[Federal Register Volume 69, Number 122 (Friday, June 25, 2004)]
[Rules and Regulations]
[Pages 35529-35530]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-14272]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 411

[CMS-1809-F5]
RIN 0938-AM99


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.

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SUMMARY: This final rule further delays for 19 days, until July 26, 
2004, the effective date of the last sentence of 42 CFR Sec.  
411.354(d)(1), as published in the January 4, 2001 final rule (66 FR 
856). The new effective date coincides with the effective date of a 
March 26, 2004 interim final rule that removed this sentence from the 
regulation. Consequently, the last sentence of Sec.  411.354(d)(1), as 
originally published in January 2001, will be automatically superseded 
by the March 2004 interim final rule.

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 further delayed until July 26, 2004 at 
which time it will be superseded by a new Sec.  411.354(d)(1), 
published in the Federal Register on March 26, 2004 (69 FR 16054), 
effective on July 26, 2004.

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

SUPPLEMENTARY INFORMATION: 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 
at http://cms.hhs.gov/medlearn/refphys.asp.

I. Background

    Under section 1877 of the Social Security Act (Act), 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

[[Page 35530]]

the entity may not bill for the services, unless an exception applies. 
Many of the exceptions that apply to compensation relationships require 
that the amount of compensation be ``set in advance.'' Section 
411.354(d)(1) defines the term ``set in advance.''
    Section 411.354(d)(1) was first published in the Federal Register 
on January 4, 2001 (66 FR 856) in a final rule with comment period that 
is commonly referred to as the ``Phase I'' physician self-referral 
final rule. The last sentence of Sec.  411.354(d)(1), as originally 
published in Phase I stated that--``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 Phase 
I final rule opposed this language. The comments indicated that 
physicians are commonly paid for their professional services on a 
percentage compensation basis and that hospitals, academic medical 
centers (AMCs), 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. To give the agency additional 
time to reconsider the matter, 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). Through a series of 
subsequent rules, we further delayed the effective date of this 
provision until July 7, 2004 (see 67 FR 70322, 68 FR 20347, and 68 FR 
74491). We indicated in those rules that we intended to definitively 
address the percentage compensation issue in the ``Phase II'' physician 
self-referral final rule.
    We published the Phase II interim final rule with comment period on 
March 26, 2004. In Phase II, we modified our interpretation of ``set in 
advance'' to permit some percentage compensation if the methodology for 
calculating the compensation is set in advance and does not change over 
the course of the arrangement in any manner that reflects the volume or 
value of referrals or other business generated by the referring 
physician. Accordingly, we removed the last sentence of Sec.  
411.354(d)(1) and otherwise modified the provision to reflect this 
interpretation. Phase II becomes effective on July 26, 2004, 19 days 
after the expiration of the most recent delay in effective date for the 
last sentence of the Phase I ``set in advance'' definition.

II. Provisions of This Final Rule

    To avoid regulatory conflict and unnecessary disruption to existing 
contractual arrangements in the health care industry, we are further 
postponing for an additional 19 days, until July 26, 2004, the 
effective date of the last sentence of Sec.  411.354(d)(1) as published 
in Phase I. This delay is intended to coincide with the effective date 
of the Phase II physician self-referral interim final rule. 
Accordingly, on July 26, 2004, Sec.  411.354(d)(1) of Phase I will 
automatically be superseded by the revised Sec.  411.354(d)(1), as 
published in Phase II. 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 the Phase I 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.)

III. 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.
    We do not believe that a delay in effective date is subject to 
notice and comment procedures when the regulatory provision at issue 
has never become effective. Nevertheless, for the benefit of the 
public, we set forth below the reasons why our implementation of this 
action without opportunity for public comment satisfies the good cause 
exception in 5 U.S.C. 553(b). We find that seeking public comment on 
this action would be impracticable and unnecessary.
    We believe public comment is unnecessary because 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. 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, we find that seeking public comment on this delay in 
effective date will be impracticable and contrary to the public 
interest because it would implement, for 19 days, a statutory 
interpretation that we have rejected in a recent interim final rule. 
Even a brief implementation of the rejected statutory interpretation 
carries the potential for significant disruption in the health care 
industry. As discussed above, we understand from public 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), many physician contracts with hospitals, AMCs, 
and other entities furnishing DHS will not be in compliance with the 
physician self-referral prohibition. Consequently, these physicians 
will be unable to refer to the hospitals, AMCs, and other DHS entities 
to whom they are contractually obligated to provide professional or 
other services, and these DHS entities will be prohibited from billing 
Medicare for any services furnished as a result of a prohibited 
referral. We are concerned that this would unnecessarily disrupt the 
practice of medicine, inconvenience Medicare beneficiaries, or 
interfere with beneficiary medical care and treatment.

(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: May 13, 2004.
Mark B. McClellan,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: June 17, 2004.
Tommy G. Thompson,
Secretary.
[FR Doc. 04-14272 Filed 6-24-04; 8:45 am]
BILLING CODE 4120-01-P