[Federal Register Volume 66, Number 232 (Monday, December 3, 2001)]
[Rules and Regulations]
[Pages 60154-60156]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-29904]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 411

[CMS-1809-IFC]
RIN 0938-AL29


Medicare and Medicaid Programs; Physicians' Referrals to Health 
Care Entities With Which They Have Financial Relationships: Partial 
Delay of Effective Date

AGENCY: Centers for Medicare & Medicaid Services (CMS), DHHS.

ACTION: Interim final rule with comment period; partial delay in 
effective date.

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SUMMARY: This interim final rule with comment period delays for 1 year 
the effective date of the last sentence of 42 CFR 411.354(d)(1). 
Section 411.354(d)(1) was promulgated in the final rule entitled 
``Medicare and Medicaid Programs; Physicians' Referrals to Health Care 
Entities With Which They Have Financial Relationships,'' published in 
the Federal Register on January 4, 2001 (66

[[Page 60155]]

FR 856). A 1-year delay in the effective date of the last sentence in 
Sec. 411.354(d)(1) will give Department officials the opportunity to 
reconsider the definition of compensation that is ``set in advance'' as 
it relates to percentage compensation methodologies in order to avoid 
unnecessarily disrupting existing contractual arrangements for 
physician services. Accordingly, the last sentence of 
Sec. 411.354(d)(1), which would have become effective January 4, 2002, 
will not become effective until January 6, 2003.

DATES: Effective date: The effective date of the last sentence in 
Sec. 411.354(d)(1) of the final rule published in the Federal Register 
on January 4, 2001 (66 FR 856), is delayed for 1 year, from January 4, 
2002 until January 6, 2003.
    Comment date: Comments on the length of the delay of the effective 
date of the last sentence in Sec. 411.354(d)(1) of the January 4, 2001 
final rule will be considered if we receive them at the appropriate 
address, as provided below, no later than 5 p.m. on February 1, 2002.

ADDRESSES: In commenting, please refer to file code CMS-1809-IFC. 
Because of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    Mail written comments (one original and three copies) to the 
following address ONLY:
Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Attention: CMS-1809-IFC, P.O. Box 8013, Baltimore, MD 
21244-8013.

    Please allow sufficient time for mailed comments to be timely 
received in the event of delivery delays.
    If you prefer, you may deliver (by hand or courier) your written 
comments (one original and three copies) to one of the following 
addresses:

Room 443-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., 
Washington, DC 20201, or
Room C5-14-03, 7500 Security Boulevard, Baltimore, MD 21244-1850.

    (Because access to the interior of the HHH Building is not readily 
available to persons without Federal Government identification, 
commenters are encouraged to leave their comments in the CMS drop slots 
located in the main lobby of the building. A stamp-in clock is 
available for commenters wishing to retain a proof of filing by 
stamping in and retaining an extra copy of the comments being filed.)
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and could be considered late. For 
information on viewing public comments, see the beginning of the 
SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Joanne Sinsheimer, (410) 786-4620.

SUPPLEMENTARY INFORMATION:
    Copies: This Federal Register document is available from the 
Federal Register online database through GPO Access, a service of the 
U.S. Government Printing Office. The Web site address is: http://www.access.gpo.gov/nara/index.html.
    In addition, the information in this interim final rule with 
comment period will be available soon after publication in the Federal 
Register on our MEDLEARN Web site: www.hcfa.gov/medlearn/refphys.htm.

I. Background

    The final rule, entitled ``Medicare and Medicaid Programs; 
Physicians' Referrals to Health Care Entities With Which They Have 
Financial Relationships,'' published in the Federal Register on January 
4, 2001 (66 FR 856), interpreted certain provisions of section 1877 of 
the Social Security Act (the Act). Under section 1877, if a physician 
or a member of a physician's immediate family has a financial 
relationship with a health care entity, the physician may not make 
referrals to that entity for the furnishing of designated health 
services (DHS) under the Medicare program, and the entity may not bill 
for the services, unless an exception applies. Many of the statutory 
and new regulatory exceptions that apply to compensation relationships 
require that the amount of compensation be ``set in advance.'' Section 
411.354(d)(1) of the final rule defines the term ``set in advance.''
    The last sentence of Sec. 411.354(d)(1) reads: ``Percentage 
compensation arrangements do not constitute compensation that is `set 
in advance' in which the percentage compensation is based on 
fluctuating or indeterminate measures or in which the arrangement 
results in the seller receiving different payment amounts for the same 
service from the same purchaser.'' Many of the comments we received 
regarding the January 4, 2001 physician self-referral final rule 
indicated that physicians are commonly paid for their professional 
services using a formula that takes into account a percentage of a 
fluctuating or indeterminate measure (for example, revenues billed or 
collected for physician services). According to the commenters, this 
compensation methodology is frequently used by hospitals, physician 
group practices, academic medical centers, and medical foundations. 
Several commenters pointed out that this aspect of the final rule, 
which is applicable to academic medical centers and medical foundations 
(among others), is inconsistent with the compensation methods permitted 
under the statute for many physician group practices and employed 
physicians (that is, neither section 1877(h)(4)(B)(i) of the Act nor 
section 1877(e)(2) of the Act contains the ``set in advance'' 
requirement). We understand that hospitals, academic medical centers, 
medical foundations and other health care entities would have to 
restructure or renegotiate thousands of physician contracts to comply 
with the language in Sec. 411.354(d)(1) regarding percentage 
compensation arrangements.

II. Provisions of This Interim Final Rule With Comment Period

    To avoid any unnecessary disruption to existing contractual 
arrangements while we consider modifying this provision, we are 
postponing for 1 year the effective date of the last sentence of 
Sec. 411.354(d)(1). This delay should afford us enough time to 
reconsider the matter and to publish further guidance on the issue. In 
the meantime, compensation that is required to be ``set in advance'' 
for purposes of compliance with section 1877 of the Act may continue to 
be based on percentage compensation methodologies, including those in 
which the compensation is based on a percentage of a fluctuating or 
indeterminate measure. We note that the remaining provisions of 
Sec. 411.354(d)(1) will still apply and that all other requirements of 
exceptions must be satisfied (including, for example, the fair market 
value and ``volume and value'' requirements).

III. Waiver of Proposed Rulemaking

    We ordinarily publish a notice of proposed rulemaking and invite 
public comment on the proposed rule. This procedure can be waived, 
however, if an agency finds good cause that the notice and comment 
rulemaking procedure is impracticable, unnecessary, or contrary to the 
public interest and if the agency incorporates in the rule a statement 
of such a finding and the reasons supporting that finding.
    Our implementation of this action without opportunity for public 
comment is based on the good cause exceptions in 5 U.S.C. 553(b)(B). We 
find that seeking public comment on this action is impracticable, 
unnecessary, and contrary to the public interest. We are implementing 
this delay

[[Page 60156]]

of effective date as a result of our review of the public comments that 
we received on the January 4, 2001 physician self-referral final rule. 
As discussed above, we understand from those comments that, unless we 
delay the effective date of the last sentence of Sec. 411.354(d)(1), 
hospitals, academic medical centers, and other entities will have to 
renegotiate numerous contracts for physician services, potentially 
causing significant disruption within the health care industry. We are 
concerned that the disruption could unnecessarily inconvenience 
Medicare beneficiaries or interfere with their medical care and 
treatment. Accordingly, we do not believe that it is in the public 
interest to offer yet another opportunity for public comment on 
essentially the same issue in the limited context of whether to delay 
this sentence of the regulation. In addition, given the imminence of 
the January 4, 2002 effective date, we find that seeking public comment 
on this delay in effective date would be impracticable because it would 
generate uncertainty regarding an imminent effective date. This 
uncertainty could cause health care providers to renegotiate thousands 
of contracts with physicians in an effort to comply with the regulation 
by January 4, 2002 if the proposed delay is not finalized until after 
the opportunity for public comment. Thus, providing the opportunity for 
public comment could result in the very disruption that this delay of 
effective date is intended to avoid.

(Catalog of Federal Domestic Assistance Program No. 93.773 
Medicare--Hospital Insurance Program; Program No. 93.774, Medicare--
Supplementary Medical Insurance Program; and Program No. 93.778, 
Medical Assistance Program)

    Dated: November 5, 2001.
Thomas A. Scully,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: November 19, 2001.
Tommy G. Thompson,
Secretary.
[FR Doc. 01-29904 Filed 11-28-01; 3:20 pm]
BILLING CODE 4120-01-P