[Federal Register Volume 67, Number 236 (Monday, December 9, 2002)]
[Proposed Rules]
[Pages 72896-72898]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-31041]


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

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of Inspector General

42 CFR Part 1003

RIN 0991-AB04


Medicare and State Health Care Programs: Fraud and Abuse; Civil 
Money Penalty Exception To Protect Payment of Medicare Supplemental 
Insurance and Medigap Premiums for ESRD Beneficiaries

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

ACTION: Notice of withdrawal of proposed rulemaking.

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

SUMMARY: On May 2, 2000, we published a notice of proposed rulemaking 
(65 FR 25460) soliciting public comments regarding a possible new 
exception under the OIG's civil money penalty provisions in 42 CFR part 
1003 for independent dialysis facilities that pay, in whole or in part, 
premiums for Supplemental Medical Insurance (Medicare Part B) or 
Medicare Supplemental Health Insurance policies (Medigap) for 
financially needy Medicare beneficiaries with end-stage renal disease 
(ESRD). The exception would have established various standards and 
guidelines that, if met, would have resulted in the particular 
arrangement being protected from civil money sanctions under section 
1128A(a)(5) of the Social Security Act (the Act). Having considered the 
public comments and for the reasons explained below, we are not 
promulgating an exception for these arrangements.

DATES: The NPRM published on May 2, 2000 at 65 FR 25460 is withdrawn as 
of December 9, 2002.

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

SUPPLEMENTARY INFORMATION:

I. Background

A. Section 1128A(a)(5) of the Act

    The Health Insurance Portability and Accountability Act of 1996 
(HIPAA), Public Law 104-191, amended the Act to prohibit any person 
from offering Medicare or Medicaid beneficiaries remuneration that 
might influence them to order or receive from a particular provider, 
practitioner, or supplier items or services payable by Medicare or 
Medicaid. Specifically, section 231(h) of HIPAA established a new 
provision--section 1128A(a)(5) of the Act--for the imposition of a 
civil money penalty (CMP) against any person who:

    Offers or transfers remuneration to any individual eligible for 
benefits under [Medicare or Medicaid] that such person knows or 
should know is likely to influence such individual to order or 
receive from a particular provider, practitioner, or supplier any 
item or service for which payment may be made, in whole or in part, 
under [Medicare or Medicaid].

    Section 231(h) of HIPAA also created a new section 1128A(i)(6) of 
the Act to define the term ``remuneration'' for purposes of the new 
CMP. ``Remuneration'' is broadly defined to include any ``waiver of 
coinsurance and deductible amounts (or any part thereof), and transfers 
of items or services for free or for other than fair market value.'' 
There are several narrow exceptions, including an exception for waivers 
of copayments based on financial need, if the waivers are neither 
routine, nor advertised. No exception applies to the payment by 
providers of Medicare Part B or Medigap insurance premiums on behalf of 
Medicare or Medicaid beneficiaries.

B. Effects of Section 1128A(a)(5)

    Following enactment of HIPAA, representatives of a number of ESRD 
providers informed the OIG that many providers had been paying for 
Medicare Part B premiums and Medigap policies for financially needy 
patients who could not afford to purchase such insurance. The OIG 
concluded that such premium subsidies could be unlawful under the new 
law, and providers subsequently suspended their purchases of Medigap 
policies and payments of Medicare Part B premiums for their patients. 
Alternatively, some providers entered into funding arrangements with 
unrelated, nonprofit organizations that pay premiums on behalf of needy 
ESRD patients without regard to the identity of the patient's provider.
    To date, the OIG has approved three premium funding arrangements 
through advisory opinions. (OIG Advisory Opinions Nos. 97-1, 97-2, and 
98-17.\1\) OIG Advisory Opinion No. 97-1 is representative. In that 
instance, the American Kidney Fund (AKF)--a section 501(c)(3) 
charitable and educational organization--and a number of dialysis 
providers established an arrangement whereby the providers contribute 
funds to AKF, which, in turn, independently screens patients for 
financial need and pays Medicare Part B and Medigap premiums on behalf 
of qualifying patients. Under the arrangement, the providers do not 
make premium payments to, or on behalf of, particular patients; there 
is no ``pass through'' of payments from providers to specific patients; 
and payments do not tie patients in any way to particular providers. In 
short, the premium payments do not influence a patient's selection of 
any particular provider--the core prohibited conduct under section 
1128A(a)(5). We understand that the AKF program now operates 
effectively and that contributions from ESRD providers have resulted in 
increasing numbers of needy patients receiving premium payment and 
other vital assistance. In the five years since AKF implemented its 
premium support program, we have received only a handful of letters 
from patients

[[Page 72897]]

concerned abut mistakes made in connection with their AKF funding.
---------------------------------------------------------------------------

    \1\ http://oig.hhs.gov/fraud/docs/advisoryopinions/1997/kdp.pdf; 
http://oig.hhs.gov/fraud/docs/advisoryopinions/1997/972ao.pdf and 
http://oig.hhs.gov/fraud/docs/advisoryopinions/1998/ao98_17.htm 
respectively.
---------------------------------------------------------------------------

C. The Proposed Exception

    On October 21, 1998, Congress enacted the Omnibus Consolidated and 
Emergency Supplemental Appropriations Act for Fiscal Year 1999 
(OCESAA), Public Law 105-277. Section 5201 of OCESAA authorized, but 
did not require, the Secretary to issue regulations establishing 
exceptions under section 1128A(a)(5) of the Act for payment practices 
that would otherwise violate the statute. (Additionally, OCESSA vested 
the Secretary with authority to issue advisory opinions approving such 
arrangements on a case-by-case basis.) Congress provided no guidance as 
to acceptable bases for protecting or approving an otherwise unlawful 
arrangement. Under OCESAA, if a regulatory exception is promulgated for 
premium support payments by ESRD providers, (i) the exception must be 
limited to two years, and (ii) the Comptroller General of the United 
States must study any disproportionate impact on specific Medigap 
insurers due to adverse selection in enrolling Medicare ESRD 
beneficiaries and recommend whether to extend the exception past two 
years.
    We construed OCESSA as evidencing Congress' intent that we 
consider, but not necessarily establish, an exception for premium 
payments made by ESRD providers. To that end, we issued an NPRM 
soliciting public comment regarding a proposed exception that would 
have applied to independent dialysis facilities (as defined in 42 CFR 
413.174) that have no hospital, physician, or other provider or 
supplier ownership and that pay for Medicare Part B or Medigap premiums 
for financially needy ESRD patients when (i) the payment is not 
advertised, (ii) the dialysis facility does not routinely make payments 
for such premiums, and (iii) the dialysis facility makes a good faith 
determination that the individual is financially needy. The proposed 
exception would not have covered the payment of Medicare Part B or 
Medigap premiums on behalf of any other beneficiaries or by any other 
type of provider. We specifically solicited comments on the potential 
impact of adverse selection on the Medigap insurance market.
    We received 72 timely comments to the proposed rule from a cross-
section of interested parties. Many commenters considered the proposed 
rule too narrow and advocated a broader rule that would apply to 
dialysis providers owned or operated by hospitals, physicians, or other 
providers. Other commenters thought the rule was unnecessary. 
Commenters representing insurers opposed the rule.
    Commenters favoring a broader rule believed that OCESSA 
demonstrated Congress' support for an ESRD premium payment exception. 
They pointed out that many ESRD facilities had paid premiums for 
financially needy patients prior to the enactment of HIPAA and that the 
Health Care Financing Administration (now the Centers for Medicare and 
Medicaid Services) had a separate line on the ESRD cost report for such 
payments. They also noted that dialysis patients traditionally have 
very high copayments and, thus, have a particular need for supplemental 
insurance. A substantial amount of care provided to these patients is 
covered under Medicare Part B and requires a 20% copayment. According 
to these commenters, premium payments do not influence a patient's 
choice of an ESRD facility, since the availability of premium support 
is not typically advertised and an ESRD patient typically picks a 
dialysis facility based on proximity to the patient's home or the 
recommendation of the patient's nephrologist. Commenters also asserted 
that there is little risk of overutilization because both ESRD 
facilities and nephrologists are paid by Medicare primarily on a 
composite rate basis that does not vary with the amount of services 
provided.
    Commenters opposing the proposed rule emphasized the potential 
effects of adverse selection on the insurance market, noting that the 
claims costs of Medigap subscribers with ESRD are significantly higher 
than those of non-ESRD subscribers. Commenters also observed, among 
other things, that the proposed safe harbor would give ESRD facilities 
an incentive to pay Medicare Part B and Medigap premiums in order to 
maintain their revenue streams; would benefit nephrologists who may be 
influenced to steer patients to facilities providing premium support; 
and would influence beneficiaries to select particular facilities. In 
sum, commenters opposing the proposal believed it would have 
detrimental effects on insurers, the Medicare program, and 
beneficiaries.

D. Determination Not To Promulgate an Exception

    We have reviewed the public comments and considered the issues 
raised by an exception to section 1128A(a)(5) for ESRD premium 
payments. For the following reasons, we decline to promulgate such an 
exception.
    First, the direct payment of supplemental premiums by ESRD 
providers for financially needy patients carries the same potential for 
abuse as the provision of free or below market rate goods or services 
by any other health care provider. (See OIG Special Advisory Bulletin 
on Offering Gifts and Other Inducements to Beneficiaries (65 FR 55844; 
August 30, 2002). The statute targets corruption of the provider 
selection process. Since any exception would be permissive, any ESRD 
facility that did not pay premiums for financially needy patients would 
likely lose business. In short, the exception would promote the very 
conduct the statute prohibits: the offering of remuneration to 
influence the selection of a provider. Moreover, patients would not 
only be influenced to select ESRD facilities that buy them supplemental 
health insurance, but would be ``locked in'' to those facilities, since 
changing facilities would jeopardize their supplemental insurance for 
all services, including substantial non-ESRD services.
    Second, creating an exception for direct premium payments by ESRD 
providers would create demands for additional exceptions for comparable 
payments by other health care providers and would potentially increase 
federal expenditures and Medigap premiums. We can discern no rational 
basis--and Congress has provided no guidance--for distinguishing 
between providers paying premiums for ESRD patients and providers 
paying premiums for other chronically ill, financially needy patients, 
such as patients with cancer, diabetes, or congestive heart disease. 
Nor can we discern any rational bases for distinguishing among types of 
benefits provided to Medicare and Medicaid beneficiaries or among 
categories of sick beneficiaries. Absent congressional guidance, 
attempting to draw such distinctions would necessarily result in 
arbitrary standards and would undermine the statute.
    It is to a provider's financial advantage (i) to pay the Medigap 
premium whenever the premium is less than the expected copayments and 
(ii) to pay the Part B premium whenever the premium is less than the 
expected Part B payments. Thus, the insurer will always lose money on 
these policies, as the amount paid out to the provider will always 
exceed the premiums received. This phenomenon--adverse selection--will 
likely cause insurers to raise premiums for all other enrollees to 
cover the losses. For this reason, the health insurance industry 
objected to the proposed exception.

[[Page 72898]]

    Finally, we are not persuaded that a special exception for ESRD 
premium payments is needed. Financially needy dialysis patients are 
already receiving, and will continue to receive, supplemental health 
insurance support through funding arrangements with AKF or comparable 
independent nonprofit organizations. These arrangements are lawful, are 
apparently efficient, and minimize the potential for abuse.
    In sum, in the absence of specific guidance from Congress on the 
standards to apply, we are not promulgating an exception for ESRD 
premium payments under section 1128A(a)(5) of the Act. This approach 
reflects our determination--articulated in the OIG Special Advisory 
Bulletin on Offering Gifts and Other Inducements to Beneficiaries (67 
FR 55855; August 30, 2002)--that any exceptions to section 1128A(a)(5) 
must be closely aligned with the existing language of the statute.

II. Withdrawal of Notice of Proposed Rulemaking

    Accordingly, the notice of proposed rulemaking that was published 
in the Federal Register on May 2, 2000 (65 FR 25460) is withdrawn.

III. Regulatory Impact

    Since the action only withdraws a notice of proposed rulemaking, it 
is neither a proposed or a final rule and, therefore, is not covered 
under Executive Order 12866 or the Regulatory Flexibility Act (5 U.S.C. 
601-612).

List of Subjects in 42 CFR Part 1003

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

    Dated: October 25, 2002.
Janet Rehnquist,
Inspector General.
    Approved: December 2, 2002.
Tommy G. Thompson,
Secretary.
[FR Doc. 02-31041 Filed 12-6-02; 8:45 am]
BILLING CODE 4152-01-P