[Federal Register Volume 67, Number 186 (Wednesday, September 25, 2002)]
[Proposed Rules]
[Pages 60202-60205]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-24344]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of Inspector General

42 CFR Part 1001

RIN 0991-AB16


Medicare and State Health Care Programs: Fraud and Abuse; Safe 
Harbor Under the Anti-Kickback Statute For Waiver of Beneficiary 
Coinsurance and Deductible Amounts

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

ACTION: Notice of proposed rulemaking.

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SUMMARY: This proposed rule would expand the existing safe harbor for 
certain waivers of beneficiary coinsurance and deductible amounts to 
benefit the policyholders of Medicare SELECT supplemental insurance. 
Specifically, the amended safe harbor would protect waivers of 
coinsurance and deductible amounts under Part A or Part B of the 
Medicare program owed by beneficiaries covered by a Medicare SELECT 
supplemental insurance policy issued in accordance with section 
1882(t)(1) of the Social Security Act (the Act), if the waiver is in 
accordance with a price reduction agreement covering such policyholders 
between the Medicare SELECT issuer and the provider or supplier 
offering the waiver and the waiver is otherwise permitted under the 
Medicare program.

DATES: To assure consideration, public comments must be delivered to 
the address provided below by no later than 5 p.m. on October 25, 2002.

ADDRESSES: Please mail or deliver your written comments to the 
following address: Department of Health and Human Services, Office of 
Inspector General, 330 Independence Avenue, SW., Room 5246, Attention: 
OIG-729-P, Washington, DC 20201.
    Because of staffing and resource limitations, we cannot accept 
comments by facsimile (FAX) transmission. In commenting, please refer 
to file OIG-729-P.

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

SUPPLEMENTARY INFORMATION:

I. Background

A. The Anti-Kickback Statute and Safe Harbors

    Section 1128B(b) of 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 or reward the referral 
of business reimbursable by a Federal or State health care program. 
Violations of the statute may also result in the imposition of a civil 
money penalty (CMP) under section 1128A(a)(7) of the Act (42 U.S.C. 
1320a-7a(a)(7)) or program exclusion under section 1128(b)(7) of the 
Act (42 U.S.C. 1320a-7(b)(7)).
    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.
    In response to concerns that the statute technically covered some 
relatively innocuous commercial arrangements, subjecting them to 
criminal prosecution, Congress enacted section 14 of the Medicare and 
Medicaid Patient and Program Protection Act of 1987, Public Law 100-93, 
which specifically required the development and promulgation of the 
``safe harbor'' provisions. The safe harbor regulations specify various 
payment and business practices that, although potentially capable of 
inducing referrals of business reimbursable under the Federal health 
care programs, would not be treated as criminal offenses under the 
anti-kickback statute. Since July 29, 1991, we have published in the 
Federal Register a series of final regulations establishing safe 
harbors for various business practices.\1\
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    \1\ 56 FR 35952 (July 29, 1991); 61 FR 2122 (January 25, 1996); 
64 FR 63518 (November 19, 1999); 64 FR 63504 (November 19, 1999); 
and 66 FR 62979 (December 4, 2001).
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    Health care providers and others may voluntarily comply with these 
provisions to ensure that their business practices are not subject to 
any enforcement action under the anti-kickback statute, including the 
CMP provision for anti-kickback violations and the program exclusion 
authority related to kickbacks. In giving the

[[Page 60203]]

Department the authority to protect certain arrangements and payment 
practices under the anti-kickback statute, Congress intended the safe 
harbor regulations to be evolving rules that would be updated 
periodically to reflect changing business practices and technologies in 
the health care industry.

B. Safe Harbor Regarding Waiver of Beneficiary Coinsurance and 
Deductible Amounts in Accordance With an Agreement between a Hospital 
and a Medicare SELECT Issuer

    On July 29, 1991, the Department published final regulations (56 FR 
35952) that included, among other provisions, a safe harbor for the 
waiver or reduction of coinsurance or deductible amounts (cost-sharing 
amounts) for inpatient hospital services reimbursed under the 
prospective payment system (42 CFR 1001.952(k)(1)). For full or partial 
waivers to be protected, three standards had to be met: (1) The 
hospital could not claim waived amounts as bad debt or otherwise shift 
the cost of the waivers; (2) the hospital could not discriminate in 
offering waivers or reductions based on the patient's reason for 
admission; and (3) the waivers or reductions could not result from an 
agreement between the hospital and a third-party payer. The Department 
concluded that waivers of cost-sharing amounts for inpatient hospital 
services that complied with these standards would not increase costs to 
the Medicare program, shift costs to other payers, or increase patient 
demand for inpatient hospital services.
    On November 5, 1992, the Department issued an interim final rule 
(57 FR 52723) modifying the safe harbor to accommodate the waiver or 
reduction of inpatient hospital cost-sharing amounts made in accordance 
with a contract between the hospital and a Medicare SELECT issuer. 
Unlike conventional Medicare supplemental insurance policies, which 
must by law cover cost-sharing amounts for most Medicare services 
provided by qualified providers or suppliers, a Medicare SELECT issuer 
may contract selectively with providers or suppliers to waive cost-
sharing amounts it would otherwise have to pay on behalf of 
policyholders, subject to certain conditions to ensure access, 
coverage, and quality. In other words, Medicare SELECT is similar to a 
preferred provider network; enrollees may receive reduced supplemental 
benefits (e.g., less coverage of Medicare cost-sharing) if they use an 
out-of-network provider. Under the 1992 modified safe harbor, Medicare 
SELECT issuers can enter into contracts with hospitals to waive or 
reduce inpatient hospital cost-sharing amounts for Medicare SELECT 
enrollees, provided the other requirements of the safe harbor are met. 
On January 25, 1996, the Department published final regulations (61 FR 
2122) that included the amendments to the safe harbor made by the 
interim final rule.

II. Provisions of the Proposed Modification to the Rule

    This proposed rule modification would add a new subsection to 42 
CFR 1001.952(k) to supplement the current safe harbor to include 
waivers of cost-sharing amounts for Part A or Part B services for 
Medicare SELECT policyholders in accordance with an agreement between 
the Medicare SELECT issuer and a provider or supplier, provided that 
the waivers are otherwise permitted under applicable Medicare program 
laws, regulations, and policies. This new subsection has the limited 
purpose of making clear that Medicare SELECT waivers, when implemented 
in accordance with the safe harbor conditions, will not violate the 
anti-kickback statute. However, the scope of acceptable waivers under 
the Medicare SELECT program is within the purview of the Centers for 
Medicare and Medicaid Services (CMS). For example, should CMS pay 
exclusively based on charges (e.g., no fee schedule, cap, composite 
rate, or prospective payment) for any fee-for-service Medicare service, 
we expect that CMS would not authorize routine waivers of cost-sharing 
amounts for those services, including waivers for Medicare SELECT 
beneficiaries. In short, this safe harbor will make it easier for CMS 
to change or expand the scope of the Medicare SELECT program.
    In 1996, we specifically declined to protect waivers of cost-
sharing amounts for other than hospital inpatient services. That 
decision was based on several reasons, including: (1) The expanded 
waivers were not necessary or essential to the operation or development 
of Medicare SELECT provider networks; (2) there was a possibility that 
the waivers could lead to overutilization of services and, 
consequently, increased costs to the Medicare program; and (3) the 
waivers could raise potential issues under the False Claims Act (31 
U.S.C. 3729).
    There have been several developments since our decision in 1996 to 
limit protection to waivers of hospital inpatient cost-sharing amounts 
for Medicare SELECT enrollees. In particular, an extensive study of the 
Medicare SELECT demonstration determined that the absence of a safe 
harbor under the anti-kickback statute for waivers of Part B cost-
sharing amounts was a major impediment to expanding the Medicare SELECT 
networks beyond hospitals.\2\ In addition, Congress made the Medicare 
SELECT program permanent, giving Medicare beneficiaries a wider choice 
of Medicare supplemental insurance coverage plans.\3\ Also during the 
intervening period, there has been a significant movement away from 
cost-based and charge-based reimbursement methodologies in the Medicare 
program and a concomitant increase in prospective payment 
methodologies. Finally, there has been an increase in consumer 
preference for flexible managed care arrangements, such as preferred 
provider plans.
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    \2\ See ``Impact of Medicare SELECT on Cost and Utilization in 
11 States,'' Health Care Financing Review, Fall 1997.
    \3\ Public Law 104-18.
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    In light of these intervening events, we have reconsidered our 
earlier decision to limit the safe harbor for Medicare SELECT waivers 
of cost-sharing amounts to hospital inpatient services. First, the 
detailed evaluation of the Medicare SELECT demonstration determined 
that a major shortcoming of the plans was that they were almost 
exclusively limited to hospital networks--a direct result of the 
absence of broader safe harbor protection for other suppliers and 
providers. Given that Congress has demonstrated its support for the 
Medicare SELECT program by making it permanent, we should try to 
maximize the program's chances for success to the extent practical.
    Second, we believe the expansion of the safe harbor to cover all 
otherwise permitted waivers of cost-sharing for Medicare services 
covered by a Medicare SELECT program will benefit the public by 
providing more choice in coverage and pricing for the Medicare 
supplemental insurance market. To the extent the safe harbor results in 
reduced expenditures for the issuer, it will also be likely to reduce 
the price of supplemental insurance coverage for beneficiaries who 
purchase Medicare SELECT policies. We understand that CMS intends that 
issuers will pass on a significant share of savings to beneficiaries; 
beneficiaries may either realize those savings in cash or purchase a 
policy that has greater coverage than they might otherwise be able to 
afford.
    Third, we do not believe that the expansion of the safe harbor 
would result in a substantial overutilization or inappropriate 
utilization of Medicare services by enrollees. It is well

[[Page 60204]]

established that any Medicare supplemental insurance coverage increases 
utilization, by virtue of removing discrete beneficiary cost-sharing 
obligations. The increase in utilization occurs with the shifting of 
cost-sharing obligations from a beneficiary to an insurer regardless of 
whether the insurer pays the cost-sharing obligations or enters into an 
agreement with a provider to waive cost-sharing amounts. If a 
beneficiary already has supplemental coverage, a waiver of cost-sharing 
amounts does not pose any additional risk of increased utilization.
    Notwithstanding this proposed safe harbor, Medicare SELECT issuers, 
providers, and suppliers would still need to comply with all applicable 
Medicare program laws, regulations, and policies regarding payment and 
cost-sharing waivers.

III. Regulatory Impact Statement

A. Regulatory Analysis

    We have examined the impacts of this proposed rule as required by 
Executive Order 12866, the Unfunded Mandates Reform Act of 1995, and 
the Regulatory Flexibility Act of 1980 (RFA) (Pub. L. 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 must be 
prepared for major rules with economically significant effects ($100 
million or more in any given year). Since this proposed regulation will 
not have a significant effect on program expenditures and as there are 
no additional substantive costs to implement the resulting provision, 
we do not consider this to be a major rule. The provisions in this 
proposed rule will permit individuals and entities to engage freely in 
competitive business practices and arrangements. Parties may 
voluntarily comply with safe harbor provisions to ensure that business 
practices are not subject to any enforcement actions under the anti-
kickback statute. The current safe harbor has resulted in Medicare 
SELECT preferred provider networks being limited to hospitals. The 
proposed safe harbor will facilitate the creation of significantly 
broader Medicare SELECT provider networks, making Medicare SELECT a 
more attractive insurance option. Moreover, we understand that CMS 
intends that broader Medicare SELECT networks will lead to savings for 
beneficiaries who purchase Medicare SELECT policies, either in the form 
of lower premiums or the ability to purchase a more comprehensive 
policy than they could otherwise afford.
    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 on 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 
is not necessary.
    Further, in accordance with the RFA, and the Small Business 
Regulatory Enforcement and Fairness Act of 1996, which amended the RFA, 
we are required to determine if this proposed 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 other providers and 
suppliers that contract with Medicare SELECT issuers 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 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 proposed safe harbor provisions may have an impact on 
small entities and rural providers, we believe that the aggregate 
economic impact of this proposed rulemaking will be minimal, since it 
is the nature of the conduct and not the size of the entity that 
results in a violation of the anti-kickback statute. Moreover, the 
proposed safe harbor may benefit some providers by increasing their 
flexibility to enter into Medicare SELECT provider agreements without 
risk under the anti-kickback statute. The safe harbor should 
effectively expand opportunities for providers to enter into preferred 
provider arrangements that they find beneficial. For these reasons and 
because the vast majority of individuals and entities potentially 
affected by this proposed regulation 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 proposed rule 
would 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 (OMB) has reviewed this 
proposed rule in accordance with Executive Order 12866.

B. Paperwork Reduction Act

    Under the Paperwork Reduction Act (PRA) of 1995, we are required to 
provide a 60 day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
OMB for review and approval. In order to evaluate fairly whether an 
information collection should be approved by OMB, section 3506(c)(2)(A) 
of the PRA required that we solicit comment on the following issues:
    [sbull] The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
    [sbull] The accuracy of our estimate of the information collection 
burden.
    [sbull] The quality, utility, and clarity of the information to be 
collected.
    [sbull] Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    We are soliciting public comment on each of these issues with 
respect to the proposed safe harbor, which contains information 
collection requirements.
    We believe the burden associated with these requirements is exempt 
in accordance with 5 CFR 1320.3(b)(2), because the requirements are 
consistent with the usual and customary business practices of issuers, 
providers, and suppliers, and because the time, effort, and financial 
resources necessary to comply with the requirements would be incurred 
by issuers, providers, and suppliers in the normal course of their 
business activities. Specifically, the safe harbor requires that: (i) 
The offer to waive cost-sharing amounts be part of a price reduction 
agreement in a contract for the furnishing of items and services to a 
Medicare SELECT beneficiary between the provider or supplier and the 
Medicare SELECT issuer; and (ii) the beneficiary must be covered by a 
Medicare supplemental insurance

[[Page 60205]]

policy that complies with the terms of section 1882(t)(1) of the Act. 
The network contracts and the insurance policies are prepared in the 
normal course of business and are usual and customary business 
practices for parties engaged in arrangements that would be covered by 
the safe harbor.
    Comments on these information collection activities should be sent 
to the following address within 60 days following the Federal Register 
publication of this proposed 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.

IV. Public Inspection of Comments and Response to Comments

    Comments will be available for public inspection beginning October 
25, 2002, in Room 5518, Office of Counsel to the Inspector General, at 
330 Independence Avenue, SW., Washington, DC on Monday through Friday 
of each week (Federal holidays excepted) between the hours of 9 a.m. 
and 4 p.m., (202) 619-0089.
    Because of the large number of items of correspondence we normally 
receive on Federal Register documents published for comment, we are not 
able to acknowledge or respond to them individually. We will consider 
all comments we receive by the date and time specified in the DATES 
section of this preamble, and will respond to the comments in the 
preamble of the final rule.

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 proposed to be amended as set 
forth below:

PART 1001--[AMENDED]

    1. The authority citation for part 1001 would continue to read as 
follows:

    Authority: 42 U.S.C. 1302, 1320a-7,1320a-7b, 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 would be amended by republishing the 
introductory text, by revising the introductory text of paragraph (k), 
and by adding a paragraph (k)(3) 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:
* * * * *
    (k) Waiver of beneficiary coinsurance and deductible amounts. As 
used in section 1128B of the Act, ``remuneration'' does not include any 
reduction or waiver of a Medicare or a State health care program 
beneficiary's obligation to pay coinsurance or deductible amounts as 
long as all of the standards are met within one of the following three 
categories of health care providers:
* * * * *
    (3) If the coinsurance or deductible amounts are owed by an 
individual who is a beneficiary under title XVIII of the Act for items 
or services for which Medicare pays under parts A or B, the provider or 
supplier must comply with both of the following two standards--
    (i) The provider or supplier must not later claim the amount 
reduced or waived as bad debt for payment purposes under Medicare or 
otherwise shift the burden of the reduction or waiver onto Medicare, a 
State health care program, other payers, or individuals.
    (ii) The offer of the provider or supplier to reduce or waive the 
coinsurance or deductible amounts must be part of a price reduction 
agreement in a contract for the furnishing of items or services to a 
beneficiary of a Medicare supplemental policy issued under the terms of 
section 1882(t)(1) of the Act and the waiver must otherwise be 
permitted under applicable Medicare program laws, regulations, and 
policies.
* * * * *

    Dated: August 13, 2002.
Janet Rehnquist,
Inspector General.
    Approved: August 21, 2002.
Tommy G. Thompson,
Secretary.
[FR Doc. 02-24344 Filed 9-24-02; 8:45 am]
BILLING CODE 4150-04-P