[Federal Register Volume 66, Number 233 (Tuesday, December 4, 2001)]
[Rules and Regulations]
[Pages 62979-62991]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-29875]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of Inspector General

42 CFR Part 1001

RIN 0991-AB05


Medicare and State Health Care Programs: Fraud and Abuse; 
Ambulance Replenishing Safe Harbor Under the Anti-Kickback Statute

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

ACTION: Final rule.

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SUMMARY: This final rule sets forth a safe harbor, as authorized under 
section 14 of the Medicare and Medicaid Patient and Program Protection 
Act of 1987, to protect certain arrangements involving hospitals or 
other receiving facilities that replenish drugs and medical supplies 
used by ambulance providers (or first responders) when transporting 
patients to the hospitals or receiving facilities.

EFFECTIVE DATE: These regulations are effective on January 3, 2002.

FOR FURTHER INFORMATION CONTACT: Vicki L. Robinson, Senior Counsel, 
Office of Counsel to the Inspector General, (202) 619-0335.

SUPPLEMENTARY INFORMATION:

Overview--Establishing a New Safe Harbor for Ambulance Restocking 
Arrangements

    This final regulation establishes safe harbor protection for 
ambulance restocking arrangements.\1\ Ambulance restocking is the 
practice, commonplace in many parts of the country, of hospitals or 
other receiving facilities restocking ambulance providers \2\ with 
drugs or supplies used during the transport of a patient to the 
hospital or receiving facility. (For simplicity, we sometimes use the 
shorthand ``hospital'' or ``receiving hospital'' in this preamble; such 
terminology is intended to include other types of receiving facilities, 
such as urgent care or community health care clinics that provide 
emergency care services). Restocking enables the ambulance to depart 
the hospital ready for the next emergency call, fully stocked with 
current medications, sanitary linens, and a full complement of 
appropriate medications and supplies, and helps ensure that supplies, 
such as intravenous tubing and catheters, are compatible with equipment 
used in local emergency rooms so as to expedite the transfer of 
critically ill or injured patients to emergency room systems. Bona fide 
restocking arrangements serve a significant public interest and are 
consistent with Federal policy established over the past 25 years.\3\
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    \1\ Because these arrangements are commonly known as 
``restocking,'' we use that term in this preamble. As further 
discussed below, the regulations use the word ``replenish'' to make 
clear that the safe harbor only applies to the gifting or transfer 
of drugs and supplies that replace comparable drugs and supplies 
administered by the ambulance provider (or first responder) to a 
patient before the patient is delivered to the receiving facility. 
The rule is not applicable to any arrangements for the general 
stocking of the inventories of ambulance providers. Depending on the 
circumstances, such arrangements may fit into other safe harbors, 
such as the group purchasing organization safe harbor at 
Sec. 1001.952(j) or the discount safe harbor at Sec. 1001.952(h) of 
this part.
    \2\ In this preamble and regulations text, unless otherwise 
specified, the term ``ambulance provider'' compasses both 
independent ambulance suppliers and hospital-based providers, 
including ``under arrangements'' providers.
    \3\ See, e.g., Emergency Medical Services Systems Act of 1973, 
Public Law 93-154 (providing Federal funding for the development of 
regional Emergency Medical Services (EMS) systems at the State, 
regional, and local levels, and defining ``emergency medical 
services system'' as ``a system which provides for the arrangement 
of personnel, facilities and equipment for the effective and 
coordinated delivery in an appropriate geographical area of health 
care services under emergency conditions * * * and which is 
administered by a public or nonprofit private entity which has the 
authority and the resources to provide effective administration of 
the system.''); Highway Safety Act of 1966, Public Law 89-594 
(establishing an EMS program in the Department of Transportation); 
Emergency Medical Services for Children Program, under the Public 
Health Act, Public Law 98-555 (providing funds for enhancing 
pediatric EMS); and Trauma Care Systems Planning and Development Act 
of 1990, Public Law 101-590.
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    Set forth below is a brief background discussion addressing the 
anti-kickback statute and the proposed safe harbor for ambulance 
restocking; a summary of the provisions being adopted into the final 
regulations; and a review of the public

[[Page 62980]]

comments received and our responses to those concerns.

I. Background

A. Ambulance Restocking and the Anti-Kickback Statute

    Section 1128B(b) of the Social Security Act (the Act) (42 U.S.C. 
1320a-7b(b)) provides criminal penalties for individuals or entities 
that knowingly and willfully offer, pay, solicit or receive 
remuneration (i.e., anything of value, in cash or in kind) in order to 
induce the referral of business reimbursable by a Federal health care 
program. Violations of the statute may also result in civil money 
penalties under section 1128A(a)(7) of the Act or program exclusion 
under section 1128(a)(7) of the Act. The statute has been in existence 
since 1977 and applies broadly to all kinds of health care providers 
and suppliers. Payments tied to referrals corrupt the health care 
system, increasing the risks of overutilization of items and services, 
increased costs to the Federal health care programs, inappropriate 
steering of patients, and unfair competition. Ambulance restocking 
arrangements technically implicate the anti-kickback statute because 
the receiving hospital gives something of value (e.g., drugs or medical 
supplies) to a potential source of Federal health care program 
business, i.e., ambulance providers who deliver patients.
    Notwithstanding the potential for a violation, the OIG believes 
that the vast majority of ambulance restocking arrangements are lawful 
under the anti-kickback statute. We fully recognize the importance of 
ambulances being restocked and ready for emergency use at all times. 
Properly structured restocking arrangements contribute to this laudable 
goal without significant risk of fraud or abuse.

B. OIG Advisory Opinions

    The OIG was first asked to address an ambulance restocking 
arrangement in 1997 when two hospitals submitted a request for an 
advisory opinion under section 1128D of the Act. As required by the 
statute, the OIG responded to the request, even though the subject 
matter was not of significant concern to the OIG. As with all 
determinations under the anti-kickback statute, our review turned on 
the specific facts and circumstances of the arrangement as presented by 
the requesting hospitals. The request presented an unusual set of facts 
under which an unscrupulous party could potentially use an ambulance 
restocking arrangement for an unlawful purpose, namely the steering of 
patients to a particular hospital in exchange for remuneration. The OIG 
opined that the facts of the particular arrangement--as presented by 
the hospitals--would be likely to involve prohibited remuneration.\4\ 
By law, the opinion applied only to the hospitals that requested it.
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    \4\ OIG Advisory Opinion 97-6 (October 8, 1997).
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    Subsequently, the OIG issued several favorable advisory opinions 
approving restocking arrangements that it believed to be much more 
representative of typical restocking arrangements.\5\ Most recently, in 
December 2000, the OIG issued a favorable advisory opinion approving a 
hospital's proposal to restock only volunteer ambulance companies that 
do not charge anyone for their services.
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    \5\ OIG Advisory Opinion 98-7 (June 11, 1998); OIG Advisory 
Opinion 98-13 (September 30, 1998); OIG Advisory Opinion 98-14 
(October 28, 1998); and OIG Advisory Opinion 00-09 (December 8, 
2000).
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C. The Proposed Safe Harbor

    On May 22, 2000, we published a notice of proposed rulemaking to 
promulgate safe harbor regulations for ambulance restocking 
arrangements (65 FR 32060). In the notice of proposed rulemaking, we 
proposed protecting two categories of ambulance restocking 
arrangements: (1) Arrangements under which the ambulance provider pays 
a receiving facility fair market value for restocked drugs or supplies; 
and (2) arrangements under which the ambulance service provider 
receives contemporaneous restocking of drugs or medical supplies used 
during emergency transport of a patient to the receiving facility, even 
if the restocking is without charge or at reduced prices. The proposed 
rule was designed to protect restocking for emergency transports only.
    Proposed Sec. 1001.952(v)(2), the fair market value category, was 
designed to protect restocking arrangements where an ambulance provider 
pays the receiving facility fair market value, based on an arms-length 
transaction, for restocked drugs or supplies (including linens) used in 
connection with the transport of an emergency patient. Under the 
proposal, payment need not be made at the same time as the restocking, 
provided commercially reasonable and appropriate payment arrangements 
are made in advance.
    Proposed Sec. 1001.952(v)(3) was designed to protect remuneration 
in the form of restocking of drugs or medical supplies (including 
linens) used during an emergency transport of a patient to the 
receiving facility, even if the restocking is for free or reduced 
prices. Under the proposed rule, the restocking arrangements would have 
to be implemented on a community-wide basis with some involvement of an 
oversight entity. The proposed safe harbor would not protect unilateral 
referral arrangements that were not open to all hospitals and ambulance 
companies in the service area.
    Most commenters supported a new safe harbor, but many objected to 
certain aspects of the proposed rule. Some found the rule too narrow or 
burdensome, while others found the provisions of the proposed 
regulations ambiguous or impracticable. Of particular concern to many 
commenters were the proposed safe harbor conditions relating to 
monitoring by an oversight entity, written memorialization of the 
arrangement, and billing for restocked drugs and supplies. We have 
eliminated or substantially revised these conditions, as described in 
greater detail in section II. below.

II. Summary of the Final Rule

    As with the proposed rule, the goal of this final rule is safe 
harbor protection for the vast majority of ambulance restocking 
arrangements that further the important mission of insuring that pre-
hospital emergency medical services (EMS) are timely, effective and 
efficient.

A. Major Changes

    We have modified the proposed rule in a number of areas in response 
to public comments. Among the substantial changes and clarifications 
being made in the final regulations are:
     Eliminating the oversight entity condition in favor of a 
public operation and disclosure condition;
     Clarifying that no complicated written contracts or 
agreements are required and providing a short sample disclosure notice;
     Conforming the billing conditions to existing Federal 
health care program payment and coverage rules and regulations;
     Expanding the safe harbor to include restocking for non-
emergency runs so long as the ambulance is also used for emergency 
runs;
     Allowing hospitals to limit the scope of protected 
restocking to all non-profit ambulance providers or all ambulance 
providers that do not charge for their services;
     Simplifying the documentation conditions so that only one 
party to the restocking arrangement is required to document the 
restocking;
     Adding specific safe harbor protection for Government-
mandated ambulance restocking; and

[[Page 62981]]

     Including restocking of drugs or supplies initially 
administered to the patient by a first responder at the scene of the 
illness or injury.

B. Final Safe Harbor Conditions

    The final safe harbor regulations establish broad protection for 
most existing ambulance restocking arrangements, while precluding 
protection for any abusive arrangements that use targeted or selective 
restocking for the purpose of inducing or rewarding referrals. The 
final regulations address three categories of restocking: (1) General 
restocking (whether for free or for a charge), (2) fair market value 
restocking, and (3) Government-mandated restocking. Parties need only 
satisfy the conditions applicable to any one of these categories. 
Parties who are unsure whether their restocking is at fair market value 
or is mandated by a Government authority may look to the general 
restocking category.
    The final regulations provide that ``remuneration'' under the anti-
kickback statute does not include any gift or transfer of drugs or 
medical supplies (including linens) by a hospital or other receiving 
facility to an ambulance provider for the purpose of replenishing 
comparable drugs or medical supplies (including linens) used by the 
ambulance provider (or a first responder) in connection with the 
transport of a patient by ambulance to the hospital or receiving 
facility if all applicable safe harbor conditions are satisfied.
    The regulations are divided into two parts. First, there are four 
conditions, codified at Sec. 1001.952(v)(2), that apply to all three of 
the restocking categories being protected by the safe harbor. Second, 
there are specific conditions codified at Sec. 1001.952(v)(3) for each 
of the three categories being set forth (general restocking, fair 
market value restocking, and Government mandated restocking). To 
qualify for safe harbor protection, a restocking arrangement must meet 
all of the conditions in the first part and all of the conditions 
relevant to one category in the second part.
1. Conditions Applicable to All Safe Harbor Restocking Arrangements
    The four conditions applicable to all safe harbor restocking 
arrangements are:
    (a) Appropriate billing of Federal health care programs. The final 
rule conditions safe harbor protection on Federal health care program 
billing for restocked drugs and medical supplies that is consistent 
with all applicable program payment and coverage rules and regulations. 
The ambulance provider and the hospital may not both bill for the same 
restocked drug or supply. For purposes of this safe harbor, billing 
includes submitting claims for bad debt. Compliance with the 
requirement that billing be appropriate will be determined separately 
for receiving facilities and ambulance providers. For example, if a 
hospital improperly bills for restocked supplies, the ambulance 
provider who received the supplies may still be protected, so long as 
the provider has not done anything to impede the hospital's compliance 
with the billing rules.
    (b) Documentation requirements. We have simplified the 
documentation requirements. Under the final rule, either the hospital 
or the ambulance provider may generate the necessary documentation, so 
long as the other party receives and maintains a copy of it for 5 
years. This 5-year period is consistent with the recordkeeping 
requirements of the Centers for Medicare and Medicaid Services' (CMS) 
\6\ hospital conditions of participation. The pre-hospital care report 
typically prepared by the ambulance service provider (sometimes called 
the trip sheet, patient care report or patient encounter report) will 
be sufficient to satisfy this requirement if (i) the report identifies 
the drugs and supplies used on the patient and subsequently restocked 
and (ii) a copy of the report is filed with the receiving facility 
within a reasonable amount of time. For arrangements that include 
restocking of linens, an exchange of linens will be presumed to occur 
with each run, absent documentation to the contrary. The pre-hospital 
care report or other documentation may be prepared and filed with the 
other party in hard copy or electronically.
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    \6\ Until June 2001, CMS was known as the Health Care Financing 
Administration.
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    (c) No ties to referrals. In the light of the easing of the billing 
conditions, we are adding a safeguard similar to one found in other 
safe harbors that prohibits any restocking arrangement that is 
conditioned on, or otherwise takes into account, the volume or value of 
any referrals or other business generated between the parties for which 
payment may be made in whole or in part by a Federal health care 
program (other than the delivery to the receiving facility of the 
particular patient for whom the drugs and medical supplies are 
restocked).
    (d) Compliance with all other applicable laws. We have retained the 
proposed condition that the receiving facility and the ambulance 
provider must comply with all Federal, State and local laws regulating 
ambulance services, including, but not limited to, emergency services, 
and the provision of drugs and medical supplies, including, but not 
limited to, laws relating to the handling of controlled substances.
2. Safe Harbor Conditions Applicable to the Specific Categories of Safe 
Harbor Protection
    The safe harbor conditions applicable to the three specific 
categories of safe harbor protection are summarized as follows:
    (a) General restocking. This safe harbor for general restocking is 
available for free restocking arrangements, as well as arrangements 
under which the ambulance provider pays some amount for the restocked 
drugs and supplies (whether or not the amount is fair market value). 
(Any payment for drugs must comply with applicable Federal, State and 
local laws.) Two specific conditions apply to the general restocking 
category. First, the receiving facility must restock medical supplies 
or drugs on an equal basis for ambulance providers in one or more of 
three categories: (i) All ambulance providers; (ii) all non-profit and 
governmental providers; or (iii) all non-charging providers (typically 
volunteers and municipal providers). A receiving facility can offer 
restocking to more than one category, and can offer a different 
restocking program to each category that it restocks, so long as the 
restocking is uniform within each category. The final regulations make 
clear that safe harbor protection does not require each hospital and 
receiving facility in the service area to offer restocking, nor all 
ambulance providers to accept it.
    Second, the restocking must be conducted publicly. As detailed in 
the regulations text, a restocking arrangement will be considered to be 
conducted publicly if: (i) The arrangement is memorialized in a 
conspicuously posted writing that outlines the terms of the restocking 
program and copies are available publicly (a sample disclosure form is 
included in the regulations); or (ii) The restocking program operates 
in accordance with a plan or protocol of general application 
promulgated by an EMS council or comparable organization. For purposes 
of safe harbor compliance, the writing need not disclose confidential 
proprietary or financial information.
    (b) Fair market value restocking. This category protects restocking 
arrangements where an ambulance provider pays the receiving facility 
fair

[[Page 62982]]

market value, based on an arms-length transaction, for restocked 
medical supplies (including linens). For consistency with the 
Prescription Drug Marketing Act,\7\ and some State laws, the final 
regulations do not include the resale of drugs in this category. 
(Restocking of drugs may be covered under other safe harbor 
categories.) This safe harbor category has two conditions: (i) The 
restocking must be at fair market value, and (ii) payment arrangements 
must be commercially reasonable and made in advance. For reasons 
discussed in greater detail in the responses to comments in section 
III. of this preamble, we are not including any special accommodation 
related to the Non-Profit Institutions Act, 15 U.S.C. 13(c), exception 
to the Robinson-Patman Act.\8\
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    \7\ Public Law 100-293, April 22, 1998, 102 Stat. 95.
    \8\ 15 U.S.C. 13(a)-(f).
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    (c) Government-mandated restocking. This final safe harbor protects 
restocking of drugs and supplies undertaken in accordance with a State 
or local statute, ordinance, regulations or binding protocol that 
requires hospitals or receiving facilities in the area subject to such 
requirement to restock ambulances that deliver patients to the hospital 
with drugs or medical supplies that are used during the transport of 
that patient.

C. Safe Harbor Compliance Is Voluntary

    As with all safe harbors, compliance with these new safe harbors is 
voluntary. While the vast majority of ambulance restocking arrangements 
should fit in this new safe harbor, failure to fit does not mean that 
an arrangement is illegal under the anti-kickback statute. Rather, it 
simply means that the legality of the arrangement must be evaluated on 
a case-by-case basis. If no purpose of the arrangement is to induce or 
reward the generation of Federal health care program business, there 
would be no violation of the statute. The obligation of parties to 
comply with the anti-kickback statute pre-dates this safe harbor 
rulemaking, and arrangements that were lawful before the rulemaking 
will continue to be lawful, whether or not they meet the safe harbor 
requirements. The safe harbor does not require the restructuring of any 
arrangements, although parties may choose to restructure to take 
advantage of the safe harbor protection. Parties who are unsure whether 
their existing or proposed arrangements fit in a safe harbor or would 
be subject to OIG sanctions may apply for an advisory opinion under 
section 1128D of the Act. The procedures for applying for an advisory 
opinion are set forth at 42 CFR part 1008 and on the OIG Web site at 
http://www.dhhs.gov/progorg/oig/advopn/index.htm.

III. Public Comments and Responses

    In response to our proposed rulemaking, the OIG received a total of 
46 timely-filed comments from a cross-section of ambulance providers, 
hospitals, local and regional emergency medical boards, professional 
associations and other interested parties. Set forth below is a summary 
of the issues raised by the commenters and our responses to those 
specific concerns.

A. General Comments

    The vast majority of the public comments supported promulgation of 
a safe harbor for ambulance restocking, although many commenters took 
issue with one or more specific aspects of the proposal.
    Comment: Several commenters believed that the OIG advisory opinions 
on ambulance restocking under the anti-kickback statute, especially the 
first one issued in 1997, have had a chilling effect on ambulance 
restocking arrangements.
    Response: While this comment reflects a common perception in the 
industry, we have learned that a major source of the reluctance of many 
hospitals to enter into, or continue, restocking programs is financial. 
In other words, their willingness to participate in restocking 
arrangements is directly related to their ability to be reimbursed by 
Medicare or other insurers for costly supplies and drugs provided 
without charge to local ambulance services. Many of these drugs and 
supplies are increasingly becoming the standard of care for pre-
hospital services. In many cases, financially strapped hospitals are 
unwilling to continue to subsidize the emergency medical system in the 
absence of definitive assurance that they will be adequately reimbursed 
for drugs and supplies used during ambulance transports. Some hospitals 
have used the unfavorable 1997 advisory opinion as a pretext for 
justifying decisions to terminate, or decline to participate in, 
restocking arrangements in order to blunt negative publicity and 
adverse local community reaction.
    Comment: A number of commenters misread the proposed regulations as 
an effort by the OIG to dictate Medicare payment policy.
    Response: The OIG does not set Medicare payment and coverage 
policy. As stated in the proposed rule, we express no view in these 
regulations as to the appropriate Federal health care program payment 
or coverage policy for drugs and supplies used during ambulance 
transports. Those determinations are properly made by the relevant 
Federal program. In crafting safeguards to include in safe harbor 
regulations, we considered the ways in which a particular payment 
policy or practice may affect the risk of patient or program abuse.
    Comment: An ambulance provider with a limited budget, and in an 
area with a low call volume, explained that it could not maintain an 
Advanced Life Support level of service, because it was unable to 
restock drugs from a local hospital. According to the commenter, their 
costs of purchasing expensive drugs in small quantities makes such 
drugs prohibitively expensive. In addition, the commenter observed that 
many small providers do not have the facilities to maintain proper 
environmental conditions for larger supplies of these types of drugs.
    Response: Nothing in these regulations prohibits hospitals from 
restocking ambulances with drugs or prohibits ambulance providers from 
taking advantage of (i) volume discounts obtained by hospitals (to the 
extent otherwise permitted under Federal, State and local law) or (ii) 
any hospital facility for storing such drugs.
    Comment: Several commenters indicated that in some parts of the 
country, local and State governments have imposed mandatory 
requirements relating to the restocking of ambulances that deliver 
patients to hospitals. These commenters requested an additional 
category of safe harbor protection to address arrangements controlled 
by State or local government requirements.
    Response: Nothing in the safe harbor regulations precludes State 
and local governments from regulating ambulance restocking. If the 
State or local law or regulation is duly promulgated, and the 
restocking arrangement is conducted in accordance with its mandate, the 
OIG sees little risk under the anti-kickback statute, which requires a 
showing of unlawful intent. Accordingly, we are including an additional 
safe harbor category for Government-mandated restocking, and have 
adapted language suggested by a major trade association. We note that 
nothing in State or local government laws or regulations mandating 
ambulance restocking affects the reimbursement rules under Medicare or 
other Federal health care programs.
    Comment: Some commenters questioned whether ambulance

[[Page 62983]]

restocking arrangements raise kickback concerns at all. Specifically, 
with respect to patient steering risks, one commenter explained that 
conscious patients select their own destination, and unconscious or 
unstable patients are taken to the nearest facility. Other commenters 
expressed the view that instances of fraud in ambulance restocking 
arrangements would be isolated.
    Response: We agree that fraud and abuse are likely to be uncommon 
in bona fide ambulance restocking arrangements. Nonetheless, in 
crafting safe harbors, we must be mindful not only of the benefits of 
the practices we seek to protect, but also the potential abuses. With 
ambulance restocking, the risks are low but not absent.
    Comment: Several commenters requested clarification of the term 
``emergency patient'' as used in the proposed safe harbor. These 
commenters inquired whether this term referred to the patient's actual 
condition or to the manner by which the ambulance is summoned. One 
commenter suggested that an emergency patient be defined as a patient 
delivered to a bona fide emergency department for medical or traumatic 
care.
    Response: Because we are expanding the safe harbor to cover non-
emergency transports, we do not believe any regulatory definition of 
the term ``emergency patient `` is required. However, we are adding a 
definition of ``emergency ambulance service'' for purposes of 
identifying those ambulances and ambulance providers that provide 
emergency transports and are thus eligible for safe harbor-protected 
restocking. For purposes of these final regulations, we are defining an 
``emergency ambulance service'' as one that results from a call through 
9-1-1 or other emergency access number or a call from another acute 
care facility unable to provide the higher level care required by the 
patient and available at the receiving facility.
    Comment: Paragraph (v)(1) of the proposed regulations indicated 
that remuneration ``* * * does not include any gift or transfer of 
drugs or medical supplies (including linens) * * *'' A commenter found 
the use of the word ``gift'' in this phrase confusing, since the safe 
harbor protects what is essentially an equal or equivalent exchange 
(i.e., what was used is restocked) and not the gifting of additional 
goods.
    Response: The commenter is correct that the safe harbor is not 
designed to protect remuneration in the form of additional goods or 
services beyond the restocking of drugs or medical supplies (including 
linens) used on particular patients transported to the receiving 
facility. It does, however, protect restocking in the form of a gift, 
i.e., restocking bestowed voluntarily and without compensation.
    Comment: A large self-insured manufacturing company that maintains 
its own private ambulance service to transport ill or injured employees 
to its preferred provider hospitals expressed concern about the impact 
of the proposed rule on its restocking arrangement. According to the 
commenter, the company negotiates preferred provider plans with 
hospitals in accordance with which the hospitals restock the ambulances 
at the hospitals' expense. No employees transported by the company's 
ambulance service are covered by Medicare or Medicaid, but the company 
is concerned that the safe harbor would affect restocking practices at 
the hospital.
    Response: Because the company's ambulance service transports only 
private pay patients, nothing in this rule will directly affect the 
commenter's restocking arrangements. Short of making clear in this 
preamble discussion that the arrangement described in the comment need 
not be modified to comply with these rules, we know of no way of 
preventing the collateral impact anticipated by the company in 
particular cases.

B. General Restocking

1. Non-Emergency Transports
    Comment: A number of commenters urged the OIG to expand the 
proposed safe harbor to cover the restocking of drugs and medical 
supplies for non-emergency transports. Given that ambulances that 
provide non-emergency transports are frequently on call for 
emergencies, commenters noted that it would be contrary to the public 
health and safety goals of restocking to bar restocking of an ambulance 
that arrives at a hospital with a non-emergency patient. One commenter 
recommended that we expand the safe harbor to apply to all patients 
brought to the hospital or, in the alternative, to all patients brought 
to the emergency room.
    Response: In general, the scope of replenishing needed after a non-
emergency transport is likely to be minimal, since relatively few drugs 
or supplies are typically administered to non-emergency patients during 
a transport. Nevertheless, to further the goal of protecting restocking 
arrangements that ensure that ambulances are stocked and ready to 
respond to emergencies at all times, we are expanding the safe harbor 
to cover the restocking of drugs and supplies used on both emergency 
and non-emergency transports, provided that the ambulance that is 
restocked is used with some degree of regularity to respond to 
emergency calls (i.e., calls from 9-1-1 or another emergency access 
number). We do not intend to protect restocking of ambulances that are 
not used with some degree of regularity for emergencies. The fact that 
such restocking is outside the scope of this rulemaking does not mean 
that such restocking is illegal. Whether arrangements for restocking of 
non-emergency ambulances violate the anti-kickback statute must be 
determined on a case-by-case basis. Parties to such arrangements may 
request an OIG advisory opinion.
    In order to create a bright line rule that is simple to apply, this 
expansion requires a measure for determining when an ambulance is used 
for emergency calls with sufficient regularity to qualify for 
replenishing under the safe harbor. The new regulations provide that an 
ambulance will satisfy this standard if the ambulance is used to 
respond to emergencies an average of three times per week measured over 
any reasonable time period. This test does not mean that the ambulance 
must actually make three emergency runs every week. Rather, over a 
reasonable period of time, the ambulance must be used an average of 
three times per week. Thus, for example, if an ambulance is used 12 
times during a month, the test will be met. Similarly, the test will be 
met if the ambulance is used for emergency runs 156 times in a year, 
even if there are some weeks in which the ambulance receives no 
emergency calls. In essence, the three runs test is designed to 
differentiate between ambulances that are reasonably likely to be 
called out for an emergency transport, and thus have a compelling need 
to be restocked by a receiving facility after a non-emergency run, and 
those that are not.
    Restocking arrangements for ambulances or ambulance providers that 
only provide routine, non-emergency services, or that do not meet the 
three runs test described above, must be evaluated under the anti-
kickback statute on a case-by-case basis. Finally, nothing in these 
regulations will require restocking of non-emergency transports or the 
expansion of existing restocking programs to cover non-emergency 
transports.
2. Uniform Restocking
    Comment: The proposed rule conditioned safe harbor protection on a 
receiving hospital's provision of restocked drugs and supplies on an

[[Page 62984]]

equal basis to all ambulance providers that deliver patients to the 
hospital. This condition was intended to insure that the safe harbor 
did not protect selective or targeted arrangements that are not bona 
fide restocking for the purpose of enhancing the delivery of EMS. 
Commenters argued that the safe harbor should protect receiving 
facilities that opt to restock only certain categories of ambulance 
providers. For example, some wanted to restock only volunteer ambulance 
providers or only ambulance providers that do not charge patients or 
insurers. Tax-exempt hospitals commented that requiring them to restock 
for-profit ambulance providers could jeopardize their tax-exempt 
status. Other commenters wanted to offer different restocking programs 
to different types of ambulance providers, such as offering full 
restocking to non-charging volunteer companies and more limited 
restocking to companies that charge for services.
    Response: Having reviewed the comments, we have concluded that an 
appropriate safe harbor can be structured that would afford hospitals 
greater flexibility in crafting restocking programs, while preserving 
the principle that protected restocking programs should not be 
unilateral arrangements for the benefit of selected providers. (Of 
course, unilateral arrangements in remote service areas where there is 
only one receiving facility or one ambulance service provider are 
protected if they meet all the safe harbor conditions.) The final 
regulations protect restocking of: (i) All ambulance providers; (ii) 
all non-profit and governmental ambulance providers; or (iii) all 
ambulance providers that do not charge patients or insurers (typically 
volunteers and municipal providers). A hospital can offer restocking to 
more than one category and can offer a different restocking program to 
each category that it restocks, so long as the restocking is uniform 
within each category (i.e., non-charging providers may be offered a 
larger scope of restocked items than charging providers). Limiting the 
scope of free restocking to providers within these categories 
represents a reasonable distinction that will ensure that arrangements 
qualifying for safe harbor protection will not be related to the volume 
or value of referrals or other business generated for the hospitals. 
This modification accommodates hospitals' legitimate interests in 
containing the cost of their restocking programs. (The issue of the 
effect, if any, of a restocking arrangement on a hospital's tax exempt 
status would be a matter for the Internal Revenue Service.)
    Comment: A commenter expressed concern that the ``all ambulances'' 
condition in the proposed rule would not permit facilities to restock 
only small, low volume volunteer companies without charge or at below 
cost. The commenter explained that, in their region, hospitals could 
not afford to restock large, high volume commercial ambulance companies 
for free.
    Response: We have revised the safe harbor to permit hospitals to 
restock volunteer companies only. To qualify for safe harbor 
protection, the hospital must restock all volunteer companies 
uniformly. The safe harbor does not protect differential restocking 
based on the volume of transports, although offering free or discounted 
restocking only to low volume companies would not necessarily violate 
the anti-kickback statute.
    Comment: Several commenters requested clarification as to whether 
all ambulance providers and receiving facilities in a service area 
would be required to participate in a restocking arrangement in order 
for the arrangement to qualify for safe harbor protection.
    Response: All ambulance providers in a service area are not 
required to participate in order for an arrangement to fit in the safe 
harbor. Under the proposed rule, we did not intend to require all 
ambulance providers and receiving facilities in a service area actually 
to participate in a restocking arrangement in order for the arrangement 
to qualify for safe harbor protection. We did intend to require that a 
protected restocking arrangement be open to the voluntary participation 
of all ambulance providers and receiving facilities in a service area. 
The final regulations--including the new public operation and 
disclosure condition--generally reflect this intent. We have made 
exceptions for arrangements that limit the scope of restocking to the 
particular subcategories of ambulance providers described in the 
preceding response or that limit the scope to emergency transports. 
These limitations are a reasonable means of constraining the costs of 
restocking and are not related to the actual or potential volume or 
value of referrals or other business generated between the parties that 
is payable by a Federal health care program.
3. Billing
    Comment: Some commenters objected to the proposed billing 
conditions. While designed to limit safe harbor protection to those 
arrangements that posed no risk of double payments or ``double 
dipping,'' the conditions were misconstrued by many commenters as 
prohibiting legitimate billing practices under Medicare payment rules, 
or as barring all billing by both the hospitals and the ambulance 
providers for the restocked drugs and supplies. Some commenters 
wondered why a safe harbor under the anti-kickback statute would need 
to take into account the question of billing at all. Commenters 
recommended that the conditions on billing in the proposed safe harbor 
be removed or altered to provide only that any billing for restocked 
items must be consistent with applicable Federal reimbursement 
provisions.
    A commenter explained that ambulance providers in its State are not 
allowed to purchase or bill for drugs. The drugs used in the field are 
purchased and owned by the hospitals and restocked locally through a 
system of State-approved protocols. The commenter believed the 
following language would better accomplish the safe harbor objectives, 
while still allowing one party to bill for drugs: ``Under no 
circumstances may the ambulance provider and the receiving facility 
both bill for the actual drug or supply. Restocked drugs or supplies 
may only be billed to any Federal health care program by either the 
ambulance provider or the receiving facility.'' Several other 
commenters suggested similar language.
    Response: We agree with the commenters that a safe harbor 
regulation is not a tool for setting program payment and coverage 
policy and doing so was not our intent. The billing conditions we 
proposed were designed to ensure that the safe harbor would not protect 
arrangements that could result in Medicare paying twice for the same 
drugs and supplies (i.e., situations in which both the ambulance 
company and the hospital bill for the same drug or supply), or in the 
ambulance services provider receiving a double benefit by billing 
Medicare for drugs and supplies for which it obtained free replacements 
(double-dipping). In both circumstances, ambulance restocking 
arrangements have the potential to increase costs to Medicare and other 
Federal health care programs. In the interest of simplification, we are 
adopting the commenters' suggestion and modifying the billing 
conditions to require that any billing of the Federal health care 
programs comport with applicable payment and coverage rules and 
regulations. Under applicable Medicare rules, a particular drug or 
supply administered to a patient in a pre-hospital setting will be 
covered

[[Page 62985]]

under either the ambulance or the outpatient hospital benefit, 
depending on the circumstances (e.g., whether the ambulance transport 
is provided ``under arrangements'' with the hospital); thus, the 
ambulance provider and the hospital may not both bill for the same drug 
or supply.\9\
---------------------------------------------------------------------------

    \9\ Nothing in this preamble or these safe harbor regulations 
should be construed as approving or establishing any particular 
billing or payment practice. Questions regarding Medicare billing 
should be addressed to CMS or the appropriate fiscal intermediary or 
carrier. Questions regarding Medicaid billing should be addressed to 
the State Medicaid agency. Questions regarding billing in other 
Federal health care programs should be addressed to the relevant 
agency.
---------------------------------------------------------------------------

    Comment: Commenters raised a number of issues related to 
reimbursement for restocked drugs or supplies in particular 
circumstances. For example, a commenter explained that several 
volunteer rescue squads in its region do not bill any Federal health 
care programs. The commenter believes the proposed rule, as written, 
did not consider how a hospital would be reimbursed for drugs and 
supplies used by a volunteer service when an emergency patient is not 
admitted to the hospital. Some commenters questioned how ambulance 
providers would be reimbursed for new lifesaving drugs that could not 
have been included in the base rate payable to ambulance providers 
because the drugs did not exist, or were not used in a pre-hospital 
setting, when the base rates were set. Several commenters asked that we 
create a separate safe harbor to cover restocking arrangements that 
deal with specific drugs or devices that are administered at the order 
of a physician at the receiving hospital or centralized medical 
control. A commenter observed that unless private ambulance companies 
recover costs for expensive new medications, they will likely cease 
providing emergency services, thus shifting the entire responsibility 
onto the local governments to provide emergency medical care.
    Response: The question of reimbursement in the circumstances 
described by the commenters is outside the scope of the OIG's 
regulatory authority and should be directed to CMS or the relevant 
fiscal intermediary or carrier. We included a condition in the proposed 
safe harbor that would have denied safe harbor protection for 
arrangements under which ambulance providers billed separately (i.e., 
in addition to the base rate payment) for restocked drugs and supplies. 
The condition would not have barred the restocking of any particular 
drugs or supplies. However, we have removed the former billing 
condition and replaced it in the final regulations with one that 
requires appropriate billing of the Federal health care programs, as 
determined by CMS or other relevant payment agency. Restocking of 
lifesaving drugs will be protected so long as the safe harbor 
conditions are met. None of the safe harbor conditions strikes us as 
imposing any particular burden on restocking of lifesaving drugs. Given 
this, we see no need for the additional safe harbor suggested by the 
commenters.
    Comment: Several commenters observed that hospitals are unwilling 
to absorb the cost of emergency medications and supplies provided for 
free or below fair market values.
    Response: Nothing in these regulations requires hospitals to 
provide ambulances with free or below cost medications or supplies for 
emergency services. Our interest in developing the safe harbor 
provisions is in insuring that the anti-kickback statute does not chill 
bona fide hospital restocking arrangements by hospitals that wish to 
provide them. To the extent that reimbursement policies may adversely 
impact the delivery of EMS, those concerns should be addressed to CMS.
    Comment: A commenter asked about the intended impact of these safe 
harbor regulations on current and future arrangements involving 
hospitals that have negotiated prospective payment arrangements that 
may incorporate medication charges or EMS providers that have 
negotiated fee structures that bundle such charges in one overall set 
of base-rate and mileage charges. The commenter pointed out that CMS's 
negotiated rulemaking process for EMS rate setting may alter these 
arrangements as new rates, including bundled charges, are phased in.
    Response: These rules should have no impact on the arrangements 
described by the commenter. Nothing in these rules alters or changes 
any billing practice or arrangement.
4. Documentation
    Comment: Several commenters raised concerns about the documentation 
requirement in the proposed safe harbor. Commenters believed that 
requiring both the hospital and the ambulance provider to document the 
restocking was unnecessary and duplicative. The commenters generally 
suggested that existing patient care reports (sometimes known as trip 
sheets or patient encounter reports) already maintained for other 
purposes, such as ensuring continuity of care and billing, should be 
sufficient. Commenters explained that in a busy emergency room, it 
would be difficult to maintain multiple logs for multiple ambulance 
providers for both supplies and medications. Several commenters noted 
that maintaining a record of every restocked item in a large urban EMS 
system with a large volume of patients would create large amounts of 
paperwork, consume limited resources, and slow down the response time 
of ambulances. Alternatively, some commenters suggested that parties 
could agree that either the hospital or the ambulance provider, but not 
both, should bear the responsibility for record keeping.
    Response: We have modified the documentation requirement to permit 
either party to maintain records of the restocked drugs and medical 
supplies, so long as the other party receives and maintains a copy of 
the records. (In the alternative, both the hospital and the ambulance 
provider can maintain separate records of the restocking, in which case 
they need not file copies of their respective documentation with the 
other party.) Patient care reports, trip sheets, patient encounter 
reports, and the like (collectively being referred to as pre-hospital 
care reports in the final regulations) are sufficient to meet this 
requirement if they document the restocked drugs and medical supplies 
and are filed with the receiving facility within a reasonable time, in 
hard copy or electronically. It is our understanding that the 
preparation of a pre-hospital care report is the standard of care for 
transferring a patient to a receiving facility and is required by law 
in many States. However, parties may decide individually or between 
themselves to document the restocking using other kinds of paper or 
electronic records. In the case of first responder restocking, we are 
requiring that the restocked drugs and medical supplies be documented 
in the pre-hospital care report prepared by the transporting ambulance 
provider or in records maintained by the hospital and shared with the 
transporting provider.
    Comment: One commenter favored the proposed documentation 
requirement in most situations, but suggested that this requirement 
might be rethought for linen exchanges and other routinely used items. 
In the commenter's view, the requirement that hospitals and ambulance 
providers keep records pertaining to routine items, like linens, is 
unduly burdensome. The commenter argued that there is little risk to 
the programs from a one-for-one exchange of soiled linen for clean 
linen, and that these exchanges are so prevalent throughout the 
industry that record keeping would be required on

[[Page 62986]]

virtually every transport for many ambulance providers.
    Response: We agree that providers need not document the exchange of 
linens. If they are part of a restocking arrangement, linens will be 
presumed to have been exchanged on a one-for-one basis. The commenter 
did not identify, and it would not be feasible to enumerate in these 
regulations, other supplies that may be so routinely used as to warrant 
a comparable presumption. We think parties will be able to devise 
simple means of documenting such routine restocking.
    Comment: One commenter requested guidance on the length of time 
providers need to maintain records of restocked drugs and supplies.
    Response: As indicated above, we have simplified the documentation 
requirements. Under the final regulations, either the hospital or the 
ambulance provider may generate the necessary documentation, so long as 
the other party receives and maintains a copy of it for 5 years, a 
period consistent with the CMS's hospital conditions of participation 
recordkeeping requirements.
5. Writing Requirement
    Comment: Some commenters objected to the proposed condition 
requiring the restocking arrangement to be memorialized in writing. The 
proposed rule required that the ambulance restocking arrangement be 
memorialized in writing, either (i) in a plan or protocol of general 
application or (ii) in a written contract between the parties. Some 
commenters misread this condition as requiring providers to enter into 
written contracts or agreements. In addition, we have heard, 
anecdotally, that some industry consultants and counselors have been 
advising ambulance providers and hospitals that the proposed rule 
required the creation of lengthy and detailed contracts.
    Response: As is typical of most safe harbor regulations, the 
proposed rule required that the protected ambulance restocking 
arrangement be memorialized in writing. Under the proposal, the writing 
could be either a plan or protocol of general application or a written 
contract or agreement between the parties. Under the final rule, no 
particular form of writing is mandated. Indeed, the writing can take 
the form of a simple disclosure statement. A sample disclosure 
statement is being included as an appendix to part 1001, subpart C of 
the regulations. This sample is intended for guidance purposes only. 
Parties are free to use other formats or to substitute written 
contracts or protocols. No public disclosure of confidential 
proprietary or financial information is required.
    We believe that virtually all existing restocking arrangements are 
already being conducted in accordance with some form of written 
description of the arrangement. So long as the written description is 
conspicuously posted and publicly available and describes (i) The 
category, or categories, of ambulance provider that qualifies for 
restocking; (ii) the drugs or medical supplies included in the 
restocking program for each category; and (iii) the procedures for 
documenting the restocking, no new paperwork is required to qualify for 
safe harbor protection.
6. Publicly-Conducted restocking
    Comment: Many commenters objected to the ``oversight entity'' 
condition included in the proposed rule. Among other things, commenters 
argued that mandating a regional oversight body would unduly burden 
local communities by requiring the creation of a significant 
infrastructure and layers of bureaucracy. Some commenters expressed 
concern that the proposed rule was unclear as to the scope of the 
oversight entities' responsibilities and that such a requirement could 
lead to logistical problems for entities that would have to develop, 
review and monitor contracts for all regional providers. In some 
places, this would entail oversight of more than 80 receiving 
facilities. A hospital association expressed concern that the term 
``oversight'' could imply a regulatory, rather than strictly an 
oversight, role. Some commenters thought the proposed rule tasked 
oversight entities with responsibility for monitoring contractual 
arrangements over which they might have little control. Some commenters 
noted that coordinated EMS councils do not exist in all parts of the 
country, and, where they do operate, it would often not be realistic to 
expect them to oversee the restocking programs of many different 
hospitals and ambulance providers. Other commenters found the language 
regarding the composition of the oversight entity confusing and 
questioned whether particular parties, such as labor unions, could be 
participants in the oversight entities.
    Response: We originally proposed protecting ambulance restocking 
arrangements that were part of a comprehensive and coordinated EMS 
delivery system to ensure that the safe harbor would protect bona fide 
restocking arrangements and not selective arrangements used to attract 
or reward referrals. To effectuate this requirement, we proposed that 
restocking arrangements be implemented with the participation of, and 
monitored by, a regional EMS council or comparable entity.
    While we had intended the oversight entity condition to be broad 
and flexible in accordance with local conditions, encompassing a broad 
array of entities of various composition that were representative of 
their service areas, the comments made clear that many in the industry 
found the requirement burdensome. Accordingly, we have eliminated the 
oversight entity condition, and in its place we have substituted three 
flexible safe harbor conditions that we believe will provide 
sufficiently comparable protection from a safe harbor perspective. 
These include conditions that: (i) Require a publicly conducted 
restocking arrangement, (ii) require uniformity in the restocking 
arrangement, and (iii) prohibit restocking that takes into account the 
volume or value of referrals (other than the referral of the particular 
patient to whom the restocked drugs and medical supplies were 
furnished). These new requirements should effectively exclude 
improperly selective or preferential arrangements from safe harbor 
protection, while protecting those arrangements that are truly intended 
to promote the safe, efficient and effective delivery of pre-hospital 
EMS.
    Comment: One commenter noted that requiring restocking arrangements 
to be part of a comprehensive regional EMS delivery plan was an 
important way to guarantee compliance on the part of providers.
    Response: Participation in a comprehensive regional EMS delivery 
system is an effective means of ensuring that ambulance restocking 
arrangements further the public interest in timely, effective and 
efficient EMS and are not improperly targeted at high referrers. Under 
the final rule, restocking arrangements that are conducted in 
accordance with a protocol or plan established by an EMS council or 
comparable body will satisfy the public operation and disclosure 
requirements of the safe harbor and will likely satisfy the other safe 
harbor requirements as well.
    Comment: One commenter suggested that, as an alternative to the 
oversight entity condition, the OIG require hospitals (i) to have 
written policies, approved by the governing board, stating that their 
restocking program is open to all emergency ambulance providers; and 
(ii) to develop an internal system to confirm and verify this 
arrangement.
    Response: We have essentially adopted this commenter's views in the

[[Page 62987]]

final rule, although hospitals may limit the scope of their restocking 
programs to certain subcategories of ambulance providers. We are not 
requiring governing board approval or the development of internal 
compliance systems as part of this safe harbor regulation, but note 
that such practices may be prudent as part of the hospital's overall 
anti-fraud and abuse compliance program and necessary to ensure proper 
billing of the Federal health care programs.
    Comment: One commenter urged that the proposed safe harbor 
conditions, especially the oversight entity condition, be eased for 
restocking arrangements in rural or isolated areas since ambulance 
providers in these areas have, in effect, no choice of where to deliver 
a patient.
    Response: We believe the final rule, as modified, accommodates the 
special circumstances of rural and isolated areas. As stated above, we 
are no longer requiring establishment of an oversight entity. We 
believe the remaining safe harbor conditions are reasonable and impose 
few, if any, additional burdens on providers.
7. First responders
    Comment: A commenter requested safe harbor protection for 
restocking for first responders. The commenter described the following 
situation:

    A search and rescue company delivers a patient to an ambulance 
that transports the patient to the hospital. The search and rescue 
company is restocked for supplies used on the patient by the 
ambulance transport provider, which, in turn, is restocked by the 
hospital. The hospital charges the patient for the restocked 
supplies.

    Response: The final regulations protect hospital restocking of 
first responders as described by the commenter, provided the safe 
harbor conditions are satisfied. Specifically, the safe harbor 
accommodates those arrangements in which a 9-1-1 (or comparable 
emergency access number) first responder--including, but not limited 
to, a fire department, paramedic service or search and rescue squad--
administers drugs or supplies to the patient, but does not transport 
the patient to the receiving facility. In these circumstances, the 
transporting ambulance provider may restock the first responder and 
then, in turn, be restocked by the hospital. Any billing by the 
hospital, the ambulance provider, or the first responder would be 
subject to the applicable Federal health care program payment and 
coverage rules and regulations. This safe harbor only addresses 
restocking by hospitals. Restocking of first responders by ambulance 
transport providers (independent of any hospital restocking) was 
outside the scope of the proposed rulemaking and is not addressed in 
these final regulations. Such arrangements must be analyzed on a case-
by-case basis for compliance with the anti-kickback statute. Parties 
may seek an OIG advisory opinion about such arrangements.\10\
---------------------------------------------------------------------------

    \10\ The procedures for applying for an advisory opinion are set 
forth at 42 CFR part 1008 and on the OIG Web site at http://www.dhhs.gov/progorg/oig/advopn/index.htm.
---------------------------------------------------------------------------

C. Fair Market Value Restocking

    Comment: Several commenters raised concerns about the fair market 
value safe harbor's application to the transfer of drugs. As these 
commenters explained, many hospitals participating in EMS systems 
historically have ``owned'' the medication and supplies used by the 
ambulances on emergency transports without passing title to the 
ambulance provider. In many cases, the drugs are controlled substances 
under State laws and cannot be the property of a fire department or 
ambulance company. The commenters asserted that if title does not pass 
to the ambulance provider, then the hospital does not provide anything 
of value when it replaces the drugs on the ambulance. In addition, 
several commenters questioned how prescription drugs could be sold to 
ambulance providers by hospitals. One commenter stated that the 
Prescription Drug Marketing Act of 1987 (21 U.S.C. 353(c)) specifically 
forbids hospitals from re-selling prescription drugs, except under 
narrow circumstances.
    Response: We agree that the fair market value safe harbor category 
should be restricted to the resale of supplies and non-prescription 
drugs (which are included as ``supplies'' under Medicare's ambulance 
payment system). Nothing in these regulations should be construed as 
permitting any action in contravention of applicable Federal, State, or 
local laws governing the purchase and administration of controlled 
substances and prescription medications. Whether the transfer of drugs 
that cannot be owned by an ambulance provider, and that remain the 
property of the hospital when placed on an ambulance in accordance with 
State or local law, is remuneration to the ambulance provider that 
administers the drugs in the field turns, in the first instance, on 
whether the drugs are covered under Medicare's ambulance benefit or 
under the outpatient hospital benefit in the particular circumstances. 
As noted above, questions regarding appropriate coverage and payment 
under Medicare should be directed to CMS.
    Comment: A commenter expressed concern that the fair market value 
safe harbor would make it impossible for a hospital to provide the 
goods on a pro bono basis to a small volunteer ambulance service. The 
commenter believed the proposed safe harbor required facilities either 
to charge volunteer companies the same rates they charge commercial or 
municipal services or to charge no one.
    Response: The commenter misread the proposed safe harbor. Nothing 
in these regulations precludes bona fide charitable contributions by 
hospitals to volunteer ambulance services. The fair market value safe 
harbor at Sec. 1001.952(v)(3)(ii) does not require that a receiving 
facility charge all ambulance providers the same prices. Rather, the 
safe harbor protects those arrangements that are at fair market value. 
Arrangements that are not at fair market value, such as free or deeply 
discounted restocking to volunteer companies or others, may be 
protected instead under the general restocking safe harbor at 
Sec. 1001.952(v)(3)(i).
    Comment: One commenter was concerned that market power disparity 
among receiving facilities could affect the fair market value prices 
ambulance companies pay, in turn creating an incentive for ambulance 
providers to take patients to larger hospital systems in a position to 
negotiate volume discounts for their drugs and supplies and pass those 
discounts on to ambulance companies. The commenter suggested that the 
OIG add provisions to guard against this risk.
    Response: In applying the fair market value condition, fair market 
value should be measured in terms of prices the ambulance provider 
would pay for like supplies if it purchased them in an arms-length 
transaction from a seller (other than a receiving facility) for whom 
the ambulance provider is not a potential referral source. In many 
situations, fair market value will be a range of prices, not a single 
price. (Restocking at prices that are below fair market value is not 
protected by this safe harbor category, although the restocking may be 
protected by one of the other restocking safe harbor categories.) We 
recognize that there may be a potential inducement when the fair market 
value charged is at the low end of the range of fair market value 
prices. However, nothing in the anti-kickback statute prohibits 
legitimate price competition.
    Comment: Some commenters questioned the reference in the

[[Page 62988]]

proposed fair market value safe harbor to the Non-Profit Institutions 
Act (NPIA), 15 U.S.C. 13(c). The proposed safe harbor would have 
protected certain sales of supplies at cost by non-profit hospitals to 
non-profit ambulance providers if the sales were designed to take 
advantage of the NPIA exception to the Robinson-Patman Act.\11\ One 
commenter indicated that the proposed language did not appear to 
address the situation of a non-profit hospital reselling supplies to a 
``for profit'' ambulance provider. Another commenter asserted that 
absent definitive guidance from the Federal Trade Commission (FTC) that 
reselling supplies to an ambulance provider would fit within 15 U.S.C. 
13(c), hospitals would be wary about complying with the safe harbor 
condition.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 13(a)-(f).
---------------------------------------------------------------------------

    Response: We have reconsidered the need for the language 
referencing the NPIA in the fair market value safe harbor. Given the 
substantial easing of the conditions applicable to the general 
restocking safe harbor category, we believe that the final regulations 
provide adequate and easily achievable protection for all legitimate 
restocking, whether at fair market value prices, below fair market 
value prices or without charge. To the extent it may be unclear whether 
a particular resale of supplies is at fair market value, we do not 
believe it will pose any undue burden on non-profit hospitals to seek 
shelter under the general restocking safe harbor category, which offers 
protection to restocking without regard to what price, if any, the 
hospital charges for the restocked drugs or supplies. The question 
whether particular restocking arrangements undertaken by non-profit 
hospitals run afoul of the Robinson-Patman Act or qualify for the NPIA 
exception is an FTC concern outside the scope of our regulatory 
authority.

IV. Meeting the Criteria for Establishing New Safe Harbors

    Section 205 of the Health Insurance Portability and Accountability 
Act, Public Law 104-191, established certain criteria that the 
Secretary may consider when modifying or establishing safe harbors to 
the anti-kickback statute. We have considered the criteria establishing 
in our notice of intent to develop regulations (61 FR 69061; December 
31, 1996) in developing this final rule, and we believe, for the 
reasons described above, that these final safe harbor regulations for 
certain ambulance restocking arrangements is likely to: (1) Increase, 
or have no effect on, access for needy patients to health care 
services; (2) increase the quality of health care services for needy 
patients; (3) have little, or no effect on, the cost of Federal health 
care programs; (4) have little, or no effect on, competition; and (5) 
increase, or have no effect on, the quantity of services provided in 
underserved areas. We further believe that this safe harbor contains 
safeguards that limit the potential for overutilization and assure that 
patients retain their freedom of choice of service providers.

V. Regulatory Impact Statement

    We have examined the impacts of this rule as required by Executive 
Order 12866, the Unfunded Mandates Act of 1995, and the Regulatory 
Flexibility Act (RFA) (Public Law 96-354). Executive Order 12866 
directs agencies to assess all costs and benefits of available 
regulatory alternatives and, when regulation is necessary, to select 
regulatory approaches that maximize net benefits (including potential 
economic, environmental, public health and safety effects, distributive 
impacts and equity). A regulatory impact analysis (RIA) must be 
prepared for major rules with economically significant effects ($100 
million or more in any given year). Since this regulation will not have 
a significant effect on program expenditures and as there is no 
additional substantive costs to implement the resulting provision, we 
do not consider this to be a major rule. The provisions in this rule 
are designed to permit individuals and entities to engage freely in 
competitive business practices and arrangements; health care providers 
and others may voluntarily seek to comply with these safe harbor 
provisions so that they have the assurance that their that business 
practices are not subject to any enforcement actions under the anti-
kickback statute.
    Additionally, in accordance with the Unfunded Mandates Reform Act 
of 1995, we believe that there are no significant costs associated with 
these safe harbor guidelines that would impose any mandates on State, 
local or tribal governments, or the private sector that will result in 
an expenditure of $110 million or more, adjusted for inflation, in any 
given year. Further, in reviewing this rule under the threshold 
criteria of Executive Order 13132, Federalism, we have determined that 
this rule will not significantly affect the rights, roles and 
responsibilities of States, and that a full analysis under these Acts 
are not necessary.
    Further, in accordance with the Regulatory Flexibility Act (RFA) of 
1980, and SBREFA of 1996, which amended the RFA, we are required to 
determine if this rule will have a significant economic effect on a 
substantial number of small entities and, if so, to identify regulatory 
options that could lessen the impact. For purposes of the RFA, small 
entities include small businesses, nonprofit organizations, and 
Government agencies. Most hospitals (and most other providers) are 
small entities, either by nonprofit status or by having revenues of $5 
million to $25 million or less annually. For purposes of the RFA, most 
ambulance companies are considered to be small entities. Individuals 
and States are not included in the definition of a small entity. In 
addition, section 1102(b) of the Social Security Act requires us to 
prepare a regulatory impact analysis if a rule may have a significant 
impact on the operations of a substantial number of small rural 
providers. This analysis must conform to the provisions of section 603 
of the RFA.
    While these safe harbor provisions may have an impact on small 
entities and rural providers, we believe that the aggregate economic 
impact of this rulemaking will be minimal, since it is the nature of 
the conduct and not the size of the entity that will result in a 
violation of the anti-kickback statute. Since the vast majority of 
individuals and entities potentially affected by these regulations do 
not engage in prohibited arrangements, schemes or practices in 
violation of the law, we are not preparing analyses for either the RFA 
or section 1102(b) of the Act because we have determined, and we 
certify, that this rule does not have a significant impact on a 
substantial number of small entities, or a significant impact on the 
operations of a substantial number of small rural providers.
    The Office of Management and Budget has reviewed this rule in 
accordance with Executive Order 12866.

Paperwork Reduction Act

    In accordance with section 3506(c)(2)(A) of the Paperwork Reduction 
Act (PRA) of 1995, we are required to solicit public comments, and 
receive final OMB approval, on any information collection requirements 
set forth in rulemaking. While compliance with the provisions in this 
safe harbor rule would be voluntary, Secs. 1001.952(v)(2) and (v)(3) 
include information collection activities that would require approval 
by OMB. As such, we are required to solicit public comments under 
section 3506(c)(2)(A) of the PRA on these information collection 
activities.

[[Page 62989]]

    Title: Ambulance Replenishing Safe Harbor Under the Anti-Kickback 
Statute.
    Summary of the collection of information: While complying with safe 
harbor provisions under the anti-kickback statute is voluntary, to 
qualify an ambulance restocking arrangement for safe harbor protection, 
parties must satisfy the following recordkeeping and disclosure 
requirements set forth in the regulations:
     The ambulance provider or the receiving facility must 
maintain for five years records documenting the replenished drugs and 
medical supplies, provide copies of such records to the other party 
within a reasonable period of time (unless the other party is 
separately maintaining records), and make the records available to the 
Secretary promptly upon request. These records may be in the form of 
pre-hospital patient care reports already in use for other purposes. 
See Sec. 1001.952(v)(2)(ii)(A).
     Except for government-mandated or fair market value 
restocking, protected restocking arrangements must be conducted in an 
open and public manner. This condition may be achieved by posting a 
written disclosure notice at the receiving facility (with copies 
available to the public upon request) or by operating in accordance 
with a plan or protocol of general application promulgated by an EMS 
Council or comparable entity (with copies available to the public upon 
request). See Sec. 1001.952(v)(3)(i)(B).
    We have attempted to reduce any paperwork burden associated with 
compliance with these safe harbor regulations by permitting parties to 
utilize documentation produced or developed for other business purposes 
wherever possible, and we believe that most, if not all, of these 
recordkeeping requirements will be satisfied using such documentation. 
With respect to keeping and maintaining documentation of the 
restocking, most pre-hospital care reports (sometimes known as trip 
sheets or patient encounter reports) already maintained for other 
purposes, such as ensuring continuity of care and billing, will 
suffice. It is our understanding that the preparation of a pre-hospital 
care reports is the standard of care for transferring a patient to a 
receiving facility and is required by law in many States. However, 
parties may decide individually or between themselves to document 
restocking using other kinds of paper or electronic records. The five 
year record retention period is consistent with CMS's hospital 
conditions of participation.
    With respect to the disclosure requirement, a written disclosure 
notice can take any reasonable form, and we anticipate that most 
parties engaged in ambulance restocking arrangements will have pre-
existing materials that can be used for this purpose. For those who 
need or choose to produce a written disclosure notice, we have provided 
a short, sample disclosure form in these regulations. EMS Council plans 
and protocols are likely to be existing documents used to promote 
comprehensive and coordinated emergency medical services in local 
communities. These regulations do not require any drafting of new plans 
or protocols. Nothing in these regulations requires parties to draft or 
enter into contracts or written agreements. We expect that these 
regulations will result in few public requests for copies of disclosure 
notices or plans or protocols.
    Brief description of the need for, and proposed use of, the 
information. The documentation and disclosure requirements set forth in 
these safe harbor regulations are necessary (i) to ensure that 
protected ambulance restocking arrangements pose a minimal risk of 
fraud or abuse and (ii) to enable parties to demonstrate--and the 
Government to verify where necessary--whether all safe harbor 
conditions are met.
    Description of likely respondents and proposed frequency of 
response to the information collection request. The respondents for the 
collection of information described in these regulations are hospitals, 
other receiving facilities, and ambulance providers that participate in 
ambulance restocking arrangements and that want safe harbor protection 
under the anti-kickback statute. We believe that a significant number 
of hospitals, receiving facilities, and ambulance providers are engaged 
in, or desire to engage in, ambulance restocking arrangements and that 
many will want safe harbor protection. We do not anticipate any 
response that exceeds routine business practice.
    Estimated burden that shall result from the collection of 
information. We are assigning only one burden hour to this collection, 
because we believe that compliance can be achieved with existing 
documents produced in the course of routine business practice.
    In accordance with the PRA requirements, we are inviting comments 
on (1) whether the collection of information is necessary for the 
proper performance of the functions of the agency, including whether 
the information will have practical utility; (2) the accuracy of the 
estimate of the burden of the collection of information; (3) ways to 
enhance the quality, utility and clarity of the information collected; 
and (4) ways to minimize the burden of the collection of information on 
parties, including through the use of automated collection techniques 
or other forms of information technology. As part of the OMB approval 
for the collection of information contained in this rule, we are 
soliciting public comments, thereby initiating the normal PRA 
clearance.
    Comments on these information collection activities should be sent 
to the following address within 60 days following the Federal Register 
publication of this final rule:
    OIG Desk Officer, Office of Management and Budget, Room 10235, New 
Executive Office Building, 725 17th Street NW., Washington, DC 20053, 
FAX: (202) 395-6974.

List of Subjects in 42 CFR Part 1001

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

    Accordingly, 42 CFR part 1001 is amended as set forth below:

PART 1001--[AMENDED]

    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 1001.952 is amended by republishing the text and by 
adding a new paragraph (v) to read as follows:


Sec. 1001.952  Exceptions.

    The following payment practices shall not be treated as a criminal 
offense under section 1128B of the Act and shall not serve as the basis 
for an exclusion:
* * * * *
    (v) Ambulance replenishing. (1) As used in section 1128B of the 
Act, ``remuneration'' does not include any gift or transfer of drugs or 
medical supplies (including linens) by a hospital or other receiving 
facility to an ambulance provider for the purpose of replenishing 
comparable drugs or medical supplies (including linens) used by the 
ambulance provider (or a first responder) in connection with the 
transport of a patient by ambulance to the hospital or other receiving 
facility if all of the standards in paragraph (v)(2) of this section 
are satisfied and all of the applicable standards in either paragraph 
(v)(3)(i), (v)(3)(ii) or (v)(3)(iii) of this section are satisfied. 
However, to qualify

[[Page 62990]]

under paragraph (v), the ambulance that is replenished must be used to 
provide emergency ambulance services an average of three times per 
week, as measured over a reasonable period of time. Drugs and medical 
supplies (including linens) initially used by a first responder and 
replenished at the scene of the illness or injury by the ambulance 
provider that transports the patient to the hospital or other receiving 
facility will be deemed to have been used by the ambulance provider.
    (2) To qualify under paragraph (v) of this section, the ambulance 
replenishing arrangement must satisfy all of the following four 
conditions--
    (i)(A) Under no circumstances may the ambulance provider (or first 
responder) and the receiving facility both bill for the same 
replenished drug or supply. Replenished drugs or supplies may only be 
billed (including claiming bad debt) to a Federal health care program 
by either the ambulance provider (or first responder) or the receiving 
facility.
    (B) All billing or claims submission by the receiving facility, 
ambulance provider or first responder for replenished drugs and medical 
supplies used in connection with the transport of a Federal health care 
program beneficiary must comply with all applicable Federal health care 
program payment and coverage rules and regulations.
    (C) Compliance with paragraph (v)(2)(i)(B) of this section will be 
determined separately for the receiving facility and the ambulance 
provider (and first responder, if any), so long as the receiving 
facility, ambulance provider (or first responder) refrains from doing 
anything that would impede the other party or parties from meeting 
their obligations under paragraph (v)(2)(i)(B).
    (ii) (A) The receiving facility or ambulance provider, or both, 
must
    (1) Maintain records of the replenished drugs and medical supplies 
and the patient transport to which the replenished drugs and medical 
supplies related;
    (2) Provide a copy of such records to the other party within a 
reasonable time (unless the other party is separately maintaining 
records of the replenished drugs and medical supplies); and
    (3) Make those records available to the Secretary promptly upon 
request.
    (B) A pre-hospital care report (including, but not limited to, a 
trip sheet, patient care report or patient encounter report) prepared 
by the ambulance provider and filed with the receiving facility will 
meet the requirements of paragraph (v)(2)(ii)(A) of this section, 
provided that it documents the specific type and amount of medical 
supplies and drugs used on the patient and subsequently replenished.
    (C) For purposes of paragraph (v)(2)(ii) of this section, 
documentation may be maintained and, if required, filed with the other 
party in hard copy or electronically. If a replenishing arrangement 
includes linens, documentation need not be maintained for their 
exchange. If documentation is not maintained for the exchange of 
linens, the receiving facility will be presumed to have provided an 
exchange of comparable clean linens for soiled linens for each 
ambulance transport of a patient to the receiving facility. Records 
required under paragraph (v)(2)(ii)(A) of this section must be 
maintained for 5 years.
    (iii) The replenishing arrangement must not take into account the 
volume or value of any referrals or business otherwise generated 
between the parties for which payment may be made in whole or in part 
under any Federal health care program (other than the referral of the 
particular patient to whom the replenished drugs and medical supplies 
were furnished).
    (iv) The receiving facility and the ambulance provider otherwise 
comply with all Federal, State, and local laws regulating ambulance 
services, including, but not limited to, emergency services, and the 
provision of drugs and medical supplies, including, but not limited to, 
laws relating to the handling of controlled substances.
    (3) To qualify under paragraph (v) of this section, the arrangement 
must satisfy all of the standards in one of the following three 
categories:
    (i) General replenishing. (A) The receiving facility must replenish 
medical supplies or drugs on an equal basis for all ambulance providers 
that bring patients to the receiving facility in any one of the 
categories described in paragraph (v)(3)(i)(A)(1), (2), or (3) of this 
section. A receiving facility may offer replenishing to one or more of 
the categories and may offer different replenishing arrangements to 
different categories, so long as the replenishing is conducted 
uniformly within each category. For example, a receiving facility may 
offer to replenish a broader array of drugs or supplies for ambulance 
providers that do no not charge for their services than for ambulance 
providers that charge for their services. Within each category, the 
receiving facility may limit its replenishing arrangements to the 
replenishing of emergency ambulance transports only. A receiving 
facility may offer replenishing to one or more of the categories--
    (1) All ambulance providers that do not bill any patient or insurer 
(including Federal health care programs) for ambulance services, 
regardless of the payor or the patient's ability to pay (i.e., 
ambulance providers, such as volunteer companies, that provide 
ambulance services without charge to any person or entity);
    (2) All not-for-profit and State or local government ambulance 
service providers (including, but not limited to, municipal and 
volunteer ambulance services providers); or
    (3) All ambulance service providers.
    (B)(1) The replenishing arrangement must be conducted in an open 
and public manner. A replenishing arrangement will be considered to be 
conducted in an open and public manner if one of the following two 
conditions are satisfied:
    (i) A written disclosure of the replenishing program is posted 
conspicuously in the receiving facility's emergency room or other 
location where the ambulance providers deliver patients and copies are 
made available upon request to ambulance providers, Government 
representatives, and members of the public (subject to reasonable 
photocopying charges). The written disclosure can take any reasonable 
form and should include the category of ambulance service providers 
that qualifies for replenishment; the drugs or medical supplies 
included in the replenishment program; and the procedures for 
documenting the replenishment. A sample disclosure form is included in 
Appendix A to subpart C of this part for illustrative purposes only. No 
written contracts between the parties are required for purposes of 
paragraph (v)(3)(i)(B)(1)(i) of this section; or
    (ii) The replenishment arrangement operates in accordance with a 
plan or protocol of general application promulgated by an Emergency 
Medical Services (EMS) Council or comparable entity, agency or 
organization, provided a copy of the plan or protocol is available upon 
request to ambulance providers, Government representatives and members 
of the public (subject to reasonable photocopying charges). While 
parties are encouraged to participate in collaborative, comprehensive, 
community-wide EMS systems to improve the delivery of EMS in their 
local communities, nothing in this paragraph shall be construed as 
requiring the involvement of such organizations or the development or 
implementation of ambulance

[[Page 62991]]

replenishment plans or protocols by such organizations.
    (2) Nothing in this paragraph (v)(3)(i) shall be construed as 
requiring disclosure of confidential proprietary or financial 
information related to the replenishing arrangement (including, but not 
limited to, information about cost, pricing or the volume of 
replenished drugs or supplies) to ambulance providers or members of the 
general public.
    (ii) Fair market value replenishing. (A) Except as otherwise 
provided in paragraph (v)(3)(ii)(B) of this section, the ambulance 
provider must pay the receiving facility fair market value, based on an 
arms-length transaction, for replenished medical supplies; and
    (B) If payment is not made at the same time as the replenishing of 
the medical supplies, the receiving facility and the ambulance provider 
must make commercially reasonable payment arrangements in advance.
    (iii) Government mandated replenishing. The replenishing 
arrangement is undertaken in accordance with a State or local statute, 
ordinance, regulation or binding protocol that requires hospitals or 
receiving facilities in the area subject to such requirement to 
replenish ambulances that deliver patients to the hospital with drugs 
or medical supplies (including linens) that are used during the 
transport of that patient.
    (4) For purposes of paragraph (v) of this section--
    (i) A receiving facility is a hospital or other facility that 
provides emergency medical services.
    (ii) An ambulance provider is a provider or supplier of ambulance 
transport services that provides emergency ambulance services. The term 
does not include a provider of ambulance transport services that 
provides only non-emergency transport services.
    (iii) A first responder includes, but is not limited to, a fire 
department, paramedic service or search and rescue squad that responds 
to an emergency call (through 9-1-1 or other emergency access number) 
and treats the patient, but does not transport the patient to the 
hospital or other receiving facility. 47
    (iv) An emergency ambulance service is a transport by ambulance 
initiated as a result of a call through 9-1-1 or other emergency access 
number or a call from another acute care facility unable to provide the 
higher level care required by the patient and available at the 
receiving facility.
    (v) Medical supplies includes linens, unless otherwise provided.
    3. A new appendix A is added to subpart C to read as follows:

Appendix A to Subpart C of Part 1001

    The following is a sample written disclosure for purposes of 
satisfying the requirements of Sec. 1001.952(v)(3)(i)(B)(1)(i) of 
this part. This form is for illustrative purposes only; parties may, 
but are not required to, adapt this sample written disclosure form.

Notice of Ambulance Restocking Program

    Hospital X offers the following ambulance restocking program:
    1. We will restock all ambulance providers (other than ambulance 
providers that do not provide emergency services) that bring 
patients to Hospital X [or to a subpart of Hospital X, such as the 
emergency room] in the following category or categories: [insert 
description of category of ambulances to be restocked, i.e., all 
ambulance providers, all ambulance providers that do not charge 
patients or insurers for their services, or all nonprofit and 
Government ambulance providers]. [Optional: We only offer restocking 
of emergency transports.]
    2. The restocking will include the following drugs and medical 
supplies, and linens, used for patient prior to delivery of the 
patient to Hospital X: [insert description of drugs and medical 
supplies, and linens to be restocked].
    3. The ambulance providers [will/will not] be required to pay 
for the restocked drugs and medical supplies, and linens.
    4. The restocked drugs and medical supplies, and linens, must be 
documented as follows: [insert description consistent with the 
documentation requirements described in Sec. 1001.952(v). By way of 
example only, documentation may be by a patient care report filed 
with the receiving facility within 24 hours of delivery of the 
patient that records the name of the patient, the date of the 
transport, and the relevant drugs and medical supplies.]
    5. This restocking program does not apply to the restocking of 
ambulances that only provide non-emergency services or to the 
general stocking of an ambulance provider's inventory.
    6. To ensure that Hospital X does not bill any Federal health 
care program for restocked drugs or supplies for which a 
participating ambulance provider bills or is eligible to bill, all 
participating ambulance providers must notify Hospital X if they 
intend to submit claims for restocked drugs or supplies to any 
Federal health care program. Participating ambulance providers must 
agree to work with Hospital X to ensure that only one party bills 
for a particular restocked drug or supply.
    7. All participants in this ambulance restocking arrangement 
that bill Federal health care programs for restocked drugs or 
supplies must comply with all applicable Federal program billing and 
claims filing rules and regulations.
    8. For further information about our restocking program or to 
obtain a copy of this notice, please contact [name] at [telephone 
number].

Dated:-----------------------------------------------------------------

/s/--------------------------------------------------------------------
Appropriate officer or official

    Dated: July 12, 2001.
Michael F. Mangano,
Acting Inspector General.
    Approved:
Tommy G. Thompson,
Secretary.
[FR Doc. 01-29875 Filed 12-3-01; 8:45 am]
BILLING CODE 4150-04-P