[Federal Register Volume 64, Number 223 (Friday, November 19, 1999)]
[Rules and Regulations]
[Pages 63504-63515]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-29988]
[[Page 63503]]
_______________________________________________________________________
Part IV
Department of Health and Human Services
_______________________________________________________________________
Office of Inspector General
_______________________________________________________________________
42 CFR Part 1001
Federal Health Care Programs: Fraud and Abuse; Statutory Exception to
the Anti-Kickback Statute for Shared Risk Arrangements; Final Rule
Federal Register / Vol. 64, No. 223 / Friday, November 19, 1999 /
Rules and Regulations
[[Page 63504]]
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Office of Inspector General
42 CFR Part 1001
RIN 0991-AA91
Federal Health Care Programs: Fraud and Abuse; Statutory
Exception to the Anti-Kickback Statute for Shared Risk Arrangements
AGENCY: Office of Inspector General (OIG), HHS
ACTION: Interim final rule with request for comment.
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SUMMARY: In accordance with section 216 of the Health Insurance
Portability and Accountability Act of 1996 (HIPAA), and section 14 of
the Medicare and Medicaid Patient and Program Protection Act of 1987,
this interim final rule establishes two new safe harbors from the anti-
kickback law (section 1128B(b) of the Social Security Act) to provide
protection for certain managed care arrangements. The first safe harbor
protects certain financial arrangements between managed care plans and
individuals or entities with whom they contract for the provision of
health care items and services, where Federal health care programs pay
such plans on a capitated basis. The second safe harbor protects
certain financial arrangements between managed care plans (including
employer-sponsored group health plans) and individuals or entities with
whom they contract for health care items and services with respect to
services reimbursed on a fee-for-service basis by a Federal health care
program provided that such individuals and entities are placed at
substantial financial risk for the cost or utilization of items or
services furnished to Federal health care program beneficiaries. Each
of these safe harbors set forth standards that will result in the
particular arrangement being protected from criminal prosecution and
civil or administrative sanctions under the anti-kickback provisions.
DATES: Effective date: This rule is effective on November 19, 1999.
Comment period: To assure consideration, public comments must be
delivered to the address provided below by no later than 5 p.m. on
January 18, 2000.
ADDRESSES: Please mail or deliver your written comments to the
following address: Office of Inspector General, Department of Health
and Human Services, Attention: OIG-54-IFC, Room 5246, Cohen Building
330 Independence Avenue, S.W., Washington, D.C. 20201.
FOR FURTHER INFORMATION CONTACT: Julie E. Kass, Senior Counsel, Office
of Counsel to the Inspector General, (202) 205-9501; or Joel Schaer,
Regulations Officer, Office of Counsel to the Inspector General, (202)
619-1306.
SUPPLEMENTARY INFORMATION:
I. Background
A. The Anti-Kickback Statute
Section 1128B(b) of the Social Security Act (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 to induce the referral of business reimbursable under a
Federal health care program (including Medicare and Medicaid). The
offense is a felony punishable by fines of up to $25,000 and
imprisonment for up to 5 years. Section 2 of the Medicare and Medicaid
Patient and Program Protection Act of 1987 (MMPPPA) authorizes the
exclusion of an individual or entity from participation in the Medicare
and State health care programs if it is determined that the party has
violated the anti-kickback statute. In addition, the Balanced Budget
Act of 1997, Public Law 105-33, amended section 1128A(a) of the Act to
include an administrative civil money penalty provision for violating
the anti-kickback statute. The administrative sanction is $50,000 for
each act and an assessment of not more than 3 times the amount of
remuneration offered, paid, solicited or received, without regard to
whether a portion of such remuneration was offered, paid, solicited or
received for a lawful purpose. (See section 1128A(a)(7) of the Act; 42
U.S.C. 1320a-7a(a)(7)).
The anti-kickback statute contains five statutory exceptions from
the statutory prohibitions. The exceptions are for certain discounts
obtained by a provider and disclosed to the Federal health care
program, compensation paid to a bona fide employee by an employer,
amounts paid to a group purchasing organization by a vendor subject to
certain conditions, waivers of coinsurance by Federally qualified
health centers, and remuneration paid as part of a risk-sharing
arrangement. The last exception is the subject of this rulemaking.
Section 14 of MMPPPA also required the OIG to promulgate
regulations specifying those payment and business practices that,
although potentially capable of inducing referrals of business under
the Medicare and State health care programs, would not be subject to
criminal prosecution under section 1128B of the Act and that will not
provide a basis for administrative sanctions under sections 1128(b)(7)
or 1128A(a)(7) of the Act. (See section 2 of Pub. L. 100-93.) Congress
intended that the regulations setting forth various ``safe harbors''
would be periodically updated to reflect changing business practices
and technologies in the health care industry.
The failure of an arrangement to fit inside a safe harbor or
statutory exception does not mean that the arrangement is illegal. It
is incorrect to assume that arrangements outside of a safe harbor are
suspect due to that fact alone. That an arrangement does not meet a
safe harbor only means that the arrangement does not have guaranteed
protection and must be evaluated on a case-by-case basis.
The anti-kickback statute potentially applies to many managed care
arrangements because a common strategy of these arrangements is to
offer physicians, hospitals and other providers increased patient
volume in return for substantial fee discounts. Because discounts to
managed care plans can constitute ``remuneration'' within the meaning
of the anti-kickback statute, a number of health care providers and
managed care plans have expressed concern that many relatively
innocuous, or even beneficial, commercial managed care arrangements
implicate the statute and may subject them to criminal prosecution and
administrative sanctions. In response to these concerns, we issued
final safe harbor regulations for managed care arrangements on January
25, 1996 (61 FR 2122) to protect certain managed care arrangements that
we did not believe posed any significant risk of fraud or abuse. (See
42 CFR 1001.952(m)). We are soliciting comments on whether the current
managed care safe harbor should be removed in light of this rulemaking
so as to avoid confusion.
We recognize that many managed care arrangements exist in the
marketplace today that do not fall within a safe harbor, but are not
illegal under the anti-kickback statute. Such arrangements must be
analyzed on a case-by-case basis. Any individual or entity with
questions regarding whether a specific arrangement violates the anti-
kickback statute may submit an advisory opinion request to the OIG in
accordance with regulations set forth in 42 CFR part 1008.
[[Page 63505]]
B. Section 216 of HIPAA
1. Summary of Statutory Provision
In section 216 of HIPAA, Congress created a new statutory exception
to the anti-kickback statute that covers remuneration in accordance
with two categories of risk-sharing arrangements. The first category is
``any remuneration between an organization and an individual or entity
providing items or services, or a combination thereof, pursuant to a
written agreement between the organization and the individual or entity
if the organization is an eligible organization under section 1876 (of
the Social Security Act) * * *'' The second category is ``any
remuneration between an organization and an individual or entity
providing items or services, or a combination thereof, pursuant to a
written agreement between the organization and the individual or entity
* * * if the written agreement, through a risk-sharing arrangement,
places the individual or entity at substantial financial risk for the
cost or utilization of the items or services, or a combination thereof,
which the individual or entity is obligated to provide.'' Congress
directed the Department to develop regulations implementing the
exceptions using a negotiated rulemaking process.
2. Negotiated Rulemaking Process
The negotiated rulemaking process began in the spring of 1997, and
on March 7, 1997, a facilitator with the Department's Departmental
Appeals Board issued a convening report to the Inspector General,
setting out findings and recommendations on the use of a negotiated
rulemaking process for these regulations and identifying industry and
consumer representatives who, based on their interests, should serve on
the committee. On May 23, 1997, the OIG issued a notice of intent to
form a Negotiated Rulemaking Committee, in accordance with the
Negotiated Rulemaking Act of 1990, Public Law 101-648, as amended by
Public Law 102-354 (5 U.S.C. 561 et seq.), and requested public
comments on whether those interests affected by the key issues of the
negotiated rulemaking had been identified (62 FR 28410). After review
of the comments, the Secretary appointed a committee consisting of 23
parties representing all of the major groups identified as having a
significant interest in these regulations. The negotiated rulemaking
committee was comprised of the following groups:
American Association of Health Plans
American Association of Retired Persons
American Hospital Association
American Health Care Association
American Medical Association
American Medical Group Association
Blue Cross Blue Shield Association
Consumer Coalition for Quality Health Care
Coordinated Care Coalition
Department of Justice
Federation of American Health Systems
Health Insurance Association of America
Health Insurance Manufacturers Association
Independent Insurance Agents of America/National Association
of Health
Underwriters/National Association of Life Underwriters
National Association of Chain Drug Stores
National Association of Community Health Centers
National Association of Insurance Commissioners
National Association of Medicaid Fraud Control Units
National Association of State Medicaid Directors
National Rural Health Association
Office of Inspector General, DHHS
Pharmaceutical Research and Manufacturers of America
The IPA Association of America
The committee was charged with reaching consensus on the basic
content of interim final regulations relating to section 216 of HIPAA.
Committee consensus was defined as a unanimous concurrence of all
committee members, provided that there was a quorum of two-thirds of
the committee members present. Unanimous concurrence with respect to a
committee decision meant only that the committee members ``could live
with'' the particular decision.
The committee held seven multi-day negotiating sessions beginning
in June 1997. During the sessions, the committee made significant
progress in developing new regulations. On January 22, 1998, the
committee unanimously concurred on the committee statement that formed
the basis of this rulemaking when considered as a whole. A copy of the
committee statement can be found on the OIG web site at http://
www.dhhs.gov/progorg/oig.
C. Basis for Interim Final Rulemaking
These interim final regulations will be effective upon publication.
For a number of reasons, we find that good cause exists for an
immediate effective date for these regulations. First, Congress
specifically mandated that the regulations implementing section 216 of
HIPAA should be published as interim final regulations. Second, those
portions of the rule that are technically outside of the scope of
section 216 of HIPAA were discussed in a public forum during the
negotiated rulemaking sessions and are integral to the protections
afforded under the portions of the regulation implementing section 216
of HIPAA. In addition, safe harbors do not create any affirmative
obligation on any individuals or entities. They only exempt certain
conduct from potential criminal and administrative sanctions. As a
result, we find that the benefit conferred on the public by this rule's
immediate promulgation provides good cause for it to be effective upon
publication.
II. Provisions of the Interim Final Rule
In this section, we discuss the purpose and scope of the safe
harbors, summarize the provisions of this interim final rule, and
describe general issues that arose during the negotiated rulemaking. We
then describe the individual provisions of the rulemaking and related
issues discussed by the committee.
A. Purpose
The rule is intended to implement section 216 of HIPAA by creating
two new regulatory safe harbors that correspond to the two categories
of managed care arrangements identified in that statutory provision.
The first safe harbor, set forth in Sec. 1001.952(t), protects various
financial arrangements between managed care entities that receive a
fixed or capitated amount from the Federal health care programs and
individuals and entities with whom the managed care entity contracts
for the provision of health care items or services.
The second safe harbor, set forth in Sec. 1001.952(u), protects
contractual relationships between managed care entities and their
contractors and subcontractors where the contractors and subcontractors
are at substantial financial risk for the cost or utilization of items
or services they provide or order for Federal health care program
beneficiaries. As explained in detail below, the negotiated rulemaking
committee recognized that there are few existing managed care
arrangements that would qualify under newly-established
Sec. 1001.952(u) that are not otherwise covered by the safe harbor in
newly-established Sec. 1001.952(t). In practice, most managed care
arrangements, such as employer-sponsored health plans, do not place
their contractors and subcontractors at substantial financial risk for
the cost or utilization of items or services provided to Federal health
[[Page 63506]]
care program beneficiaries. Typically, the contractors and
subcontractors to such health plans are reimbursed directly by the
Federal payor on a fee-for-service basis. Notwithstanding the fee-for-
service payment arrangements, Sec. 1001.952(u) identifies a category of
arrangements that could qualify for protection.
B. Scope of the Safe Harbors
The safe harbors established in Secs. 1001.952(t) and (u) protect
remuneration between parties where the remuneration is a price
reduction for the provision of health care items or services. Other
remuneration, such as profit distributions from investment interests in
an entity with a risk sharing arrangement, is not protected by these
safe harbors. Individuals or entities seeking safe harbor protection
for such arrangements may meet the requirements of another safe harbor,
such as the safe harbor for investment interests in small entities set
forth in Sec. 1001.952(a)(2).
In addition, if an arrangement covers both remuneration that
qualifies for protection under either Sec. 1001.952(t) or (u), and
remuneration that is not qualified for protection, the former
remuneration remains protected. For example, a managed care plan may
``carve out'' transplant services from its capitated payment
methodology and pay for those services on a fee-for-service basis. The
remuneration for the transplant services would not be protected under
these safe harbors. However, protection for the items or services
covered by the capitation, assuming all safe harbor conditions are
otherwise met, would not be lost. Further, an arrangement that
potentially falls within more than one safe harbor need only meet the
requirements of one safe harbor. The remuneration for the transplant
services may be protected under a separate safe harbor, such as the
personal services safe harbor (Sec. 1001.952(d)).
Finally, compliance with a safe harbor only provides protection
from the Federal anti-kickback criminal statute and related
administrative sanction authorities. Safe harbors do not apply to other
laws, such as State licensure laws, antitrust laws or other Federal and
State health care fraud laws. Further, the terms and definitions in
these safe harbors do not apply to other laws, including but not
limited to the anti-trust laws.
C. General Issues Discussed By The Committee
The literal language of section 216 of HIPAA presented several
threshold problems. First, the two categories of managed care
arrangements identified by section 216 of HIPAA were narrow and did not
provide protection for other managed care arrangements that the
committee believed presented similar low risks of fraud or abuse. For
example, section 216 was passed prior to the enactment of the Balanced
Budget Act of 1997, which provides both for the phasing out of section
1876 managed care contracts, and the creation of Medicare+Choice
programs under the new Medicare Part C. Many of the new Medicare+Choice
organizations are similar to section 1876 organizations and deserve the
same extensive protection. Nevertheless, while Congress in the Balanced
Budget Act changed many of the references to section 1876 in the Act to
the new Medicare Part C, it did not change the reference in section 216
of HIPAA.
A similar issue arose with respect to the second category of
arrangements protected by section 216. The statutory language was
limited to arrangements in which the provider or supplier is at
substantial financial risk for items or services that it is obligated
to provide. However, as a practical matter, many effective managed care
systems place the physicians at substantial risk, not for the physician
services they provide directly, but for the ancillary and hospital
services they order. Furthermore, the financial incentives in most
managed care plans are based not on the individual performance of a
physician, but on the aggregate performance of a group of physicians.
Given the shortcomings of the statutory language, the Department
determined that it would exercise its authority under section 14 of the
MMPPPA to expand these safe harbors beyond the legal confines of
section 216. Again, section 14 of MMPPPA allows the Secretary to
promulgate regulations to protect arrangements that the Department
determines may technically violate the anti-kickback statute, but which
pose a low risk of program fraud or abuse. Exercise of this authority
permits protection of certain types of managed care arrangements that
are not encompassed within the statutory language of section 216 of
HIPAA. The committee statement includes these expanded provisions and
specifically identifies them as areas outside of the scope of section
216.
A final conceptual issue was the definition of ``substantial
financial risk.'' Some committee members wanted the rule to set forth
clear ``bright line'' standards, so that both law enforcement officers
and the industry would know whether a particular arrangement was
protected or not. While bright line tests can potentially ``chill'' the
development of some innovative managed care arrangements, any ambiguity
in the scope of protection could be exploited by unscrupulous
individuals or entities to engage in abusive or fraudulent activities,
especially in light of the high burden of proof on the Government in
criminal proceedings. Plans have the option of submitting advisory
opinion requests for arrangements that do not fit within these safe
harbors. Furthermore, the Department annually solicits suggestions for
additions to the anti-kickback safe harbors (62 FR 65049; December 10,
1997). Moreover, we have agreed to review the target payment
percentages of the numeric substantial financial risk test as more
research and data become available.
D. Section 1001.952(t)--Price Reductions Offered to Eligible Managed
Care Organizations
1. Overview
This safe harbor corresponds to the first category of arrangements
identified in section 216 of HIPAA, which exempts certain arrangements
involving ``eligible organizations under section 1876'' of the Act.
Section 1876 of the Act provides for the Health Care Financing
Administration (HCFA) to enter into managed care contracts with
Federally-qualified health maintenance organizations (HMOs) and certain
competitive medical plans that have characteristics similar to
Federally-qualified HMOs. As used in section 1876 of the Act and the
implementing regulations, an ``eligible organization'' encompasses both
(i) Federally-qualified HMOs and competitive medical plans that have
entered into either risk or cost-based managed care contracts with
HCFA, and (ii) Federally-qualified HMOs that have not entered into risk
or cost-based managed care contracts with HCFA.
This safe harbor recognized that eligible organizations with risk
contracts under section 1876 of the Act presented little or no risk of
overutilization or increased costs to the Federal health care programs,
given applicable payment arrangements and regulatory oversight. When
plans are paid a capitated amount for all of the services they provide
regardless of the dates, frequency or type of services, there is no
incentive to overutilize. In any event, even if overutilization occurs,
the Federal health care programs are not at risk for these increased
costs.
The safe harbor set forth in Sec. 1001.952(t) extends protection
from the anti-kickback statute beyond the
[[Page 63507]]
managed care arrangements under section 1876 of the Act that are
specifically protected by section 216 of HIPAA. The expansion includes
other programs where the Federal health care programs pay on a
capitated or fixed aggregate basis, such as certain Medicare Part C
plans. Further, it extends safe harbor protection ``downstream'' to
cover subcontracts with other providers and entities to provide items
and services in accordance with a protected managed care arrangement.
So long as the Federal health care programs' aggregate financial
exposure is fixed in accordance with its contract with the managed care
organization, these subcontracting arrangements are protected
regardless of the payment methodology, subject to the limitations set
forth below.
2. Limitations
While Sec. 1001.952(t) broadens the statutory exception in
important respects, there are some important limitations. First, the
broad protection for arrangements with subcontractors is limited to
risk-based managed care plans that do not claim any payment from a
Federal health care program other than the capitated amount set forth
in the managed care plan's agreement with the Federal health care
program. Where the managed care plan, its contractors or its
subcontractors are permitted to seek additional payments from any of
the Federal health care programs, the regulatory safe harbor protection
is significantly more limited. For example, protection is not extended
to arrangements with subcontractors when the contract under section
1876 of the Act is cost-based or where the prime contract is protected
solely because the contracting entity is a Federally-qualified HMO. In
the first instance, reimbursement from the Federal health care program
is based on costs, and in the latter case, services for Medicare
enrollees are reimbursed on a fee-for-service basis. In both instances,
reimbursement will increase with utilization, thus providing the same
incentive to overutilize as any fee-for-service payment methodology.
A second limitation on the regulatory safe harbor protection is
that it only applies to remuneration for health care items and services
and those items or services reasonably related to the provision of
health care items and services. Section 1001.952(t) does not cover
marketing services or any services provided prior to a beneficiary's
enrollment in a health plan. This limitation also applies to the other
new safe harbor in Sec. 1001.952(u).
Another significant limitation is that there is no protection if
the financial arrangements under the managed care agreement are
implicitly or explicitly part of a broader agreement to steer fee-for-
service Federal health care program business to the entity giving the
discount to induce the referral of managed care business. Specifically,
we understand that most managed care plans have multiple relationships
with their contractors and subcontractors for the provision of services
for various product lines, including non-federal HMOs, preferred
provider organizations (PPOs) and point of service networks.
Consequently, although neither a managed care plan receiving a
capitated payment from a Federal health care program nor its
contractors or subcontractors has an incentive to overutilize items or
services or pass additional costs back to the Federal health care
programs under the capitated arrangement, we are concerned that a
managed care plan or contractor may offer (or be offered) a reduced
rate for its items or services in the Federal capitated arrangement in
order to have the opportunity to participate in other product lines
that do not have stringent payment or utilization constraints. This
practice is a form of a practice that has become known as ``swapping'';
in the case of managed care arrangements low capitation rates could be
traded for access to additional fee-for-service lines of business. We
are concerned when these discounts are in exchange for access to fee-
for-service lines of business, where there is an incentive to
overutilize services provided to Federal health care program
beneficiaries.
For example, we would have concerns where an HMO with a Medicare
risk contract under Medicare Part C also has an employer-sponsored PPO
that includes retirees and requires participating providers to accept a
low capitation rate for the Medicare HMO risk patients in exchange for
access to the Medicare fee-for-service patients in the PPO. Although in
such circumstances the cost to the Medicare program for the risk based
HMO beneficiaries will not be increased, there may be increased
expenditures for Medicare beneficiaries in the PPO arrangement, since
the providers may have an incentive to increase services to the
Medicare enrollees in the PPO to offset the discounted rates to the
Medicare HMO. Accordingly, such arrangements could violate the anti-
kickback statute and should not be protected.
3. Analysis of Sec. 1001.952(t)
a. Arrangements between eligible managed care organizations and
first tier contractors. Section 1001.952(t)(1) is divided into two
parts and sets out the substantive standards that arrangements must
meet in order to receive safe harbor protection. Paragraph (t)(1)(i) of
this section sets out the standards for arrangements between the
eligible managed care organization (EMCO) and any individual or entity
that contracts directly with the EMCO. These direct or ``first tier''
contractors are the only parties that are protected by the literal
language of section 216 of HIPAA. Accordingly, the regulation treats
these first tier contractors differently than individuals or entities
that provide health care items or services in accordance with
subcontracts with these first tier entities. We refer to these
subcontractors as ``downstream'' contractors or providers. Paragraph
(t)(1)(ii) of this section sets out the standards which must be met in
order for arrangements between first tier contractors and any
downstream subcontractor or between successive tiers of downstream
subcontractors to be protected.
Under Sec. 1001.952(t)(1)(i)(A), the EMCO and any first tier
contractor must have an agreement that is written and signed by the
parties, specifies the items and services covered under the agreement,
and has a term of at least one year. These requirements are similar to
the requirements for written agreements in other safe harbor
provisions. In paragraph (1)(i)(A)(IV) of this section, there is a
requirement that neither party will receive any additional payment for
covered services from the Federal health care programs. This
requirement is intended to insure that there is an incentive to control
costs by eliminating the ability on the part of the first tier
contractor to offset losses incurred through the capitated methodology.
There are three exceptions to this general prohibition on the
plan's receipt of additional Federal health care payments. These
exceptions, set out in Sec. 1001.952(t)(1)(i)(A)(IV) are:
HMOs and CMPs that have Medicare cost-based contracts
under section 1876 of the Act;
Federally-qualified HMOs without a HCFA contract; and
Federally qualified health centers that claim supplemental
payments from a Federal health care program.
For Federally-qualified HMOs and Medicare cost-based HMOs/CMPs, the
billing arrangement under which they receive additional Federal health
program payments must be set forth in
[[Page 63508]]
the written agreement. With respect to Federally-qualified HMOs and
Medicare cost-based HMOs/CMPs, the language of section 216 of HIPAA
expressly requires this exception, since they are ``eligible
organizations'' in section 1876 of the Act. The exception for
Federally-qualified health centers is beyond the language of section
216. Nevertheless, an exception for Federally-qualified health centers
recognizes the special role they play in health care delivery systems
in many medically underserved areas. We wish to make clear, however,
that the safe harbor protects only the provision of health care items
or services by (1) individuals or entities that contract directly with
the HMOs and CMPs with cost-based contracts under section 1876 of the
Act, or with Federally-qualified HMOs that do not have a risk-based
contract with the Medicare program, i.e., first tier providers, or (2)
in the case of a Federally-qualified health center, by the health
center itself.
As part of this interim final rule, we are soliciting comments
concerning coverage of arrangements where a Medicaid managed care plan
or an individual or entity under such a plan bills another Federal
health care program on a fee-for-service basis for a person that is
dually eligible for Medicare and Medicaid. One possibility would be to
extend safe harbor protection in instances where (1) the Medicaid plan
bills the Federal health care program; (2) the individual or entity is
paid by the Medicaid plan in the same amount and in the same way as for
those enrollees who are not subject to the coordination of benefits;
and (3) neither the plan nor the individual or entity otherwise shifts
the burden of such an arrangement to the extent that increased payments
are claimed from a Federal health care program.
The last two standards in Sec. 1001.952(t)(1)(i) insure that the
discounts by the providers do not increase the risk of overutilization
or increased costs in other Federal health care programs. As explained
in the overview section, this safe harbor does not protect situations
where one party gives or receives a discount or other remuneration in
return for or to induce the provision or acceptance of business (other
than that covered by the arrangement) for which payment may be made by
the Federal health care programs on a fee-for-service basis. In
addition, in accordance with paragraph (1)(i)(C) of this section, the
arrangement cannot shift the financial burden to the extent that
increased payments are claimed from Federal health care programs.
b. Arrangements between first tier contractors and downstream
contractors. Except as discussed below, arrangements between a first
tier contractor and a downstream contractor, or between successive
tiers of downstream contractors, are protected as long as the
arrangement is for the provision of health care items or services that
are covered by the arrangement between the first tier contractor and
the EMCO. In addition, arrangements between the first tier contractor
and subcontractor, or between such subcontractors and subcontractors
farther downstream, must meet the same requirements as apply to
arrangements between EMCOs and first tier contractors.
The one exception to the generally broad safe harbor protection for
``downstream'' providers is for arrangements between providers for
health care items or services that are downstream from (1) Federally-
qualified health centers receiving supplemental payments, (2) HMOs or
CMPs with cost-based contracts under section 1876 of the Act; or (3)
Federally-qualified HMOs (unless they are provided in accordance with a
risk-based contract under section 1876 of the Act or Medicare Part C).
Reimbursement to these entities is not strictly risk-based and presents
some risk of overutilization and increased Federal program costs.
However, the safe harbor does protect entities that are providing items
or services in accordance with a contract or subcontract with
Federally-qualified health centers if the health centers do not receive
any supplemental payments from the State. In such situations, the
Federally-qualified health center has a strong financial incentive to
guard against overutilization or excessive costs.
c. Definitions. For purposes of Sec. 1001.952(t), we have set forth
the definition for several terms. Rather than discuss the definitions
in alphabetical order (as they appear in the regulation), they are
discussed below in logical order, grouping the definitions that apply
to various contracting parties together.
Eligible Managed Care Organization--Eligible managed care
organizations are Medicare risk-based or cost-based contractors under
section 1876 of the Act, Medicare Part C health plans (except for
medical savings accounts and fee-for-service plans), certain Medicaid
managed care organizations (as described below), most Programs For All
Inclusive Care For The Elderly (PACE) and Federally-qualified HMOs.
Section 1001.952(t)(2)(ii)(C)-(D) identify the Medicaid managed
care organizations that fall within the definition of eligible managed
care organization. Protected arrangements are those defined in section
1903(m)(1)(A) of the Act that provide or arrange for services for
Medicaid enrollees under a contract in accordance with section 1903(m).
These plans are paid by the State Medicaid agency on a capitated basis.
In addition, the safe harbor provision protects other plans with risk-
based contracts with a State agency to provide or arrange for items or
services to Medicaid enrollees, provided that contracts are subject to
the upper payment limit in 42 CFR 447.361 or any equivalent cap
approved by the Secretary.
The safe harbor also protects most PACE programs. These programs
provide a capitated amount for medical and certain social services for
the elderly. The BBA changed not-for-profit PACE programs from
demonstration status to covered services under Medicare and Medicaid.
PACE programs that still have demonstration status (i.e., certain for-
profit programs) are not protected by this safe harbor.
We are soliciting comments on whether the Department of Defense's
TriCare program should also be included within the definition of
``eligible managed care organization'' and, if included, to what extent
protection should be granted. The committee statement includes TriCare
within the types of organizations that should receive protection
through the Department's regulatory authority. However, TriCare is a
relatively new health care program for the active status military and
their dependents, and has a more complex reimbursement methodology than
Medicare risk contracts and retains important elements of cost-based,
retrospective methodologies. Accordingly, it is unclear whether there
are financial safeguards to control overutilization and limit costs to
the Federal Government that are sufficient to warrant per se protection
from the anti-kickback statute.
First Tier Contractors--A first tier contractor is an individual or
entity that has a contract to provide or arrange for items or services
directly with an eligible managed care organization.
Downstream Contractor--A downstream contractor is an individual or
entity that provides or arranges for items or services in accordance
with a subcontract with either (1) a party that is contracting directly
with an EMCO, or (2) another party for the provision or arrangement of
items or services that are
[[Page 63509]]
covered in accordance with a contract between the parties in (1).
Items and Services--The term ``items and services'' is defined for
purposes of this section to mean health care items, devices, supplies
or services or those items or services that are reasonably related to
such services, such as non-emergency transportation, patient education,
attendant services, disease management, case management and utilization
review and quality assurance. ``Items and services'' does not include
marketing services or any similar pre-enrollment activities. The
exclusion of marketing services is not meant to apply to nurse call-in
lines or value-added services for current enrollees.
E. Section 1001.952(u)--Price Reductions Offered to Qualified Managed
Care Plans
1. Overview
An overview of this new safe harbor, a summary of several major
issues that arose during the committee's discussions, and an outline of
the new provisions of this safe harbor are set forth below.
While Sec. 1001.952(t) protects certain arrangements based upon the
``status'' of the parties, e.g., designation as an eligible
organization for purposes of section 1876 of the Act or participation
in the PACE program, Sec. 1001.952(u) provides safe harbor protection
for arrangements that qualify under the functional test identified in
section 216 of HIPAA, that is, risk-sharing arrangements that place a
health care provider under substantial financial risk for the cost or
utilization of health care services the provider is obligated to
provide.
2. Limitations
Section 216 of HIPAA contains two important qualifications that
substantially narrow the universe of arrangements that can potentially
qualify for protection using the functional test. The most important
constraint is that the provider has to be at substantial financial risk
for items or services provided to Federal health care program
beneficiaries. However, except for providers participating in the
Medicare and Medicaid managed care plans that are already covered by
the new safe harbor in Sec. 1001.952(t), almost all other providers are
reimbursed by Federal health care programs on a fee-for-service basis.
However, according to information presented to the committee, most
managed care arrangements that cover Federal health care program
beneficiaries and are not paid on a risk basis are employer-sponsored
health plans that cover retirees who may also qualify for Medicare. In
these managed care arrangements, the participating providers typically
submit claims for services provided to enrollees who have primary
coverage under Medicare directly to the Medicare carriers and
intermediaries and receive reimbursement on a fee-for-service basis. In
other words, services to Medicare beneficiaries typically are ``carved
out'' of the risk-sharing arrangements these plans have with their
participating providers. In accordance with section 216 of HIPAA, these
providers are not at ``substantial financial risk'' for the cost or
utilization of services they provide to Medicare patients. Therefore,
such arrangements do not merit protection under the statutory criteria.
The second major limitation in section 216 is that the providers
must be at risk for the cost or utilization of items or services they
are ``obligated to provide.'' Many risk sharing arrangements with
physicians are based on the cost or utilization of items and services
they order but that are actually provided by other entities (e.g.,
physician bonuses based on the number of hospital admissions).
Accordingly, this requirement also substantially narrows the universe
of arrangements that could potentially qualify for protection under
Sec. 1001.952(u).
Working within these two constraints, the committee determined to
protect financial arrangements that:
Are part of a comprehensive managed care arrangement in
which at least fifty percent of the enrollees do not have primary
coverage under Medicare.
Place providers at substantial financial risk for the cost
or utilization of health care items and services for all enrollees.
Use the identical risk and payment methodologies to
reimburse providers for services provided to enrollees with primary
coverage paid by Federal health care programs as is used for all other
enrollees. In other words, payments from the plan to its providers must
be the same for identical items or services provided to people with
similar health status.
Allow payment differentials only when they are related to
utilization patterns and/or costs of providing items or services to the
relevant population.
3. Major Issues
a. Definition of an ``organization''. The statutory language
exempts ``remuneration between an organization and an individual or
entity.'' Some committee members believed the term ``organization''
could refer to any entity that provides health care services. However,
other committee members were concerned that if the term
``organization'' meant any health care entity or individual, it would
be easy for two parties to camouflage an illegal kickback arrangement
as a risk sharing arrangement that could meet the requirements of the
safe harbor. For example, the entity paying the kickback could agree to
a capitation payment below fair market value for one service or group
of patients, i.e., the ``remuneration,'' in exchange for referrals of
fee-for-service patients. The scheme would be a variant of providing a
deep discount on a good not reimbursable by Medicare to induce the
purchase of other goods that are reimbursable by Medicare. We have
previously stated that such arrangements potentially implicate the
anti-kickback statute (61 FR 2130; January 25, 1996).
The committee members opposed to a broad reading of the term
``organization'' contended that the term in section 216 of HIPAA had to
be read in context of the entirety of section 216. Under their reading,
the term ``organization'' referred back to the term ``eligible
organization,'' which preceded it in the same sentence, and should be
construed consistent with that term. In other words, an
``organization'' in section 216 of HIPAA should have many of the
characteristics of an ``eligible organization'' under section 1876 of
the Act. The committee statement, as a whole, reflects this view.
Accordingly, in order to qualify under Sec. 1001.952(u), the risk
sharing arrangement must be part of a comprehensive managed care plan.
We use the term ``qualified managed care plan'' (QMCP) to describe such
plans. These plans must be health plans, as defined in current safe
harbor regulations (Sec. 1001.952(l)(2)), and provide a comprehensive
range of health services. In addition, a QMCP must include certain
elements in its arrangement with providers to assure that the health
care services are managed, including utilization review, quality
assurance and grievance procedure requirements. These requirements are
derived from the current regulatory requirements for ``eligible
organizations'' under section 1876 of the Act. Some of the
representatives at the negotiating sessions expressed concern that
while some of a QMCP's arrangements with providers will meet the above
requirements, others will not. The committee concluded that those
[[Page 63510]]
arrangements that meet the requirements could receive protection under
the safe harbor, even though the other arrangements could not.
Further, the committee statement, which was adopted as a whole,
reflects the view that the QMCP had to be at some financial risk for
the cost or utilization of services provided to enrollees. This
requirement was especially important because, for the reasons discussed
above in section II.E.1 of this preamble, the providers generally are
not actually at risk for the items or services being provided to
Medicare enrollees. Accordingly, protection for such plans is premised
on (1) the plans being at risk for services to their non-Medicare
enrollees, and (2) the plans reimbursing providers for items or
services to Medicare beneficiaries on the same basis as for other plan
enrollees. Given the variety of employer arrangements, the regulations
set out two alternative methods by which the QMCP can meet this risk
requirement.
The first option is that the QMCP can receive a premium payment
that is fixed in advance. This requirement would cover all insurance
arrangements in which, by definition, the plan assumes risk. Under this
option, 50 percent of the enrollees cannot have primary coverage under
Medicare. Alternatively, even where the QMCP is not paid on a premium
basis, it can qualify if less than ten percent of the plan's enrollees
have primary coverage under Medicare. This alternative will permit many
self-funded ERISA plans that provide health care items or services in
accordance with arrangements with third party administrators (TPAs) or
contracts with insurers for administrative services only (ASOs) to
qualify. In these arrangements, an employer pays the TPA or ASO
separately for administering the plan and retains responsibility for
payments to the providers. In such arrangements, the TPA or ASO may not
have a financial incentive to control utilization or costs. Moreover,
because the rule requires the providers to reassign any proceeds from
Federal health care programs to the employer, the employer may actually
profit on services to Medicare beneficiaries. By limiting Federal
health care beneficiaries to less than 10 percent of total enrollment,
the regulations substantially limit the ability of the employer to
offset costs for its employees with Medicare reassignment.
In addition to these requirements, the regulations also would not
protect a QMCP that is receiving premiums from setting its premiums
based on the number of Federal health care program beneficiaries in the
health plan or the amount of services provided to such beneficiaries.
Some committee members believed that such a requirement was necessary
to prevent employers from receiving lower rates for non-federal health
care program beneficiaries because the plan expects to make up the
difference on utilization by the Federal health care program
beneficiaries for whom they receive fee-for-service payments.
b. Substantial financial risk. Developing a definition for
``substantial financial risk'' was one of the most difficult and time
consuming tasks for the committee. Several suggestions were offered,
and two caucuses were held and developed options. One caucus discussed
a numerical approach to the definition, while the other tried to find a
non-numerical approach. Much of the discussion over the suggested
definitions concerned whether a non-numerical definition could be clear
and precise enough for individuals and entities to know definitively
whether they met the safe harbor requirements. Suggestions that did not
provide enough assurances were discarded, and after some joint
discussion, the elements of each approach were combined. The committee
statement and these regulations reflect that determination.
For purposes of the rule, the methods to determine substantial
financial risk were grouped into three standards:
The payment methodology standard protects certain payment
methodologies that are commonly used to place an individual or entity
at substantial financial risk, including capitation, percentage of
premium arrangements and payments based on certain diagnostic related
groupings, so long as the reimbursement is reasonable given the
historical utilization patterns and costs for the same or comparable
population in similar managed care arrangements. Hybrid payment systems
that combine a periodic fixed fee per patient with other incentives,
such as withholds and bonuses, should be analyzed under the numeric
standard.
The numeric standard includes bonuses and withhold
arrangements that meet certain criteria.
The physician incentive plan standard protects
arrangements that meet all of the requirements for HCFA's physician
incentive plan rules under 42 CFR 417.479.
These provisions are discussed in greater detail in the section-by-
section analysis that follows.
c. Downstream arrangements. The committee also discussed whether
the rule would protect only arrangements between the QMCP and its
direct or ``first tier'' contractors, or whether it would also protect
arrangements between the first tier contractors and their downstream
subcontractors and arrangements between those subcontractors and
providers farther downstream. The committee statement, when taken as a
whole, reflects the view that, with some exceptions, the rule should
protect all written agreements between downstream subcontractors, as
well as those between the QMCP and its first tier contractors. However,
in order to prevent fee-for-service or cost-based kickbacks disguised
as risk-sharing arrangements by contractors that are not at substantial
financial risk, subcontractors are only protected if both parties to
the subcontract are at substantial financial risk for the items or
services covered by the agreement. In other words, if either party to
an agreement is not paid on a substantial financial risk basis, the
contract is not protected for either party.
Situations in which a subcontractor has an investment interest in
its contractor raise other considerations. In such situations, the
financial disincentive for overutilization created by a risk sharing
arrangement might be offset by a return on the investment interest.
Where both parties have to be at substantial financial risk in order to
qualify for protection, the parties continue to have the necessary
financial risk to protect against overutilization. However, where a
first tier contractor has an investment interest in a QMCP, amounts
received as a return on investment could offset the controls and
safeguards of the risk-sharing arrangement. This result is possible
because the QMCP may be receiving fee-for-service payments for services
to Medicare enrollees on a reassignment basis. Therefore, the rule does
not protect remuneration between a QMCP and a first tier contractor
that has an investment interest in the QMCP, unless it qualifies under
the large entity investment safe harbor (Sec. 1001.952(a)).
4. Analysis of Sec. 1001.952(u)
a. Arrangements between QMCPs and first tier contractors. In order
to qualify for protection, a contractual arrangement must be directly
between a QMCP and a first tier contractor. The definition of a QMCP is
set forth in Sec. 1001.952(u)(2)(vi). There are three standards that
apply to the arrangements between the QMCP and first tier contractors.
First, Sec. 1001.952(u)(1)(i)(A) requires that the contracts must be
set out in writing and contain certain information, including the
payment methodology. These requirements facilitate verification of
[[Page 63511]]
compliance with the substantive requirements of the regulation.
Second, Sec. 1001.965(u)(2)(i)(B) makes clear that where a first
tier contractor has an investment interest in the QMCP, the investment
interest must meet the safe harbor requirements of Sec. 1001.952(a)(1).
This condition addresses the concern that the contractor's substantial
financial risk may be offset by returns on its ownership interest in
the organization and therefore undermine protections against
overutilization. We want to emphasize that, while arrangements in which
providers have investment interests in a QMCP may not qualify for safe
harbor protection, such arrangements do not necessarily violate the
anti-kickback statute.
Third, Sec. 1001.952(u)(1)(i)(C) defines ``substantial financial
risk'' by four alternative methodologies. The first three methods
(paragraphs (u)(1)(i)(C)(I) -(III)) provides protection for several
payment methodologies that historically have been used by plans and
HMOs to transfer risk to providers: Capitation, percentage of premiums
and inpatient reimbursement based on Federal health care program
diagnostic related groupings (DRGs). Under any of these methods, the
payment amounts must be reasonable given the historical utilization
patterns and costs for the same or comparable populations in similar
managed care arrangements. We are requesting comments on the extent to
which the risk of full capitation is diminished by the purchase of
commercial stop loss insurance or contractual provisions regarding the
limitation of financial liability.
The exception for DRGs is limited to Federal health care program
DRGs, since these are the only DRG methodologies with which we have
significant experience and data for Federal health care program
beneficiaries. Inpatient psychiatric DRGs are not covered because,
based on the experience of the Medicare and Medicaid programs, these
groupings are not sufficient to deter unnecessary admissions or to
protect patients seeking those services. We emphasize that, although
the plan must reimburse providers for items and services to other
enrollees using the same DRG system, the amount of payment may vary so
long as it is based on adequate utilization and cost data for the
covered population that justifies the difference.
The definition of substantial financial risk also includes a
numeric standard for certain bonus and withhold arrangements (paragraph
(u)(1)(i)(C)(IV)). In the case of a physician provider, the requirement
for substantial financial risk will also be satisfied if the
arrangement places the physician at risk for an amount that exceeds the
substantial financial risk threshold of the physician incentive payment
rule (42 CFR 417.479(f)), and the arrangement is in compliance with the
stop-loss and beneficiary survey requirements of 42 CFR 417.479(g).
Although the committee statement requires the patient panel size to be
less than 25,000 covered lives to meet the substantial financial risk
element, we determined that this requirement does not provide
significant additional protection and, therefore, it is not included in
this rule. A bonus or withhold arrangement can also qualify if the
target payment is at least 20 percent greater than the minimum payment
for individuals or non-institutional entities, or is at least ten
percent greater than the minimum payment in the case of institutional
entities, specifically, hospitals and nursing homes. We are requesting
data on the appropriateness of different target payment percentages for
institutional and non-institutional entities. In addition, we also seek
comments on whether additional individuals and entities, such as
pharmacy providers, manufacturers and federally qualified health
centers, should be considered institutional entities for purposes of
this paragraph.
The ``minimum payment'' is defined in Sec. 1001.952(u)(2)(v).
Generally, it represents the minimum amount a contractor will receive
under a contract, regardless of utilization. In addition, the bonus or
withhold must be earned in direct proportion to the ratio of the actual
to the target utilization. For example, if the provider's utilization
is only 80 percent of the target, the provider receives 80 percent of
the difference between the target payment and the minimum payment. This
requirement should protect against sham arrangements that provide a
penalty or bonus conditioned entirely upon achieving a utilization
level that is unreasonable. Finally, in calculating the substantial
financial risk percentage, the target payment and the minimum payment
must both include any bonus for performance (e.g., timely submission of
paperwork, continuing medical education, meeting attendance) that is
given to at least 75 percent of the participating individuals or
entities who are paid a performance bonus based on the same bonus
structure under the arrangement. This requirement is necessary to
prevent plans from reallocating their compensation to performance
bonuses, thereby increasing the apparent percentage of risk on the
remaining compensation. In year one of an arrangement, it is not
necessary to include the performance bonus in the substantial financial
risk calculation.
Section 1001.952(u)(1)(i)(D) provides that the QMCP (or, in the
case of a self-funded ERISA plan, the employer) must bill the Federal
health care programs directly for covered services and compensate the
provider for such services on the same basis as services to similar
enrollees without primary coverage from a Federal health care program.
Two examples of such arrangements are (1) staff model HMOs where the
physicians are salaried, and (2) a plan that, in accordance with a
reassignment agreement, bills Medicare for Part B services and pays the
provider under the same bonus arrangement applicable to other
enrollees. Because Medicare requires hospitals to claim payment
directly, the rule is applicable where a hospital submits claims
directly to a Federal health care program on a DRG basis and the plan
pays the hospital for the plan's other enrollees using the same
methodology.
Section 1001.952(u)(1)(i)(E) does not protect parties to a contract
from trading discounted business for more remunerative fee-for-service
business.
b. Arrangements with downstream contractors. Section
1001.952(u)(1)(ii) provides that subcontracting arrangements between
first tier contractors and downstream contractors (and any arrangements
with providers farther downstream) are protected if both parties are
paid in accordance with one of the substantial financial risk
methodologies identified in this section. This provides assurances that
both parties have a financial incentive to control utilization. In
addition, the individual or entity providing items or services in
accordance with the contract must be paid for items and services to
Federal health care program beneficiaries in the same manner as for
other enrollees. Finally, as discussed above, the arrangement cannot
involve remuneration in return for, or to include the provision or
acceptance of other Federal health care program business and cannot
shift the financial burden of the arrangement to the Federal health
care programs.
c. Definitions. Most of the defined terms in Sec. 1001.952(u) have
the same meaning as those set forth in Sec. 1001.952(t). The additional
defined terms are discussed below.
Minimum Payment--The minimum payment is the guaranteed amount that
an individual or entity is entitled to receive under a risk-sharing
contract for purposes of calculating substantial
[[Page 63512]]
financial risk under the numeric standard. The minimum payment is the
lowest amount a provider can reasonably be expected to receive based on
past or expected performance.
Obligated To Provide--The statute requires individuals or entities
to be placed at substantial financial risk for the cost or utilization
of services they are ``obligated to provide.'' A strict reading of the
statutory language would not include many risk arrangements that are
currently used to give incentives to physicians. Accordingly, for
purposes of this regulation, the term is defined broadly and includes
any items or services (as defined in this regulation) for which the
individual or entity is financially responsible, makes referrals, or
receives incentives based on the provider, group or health plan's
performance.
Qualified Managed Care Plan--As discussed above, the committee
statement, which was adopted as a whole, reflects the view that
protection should apply to only those risk-sharing arrangements for the
provision of health care items or services that were part of an
comprehensive managed health care plan. For purposes of these
regulations, we have defined such plans as ``qualified managed care
plans.'' Section 1001.952(u)(2)(vi) requires that the items and
services be provided under agreement by an entity that qualifies as a
health plan under Sec. 1001.952(1)(2), and Sec. 1001.952(u)(2)(vi)(A)
requires that the QMCP provide a comprehensive range of health
services. Section 1001.952(u)(2)(vi)(B) requires that the organization
provide or arrange for (1) reasonable utilization goals and a
utilization review program; (2) a quality assurance program that
promotes the coordination of care, protects against underutilization
and specifies patient goals, including measurable outcomes where
appropriate; (3) grievance and hearing procedures; (4) protection for
its members from incurring financial liability other than copayments
and deductibles; and (5) assurances that treatment for Federal health
care program beneficiaries is no different than for other enrollees due
to their status as Federal health care program beneficiaries. These
requirements are derived from current regulations under section 1876 of
the Act and assure that basic indicia of a managed care plan exist.
Finally, the requirement that there be at least 50 percent non-federal
health care program enrollees reduces the likelihood that Federal
health care program beneficiaries will receive disparate treatment
either in insured or ERISA plans as compared to other enrollees.
Target Payment--The target payment is defined as the fair market
value payment consistent with arms-length negotiations that will be
earned by an individual or entity depending on the individual or
entity's meeting a utilization target or range of utilization targets
that are consistent with historical utilization rates for the same or
comparable populations in similar managed care arrangements. The
utilization target may not be a precise number, but rather a range. In
order to protect against undue incentives to underutilize, the rule
provides that if a provider's utilization falls below or surpasses the
utilization target (whether a fixed number or range), any payment
amounts attributable to performance beyond (or below) the utilization
target will not be included in the calculation of substantial financial
risk. Arrangements where the target payment is set at a level that is
unrealistic would always produce the appearance of substantial
financial risk and, accordingly, will not be protected.
III. Regulatory Impact Statement
Executive Order 12866, the Unfunded Mandates Reform Act and the
Regulatory Flexibility Act
The Office of Management and Budget (OMB) has reviewed this interim
final rule in accordance with the provisions of Executive Order 12866
and the Regulatory Flexibility Act (5 U.S.C. 601-612), and has
determined that it does not meet the criteria for a significant
regulatory action. Executive Order 12866 directs agencies to assess all
costs and benefits of available regulatory alternatives and, when
rulemaking is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health, safety distributive and equity effects). The Unfunded Mandates
Reform Act, Public Law 104-4, requires that agencies prepare an
assessment of anticipated costs and benefits on any rulemaking that may
result in an annual expenditure by State, local or tribal government,
or by the private sector of $100 million or more. In addition, under
the Regulatory Flexibility Act, if a rule has a significant economic
effect on a substantial number of small businesses, the Secretary must
specifically consider the economic effect of rule on small business
entities and analyze regulatory options that could lessen the impact of
the rule.
Executive Order 12866 requires that all regulations reflect
consideration of alternatives, costs, benefits, incentives, equity and
available information. Regulations must meet certain standards, such as
avoiding unnecessary burden. The safe harbor provisions set forth in
this rulemaking are designed to permit individuals and entities to
freely engage in business practices and arrangements that encourage
competition, innovation and economy. In doing so, these regulations
impose no requirements on any party. Health care providers and others
may voluntarily seek to comply with these provisions so that they have
the assurance that their business practices are not subject to any
enforcement actions under the anti-kickback statute. We believe that
any aggregate economic effect of these safe harbor regulations will be
minimal and will impact only those limited few who engage in prohibited
behavior in violation of the statute. As such, we believe that the
aggregate economic impact of these regulations is minimal and will have
no effect on the economy or on Federal or State expenditures.
Additionally, in accordance with the Unfunded Mandates Reform Act
of 1995, we have determined that there are no significant costs
associated with these safe harbor guidelines that would impose any
mandates on States, local or tribal governments, or the private sector,
that will result in an annual expenditure of $100 million or more, and
that a full analysis under the Act is not necessary.
Further, in accordance with the Regulatory Flexibility Act (RFA) of
1980, and the Small Business Regulatory Enforcement Act of 1996, which
amended the RFA, we are required to determine if this 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. While these safe harbor provisions may have an impact on small
entities, we believe that the aggregate economic impact of this
rulemaking should be minimal, since it is the nature of the violation
and not the size of the entity that will result in a violation of the
anti-kickback statute. Since the vast majority of individuals and
entities potentially affected by these regulations do not engage in
prohibited arrangements, schemes or practices in violation of the law,
we have concluded that these interim final regulations should not have
a significant economic impact on a number of small business entities,
and that a regulatory flexibility analysis is not required for this
rulemaking.
Paperwork Reduction Act
As indicated above, the provisions of these interim final
regulations are voluntary and impose no new reporting or recordkeeping
requirements on health care providers necessitating clearance by OMB.
[[Page 63513]]
IV. Public Inspection of Comments
Comments will be available for public inspection beginning December
10, 1999, in Room 5518 of the Office of Inspector General at 330
Independence Avenue, SW, Washington, DC, on Monday through Friday of
each week from 8:00 a.m. 4:30 p.m., (202) 619-0089.
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 amended as follows:
PART 1001--[AMENDED]
1. The authority citation for part 1001 continues 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 is amended by republishing the introductory
text; by reserving paragraphs (n) through (s); and by adding new
paragraphs (t) and (u) 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:
* * * * *
(n)-(s) [Reserved]
(t) Price reductions offered to eligible managed care
organizations. (1) As used in section 1128(B) of the Act,
``remuneration'' does not include any payment between:
(i) An eligible managed care organization and any first tier
contractor for providing or arranging for items or services, as long as
the following three standards are met--
(A) The eligible managed care organization and the first tier
contractor have an agreement that:
(1) Is set out in writing and signed by both parties;
(2) Specifies the items and services covered by the agreement;
(3) Is for a period of at least one year; and
(4) Specifies that the first tier contractor cannot claim payment
in any form directly or indirectly from a Federal health care program
for items or services covered under the agreement, except for:
(i) HMOs and competitive medical plans with cost-based contracts
under section 1876 of the Act where the agreement with the eligible
managed care organization sets out the arrangements in accordance with
which the first tier contractor is billing the Federal health care
program;
(ii) Federally qualified HMOs without a contract under sections
1854 or 1876 of the Act, where the agreement with the eligible managed
care organization sets out the arrangements in accordance with which
the first tier contractor is billing the Federal health care program;
or
(iii) First tier contractors that are Federally qualified health
centers that claim supplemental payments from a Federal health care
program.
(B) In establishing the terms of the agreement, neither party gives
or receives remuneration in return for or to induce the provision or
acceptance of business (other than business covered by the agreement)
for which payment may be made in whole or in part by a Federal health
care program on a fee-for-service basis.
(C) Neither party to the agreement shifts the financial burden of
the agreement to the extent that increased payments are claimed from a
Federal health care program.
(ii) A first tier contractor and a downstream contractor or between
two downstream contractors to provide or arrange for items or services,
as long as the following four standards are met--
(A) The parties have an agreement that:
(1) Is set out in writing and signed by both parties;
(2) Specifies the items and services covered by the agreement;
(3) Is for a period of at least one year; and
(4) Specifies that the party providing the items or services cannot
claim payment in any form from a Federal health care program for items
or services covered under the agreement.
(B) In establishing the terms of the agreement, neither party gives
or receives remuneration in return to induce the provision or
acceptance of business (other than business covered by the agreement)
for which payment may be made in whole or in part by a Federal health
care program on a fee-for-service basis.
(C) Neither party shifts the financial burden of the agreement to
the extent that increased payments are claimed from a Federal health
care program.
(D) The agreement between the eligible managed care organization
and first tier contractor covering the items or services that are
covered by the agreement between the parties does not involve:
(1) A Federally qualified health center receiving supplemental
payments;
(2) A HMO or CMP with a cost-based contract under section 1876 of
the Act; or
(3) A Federally qualified HMO, unless the items or services are
covered by a risk based contract under sections 1854 or 1876 of the
Act.
(2) For purposes of this paragraph, the following terms are defined
as follows:
(i) Downstream contractor means an individual or entity that has a
subcontract directly or indirectly with a first tier contractor for the
provision or arrangement of items or services that are covered by an
agreement between an eligible managed care organization and the first
tier contractor.
(ii) Eligible managed care organization \1\ means--
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\1\ The eligible managed care organizations in paragraphs
(u)(2)(ii)(A)-(F) of this section are only eligible with respect to
items or services covered by the contracts specified in those
paragraphs.
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(A) A HMO or CMP with a risk or cost based contract in accordance
with section 1876 of the Act;
(B) Any Medicare Part C health plan that receives a capitated
payment from Medicare and which must have its total Medicare
beneficiary cost sharing approved by HCFA under section 1854 of the
Act;
(C) Medicaid managed care organizations as defined in section
1903(m)(1)(A) that provide or arrange for items or services for
Medicaid enrollees under a contract in accordance with section 1903(m)
of the Act (except for fee-for-service plans or medical savings
accounts);
(D) Any other health plans that provide or arrange for items and
services for Medicaid enrollees in accordance with a risk-based
contract with a State agency subject to the upper payment limits in
Sec. 447.361 of this title or an equivalent payment cap approved by the
Secretary;
(E) Programs For All Inclusive Care For The Elderly (PACE) under
sections 1894 and 1934 of the Act, except for for-profit demonstrations
under sections 4801(h) and 4802(h) of Pub. L. 105-33; or
(F) A Federally qualified HMO.
(iii) First tier contractor means an individual or entity that has
a contract directly with an eligible managed care organization to
provide or arrange for items or services.
(iv) Items and services means health care items, devices, supplies
or services or those services reasonably related to the provision of
health care items, devices, supplies or services including, but not
limited to, non-emergency
[[Page 63514]]
transportation, patient education, attendant services, social services
(e.g., case management), utilization review and quality assurance.
Marketing and other pre-enrollment activities are not ``items or
services'' for purposes of this section.
(u) Price reductions offered by contractors with substantial
financial risk to managed care organizations. (1) As used in section
1128(B) of the Act, ``remuneration'' does not include any payment
between:
(i) A qualified managed care plan and a first tier contractor for
providing or arranging for items or services, where the following five
standards are met--
(A) The agreement between the qualified managed care plan and first
tier contractor must:
(1) Be in writing and signed by the parties;
(2) Specify the items and services covered by the agreement;
(3) Be for a period of a least one year;
(4) Require participation in a quality assurance program that
promotes the coordination of care, protects against underutilization
and specifies patient goals, including measurable outcomes where
appropriate; and
(5) Specify a methodology for determining payment that is
commercially reasonable and consistent with fair market value
established in an arms-length transaction and includes the intervals at
which payments will be made and the formula for calculating incentives
and penalties, if any.
(B) If a first tier contractor has an investment interest in a
qualified managed care plan, the investment interest must meet the
criteria of paragraph (a)(1) of this section.
(C) The first tier contractor must have substantial financial risk
for the cost or utilization of services it is obligated to provide
through one of the following four payment methodologies:
(1) A periodic fixed payment per patient that does not take into
account the dates services are provided, the frequency of services, or
the extent or kind of services provided;
(2) Percentage of premium;
(3) Inpatient Federal health care program diagnosis-related groups
(DRGs) (other than those for psychiatric services);
(4) Bonus and withhold arrangements, provided--
(i) The target payment for first tier contractors that are
individuals or non-institutional providers is at least 20 percent
greater than the minimum payment, and for first tier contractors that
are institutional providers, i.e., hospitals and nursing homes, is at
least 10 percent greater than the minimum payment;
(ii) The amount at risk, i.e., the bonus or withhold, is earned by
a first tier contractor in direct proportion to the ratio of the
contractor's actual utilization to its target utilization;
(iii) In calculating the percentage in accordance with paragraph
(u)(1)(i)(C)(4)(i) of this section, both the target payment amount and
the minimum payment amount include any performance bonus, e.g.,
payments for timely submission of paperwork, continuing medical
education, meeting attendance, etc., at a level achieved by 75 percent
of the first tier contractors who are eligible for such payments;
(iv) Payment amounts, including any bonus or withhold amounts, are
reasonable given the historical utilization patterns and costs for the
same or comparable populations in similar managed care arrangements;
and
(v) Alternatively, for a first tier contractor that is a physician,
the qualified managed care plan has placed the physician at risk for
referral services in an amount that exceeds the substantial financial
risk threshold set forth in 42 CFR 417.479(f) and the arrangement is in
compliance with the stop-loss and beneficiary survey requirements of 42
CFR 417.479(g).
(D) Payments for items and services reimbursable by Federal health
care program must comply with the following two standards--
(1) The qualified managed care plan (or in the case of a self-
funded employer plan that contracts with a qualified managed care plan
to provide administrative services, the self-funded employer plan) must
submit the claims directly to the Federal health care program, in
accordance with a valid reassignment agreement, for items or services
reimbursed by the Federal health care program. (Notwithstanding the
foregoing, inpatient hospital services, other than psychiatric
services, will be deemed to comply if the hospital is reimbursed by a
Federal health care program under a DRG methodology.)
(2) Payments to first tier contractors and any downstream
contractors for providing or arranging for items or services reimbursed
by a Federal health care program must be identical to payment
arrangements to or between such parties for the same items or services
provided to other beneficiaries with similar health status, provided
that such payments may be adjusted where the adjustments are related to
utilization patterns or costs of providing items or services to the
relevant population.
(E) In establishing the terms of an arrangement--
(1) Neither party gives or receives remuneration in return for or
to induce the provision or acceptance of business (other than business
covered by the arrangement) for which payment may be made in whole or
in part by a Federal health care program on a fee-for-service or cost
basis; and
(2) Neither party to the arrangement shifts the financial burden of
such arrangement to the extent that increased payments are claimed from
a Federal health care program.
(ii) A first tier contractor and a downstream contractor, or
between downstream contractors, to provide or arrange for items or
services, as long as the following three standards are met--
(A) Both parties are being paid for the provision or arrangement of
items or services in accordance with one of the payment methodologies
set out in paragraph (u)(1)(i)(C) of this section;
(B) Payment arrangements for items and services reimbursable by a
Federal health care program comply with paragraph (u)(1)(i)(D) of this
section; and
(C) In establishing the terms of an arrangement--
(1) Neither party gives or receives remuneration in return for or
to induce the provision or acceptance of business (other than business
covered by the arrangement) for which payment may be made in whole or
in part by a Federal health care program on a fee-for-service or cost
basis; and
(2) Neither party to the arrangement shifts the financial burden of
the arrangement to the extent that increased payments are claimed from
a Federal health care program.
(2) For purposes of this paragraph, the following terms are defined
as follows:
(i) Downstream contractor means an individual or entity that has a
subcontract directly or indirectly with a first tier contractor for the
provision or arrangement of items or services that are covered by an
agreement between a qualified managed care plan and the first tier
contractor.
(ii) First tier contractor means an individual or entity that has a
contract directly with a qualified managed care plan to provide or
arrange for items or services.
(iii) Is obligated to provide for a contractor refers to items or
services:
(A) Provided directly by an individual or entity and its employees;
(B) For which an individual or entity is financially responsible,
but which are provided by downstream contractors;
(C) For which an individual or entity makes referrals or
arrangements; or
(D) For which an individual or entity receives financial incentives
based on
[[Page 63515]]
its own, its provider group's, or its qualified managed care plan's
performance (or combination thereof).
(iv) Items and services means health care items, devices, supplies
or services or those services reasonably related to the provision of
health care items, devices, supplies or services including, but not
limited to, non-emergency transportation, patient education, attendant
services, social services (e.g., case management), utilization review
and quality assurance. Marketing or other pre-enrollment activities are
not ``items or services'' for purposes of this definition in this
paragraph.
(v) Minimum payment is the guaranteed amount that a provider is
entitled to receive under an agreement with a first tier or downstream
contractor or a qualified managed care plan.
(vi) Qualified managed care plan means a health plan as defined in
paragraph (l)(2) of this section that:
(A) Provides a comprehensive range of health services;
(B) Provides or arranges for--
(1) Reasonable utilization goals to avoid inappropriate
utilization;
(2) An operational utilization review program;
(3) A quality assurance program that promotes the coordination of
care, protects against underutilization, and specifies patient goals,
including measurable outcomes where appropriate;
(4) Grievance and hearing procedures;
(5) Protection of enrollees from incurring financial liability
other than copayments and deductibles; and
(6) Treatment for Federal health care program beneficiaries that is
not different than treatment for other enrollees because of their
status as Federal health care program beneficiaries; and
(C) Covers a beneficiary population of which either--
(1) No more than 10 percent are Medicare beneficiaries, not
including persons for whom a Federal health care program is the
secondary payer; or
(2) No more than 50 percent are Medicare beneficiaries (not
including persons for whom a Federal health care program is the
secondary payer), provided that payment of premiums is on a periodic
basis that does not take into account the dates services are rendered,
the frequency of services, or the extent or kind of services rendered,
and provided further that such periodic payments for the non-Federal
health care program beneficiaries do not take into account the number
of Federal health care program fee-for-service beneficiaries covered by
the agreement or the amount of services generated by such
beneficiaries.
(vii) Target payment means the fair market value payment
established through arms length negotiations that will be earned by an
individual or entity that:
(A) Is dependent on the individual or entity's meeting a
utilization target or range of utilization targets that are set
consistent with historical utilization rates for the same or comparable
populations in similar managed care arrangements, whether based on its
own, its provider group's or the qualified managed care plan's
utilization (or a combination thereof); and
(B) Does not include any bonus or fees that the individual or
entity may earn from exceeding the utilization target.
Dated: February 11, 1999.
June Gibbs Brown,
Inspector General.
Approved: June 8, 1999.
Donna E. Shalala,
Secretary.
[FR Doc. 99-29988 Filed 11-18-99; 8:45 am]
BILLING CODE 4150-04-P
