[Federal Register Volume 67, Number 226 (Friday, November 22, 2002)]
[Rules and Regulations]
[Pages 70322-70323]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-29797]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 411

[CMS-1809-F2]
RIN 0938-AM21


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

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

ACTION: Final rule; extension of partial delay in effective date.

-----------------------------------------------------------------------

SUMMARY: This final rule further delays for 6 months, until July 7, 
2003, the effective date of the last sentence of 42 CFR 411.354(d)(1). 
Section 411.354(d)(1) was promulgated in the final rule entitled 
``Medicare and Medicaid Programs; Physicians' Referrals to Health Care 
Entities With Which They Have Financial Relationships,'' published in 
the Federal Register on January 4, 2001 (66 FR 856). A 1-year delay of 
the effective date of the last sentence in Sec.  411.354(d)(1) was 
published in the Federal Register on December 3, 2001 (66 FR 60154). 
This extension of the 1-year delay in the effective date of that 
sentence will give us additional time to reconsider the definition of 
compensation that is ``set in advance'' as it relates to percentage 
compensation methodologies in order to avoid unnecessarily disrupting 
existing contractual arrangements for physician services. Accordingly, 
the last sentence of Sec.  411.354(d)(1), which would have become 
effective January 6, 2003, will not become effective until July 7, 
2003. We expect a future final rule with comment period, entitled 
``Medicare Program; Physicians' Referrals to Health Care Entities With 
Which They Have Financial Relationships'' (Phase II), to further 
address this issue prior to this effective date.

DATES: Effective date: The effective date of the last sentence in Sec.  
411.354(d)(1) of the final rule published in the Federal Register on 
January 4, 2001 (66 FR 856), is delayed for an additional 6 month 
period to July 7, 2003.

FOR FURTHER INFORMATION CONTACT: Karen Raschke, (410) 786-0016.

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

I. Background

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

[[Page 70323]]

understand that hospitals, academic medical centers, medical 
foundations and other health care entities would have to restructure or 
renegotiate thousands of physician contracts to comply with the 
language in Sec.  411.354(d)(1) regarding percentage compensation 
arrangements.
    Accordingly, we published a 1-year delay of the effective date of 
the last sentence in Sec.  411.354(d)(1) in the Federal Register on 
December 3, 2001 (66 FR 60154) in order to reconsider the definition of 
compensation that is ``set in advance'' as it relates to percentage 
compensation methodologies.

II. Response to Public Comments

    In response to the publication of the interim final rule with 
comment period on December 3, 2001 (66 FR 60154), we received a total 
of four comments. Because the sole purpose of that interim final rule 
with comment period was to delay the effective date of the last 
sentence in Sec.  411.354(d)(1), we only accepted comments addressing 
the length of the delay of that sentence. The following discussion 
includes a description of the two pertinent comments that we received, 
along with our responses.
    Comment: Two commenters requested that we further postpone the 
effective date for an additional year in order to better effectuate our 
stated goals of providing stability in the health care services 
available to Medicare beneficiaries, and of avoiding unnecessary 
disruption of existing contractual arrangements. They were of the 
opinion that, although the current 1-year delay in effective date may 
provide us with enough time to publish further guidance, physicians and 
other health care entities will need additional time to renegotiate 
reimbursement and compensation arrangements in order to avoid 
disrupting existing contractual arrangements.
    Response: We agree that additional time is necessary, both for us 
to reconsider this issue, and for health care entities to bring their 
arrangements into compliance. However, we believe that a further 6-
month delay in the effective date will suffice because we expect a 
future final rule with comment period entitled ``Medicare Program; 
Physicians' Referrals to Health Care Entities With Which They Have 
Financial Relationships'' (Phase II) to further address this issue 
prior to this effective date.

III. Provisions of This Final Rule

    To avoid any unnecessary disruption to existing contractual 
arrangements while we consider modifying this provision, we are further 
postponing, for an additional 6 months, until July 7, 2003, the 
effective date of the last sentence of Sec.  411.354(d)(1). This delay 
is intended to avoid disruptions in the health care industry, and 
potential attendant problems for Medicare beneficiaries, which could be 
caused by allowing the last sentence of Sec.  411.354(d)(1) to become 
effective on January 6, 2003. In the meantime, compensation that is 
required to be ``set in advance'' for purposes of compliance with 
section 1877 of the Act may continue to be based on percentage 
compensation methodologies, including those in which the compensation 
is based on a percentage of a fluctuating or indeterminate measure. We 
note that the remaining provisions of Sec.  411.354(d)(1) will still 
apply and that all other requirements for exceptions must be satisfied 
(including, for example, the fair market value and ``volume and value'' 
requirements).

IV. Waiver of Proposed Rulemaking

    We ordinarily publish a notice of proposed rulemaking and invite 
public comment on the proposed rule. This procedure can be waived, 
however, if an agency finds good cause that the notice and comment 
rulemaking procedure is impracticable, unnecessary, or contrary to the 
public interest and if the agency incorporates in the rule a statement 
of such a finding and the reasons supporting that finding.
    Our implementation of this action without opportunity for public 
comment is based on the good cause exceptions in 5 U.S.C. 553(b)(B). We 
find that seeking public comment on this action would be impracticable 
and unnecessary. We are implementing this additional delay of effective 
date as a result of our review of the public comments that we received 
on the January 4, 2001 physician self-referral final rule. As discussed 
above, we understand from those comments and the comments we received 
on the December 3, 2001 interim final rule that, unless we further 
delay the effective date of the last sentence of Sec.  411.354(d)(1), 
hospitals, academic medical centers, and other entities will have to 
renegotiate numerous contracts for physician services, potentially 
causing significant disruption within the health care industry. We are 
concerned that the disruption could unnecessarily inconvenience 
Medicare beneficiaries or interfere with their medical care and 
treatment. We do not believe that it is necessary to offer yet another 
opportunity for public comment on the same issue in the limited context 
of whether to delay this sentence of the regulation. In addition, given 
the imminence of the January 6, 2003 effective date, we find that 
seeking public comment on this delay in effective date would be 
impracticable because it would generate uncertainty regarding an 
imminent effective date. This uncertainty could cause health care 
providers to renegotiate thousands of contracts with physicians in an 
effort to comply with the regulation by January 6, 2003 if the proposed 
delay is not finalized until after the opportunity for public comment. 
Thus, providing the opportunity for public comment could result in the 
very disruption that this delay of effective date is intended to avoid.

(Catalog of Federal Domestic Assistance Program No. 93.773 
Medicare--Hospital Insurance Program; Program No. 93.774, Medicare--
Supplementary Medical Insurance Program; and Program No. 93.778, 
Medical Assistance Program)
    Dated: September 27, 2002.
Thomas A. Scully,
Administrator, Centers for Medicare & Medicaid Services.

    Approved: November 19, 2002.

Tommy G. Thompson,
Secretary.
[FR Doc. 02-29797 Filed 11-21-02; 8:45 am]
BILLING CODE 4120-01-P