the statutory exceptions under the Stark 
law, commenters indicated that physician groups are forced to analyze 
much of what they do under two separate bodies of law, and are left 
with regulatory uncertainty. As a result, they recommended that the OIG 
conform safe harbors to the statutory and regulatory exceptions 
applicable under the Stark provisions, thus protecting any payment 
arrangement that meets an exception under the Stark provisions. We 
intend specifically to address this issue in the final regulations that 
are being developed in response to the September 1993 proposed rule.

[[Page 65051]]

Physician Ownership of Hospitals
    Since physician investment in hospitals is expressly recognized 
under the Stark provisions, a recommendation was made for a companion 
safe harbor for physicians and group practices that hold ownership 
interests in hospitals to which they refer.
ASCs, CORFs and Similar Entities
    Commenters recommended expanded safe harbors to cover ambulatory 
surgical centers (ASCs) owned by a group practice (even if not all 
members of the group are surgeons), and for ASCs that are owned in part 
by physicians and in part by hospitals or other non-physician 
investors, as long as the physician's return on investment is based on 
the performance of the ASC as a whole. A commenter also requested 
protection for physician ownership in other facilities where they 
practice, such as comprehensive outpatient rehabilitation facilities. 
We expect to address these issues in the final regulations being 
developed in response to our earlier safe harbor proposed rule.
Services Provided by Federally-Funded Community Health Centers
    A safe harbor was suggested to allow Federally-funded community 
health centers to take advantage of opportunities to improve their 
services to disadvantaged patients, for example, by arranging for 
discounted services where the arrangement will produce a substantial 
benefit to a medically underserved population.
Continuing Education
    One commenter recommended a safe harbor delineating the 
circumstances under which manufacturers, commercial laboratories and 
other providers can sponsor or provide continuing education programs to 
health care facilities and practitioners. This commenter believed that 
many educational opportunities may be foregone by practitioners who, at 
the request of the provider, may have to notify other local 
practitioners about the presentation to avoid the appearance of 
impropriety. The commenter was concerned that the OIG may consider a 
presentation to a single hospital, for example, as an inducement for 
Medicare referrals.
Cataract Surgery-Related Prosthetic Devices
    A recommendation was made for a safe harbor addressing the referral 
of patients for eyeglasses, contact lenses and intraocular lenses. A 
commenter stated that eyeglasses and contact lenses sold by optical 
stores, regardless of who owns the establishment, are consumer items 
that are subject to specific controls by the Federal Trade Commission, 
as well as by State regulation and free market competition. With 
respect to a safe harbor for the provision of intraocular lenses during 
cataract surgery, the commenter indicated that patients during an 
operation are not in a position to shop elsewhere for these items, and 
the selection of these lenses is based on operative techniques and 
often cannot be done prior to surgery.
New Managed Care Safe Harbors
    A new safe harbor was suggested to apply broadly to all Medicare 
and Medicaid contracting managed care plans that are in compliance with 
the applicable requirements under Medicare, and plans that are 
participating in the Health Care Financing Administration (HCFA) 
managed care demonstrations. A recommendation was also made to 
establish comparable safe harbor protection for managed care plans that 
are licensed or regulated by HCFA or State regulatory bodies, involving 
non-contracting organizations and their activities involved in 
providing and arranging care for Medicare beneficiaries. Further, a 
recommendation for new safe harbors was also received that would 
protect other managed care financial relationships, such as (i) payment 
arrangements between managed care organizations and manufacturers that 
relate to usage of the manufacturer's products by the managed care 
organization's enrollees and (ii) protection for preferred provider 
organizations that charge administrative fees to providers.
Intercorporate Transfers
    Commenters recommended that a new safe harbor be created for 
integrated delivery systems that would address payments between related 
entities, including, among others, parent companies and wholly-owned 
subsidiaries. This safe harbor would serve to clarify permissible 
transfers of ``remuneration'' between and among physicians, hospitals, 
health plans and others who are delivering health care through 
integrated delivery systems.
Offering Flat Rates for Outpatient Surgery by Hospitals
    With regard to outpatient surgeries, a commenter stated that 
providers should be able to charge Medicare patients in the same 
fashion as other patients, without fear of sanctions. As a result, they 
recommended a new safe harbor for flat fees for outpatient surgeries. 
The commenter suggested that this would enhance access to health 
services to the extent that the beneficiary would have a greater 
comfort level knowing the coinsurance charge at the time a procedure is 
scheduled rather than dealing with uncertainty of not knowing the 
precise amount of the coinsurance obligation until after the procedure 
has been billed.
Physician Retention
    A new safe harbor was recommended for all physician retention 
efforts by hospitals, regardless of a hospital's location. The safe 
harbor would protect payments or benefits offered by hospitals and 
other entities to retain physicians and other practitioners in the 
service area.
Investments by Ambulatory Surgical Center (ASC) Administrators and 
Family Members
    A commenter suggested a safe harbor to protect investment interests 
by certain non-practitioners who are actively involved with the 
delivery of health care services at an ASC in an administrative or 
managerial capacity. Since many ASCs are owned, in part, by facility 
administrators who have a vested interest in the success of the ASC, it 
was believed that these individuals should be allowed to invest in ASCs 
and participate in any profits generated by the facility at which they 
work with the protection of a safe harbor, much like surgeons would be 
allowed to invest in the ASC even if passive investors. The commenter 
also believed that a safe harbor should allow investment interests in 
ASCs to be held by family members of those individuals whose investment 
interests are protected by the safe harbor so long as those family 
members are not able to make or influence referrals to the facility. We 
expect to address this issue in the OIG's final regulations being 
developed in response to our earlier safe harbors proposal.
ASCs Located in Underserved Rural Areas
    To encourage efficient and less-costly medical care delivery, it 
was recommended that all investments in an ASC in an area where there 
was previously no ASC or hospital, regardless of their source, should 
receive protection as long as the investments meet specific criteria 
set forth in the proposed safe harbor for investments in entities in 
rural areas. (Proposed revisions to Sec. 1001.952(a)(4) were set forth 
in the OIG proposed

[[Page 65052]]

rulemaking of September 21, 1993 (58 FR 49008).)
Loans
    A commenter indicated that loans between a provider and 
practitioner are often the only available source of necessary capital 
in a community, and recommended protection for loans between parties 
who may be in a position to refer, recommend or arrange for the 
referral or recommendation of Medicare or Medicaid covered items or 
services.
Investments
    Although there is a safe harbor under the anti-kickback statute for 
investment interests, a commenter believed that it expressly protects 
only payments in the form of ``return paid to investors'' on 
investments that comply with the safe harbor's requirement, but not 
expressly the investments themselves. They indicated that health care 
providers and practitioners often enter into legitimate business 
ventures in which the investors are potential recipients of referrals 
from the venture in which they are investing. As a result, the 
commenter recommended a new safe harbor to protect legitimate 
investments from the anti-kickback statute.
De Minimis Gifts
    A commenter suggested a new safe harbor addressing de minimis gifts 
to beneficiaries for recommending a new customer to the provider. For 
purposes of this proposal, de minimis gifts would be small tokens of a 
provider's gratitude given to customers and community members who 
suggest the provider's services or products to other potential 
customers, consistent with the Internal Revenue Service's definition on 
limitation on all allowable business gifts. No safe harbor protection 
would be afforded where gifts, even if de minimis, were made to 
physicians and other practitioners in a position to influence patients.
Physician/Provider Sponsored Organizations
    Commenters requested that a new safe harbor be created for 
physician/provider sponsored organizations (PSOs). The proposed safe 
harbor would protect payments to or by any provider, provider sponsor 
or provider service network for services to beneficiaries enrolled by 
an eligible organization under section 1876 of the Act in accordance 
with a full-risk or partial-risk contract. The commenter suggested that 
protection for PSOs would increase patient access to health care 
services and increase the health care options available to program 
beneficiaries.

B. Proposed New OIG Special Fraud Alerts

Limitation on use of Fraud Alerts
    A recommendation was made to limit the use of Special Fraud Alerts 
to circumstances that raise concerns about serious and clear 
violations, rather than merely ``questionable'' practices.
Financial Arrangements Between Hospitals and Hospital-Based Physicians
    A commenter stated that an increasing number of hospital-based 
physician agreements with hospitals compensate physicians for less than 
the fair market value of management and supervisory services they 
provide to hospitals, or require physicians to pay more than the fair 
market value for certain services provided by the hospital as a 
condition for entering into or renewing contracts. As a result, a Fraud 
Alert was recommended to discuss financial arrangements between 
hospitals and hospital-based physicians. A second commenter raised 
concern about the appropriate compensation for hospital-based 
physicians and physicians serving as medical directors. They 
recommended a new OIG Fraud Alert addressing services considered 
integral and not ``incident to'' physician services, and the proper use 
of nonphysician practitioners accompanied by the appropriate billing 
for their services.
Ambiguity in Billing Practices
    A suggestion was made to provide clear direction regarding covered 
and non-covered services and appropriate billing practices and, in 
conjunction with section 231 of the HIPAA, define the term ``pattern of 
billing for services'' that the provider knew or should have known was 
not medically necessary. The commenter indicated that any Fraud Alert 
should specify that no sanctions would be taken for a pattern of 
billing for services considered to be medically unnecessary until the 
provider has been given written notice of the problem and an 
opportunity to desist from the billing practice.
Barring Demands by Medicare Supplemental Carriers for Discounts from 
Providers
    Since Medigap carriers other than Medicare SELECT plans continue to 
seek discounts or waivers of copayment amounts from providers, it was 
recommended that the OIG clarify that is improper for Medigap insurers 
(other than Medicare SELECT in connection with Part A services covered 
by existing safe harbors) to seek discounts and waivers of Medicare 
coinsurance or deductible amounts.
Payment Arrangements Between Hospice Providers and Nursing Homes
    Concern was voiced over certain compensation arrangements between 
hospices and nursing facilities, including skilled nursing facilities, 
that suggested suspect incentive arrangements that disguise referral 
fees as payments for services to such nursing facilities. A Fraud Alert 
was suggested to address the fact that when a hospice pays a nursing 
facility more than 95 percent of the Standard Medicaid Per Diem 
Reimbursement Rate, such arrangements may violate the anti-kickback 
statute.
Clinical Laboratory Personnel Within an ESRD Facility
    A commenter recommended an amendment to the phlebotomy section of 
the OIG Special Fraud Alert--``Arrangements for the Provision of 
Clinical lab Services''--that was issued in October 1994. Under that 
section, a clinical laboratory's placement of a phlebotomist in a 
physician's office does not in and of itself serve as an inducement 
prohibited by the anti-kickback statute. However, the commenter 
indicated that certain tasks could implicate the statute if those 
functions that benefit the physician are performed by the phlebotomist. 
As a result, they proposed that the OIG highlight a similar practice of 
providing a clinical laboratory employee, or processor, to an ESRD 
facility on a full-time basis to relieve the facility of these duties.
Laboratory Contracting with Billing Management Consultants
    It was suggested that a Fraud Alert be developed outlining the 
potential issues related to contracting with billing management 
consultants, the appropriate relationship between the facility and the 
consultants, and the liability of all parties involved in the contract.
Discounted Copayments and Deductibles
    In light of new civil money penalty authority for Medicare 
providers who offer incentives to induce Medicare referrals, it was 
recommended that a Fraud Alert be developed addressing situations in 
which a copayment or deductible can be discounted.

[[Page 65053]]

 Home Health Issues
    With regard to the proper certification of Medicare beneficiaries 
for home health services, a recommendation was made to develop a Fraud 
Alert defining what is considered ``home bound'' and what actions 
should be taken to ensure that the beneficiary is appropriately 
certified and is eligible for home health services. The commenter also 
recommended that a Fraud Alert address home health agency procedures 
related to contacting patients upon discharge from the hospital, and 
claims for home health visits that occur prior to physician 
authorization for the visit.
 Medicare as Secondary Payer
    A commenter indicated that if primary coverage is not identified, 
Medicare may be billed inappropriately, thus leading to allegations of 
fraudulent billing. The commenter recommended a new Fraud Alert setting 
forth the appropriate process to determine primary coverage, and the 
level of diligence a facility must use to verify primary coverage.
 Hospice Care
    A new Fraud Alert was recommended outlining the appropriate method 
for determining life expectancy to meet hospice eligibility criteria, 
and the responsibility if a patient is subsequently found ineligible 
for hospice benefits due to an incorrect determination of life 
expectancy. It was also suggested that the Fraud Alert address billing 
issues associated with a hospice patient who is transferred to a 
hospital, and the instances when a hospital should bill the hospice 
instead of Medicare to avoid duplicate bills to Medicare for the same 
patient.
 Hospital Issues
    It was suggested that problems have occurred with PPS hospitals 
billing Medicare for discharging a patient when the patient was 
actually transferred to another PPS hospital or unit, and that the OIG 
develop a Fraud Alert outlining instances in which a hospital may bill 
Medicare for a patient discharge and when the hospital must file a 
claim as a transfer.
 Value Added Services
    A new Fraud Alert was recommended to address concerns about vendors 
in the food service industry offering ``value added services'' to their 
institutional customers. The commenter stated that many of these 
practices, intended to induce the initiation or maintenance of a 
business relationship between parties, raised concerns under the anti-
kickback statute since food service sold to health care institutions is 
reimbursed in part by Medicare and the State health care programs.
    Further public comments on the proposals summarized above are not 
being solicited at this time.

III. Solicitation of Additional New Recommendations and Proposals

    In accordance with the requirements of section 205 of Public Law 
104-191, we are seeking additional recommendations from affected 
provider, practitioner, supplier and beneficiary representatives 
regarding the development of proposed or modified safe harbor 
regulations and new Special Fraud Alerts beyond those summarized above.

Criteria for Modifying and Establishing Safe Harbor Provisions

    In accordance with the statute, we will consider a number of 
factors in reviewing proposals for new or modified safe harbor 
provisions, such as the extent to which the proposals would effect an 
increase or decrease in--
     Access to health care services;
     The quality of care services;
     Patient freedom of choice among health care providers;
     Competition among health care providers;
     The cost to Federal health care programs;
     The potential overutilization of the health care services; 
and
     The ability of health care facilities to provide services 
in medically underserved areas or to medically underserved populations.
    In addition, we will also take into consideration the existence (or 
nonexistence) of any potential financial benefit to health care 
professionals or providers that may vary based on their decisions of 
whether to (1) order a health care item or service, or (2) arrange for 
a referral of health care items or services to a particular 
practitioner or provider.

Criteria for Developing Special Fraud Alerts

    In determining whether to issue additional Special Fraud Alerts, we 
will also consider whether, and to what extent, those practices that 
would be identified in new Fraud Alerts may result in any of the 
consequences set forth above, and the volume and frequency of the 
conduct that would be identified in these Special Fraud Alerts.
    A detailed explanation of justification or empirical data 
supporting the suggestion, and sent to the address indicated above, 
would prove helpful in our considering and drafting new or modified 
safe harbor regulations and Special Fraud Alerts.

    Dated: December 1, 1997.
June Gibbs Brown,
Inspector General.
[FR Doc. 97-32150 Filed 12-9-97; 8:45 am]
BILLING CODE 4150-04-P