[Federal Register Volume 67, Number 52 (Monday, March 18, 2002)]
[Rules and Regulations]
[Pages 11928-11936]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-6350]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of Inspector General

42 CFR Parts 1001, 1003, 1005 and 1008

RIN 0991-AB09


Medicare and Federal Health Care Programs: Fraud and Abuse; 
Revisions and Technical Corrections

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

ACTION: Final rule.

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SUMMARY: This final rule sets forth several revisions and technical 
corrections to the OIG regulations pertaining to fraud and abuse in 
Federal health care programs. This rule contains revisions and 
clarifications with respect to the definition of the term ``item or 
service,'' the reinstatement procedures relating to exclusions 
resulting from a default on health education or scholarship 
obligations, the factors considered in determining civil money penalty 
amounts for patient dumping violations, and several other matters. In 
addition, this rule makes a number of minor technical corrections to 
the current regulations in order to clarify various issues and 
inadvertent errors appearing in the OIG's existing regulatory 
authorities.

EFFECTIVE DATE: These regulations are effective on April 17, 2002.

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

SUPPLEMENTARY INFORMATION:

I. Background

    The Office of Inspector General's (OIG's) exclusion authorities are 
intended to protect the Federal health care programs and their 
beneficiaries from untrustworthy health care providers, i.e., 
individuals and entities whose behavior has demonstrated that they pose 
a risk to program beneficiaries or to the integrity of these programs. 
These authorities encompass both mandatory exclusions (section 1128(a) 
of the Social Security Act (the Act)) and permissive exclusions 
(section 1128(b) of the Act). The mandatory exclusion authorities 
require the OIG to exclude from program participation any individual or 
entity convicted of a ``program-related'' crime; patient abuse or 
neglect; or certain felonies related to health care delivery, 
governmental health care programs or controlled substances. Mandatory 
exclusions must be imposed for a minimum 5-year period. The permissive 
authorities do not require the imposition of an exclusion, and may 
either be (1) ``derivative'' exclusions that are based on actions 
previously taken by a court or other law enforcement or regulatory 
agencies, or (2) ``non-derivative'' exclusions that are based on OIG-
initiated determinations of misconduct, e.g., poor quality care or 
submission of false claims for Medicare or Medicaid payment. With 
certain exceptions, there are no specified minimum periods of exclusion 
under these permissive authorities.
    In addition, as an administrative remedy to remedy health care 
fraud and abuse, section 1128A of the Act allows the OIG to seek civil 
money penalties (CMPs), assessments and exclusions against those 
engaged in filing false claims (and certain other offenses) against the 
Department's programs and beneficiaries. Since enactment in 1981, the 
CMP provisions have been expanded to apply to numerous types of fraud 
and abuse activities related to Medicare and other Federal health care 
programs. Providers who may be subject to any of the OIG's 
administrative sanctions have full due process rights, including 
administrative hearings and appeals to the Federal courts.
    On October 20, 2000, the OIG published a proposed rule in the 
Federal Register (65 FR 63035) that proposed several revisions and 
technical corrections to the OIG regulations codified in 42 CFR chapter 
V.

II. Summary of the Proposed Rule, Response to Public Comments and 
Provisions of the Final Rule

    In response to the proposed rule, the OIG received a total of 6 
timely-filed public comments from organizations, associations and other 
interested parties. Set forth below is a brief explanation of the 
intended revisions set forth in the proposed rule, a summary of the 
comments received and a response to those concerns, and a description 
of the final changes and

[[Page 11929]]

clarifications being made to 42 CFR chapter V as a result of this final 
rule.

A. Limitations Period for Exclusions

    Proposed change: In response to questions raised as to whether a 
limitations period is applicable to the imposition of OIG program 
exclusions, the OIG proposed to clarify Sec. 1001.1 to clarify that 
there is no time limitation on the imposition of a program exclusion. 
In Wesley J. Hammer v. IG, DAB 1693 (1999), the Departmental Appeals 
Board ruled that exclusion under section 1128(b)(7) of the Act, where 
such exclusion is based on an act which is described in section 1128A 
of the Act, is subject to the 6 year statute of limitations contained 
in section 1128A.
    Comment/Response: The proposed rule stated that there would be no 
time limitation on the OIG's imposition of a program exclusion since no 
statute of limitations is specified in the Act with respect to 
exclusions under section 1128, and program exclusions are remedial in 
nature. Two commenters questioned this interpretation. The commenters 
suggested that if a program exclusion is based on the Secretary's 
determination that there has been a violation of another statute, the 
program exclusion action should be subject to the same limitations 
period that would apply to an action taken under the other statute. If 
not, the commenters believed that an individual or entity could be 
excluded for activities that occurred years before and that do not bear 
on their current trustworthiness or integrity. In addition, the 
commenters expressed concern that after the passage of significant 
time, evidence becomes difficult or impossible to gather and thus there 
is a need for a statute of limitations with respect to the imposition 
of program exclusions.
    The comments raise concerns about exclusions under section 
1128(b)(7) of the Act, the only exclusion authority that is based upon 
the Secretary's determination that there was an act committed that is a 
violation of another statute.\1\ Based on the concerns raised by the 
commenters, the OIG has chosen not to finalize the proposed revision, 
but to leave the current regulation unchanged.
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    \1\ Section 1128(b)(7) provides the authority to permissively 
exclude an individual or entity for fraud, kickbacks or other 
prohibited activities.
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B. Actual Versus Reasonably Expected Loss

    Proposed change: With regard to financial loss and threshold 
amounts with respect to exclusion actions, we proposed to revise 
Secs. 1001.102(b)(1) and 1001.201(b)(2)(i) to increase the financial 
loss considered to be an aggravating factor from $1,500 to $5,000 to 
more properly reflect the current health care economy and establish a 
more reasonable threshold amount as a basis for lengthening a period of 
exclusion, and to reflect as an aggravating factor both the actual and 
intended loss to the programs associated with the conduct of the 
sanctioned individual or entity. The OIG received two public comments 
on this proposed revision.
    Comment: Commenters objected to allowing ``intended loss'' to be 
considered as an aggravating factor, asserting that the concept of 
intent is subjective and allows for speculation and difficulty in 
questions of proof and defense. They indicated that while an objective 
approach is used to determine whether an actual loss has occurred, it 
is subjective to determine whether an individual or entity intended to 
cause a loss when no actual loss has occurred. One commenter indicated 
that an internal OIG decision should not carry the same weight as a 
decision that was adjudicated by a third party. Because the OIG would 
be able to consider ``intended losses'' based on ``similar acts not 
adjudicated,'' commenters believed the OIG would have significant 
latitude to give weight to ``unsubstantiated allegations, charges 
supported by inadmissible evidence, statements that have not been 
subject to cross-examination * * *'' that would not be supported by the 
judicial process.
    Response: We have clarified and amended the proposed change to this 
section to provide that the OIG will consider acts ``that caused, or 
reasonably could have been expected to cause, a financial loss. * * *'' 
The purpose of this provision is to consider the magnitude of the 
individual or entity's conduct when determining the appropriate length 
of exclusion. The trustworthiness of an individual or entity relates to 
the amount of loss their conduct reasonably could have been expected to 
cause, regardless of whether the conduct was discovered before or after 
the payment was made. For example, the fact that a Medicare contractor 
detected a false claim prior to payment, and therefore no loss was 
incurred by the program, does not reduce the culpability and 
untrustworthiness of those responsible for the submission of the false 
claim.
    The OIG intends to consider ``reasonably expected loss'' only in 
those situations where there is adequate reliable evidence to discern 
the amounts that would have been paid as a result of the individual's 
or entity's false claim or other improper conduct had the conduct not 
been detected prior to the payment of the claims.
    Comment: Regarding the proposed increase of the threshold amount 
for an aggravating factor to $5,000 (from $1,500), one commenter asked 
whether the $5,000 amount would also apply to intended loss as well as 
to actual loss. The commenter also questioned whether the higher 
threshold amount would mean that prosecution would not be pursued if 
the loss is less than $5,000.
    Response: We will consider the total reasonably expected loss in 
assessing whether this $5,000 threshold has been met for the purpose of 
determining the length of exclusion. This threshold is only relevant to 
determine the length of exclusion and has no relationship with a 
prosecutor's decision or whether to pursue certain cases.
    Final rule revision: We are revising the language in 
Secs. 1001.102(b)(1) and 1001.201(b)(2)(i) to indicate that among the 
factors that may be considered to be aggravating and a basis for 
lengthening the period of exclusion are acts resulting in the 
conviction, or similar acts, ``that caused, or reasonably could have 
been expected to cause, a financial loss'' to a Government program or 
to one or more entities of $5,000 or more.

C. Expansion of the Scope of Exclusion to ``all Federal Health Care 
Programs''

    Proposed change: Section 4331(c) of the Balanced Budget Act (BBA) 
of 1997 extended the scope of all OIG exclusions beyond Medicare and 
State health care programs to all Federal health care programs. While 
several revisions to implement this expansion were made to the OIG 
exclusion regulations in the final rulemaking addressing BBA (July 
22,1999; 64 FR 39420), conforming revisions were not made in 
Secs. 1001.102(c), 1001.951 and 1001.952. We proposed to amend these 
regulatory sections to accurately reflect this expanded authority. The 
OIG received no public comments on this proposed change.
    Final rule revision: We are revising Secs. 1001.102(c), 1001.951 
and 1001.952 to accurately reflect the scope of an OIG exclusion beyond 
the Medicare and State health care programs to all other Federal health 
care programs.

D. Clarification on Length of Exclusion in Sec. 1001.102(b)(9)

    Proposed change: The OIG proposed a minor technical change in 
Sec. 1001.102 that would have involved inserting the word ``even'' 
before the limiting clause ``if the adverse action is based on the

[[Page 11930]]

same * * * '' in existing paragraph (b)(9) of this section.
    Comment: One commenter believed that the effect of this change 
would be that the exclusion period could be lengthened based on an 
adverse action, whether or not the action served as the basis of the 
imposition of the exclusion.
    Response: Upon further review, the OIG has decided not to make this 
change to Sec. 1001.102(b)(9).

E. Discount Safe Harbor

    Proposed change: We proposed several clarifying wording changes in 
the safe harbor discount provision, set forth in Sec. 1001.952(h), to 
be consistent with similar context language used in the same paragraph, 
and clarifying the definition of the term ``rebate'' in paragraph 
(h)(4) of this section to make clear that a rebate is a price reduction 
after the time of sale.
    Comment/Response: We received several comments regarding these 
proposed revisions and clarifications to Sec. 1001.952(h) and other 
technical corrections to our other safe harbor regulations. The OIG is 
continuing to evaluate these comments and plans to address specific 
changes to Sec. 1001.952 at a future date through separate rulemaking.
    Final rule revision: As indicated above in section II.C., at this 
time we are only revising those portions of Sec. 1001.952 to correct 
technical errors appearing in the regulations text to extend the scope 
of any OIG exclusion beyond the Medicare and State health care programs 
to all other Federal health care programs.

F. Reinstatement of Individuals as a Result of an Exclusion Based on 
Default of Health Education Loan or Scholarship Obligations

    Proposed change: The current regulation at Sec. 1001.1501 provides 
that an individual will be excluded until the Public Health Service 
(PHS) notifies the OIG that the obligations have been resolved to the 
PHS's satisfaction. Because the regulatory language is unclear as to 
exactly when a determination may be made that a default is cured or 
that the financial obligations have been adequately resolved, the 
proposed rule provided for exclusion ``until such time as PHS notifies 
the OIG that . . . there is no longer an outstanding debt.'' 
Specifically, we proposed to revise paragraph (b) of this section to 
clarify that once an individual is excluded, he or she will be 
reinstated only (1) after the debt is repaid by the individual, or (2) 
where there is no longer an outstanding debt as determined by the PHS 
(e.g., the debt has been written off).
    Comment: One commenter believed it was unclear what effect the 
changing of ``right to request reinstatement'' in the current rule to 
``right to apply for reinstatement'' in the proposed rule will be. The 
commenter requested that any revision should minimize the 
administrative delay in reinstating such individuals once the PHS has 
concluded that there is no longer an outstanding debt.
    Response: This is a minor revision concerning internal 
communications between PHS and the OIG that will cause no 
administrative delays in allowing individuals eligible to apply for 
reinstatement. All individuals who have been excluded under this 
authority must formally apply for such reinstatement in accordance with 
the procedures that are set forth in their exclusion letter and the 
applicable regulations.
    Final rule revision: We are clarifying and revising Sec. 1001.1501 
to indicate that, with respect to an exclusion resulting from the 
default of a health education loan or scholarship obligations, an 
individual will be excluded until such time as PHS notifies the OIG 
that the default has been cured or that there is no longer an 
outstanding debt, and upon such notice, the OIG will inform the 
individual of his or her right to apply for reinstatement.

G. Waivers of Exclusions

    Proposed change: We proposed to amend Sec. 1001.1801 to permit any 
Federal health care program to request the waiver of an exclusion. This 
amendment was designed to conform the waiver provisions of section 1128 
of the Act to statutory amendments that broadened the scope of an OIG 
program exclusion to all Federal health care programs.
    Response: While the OIG received no public comments on this 
proposed change, we have determined that this revision would be more 
appropriately addressed through the legislative process. Although 
Congress expanded the OIG's exclusion authority in the Health Insurance 
Portability and Accountability Act (Pub. L. 104-191) to all ``Federal 
health care programs,'' it did not make a corresponding change to the 
statutory waiver for exclusions (sections 1128(c)(3)(B) and 
1128(d)(3)(B) of the Act), i.e., only States are authorized to request 
such waivers. We now believe that legislative action, rather than a 
regulatory change, is necessary to address this issue.

H. Collateral Estoppel and Appeal of Exclusions

    Proposed change: Section 1001.2007 has contained a provision that 
precludes the relitigation of the underlying determination in the 
administrative appeal of exclusions. We proposed to clarify in this 
section that a civil judgment rendered by a Federal, State or local 
court is an additional type of prior determination that may be given 
collateral estoppel effect in an exclusion action, and may not be 
relitigated in the exclusion proceeding. The OIG received no public 
comments on this proposed change.
    Final rule revision: We are revising Sec. 1001.2007(d) consistent 
with the language set forth in the earlier proposed rule.

I. Reversed or Vacated Decisions

    Proposed change: With respect to appeals of exclusions, 
Sec. 1001.3005 does not specify at what point in the appeal process 
reinstatement will occur where an OIG action is reversed or vacated on 
appeal. We proposed to amend this section to provide that when an 
exclusion action is reversed or vacated at any stage of an 
administrative appeal process, the OIG will reinstate the individual or 
entity at that time retroactive to the effective date of the underlying 
exclusion. The OIG received no public comments on this proposed change.
    Final rule revision: We are amending Sec. 1001.3005, Reversed or 
vacated decisions, by revising paragraph (a) and adding a new paragraph 
(e) to specify at what point in the appeal process retroactive 
reinstatement will occur.

J. Definition for ``Item or Service''

    Proposed change: To reflect the varying reimbursement systems and 
mechanisms in place, we proposed to modify the definition of the term 
``item or service'' in Sec. 1003.101 to clarify that, in addition to 
itemized claims or cost reports, the term also includes any item or 
service that is reimbursed through any health care payment mechanism, 
such as a prospective payment system. The OIG received no public 
comments on this revised definition.
    Final rule revision: The OIG is adopting the change as proposed.

K. Calculation of Penalty Amount for Patient Dumping Violations

    Proposed change: The existing language in Sec. 1003.106(a)(4) 
allows the OIG to take into account a ``prior history of offenses'' 
with respect to patient dumping in determining the amount of CMP 
imposed for a patient dumping violation. We proposed an amendment

[[Page 11931]]

to Sec. 1003.106(a)(4)(iii) that would allow the OIG and the 
administrative law judge (ALJ) to consider other ``instances''--and not 
just ``offenses''--regardless of when they occurred, that is, not just 
``prior to'' the matter conduct upon which the CMP action is based.
    Comment: Commenters expressed the view that CMP amounts in patient 
dumping cases should be based only on judgments and other actions which 
have been adjudicated, such as convictions or administrative sanctions. 
The commenters believed that allowing the OIG the authority to 
``bypass'' courts and the administrative appeals process would penalize 
physicians for alleged behavior that has not been ruled upon by a court 
or an ALJ. One commenter stated that in determining CMP amounts under 
this provision, the OIG should only be allowed to cite subsequent 
offenses to the same extent that the OIG now considers prior offenses. 
Without such limitation, the commenter believed that physicians' due 
process rights would be violated since they would not be able to 
contest the underlying alleged behavior.
    Response: In assessing the appropriate CMP amount in a dumping 
case, we continue to believe that it is appropriate to include matters 
which occurred after the events that resulted in the OIG's issuance of 
a letter to a provider proposing a CMP. Specifically, with respect to 
the provider's ``prior history,'' we have found instances, which may 
occur several years later between the time of the initial event and the 
initiation of litigation, where a provider has committed other acts 
similar in nature to the violation that is the basis for the proposed 
CMP. The OIG believes that those other similar acts should be 
considered so that an appropriate CMP can be determined and assessed. 
By considering not just ``prior history'' as a factor, an appropriate 
penalty may be higher, for example, for a party with multiple instances 
of problematic conduct, as compared to a party who has only one such 
instance.
    With respect to amending the current reference of ``offenses'' to 
``instances,'' we believe that the current term restricts consideration 
of incidents that are relevant to the provider's culpability but have 
not resulted in convictions, or judicial or administrative decisions. 
Because these prior similar incidents generally become known during the 
administrative appeals process, we believe that the term ``offenses'' 
is too limiting, and that the revision in the regulations will allow 
the OIG and the ALJs a broader range of conduct and options to consider 
in their determinations. The primary concerns expressed by the 
commenter do not apply because the ALJ will be able to fully evaluate 
all evidence in the record in deciding the amount of a CMP and give 
appropriate weight to such evidence. When the OIG is able to consider 
subsequent instances of conduct by the provider, the ALJ, Departmental 
Appeals Board and the courts will still remain free to accept or reject 
this additional information and evidence in determining an appropriate 
CMP amount.
    Final rule revision: We are amending Sec. 1003.106 by adding a new 
paragraph (a)(4)(iii) to include as a factor in determining the amount 
of penalty for patient dumping violations any other instances where the 
respondent failed to provide appropriate emergency medical screening, 
stabilization and treatment of individuals coming to a hospital's 
emergency department, or to effect an appropriate transfer.

L. Time Frames Governing the Discovery Process

    Proposed change: To ensure that the hearing process proceeds in an 
orderly and timely manner, and to allow parties a reasonable period of 
time to produce requested documents or object to a request, we proposed 
to expand the specified time frames set forth in Sec. 1005.7(e)(1) from 
the current 15 days to 30 days. The OIG received no public comments on 
this proposed change.
    Final rule revision: We are revising Sec. 1005.7(e)(1) to expand 
the specified time frames governing the discovery process to 30 days.

M. Written Testimony of Experts

    Proposed change: We proposed to amend Sec. 1005.16 to give the ALJs 
discretion to admit prior written sworn expert testimony that has been 
subject to cross-examination. The OIG received no public comments on 
this proposed revision.
    Final rule revision: We are revising paragraph (b) of Sec. 1005.16, 
Witnesses, to specifically state that the ALJ may, at his or her 
discretion, admit prior sworn testimony of experts which has been 
subject to adverse examination, such as a deposition or trial 
testimony.

N. Admissibility of Evidence in Administrative Proceedings

    Proposed change: In order to protect the credibility of witnesses 
from being inappropriately attacked through the introduction of 
evidence regarding bad character, we proposed to amend Sec. 1005.17, 
Evidence, to require adherence to Rule 608 of the Federal Rules of 
Evidence (FRE) in administrative proceedings.
    Response: While the OIG received no public comments on this 
proposed change, there is a concern that requiring ALJs to apply 
specific evidentiary rules in an administrative hearing would 
unnecessarily restrict the evidence the ALJ may consider. The OIG will 
continue to evaluate the scope of this amendment, and has chosen not to 
finalize the proposed revision to Sec. 1005.17 at this time.

O. Additional Technical Revisions

    Proposed changes: Minor technical errors in Secs. 1003.100 and 
1008.37 were also proposed for correction in the proposed rule. The OIG 
received no public comments on this proposed change.
    Final rule revisions: We are making technical revisions to 
Sec. 1003.100(b) to properly reflect the basis and purpose of the OIG's 
CMP and assessment authorities that were set forth in two different OIG 
rulemakings. Specifically, we are amending Sec. 1003.100 by revising 
paragraphs (b)(1)(iv), (b)(1)(xii) and (b)(1)(xiii), and by adding 
paragraphs (b)(1)(xiv) and (b)(1)(xv) to accurate reflect the range of 
existing CMP and assessment authorities delegated to the OIG . In 
addition, we are correcting a typographical error appearing for a 
United States Code citation which appears in Sec. 1008.37, as indicated 
in the proposed rule.

III. Regulatory Impact Statement

    We have examined the impacts of this rule as required by Executive 
Order 12866 September 1993, Regulatory Planning and Review) and the 
Regulatory Flexibility Act (RFA) (September 19, 1980; Public Law 96-
354), section 1102(b) of the Social Security Act, the Unfunded Mandates 
Reform Act of 1995 (Public Law 104-4), and Executive Order 13132. 
Executive Order 12866 directs agencies to assess all costs and benefits 
of available regulatory alternatives and, if 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).
    This is not a major rule as defined at 5 U.S.C. 804 (2), and it is 
not economically significant since it will not have a significant 
effect on program expenditures and there are no additional substantive 
costs to implement the resulting provisions. The revisions in this rule 
are either technical in nature or are designed to further

[[Page 11932]]

clarify OIG statutory requirements. Specifically, these provisions are 
intended to clarify the scope of the OIG's existing authorities to 
exclude individuals and entities from Medicare, Medicaid and all other 
Federal health care programs, and to strengthen current legal 
authorities pertaining to the imposition of CMPs against individuals 
and entities engaged in prohibited actions and activities. We believe 
that any aggregate economic effect of these revised regulatory 
provisions will be minimal and will impact only those limited few who 
engage in prohibited behavior in violation of the statute. As such, we 
believe that the aggregate economic impact of these final regulations 
is minimal and would have no appreciable effect on the economy or on 
Federal or State expenditures.
    The RFA, and the Small Business Regulatory Enforcement and Fairness 
Act of 1996 which amended the RFA, requires agencies to analyze options 
for regulatory relief of small businesses. For purposes of the RFA, 
small entities include small businesses, nonprofit organizations, and 
Government agencies. Most hospitals (and most other providers) are 
considered to be small entities, either by nonprofit status or by 
having revenues of $5 million to $25 million or less in any 1 year. 
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 604 of the RFA. While these provisions may have some 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 or type of the entity that will 
result in a violation of the statute and the regulations. As a result, 
this rule should 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.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule that may result in expenditure in any 1 year by State, 
local or tribal Governments, in the aggregate, or by the private 
sector, of $110 million. We believe that there are no significant costs 
associated with these revisions 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.
    Executive Order 13132, Federalism, establishes certain requirements 
that an agency must meet when it promulgates a final rule that imposes 
substantial direct requirements costs on State and local Governments, 
preempts State law, or otherwise has Federalism implications. In 
reviewing this rule under the threshold criteria of Executive Order 
13132, we have determined that this rule will not significantly effect 
the rights, roles and responsibilities of States or local Governments. 
The Office of Management and Budget has reviewed this rule in 
accordance with Executive Order 12866. In Paperwork Reduction Act--The 
provisions of these regulations impose no new reporting or 
recordkeeping requirements necessitating clearance by OMB.

List of Subjects

42 CFR Part 1001

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

42 CFR Part 1003

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

42 CFR Part 1005

    Administrative practice and procedure, Fraud, Penalties.

42 CFR Part 1008

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

    Accordingly, 42 CFR chapter V 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 1001.101 is amended by republishing the introductory 
text and by revising paragraph (c), introductory text, to read as 
follows:


Sec. 1001.101  Basis for liability.

    The OIG will exclude any individual or entity that--
* * * * *
    (c) Has been convicted, under Federal or State law, of a felony 
that occurred after August 21, 1996, relating to fraud, theft, 
embezzlement, breach of fiduciary responsibility, or other financial 
misconduct--
* * * * *

    3. Section 1001.102 is amended by republishing the introductory 
text for paragraph (b) and revising paragraph (b)(1), and by 
republishing the introductory text for paragraph (c) and revising 
paragraph (c)(1) to read as follows:


Sec. 1001.102  Length of exclusion.

* * * * *
    (b) Any of the following factors may be considered to be 
aggravating and a basis for lengthening the period of exclusion--
    (1) The acts resulting in the conviction, or similar acts, that 
caused, or were intended to cause, a financial loss to a Government 
program or to one or more entities of $5,000 or more. (The entire 
amount of financial loss to such programs or entities, including any 
amounts resulting from similar acts not adjudicated, will be considered 
regardless of whether full or partial restitution has been made);
* * * * *
    (c) Only if any of the aggravating factors set forth in paragraph 
(b) of this section justifies an exclusion longer than 5 years, may 
mitigating factors be considered as a basis for reducing the period of 
exclusion to no less than 5 years. Only the following factors may be 
considered mitigating--
    (1) The individual or entity was convicted of 3 or fewer 
misdemeanor offenses, and the entire amount of financial loss (both 
actual loss and intended loss) to Medicare or any other Federal, State 
or local governmental health care program due to the acts that resulted 
in the conviction, and similar acts, is less than $1,500;
* * * * *

    4. Section 1001.201 is amended by republishing the introductory 
text for paragraphs (b) and (b)(2) and revising paragraph (b)(2)(i), 
and by republishing the introductory text for paragraph (b)(3) and 
revising paragraph (b)(3)(i) to read as follows:


Sec. 1001.201  Conviction relating to program or health care fraud.

* * * * *
    (b) Length of exclusion. * * *
    (2) Any of the following factors may be considered to be 
aggravating and a basis for lengthening the period of exclusion--
    (i) The acts resulting in the conviction, or similar acts that 
caused,

[[Page 11933]]

or reasonably could have been expected to cause, a financial loss of 
$5,000 or more to a Government program or to one or more other 
entities, or had a significant financial impact on program 
beneficiaries or other individuals. (The total amount of financial loss 
will be considered, including any amounts resulting from similar acts 
not adjudicated, regardless of whether full or partial restitution has 
been made);
* * * * *
    (3) Only the following factors may be considered as mitigating and 
a basis for reducing the period of exclusion--
    (i) The individual or entity was convicted of 3 or fewer offenses, 
and the entire amount of financial loss (both actual loss and 
reasonably expected loss) to a Government program or to other 
individuals or entities due to the acts that resulted in the conviction 
and similar acts is less than **$1,5000**;
* * * * *

    5. Section 1001.951 is amended by revising paragraph (b)(1)(ii) to 
read as follows:


Sec. 1001.951  Fraud and kickbacks and other prohibited activities.

* * * * *
    (b) * * *
    (1) * * *
    (ii) The nature and extent of any adverse physical, mental, 
financial or other impact the conduct had on program beneficiaries or 
other individuals or the Medicare, Medicaid and all other Federal 
health care programs;
* * * * *

    6. Section 1001.952 is amended as follows:
    a. By republishing the introductory text;
    b. Republishing the introductory text to paragraph (b), revising 
paragraph (b)(5), removing the undesignated paragraph following 
paragraph (b)(6), and adding a sentence at the end of paragraph (b)(6);
    c. Republishing the introductory text to paragraph (c), revising 
paragraph (c)(5), removing the undesignated paragraph following 
paragraph (c)(6), and adding a sentence at the end of paragraph (c)(6);
    d. Republishing the introductory text to paragraph (d) and revising 
paragraph (d)(5);
    e. Republishing introductory text to paragraph (e)(1) and revising 
paragraph (e)(1)(ii);
    f. Republishing introductory text to paragraph (e)(2) and revising 
paragraph (e)(2)(ii);
    g. Republishing introductory text to paragraph (f) and revising 
paragraph (f)(2);
    h. Revising introductory text to paragraph (h); introductory text 
to paragraph (h)(1) and introductory text to paragraph (h)(1)(iii); 
introductory text to paragraph (h)(2); introductory text to paragraph 
(h)(3) and introductory text to paragraph (h)(3)(iii); and paragraph 
(h)(5)(iii);
    i. Revising paragraph (i);
    j. Republishing the introductory text to paragraph (j), adding a 
sentence at the end of paragraph (j)(2), and removing the undesignated 
paragraph following paragraph (j)(2);
    k. Republishing introductory text to paragraph (n) and revising 
paragraph (n)(6);
    l. Republishing introductory text to paragraph (o) and revising 
paragraph (o)(5); and
    m. Revising introductory text for paragraph (s).
    The revisions to Sec. 1001.952 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:
* * * * *
    (b) Space rental. As used in section 1128B of the Act, 
``remuneration'' does not include any payment made by a lessee to a 
lessor for the use of premises, as long as all of the following six 
standards are met--
* * * * *
    (5) The aggregate rental charge is set in advance, is consistent 
with fair market value in arms-length transactions and is not 
determined in a manner that takes 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 Medicare, Medicaid 
or other Federal health care programs.
    (6) * * * Note that for purposes of paragraph (b) of this section, 
the term fair market value means the value of the rental property for 
general commercial purposes, but shall not be adjusted to reflect the 
additional value that one party (either the prospective lessee or 
lessor) would attribute to the property as a result of its proximity or 
convenience to sources of referrals or business otherwise generated for 
which payment may be made in whole or in part under Medicare, Medicaid 
and all other Federal health care programs.
* * * * *
    (c) Equipment rental. As used in section 1128B of the Act, 
``remuneration'' does not include any payment made by a lessee or 
equipment to the lessor of the equipment for the use of the equipment, 
as long as all of the following six standards are met--
* * * * *
    (5) The aggregate rental charge is set in advance, is consistent 
with fair market value in arms-length transactions and is not 
determined in a manner that takes 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 Medicare, Medicaid 
or all other Federal health care programs.
    (6) * * * Note that for purposes of paragraph (c) of this section, 
the term fair market value means that the value of the equipment when 
obtained from a manufacturer or professional distributor, but shall not 
be adjusted to reflect the additional value one party (either the 
prospective lessee or lessor) would attribute to the equipment as a 
result of its proximity or convenience to sources of referrals or 
business otherwise generated for which payment may be made in whole or 
in part under Medicare, Medicaid or other Federal health care programs.
    (d) Personal services and management contracts. A used in section 
1128B of the Act, ``remuneration'' does not include any payment made by 
a principal to an agent as compensation for the services of the agent, 
as long as all of the following seven standards are met--
* * * * *
    (5) The aggregate compensation paid to the agent over the term of 
the agreement is set in advance, is consistent with fair market value 
in arms-length transactions and is not determined in a manner that 
takes 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 Medicare, Medicaid or other Federal health 
care programs.
* * * * *
    (e) Sale of practice. (1) As used in section 1128B of the Act, 
``remuneration'' does not include any payment made to a practitioner by 
another practitioner where the former practice is selling his or her 
practice to the latter practitioner, as long as the following two 
standards are met--
* * * * *
    (ii) The practitioner who is selling his or her practice will not 
be in a professional position to make referrals to, or otherwise 
generate business for, the purchasing practitioner for which payment 
may be made in whole or in

[[Page 11934]]

part under Medicare, Medicaid or other Federal health care programs 
after 1 year from the date of the first agreement pertaining to the 
sale.
    (2) As used in section 1128B of the Act, ``remuneration'' does not 
include any payment made to a practitioner by a hospital or other 
entity where the practitioner is selling his or her practice to the 
hospital or other entity, so long as the following four standards are 
met--
* * * * *
    (ii) The practitioner who is selling his or her practice will not 
be in a professional position after completion of the sale to make or 
influence referrals to, or otherwise generate business for, the 
purchasing hospital or entity for which payment may be made under 
Medicare, Medicaid or other Federal health care programs.
* * * * *
    (f) Referral services. As used in section 1128B of the Act, 
``remuneration'' does not include any payment or exchange of anything 
of value between an individual or entity (``participant'') and another 
entity serving as a referral service (``referral service''), as long as 
all of the following four standards are met--
* * * * *
    (2) Any payment the participant makes to the referral service is 
assessed equally against and collected equally from all participants, 
and is only based on the cost of operating the referral service, and 
not on the volume or value of any referrals to or business otherwise 
generated by either party for the referral service for which payment 
may be made in whole or in part under Medicare, Medicaid or other 
Federal health care programs.
* * * * *
    (h) Discounts. As used in section 1128B of the Act, 
``remuneration'' does not include a discount, as defined in paragraph 
(h)(5) of this section, on an item or service for which payment may be 
made in whole or in part under Medicare, Medicaid or other Federal 
health care programs for a buyer as long as the buyer complies with the 
applicable standards of paragraph (h)(1) of this section; a seller as 
long as the seller complies with the applicable standards of paragraph 
(h)(2) of this section; and an offeror of a discount who is not a 
seller under paragraph (h)(2) of this section so long as such offeror 
complies with the applicable standards of paragraph (h)(3) of this 
section.
    (1) With respect to the following three categories of buyers, the 
buyer must comply with all of the applicable standards within one of 
the three following categories--
* * * * *
    (iii) If the buyer is an individual or entity in whose name a claim 
or request for payment is submitted for the discounted item or service 
and payment may be made, in whole or in part, under Medicare, Medicaid 
or other Federal health care programs (not including individuals or 
entities defined as buyers in paragraph (h)(1)(i) or (h)(1)(ii) of this 
section), the buyer must comply with both of the following standards--
* * * * *
    (2) The seller is an individual or entity that supplies an item or 
service for which payment may be made, in whole or in part, under 
Medicare, Medicaid or other Federal health care programs to the buyer 
and who permits a discount to be taken off the buyer's purchase price. 
The seller must comply with all of the applicable standards within one 
of the following three categories--
* * * * *
    (3) The offeror of a discount is an individual or entity who is not 
a seller under paragraph (h)(2) of this section, but promotes the 
purchase of an item or service by a buyer under paragraph (h)(1) of 
this section at a reduced price for which payment may be made, in whole 
or in part, under Medicare, Medicaid or other Federal health care 
programs. The offeror must comply with all of the applicable standards 
within the following three categories--
* * * * *
    (iii) If the buyer is an individual or entity in whose name a 
request for payment is submitted for the discounted item or service and 
payment may be made, in whole or in part, under Medicare, Medicaid or 
other Federal health care programs (not including individuals or 
entities defined as buyers in paragraph (h)(1)(i) or (h)(1)(ii) of this 
section), the offeror must comply with the following two standards--
* * * * *
    (5) * * *
    (iii) A reduction in price applicable to one payer but not to 
Medicare, Medicaid or other Federal health care programs;
* * * * *
    (i) Employees. As used in section 1128B of the Act, 
``remuneration'' does not include any amount paid by an employer to an 
employee, who has a bona fide employment relationship with the 
employer, for employment in the furnishing of any item or service for 
which payment may be made in whole or in part under Medicare, Medicaid 
or other Federal health care programs. For purposes of paragraph (i) of 
this section, the term employee has the same meaning as it does for 
purposes of 26 U.S.C. 3121(d)(2).
    (j) Group purchasing organizations. As used in section 1128B of the 
Act, ``remuneration'' does not include any payment by a vendor of goods 
or services to a group purchasing organization (GPO), as part of an 
agreement to furnish such goods or services to an individual or entity, 
as long as both of the following two standards are met--
* * * * *
    (2) * * * Note that for purposes of paragraph (j) of this section, 
the term group purchasing organization (GPO) means an entity authorized 
to act as a purchasing agent for a group of individuals or entities who 
are furnishing services for which payment may be made in whole or in 
part under Medicare, Medicaid or other Federal health care programs, 
and who are neither wholly-owned by the GPO nor subsidiaries of a 
parent corporation that wholly owns the GPO (either directly or through 
another wholly-owned entity).
* * * * *
    (n) Practitioner recruitment. As used in section 1128B of the Act, 
``remuneration'' does not include any payment or exchange of anything 
of value by an entity in order to induce a practitioner who has been 
practicing within his or her current specialty for less than 1 year to 
locate, or to induce any other practitioner to relocate, his or her 
primary place of practice into a HPSA for his or her specialty area, as 
defined in Departmental regulations, that is served by the entity, as 
long as all of the following nine standards are met--
* * * * *
    (6) The amount or value of the benefits provided by the entity may 
not vary (or be adjusted or renegotiated) in any manner based on the 
volume or value of any expected referrals to or business otherwise 
generated for the entity by the practitioner for which payment may be 
made in whole or in part under Medicare, Medicaid or any other Federal 
health care programs.
* * * * *
    (o) Obstetrical malpractice insurance subsidies. As used in section 
1128B of the Act, ``remuneration'' does not include any payment made by 
a hospital or other entity that is providing malpractice insurance 
(including a self-funded entity), where such payment is used to pay for 
some or all of the costs of malpractice insurance premiums for a 
practitioner (including a certified nurse-midwife as defined in section

[[Page 11935]]

1861(gg) of the Act) who engages in obstetrical practice as a routine 
part of his or her medical practice in a primary care HPSA, as long as 
all of the following seven standards are met--
* * * * *
    (5) The amount of payment may not vary based on the volume or value 
of any previous or expected referrals to or business otherwise 
generated for the entity by the practitioner for which payment may be 
made in whole or in part under Medicare, Medicaid or any other Federal 
health care programs.
* * * * *
    (s) Referral arrangements for specialty services. As used in 
section 1128B of the Act, ``remuneration'' does not include any 
exchange of value among individuals and entities where one party agrees 
to refer a patient to the other party for the provision of a specialty 
service payable in whole or in part under Medicare, Medicaid or any 
other Federal health care programs in return for an agreement on the 
part of the other party to refer that patient back at a mutually agreed 
upon time or circumstance as long as the following four standards are 
met--
* * * * *

    7. Section 1001.1501 is amended by revising paragraph (b) to read 
as follows:


Sec. 1001.1501  Default of health education loan or scholarship 
obligations.

* * * * *
    (b) Length of exclusion. The individual will be excluded until such 
time as PHS notifies the OIG that the default has been cured or that 
there is no longer an outstanding debt. Upon such notice, the OIG will 
inform the individual of his or her right to apply for reinstatement.


    8. Section 1001.2007 is amended by revising paragraph (d) to read 
as follows:


Sec. 1001.2007  Appeal of exclusions.

* * * * *
    (d) When the exclusion is based on the existence of a criminal 
conviction or a civil judgment imposing liability by Federal, State or 
local court, a determination by another Government agency, or any other 
prior determination where the facts were adjudicated and a final 
decision was made, the basis for the underlying conviction, civil 
judgment or determination is not reviewable and the individual or 
entity may not collaterally attack it either on substantive or 
procedural grounds in this appeal.
* * * * *

    9. Section 1001.3005 is amended by revising paragraph (a) and by 
adding a new paragraph (e) to read as follows:


Sec. 1001.3005  Reversed or vacated decisions.

    (a) An individual or entity will be reinstated into Medicare, 
Medicaid and other Federal health care programs retroactive to the 
effective date of the exclusion when such exclusion is based on--
    (1) A conviction that is reversed or vacated on appeal;
    (2) An action by another agency, such as a State agency or 
licensing board, that is reversed or vacated on appeal; or
    (3) An OIG exclusion action that is reversed or vacated at any 
stage of an individual's or entity's administrative appeal process.
* * * * *
    (e) If an action which results in the retroactive reinstatement of 
an individual or entity is subsequently overturned, the OIG may 
reimpose the exclusion for the initial period of time, less the period 
of time that was served prior to the reinstatement of the individual or 
entity.

PART 1003--[AMENDED]

    1. The authority citation for part 1003 continues to read as 
follows:

    Authority: 42 U.S.C. 1302, 1320a-7, 1320a-7a, 1320a-7e, 1320b-
10, 1395u(j), 1395u(k), 1395cc(g),1395dd(d)(1), 1395mm, 1395nn(g), 
1395ss(d), 1396b(m), 11131(c) and 11137(b)(2).
    2. Section 1003.100 is amended by revising paragraphs (b)(1)(iv), 
(b)(1)(xii) and (b)(1)(xiii); and by adding paragraphs (b)(1)(xiv) and 
(b)(1)(xv) to read as follows:


Sec. 1003.100  Basis and purpose.

* * * * *
    (b) * * *
    (1) * * *
    (iv)(A) Fail to report information concerning medical malpractice 
payments or who improperly disclose, use or permit access to 
information reported under part B of title IV of Public Law 99-660, and 
regulations specified in 45 CFR part 60, or
    (B) Are health plans and fail to report information concerning 
sanctions or other adverse actions imposed on providers as required to 
be reported to the Healthcare Integrity and Protection Data Bank 
(HIPDB) in accordance with section 1128E of the Act;
* * * * *
    (xii) Offer inducements that they know or should know are likely to 
influence Medicare or State health care program beneficiaries to order 
or receive particular items or services;
    (xiii) Are physicians who knowingly misrepresent that a Medicare 
beneficiary requires home health services;
    (xiv) Have submitted, or caused to be submitted, certain prohibited 
claims, including claims for services rendered by excluded individuals 
employed by or otherwise under contract with such person, under one or 
more Federal health care programs; or
    (xv) Violate the Federal health care programs' anti-kickback 
statute as set forth in section 1128B of the Act.

* * * * *

    3. Section 1003.101 is amended by republishing the introductory 
text and by revising the definition for the term item or service to 
read as follows:


Sec. 1003.101  Definitions.

    For purposes of this part:
* * * * *
    Item or service includes--
    (a) any item, device, medical supply or service provided to a 
patient (i) which is listed in an itemized claim for program payment or 
a request for payment, or (ii) for which payment is included in other 
Federal or State health care reimbursement methods, such as a 
prospective payment system; and
    (b) in the case of a claim based on costs, any entry or omission in 
a cost report, books of account or other documents supporting the 
claim.
* * * * *


    4. Section 1003.106 is amended by republishing the introductory 
text for paragraphs (a) and (a)(4) and by revising paragraphs (a) and 
(a)(4)(iii) to read as follows:


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

    (a) Amount of penalty. * * *
    (4) In determining the amount of any penalty in accordance with 
Sec. 1003.102(c), the OIG takes into account--
    (iii) Any other instances where the respondent failed to provide 
appropriate emergency medical screening, stabilization and treatment of 
individuals coming to a hospital's emergency department or to effect an 
appropriate transfer;
* * * * *

PART 1005--[AMENDED]

    1. The authority citation for part 1005 continues to read as 
follows:

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


[[Page 11936]]



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


Sec. 1005.7  Discovery.

* * * * *
    (e)(1) When a request for production of documents has been 
received, within 30 days the party receiving that request will either 
fully respond to the request, or state that the request is being 
objected to and the reasons for that objection. If objection is made to 
part of an item or category, the part will be specified. Upon receiving 
any objections, the party seeking production may then, within 30 days 
or any other time frame set by the ALJ, file a motion for an order 
compelling discovery. (The party receiving a request for production may 
also file a motion for protective order any time prior to the date the 
production is due.)
* * * * *


    3. Section 1005.16 is amended by revising paragraph (b) to read as 
follows:


Sec. 1005.16  Witnesses.

* * * * *
    (b) At the discretion of the ALJ, testimony (other than expert 
testimony) may be admitted in the form of a written statement. The ALJ 
may, at his or her discretion, admit prior sworn testimony of experts 
which has been subject to adverse examination, such as a deposition or 
trial testimony. Any such written statement must be provided to all 
other parties along with the last known address of such witnesses, in a 
manner that allows sufficient time for other parties to subpoena such 
witness for cross-examination at the hearing. Prior written statements 
of witnesses proposed to testify at the hearing will be exchanged as 
provided in Sec. 1005.8.
* * * * *

PART 1008--[AMENDED]

    1. The authority citation for part 1008 continues to read as 
follows:

    Authority: 42 U.S.C. 1320a-7d(b).


    2. Section 1008.37 is revised to read as follows:


Sec. 1008.37  Disclosure of ownership and related information.

    Each individual or entity requesting an advisory opinion must 
supply full and complete information as to the identity of each entity 
owned or controlled by the individual or entity, and of each person 
with an ownership or control interest in the entity, as defined in 
section 1124(a)(1) of the Social Security Act (42 U.S.C. 1320a-3(a)(1)) 
and part 420 of this chapter.

    (Approved by the Office of Management and Budget under control 
number 0990-0213)

    Dated: October 19, 2001.
Janet Rehnquist,
Inspector General.
    Approved: November 23, 2001.
Tommy G. Thompson,
Secretary.
[FR Doc. 02-6350 Filed 3-15-02; 8:45 am]
BILLING CODE 4152-01-P