[Federal Register Volume 60, Number 62 (Friday, March 31, 1995)]
[Rules and Regulations]
[Pages 16580-16584]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-7845]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Office of Inspector General
42 CFR Part 1003
RIN 0991-AA65
Civil Money Penalties for Referrals to Entities and for
Prohibited Arrangements and Schemes
AGENCY: Office of Inspector General (OIG), HHS.
ACTION: Final rule with comment period.
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SUMMARY: This final rule implements the civil money penalty (CMP)
provisions established through sections 1877(g)(3) and 1877(g)(4) of
the Social Security Act. Specifically, in accordance with section
1877(g)(3), these regulations set forth CMPs, assessments and an
exclusion against any person who presents, or causes to be presented, a
bill or claim the person knows or should know is for a service
unlawfully referred under section 1877(a)(1)(A) of the Act, or has not
refunded amounts inappropriately collected for a prohibited referral.
In addition, in accordance with section 1877(g)(4), these regulations
set forth CMPs, assessments and an exclusion in cases where a physician
or entity enters into an arrangement or scheme in which the physician
or entity knows, or should have known, that the principal purpose is to
assure referrals by the physician which, if made directly to a
particular entity, would violate the prohibition on referrals described
in section 1877(a) of the Act.
DATES: Effective date: This final rule with comment period is effective
on March 31, 1995.
Comment period: Comments on the applicability of these CMPs for
referrals to ``designated health services'' resulting from provisions
in the Omnibus Budget Reconciliation Act (OBRA) of 1993 will
[[Page 16581]] be considered if we receive them at the address
specified below, no later than 5 p.m. on May 30, 1995. Broadening these
CMPs to cover referrals to ``designated health services'' is discussed
in sections I.C. and IV. of this preamble. We will not consider
comments on provisions that remain unchanged from the October 20, 1993
proposed rule or on provisions that were changed based on public
comments.
ADDRESSES: Mail comments to: Office of Inspector General, Department of
Health and Human Services, Attention: LRR-30-FC, Room 5246, 330
Independence Avenue SW., Washington, DC 20201.
If you prefer, you may deliver your comments to Room 5551, 330
Independence Avenue, SW., Washington DC 20201. Because of staffing and
resource limitations, we cannot accept comments by facsimile (FAX)
transmission. In commenting, please refer to file code LRR-30-FC.
Comments received timely will be available for public inspection as
they are received, generally beginning approximately 3 weeks after
publication of this document, in room 5551, 330 Independence Avenue
SW., Washington, DC on Monday through Friday of each week from 8:30
a.m. to 5 p.m., (202) 619-3270.
FOR FURTHER INFORMATION CONTACT:
Joel Schaer, Legislation, Regulations and Public Affairs Staff, (202)
619-3270.
SUPPLEMENTARY INFORMATION:
I. Background
A. The Omnibus Budget Reconciliation Acts of 1989 and 1990
In an effort to limit physician referrals involving laboratory
services, section 6204 of Pub. L. 101-239, the Omnibus Budget
Reconciliation Act (OBRA) of 1989, as amended by section 4207(e) of
Pub. L. 101-508 (OBRA of 1990), added a new section 1877--Limitations
on Certain Physician Referrals--to the Social Security Act.
As set forth by OBRA 1989 and 1990, section 1877, with certain
exceptions, prohibited a physician from making a referral to an entity
for the furnishing of clinical laboratory services for which Medicare
would otherwise pay, if the physician or a member of the physician's
immediate family had a financial relationship with that entity. (See
the discussion in section I.C. below regarding expansion of this
authority to ``designated health services'' as a result of amendments
set forth in OBRA 1993.) This provision further prohibited an entity
from presenting, or causing to be presented, a Medicare claim or bill
to any individual, third party payer or other entity for laboratory
services furnished in accordance with a prohibited referral. The
authority for implementing these provisions is a bifurcated
responsibility between the Health Care Financing Administration (HCFA)
and the OIG. The HCFA has had the responsibility for developing
regulations that set forth the specific policies by which such
prohibited conduct is defined, while the OIG has maintained
responsibility for imposing civil money penalties (CMPs), assessments
and program exclusions for violations of this referral ban.
B. Proposed HCFA and OIG Regulations
On March 11, 1992, the HCFA issued proposed regulations (57 FR
8588) setting forth provisions that would--(1) with certain specified
exceptions, prohibit a physician from making a referral to an entity
for the furnishing of laboratory services for which Medicare would
otherwise pay, if the physician or a member of his or her immediate
family has a financial relationship with that entity; and (2) prohibit
an entity from presenting or causing to be presented a Medicare claim
or bill for such services furnished in accordance with that referral.
Because the statute was quite detailed in scope, the HCFA proposed rule
adhered closely to the statutory language and adopted--with little
change--several definitions, such as the definition of prohibited
financial relationships and compensation arrangements.
In addition, on October 20, 1993 the OIG issued a proposed rule (58
FR 54096) that was designed to codify the penalty provisions of the
statute set forth in sections 1877 (g)(3) and (g)(4) of the Social
Security Act. The proposed rule addressed the establishment of CMPs of
not more than $15,000 for each violation of the ban on making claims
for services resulting from prohibited referrals or failing to make a
refund, and CMPs of not more than $100,000 for physicians and entities
who engage in a circumvention scheme to avoid detection of prohibited
referrals.
C. The Omnibus Budget Reconciliation Act of 1993
The Omnibus Budget Reconciliation Act of 1993 expanded the scope of
section 1877 of the Act to extend the prohibition to Medicare and
Medicaid referrals beyond clinical laboratory service to include
various ``designated health services.'' Specifically, OBRA 1993 amended
the Medicaid payment provisions by adding a new section 1903(s) to
state that no payments are to be made to a State for services furnished
by designated health services that violate the referral prohibitions of
section 1877. The provision is also applicable to the reporting and
penalty provisions under sections 1877(f) and (g)(5) of the Act. The
designated health services cover both diagnostic services and
therapeutic items and services, including physical and occupational
therapy services; radiology services; radiation therapy services and
supplies; durable medical equipment (DME) and supplies; parenteral and
enteral nutrients, equipment and supplies; prosthetics, orthotics and
prosthetic devices and supplies; home health services; outpatient
prescription drugs; and inpatient and outpatient hospital services.
These expansions resulting from OBRA 1993--the expansion to
Medicaid to be effective beginning on December 31, 1994, and the
expansion to other designated health services to be effective for
referrals made after December 31, 1994--were not incorporated into
either the HCFA or OIG proposed rules summarized above. The HCFA
intends to publish new proposed regulations--separate from the final
rule addressing physician ownership of, and referrals to, entities that
furnish clinical laboratory services--that will (1) cover how the
referral prohibition applies to additional services now covered by
section 1877 as the result of OBRA 1993, (2) explain various new
exceptions added to the statute, and (3) define key terms such as
financial relationship, inpatient/outpatient services, diagnostic
services and DME.
However, because the penalty provisions set forth in sections 1877
(g)(3) and (g)(4) of the Act remain unchanged by these amendments, we
are incorporating by reference the expansion to designated health
services into our final rulemaking for sanctioning improper claims and
circumvention schemes. Since the statutory changes associated with
these penalty provisions are self-implementing, we believe that the
regulatory revisions set forth in this rulemaking can be implemented
without interpretation and that public comment would not substantially
modify these regulations. We believe that affording additional proposed
rulemaking under these circumstances is unnecessary and would delay the
promulgation of regulations that correspond with the current statute.
Therefore, we find good cause to waive proposed rulemaking for
incorporating the statutory expansion to designated health services by
reference into our final rulemaking. However, we are providing a 60-day
comment period for [[Page 16582]] comments limited to the area of
designated health services in order to give parties now covered by
these CMP regulations as providers of designated health services an
opportunity to make applicable comments. Although these regulations are
being issued as a final rule, any additional comments will be
considered for possible future amendments to the rulemaking, where
appropriate.
II. Provisions of the OIG Proposed Rule
The OIG proposed regulations, published in the Federal Register on
October 20, 1993, provided for a penalty against any person presenting
a bill or claim to be paid by Medicare for services furnished under a
``self-referral'' arrangement prohibited under section 1877(a) of the
Act, or any person failing to refund amounts that were inappropriately
billed and collected as the result of a prohibited referral. The
proposed regulations established--
A CMP of no more than $15,000 for each service provided in
accordance with a prohibited referral, for which a bill or claim was
presented, or caused to be presented, or caused to be presented, or
which was not properly refunded;
An assessment of not more than twice the amount claimed
for each service that was the basis for the CMP; and
An exclusion of the individual from Medicare and State
health care program participation.
In determining the amount of penalty and assessment for this
violation, the proposed rule specified that the OIG would apply the
five existing criteria set forth in Sec. 1003.106(a) of the
regulations, and proposed a sixth criterion to be applied to consider
timeliness and completeness with respect to the appropriate refund(s).
In addition, the proposed regulations provided for a penalty
against a physician or entity entering into an agreement or
``circumvention'' scheme to assure referrals which, if they were made
directly, would violate the prohibition on referrals set out in section
1877(a) of the Act. One example of such a scheme would be a cross-
referral arrangement where the physician owners of two different
entities refer to each other. The proposed regulations established--
A CMP of not more than $100,000 for each arrangement or
circumvention scheme entered into by a physician or entity;
An assessment of not more than twice the amount claimed by
the physician or entity for each service billed under the prohibited
arrangement; and
An exclusion of the physician or entity form Medicare and
State health care program participation.
In determining the amount of the penalty and assessment for this
violation, the proposed rule specified that the OIG would apply the
five existing criteria in Sec. 1003.106(a) of the regulations, and
proposed an additional criterion that would consider the amount of
ownership interests involved.
III. Response to the Public Comments
In response to this proposed rule, the OIG received a total of five
timely-filed public comments from associations and individuals. Set
forth below is a summary of those comments received and our response to
the various concerns they raised.
Definition of ``Timely Basis''
Comment: Proposed Sec. 1003.102(b)(8) stated that the OIG may
impose a penalty against any person ``who has not refunded on a timely
basis amounts collected as a result of billing an individual, third
party payer or other entity for a clinical laboratory service that was
provided in accordance with a prohibited referral * * *'' (underlining
added). The commenter believes that providers should be made aware of
any time requirements to which they will be held accountable, and
recommends that we define the term ``timely basis.''
Response: We agree with the commenter that this term should be
clarified, and are defining ``timely basis'' in Sec. 1003.101 of the
regulations as the 60 day period from the time the prohibited amounts
are collected. We believe that there is precedent for defining this
time period.
Currently, the general government refund policy for overpayments is
30 days. For example, section 1815(d) of the Social Security Act--
addressing payments to providers under part A of the Medicare program--
requires a refund (or offset) of excess payments within 30 days of a
final determination that the amount of payment was in excess of the
amount due. However, the 30 days begins to run after a final
determination is made that there was an overpayment, while
Sec. 1003.102(b)(8) of our regulations contemplates that the person who
collected amounts for a service provided in accordance with a
prohibited referral will take the initiative to refund those amounts on
a timely basis without first being subject to a ``final
determination.''
The HCFA regulations at 42 CFR 411.24(h) seem more analogous to the
``refund'' provision addressed in these penalty provisions than to the
overpayment time periods. These HCFA Medicare secondary payer
regulations require a beneficiary or other party who receives a third
party payment to reimburse Medicare within 60 days. Under 411.24(h),
the recipient of the third party payment is expected to take the
initiative to refund the program, without first receiving notice, or
having a ``determination'' by HCFA that the refund is required. Since
the OIG regulations intend for persons who profit from prohibited
referrals to initiate making the refund, we believe that a 60 day
period is a reasonable time period to establish is defining ``timely
basis.''
Clarifying the Scope of the Regulations
Comment: One commenter asked that we clarify the regulations text
to specify, as we did in the preamble to the proposed rule, that
physicians--as well as the laboratory (or designated health service
provider)--may be subject to CMPs for causing the submission of claims
for services resulting from prohibited referrals.
Response: We believe that the language set forth in Sec. 1003.102
is adequate to cover the scope of these provisions. The word ``person''
as defined in Sec. 1003.101 includes an individual, trust, estate,
partnership, corporation, professional association or corporation, or
other entity. Physicians, as ``individuals,'' are specifically included
under this definition.
Criteria for Circumvention Scheme Sanctions
Comment: The rulemaking proposed adding a new criterion in
Sec. 1003.106(a) that would take into account the amount of ownership
interests involved when determining penalty amounts or assessments for
circumvention schemes. One commenter strongly supported this criterion
of requiring providers to disclose the amount of ownership interest
whenever making an ownership disclosure under section 1877 rather than
just the fact of ownership interest in a facility.
Response: We appreciate the commenter's support of this additional
criterion, and believe that requiring the provider to disclose the
amount of ownership will act as a further deterrent to providers
referring patients to facilities in which they have financial
interests.
Comment: In referencing both Sec. 1003.102(b)(9) of the proposed
regulations and existing Sec. 1003.102(c), one commenter raised
concerns regarding the ability of outside third parties to effectively
counsel [[Page 16583]] practitioners if such counseling activities were
considered subject to penalties as part of a ``circumvention'' scheme.
The commenter expressed concern that the regulation would discourage
lawyers, accountants and other professionals from advising physicians
on how to set up practices for fear that the advising professional
would be ``adding and abetting'' a violation.
Response: This regulation is directed specifically at physicians
and entities that enter into a ``cross-referral arrangement'' or a
scheme which the physician or entity knows or should know is designed
to circumvent the prohibitions of this provision. It should in no way
discourage physicians from seeking professional advice in good faith,
or discourage attorneys and accountants from giving such advice in good
faith.
Resource Issues
Comment: One commenter took issue with the regulatory impact
statement that states the rulemaking will have no direct effect on the
economy or on Federal or State expenditures. The commenter believes
that there will be a considerable increase in the workload of Medicare
auditors and fraud units in their efforts to detect fraud and abuse,
and believes that the impact statement should reflect these increased
activities.
In addition, based on information a second commenter is currently
receiving on physician ownership of other entities when individuals are
requesting provider numbers, the commenter indicated that they would
need to establish specific flags or edits to be adequately apprised of
situations involving potential violations.
Response: We do not believe that these penalty provisions will
result in significantly increased expenditures for detection efforts in
this area, and believe that these concerns do not warrant altering the
existing regulatory impact statement. While we do not anticipate
funding levels to significantly increase as a result of this additional
authority, we remain acutely aware of the issue and need for resources
in general, and will continue to invite and rely on active
participation from within the health care industry to aid in efforts to
accurately and effectively identify and police self-referral
violations.
Delaying Issuance of the Final OIG Regulations
Comment: One commenter asked that issuance of the OIG final penalty
provisions be delayed until HCFA has promulgated both sets of final
implementing regulations addressing prohibited referrals and prohibited
arrangements and schemes under section 1877 of the Act.
Response: As indicated above, HCFA plans two separate rulemaking
initiatives--one addressing clinical laboratory services and a second
for designated health services--to address the prohibitions set forth
in section 1877 of the Act. The OIG has always maintained, however,
that its statutory CMP authorities are independent authorities under
which it may bring enforcement actions before regulations are
published. For that reason, we do not believe that it is necessary for
the OIG to wait upon finalization of HCFA's regulations to publish in
final form our CMP regulations addressing the penalty and enforcement
provisions of sections 1877 (g)(3) and (g)(4).
IV. Technical Changes
As discussed above, we are incorporating into this final rule the
expansion of section 1877 resulting from OBRA 1993 to include Medicare
payments for much of the health care industry, i.e., for clinical
laboratory services and the additional ten ``designated health
services'' effective for referrals made after December 31, 1994.
V. Cross-References to the HCFA Regulations
Sections 1003.100(b)(1) (ix)-(xi), 1003.102(a)(5) and 1003.102
(b)(9) and (b)(10) cross-reference HCFA regulations' Secs. 411.351 and
411.353 that will not be codified until the HCFA Physician Referral
rules are published in final form. We note that these citations to the
HCFA regulations are tentative and will be amended, if necessary, when
those provisions are finalized.
VI. Regulatory Impact Statement
The Office of Management and Budget has reviewed this final rule
with comment period in accordance with the provisions of Executive
Order 12866. As discussed above, the provisions contained in this
rulemaking set forth new authorities to the OIG for levying CMPs
against persons or entities that file claims for services furnished on
the basis of prohibited referrals or who engaged in prohibited
circumvention schemes proscribed by statute. These provisions are a
result of statutory changes and serve to clarify departmental policy
with respect to the imposition of CMPs against persons and entities who
violate the statute. We believe that the great majority of providers
and practitioners do not engage in such prohibited activities and
practices discussed in these regulations. As a result, we believe that
the aggregate economic impact of these provisions will be minimal,
affecting only those who have engaged in prohibited behavior in
violation of the statute. As such, this final rule should have no
effect on the economy or on Federal or State expenditures.
In addition, we generally prepare a regulatory flexibility analysis
consistent with the Regulatory Flexibility Act (5 U.S.C. 601 through
612) unless the Secretary certifies that a regulation will not have a
significant economic impact on a substantial number of small business
entities. While some sanctions and penalties may have an impact on
small entities, we do not anticipate that a substantial number of these
small entities will be significantly affected by this rulemaking.
Therefore, we have concluded, and the Secretary certifies, that a
regulatory flexibility analysis is not required for this final rule.
List of Subjects in 42 CFR Part 1003
Administrative practice and procedure, Fraud, Grant programs--
health, Health facilities, Health professions, Maternal and child
health, Medicaid, Medicare, Penalties.
42 CFR part 1003 is amended as set forth below:
PART 1003--CIVIL MONEY PENALTIES, ASSESSMENTS AND EXCLUSIONS
1. The authority citation for part 1003 is revised to read as
follows:
Authority: 42 U.S.C. 1302, 1320-7, 1320a-7a, 1320b-10, 1395u(j),
1395u(k), 1395dd(d)(1), 1395mm, 1395nn(g), 1395ss(d), 1396b(m),
11131(c) and 11137(b)(2).
2. Section 1003.100 is amended by revising paragraph (a); by
republishing paragraph (b)(1) introductory text; by revising paragraphs
(b)(1)(vi) and (b)(1)(vii); and by adding new paragraphs (b)(1)(viii)-
(xi) to read as follows:
Sec. 1003.100 Basis and purpose.
(a) Basis. This part implements sections 1128(c), 1128A, 1140,
1842(j), 1842(k), 1876(i)(6), 1877(g), 1882(d) and 1903(m)(5) of the
Social Security Act, and sections 421(c) and 427(b)(2) of Pub. L. 99-
660 (42 U.S.C. 1320a-7, 1320a-7a, 1320a-7(c), 1320b(10), 1395mm,
1395ss(d), 1395u(j), 1395u(k), 1396b(m), 11131(c) and 11137(b)(2)).
(b) Purpose. * * *
(1) Providers for the imposition of civil money penalties and, as
applicable, assessments against persons who--
* * * * *
[[Page 16584]]
(vi) Violate a requirement of section 1867 of the Act or
Sec. 489.24 of this title;
(vii) Substantially fail to provide an enrollee with required
medically necessary items and services, or engage in certain marketing,
enrollment, reporting, claims payment, employment or contracting
abuses; or
(viii) Have submitted certain prohibited claims under the Medicare
program;
(ix) Present or cause to be presented a bill or claim for
designated health service (as defined in Sec. 411.351 of this title)
that they know, or should know, were furnished in accordance with a
referral prohibited under Sec. 411.353 of this title;
(x) Have collected amounts that they know or should know were
billed in violation of Sec. 411.353 of this title and have not refunded
the amounts collected on a timely basis; or
(xi) Are physicians or entities that enter into an arrangement or
scheme that they know or should know has as a principal purpose the
assuring of referrals by the physician to a particular entity which, if
made directly, would violate the provisions of Sec. 411.353 of this
title.
* * * * *
3. Section 1003.101 is amended by adding a definition for the term
timely basis to read as follows:
Sec. 1003.101 Definitions
* * * * *
Timely basis means, in accordance with Sec. 1003.102(b)(9) of this
part, the 60-day period from the time the prohibited amounts are
collected by the individual or the entity.
* * * * *
4. Section 1003.102 is amended by revising paragraphs (a)(3),
(a)(4) introductory test, and (a)(4)(iii); and by adding paragraphs
(a)(5), (b)(9) and (b)(10) to read as follows:
Sec. 1003.102 Basis for civil money penalties and assessments.
(a) * * *
(3) An item or service furnished during a period in which the
person was excluded from participation in the program to which the
claim was made in accordance with a determination made under sections
1128 (42 U.S.C. 1320a-7), 1128A (42 U.S.C. 1320a-7a), 1156 (42 U.S.C.
1320c-5), 1160(b) as in effect on September 2, 1982 (42 U.S.C. 1320c-
9(b)), 1842(j)(2) (42 U.S.C. 1395u(j)), 1862(d) as in effect on August
18, 1987 (42 U.S.C. 1395y(d)), or 1866(b) (42 U.S.C. 1395cc(b));
(4) A physician's services (or an item or service) for which the
person knew, or should have known, that the individual who furnished
(or supervised the furnishing of) the service--
* * * * *
(iii) Represented to the patient at the time the service was
furnished that the physician was certified in a medical specialty board
when he or she was not so certified; or
(5) A payment that such person knows, or should know, may not be
made under Sec. 411.353 of this title.
(b) * * *
(9) Has not refunded on a timely basis, as defined in Sec. 1003.101
of this part, amounts collected as the result of billing an individual,
third party payer or other entity for a designated health service that
was provided in accordance with a prohibited referral as described in
Sec. 411.353 of this title;
(10) Is a physician or entity that enters into--
(i) A cross referral arrangement, for example, whereby the
physician owners of entity ``X'' refer to entity ``Y,'' and the
physician owners of entity ``Y'' refer to entity ``X'' in violation of
Sec. 411.353 of this title, or
(ii) Any other arrangement or scheme that the physician or entity
knows, or should know, has a principal purpose of circumventing the
prohibitions of Sec. 411.353 of this title.
* * * * *
5. Section 1003.103 is amended by revising paragraphs (a) and (b)
to read as follows:
Sec. 1003.103 Amount of penalty.
(a) Except as provided in paragraphs (b), (c) and (d) of this
section, the OIG may impose a penalty of not more than $2,000 for each
item or service that is subject to a determination under Sec. 1003.102.
(b) The OIG may impose a penalty of not more than $15,000 for each
person with respect to whom a determination was made that false or
misleading information was given under Sec. 1003.102(b)(4), or for each
item and service that is subject to a determination under
Sec. 1003.102(a)(5) or Sec. 1003.102(b)(9) of this part. The OIG may
impose a penalty of not more than $100,000 for each arrangement or
scheme that is subject to a determination under Sec. 1003.102(b)(10) of
this part.
* * * * *
6. Section 1003.106 is amended by revising paragraph (a)(1)
introductory text and paragraph (a)(1)(iv); by redesignating paragraph
(a)(1)(v) as paragraph (a)(1)(vii); and by adding new paragraphs
(a)(1)(v) and (a)(1)(vi) to read as follows:
Sec. 1003.106 Determination regarding the amount of the penalty and
assessment.
(a) Amount of penalty. (1) In determining the amount of any penalty
or assessment in accordance with Sec. 1003.102 (a), (b)(1), (b)(4),
(b)(9), and (b)(10), the Department will take into account--
* * * * *
(iv) The financial condition of the person presenting the claim or
request for payment, or giving the information;
(v) The completeness and timeliness of the refund with respect to
Sec. 1003.102(b)(9);
(vi) The amount of financial interest involved with respect to
Sec. 1003.102(b)(10); and
* * * * *
Dated: October 4, 1994.
June Gibbs Brown,
Inspector General.
Approved: December 30, 1994.
Donna E. Shalala,
Secretary.
[FR Doc. 95-7845 Filed 3-30-95; 8:45 am]
BILLING CODE 4150-04-M
