[Federal Register Volume 59, Number 139 (Thursday, July 21, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-16873]
[[Page Unknown]]
[Federal Register: July 21, 1994]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Office of Inspector General
42 CFR Part 1001
RIN 0991-AA74
Medicare and State Health Care Programs: Fraud and Abuse;
Clarification of the OIG Safe Harbor Anti-Kickback Provisions
AGENCY: Office of Inspector General (OIG), HHS.
ACTION: Proposed rule.
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SUMMARY: This proposed rule would clarify various aspects of safe
harbor provisions originally published in the Federal Register on July
29, 1991 as a final rule (56 FR 35952). The safe harbor provisions have
been specifically designed to set forth those payment practices and
business arrangements that will be protected from criminal prosecution
and civil sanctions under the anti-kickback provisions of the statute.
This proposed rule would modify the original set of final safe harbor
provisions to give greater clarity to the rulemaking's original intent.
DATES: To assure consideration, public comments must be delivered to
the address provided below by September 19, 1994. Comments are
available for public inspection August 4, 1994.
ADDRESSES: Address comments to: Office of Inspector General, Department
of Health and Human Services, Attention: LRR-35-P, room 5246, 330
Independence Ave., SW., Washington, DC 20201.
If you prefer, you may deliver your comments to room 5551, 330
Independence Avenue, SW., Washington, DC. In commenting, please refer
to file code LRR-35-P. Comments are available for public inspection in
room 5551 330 Independence Avenue, SW., Washington, DC, on Monday
through Friday each week from 9 a.m. to 5 p.m., (202) 619-3270.
FOR FURTHER INFORMATION CONTACT:
Sandra Sands, Office of the General Counsel, (202) 619-1306
Joel Schaer, Office of Inspector General, (202) 619-3270
SUPPLEMENTARY INFORMATION:
I. Background
On July 29, 1991, we published in the Federal Register a final rule
setting forth various safe harbor provisions to the Medicare and
Medicaid anti-kickback statute (56 FR 35952). This regulation was
authorized under section 14 of Public Law 100-93, the Medicare and
Medicaid Patient and Program Protection Act of 1987. The final rule
specified those payment practices that will not be subject to criminal
prosecution under section 1128B(b) of the Social Security Act (the Act)
(42 U.S.C. 1320a-7b(b)), and that will not provide a basis for
exclusion from Medicare or the State health care programs under section
1128(b)(7) of the Act (42 U.S.C. 1320a-7(b)(7)).
Since publication of the final rule, we have become aware of a
limited number of ambiguities that have created uncertainties for
health care providers trying to comply with the safe harbor provisions.
We have also become aware of certain instances where our intent, either
to protect or preclude protection for particular business arrangements,
is not fully reflected in the text of the regulation even though it is
reflected in the preamble. This proposed rule would serve to modify the
text of the July 29, 1991 final rule to conform to the rulemaking's
original intent.
The clarifications contained in this proposed rule do not represent
an attempt to reevaluate the wisdom of the original safe-harbor
decisions. Instead, the changes set forth in this proposed rule would
serve only to protect business practices originally intended to be
protected by removing ambiguities in the regulatory language. This
clarity should aid the formation of legal business practices without
establishing any new significant legal obligations on the parties
affected by the regulations.
II. Summary of the Proposed Changes
A. Clarification to the General Comments Section of Preamble
Several individuals have commented that the following
sentence in the preamble has created confusion:
``Because the statute is broad, the payment practices described in
these safe harbor provisions would be prohibited by the statute but for
their inclusion here.'' (56 FR 35958)
This sentence was not meant to imply that, in all instances
irrespective of the parties intent, the government could prosecute
conduct described in the regulation, but for its inclusion in the
regulation. Whether a particular payment practice violates the statute
is a question that can only be resolved by an analysis of the elements
of the statute as applied to that set of facts. Generally speaking,
however, the original final rule did describe payment practices that
would be prohibited, where the unlawful intent exists, but for the safe
harbor protection that has been granted.
In discussing the space and equipment rental and personal
services and management contracts, we stated that if a ``sham contract
is entered into * * * we will look behind the contract'' to its
substance in evaluating whether the arrangement qualifies for safe-
harbor protection (56 FR 35972). We received numerous inquiries as to
whether we would similarly look behind the form of other arrangements
to determine whether the substance of the arrangement fits within a
particular safe harbor.
In some cases, such inquiries have led us to clarify particular
safe harbors, as is illustrated by the following discussions of the
safe harbors for investment interests, space and equipment rental, and
personal services and management contracts. However, because of the
broad variety of transactions subject to the Medicare and Medicaid
anti-kickback statute and the ability of individuals to manipulate the
safe harbors in ways not contemplated, we believe that a general rule
preventing sham arrangements from receiving safe harbor protection
would be appropriate. Thus, we are proposing adding a new Sec. 1001.954
to the regulations. Such an approach has several precedents. The
Federal Trade Commission (FTC) with the concurrence of the Department
of Justice promulgated Sec. 801.90 of the FTC's rules implementing the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (16 CFR 801.90),
which disregards sham transactions entered into for the purpose of
avoiding obligations under the Act. In addition, other Federal agencies
(such as the Securities Exchange Commission and the Internal Revenue
Service) have promulgated regulations and policies that seek to protect
the government from making enforcement decisions based on information
that does not accurately reflect the substance of the transaction.
(See, for example, 17 CFR 240.12b-20; Estate of Korman versus Comm., TC
Memo 1987-120; and Rev. Rul. 81-149, 1981-1 CB 77.) Moreover, the
courts have historically disregarded sham arrangements when examining
the rights and obligations of the parties in tax cases. (See, for
example, Knetsch versus United States, 364 U.S. 361 (1960); and
Thompson versus Commissioner of Internal Revenue, 631 F.2d 642 (9th
Cir. 1981), cert. denied, 452 U.S. 961 (1981).)
B. Clarifications to Investment Interests Safe Harbor
(Sec. 1001.952(a))
Health Care Assets and Revenues
In qualifying for the ``large entity'' or ``small entity''
investment interest safe harbors, the monetary value or amount of
certain assets and revenues must be determined. Specifically, the safe
harbors include: (1) The $50,000,000 asset threshold in
Sec. 1001.952(a)(1); and (2) the gross revenues in the ``60-40 revenue
rule'' in Sec. 1001.952(a)(2)(vi). In these cases, only the assets or
revenues related to the furnishing of health care items or services
will be counted for the purposes of qualifying for these safe harbor
requirements. It would be an obvious sham, inconsistent with our
original intent, if a joint venture could merge with a non-health care
business and have those non-health care assets, and the revenues
derived from that non-health care line of business counted for the
purposes of qualifying for safe harbor protection. We are thus
proposing to revise these safe harbor provisions to further clarify our
original intent that only health care assets and revenues will be
counted in determining these values and amounts.
Acquisition of Investment Interests
As set forth in Sec. 1001.952(a)(1)(ii), an ``interested'' investor
(who is in a position to make or influence referrals to, furnish items
or services to, or otherwise generate business for the entity) must
obtain his or her investment interest through trading on a registered
national securities exchange on terms equally available to the public.
This does not mean that an interested investor may acquire his or her
interest in any way other than the methods available to the general
public to acquire investment interests. We believe that the investor
must acquire his or her investment interest in the same way as members
of the public--directly off of a registered national securities
exchange through a broker--and it must be the same type of investment
interest that is available to the public. For example, a transaction in
which the interested investor receives restricted or ``lettered'' stock
from the entity would not be considered a valid acquisition of
investment interests under this requirement.
The discussion above does not represent a change in this standard.
Rather, it serves only to emphasize that the investment interest ``must
be obtained on terms equally available to the public through trading on
a registered national securities exchange * * *''
(Sec. 1001.952(a)(1)(ii)) (Emphasis added). Moreover, to obtain an
investment interest ``on terms equally available to the public,'' there
cannot be any side agreements that require stock to be purchased or
that restrict in any manner the investor's ability to dispose of the
stock. Any such agreement would constitute a sham transaction which
would disqualify dividend payments to that investor from safe harbor
protection.
Loans for the Purchase of the Investment Interest
One of the standards in the large and small entity investment
interest safe harbors prohibits the entity from loaning an investor
funds that are used by the investor to purchase his or her investment
interest. (See Secs. 1001.952(a)(1)(iv) and 1001.952(a)(2)(vii).) We
are proposing to change this standard to prohibit other investors,
individuals or entities as well as the entity from making such loans.
Class of Investment Interests
In the 60-40 investor rule in the small entity investment interest
safe harbor (Sec. 1001.952(a)(2)(i)), we established two categories of
investors: (1) ``untainted'' or ``disinterested'' investors are those
who do no business with the entity, but hold the investment interest
purely as an investment; and (2) ``tainted'' or ``interested''
investors are those who are in a position to make or influence
referrals to, furnish items or services to, or otherwise generate
business for the entity. For purposes of determining in which category
to place an investor, we require ``each class of investments'' to meet
the 60-40 apportionment between the two categories.
We have become aware of the difficulty in applying the 60-40 rule
to each class of investors in a joint venture where the general
partners hold a separate class of stock or investment interest from the
limited partners. In such a situation, that class of investment
interest for the general partners consists of 100 percent ``tainted''
or ``interested'' investors since the general partners are providing
services to the entity. Therefore, we believe that the entire joint
venture does not qualify for safe harbor protection.
While it is not always true that an active investor holds a
different class of investment interest from a passive investor, we have
found that it is unnecessarily restrictive to have this 60-40 investor
rule only apply to each class of investment interest. Thus, we are
proposing to modify this first investment interest standard to allow an
alternative to the class-by-class analysis. The new alternative would
allow equity investment interests to be combined together or debt
investment interests to be combined together (separate from the equity
investments) for purposes of apportioning investors into ``untainted''
and ``tainted'' pools and meeting the 60-40 test. Only equivalent
classes of equity investment interests could be combined, and only
equivalent classes of debt investment interests could be combined. That
is, the classes of investment interests combined would have to be
similar in all material respects. For example, the classes to be
combined would have to have equivalent returns in proportion to amounts
invested. In addition, if one class is given preferential treatment
(e.g., in the case of disposition), such an interest could not be
combined with subservient interests for purposes of compliance with the
60-40 investor rule.
If a limited partnership has a general partner who holds 20 percent
of the value of the investment interests, referring physicians hold 20
percent, and all the other investors have no business relationship with
the partnerships, then the 60-40 investor rule would be met, as long as
all other requirements are satisfied.
The 60-40 investor rule would not be met if any of the other
disinterested investors in the above example holds a debt instrument
instead of an equity instrument. For example, if a joint venture raises
one-third of its capital through a debt instrument held by
disinterested investors, with the remaining two thirds of its capital
derived from equity instruments held equally by interested (physicians
and general partners) and disinterested investors, the safe harbor
would not be met. In this example, even though interested investors
hold only one-third of all the investment interests, they hold one-half
of the equity investment interests, and thus no safe harbor protection
would be available.
We note that other standards in this small entity safe harbor
preclude protection for abusive schemes to give referring investors
preferential treatment in any way by creating different classes of
investment. For example, if a joint venture creates two classes of
stock, with one of the classes reserved for referring physicians who
receive a higher dividend per share than non-referring investors in the
other class, such an arrangement would not comply with at least
sections 1001.952(a)(2) (ii), (iii) and (viii).
Items or Services Furnished by an Investor
As discussed above, when an investor furnishes items or services to
the joint venture, such as management services, he or she is a tainted
or interested investor for the purposes of complying with the 60-40
investor rule (Sec. 1001.952(a)(2)(vi)). It was not our intent to have
any revenues that the joint venture derives from this investor's
services to be considered tainted for the purpose of qualifying for the
60-40 revenue rule.
Because of the apparent confusion caused by the language ``items or
services furnished'' in this safe harbor standard, we are proposing
striking it. The focus of the inquiry in this standard is where the
business and clients are coming from. In other words, the revenues are
tainted, and may not exceed 40 percent of total revenues, if they are
derived ``from referrals* * * or business otherwise generated from
investors.'' We note that the language we are proposing to strike--
``items or services furnished''--is superfluous because, if the revenue
is ``generated'' (i.e., induced to come to the joint venture for items
or services by an investor), it is tainted. Thus, the language we are
proposing to delete appears not to have added anything and merely
caused confusion.
The following example demonstrates the confusion and our solution.
If a radiologist holds an investment interest in an imaging center and
reads all the films at the center, his or her reading of the film does
not taint all the revenues from the referrals by non-investors.
However, we have received a few questions from people who read the 60-
40 revenue rule as making such referrals tainted because the investor
furnished services at the joint venture.
We emphasize that if a radiologist-investor is reading the film and
making referrals or otherwise generating business, then the revenues
the joint venture derives from that activity would become tainted. For
example, revenues would be tainted when a radiologist-investor takes
part in a consultation with a non-investor internist, and during that
consultation the radiologist recommends a procedure which is performed
at the joint venture.
C. Clarifications to Space and Equipment Rental and Personal Services
and Management Contracts Safe Harbors (Secs. 1001.952 (b), (c) and (d))
In the preamble discussing the safe harbor provisions for
space and equipment rental and personal services and management
contracts (56 FR 35971-74), we made clear that one of our concerns was
that health care providers in a position to make referrals to each
other who engaged in these business arrangements could renegotiate
their contracts on a regular basis depending on the volume of business
generated. It is for this reason that we require the leases or
contracts be for a term of not less than one year. (See
Secs. 1001.952(b)(4), 1001.952(c)(4), and 1001.952(d)(4).)
It has come to our attention that a small number of health care
providers believe they are complying with the literal terms of these
safe harbor provisions, but are circumventing our intent not to protect
agreements that are renegotiated based on the volume of business
generated between the parties. They believe that they are protected if
they enter into multiple agreements, each of which is for a period of
one year, but when all the agreements are viewed together
renegotiations are taking place more frequently (e.g., every month),
with the terms of the additional agreements based in part on the volume
of business being generated between the parties under existing
agreements. For example, a one year personal services contract between
a hospital and a high-volume referring physician is created for the
physician to perform certain services. The next month a new one year
contract is created for a slightly different service, with the amount
of payment influenced by the previous months referrals.
This scenario does not comply with the requirement in each of these
safe harbor provisions that the compensation not take ``into account
the volume or value of any referrals or business otherwise generated
between the parties * * * .'' (Secs. 1001.952(b)(5), 1001.952(c)(5),
and 1001.952(d)(5)). However, because the principal problem in this
situation is that the parties are creating multiple overlapping
agreements, we are proposing to revise these three safe harbor
provisions to expressly preclude such schemes.
In addition, it appears that some health care providers are
attempting to pay for referrals by renting more space than they
actually need from referral sources. Although such an arrangement would
not fit within a safe harbor because the aggregate rental charge would
be determined in a manner that would account for the volume or value of
referrals or business otherwise generated between the parties, we are
proposing to revise the safe harbor provisions in Secs. 1001.952
(b)(5), (c)(5) and (d)(5) to expressly preclude this practice.
D. Clarifications to Referral Services Safe-Harbor (Sec. 1001.952(f))
One of the standards in the referral services safe harbor
provision requires that any fee the referral service charges the
participant be ``based on the cost of operating the referral service,
and not on the volume or value of any referrals to or business
otherwise generated by the participants for the referral service * * *
.'' (Emphasis added) (Sec. 1001.952(f)(2)). This language precludes
protection where a referral service, such as one operated by a
hospital, lowers its referral service fee to one of its staff
physicians who participates in the service because that physician is a
high-volume referrer.
This language creates an ambiguity where the referral service tries
to adjust its fee based on the volume of referrals it makes to the
participant. Thus, we propose clarifying the second prong to preclude
safe harbor protection for payments that are based on the volume or
value of referrals to or business otherwise generated by either party
for the other party.
E. Clarifications To Discount Safe Harbor (Sec. 1001.952(h))
Many people requested clarification of the safe harbor for
discounts. Because there has been some uncertainty over what
obligations individuals or entities have to meet in order to receive
protection under this safe harbor, we propose dividing the parties into
three groups: buyers, sellers, and offerors of discounts. In describing
each party's obligations, we would revise paragraphs (h)(1) and (h)(2),
and add a new paragraph (h)(3).
In addition, through a proposed new paragraph (h)(4), we would
clarify that, for purposes of this regulation, a ``rebate'' is any
discount which is not given at the time of sale. Consequently, a rebate
transaction may be covered within the safe harbor if it involves a
buyer under Sec. 1001.952 (h)(1)(i) or (h)(1)(ii), but it is not
covered if it involves a buyer under Sec. 1001.952(h)(1)(iii) because,
under that provision, all discounts must be given at the time of sale.
We also wish to clarify what has to happen for sellers to receive
safe harbor protection. In the safe harbor regulation itself, we state
that discounts will be safe harbored if both the seller ``and'' the
buyer comply with the applicable standards as described in the rule.
Yet in the preamble we state that sellers should not be held liable for
the omissions of buyers. If a seller has done everything that it
reasonably could under the circumstances to ensure that the buyer
understands its obligations to accurately report the discount, the
seller is safe harbored irrespective of the omissions of the buyer. To
receive such protection, however, the seller must report the discount
to the buyer and inform the buyer of its obligation to report the
discount. To emphasize that the seller's obligations require more than
superficial compliance with the safe harbor, we propose to add to that
the seller must inform the buyer ``in an effective manner'' of its
obligations to report the discount. We also propose adding a
requirement that the seller ``refrain from doing anything that would
impede the buyer from meeting its obligations under this paragraph.''
Thus, if the seller, in good faith, meets its obligations under the
safe harbor and the buyer does not meet its obligations due to no fault
of the seller, the seller would receive safe harbor protection.
However, when the seller submits a claim or request for payment on
behalf of the buyer, the seller must fully and accurately report the
discount to Medicare or the State health care program. Likewise, when
an offeror of a discount meets its obligations under
Sec. 1001.952(h)(3), and the buyer or seller does not meet its
obligations due to no fault of the offeror, the offeror would receive
safe harbor protection.
In addition, we are proposing to clarify whether any reduction in
price offered to a beneficiary could be safe harbored under this
regulation. Congress protected ``a discount or other reduction in price
obtained by a provider of services or other entity'' (emphasis added)
and made no provision for such discounts obtained by a beneficiary. In
Sec. 1001.952(h)(3)(iv) of the regulation, we removed from safe harbor
protection a ``reduction in price offered to a beneficiary * * * .'' In
that section, all we intended to remove from this safe harbor was
``routine reduction or waiver of any coinsurance or deductible amount
owed by a program beneficiary.'' Thus, to the extent that a discount is
offered to a beneficiary and all other applicable standards in the safe
harbor are met, such a discount would receive safe harbor protection.
Many people have expressed confusion regarding the relationship
between the safe harbor for discounts and the statutory exception for
discounts. (See section 1128B(b)(3)(A) of the Act.) Specifically, we
are asked if there are any practices involving discounts which were
protected by Congress under the statutory exception which do not fit
within the safe harbor for discounts. Our intention is that all the
discounts or reductions in price that Congress intended to protect
under the statutory exception for discounts are protected under the
safe harbor for discounts. Moreover, as is illustrated by the
discussion above regarding discounts to beneficiaries, we are proposing
to expand the safe harbor for discounts to include additional practices
that we do not consider abusive.
In the preamble to the final regulation, we stated that when
reporting a discount, one only need report the actual purchase price
and note that it is a ``net discount'' (56 FR 35981). However, for
purposes of submitting a claim or request for payment, what is
necessary is that the value of the discount is accurately reflected in
the actual purchase price. It is not necessary to distinguish whether
this price is the result of a discount, or to state ``net discount.''
Consequently, buyers who were uncertain about how and where to report
on a particular form the fact that the price was due to a discount need
not be concerned with reporting that fact, as long as the actual
purchase price accurately reflects the discount.
Finally, we are proposing some minor editorial changes that do not
affect the substance of the provision, but hopefully make it easier to
understand.
F. Technical Correction
A typographical error at 56 FR 35978 gave a citation to a
HCFA rule on payment for intraocular lenses as ``55 FR 436.'' We would
correct this citation to the HCFA rule to read as ``55 FR 4536.''
We are proposing the deletion of Sec. 1001.953 which calls
for the completion of an OIG report on compliance with the investment
interest safe harbor at Sec. 1001.952(a)(2)(i) and 1001.952(a)(2)(vi)
within a specified period of time after publication of the original
safe harbor provisions. While the OIG is continuing its work on
evaluating this safe harbor provision, we believe completion of this
report to be an internal administrative process that need not be set
forth in the regulations.
III. Regulatory Impact Statement
As we indicated in the original safe harbor final rule published on
July 29, 1991, consistent with the intent of the statute, the original
safe harbor rulemaking and these proposed clarifications are designed
to permit individuals and entities to freely engage in business
practices and arrangements that encourage competition, innovation and
economy. In doing so, the 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 action under the
anti-kickback statute. We believe that the economic impact of these
provisions would be minimal.
In addition, we generally prepare a regulatory flexibility analysis
that is consistent with the Regulatory Flexibility Act (5 U.S.C. 601-
612). We have determined, and the Secretary certifies, that this
proposed regulation would not have a significant economic impact on a
substantial number of small business entities, and we have, therefore,
not prepared a regulatory flexibility analysis.
List of Subjects in 42 CFR Part 1001
Administrative practice and procedure, Fraud, Health facilities,
Health professions, Medicaid, Medicare.
TITLE 42--PUBLIC HEALTH
CHAPTER V--OFFICE OF INSPECTOR GENERAL--HEALTH CARE, DEPARTMENT OF
HEALTH AND HUMAN SERVICES
42 CFR part 1001 would be amended as set forth below:
PART 1001--PROGRAM INTEGRITY--MEDICARE AND STATE HEALTH CARE
PROGRAMS
1. The authority citation for part 1001 would continue to read as
follow:
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 section 14 of Public Law 100-93.
2. Section 1001.952 would be amended by:
a. republishing the introductory text for this section;
b. republishing the introductory text for paragraph (a)(1), and by
revising paragraphs (a)(1)(iv), (a)(2)(i), (a)(2)(vi) and (a)(2)(vii);
c. revising paragraphs (b)(2) and (b)(5);
d. adding a new paragraph (b)(6);
c. revising paragraphs (c)(2) and (c)(5);
f. adding a new paragraph (c)(6);
g. revising paragraphs (d)(2), (d)(5) and (d)(6);
h. adding a new paragraph (d)(7);
i. revising paragraphs (f)(2); and
j. revising paragraph (h), 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:
(a) Investment interests. * * *
(1) If, within the previous fiscal year or previous 12 month
period, the entity possesses more than $50,000,000 in undepreciated net
tangible assets (based on the net acquisition cost of purchasing such
assets from an unrelated entity) related to the furnishing of health
care items and services, all of the following five applicable standards
must be met--
* * * * *
(iv) The entity or any investor (or other individual or entity
acting on behalf of the entity or any investor in the entity) must not
loan funds to or guarantee a loan for an investor who is in a position
to make or influence referrals to, furnish items or services to, or
otherwise generate business for the entity if the investor uses any
part of such loan to obtain the investment interest.
* * * * *
(2) * * *
(i) No more than 40 percent of the value of the investment
interests of each class of investment interests may be held in the
previous fiscal year or previous 12 month period by investors who are
in a position to make or influence referrals to, furnish items or
services to, or otherwise generate business for the entity. (For
purposes of Sec. 1001.952(a)(2)(i), equivalent classes of equity
investments may be combined, and equivalent classes of debt instruments
may be combined.)
* * * * *
(vi) No more than 40 percent of the entity's gross revenue related
to the furnishing of health care items and services in the previous
fiscal year or previous 12 month period may come from referrals, or
business otherwise generated from investors.
(vii) The entity or any investor must not loan funds to or
guarantee a loan for an investor who is in a position to make or
influence referrals to, furnish items or services to, or otherwise
generate business for the entity if the investor uses any part of such
loan to obtain the investment interest.
* * * * *
(b) Space rental. * * *
(2) The lease covers all of the premises leased between the parties
for the period of the lease and specifies the premises covered by the
lease.
* * * * *
(5) The aggregate space rented does not exceed that which is
reasonably necessary to accomplish the legitimate business purpose of
the rental.
(6) The aggregate rental charge is set in advance, is consistent
with fair market value in arms-length transactions and is not
determined in a manner that takes into account the volume or value of
any referrals or business otherwise generated between the parties for
which payment may be made in whole or in part under Medicare or a State
health care program.
* * * * *
(c) Equipment rental.
* * * * *
(2) The lease covers all of the equipment leased between the
parties for the period of the lease and specifies the equipment covered
by the lease.
* * * * *
(5) The aggregate equipment rental does not exceed that which is
reasonably necessary to accomplish the legitimate business purpose of
the rental.
(6) The aggregate rental charge is set in advance, is consistent
with fair market value in arms-length transactions and is not
determined in a manner that takes into account the volume or value of
any referrals or business otherwise generated between the parties for
which payment may be made in whole or in part under Medicare or a State
health care program.
* * * * *
(d) Personal services and management contracts.
* * * * *
(2) The agency agreement covers all of the services the agent
provides to the principal for the period of the agreement and specifies
the services to be provided by the agent.
* * * * *
(5) The aggregate services contracted for do not exceed those which
are reasonably necessary to accomplish the legitimate business purpose
of the services.
(6) The aggregate compensation paid to the agent over the term of
the agreement is set in advance, is consistent with fair market value
in arms-length transactions and is not determined in a manner that
takes into account the volume or value of any referrals or business
otherwise generated between the parties for which payment may be made
in whole or in part under Medicare or a State health care program.
(7) The services performed under the agreement do not involve the
counseling or promotion of a business arrangement or other activity
that violates any State or Federal law.
* * * * *
(f) Referral services. * * *
(2) Any payment the participant makes to the referral service is
assessed equally against and collected equally from all participants,
and is only based on the cost of operating the referral service, and
not on the volume or value of any referrals to or business otherwise
generated by either party for the other party for which payment may be
made in whole or in part under Medicare or a State health care program.
* * * * *
(h) Discounts. As used in section 1128B of the Act,
``remuneration'' does not include a discount, as defined in paragraph
(h)(5) of this section, on an item or service for which payment may be
made, in whole or in part, under Medicare or a State health care
program for a buyer as long as the buyer complies with the applicable
standards of paragraph (h)(1) of this section; a seller as long as the
seller complies with the applicable standards of paragraph (h)(2) of
this section; and an offeror of a discount who is not a seller under
paragraph (h)(2) of this section so long as such offeror complies with
the applicable standards of paragraph (h)(3) of this section:
(1) With respect to the following three categories of buyers, the
buyer must comply with all of the applicable standards within one of
the three following categories--
(i) If the buyer is an entity which is a health maintenance
organization or a competitive medical plan acting in accordance with a
risk contract under section 1876(g) or 1903(m) of the Act, or under
another State health care program, it need not report the discount
except as otherwise may be required under the risk contract.
(ii) If the buyer is an entity which reports its costs on a cost
report required by the Department or a State health care program, it
must comply with all of the following four standards--
(A) the discount must be earned based on purchases of that same
good or service bought within a single fiscal year of the buyer.
(B) the buyer must claim the benefit of the discount in the fiscal
year in which the discount is earned or the following year.
(C) the buyer must fully and accurately report the discount in the
applicable cost report; and
(D) the buyer must provide, upon request by the Secretary or a
State agency, information provided by the seller as specified in
paragraph (h)(2)(ii) of this section, or information provided by the
offeror as specified in paragraph (h)(3)(ii) of this section.
(iii) If the buyer is an individual or entity in whose name a claim
or request for payment is submitted for an item or service for which
payment may be made, in whole or in part, under Medicare or a State
health care program (not including individuals or entities receiving
items or services from entities defined as buyers in paragraph
(h)(1)(i) or (h)(1)(ii) of this section), the buyer must comply with
all of the following three standards--
(A) the discount must be made at the time of the sale of the good
or service (rebates are therefore not allowable);
(B) where an item or service is separately claimed for payment with
the Medicare program or a State health care program, the buyer (if
submitting the claim) must fully and accurately report the discount on
that item or service; and
(C) the buyer (if submitting the claim) must provide, upon request
by the Secretary or a State agency, information provided by the seller
as specified in paragraph (h)(2)(iii)(B) of this section, or
information provided by the offeror as specified in paragraph
(h)(3)(iii)(A) of this section.
(2) The seller is an individual or entity that furnishes an item or
service for which payment may be made, in whole or in part, under
Medicare or a State health care program to the buyer and who permits a
discount to be taken off the buyer's purchase price. The seller must
comply with all of the applicable standards within the following three
categories--
(i) If the buyer is an entity which is a health maintenance
organization or a competitive medical plan acting in accordance with a
risk contract under section 1876(g) or 1903(m) of the Act, or under
another State health care program, the seller need not report the
discount to the buyer for purposes of this provision.
(ii) If the buyer, is an entity that reports its costs on a cost
report required by the Department or a State agency, the seller must
comply with either of the following two standards--
(A) where a discount is required to be reported to Medicare or a
State health care program under paragraph (h)(1) of this section, the
seller must fully and accurately report such discount on the invoice,
coupon or statement submitted to the buyer, inform the buyer in an
effective manner of its obligations to report such discount, and
refrain from doing anything which would impede the buyer from meeting
its obligations under this paragraph; or
(B) where the value of the discount is not known at the time of
sale, the seller must fully and accurately report the existence of a
discount program on the invoice, coupon or statement submitted to the
buyer, inform the buyer in an effective manner of its obligations to
report such discount under paragraph (h)(1) of this section and, when
the value of the discount becomes known, provide the buyer with
documentation of the calculation of the discount identifying the
specific goods or services purchased to which the discount will be
applied, and refrain from doing anything which would impede the buyer
from meeting its obligations under this paragraph.
(iii) If the buyer is an individual or entity not included in
paragraph (h)(2)(i) or (h)(2)(ii) of this section, the seller must
comply with either of the following two standards--
(A) where the seller submits a claim or request for payment on
behalf of the buyer and the item or service is separately claimed, the
seller must fully and accurately report the discount on the claim or
request for payment to Medicare or a State health care program and the
seller must provide, upon request by the Secretary or a State agency,
information provided by the offeror as specified in paragraph
(h)(3)(iii)(A) of this section; or
(B) where the buyer submits a claim, the seller must fully and
accurately report such discount on the invoice, coupon or statement
submitted to the buyer; inform the buyer in an effective manner of its
obligations to report such discount; and refrain from doing anything
that would impede the buyer from meeting its obligations under this
paragraph.
(3) The offeror of a discount is an individual or entity who is not
a seller under paragraph (h)(2) of this section, but promotes the
purchase of an item or service by a buyer under paragraph (h)(1) of
this section at a reduced price for which payment may be made, in whole
or in part, under Medicare or a State health care program. The offeror
must comply with all of the applicable standards within the following
three categories--
(i) If the buyer is an entity which is a health maintenance
organization or a competitive medical plan acting in accordance with a
risk contract under section 1876(g) or 1903(m) of the Act, or under
another State health care program, the offeror need not report the
discount to the buyer for purposes of this provision.
(ii) If the buyer is an entity that reports its costs on a cost
report required by the Department or a State agency, the offeror must
comply with the following two standards--
(A) the offeror must inform the buyer in an effective manner of its
obligation to report such a discount; and
(B) the offeror of the discount must refrain from doing anything
that would impede the buyer's ability to meet its obligations under
this paragraph.
(iii) If the buyer is an individual or entity in whose name a
request for payment is submitted for an item or service for which
payment may be made, in whole or in part, under Medicare or a State
health care program (not including individuals or entities defined as
buyers in paragraph (h)(1)(i) or (h)(1)(ii) of this section), the
offeror must comply with the following two standards--
(A) the offeror must inform the individual or entity submitting the
claim or request for payment in an effective manner of their
obligations to report such a discount; and
(B) the offeror of the discount must refrain from doing anything
that would impede the buyer's or seller's ability to meet its
obligations under this paragraph.
(4) For purposes of this paragraph (a), a rebate is any discount
which is not given at the time of sale.
(5) For purposes of this paragraph (a), the term discount means a
reduction in the amount a buyer (who buys either directly or through a
wholesaler or a group purchasing organization) is charged for an item
or service based on an arms-length transaction. The term discount does
not include--
(i) Cash payment;
(ii) Furnishing one good or service without charge or at a reduced
charge to include the purchase of a different good or service;
(iii) A reduction in price applicable to one payer but not to
Medicare or a State health care program;
(iv) A routine reduction or waiver of any coinsurance or deductible
amount owned by a program beneficiary;
(v) Warranties;
(vi) Services provided in accordance with a personal or management
services contract; or
(vii) Other remuneration, in cash or in kind, not explicitly
described in this paragraph (a)(5).
* * * * *
Sec. 1001.953 [Removed]
3. Section 1001.953 would be removed.
4. Section 1001.954 would be added to read as follows:
Sec. 1001.954 Sham Transactions or Devices.
Any transaction or other device entered into or employed for the
purpose of appearing to fit within a safe harbor when the substance of
the transaction or device is not accurately reflected by the form will
be disregarded, and whether the arrangement receives the protection of
a safe harbor will be determined by the substance of the transaction or
device.
Dated: March 14, 1994.
June Gibbs Brown,
Inspector General.
Approved: April 22, 1994.
Donna E. Shalala,
Secretary, Department of Health and Human Services.
[FR Doc. 94-16873 Filed 7-20-94; 8:45 am]
BILLING CODE 4150-04-M
