[Federal Register Volume 72, Number 116 (Monday, June 18, 2007)]
[Proposed Rules]
[Pages 33430-33432]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-11663]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of Inspector General

42 CFR Part 1001

RIN 0991-AB23


Medicare and State Health Care Programs: Fraud and Abuse; 
Clarification of Terms and Application of Program Exclusion Authority 
for Submitting Claims Containing Excessive Charges

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

ACTION: Notice of withdrawal of proposed rulemaking.

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SUMMARY: On September 15, 2003, we published a notice of proposed 
rulemaking (68 FR 53939) soliciting public comments regarding further 
guidance on OIG's exclusion authority under section 1128(b)(6)(A) of 
the Social Security Act and 42 CFR 1001.701 of our regulations. Having 
considered the public comments and for the reasons explained below, we 
are not promulgating a final rule.

DATES: The notice of proposed rulemaking published on September 15, 
2003 at 68 FR 53939 is withdrawn as of June 18, 2007.

FOR FURTHER INFORMATION CONTACT: Joel Schaer, Office of External 
Affairs, (202) 619-0089.

SUPPLEMENTARY INFORMATION:

I. Background

A. Current Legal Framework

    Section 1128(b)(6)(A) of the Social Security Act (the Act) provides 
that the Secretary may exclude any individual or entity from 
participation in any Federal health care program if the Secretary 
determines that the individual or entity:

``has submitted or caused to be submitted bills or requests for 
payment (where such

[[Page 33431]]

bills or requests are based on charges or cost) under title XVIII 
[of the Act] or a State health care program containing charges (or, 
in applicable cases, requests for payment of costs) for items or 
services furnished substantially in excess of such individual's or 
entity's usual charges (or, in applicable cases, substantially in 
excess of such individual's or entity's costs) for such items or 
services, unless the Secretary finds there is good cause for such 
bills or requests containing such charges or costs.''

The Secretary has specifically delegated the authority under section 
1128 of the Act to the Department's Office of Inspector General (OIG) 
(53 FR 12993, April 20, 1988).
    The regulations interpreting section 1128(b)(6)(A) of the Act are 
set forth at 42 CFR 1001.701. Under Sec.  1001.701(a)(1), OIG may 
exclude an individual or entity that has ``[s]ubmitted, or caused to be 
submitted, bills or requests for payments under Medicare or any of the 
State health care programs containing charges or costs for items or 
services furnished that are substantially in excess of such 
individual's or entity's usual charges or costs for such items or 
services.'' In addition, Sec.  1001.701(c)(1) provides that an 
individual or entity will not be excluded for ``[s]ubmitting, or 
causing to be submitted, bills or requests for payment that contain 
charges or costs substantially in excess of usual charges or costs when 
such charges or costs are due to unusual circumstances or medical 
complications requiring additional time, effort, expense or other good 
cause.'' The regulations at Sec.  1001.701(d)(1) further provide that 
an exclusion imposed under section 1128(b)(6)(A) of the Act will be for 
a period of 3 years, unless certain aggravating or mitigating 
circumstances exist.

B. The Proposed Rule

    OIG published a notice of proposed rulemaking on September 15, 2003 
to provide further guidance on OIG's exclusion authority under section 
1128(b)(6)(A) of the Act and 42 CFR 1001.701 (68 FR 53939).\1\ We noted 
in the preamble to the proposed rule that, notwithstanding the 
increasing use of fee schedules by Federal health care programs, many 
payment provisions of the Act continue to be charge-based in that 
programs are only obligated to pay the lower of the actual charge or 
the fee schedule amount. Therefore, section 1128(b)(6)(A) of the Act 
could still apply to bills and requests for payment submitted for items 
or services for which payment is based directly or indirectly on the 
provider's charges or costs, especially in Medicare Part B, including, 
but not limited, to clinical laboratory services, durable medical 
equipment, medical supplies, and drugs (65 FR 53939, 53940).\2\
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    \1\ For prior OIG rulemaking history, see 68 FR 53939, 53940.
    \2\ For convenience, the term ``provider'' in this notice of 
withdrawal of proposed rulemaking includes both suppliers and 
providers.
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    In the notice of proposed rulemaking, we proposed to define the 
term ``usual charges'' by using one of two alternative approaches that 
we described in the proposed rule--either the provider's average charge 
or the provider's median charge (the ``fiftieth percentile'' method). 
We proposed that a provider's ``usual charges'' would include: (1) 
Charges billed directly to cash paying patients; (2) the amounts billed 
to patients covered by indemnity insurers with which the provider has 
no contractual arrangement; (3) any fee-for-service rate that a 
provider contractually agrees to accept from any payor, including any 
discounted fee-for-service rates negotiated with managed care plans; 
(4) rates offered to the Department of Defense for its various health 
care plans, including TriCare; and (5) charges of the provider's 
affiliated entities. This approach recognized the increasing prevalence 
of contractually negotiated rates with private customers. We also 
specifically proposed that certain charges would not be included when 
determining the usual charge, such as (1) charges for services provided 
to uninsured patients free of charge or at a substantially reduced 
rate; (2) capitated payments; (3) rates offered under hybrid fee-for-
service arrangements whereby more than 10 percent of the individual's 
or entity's maximum potential compensation could be paid in the form of 
a bonus and/or withhold payment; and (4) fees set by Medicare, State 
health care programs, and other Federal health care programs, subject 
to certain limitations.
    In addition, we proposed to defined the term ``substantially in 
excess'' for the purposes of section 1128(b)(6)(A) of the Act to mean 
only those charges or costs that are more than 120 percent of an 
individual's or entity's usual charges or costs. In other words, 
providers submitting charges or costs that were equal to or less than 
120 percent of their usual charges or costs would not be subject to 
OIG's permissive exclusion authority under section 1128(b)(6)(A) of the 
Act. Notwithstanding the 120 percent benchmark, exclusion would remain 
within the discretion of OIG for those providers submitting charges or 
costs to Medicare or State health care programs more than 120 percent 
of the provider's usual charges or costs. We specifically sought public 
comment on the proposed definition of ``substantially in excess'' and 
the 120 percent benchmark. We also solicited comments on whether the 
benchmark should vary based on certain factors (e.g., whether the 
benchmark should be lower for some providers than others based on the 
type or location of a provider or the reimbursement methodology 
applicable to the provider or whether the benchmark should take into 
account certain market considerations) and, if so, how and why (68 FR 
53939, 53942).
    We also proposed to clarify the statutory ``good cause'' exception 
by amending Sec.  1001.701(c)(1) to provide that an individual or 
entity would not be excluded for submitting, or causing to be 
submitted, bills or requests for payment that contain charges or costs 
substantially in excess of usual charges or costs when such charges or 
costs are due to (1) unusual circumstances or medical complications 
requiring additional time, effort, or expense; (2) increased costs 
associated with serving Medicare or Medicaid beneficiaries; or (3) 
other good cause.
    We received 323 timely comments to the proposed rule from a cross-
section of interested parties. Some commenters supported the proposed 
rule, noting that certain providers were continuing to charge Medicare 
substantially in excess of their usual charges or costs and that, in 
some cases, these practices resulted in unfair competition. Other 
commenters considered the proposed rule unnecessary given Medicare's 
increasing reliance on prospective payment and fee schedules for 
reimbursement of providers, while other commenters thought that our 
proposed definitions of ``usual charges'' and ``substantially in 
excess'' were flawed or unworkable. In particular, some commenters 
argued that the 120 percent benchmark was too low or arbitrary, and 
that a single, fixed benchmark was not appropriate across all types of 
providers or across all items and services.
    In addition, several commenters expressed concern that finalizing 
the rule might have the unintended consequence of increasing health 
care costs generally. These commenters explained that, to comply with 
the rule, providers that were charging Medicare and State health care 
programs in excess of the 120 percent benchmark could either lower 
charges to Medicare and State health care programs or increase charges 
to other payors. The commenters were concerned that some providers 
would opt to raise their prices to other payors rather than lower their

[[Page 33432]]

charges to Medicare and State health care programs. This behavior, the 
commenters noted, could result in increased health care costs across 
the health care industry.

C. Determination Not To Promulgate a Final Rule

    We have carefully reviewed the public comments and considered the 
issues raised by promulgating a final rule that would define the terms 
``substantially in excess'' and ``usual charges,'' and clarify the 
``good cause'' exception in the manner proposed in the notice of 
proposed rulemaking. For the reasons set forth below, we decline to 
promulgate a final rule.
    First, we have concluded that we do not have sufficient information 
at this time to establish a single, fixed numerical benchmark for 
``substantially in excess'' that could be applied equitably across 
health care sectors and across items and services, as we originally 
proposed. Our intent in proposing the 120 percent benchmark was to 
create a bright line standard by which all providers could evaluate 
their usual charges. Upon reviewing the comments, we believe that a 
single benchmark for ``substantially in excess'' is unadvisable at this 
time. We believe it is more appropriate to continue to evaluate billing 
patterns of individuals and entities on a case-by-case basis.
    Second, based on our review of the comments, we have determined 
that there is insufficient information at this time to assure ourselves 
that a final rule would not have the unintended effect of increasing 
health care costs across the industry.
    OIG remains concerned about disparities in the amounts charged to 
Medicare and Medicaid when compared to private payers. While Medicare 
pays for many items and services using fee schedules that serve as 
payment ceilings, many of these fee schedules are infrequently updated 
or may be updated using methods that do not adequately capture 
prevailing market rates for the same items and services. We recognize 
that, in most cases, these fee schedules are intended to approximate a 
reasonable payment amount. However, fee schedules are administered 
prices that, in some situations, may quickly become out-dated. As we 
noted in the preamble to the September 15, 2003 proposed rule:

    ``When market forces cause a provider's usual charge to most of 
its customers to drop substantially below the Medicare fee schedule 
allowance, some providers continue to charge Medicare at least the 
fee schedule amount. In this situation, the provider creates a two-
tier pricing structure with Medicare paying more than other 
customers. Unless the price differential can be justified by costs 
that are uniquely associated with the Medicare program, the provider 
is simply overcharging Medicare. In such circumstances, section 
1128(b)(6)(A) of the Act obligates providers to either charge 
Medicare and Medicaid approximately the same amount as they usually 
charge their other purchasers for the same items or services or risk 
exclusion from all Federal health care programs.'' (68 FR 53939, 
53940).

    While the principal protection against overpaying for items and 
services furnished to Medicare and Medicaid beneficiaries is timely and 
accurate updating of the fee schedules, OIG continues to believe that 
section 1128(b)(6)(A) of the Act provides useful backstop protection 
for the public fisc from providers that routinely charge Medicare or 
Medicaid substantially more than their other customers (68 FR 53939, 
53941). We will continue to evaluate billing patterns of individuals 
and entities on a case-by-case basis and to use all tools available to 
OIG to address instances where Medicare or Medicaid are charged 
substantially more than other payors, without good cause.

D. Application of Section 1128(b)(6)(A) of the Act to Discounts to the 
Uninsured

    In the past, some providers have expressed concern that offering 
discounts to uninsured patients or other patients who cannot afford 
their care might skew the provider's ``usual charges'' for purposes of 
section 1128(b)(6)(A) of the Act and possibly subject them to 
exclusion. OIG has never excluded or contemplated excluding any 
provider for offering bona fide discounts to uninsured patients or to 
other patients who cannot afford the provider's care. OIG believes that 
section 1128(b)(6)(A) of the Act can be reasonably interpreted to allow 
providers to carve out discounts to these patients when calculating 
their ``usual charges'' to other customers. To this end, the September 
15, 2003 proposed rule made clear that free or substantially reduced 
prices offered to such patients would not be factored into a provider's 
usual charges for purposes of the exclusion authority (68 FR 53939, 
53941). To further assure the industry, we issued guidance on our Web 
site on February 19, 2004 specifically providing that, pending a 
decision with respect to the September 15, 2003 proposed rule, it would 
continue to be OIG's enforcement policy ``that, when calculating their 
`usual charges' for purposes of section 1128(b)(6)(A), individuals and 
entities do not need to consider free or substantially reduced charges 
to (i) uninsured patients or (ii) underinsured patients who are self-
paying patients for the items or services furnished.'' (http://oig.hhs.gov/fraud/docs/alertsandbulletins/2004/FA021904hospitaldiscounts.pdf)
    Nothing in this withdrawal notice affects OIG's long-standing 
interpretation of the statute in this regard, and it continues to be 
OIG's position that, when calculating their ``usual charges'' for 
purposes of section 1128(b)(6)(A) of the Act, individuals and entities 
do not need to consider free or substantially reduced charges to (i) 
uninsured patients or (ii) underinsured patients who are self-pay 
patients for the items or services furnished.

II. Withdrawal of Notice of Proposed Rulemaking

    Accordingly, the notice of proposed rulemaking that was published 
in the Federal Register on September 15, 2003 (68 FR 53939) is 
withdrawn.

III. Regulatory Impact Analysis

    Since this action only withdraws a notice of proposed rulemaking, 
it is neither a proposed nor 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 1001

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

    Dated: May 10, 2007.
Daniel R. Levinson,
Inspector General.
    Approved: May 25, 2007.
Michael O. Leavitt,
Secretary.
[FR Doc. E7-11663 Filed 6-15-07; 8:45 am]
BILLING CODE 4150-01-P