[Federal Register Volume 65, Number 81 (Wednesday, April 26, 2000)]
[Rules and Regulations]
[Pages 24400-24419]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-10142]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of Inspector General

42 CFR Parts 1001, 1003, 1005 and 1006

RIN 0991-AA90


Health Care Programs: Fraud and Abuse; Revised OIG Civil Money 
Penalties Resulting From Public Law 104-191

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

ACTION: Final rule.

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SUMMARY: This final rule revises the OIG's civil money penalty (CMP) 
authorities, in conjunction with new and revised provisions set forth 
in the Health Insurance Portability and Accountability Act of 1996. 
Among other provisions, this final rulemaking codifies new CMPs for 
excluded individuals retaining ownership or control interest in an 
entity; upcoding and claims for medically unnecessary services; 
offering inducements to beneficiaries; and false certification of 
eligibility for home health services. This rule also codifies a number 
of technical corrections to the regulations governing OIG's sanction 
authorities.

EFFECTIVE DATE: These regulations are effective on April 26, 2000.

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

SUPPLEMENTARY INFORMATION:

I. Background

A. The Health Insurance Portability and Accountability Act of 1996

    The Health Insurance Portability and Accountability Act (HIPAA) of 
1996, Public Law 104-191, included a number of changes to the OIG's 
authorities intended to curtail and eliminate health care fraud and 
abuse. With regard to the sanction authorities, HIPAA expanded the 
scope of certain basic fraud authorities by extending the application 
of current CMP provisions beyond those programs funded by the 
Department of Health and Human Services (the Department) to include all 
Federal health care programs. The HIPAA also significantly revised and 
strengthened the OIG's existing CMP authorities pertaining to 
violations under Medicare and the State health care programs.
    Among other provisions related to the OIG's CMP authority, HIPAA 
(1) increased the maximum penalty amounts per false claim from $2,000 
to $10,000; (2) allowed CMPs to be

[[Page 24401]]

assessed for incorrect coding, medically unnecessary services, and 
offering remuneration to beneficiaries to influence their choice of a 
particular provider or supplier; and (3) established a new CMP for 
physicians' false certification of eligibility for Medicare-covered 
home health services.
    While the majority of these revisions to the OIG's CMP authorities 
under section 1128A of the Social Security Act (the Act) were effective 
on January 1, 1997,\1\ these provisions did allow the Department some 
policy discretion in their implementation. As a result, we developed 
proposed rulemaking to address these HIPAA CMP provisions, along with 
other technical revisions and conforming policy changes to the OIG's 
sanction authorities codified in 42 CFR parts 1003, 1005 and 1006.
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    \1\ Section 232 of HIPAA, setting forth the CMP for false 
certification of Medicare home health benefit eligibility, applies 
to certifications made on or after August 21, 1996, the enactment 
date of the statute.
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B. Summary of the Proposed Rule

    On March 25, 1998, the Department published proposed rulemaking (63 
FR 14393) addressing new and revised CMP authorities in accordance with 
HIPAA, in addition to a number of proposed technical and corrections to 
42 CFR parts 1003, 1005 and 1006. Set forth below is a brief summary of 
the regulatory provisions contained in that proposed rule--
1. Extension of Current CMP Authority
    Section 231(a) of HIPAA expanded the scope of the CMP authorities 
beyond programs funded by the Department, to include application to 
other Federal agencies' health care programs. The statute may now be 
used to address violations involving other Federal health care programs 
such as Tricare, Veterans Affairs, and the Public Health Service 
programs which are involved with the funding or provision of health 
care items and services (42 U.S.C. 1320a-7b(f)). We proposed amending 
the basis and purpose sections of 42 CFR part 1003, as well as the 
current definitions for the terms ``claim'' and ``exclusion'' in 
Sec. 1003.101, to extend CMP coverage to other applicable Federal 
health care programs.
2. Increased CMP Amounts
    In accordance with section 231(c) of HIPAA, we proposed amending 
Sec. 1003.103(a) of the regulations to increase the CMP maximum amount 
from $2,000 to $10,000 per false item or service or prohibited 
practice, and amending Sec. 1003.104 to raise the amount of authorized 
assessments from double to triple the amount claimed. These amounts are 
consistent with the penalty and damage amounts contained in the False 
Claims Act (FCA) (31 U.S.C. 3729(b)).
3. CMPs for Excluded Individuals Retaining Ownership or Control 
Interest in a Participating Entity
    A major loophole existed under the law prior to HIPAA whereby an 
excluded individual was able, without sanction, to continue to gain 
benefits from the Medicare and the State health care programs by 
retaining a direct or indirect ownership or control interest in a 
health care entity that participates in Medicare or any State health 
care program. Revised OIG regulations, in accordance with section 
231(b) of HIPAA, were proposed to codify a new CMP designed to deter 
such affiliations. Specifically, the rule proposed a new 
Sec. 1003.102(b)(11) (now being designated as (b)(12)), and other 
conforming revisions, to establish a CMP of up to $10,000 for each day 
that an excluded individual retains a prohibited ownership or control 
interest in an entity participating in Medicare or any State health 
care program. The penalty provision would apply to excluded 
individuals, having an ownership or control interest in a participating 
entity, who know, or should know, of the action constituting the basis 
for the exclusion. It also applies to any excluded persons who remain 
as officers or managing employees of a participating entity.
4. CMPs for Upcoding Claims and Medically Unnecessary Services
    While the OIG has historically viewed upcoding medical procedure 
codes and the submission of claims for medically unnecessary services 
as warranting the imposition of a CMP, section 231(e) of HIPAA 
expressly identifies a ``pattern'' of these practices as violations of 
the CMP statute. The regulations proposed revising Sec. 1003.102(a)(1) 
to reflect that a CMP and assessment may be imposed for submitting, or 
causing to be submitted, claims that the person knows or should know 
will result in greater payment than the code applicable to the item or 
service actually provided. A new Sec. 1003.102(a)(6) was also proposed 
for purposes of imposing CMPs and assessments for submitting or causing 
to be submitted claims for medically unnecessary items or services.
5. CMPs for Offering Inducements to Beneficiaries
    A new Sec. 1003.102(b)(12)(now being designated as (b)(13)), and 
conforming changes, were proposed in accordance with section 231(h) of 
HIPAA to address the new CMP authority imposing sanctions against 
individuals or entities that offer remuneration to a program 
beneficiary that they know, or should know, will influence the 
beneficiary's decision to order or receive items or services from a 
particular provider, practitioner or supplier reimbursable by Medicare 
or the State health care programs. Under the statute and the proposed 
regulations, remuneration would include both the waiver of all or part 
of deductible and coinsurance amounts, and the transfer of items and 
services for free or for other than fair market value.
    Congress enacted statutory exemptions to the definition of 
``remuneration'' under this CMP provision to encompass deductible and 
coinsurance waivers that meet certain conditions, certain differentials 
in coinsurance amounts as part of a benefit plan design, and incentives 
to promote the delivery of preventive care. Specifically, Congress 
exempted:
     Waivers of coinsurance and deductible amounts that are not 
advertised or solicited, are not routine, and are made either after a 
good faith, individualized determination of financial need or after 
reasonable collection efforts have failed;
     Any waiver of coinsurance or deductible amounts made in 
accordance with a ``safe harbor'' to the anti-kickback statute or other 
regulations issued by the Secretary; \2\
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    \2\ In HIPAA, this exception was originally contained in the 
general waiver of co-payment exception. This provision has since 
been made a separate exception under section 4331(e) of the Balanced 
Budget Act of 1997, and has been further modified by the Omnibus 
Consolidated and Emergency Supplemental Appropriations Act for 
Fiscal Year 1999 (Pub. L. 105-277) to expand this exception from co-
payment waivers protected by an anti-kickback statute safe harbor to 
any payment practice that meets an anti-kickback statute safe 
harbor.
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     Differentials in coinsurance and deductible amounts as 
part of a benefit plan design where the differentials have been 
disclosed in writing to all beneficiaries, third party payers, and 
providers, to whom claims are presented and where the differentials 
meet standards set forth in regulations issued by the Secretary; and
     Incentives given to individuals to promote the delivery of 
preventive care, as determined by the Secretary.
    We proposed defining ``remuneration'' consistent with the above 
provisions.
6. CMPs for the False Certification of Home Health Services Eligibility
    The regulations proposed the addition of Sec. 1003.102(b)(13) (now 
being

[[Page 24402]]

designated as (b)(14)), and conforming changes, to address the new CMP 
authority set forth in section 232 of HIPAA imposing sanctions against 
a physician who falsely certifies the necessity of Medicare-covered 
home health services when he or she knows that such care is not 
necessary. Under this authority and the proposed rule, the physician 
could be subject to a CMP of the greater of $5,000 or 3 times the 
amount of Medicare payments made for the home health services.
7. Clarification of the CMP Knowledge Standard
    Section 1128A of the Act and the implementing OIG regulations have 
applied a ``knows or should know'' standard of proof with regard to 
false claims and other prohibited acts. The ``should know'' standard 
historically placed a duty on providers to use reasonable diligence to 
ensure that claims submitted to the government are true and accurate. 
However, to make the knowledge standard consistent with the FCA, 
section 231(d) of HIPAA clarified the applicable standard of proof. 
Under the proposed revised definition for ``should know or should have 
known'' in Sec. 1003.101, the proposed regulations indicated that 
individuals and entities would only be liable under the CMP authority 
if they acted with actual knowledge, or with reckless disregard or 
deliberate ignorance of information supporting the truth or falsity of 
a claim or other fraud. No specific intent to defraud would be 
required. The rule also proposed adding a new Sec. 1003.102(e) to 
clarify, in accordance with the legislative history of HIPAA, that the 
term ``knowingly'' will be applied to the presentment of a claim under 
the CMP statute consistent with the standard of knowledge set forth in 
the FCA.
8. Other Technical Corrections
    In addition to a number of conforming changes to the CMP provisions 
in part 1003 required by HIPAA, the regulations proposed to revise 
certain procedures applicable to the appeal of OIG exclusions, CMPs and 
assessments in 42 CFR part 1005. These included--
     Clarification of the scope of an administrative law 
judge's (ALJ) authority to issue subpoenas at a hearing in 
Sec. 1005.9(b) to indicate that the ALJ is authorized to issue a 
subpoena to any individual to attend the hearing and to provide 
documentary evidence at or prior to that hearing. (The existing 
language has been misconstrued in some situations as only authorizing 
the production of documents at the hearing itself.)
     A proposed revision to Sec. 1005.7(e) to provide for 
motions to compel discovery once a request for production of documents 
has been received. The proposed revision was intended to clarify that a 
party has a right to object to discovery requests without requiring 
that party to file for a protective order, leaving it to the party 
seeking the documents to justify why access is appropriate in a motion 
to compel discovery.
     A revision to Sec. 1005.21(d) was proposed to allow for 
interlocutory appeal to the Departmental Appeals Board (DAB) of the 
timeliness of the filing of a hearing request. The proposed rule 
indicated that without this proposed change, a final DAB ruling that a 
hearing request was untimely filed can be meaningless, since the 
hearing has often taken place before appeal of an ALJ's ruling on 
timeliness can occur.

II. Response to Comments and Summary of Revisions

    In response to the notice of proposed rulemaking, the OIG received 
a total of 31 timely-filed public comments from various health care 
providers and organizations, professional medical societies and 
associations, and other interested parties. The comments included both 
broad concerns about the issuance of these CMP regulations, and more 
detailed comments on specific aspects of the HIPAA CMP provisions. Set 
forth below is a synopsis of the various comments and recommendations 
received, our response to those concerns, and a summary of the specific 
revisions and clarifications being made to the regulations at 42 CFR 
parts 1003, 1005 and 1006 as a result of the proposed HIPAA CMP rule 
and the public comments.

General Comments

    Comment: One commenter raised concern over how the Government's 
anti-fraud activities under this new rule would be coordinated with 
private sector efforts. The commenter believed that increased 
enforcement efforts in the public sector might cause fraud perpetrators 
to shift their illegal activities to programs not covered by these 
regulations, such as the Federal Employees Health Benefits Program 
(FEHBP), causing these programs to lose money. The commenter believed 
that there appeared to be little opportunity for private health 
insurance plans to receive restitution for their losses.
    Response: The OIG is equally concerned about the spread of 
potential fraud in all health care programs not covered by these 
regulations, such as the FEHBP. The statute, however, created an 
exception for that program under the CMP provisions, excluding the 
FEHBP from the definition of a Federal health care program. Overall, we 
believe the OIG's anti-fraud efforts should serve to identify and 
sanction those health care providers that are in a position to defraud 
both the Federal health care and private sector health care programs.
    Comment: In light of the fact that CMPs can now reach $10,000 per 
claim, one commenter urged the OIG, as well as the Department of 
Justice, to review and investigate preliminary findings carefully 
before accusing a health care provider of fraud and abuse.
    Response: We understand and agree with the commenter's concerns 
with regard to increased maximum CMP amounts. The OIG has stressed, and 
will continue to stress, the importance of investigating specific 
allegations against a provider thoroughly and completely before taking 
any action.

Specific Comments

Section 1003.102(a)(1) and (a)(6), Claims for Upcoding and for 
Medically Unnecessary Services

    Comment: Several commenters expressed concern that physicians not 
be prosecuted for honest coding mistakes and legitimate differences of 
opinion over medical necessity or the use of appropriate billing codes. 
Commenters suggested that failure to document the medical basis for a 
claim may be an oversight rather than proof of a medically unnecessary 
claim. Other commenters believed that the OIG needs to clarify both 
that CMPs will not be imposed before intent is established, and that 
CMPs will only be imposed commensurate with the harm to the Federal 
Government and not as a bargaining tool.
    One organization urged the OIG, in implementing this CMP authority, 
to work with the medical profession to educate physicians regarding 
proper billing procedures, in order to minimize potential fraud and 
abuse violations. Still another commenter believed that peer review 
should be mandatory before a physician can be subject to a penalty for 
upcoding or providing services deemed to be not medically necessary. 
This commenter believed that because of the serious consequences 
associated with improper coding, it is imperative that judgment on the 
appropriateness of these claims rest essentially with physicians.
    Response: Sanctions may only be imposed against those who act in

[[Page 24403]]

``deliberate ignorance'' or with ``reckless disregard'' of the truth or 
falsity of information specified on claims. A physician whose 
documentation fails to support the level of service submitted for a 
service code would not be subject to CMP liability unless he or she 
specifically acted in ``deliberate ignorance'' or ``reckless 
disregard'' of the truth or falsity of the claim. As a result, the OIG 
would not consider as a basis for CMP action the submitting of a claim 
for a service found upon review to be medically unnecessary, without 
evidence that the issue of medical necessity was deliberately ignored 
or recklessly disregarded. Honest or inadvertent billing or coding 
mistakes will not be the basis for the imposition of CMPs. In addition, 
CMPs may be imposed only where a ``pattern'' of improper claims with 
upcoded procedures or unnecessary services exists. Sanctions will be 
imposed only in appropriate cases where a ``pattern'' of upcoding or 
billing for unnecessary services has been identified.
    Comment: One commenter believed the proposed Sec. 1003.102(a)(6) 
raised a number of issues for laboratories since laboratories do not 
determine medical necessity or actually order laboratory services. The 
commenter believed that it would be inappropriate for the OIG to allege 
this provision was violated if the laboratory merely submitted a claim 
for services with an ICD-9 code that the carrier did not recognize as 
demonstrating the medical necessity of the services. The commenter 
cited several reasons why the laboratory might submit such claims. 
Specifically, the commenter indicated that the beneficiary has a right 
to ask that the claim be submitted to obtain the denial, and that 
laboratories often disagree with carriers' coding determinations and 
may submit a claim to obtain the denial so that it can pursue further 
appeal rights. As a result, the commenter believed that the regulations 
should emphasize that the mere submission of a claim with an ICD-9 code 
that is not acceptable to the carrier should not constitute a 
violation.
    Response: Consistent with the statute and the legislative history, 
the OIG does not intend this penalty provision to apply when providers 
submit claims that they know will not be considered reimbursable as 
medically necessary, but that are required to be submitted because 
their patients need to document that the Medicare program will not 
cover the service. However, as explained in the legislative history to 
this statutory provision, in submitting such claims providers must 
explicitly notify Medicare carriers that a claim is being submitted not 
for payment, but solely for the purpose of seeking reimbursement from 
secondary payers.
    Comment: Proposed Sec. 1003.106(a)(6) provided that CMPs may be 
imposed if a claim is submitted for ``an item or service that is 
medically unnecessary, and which is part of a pattern or practice of 
such claims.'' Several commenters indicated that the proposed language 
in Sec. 1003.102(a)(6), regarding the submission of claims for services 
that are medically unnecessary, should be amended to include the 
``knows or should know'' standard found in the statute and in the 
proposed revision to Sec. 1003.102(a)(1). Commenters believed that 
absence of a ``knows or should know'' standard for all errors 
pertaining to medical necessity will place the OIG in the position of 
subjecting legitimate medical decisions to CMPs, and believed that the 
``know or should know'' language is critical to ensuring that 
physicians are not prosecuted for inadvertent billing mistakes or 
legitimate disagreements over medical necessity of items or services. 
Another commenter also stated that the conjunctive re-phrasing of 
Sec. 1003.102(a)(6) of the proposed regulation (an item or service that 
is medically unnecessary and part of a pattern or practice) could alter 
the meaning of the statutory language.
    In addition, one commenting organization stated that the language 
in proposed Sec. 1003.102(a)(6) was identical to section 231(c)(4) of 
HIPAA, except that the words ``or practice'' were not included in the 
HIPAA language. The commenter indicated that HIPAA requires an actual 
pattern of medically unnecessary claims as a prerequisite to CMPs, 
while the regulation, as drafted, would allow CMPs for a single claim.
    Response: The knowledge standard in the statute requires that 
providers assume responsibility for appropriate billing of their 
services. It is not our intent, however, to subject physicians to 
penalties for legitimate disagreements over the medical necessity of 
items and services, or for honest mistakes or errors. The OIG intends 
to impose CMPs only after establishing that a provider knew that a 
billed item or service was not medically necessary, or that he or she 
deliberately ignored or recklessly disregarded such information. In 
response to comments, we are revising Sec. 1003.102(a)(6) by adding the 
words ``knows or should know'' to read as follows: ``An item or service 
that a person knows or should know is medically unnecessary, and which 
is part of a pattern of such claims'' (emphasis added).
    We are also amending the proposed Sec. 1003.102(a)(6) by deleting 
the words ``or practice'' from this section in order to be consistent 
with language set forth in HIPAA.

Section 1003.102(b)(12), Retaining Ownership or Control Interest While 
Excluded

    Comment: Two commenters believed that the regulations do not 
adequately allow for the timely divestiture of an excluded person's 
interest in a health care entity. One commenter indicated, for example, 
that continuing care of patients might be harmed by the failure to 
allow an excluded individual to divest his or her interest in a health 
care entity over a period of time. A second commenter indicated that, 
given the complexity of business arrangements, it may not be possible 
to immediately divest an ownership or controlling interest, and that a 
CMP should not be imposed until the individual has been given adequate 
time to dispose of his or her interest in the entity.
    Response: The use of this CMP authority remains discretionary, with 
the OIG taking into full consideration the effect on program 
beneficiaries of any sanctions action. The OIG would refrain from 
imposing an exclusion normally if it believed that such action would 
jeopardize patient care. However, where we have deemed a particular 
provider unfit to participate in the Medicare and other Federal health 
care programs, and to provide items or services for which these 
programs will pay (by virtue of a program exclusion), we believe that, 
ordinarily, immediate exclusion will protect, rather than harm, program 
beneficiaries. With respect to allowing a sufficient time period to 
permit excluded individuals to divest themselves of an ownership or 
controlling interest in a health care entity once excluded, the OIG is 
cognizant of the complex nature of some business arrangements involving 
ownership or controlling interests in health care entities, and will 
remain flexible in its imposition of a CMP if it receives adequate 
assurances from the excluded individual that he or she is taking 
concrete steps to dispose of an ownership or controlling interest in a 
timely manner.

Section 1003.102(b)(13), Offering Inducements to Program Beneficiaries

a. Waivers of Coinsurance and Deductibles
    Congress exempted from the prohibition on persons offering 
inducements to beneficiaries certain waivers of Federal health care 
program copayments that are not advertised, that are not routine, and 
that are either made

[[Page 24404]]

after an individualized determination of financial need or the failure 
of reasonable collection efforts. Congress also exempted copayment 
waivers that are exempt from the anti-kickback statute in accordance 
with the safe harbor or other regulations.
    Comment: While supporting the exception for waivers of coinsurance 
and deductible amounts in cases where the beneficiary is indigent or 
reasonable collection efforts have failed, several commenters requested 
guidance as to what constitutes ``financial need'' and ``reasonable 
collection efforts.'' At a minimum, commenters asked that we 
incorporate the text of the statutory definition of remuneration into 
the regulations, instead of merely incorporating it by reference.
    Response: We agree with the commenters and are incorporating the 
language of the statutory definition of ``remuneration'' in the final 
regulations in full text form. We are not specifying any particular 
method of determining financial need because we believe what 
constitutes ``financial need'' varies depending on the circumstances. 
What is important is that providers make determinations of financial 
need on a good faith, individualized, case-by-case basis in accordance 
with a reasonable set of income guidelines uniformly applied in all 
cases. The guidelines should be based on objective criteria and 
appropriate for the applicable locality. We do not believe that it is 
appropriate to apply inflated income guidelines that result in waivers 
of copayments for persons not in genuine financial need. ``Reasonable 
collection efforts'' are those efforts that a reasonable provider would 
undertake to collect amounts owed for items and services provided to 
patients.
    If the patient has an insurer providing secondary coverage that 
refuses to pay a copayment amount, the provider should attempt to 
collect from the patient, unless the provider has contractually agreed 
with the insurer not to balance bill the patient. In that case, the 
insurer remains liable for the copayment.
    Comment: One commenter also sought clarification as to whether 
section 231(h)(6)(B) of HIPAA, which exempts any ``permissible waiver'' 
as specified in an anti-kickback statute safe harbor, applies to items 
or services covered by a health plan that are protected from anti-
kickback liability under the safe harbor for reduced cost-sharing 
amounts at Sec. 1001.952(l).
    Response: In accordance with an amendment contained in section 
5201(a) of the Omnibus Consolidated and Emergency Supplemental 
Appropriations Act of 1999, Public Law 105-277, prohibited remuneration 
under section 231(h) of HIPAA does not include ``any permissible 
practice described in any subparagraph of section 1128B(b)(3) of the 
Act or in regulations issued by the Secretary'' (with the exception of 
certain premium payment arrangements described in the statute). In 
other words, payment practices that are protected by a safe harbor to 
the anti-kickback statute are also protected from sanction under 
section 231(h) of HIPAA.
b. Differentials in Coinsurance and Deductibles as Part of a Benefits 
Plan Design
    Congress exempted from the definition of remuneration differentials 
in coinsurance and deductible amounts as part of a benefits plan design 
where the differentials are disclosed to beneficiaries, providers and 
third-party payers, and otherwise conform to standards promulgated by 
the Secretary. We stated in the preamble to the proposed rule that we 
do not interpret this exemption as authorizing any benefits plan design 
that directly or indirectly operates to waive deductible or coinsurance 
amounts required by any Federal health care program. Thus, for example, 
a private plan's ``coordination of benefits'' provision may not relieve 
a provider or a plan that is secondary to Medicare from its respective 
obligations to bill and pay Medicare copayments. We solicited comments 
regarding how to best define differentials in coinsurance and 
deductibles that are part of a plan design.
    Comment: Commenters expressed three major concerns in response to 
our statement that the exception for plan coinsurance differentials did 
not authorize any benefit plan design that directly or indirectly 
operates to waive deductible or coinsurance amounts required by any 
Federal health care program. The first concern expressed by several 
physicians' organizations is that the practice is not uncommon and that 
many health care plans require physicians to enter into contracts that 
limit payment for services to the plan's specified fee schedule (which 
is usually lower than Medicare's fee schedule) and prohibit physicians 
from billing beneficiaries for any amounts. These plans include 
enrollees who are Medicare beneficiaries for whom Medicare is the 
primary payer (on a fee-for-service basis) and the plan is the 
secondary payer. The commenters indicated the following sequence of 
events for physicians: (i) The physician bills Medicare for a service 
at the physician's ``actual charge'' and is paid 80 percent of the 
lower of the charge or the Medicare fee schedule amount; (ii) the 
physician bills the secondary plan for the 20 percent Medicare 
copayment; (iii) the secondary plan denies payment for all or part of 
the copayment on the ground that the physician has already received 
full payment under the contract, because the amount paid by Medicare 
(80 percent of the lower of the charge or Medicare fee schedule amount) 
is more than the applicable amount in the plan's fee schedule; and (iv) 
the physician, barred from billing the beneficiary for any amounts, 
must forego the unpaid copayment amount. These commenters stated that 
the effect of this is to waive routinely the Medicare copayment, since 
neither the secondary plan nor the beneficiary has paid it.
    The second major concern that was expressed by the same physician 
groups is that, because physicians join multiple managed care plans and 
agree to different discounted rates with each one, often physicians do 
not know the plans' reimbursement rates. They indicated that, in some 
cases, plans do not provide fee schedules to their physicians, and that 
plan payment schedules are often changed unilaterally and 
retroactively, sometimes without notification to participating 
physicians. Moreover, the commenters stated that the exact amount of 
plan reimbursement is often contingent on bonus and withhold pools.
    The third concern expressed by commenters was that secondary 
insurer contracts that operate to waive Medicare copayments do not 
implicate the statute, since section 231(h) of HIPAA only precludes 
remuneration that is likely to influence the choice of a particular 
provider. In situations where all providers participating in a 
particular plan are equally restricted from billing beneficiaries for 
copayments, the commenters believed that the waiver will not influence 
a patient's choice of provider. Alternatively, some commenters urged 
that the definition of ``remuneration'' as used in this CMP provision 
exclude routine waivers of coinsurance where a secondary insurer 
contract prohibits physicians from billing either the plan or the 
beneficiary for the full Medicare copayment amount. Similarly, some 
commenters requested that a section 231(h) ``safe harbor'' regulation 
be established for physician waivers of copayments in circumstances 
where Medicare requirements conflict with physician contractual 
arrangements with secondary insurers, arguing that in these 
circumstances physicians do make reasonable collection efforts and

[[Page 24405]]

therefore fall within the exemption for waivers of coinsurance. 
Finally, some other commenters advocated a contrary view; they 
suggested that the regulations should prohibit the contractual waiver 
of copayments and require that all secondary carriers (including 
Medigap insurers) cover the full Medicare copayment and deductible 
amounts.
    Response: We agree that differentials in copayments or coinsurance 
amounts paid out of pocket by beneficiaries as part of plan designs 
that are properly disclosed to beneficiaries, providers and third party 
payers are not remuneration within the meaning of section 231(h) of 
HIPAA and do not violate the prohibition in section 231(h). However, as 
explained below, this practice implicates other Federal laws including, 
most notably, the anti-kickback statute. The Department is actively 
developing a safe harbor for waivers of coinsurance incidental to fee 
schedules for employer plans in which ten percent or less of the 
enrollees have primary coverage under Medicare.
    Our statement in the preamble to the proposed regulation that the 
benefits plan design exception does not authorize any plan design that 
directly or indirectly operates to waive statutory coinsurance 
obligations for any Federal health care program was somewhat 
misconstrued by the commenters. Our original statement was only 
intended to make clear that plan designs that operate to waive Federal 
health care program statutory coinsurance obligations so that they are 
not satisfied by anyone may implicate other Federal laws, including the 
anti-kickback statute. Since the inception of the Medicare program and 
continuing to the present, the Social Security Act has imposed cost-
sharing obligations on program beneficiaries, including beneficiaries 
enrolled in Medicare HMOs. However, most of these coinsurance 
obligations are imposed in conjunction with Medicare fee-for-service 
reimbursement. These coinsurance requirements help cover the total cost 
of health care, and they control overutilization by encouraging 
beneficiaries to be prudent purchasers. For most benefits covered under 
the Part B program, Medicare pays 80 percent of the lower of the 
physician's actual charge or the Medicare fee schedule. Providers are 
legally obligated to make reasonable efforts to collect the remaining 
20 percent from the beneficiary. Part A also has certain coinsurance 
and deductible requirements. Private contracts cannot waive or defeat 
these Federal statutory obligations.
    Supplemental Medicare insurance is very important to many program 
beneficiaries. Approximately ninety percent of all beneficiaries have 
some form of supplemental Medicare insurance coverage. Approximately 
thirty percent of beneficiaries purchase separate Medigap insurance 
which can cost $100 per month or more without any prescription drug 
benefit. Another 15 percent cover the coinsurance through joining 
Medicare HMOs; in these plans, the actuarial cost of the coinsurance 
obligation is covered either by the beneficiary's copayments and 
premiums or by the plan in lieu of returning profits to the Medicare 
program. Approximately 12 percent of beneficiaries have Medicaid 
coverage.
    Approximately 30 percent of beneficiaries have supplemental 
coverage from their former employers. Generally, Medicare is the 
primary insurer and the employer-sponsored plan is secondary. For 
retirees in these plans, Medicare pays the plan's providers on a fee-
for-service basis. The comments we received indicate that an increasing 
number of these plans are utilizing contracts with their participating 
providers that purport to release the plans and their enrollees from 
some or all of the applicable Medicare coinsurance obligations. This 
result is achieved through a combination of: (i) A fee schedule that is 
below the Medicare fee schedule; (ii) a prohibition on a provider 
billing enrollees more than a token copayment; and (iii) a 
``coordination of benefits'' provision that obligates the plan to pay 
providers only to the extent that payments from the primary insurer 
(including Medicare) are less than the contract fee schedule.
    For example, an employer establishes a retiree plan that requires 
no copayments by the retirees if the retirees utilize certain 
``preferred providers.'' The contracts between the employer (or more 
likely a third party administrator) and the providers establish a fee 
of $80 for a procedure for which Medicare will allow $100; a 
``coordination of benefits'' clause that limits plan liability if the 
provider has received the contract fee (i.e., $80) from another 
insurer; and a prohibition on balance billing enrollees. The net result 
is that Medicare pays the $80 (80% of $100); the plan refuses to pay 
any copayment because the provider has already received the $80 plan 
contract fee amount; and the beneficiary pays nothing. In other words, 
the employer plan receives a substantial financial benefit equal to the 
coinsurance obligations it does not pay.
    The employer in this example is ``free riding'' on the Medicare 
program. The practice is unfair and inequitable to the roughly 60 
percent of Medicare beneficiaries who must pay the coinsurance 
obligations out of their own pockets or purchase Medigap insurance at 
considerable personal expense. It is also unfair to beneficiaries in 
Medicare HMOs, who must either pay the coinsurance obligation through 
their premiums or copayments or forgo other desirable benefits, such as 
enhanced prescription drug coverage, which an HMO might have offered if 
it had not applied its surplus profit to pay the beneficiaries' 
premiums. Simply stated, liabilities imposed by Federal law should not 
turn on happenstance of a beneficiary's employer benefit plan.
    Routine waivers of Medicare copayments and deductibles in 
accordance with a contract between an insurer and a plan also implicate 
the anti-kickback statute. This practice presents a significant risk of 
overutilization of services and increased program costs to Medicare. 
Since neither plans nor beneficiaries pay for services where the 
copayment is waived, they have no incentive to control costs or 
utilization. We have repeatedly expressed our concern that such 
agreements between providers and health plans can result in kickbacks 
from providers to health care plans in exchange for Federal health care 
program business.\3\
---------------------------------------------------------------------------

    \3\ See, for example, 42 CFR 1001.952(k)(1)(iii) (hospital 
waiver of inpatient deductible or coinsurance not protected by safe 
harbor regulation if part of an agreement between hospital and third 
party payer, including a health plan) and OIG Advisory Opinion 98-5 
(April 17, 1998).
---------------------------------------------------------------------------

    We recognize that the interplay between Medicare and employee-
sponsored supplemental plans is complex. As indicated above, the 
Department is developing a safe harbor for waivers of coinsurance 
incidental to fee schedules that would protect employer plans in which 
ten percent or less of the plan enrollees have primary coverage under 
Medicare.
    Absent a safe harbor, plans that prohibit participating physicians 
from balance billing enrollees for whom Medicare is the primary insurer 
are responsible for those enrollees' outstanding Medicare copayments. 
Accordingly, to avoid receiving prohibited remuneration, the secondary 
plan must pay the Medicare copayment in full if physicians bill 
Medicare an amount higher than the plan's fee schedule amount. Medicare 
would pay 80 percent of the Medicare fee schedule amount and the plan 
would pay the 20 percent copayment, resulting in physicians receiving 
100 percent of the Medicare fee schedule amount.

[[Page 24406]]

    Alternatively, the physicians must bill Medicare the lower amount 
they agreed to accept from the plan. For example, if the Medicare fee 
schedule amount for a given service is $100 and the plan fee schedule 
for the service is $80, the physician would submit a claim to Medicare 
for $80, receive $64 from Medicare (80 percent of $80), and the 
secondary plan would pay $16 (the twenty percent copayment obligation). 
We understand that physicians currently may have difficulty in 
identifying the payment amount they will receive under a particular 
contract. However, that is an issue between them and the plans and can 
be addressed by developing with a plan a fixed fee schedule for plan 
participants that have primary coverage under Medicare. If a plan is 
denying payment on the ground that the provider has already received 
the full amount the plan is obligated to pay, the plan must necessarily 
know how much it is obligated to pay.
    In sum, properly disclosed benefit plan designs that utilize 
differentials in coinsurance and deductible amounts paid by an enrollee 
are not remuneration within the meaning of section 231(h) of HIPAA. 
However, when such differentials are coupled with other provisions to 
achieve a waiver of Medicare coinsurance obligations, they implicate 
other Federal laws, including the anti-kickback statute.
    Comment: One commenter requested guidance with regard to a 
physician's obligation to seek payment from a beneficiary when the 
beneficiary's health plan capitates payment to the physician, and the 
physician has been paid a capitation for the beneficiary.
    Response: From Medicare's perspective, if the beneficiary is a fee-
for-service patient, the physician is obligated to collect the full 
amount of the Medicare coinsurance, unless a waiver of the copayment 
would comply with the requirements for the exemptions under section 
231(h) of HIPAA for waivers of coinsurance and deductibles. Where the 
capitation amount has been actuarially determined to equate with the 
expected copayment, no further payment amount would be required.
    Comment: Two commenters believed that the policy position taken by 
the OIG on physician billing of copayments was an attempt to use the 
fraud and abuse laws to effectuate a ``most favored nation'' Medicare 
payment policy (for which there is no statutory authority), requiring 
physicians to limit their Medicare fees to levels established by 
private payers. One commenter stated that section 1848 of the Act 
explicitly exempts the Medicare physician fee schedule from the 
comparability rules that are applicable to many other services under 
Part B of the Medicare program.
    Response: We do not believe that anything in these regulations 
requires physicians to limit their Medicare fees to private payer 
levels. However, it should be noted that section 1128(b)(6)(a) of the 
Act prohibits charges that are ``substantially in excess'' of a 
provider's ``usual charges.'' Therefore, provider charges to Medicare 
should be comparable (and not ``substantially in excess'') of charges 
to private payers. In circumstances where plans and providers contract 
so as to prohibit physicians from seeking payment of coinsurance from 
Medicare beneficiaries and where plans decline to pay the coinsurance 
on behalf of beneficiaries, it is the plan and physicians that impose 
the lower fee amount for the plan's Medicare-covered members.
    Comment: Several commenters asked that we clarify that this CMP 
provision does not affect the ability of physicians to be reimbursed 
for beneficiary copayments and deductibles through Medigap insurance.
    Response: As discussed above, the exemption for differentials in 
coinsurance amounts that are part of a plan design includes 
arrangements where a beneficiary's copayments are paid by a secondary 
insurer, provided there is proper disclosure as required by the 
statute. Our main concern is with situations where nobody is obligated 
to pay the copayment amounts for beneficiaries for whom Federal health 
care payment is made on a fee-for-service basis (as is the case for 
many retirees in employer plans). In those circumstances, there is no 
one with an economic interest in controlling utilization of 
reimbursable services. We caution, however, that a secondary insurer's 
refusal to pay a claim for a copayment amount does not obviate the 
physician's obligation to engage in reasonable efforts to collect the 
copayment, including reasonable efforts to collect directly from the 
beneficiary in circumstances in which there is no contractual 
prohibition on billing beneficiaries.
    Comment: One commenter questioned the applicability of the 
differentials exemption in the context of Medicare risk- and cost-based 
managed care contractors, who are permitted by HCFA to waive 
coinsurance and deductibles and whose waivers are exempt from section 
231(h) of HIPAA by virtue of the anti-kickback safe harbor for reduced 
cost-sharing amounts at Sec. 1001.952(l).
    Response: Differentials in coinsurance and deductible amounts by 
Medicare managed care contractors disclosed to, and approved by, HCFA 
do not implicate section 231(h) of HIPAA.
    Comment: One commenter requested that the Secretary exercise her 
discretion under section 231(h)(6)(B) of HIPAA to promulgate 
regulations identifying other permissible copayment waivers, including 
``professional courtesy'' waivers offered by physicians to fellow 
physicians and family members.
    Response: At this time, we are not identifying other permissible 
copayment waivers, but reserve the right to do so in the future. With 
respect to ``professional courtesy,'' we note that traditionally the 
term means free care (i.e., no charge is made to anyone), not care 
provided on an ``insurance only'' basis. Generally, a routine practice 
by a physician of waiving the entire fee for services provided to other 
physicians without regard to the potential for referrals is not a 
problem under section 231(h) of HIPAA or the anti-kickback statute. 
However, waivers of Medicare or other Federal health care program 
copayments for non-indigent persons, whether physicians or any other 
groups, are problematic.
    Comment: One national association, commenting on what constitutes 
acceptable payment differentials under benefits plans, proposed that it 
should be acceptable for health plans to impose one deductible for a 
supplier that participates in the plan network and a different 
deductible for a comparable supplier that does not participate. The 
association also recommended that acceptable plan designs should 
include copayment or deductible differentials based on whether a 
beneficiary chooses brand name or generic drugs, and whether the 
beneficiary chooses drugs that are (or are not) on the relevant drug 
formulary. The association asserted that such differentials have 
legitimate economic bases and do not raise fraud concerns. On the other 
hand, the association asked that the OIG deem unacceptable 
differentials that exist between two suppliers that participate equally 
in the plan, such as a community pharmacy and a mail order pharmacy.
    Response: We believe that Congress intended section 231(h) of HIPAA 
to be broadly construed to permit plans maximum flexibility to 
structure their financial incentives within their benefits packages, so 
long as the resulting arrangement does not have the effect of waiving 
payment of the Medicare copayment to the provider and is properly 
disclosed.

[[Page 24407]]

c. Applicability of Section 231(h) of HIPAA to Managed Care 
Organizations
    Comment: Several managed care organizations and associations 
commented that section 231(h) should not apply to managed care 
organizations. These commenters stated that the OIG's interpretation of 
the statute set forth in the proposed rule was expansive and 
inappropriate on the grounds that the OIG's interpretation presumed 
that offering an incentive to enroll in a particular health plan is 
equivalent to offering an incentive to use a particular provider. 
Although the incentives may influence a beneficiary's choice of health 
plans, the commenters stated that such choice is not the same as 
influencing the choice of a particular provider. Another commenter 
remarked that limiting incentives provided by managed care 
organizations for Medicare and Medicaid enrollees was unfair to those 
populations, as such incentives are commonly offered in the commercial 
managed care market to those who are not Medicare or Medicaid 
enrollees. In addition, the commenter indicated that one effect of the 
regulation would be to terminate certain benefits that Medicare and 
Medicaid enrollees of employee benefit plans had been receiving before 
becoming eligible for Medicare or Medicaid. One commenter stated that 
even if managed care plans were not covered by section 231(h) of HIPAA, 
the OIG would still have the authority to oversee inducements by 
managed care plans under the anti-kickback statute.
    Response: After having reviewed all of the comments, we agree that 
health plans that provide incentives to Federal health care program 
beneficiaries to enroll in a plan are not offering remuneration to 
induce the enrollees to use a particular provider, practitioner, or 
supplier. Accordingly, we are indicating that health plans that provide 
incentives to enroll in a plan will not be subject to sanctions under 
this provision. However, incentives provided by health plans to induce 
a Federal health care program beneficiary to use a particular provider, 
practitioner, or supplier once the beneficiary has enrolled in a plan 
are within the purview of this provision and are prohibited if they do 
not meet an exception. For example, coinsurance differentials for out-
of-network providers fall within the prohibition of this statute, 
although they fit within the exception for differentials of coinsurance 
and deductibles, as long as the other requirements of the exception are 
met.
    We remain concerned that health plans may use inducements in a 
manner that leads to enrollment of only healthy beneficiaries, such as 
offering memberships to exercise clubs for purposes of patient 
screening. However, such ``cherry picking'' is prohibited under 
separate CMP provisions that are unaffected by this provision. 
Additionally, incentives provided by health plans remain subject to the 
anti-kickback statute.
    Many other comments were submitted that raised issues with regard 
to health plans. These comments were all premised on inducements to 
enroll in health plans falling within the provisions of the statute 
(section 1857 of the Act). Since such inducements will not be subject 
to section 231(h), these comments are no longer relevant.
d. Incentives To Promote the Delivery of Preventive Care
    The statutory exception for preventive care, as defined in the 
proposed rule, exempted from the definition of remuneration incentives 
given to individuals to promote the delivery of preventive care. In the 
preamble to the proposed rule, we indicated that such incentives did 
not include the direct rendering of preventive medical care. 
Specifically, the exception included the provision of incentives to 
individuals eligible for benefits under a Federal health care program 
where the incentives are provided for the purpose of inducing 
individuals to obtain preventive care.
    For purposes of the exception, we proposed defining in 
Sec. 1003.101 the term ``preventive care'' to mean annual physicals and 
care associated with, and integral to, preventing the need for 
treatment or diagnosis of a specific illness, symptom, complaint or 
injury (including, but not limited to, prenatal and postnatal care, flu 
shots, and immunizations for childhood diseases, AIDS and HIV testing, 
mammograms, pap smears and prostate cancer screenings, eye 
examinations, treatment for alcohol and drug addiction, and treatment 
designed to prevent domestic violence) where such care is provided or 
directly supervised by the medical provider that has provided the 
incentive. In addition, the proposed rule listed examples of 
permissible and impermissible incentives under this provision. 
Specifically, we stated that impermissible incentives would include 
items or services related to the promotion of general health and 
fitness (excluding annual physicals), such as health club memberships, 
nonprescription vitamins, nutritional supplements and beauty aids. In 
addition, cash and cash equivalents would not be permissible 
incentives.
    In the section discussing this exception we also reiterated the 
conference report statement that made clear that section 231(h) does 
not preclude the provision of items and services of nominal value, 
including, for example, refreshments, medical literature, complimentary 
local transportation services or participation in free health fairs. We 
interpreted the conference report to mean that the provision of items 
and services to an individual is not prohibited if the aggregate value 
of such items and services is nominal. However, it should be recognized 
that the frequent rendering of items or services to any individual may 
preclude such items and services from being classified as nominal in 
value.
    Comment: We received a number of comments addressing the exception 
for incentives to promote the delivery of preventive care. Commenters 
expressed concern about the proposed definition of ``preventive care.'' 
Some commenters found the proposed definition too narrow and confusing. 
One commenter, for example, questioned whether pharmacy care is 
included in the definition. Other commenters urged that preventive care 
include care related to general health and fitness and care associated 
with acute and chronic illnesses and diseases. Some commenters urged us 
to adopt a broad definition of preventive care, noting, for example, 
that preventive care promotes healthier patient populations, leads to 
increased productivity by patients, and results in lower health care 
costs.
    Commenters also raised objections to the proposed scope of 
permissible incentives. These commenters requested clarification of 
permissible and impermissible incentives under the preventive care 
exception. For example, several commenters objected to the statement 
that the direct rendering of preventive medical care was not a 
permissible incentive, urging that the provision of free or discounted 
preventive care should fall within the exception for incentives to 
promote the delivery of preventive care. Other commenters noted that 
health plans often give patients, particularly Medicaid patients, gifts 
to encourage the use of health care services, such as diabetes 
management programs and prenatal care. These incentives include, among 
other things, coupons, gift certificates, Thanksgiving turkeys, 
amusement park tickets, books on caring for babies, baby blankets and 
medicine droppers. Several commenters noted that the examples of 
permissible

[[Page 24408]]

incentives provided in the proposed regulation were all non-medical 
items or services and requested clarification that permissible 
incentives could also include incentives that were health care related.
    Some commenters suggested that lists of permissible and 
impermissible incentives be included in the text of the regulation. 
Commenters also suggested that the OIG add limiting factors to the 
definition of permissible incentives, such as a requirement that 
permissible incentives be offered to all similarly situated persons in 
a given community. Further, commenters requested clarification of the 
meaning of the term ``cash equivalent'' set forth in the proposed 
regulation. Two commenters suggested that a cash equivalent be defined 
as ``an item easily convertible to cash.''
    Several commenters recommended that incentives that promote general 
health and fitness be allowed under the preventive care exception. The 
commenters argued that such incentives encourage healthy behavior, even 
though they are not tied to prevention of a specific illness, 
complaint, or injury. According to commenters, permissible incentives 
that promote general fitness should include items such as health club 
memberships, nonprescription vitamins, nutritional supplements and 
beauty aids. Specific examples offered by commenters included discounts 
for completion of a weight watchers program, a discounted price for an 
American Red Cross CPR course, and free YMCA visits for postpartum 
mothers.
    Response: Based on our review of the public comments and after 
further consideration of the statutory language and public policy, we 
have concluded that the regulations should be revised to accord more 
fully with the statutory language of section 231(h) and the scope of 
coverage of preventive care by existing Federal health care programs. 
The following discussion addresses three key elements of the preventive 
care exception: The meaning of ``preventive care,'' the scope of 
permissible incentives, and the requirement that incentives promote the 
delivery of preventive care. Some additional issues are addressed in 
separate comments and responses below.

 Definition of Preventive Care

    Our review of the public comments disclosed considerable 
uncertainty about the proposed definition of preventive care for 
purposes of the preventive care exception. Moreover, it became 
apparent, based on an internal review, that the proposed definition did 
not comport with the scope of preventive care services reimbursed by 
Medicare or the State health care programs. For these reasons, we 
concluded that it would be preferable to replace our proposed 
definition with an objective, ``bright line'' rule.
    Section 231(h) of HIPAA prohibits remuneration paid to an eligible 
beneficiary to influence him or her to order or receive from a 
particular provider, practitioner, or supplier any item or service for 
which payment may be made by Medicare or a State health care program 
(as defined in 42 U.S.C. 1320a-7(h)). In other words, section 231(h) 
generally bars incentives paid to influence the choice of provider, 
practitioner, or supplier for covered items or services.
    We believe that in enacting the preventive care exception, Congress 
recognized that in some circumstances it may be prudent to allow 
providers to encourage beneficiaries to obtain covered preventive care 
services through payment of remuneration linked to the delivery of such 
services. Well-recognized benefits from appropriate preventive care 
include, among other things: Healthier patient populations, lower 
health care costs, and reduced morbidity and mortality. For these 
reasons, it is especially important that Medicare and Medicaid 
beneficiaries access appropriate preventive care services.
    Accordingly, for purposes of the preventive care exception to 
section 231(h) of HIPAA, we are interpreting preventive care to mean 
preventive care covered by Medicare or the State health care program in 
the applicable State. We have decided to define ``preventive care'' as 
any service that is a prenatal service or a post-natal well-baby visit 
or is a specific clinical service described in the then current U.S. 
Preventive Services Task Force's Guide to Clinical Preventive 
Services.\4\ If such services are covered by medicare or the applicable 
State health care program, they fall within the preventive care 
exception to section 231(h) of HIPAA.
---------------------------------------------------------------------------

    \4\ U.S. Preventive Services Task Force, Guide to Clinical 
Preventive Services, 2nd ed. Baltimore: Williams and Wilkins, 1996.
---------------------------------------------------------------------------

    The Guide to Clinical Preventive Services addresses preventive care 
services provided to asymptomatic individuals in a clinical setting, 
classifying a number of preventive care services into three broad 
categories: screening tests, counseling interventions, and 
immunizations and chemoprophylaxis. For purposes of this regulation, to 
be considered as preventive care the service in question must be 
described in the Guide (e.g., listed in the table of contents) to fall 
within the exception. The mere fact that a service involves screening, 
counseling, or immunization will not suffice to qualify the service for 
the preventive care exception. The Guide also includes measures of the 
effectiveness of preventive care services when performed on a routine 
basis. For purposes of determining whether a service is preventive 
under this regulation, these effectiveness measures will not be taken 
into account. By way of example, the second edition of the Guide 
includes ``screening for visual impairment'' as a preventive care 
service, but does not recommend certain kinds of screening for all 
elderly patients. Notwithstanding, any screening for visual impairment, 
if covered by the applicable Federal health care program, is a 
preventive care service within the meaning of the exception.
    For beneficiaries enrolled in Medicare or Medicaid managed care 
programs, covered preventive care services would be those services 
included in the managed care organization's annual contract with HCFA 
or a State health care program.
    Remuneration paid to influence the selection of a provider for non-
covered preventive care services falls outside the scope of the 
statutory proscription. We are concerned, however, about arrangements 
that purport to provide patients with incentives to obtain non-covered 
items or services, where the true purpose of the incentives is to 
influence the selection of a provider for covered services. We are 
similarly concerned about arrangements where an incentive to obtain 
covered preventive care services is, in reality, an incentive paid to 
patients to induce them to obtain other covered services. Any tie 
between provision of an exempt covered preventive care service and a 
covered service that is not preventive would vitiate the preventive 
care exception and might constitute a violation of section 231(h), the 
Federal anti-kickback statute, or other legal authorities.

 Scope of Permissible ``Incentives''

    Many commenters sought clarification regarding the meaning of 
``incentives'' for purposes of the preventive care exception. Because 
Congress intended the scope of permissible incentives under the 
preventive care exception to be reasonably broad, except for the 
limitations noted below, we are not imposing any particular limitations 
on the type or value of incentives that may qualify under the 
preventive care

[[Page 24409]]

exception. Examples of permissible incentives include health care items 
or services (e.g., blood sugar screenings, cholesterol tests, medic 
alert jewelry) and non-health care items or services (e.g., gift 
certificates, t-shirts, infant car seats, Thanksgiving turkeys). 
Because of the large variety of permissible incentives, we decline to 
list permissible incentives in the regulation.
    A price reduction is likely to be an effective means of encouraging 
beneficiaries to obtain preventive care services. Providers can offer a 
price reduction for a covered service for Medicare and Medicaid 
beneficiaries in one of two ways: (1) By waiving all or part of a 
copayment obligation, or (2) by offering care as a free community 
service and forgoing billing Medicare or Medicaid, as well as 
beneficiaries. Thus, notwithstanding our long-held and continuing 
concern with routine waivers of copayments, we are permitting providers 
to waive copayments as an incentive to promote the delivery of 
preventive care. We believe a copayment waiver in these limited 
circumstances comports with congressional intent in enacting the 
preventive care exception.
    We are imposing two limitations on permissible incentives. First, 
we are concerned that excessively valuable incentives may be intended 
to induce a beneficiary to select a provider for more than just the 
covered preventive care service. Therefore, we are providing that the 
value of the incentive must bear a reasonable relationship to the value 
of the preventive care service (i.e., to the service itself or to 
future health care costs reasonably expected to be avoided as a result 
of the preventive care). A disproportionately large incentive gives 
rise to an inference that at least part of the incentive is being 
provided to induce beneficiaries to obtain additional services beyond 
the preventive care that is the predicate for the incentive. Such 
incentives for additional services are not covered by the preventive 
care exception to section 231(h) of HIPAA. An incentive that is 
disproportionally small in comparison to the value of the preventive 
care service does not raise similar concerns and is permissible.
    Second, we proposed excluding cash and cash equivalents from the 
scope of permissible incentives. Several commenters indicated confusion 
regarding the meaning of the term ``cash equivalents.'' We agree that 
the term may not have clearly captured our intent. Accordingly, we are 
excluding from the scope of permissible exceptions cash payments and 
instruments convertible to cash. Thus, for example, it would not be 
permissible to provide an incentive in the form of a check.
    Finally, we note that section 231(h) of HIPAA only prohibits 
incentives that are likely to influence a beneficiary's choice of a 
provider for particular services. Such influence is only possible if 
the beneficiary knows about the incentive before making his or her 
choice. Thus, incentives that are not advertised or otherwise disclosed 
to a beneficiary before the beneficiary selects a provider for services 
do not come within the statutory proscription, and therefore need not 
qualify under any of the exceptions, including the preventive care 
exception. For example, discounted CPR courses or home visits offered 
to women who have delivered a child at a particular hospital are not 
prohibited under section 231(h), if the availability of the discounted 
CPR course or home visits is not made known to the mother until after 
she enters the hospital to deliver her child.

 Promoting the Delivery of Preventive Care

    We interpret the phrase ``to promote the delivery of preventive 
care'' to mean that the incentives must be designed to encourage 
individuals to avail themselves of preventive care services, as defined 
above. Thus, the exception requires that a nexus exist between the 
incentive and the delivery of specific preventive care services. The 
preventive care must be care that is delivered by a person qualified to 
provide or furnish such services under State licensure laws and Federal 
health care program requirements (including conditions of participation 
and billing requirements). Moreover, as discussed above, there must be 
a rational relationship between the value of the incentive and the 
value of the preventive care service.
    Comment: Several commenters urged the OIG to expand the definition 
of preventive care to include items or services designed to prevent the 
deterioration of, or complications from, an acute or chronic illness, 
such as hemophilia or diabetes. These commenters argued that preventive 
care should include care aimed at managing and preventing the 
exacerbation of chronic conditions, such as disease management 
programs.
    Response: As indicated above, the final rule defines preventive 
care with reference to those services that are both described in the 
then current U.S. Preventive Services Task Force's Guide to Clinical 
Preventive Services (as well as pre-natal and well-baby care visits) 
and covered by Medicare or a State health care program for the 
particular patient. The Guide to Clinical Preventive Services is 
limited to certain primary and secondary preventive care services 
provided to asymptomatic individuals in a clinical setting. Primary 
preventive care measures prevent the onset of a targeted condition 
(e.g., routine immunization of healthy children). Secondary preventive 
measures identify and treat asymptomatic persons who have developed 
risk factors or preclinical disease, but in whom the condition has not 
become clinically apparent (e.g., screening for high blood pressure).
    An expansion of the preventive care exception to include tertiary 
preventive care (that is, preventive care that is part of the treatment 
and management of persons with clinical illnesses), as suggested by the 
commenters, would understandably be desirable from the perspective of 
those individuals afflicted with acute or chronic illness, but would 
create an exception that would swallow the general prohibition. Most 
medical services provided to a symptomatic patient can arguably be 
characterized as designed to prevent the patient from getting worse or 
developing complications. We do not believe that Congress intended the 
preventive care exception to be so broadly construed. Given the large 
number of possible chronic and acute conditions, we also do not believe 
it is feasible or fair to craft a rule that would apply only to some 
diseases or illnesses (such as hemophilia or diabetes), but not to 
others.
    Comment: One commenter noted that HCFA and the Health Resources and 
Services Administration (HRSA) have promoted programs to enlist the 
support of the business community to provide incentives to encourage 
medically uninsured populations to receive needed health care services 
or obtain available health insurance coverage. The commenter questioned 
the effect of these regulations on such outreach programs.
    Response: We do not believe anything in this final rule is 
inconsistent with the HCFA and HRSA outreach programs. As explained 
above, incentives to encourage an individual to enroll in a particular 
health plan or program are outside the scope of the statutory 
provision, as are incentives provided to individuals not covered by 
Medicare or a State health care program.
    Comment: One commenter questioned whether permissible incentives 
include incentives designed to promote the delivery of services that 
can lead to preventive care, such as early detection tests. The 
commenter asked whether it would be permissible for a hospital to offer 
free blood sugar screenings, which

[[Page 24410]]

are not covered by Medicare, at health care fairs or as part of a 
National Diabetes Awareness Week campaign. The purpose of the 
screenings would be to increase diabetes awareness and to identify 
diabetic individuals who are not receiving treatment. The screenings 
might also identify individuals eligible for Medicare-covered diabetes 
self-management education programs.
    Response: Under the final rule, certain early detection tests may 
themselves qualify as preventive care if they are enumerated in the 
Guide to Clinical Preventive Services and covered by Medicare or an 
applicable State health care program. With respect to the hypothetical 
posed by the commenter, provision of a free non-covered screening test 
would not violate section 231(h) of HIPAA so long as the test is not 
tied to the provision of other services by the hospital. Thus, for 
example, the screening test would be permissible where the hospital 
provides an individual who tests positive for diabetes with general 
information or literature and a recommendation that the individual 
contact his or her personal physician. If, on the other hand, as part 
of the screening program, the hospital makes appointments for 
individuals with one of its physicians, offers individuals discounts 
for additional covered services, or otherwise promotes its particular 
diabetes programs, an inference may be drawn that the free screening 
test was an inducement to choose the hospital as a provider of other 
services. Finally, we note that some early detection tests may be of 
such nominal value as not to come within the scope of the statutory 
prohibition, as discussed below.
    Comment: One commenter suggested that the rule include a 
requirement that permissible incentives be offered to all similarly 
situated persons in a given community.
    Response: We are not requiring in this rule that incentives to 
promote the delivery of preventive care be offered to all similarly 
situated persons in a given community. For example, a health plan may 
offer incentives designed to influence plan members' selections of 
particular participating providers for preventive services to plan 
members only. Requiring permissible incentives to be offered to all 
similarly situated persons might discourage providers from offering 
potentially beneficial preventive care to a limited number of 
individuals, for example, to the first x-number of individuals who show 
up. We do not believe that Congress intended to prohibit such 
arrangements.
    Comment: A commenter questioned whether a managed care organization 
violates section 231(h) of HIPAA if it provides transportation for 
Medicaid patients to and from health care services for diagnosed 
conditions. The commenter observed that transportation costs are often 
a barrier to care for this patient population and that some States 
require managed care organizations to provide such transportation as a 
covered benefit.
    Response: We do not believe that section 231(h) is violated if a 
State requires a managed care organization to include transportation 
services as a covered benefit. Moreover, we do not believe that the 
statute is violated if the transportation is provided on an equal basis 
to all plan enrollees and transportation is available to any 
participating plan provider.
    Comment: A number of commenters questioned whether incentives to 
promote the delivery of preventive care must be of nominal value.
    Response: The incentives need not be of nominal value. As discussed 
below, incentives that are of nominal value may not be improper under 
section 231(h) of HIPAA.
    Comment: One commenter believed that our proposed interpretation of 
the preventive care exception would conflict with the HCFA marketing 
guidelines, since vitamins, nutritional supplements and beauty aids 
valued at under $10 would be permissible under HCFA's guidelines but 
prohibited by the OIG rule.
    Response: No conflict exists between the HCFA marketing guidelines 
and this CMP provision. Vitamins, nutritional supplements and the like 
are permissible incentives if offered to promote the delivery of 
covered preventive care services or if they are of nominal value, as 
discussed below. Moreover, pre-enrollment incentives offered by health 
plans do not implicate section 231(h) of HIPAA for the reasons stated 
above under paragraph heading c., Applicability of section 231(h) to 
managed care organizations. Finally, a payment will not be considered 
impermissible remuneration if it falls into any one of the statutory 
exceptions.
    Comment: Numerous commenters requested clarification as to the 
requirement that the preventive care must be provided, or directly 
supervised by, the medical provider that provided the incentive. 
Managed care organizations and associations commenting on the proposed 
rule raised concern over how this requirement would apply to them, 
since it is the managed care organization and not the provider that is 
offering the incentive. In addition, a physician association commented 
that the ``directly supervised'' language was very restrictive, 
especially if it is given the same meaning as under the proposed Stark 
II regulations.
    Response: As a result of these concerns and in light of our revised 
interpretation of this provision, we have amended the regulations to 
delete this requirement. In drafting the proposed rule, we did not 
intend to limit ``medical providers'' to physicians. Accordingly, we 
wish to clarify that preventive services may be provided by non-medical 
providers, including health plans, as long as all elements of the 
preventive care exception described above are satisfied.
e. Applicability to Items That Are of Nominal Value
    Comment: Several commenters requested clarification as to whether 
items of nominal value also had to be related to preventive care. One 
commenter stated that if an item or service is preventive, it need not 
be nominal in value, and conversely, if the item is nominal it need not 
be preventive. One commenter suggested that if an item is of nominal 
value, it would not induce a beneficiary to choose a particular 
provider, practitioner, or supplier. In addition, two commenters asked 
that we incorporate a nominal value ``exception'' into the final 
regulations.
    Response: Incentives that are only of a nominal value were not 
specifically exempted in the language of this CMP provision. However, 
we agree with the interpretation of the commenter who suggested that if 
an incentive is nominal in value, then the individual providing the 
incentive would not and should not know that the incentive is likely to 
induce a beneficiary to use a particular provider, practitioner or 
supplier. Accordingly, we believe that incentives that are only nominal 
in value are not prohibited by the statute, and therefore no exception 
is necessary. Further, we wish to clarify that the exception for 
preventive care is separate from the issue of whether an incentive is 
of nominal value. Consequently, incentives that meet the preventive 
care exception do not need to be nominal in value, and items of nominal 
value do not have to meet the preventive care exception.
    Comment: The OIG was asked by commenters to clarify and take a 
flexible position as to what constitutes ``nominal.'' Most of the 
commenters on this issue were not in favor of aggregating the value of 
items, suggesting that recordkeeping would be difficult and cumbersome. 
One commenter requested that the measure

[[Page 24411]]

of nominal value be greater for patients with chronic diseases because 
such patients receive items and services more frequently. The commenter 
suggested using the proposed Stark II definition \5\ of de minimis 
compensation as a basis for defining ``nominal.''
---------------------------------------------------------------------------

    \5\ 63 FR 1659; January 9, 1998.
---------------------------------------------------------------------------

    Response: For purposes of consistency with the HCFA national 
marketing guidelines, we are interpreting nominal value to be no more 
than $10 per item, or $50 in the aggregate on an annual basis.

Section 1003.102(b)(14), False Certification of Home Health Services 
Eligibility

    Comment: While supporting efforts to prevent, investigate and 
eliminate fraud and abuse associated with the provision of home health 
services, one commenter expressed concern over any increased 
enforcement and investigative activities that would unfairly target 
physicians for authorizing appropriate home health services.
    Response: These regulations are merely designed to implement new 
CMP authorities, consistent with the statute, for program violations 
related to the false certification of home health services eligibility. 
Only in those circumstances where there is evidence that the physician 
had actual knowledge that Medicare-covered home health services 
certified were medically unnecessary will the OIG seek to impose 
appropriate penalties. These situations will come to our attention from 
the OIG's normal investigative efforts focusing on all aspects of fraud 
and abuse in Medicare and other Federal health care programs.

Section 1003.106, Determining CMP and Assessment Amounts

    Comment: Several commenters expressed concern that the guidelines 
set forth in Sec. 1003.106(b)(2) fall below the level of intent 
required for CMPs established under section 321(d) of HIPAA. 
Specifically, commenters indicated that the mitigating circumstance 
under the degree of culpability--described in part as ``unintentional 
and unrecognized'' errors--is not consistent with the ``knows or should 
know'' standard set forth in HIPAA and Sec. 1003.101 of the proposed 
regulations.
    Response: We agree with the concerns expressed by the commenters 
and are modifying these guidelines by deleting this phrase from 
Sec. 1003.106(b)(2) to more accurately reflect the level of intent 
required under HIPAA for the imposition of CMPs.
    Comment: One commenter raised concern over health care providers' 
reliance on Medicare contractors and the contractors' responsibility 
for accurate guidance on Medicare reimbursement issues. As a result, 
the commenter requested that Sec. 1003.106(b)(2), addressing the degree 
of culpability, be amended to include contractor error as a mitigating 
factor when determining whether, and how much, to penalize a health 
care provider.
    Response: We do not believe the recommended change is necessary. 
The OIG already takes into account such factors as contractor error in 
determining the culpability of a health care provider.
    Comment: One commenter believed that, with regard to determining 
penalty amounts, the factor relating to ``prior offenses'' should be 
expanded to include any item reported to the Health Care Fraud and 
Abuse Data Collection Program, established under section 221 of HIPAA. 
The Data Collection Program requires Government agencies and private 
health plans to report all final adverse actions against health care 
providers, suppliers and practitioners to the Healthcare Integrity and 
Protection Data Bank (HIPDB). The commenter suggested that 
Sec. 1003.106(d) be amended to include as an aggravating circumstance 
any time a respondent has an action reported in the final adverse 
action database.
    Response: ``Prior offenses'' will routinely be identified in the 
HIPDB. We do not believe respondents should be penalized twice by 
having the listing of a prior offense in the HIPDB constitute a 
separate aggravating factor. However, the HIPDB includes many sanction 
actions (such as loss of professional license) that would not typically 
be considered ``prior offenses.'' Therefore, we are amending 
Sec. 1003.106(d)(3) to state that, with respect to prior offenses, it 
would be an aggravating circumstance if there were evidence that at any 
time prior to the current violation(s) the respondent was identified in 
the HIPDB for any conduct not constituting a ``prior offense'' in 
accordance with the statute.
    Comment: With regard to the ``financial condition'' circumstance 
set forth in Sec. 1003.106(b)(5), some commenters objected to the 
proposed deletion of the mitigating circumstance under which ``the 
imposition of the penalty or assessment without reduction will 
jeopardize the ability of the respondent to continue as a health care 
provider.'' One commenter believed that this factor should be 
maintained since it allows physicians and other providers to retain 
important protections from loss of their profession and livelihood and, 
in the case of health professional shortage areas, protects against 
physician loss that could otherwise impair the delivery of health care 
services.
    Response: We have indicated that the current factor does not 
represent a generally applicable standard since the penalty authority 
is intended to apply not only to direct providers of health care, but 
also to those involved in other related activities and positions. 
Accordingly, we believe this language change to Sec. 1003.106 is 
appropriate and warranted. With regard to the concerns stated by 
several of the commenters, in health professional shortage areas where 
the loss of a provider could seriously impair the delivery of health 
care services, the OIG still retains the authority to waive any 
sanctions action that it believes would seriously impair the delivery 
of health care services. Our foremost responsibility is and remains the 
protection of program beneficiaries and the care they receive.

Section 1005.7, Discovery

    Comment: One commenter indicated that the OIG needs to be sensitive 
to the fact that some evidentiary material may involve medical records 
for patients undergoing active medical treatment, and that discovery 
procedures should not impede the ongoing care of patients. In addition, 
the commenter expressed concern about discovery requests for records in 
the possession of private health insurance companies that need the 
documents for private fraud cases.
    Response: With respect to medical records involving ongoing patient 
care and private health care cases, the OIG's current practice is to 
photocopy appropriate medical records, exercising all due precaution to 
protect records and not compromise patient care.
    Comment: One commenter was concerned that the proposed regulatory 
changes to the discovery process would transform the administrative 
process into a formal judicial process.
    Response: We disagree. The changes we proposed in the discovery 
section of the proposed rule have been designed to streamline the 
discovery process and to avoid protracted litigation over the failure 
to produce documents in a timely fashion. These changes are not 
intended to create a more formal administrative process, but rather are 
designed to protect against discovery abuses.
    Comment: One commenter believed that the 15 days given to health 
care providers to comply fully with the request for documents is 
inadequate and

[[Page 24412]]

recommended expanded time frames. The commenter indicated that this 
provision makes no distinction between a request for information on a 
handful of claims and a request involving numerous claims, and fails to 
recognize that such information may be stored at different locations.
    Response: The time frame set forth in Sec. 1005.7(e) is intended to 
induce parties to produce discovery within a reasonable period of time. 
We believe that the 15-day period will be adequate in the majority of 
cases, and the ALJs have been amenable to granting extensions in 
appropriate circumstances. Also, we are amending Sec. 1005.7 to 
indicate that, upon a showing of good cause, the period of time for 
fully responding to the request for discovery may be extended by the 
ALJ.

III. Provisions of the Final Rule

    For the most part, this final rule incorporates the provisions of 
the March 25, 1998 proposed rule. A brief description of the provisions 
of this final rule follow.
     We are amending Secs. 1003.100(b)(1)(i), 1003.102(a)(3), 
1003.109(a), as well as the definitions for the terms claim and 
exclusion set forth in Sec. 1003.101, to apply CMP coverage to all 
applicable Federal Government health care programs. The definition for 
the term program in Sec. 1003.101 is being deleted.
     We are amending the definition of the term remuneration in 
Sec. 1003.101 by incorporating the language of the statutory definition 
of ``remuneration'' in the final regulations and reflecting the fact 
that incentives to promote the delivery of preventive care services are 
exceptions to the prohibition on inducements. We are also adding a new 
definition for the term preventive care.
     We are amending Sec. 1003.103(a) to address the increase 
in the penalty amount from $2,000 to $10,000 per item or service 
improperly claimed or prohibited practice, and amending Sec. 1003.104 
to address the increase in the authorized assessment amount from double 
to triple the amount claimed.
     In Sec. 1003.101, we are specifically defining the terms 
should know and should have known, and are making corresponding 
revisions in Secs. 1003.100(b)(1)(i) and 1003.102(a) and (b). We are 
also adding a new paragraph (e) to Sec. 1003.102, defining the term 
knowingly, to clarify congressional intent to apply the False Claims 
Act (FCA) standard of knowledge to the presentment of a claim under the 
CMP law.
     In Sec. 1003.102, we are adding a new paragraph (b)(12) to 
codify the new CMP authority for excluded individuals that retain 
ownership or control interests in a participating entity. Conforming 
revisions are also being made to Sec. 1003.100 through the addition of 
a new paragraph (b)(1)(xi), and to Sec. 1003.103 through the addition 
of a new paragraph (j). We are also making technical changes in 
Secs. 1003.105 and 1003.106 to reflect this new authority.
     We are clarifying Sec. 1003.102(a)(1) to indicate that the 
OIG may impose a penalty and assessment against any person it 
determines has presented or caused to be presented a claim for any item 
or service that the person knows, or should have known, was not 
provided as claimed, including any claim that is part of a pattern or 
practice of claims based on upcoding. We are also adding a new 
Sec. 1003.102(a)(6) to implement the OIG's authority to impose a CMP 
and assessment for any claim for an item or service that was medically 
unnecessary and part of a pattern of such claims.
     We are adding a new Sec. 1003.102(b)(13) to codify the new 
CMP authority for the offering of inducements to beneficiaries, along 
with a conforming change through a new Sec. 1003.100(b)(1)(xii). In 
addition, we are adding new Secs. 1003.106(a)(1)(i), (a)(1)(vii) and 
(b)(2)(iv) to include the factors the OIG will take into account with 
respect to this authority in determining a penalty and assessment, 
including the degree of culpability and the amount of remuneration 
offered or transferred.
     We are adding a new Secs. 1003.100(b)(1)(xiii), 
1003.102(b)(14) and 1003.103(i), allowing for a CMP of the greater of 
$5,000 or 3 times the amount of the Medicare payments made, against any 
physician who falsely certifies the medical necessity for Medicare-
covered home health services, knowing that the care is not necessary. 
This provision applies to false certifications made on or after August 
21, 1996.
     We are deleting Sec. 1003.100(b)(1)(viii) and 
redesignating the remaining paragraphs accordingly, since many CMPs 
(including several new CMP authorities in HIPAA) do not involve the 
submission of claims as the prohibited conduct. The existing language 
in Sec. 1003.100(b)(1)(viii) had provided for the imposition of CMPs 
and, as applicable, assessments against persons who have ``submitted 
certain prohibited claims against the Medicare program.''
     We are deleting the language in Secs. 1003.102(b)(2) and 
(b)(3) and are reserving these paragraphs. The statutory freeze for 
actual charges exceeding the maximum allowed has expired, making CMPs 
for non-participating physicians billing for actual charges in excess 
of the maximum allowable actual charge in Sec. 1003.102(b)(2) no longer 
valid. The CMP authority for billing for the services of an assistant 
at routine cataract surgery in Sec. 1003.102(b)(3) has been delegated 
to the Health Care Financing Administration. We are making conforming 
changes through the deletion of Sec. 1003.107(c) and (e).
     We are updating the language in Secs. 1003.103(e) and 
1003.105(a)(1), relating to patient anti-dumping provisions, to remove 
the knowledge and penalty provisions that are no longer applicable. 
With respect to the imposition of a CMP against hospitals and 
physicians under the patient anti-dumping statute (section 1867 of the 
Act), the statute imposes liability based upon the negligent violation 
of statutory requirements, and we are confirming that the new ``should 
know'' standard does not apply to CMPs for violations of the patient 
anti-dumping provisions.
     In Sec. 1003.106, we are broadening the language in 
paragraph (a)(1) to include all existing and new CMP authorities. In 
addition, we are amending Sec. 1003.106(b)(5), the factor addressing 
financial condition, by deleting the first sentence in this paragraph 
to clarify that this penalty authority is intended to apply not only to 
direct providers of health care, but also to those involved in other 
related activities and positions (such as a transporter of patients or 
a CEO of a drug company). Section 1003.106(b)(2) is being revised, in 
part, by deleting the mitigating circumstance involving ``unintentional 
and unrecognized errors'' under the degree of culpability, to be 
consistent with Sec. 1003.101.
     We are amending Sec. 1003.107(b) to incorporate reference 
to the new CMP authorities being set forth in Secs. 1003.102(b)(12) and 
(13).
     We are revising Sec. 1005.1, Definitions, to include a 
definition for the term ``Inspector General.''
     We are amending Sec. 1005.7(e) to provide for motions to 
compel discovery once a request for production of documents has been 
received. The revision to Sec. 1005.7(e) will make clear that a party 
has a right to object to discovery requests without requiring that 
party to file for a protective order, leaving it to the party seeking 
the documents to justify why access is appropriate in a motion to 
compel discovery. Any objections to production of documents will have 
to be filed with

[[Page 24413]]

the opposing party within 15 days of receiving the discovery request, 
unless good cause is shown for an extension of time. The party seeking 
the production of documents may then file a motion to compel discovery 
within the next 15 days unless a lengthier time frame is set by the 
administrative law judge (ALJ).
     We are amending Sec. 1005.9(b) to clarify that this 
provision is intended to authorize an ALJ to issue a subpoena to any 
individual to attend the hearing and to provide documentary evidence at 
or prior to the hearing. The language clarifies that an ALJ may issue a 
subpoena duces tecum requiring documents to be produced before the 
hearing.
     In Sec. 1005.15(b), the language incorrectly used the term 
``respondent'' to refer to several exclusion authorities. (Section 
1005.2(b) of the regulations defines a ``respondent'' as the party 
appealing a CMP, and a ``petitioner'' as the party appealing an 
exclusion.) We are revising Sec. 1005.15(b) to make the language in 
this paragraph consistent with the way parties are currently defined in 
Sec. 1005.2(b).
     We are revising Sec. 1005.21(d) to allow for interlocutory 
appeals to the Departmental Appeals Board (DAB) in one limited 
situation, the timeliness of filing of the hearing request. Absent this 
change, in many cases a final ruling on the timeliness of a hearing 
request will be rendered meaningless because the hearing will take 
place before an appeal of an ALJ's ruling on timeliness can occur.
     We are making technical revisions in Secs. 1003.126, 
1003.128(b) and 1006.4(b)(2) by deleting the reference to ``the Office 
of the General Counsel.'' With the consolidation of the IG Division of 
Office of the General Counsel into the OIG, these regulatory revisions 
give the OIG exclusive authority to settle or compromise cases brought 
under these regulations, and to attend investigational inquiries.
     We are also making technical revisions to 
Secs. 1003.109(b) and 1005.2 that were not previously addressed in the 
proposed rule. Specifically, Sec. 1005.2 is being amended to provide 
that a request for an administrative appeal be to the DAB. In addition, 
Sec. 1003.109(b) is being amended to provide that an administrative 
appeal be sent certified mail with a return receipt. These changes are 
being made to ensure that the appropriate adjudicating body, the DAB, 
receives the request for appeal. The certification requirement is being 
made to ensure that the Department has knowledge of the appeal and its 
receipt. These procedural clarifications should help avoid the improper 
filing of requests for hearings with the OIG, as well as having to 
litigate timeliness issues.

IV. Additional Technical Revision

    We are also making technical clarifications to Secs. 1001.2003 and 
1005.20 with regard to exclusion decisions made under section 
1128(b)(7) of the Act. Under the current regulations, there appears to 
be some uncertainty as to when an exclusion under section 1128(b)(7) of 
the Act may be implemented. Section 1001.2003 currently states that the 
exclusion will not take effect unless the ALJ upholds the decision to 
exclude, while Sec. 1005.20 indicates that the ALJ decision is final 
and binding 30 days from the date of the decision unless appealed to 
the DAB. This language would indicate that an appeal to the DAB on any 
case stays the effect of the ALJ decision until the DAB rules on the 
request. The intent of Sec. 1001.2003 is to give the individual or 
entity an opportunity to have an ALJ hearing before the effectuation of 
an exclusion under section 1128(b)(7) of the Act. As it was never 
intended that the individual or entity would be able to exhaust all 
appeals before the exclusion could go into effect, the OIG believes 
that it is appropriate to implement the exclusion under section 
1128(b)(7) once an ALJ makes a ruling. Accordingly, we are revising 
Secs. 1001.2003(b)(2) and 1005.20(d) to conform these provisions and to 
clearly indicate that the OIG will be able to effectuate an exclusion 
under section 1128(b)(7) of the Act once an ALJ decision is rendered, 
even if an appeal is still pending.

V. Regulatory Impact Statement

    The Office of Management and Budget (OMB) has reviewed this final 
rule in accordance with the provisions of Executive Order 12866 and the 
Regulatory Flexibility Act (5 U.S.C. 601-612), and has determined that 
it does not meet the criteria for a significant regulatory action. 
Executive Order 12866 directs agencies to assess all costs and benefits 
of available regulatory alternatives and, when rulemaking is necessary, 
to select regulatory approaches that maximize net benefits (including 
potential economic, environmental, public health, safety distributive 
and equity effects). Section 202 of the Unfunded Mandates Reform Act of 
1995 (Public Law 104-4) also requires that agencies assess anticipated 
costs and benefits before issuing any final rulemaking that may result 
in an expenditure by State, local or tribal government, in the 
aggregate, or by the private sector of $100 million or more in any 
given year. In addition, under the Regulatory Flexibility Act, if a 
rule has a significant economic effect on a number of businesses the 
Secretary must specifically consider the economic effect of a rule on 
small business entities and analyze regulatory options that could 
lessen the impact of the rule. Further, Executive Order 13132, 
Federalism, requires agencies to determine if a final rule will have a 
significant affect on States, on their relationship with the Federal 
Government, and on the distribution of power and responsibility among 
the various levels of government.
    As indicated above, the provisions contained in this final rule are 
primarily intended to comply with amended statutory authority by (1) 
expanding the protection of certain basic fraud authorities beyond the 
Department to include other Federal health care programs, (2) 
strengthening current legal authorities pertaining to our imposition of 
CMPs against individuals and entities engaged in prohibited actions and 
activities, and (3) codifying other new and revised OIG sanction 
authorities set forth in Public Law 104-191.
    We believe that these regulations will not have a significant 
economic effect on Federal, State or local economies, nor will they 
have a significant economic effect on a substantial number of small 
entities. In addition, in accordance with the Unfunded Mandates Reform 
Act, there are no significant costs associated with this rule that will 
impose mandates on State, local or tribal governments or on the private 
sector that would result in an expenditure of $100 million or more in 
any given year. The CMP statute, as enacted by Congress in 1981, was an 
administrative remedy to combat increases in health care fraud. The CMP 
provisions have been expanded upon since their original enactment to 
counteract evolving fraudulent and abusive practices. These final 
regulations merely continue the approach of authorizing CMP sanctions 
against individuals and entities that abuse Federal and State health 
care programs as emerging fraudulent practices are identified. These 
remedial sanctions are addressed to a limited group of individuals and 
entities; that is, providers who abuse the Federal health care programs 
to the detriment of the beneficiaries and the public fisc.
    The revised CMP provisions set forth in this final rule that 
address the upcoding of claims, and claims for medically unnecessary 
services, are essentially clarifications of existing OIG authorities. 
In addition, with respect to the new penalty authorities being

[[Page 24414]]

codified, such as the CMP for excluded individuals retaining ownership 
or control interests in an entity and the CMP for the false 
certification of eligibility for home health services, these provisions 
target egregious conduct that is limited in scope and nature.
    These final regulations implement congressional intent in the area 
of fraud and abuse in health care programs. The regulations target 
areas of health care fraud, not specific segments of the industry; the 
scope of effect is narrow and targeted specifically to those 
individuals defrauding or abusing the Medicare and State health care 
programs. There should be little or no increase in paperwork or 
reporting burdens in any pre-existing programs as a result of these 
regulations.
    Similarly, while increases in the authorized CMP amounts from 
$2,000 to $10,000 per false item or service claimed or prohibited 
practice may increase overall penalty amounts and recoveries, the 
process for deriving any settlement will remain essentially the same. 
While the rise in the amount of penalty from $2,000 to $10,000 is an 
increase, it is only proportionate to the amount of fraud against the 
public fisc. It also serves as a deterrent to health care fraud, 
consistent with congressional intent in the enactment of HIPAA. This 
penalty amount increase should not significantly affect the health care 
industry; the only effect is remedial against those who perpetrate 
fraud against the system and thus violate Federal and State law. This 
increased maximum amount per false claim or prohibited practice may, in 
certain circumstances, reduce OIG investigative costs since fewer 
individual false claims will need to be developed and proved in order 
for the Government to recover appropriate penalties and assessments.
    Overall, we believe that any increase in CMP recoveries will not be 
significant since the vast majority of individuals, organizations and 
entities addressed by these regulations do not engage in such 
prohibited activities and practices. As indicated, these final 
regulations are narrow in scope and effect, serve to codify or revise 
existing OIG sanctions, comport with congressional and statutory 
intent, and strengthen the Department's legal authorities against those 
who defraud or otherwise act improperly against the Federal and State 
health care programs. Since there is no significant economic effect on 
the industry as a whole, there is little likelihood of effect on 
Federal or State expenditures to implement these regulations. In 
addition, while some sanctions addressed in this rule may have a minor 
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. In 
conclusion, we believe that the aggregate economic impact of these 
final regulations will be minimal, affecting only those limited few who 
have chosen to engage in prohibited arrangements, schemes and practices 
in violation of statutory intent. As a result, we have concluded, and 
the Secretary certifies, that this final rule should not have a 
significant effect on Federal, State or local economies and 
expenditures, and would not have a significant economic impact on a 
substantial number of small entities that would require a regulatory 
flexibility analysis. We have also reviewed this final rule under the 
threshold criteria of Executive Order 13132, Federalism, and we have 
determined that this final rule does not significantly affect the 
rights, roles and responsibilities of States.

List of Subjects

42 CFR Part 1001

    Administrative practice and procedure, Fraud, Health facilities, 
Health professions, Medicaid, Medicare.

42 CFR Part 1003

    Administrative practice and procedure, Fraud, Grant programs--
health, Health facilities, Health professions, Maternal and child 
health, Medicaid, Medicare, Penalties.

42 CFR Part 1005

    Administrative practice and procedure, Fraud, Penalties.

42 CFR Part 1006

    Administrative practice and procedure, Fraud, Investigations, 
Penalties.

    Accordingly, 42 CFR Parts 1001, 1003, 1005 and 1006 are amended as 
set forth below:

PART 1001--[AMENDED]

    A. Part 1001 is amended as follows:
    1. The authority citation for part 1001 continues to read as 
follows:

    Authority: 42 U.S.C. 1302, 1320a-7, 1320a-7b, 1395u(h), 
1395u(j), 1395u(k), 1395y(d), 1395y(e), 1395cc(b)(2)(D), (E) and 
(F), and 1395hh; and sec. 2455, Pub. L. 103-355, 108 Stat. 3327 (31 
U.S.C. 6101 note).


    2. Section 1001.2003 is amended by revising paragraph (b)(2) to 
read as follows:


Sec. 1001.2003  Notice of proposal to exclude.

* * * * *
    (b) * * *
    (2) If the individual or entity makes a timely written request for 
a hearing and the OIG determines that the health or safety of 
individuals receiving services under Medicare or any of the State 
health care programs does not warrant immediate exclusion, an exclusion 
will only go into effect, with the date of the ALJ's decision, if the 
ALJ upholds the decision to exclude.
* * * * *

PART 1003--[AMENDED]

    B. Part 1003 is amended as follows:
    1. The authority citation for part 1003 is revised to read as 
follows:

    Authority: 42 U.S.C. 1302, 1320-7, 1320a-7a, 1320b-10, 1395u(j), 
1395u(k), 1395cc(j), 1395dd(d)(1), 1395mm, 1395nn(g), 1395ss(d), 
1396b(m), 11131(c) and 11137(b)(2).


    2. Section 1003.100 is revised to read as follows:


Sec. 1003.100  Basis and purpose.

    (a) Basis. This part implements sections 1128(c), 1128A, 1140, 
1876(i)(6), 1877(g), 1882(d) and 1903(m)(5) of the Social Security Act, 
and sections 421(c) and 427(b)(2) of Pub. L. 99-660 (42 U.S.C. 1320a-7, 
1320a-7a, 1320a-7(c), 1320b(10), 1395mm, 1395ss(d), 1396b(m), 11131(c) 
and 11137(b)(2)).
    (b) Purpose. This part--
    (1) Provides for the imposition of civil money penalties and, as 
applicable, assessments against persons who--
    (i) Have knowingly submitted certain prohibited claims under 
Federal health care programs;
    (ii) Seek payment in violation of the terms of an agreement or a 
limitation on charges or payments under the Medicare program, or a 
requirement not to charge in excess of the amount permitted under the 
Medicaid program;
    (iii) Give false or misleading information that might affect the 
decision to discharge a Medicare patient from the hospital;
    (iv) Fail to report information concerning medical malpractice 
payments or who improperly disclose, use or permit access to 
information reported under part B of title IV of Public Law 99-660, and 
regulations specified in 45 CFR part 60;
    (v) Misuse certain Departmental and Medicare and Medicaid program 
words, letters symbols or emblems;
    (vi) Violate a requirement of section 1867 of the Act or 
Sec. 489.24 of this title;
    (vii) Substantially fail to provide an enrollee with required 
medically necessary items and services; engage in certain marketing, 
enrollment, reporting, claims payment, employment or contracting 
abuses; or do not meet the requirements for physician incentive plans 
for Medicare specified in Secs. 417.479(d) through (f) of this title;

[[Page 24415]]

    (viii) Present or cause to be presented a bill or claim for 
designated health services (as defined in Sec. 411.351 of this title) 
that they know, or should know, were furnished in accordance with a 
referral prohibited under Sec. 411.353 of this title;
    (ix) Have collected amounts that they know or should know were 
billed in violation of Sec. 411.353 of this title and have not refunded 
the amounts collected on a timely basis;
    (x) Are physicians or entities that enter into an arrangement or 
scheme that they know or should know has as a principal purpose the 
assuring of referrals by the physician to a particular entity which, if 
made directly, would violate the provisions of Sec. 411.353 of this 
title;
    (xi) Are excluded, and who retain an ownership or control interest 
of five percent or more in an entity participating in Medicare or a 
State health care program, or who are officers or managing employees of 
such an entity (as defined in section 1126(b) of the Act);
    (xii) Offer inducements that they know or should know are likely to 
influence Medicare or State health care program beneficiaries to order 
or receive particular items or services; or
    (xiii) Are physicians who knowingly misrepresent that a Medicare 
beneficiary requires home health services;
    (2) Provides for the exclusion of persons from the Medicare or 
State health care programs against whom a civil money penalty or 
assessment has been imposed, and the basis for reinstatement of persons 
who have been excluded; and
    (3) Sets forth the appeal rights of persons subject to a penalty, 
assessment and exclusion.

    3. Section 1003.101 is amended as follows:
    A. By republishing the introductory text;
    B. By revising the definition for the terms Claim and Exclusion;
    C. By removing the terms General Counsel and Program; and
    D. By adding, in alphabetical order, definitions for the terms 
Preventive care, Remuneration and Should know, or should have known. 
The republication, revisions and additions read as follows:


Sec. 1003.101  Definitions.

    For purposes of this part:
* * * * *
    Claim means an application for payment for an item or service to a 
Federal health care program (as defined in section 1128B(f) of the 
Act).
* * * * *
    Exclusion means the temporary or permanent barring of a person from 
participation in a Federal health care program (as defined in section 
1128B(f) of the Act).
* * * * *
    Preventive care, for purposes of Sec. 1003.102(b)(13) of this part 
and the preventive care exception to section 231(h) of HIPAA, means any 
service that--
    (1) Is a prenatal service or a post-natal well-baby visit or is a 
specific clinical service described in the current U.S. Preventive 
Services Task Force's Guide to Clinical Preventive Services, and
    (2) Is reimbursable in whole or in part by Medicare or an 
applicable State health care program.
    Remuneration, as set forth in Sec. 1003.102(b)(13) of this part, is 
consistent with the definition contained in section 1128A(i)(6) of the 
Act, and includes the waiver of coinsurance and deductible amounts (or 
any part thereof) and transfers of items or services for free or for 
other than fair market value. The term ``remuneration'' does not 
include--
    (1) The waiver of coinsurance and deductible amounts by a person, 
if the waiver is not offered as part of any advertisement or 
solicitation; the person does not routinely waive coinsurance or 
deductible amounts; and the person waives coinsurance and deductible 
amounts after determining in good faith that the individual is in 
financial need or failure by the person to collect coinsurance or 
deductible amounts after making reasonable collection efforts;
    (2) Any permissible practice as specified in section 1128B(b)(3) of 
the Act or in regulations issued by the Secretary;
    (3) Differentials in coinsurance and deductible amounts as part of 
a benefit plan design (as long as the differentials have been disclosed 
in writing to all beneficiaries, third party payers and providers), to 
whom claims are presented; or
    (4) Incentives given to individuals to promote the delivery of 
preventive care services where the delivery of such services is not 
tied (directly or indirectly) to the provision of other services 
reimbursed in whole or in part by Medicare or an applicable State 
health care program. Such incentives may include the provision of 
preventive care, but may not include--
    (i) Cash or instruments convertible to cash; or
    (ii) An incentive the value of which is disproportionally large in 
relationship to the value of the preventive care service (i.e., either 
the value of the service itself or the future health care costs 
reasonably expected to be avoided as a result of the preventive care).
* * * * *
    Should know or should have known means that a person, with respect 
to information--
    (1) Acts in deliberate ignorance of the truth or falsity of the 
information; or
    (2) Acts in reckless disregard of the truth or falsity of the 
information. For purposes of this definition, no proof of specific 
intent to defraud is required.
* * * * *
    4. Section 1003.102 is amended as follows:

    A. By revising introductory text paragraph (a) and paragraphs 
(a)(1) and (a)(3);
    B. Republishing the introductory text of paragraph (a)(4) and 
revising paragraphs (a)(4)(iii) and (5);
    C. Adding a new paragraph (a)(6);
    D. Republishing the introductory text of paragraph (b) and revising 
paragraph (b)(1), introductory text;
    E. Removing and reserving paragraphs (b)(2) and (b)(3);
    F. Revising paragraphs (b)(4) and (b)(9); and
    G. By adding new paragraphs (b)(12) through (b)(14) and (e). The 
revisions, additions and republications read as follows:


Sec. 1003.102  Basis for civil money penalties and assessments.

    (a) The OIG may impose a penalty and assessment against any person 
whom it determines in accordance with this part has knowingly 
presented, or caused to be presented, a claim which is for--
    (1) An item or service that the person knew, or should have known, 
was not provided as claimed, including a claim that is part of a 
pattern or practice of claims based on codes that the person knows or 
should know will result in greater payment to the person than the code 
applicable to the item or service actually provided;
* * * * *
    (3) An item or service furnished during a period in which the 
person was excluded from participation in the Federal health care 
program to which the claim was made;
    (4) A physician's services (or an item or service) for which the 
person knew, or should have known, that the individual who furnished 
(or supervised the furnishing of) the service--
* * * * *
    (iii) Represented to the patient at the time the service was 
furnished that the physician was certified in a medical specialty board 
when he or she was not so certified;

[[Page 24416]]

    (5) A payment that such person knows, or should know, may not be 
made under Sec. 411.353 of this title; or
    (6) An item or service that is medically unnecessary, and which is 
part of a pattern of such claims.
    (b) The OIG may impose a penalty, and where authorized, an 
assessment against any person (including an insurance company in the 
case of paragraphs (b)(5) and (b)(6) of this section) whom it 
determines in accordance with this part--
    (1) Has knowingly presented or caused to be presented a request for 
payment in violation of the terms of--
* * * * *
    (2) [Reserved]
    (3) [Reserved]
    (4) Has knowingly given or caused to be given to any person, in the 
case of inpatient hospital services subject to the provisions of 
section 1886 of the Act, information that he or she knew, or should 
have known, was false or misleading and that could reasonably have been 
expected to influence the decision when to discharge such person or 
another person from the hospital.
* * * * *
    (9) Has not refunded on a timely basis, as defined in Sec. 1003.101 
of this part, amounts collected as the result of billing an individual, 
third party payer or other entity for a designated health service that 
was provided in accordance with a prohibited referral as described in 
Sec. 411.353 of this title.
* * * * *
    (12) Who is not an organization, agency or other entity, and who is 
excluded from participating in Medicare or a State health care program 
in accordance with sections 1128 or 1128A of the Act, and who--
    (i) Knows or should know of the action constituting the basis for 
the exclusion, and retains a direct or indirect ownership or control 
interest of five percent or more in an entity that participates in 
Medicare or a State health care program; or
    (ii) Is an officer or managing employee (as defined in section 
1126(b) of the Act) of such entity.
    (13) Offers or transfers remuneration (as defined in Sec. 1003.101 
of this part) to any individual eligible for benefits under Medicare or 
a State health care program, that such person knows or should know is 
likely to influence such individual to order or to receive from a 
particular provider, practitioner or supplier any item or service for 
which payment may be made, in whole or in part, under Medicare or a 
State health care program.
    (14) Is a physician and who executes a document falsely by 
certifying that a Medicare beneficiary requires home health services 
when the physician knows that the beneficiary does not meet the 
eligibility requirements set forth in sections 1814(a)(2)(C) or 
1835(a)(2)(A) of the Act.
* * * * *
    (e) For purposes of this section, the term ``knowingly'' is defined 
consistent with the definition set forth in the Civil False Claims Act 
(31 U.S.C. 3729(b)), that is, a person, with respect to information, 
has actual knowledge of information, acts in deliberate ignorance of 
the truth or falsity of the information, or acts in reckless disregard 
of the truth or falsity of the information, and that no proof of 
specific intent to defraud is required.
    5. Section 1003.103 is amended by revising paragraphs (a) and (e); 
and by adding new paragraphs (i) and (j) to read as follows:


Sec. 1003.103  Amount of penalty.

    (a) Except as provided in paragraphs (b) through (h) of this 
section, the OIG may impose a penalty of not more than--
    (1) $2,000 for each wrongful act occurring before January 1, 1997 
that is subject to a determination under Sec. 1003.102; and
    (2) $10,000 for each wrongful act occurring on or after January 1, 
1997 that is subject to a determination under Sec. 1003.102.
* * * * *
    (e) For violations of section 1867 of the Act or Sec. 489.24 of 
this title, the OIG may impose--
    (1) Against each participating hospital with an emergency 
department, a penalty of not more than $50,000 for each negligent 
violation occurring on or after May 1, 1991, except that if the 
participating hospital has fewer than 100 State-licensed, Medicare-
certified beds on the date the penalty is imposed, the penalty will not 
exceed $25,000; and
    (2) Against each responsible physician, a penalty of not more than 
$50,000 for each negligent violation occurring on or after May 1, 1991.
* * * * *
    (i) For violations of Sec. 1003.102(b)(14) of this part, the OIG 
may impose a penalty of not more than the greater of--
    (1) $5,000, or
    (2) Three times the amount of Medicare payments for home health 
services that are made with regard to the false certification of 
eligibility by a physician in accordance with sections 1814(a)(2)(C) or 
1835(a)(2)(A) of the Act.
    (j) The OIG may impose a penalty of not more than $10,000 per day 
for each day that the prohibited relationship described in 
Sec. 1001.102(b)(12) of this part occurs.
* * * * *
    6. Section 1003.104 is revised to read as follows:


Sec. 1003.104  Amount of assessment.

    (a) The OIG may impose an assessment, where authorized, in 
accordance with Sec. 1003.102, of not more than--
    (1) Two times the amount for each item or service wrongfully 
claimed prior to January 1, 1997; and
    (2) Three times the amount for each item or service wrongfully 
claimed on or after January 1, 1997.
    (b) The assessment is in lieu of damages sustained by the 
Department or a State agency because of that claim.
    7. Section 1003.105 is amended as follows:
    A. By revising the section heading and paragraphs (a)(1);
    B. Removing existing paragraph (b)(1); and
    C. By redesignating existing paragraphs (b)(2) and (b)(3) 
respectively as new paragraphs (b)(1) and (b)(2). The revisions read as 
follows:


Sec. 1003.105  Exclusion from participation in Medicare, Medicaid and 
all Federal health care programs.

    (a)(1) Except as set forth in paragraph (b) of this section, the 
following persons may be subject, in lieu of or in addition to any 
penalty or assessment, to an exclusion from participation in Medicare 
for a period of time determined under Sec. 1003.107. There will be 
exclusions from Federal health care programs for the same period as the 
Medicare exclusion for any person who--
    (i) Is subject to a penalty or assessment under Sec. 1003.102(a), 
(b)(1), (b)(4), (b)(12) or (b)(13); or
    (ii) Commits a gross and flagrant, or repeated, violation of 
section 1867 of the Act or Sec. 489.24 of this title on or after May 1, 
1991. For purposes of this section, a gross and flagrant violation is 
one that presents an imminent danger to the health, safety or well-
being of the individual who seeks emergency examination and treatment 
or places that individual unnecessarily in a high-risk situation.
* * * * *
    8. Section 1003.106 is amended as follows:
    A. By revising paragraph (a)(1);
    B. Republishing the introductory text of paragraph (b) and revising 
paragraphs (b)(2) and (b)(5);
    C. Revising the introductory text of paragraph (c) and paragraph 
(c)(3);
    D. Redesignating existing paragraphs (d) and (e) as new paragraphs 
(e) and (f);

[[Page 24417]]

    E. Revising the introductory text of the new redesignated paragraph 
(e); and
    F. By adding a new paragraph (d). The revisions, republication and 
additions read as follows:


Sec. 1003.106  Determinations regarding the amount of the penalty and 
assessment.

    (a) Amount of penalty. (1) In determining the amount of any penalty 
or assessment in accordance with Sec. 1003.102(a), (b)(1), (b)(4) and 
(b)(9) through (b)(14) of this part, the Department will take into 
account--
    (i) The nature of the claim, referral arrangement or other 
wrongdoing;
    (ii) The degree of culpability of the person against whom a civil 
money penalty is proposed;
    (iii) The history of prior offenses of the person against whom a 
civil money penalty is proposed;
    (iv) The financial condition of the person against whom a civil 
money penalty is proposed;
    (v) The completeness and timeliness of the refund with respect to 
Sec. 1003.102(b)(9);
    (vi) The amount of financial interest involved with respect to 
Sec. 1003.102(b)(12);
    (vii) The amount of remuneration offered or transferred with 
respect to Sec. 1003.102(b)(13); and
    (viii) Such other matters as justice may require.
* * * * *
    (b) Determining the amount of the penalty or assessment. As 
guidelines for taking into account the factors listed in paragraph 
(a)(1) of this section, the following circumstances are to be 
considered--
* * * * *
    (2) Degree of culpability. It should be considered a mitigating 
circumstance if corrective steps were taken promptly after the error 
was discovered. It should be considered an aggravating circumstance 
if--
    (i) The respondent knew the item or service was not provided as 
claimed or if the respondent knew that the claim was false or 
fraudulent;
    (ii) The respondent knew that the items or services were furnished 
during a period that he or she had been excluded from participation and 
that no payment could be made as specified in Secs. 1003.102(a)(3) and 
1003.102(b)(12), or because payment would violate the terms of an 
assignment or an agreement with a State agency or other agreement or 
limitation on payment under Sec. 1003.102(b);
    (iii) The respondent knew that the information could reasonably be 
expected to influence the decision of when to discharge a patient from 
a hospital; or
    (iv) The respondent knew that the offer or transfer of remuneration 
described in Sec. 1003.102(b)(13) of this part would influence a 
beneficiary to order or receive from a particular provider, 
practitioner or supplier items or services reimbursable under Medicare 
or a State health care program.
* * * * *
    (5) Financial condition. In all cases, the resources available to 
the respondent will be considered when determining the amount of the 
penalty and assessment.
* * * * *
    (c) In determining the amount of the penalty and assessment to be 
imposed for every item or service or incident subject to a 
determination under Secs. 1003.102(a), (b)(1) and (b)(4)--
* * * * *
    (3) Unless there are extraordinary mitigating circumstances, the 
aggregate amount of the penalty and assessment should never be less 
than double the approximate amount of damages and costs (as defined in 
paragraph (f) of this section) sustained by the United States, or any 
State, as a result of claims or incidents subject to a determination 
under Secs. 1003.102(a), (b)(1) and (b)(4).
    (d) In considering the factors listed in paragraph (a)(4) of this 
section for violations subject to a determination under 
Sec. 1003.103(e), the following circumstances are to be considered, as 
appropriate, in determining the amount of any penalty--
    (1) Degree of culpability. It would be a mitigating circumstance if 
the respondent hospital had appropriate policies and procedures in 
place, and had effectively trained all of its personnel in the 
requirements of section 1867 of the Act and Sec. 489.24 of this title, 
but an employee or responsible physician acted contrary to the 
respondent hospital's policies and procedures.
    (2) Seriousness of individual's condition. It would be an 
aggravating circumstance if the respondent's violation(s) occurred with 
regard to an individual who presented to the hospital a request for 
treatment of a medical condition that was clearly an emergency, as 
defined by Sec. 489.24(b) of this title.
    (3) Prior offenses. It would be an aggravating circumstance if 
there is evidence that at any time prior to the current violation(s) 
the respondent was found to have violated any provision of section 1867 
of the Act or Sec. 489.24 of this title.
    (4) Financial condition. In all cases, the resources available to 
the respondent would be considered when determining the amount of the 
penalty. A respondent's audited financial statements, tax returns or 
financial disclosure statements, as appropriate, will be reviewed by 
OIG in making a determination with respect to the respondent's 
financial condition.
    (5) Nature and circumstances of the incident. It would be 
considered a mitigating circumstance if an individual presented a 
request for treatment, but subsequently exhibited conduct that 
demonstrated a clear intent to leave the respondent hospital 
voluntarily. In reviewing such circumstances, the OIG would evaluate 
the respondent's efforts to--
    (i) Provide the services required by section 1867 of the Act and 
Sec. 489.24 of this title, despite the individual's withdrawal of the 
request for examination or treatment; and
    (ii) Document any attempts to inform the individual (or his or her 
representative) of the risks of leaving the respondent hospital without 
receiving an appropriate medical screening examination or treatment, 
and obtain written acknowledgment from the individual (or his or her 
representative) prior to the individual's departure from the respondent 
hospital that he or she is leaving contrary to medical advice.
    (6) Other matters as justice may require. (i) It would be 
considered a mitigating circumstance if the respondent hospital--
    (A) Developed and implemented a corrective action plan;
    (B) Took immediate appropriate action against any hospital 
personnel or responsible physician who violated section 1867 of the Act 
or Sec. 489.24 of this title prior to any investigation of the 
respondent hospital by HCFA; or
    (C) Is a rural or publicly-owned facility that is faced with severe 
physician staffing and financial deficiencies.
    (ii) It would be considered an aggravating circumstance if an 
individual was severely harmed or died as a result, directly or 
indirectly, of the respondent's violation of section 1867 of the Act or 
Sec. 489.24 of this title.
    (iii) Other circumstances of an aggravating or mitigating nature 
will be taken into account if, in the interests of justice, they 
require either a reduction of the penalty or an increase in order to 
assure the achievement of the purposes of this part.
    (e) In considering the factors listed in paragraph (a)(5) of this 
section for violations subject to a determination under 
Sec. 1003.103(f), the following

[[Page 24418]]

circumstances are to be considered, as appropriate, in determining the 
amount of any penalty--
* * * * *

    9. Section 1003.107 is amended as follows:
    A. By revising paragraph (b);
    B. Removing existing paragraphs (c) and (e);
    C. Redesignating paragraph (d) as new paragraph (c) and revising 
it. The revisions read as follows:


Sec. 1003.107  Determinations regarding exclusion.

* * * * *
    (b) With respect to determinations to exclude a person under 
Secs. 1003.102(a), (b)(1), (b)(4), (b)(12) or (b)(13) of this part, the 
Department considers those circumstances described in Sec. 1003.106(b). 
Where there are aggravating circumstances with respect to such 
determinations, the person should be excluded.
    (c) The guidelines set forth in this section are not binding. 
Nothing in this section limits the authority of the Department to 
settle any issue or case as provided by Sec. 1003.126 of this part.

    10. Section 1003.109 is amended by revising the introductory text 
of paragraph (a) and revising paragraph (b) to read as follows:


Sec. 1003.109  Notice of proposed determination.

    (a) If the Inspector General proposes a penalty and, when 
applicable, assessment, or proposes to exclude a respondent from 
participation in a Federal health care program, as applicable, in 
accordance with this part, he or she must deliver or send by certified 
mail, return receipt requested, to the respondent written notice of his 
or her intent to impose a penalty, assessment and exclusion, as 
applicable. The notice includes--
* * * * *
    (b) Any person upon whom the Inspector General has proposed the 
imposition of a penalty, assessment or exclusion may appeal such 
proposed penalty, assessment or exclusion to the DAB in accordance with 
Sec. 1005.2 of this chapter. The provisions of part 1005 of this 
chapter govern such appeals.
* * * * *

    11. Section 1003.126 is revised to read as follows:


Sec. 1003.126  Settlement.

    The Inspector General has exclusive authority to settle any issues 
or case, without consent of the ALJ.

    12. Section 1003.128 is amended by revising paragraph (b) to read 
as follows:


Sec. 1003.128  Collection of penalty and assessment.

* * * * *
    (b) A penalty or assessment imposed under this part may be 
compromised by the Inspector General, and may be recovered in a civil 
action brought in the United States district court for the district 
where the claim was presented, or where the respondent resides.
* * * * *

PART 1005--[AMENDED]

    C. Part 1005 is amended as follows:
    1. The authority citation for part 1005 continues to read as 
follows:

    Authority: 42 U.S.C. 405(a), 405(b), 1302, 1320a-7, 1320a-7a and 
1320c-5.


    2. Section 1005.1 is amended by adding, in alphabetical order, a 
definition for the term Inspector General to read as follows:


Sec. 1005.1  Definitions.

* * * * *
    Inspector General (IG) means the Inspector General of the 
Department of Health and Human Services or his or her designees.

    3. Section 1005.2 is amended by revising paragraph (c) to read as 
follows:


Sec. 1005.2  Hearing before an administrative law judge.

* * * * *
    (c) The request for a hearing will be made in writing to the DAB; 
signed by the petitioner or respondent, or by his or her attorney; and 
sent by certified mail. The request must be filed within 60 days after 
the notice, provided in accordance with Secs. 1001.2002, 1001.203 or 
1003.109, is received by the petitioner or respondent. For purposes of 
this section, the date of receipt of the notice letter will be presumed 
to be 5 days after the date of such notice unless there is a reasonable 
showing to the contrary.
* * * * *

    4. Section 1005.7 is amended by revising paragraphs (e)(1) and 
(e)(2) to read as follows:


Sec. 1005.7  Discovery.

* * * * *
    (e)(1) When a request for production of documents has been 
received, within 15 days the party receiving that request will either 
fully respond to the request, or state that the request is being 
objected to and the reasons for that objection. If objection is made to 
part of an item or category, the part will be specified. Upon receiving 
any objections, the party seeking production may then, within 15 days 
or any other time frame set by the ALJ, file a motion for an order 
compelling discovery. (The party receiving a request for production may 
also file a motion for protective order any time prior to the date the 
production is due.)
    (2) The ALJ may grant a motion for protective order or deny a 
motion for an order compelling discovery if the ALJ finds that the 
discovery sought--
    (i) Is irrelevant,
    (ii) Is unduly costly or burdensome,
    (iii) Will unduly delay the proceeding, or
    (iv) Seeks privileged information.
* * * * *
    5. Section 1005.9 is amended by revising paragraph (b) to read as 
follows:


Sec. 1005.9  Subpoenas for attendance at hearing.

* * * * *
    (b) A subpoena requiring the attendance of an individual in 
accordance with paragraph (a) of this section may also require the 
individual (whether or not the individual is a party) to produce 
evidence authorized under Sec. 1005.7 of this part at or prior to the 
hearing.
* * * * *

    6. Section 1005.15 is amended by revising the introductory text of 
paragraph (b) and paragraph (b)(1) to read as follows:


Sec. 1005.15  The hearing and burden of proof.

* * * * *
    (b) With regard to the burden of proof in civil money penalty cases 
under part 1003, in Peer Review Organization exclusion cases under part 
1004, and in exclusion cases under Secs. 1001.701, 1001.901 and 
1001.951 of this chapter--
    (1) The respondent or petitioner, as applicable, bears the burden 
of going forward and the burden of persuasion with respect to 
affirmative defenses and any mitigating circumstances; and
* * * * *

    7. Section 1005.20 is amended by revising paragraph (d) to read as 
follows:


Sec. 1005.20  Initial decision.

* * * * *
    (d) Except for exclusion actions taken in accordance with 
Sec. 1001.2003 of this chapter and as provided in paragraph (e) of this 
section, unless the initial decision is appealed to the DAB, it will be 
final and binding on the parties 30 days after the ALJ serves the 
parties with a copy of the decision. If service is by mail, the date of 
service will be deemed to be 5 days from the date of mailing.
* * * * *

[[Page 24419]]


    8. Section 1005.21 is amended by revising paragraph (d) to read as 
follows:


Sec. 1005.21  Appeal to DAB.

* * * * *
    (d) There is no right to appear personally before the DAB or to 
appeal to the DAB any interlocutory ruling by the ALJ, except on the 
timeliness of a filing of the hearing request.
* * * * *

PART 1006--[AMENDED]

    D. Part 1006 is amended as follows:
    1. The authority citation for part 1006 continues to read as 
follows:

    Authority: 42 U.S.C. 405(d), 405(e), 1302 and 1320a-7a.

    2. Section 1006.4 is amended by republishing the introductory text 
of paragraph (b) and by revising paragraph (b)(2) to read as follows:


Sec. 1006.4  Procedures for investigational inquiries.

* * * * *
    (b) Investigational inquiries are non-public investigatory 
proceedings. Attendance of non-witnesses is within the discretion of 
the OIG, except that--
* * * * *
    (2) Representatives of the OIG are entitled to attend and ask 
questions.
* * * * *

    Dated: April 19, 1999.
June Gibbs Brown,
Inspector General.

    Approved: November 24, 1999.
Donna E. Shalala,
Secretary.
[FR Doc. 00-10142 Filed 4-25-00; 8:45 am]
BILLING CODE 4150-04-P