48726 Federal Register /Vol. 73, No. 161/Tuesday, August ... · 48726 Federal Register/Vol. 73, No. 161/Tuesday, August 19, 2008/Rules and Regulations We also believe that the preamble

48726 Federal Register / Vol. 73, No. 161 / Tuesday, August 19, 2008 / Rules and Regulations

We also believe that the preamble discussion in the 1995 final rule demonstrates that we recognized a distinction between the question of whether a physician or group practice has an ownership (as opposed to a compensation) relationship with a hospital and the question of whether a physician has an ownership interest in a service provider that contracts with a hospital for the billing of services ‘‘under arrangements.’’ There, we noted that a commenter believed that, if there is an under arrangement agreement between a hospital and a group practice for the group practice to provide laboratory services to hospital patients under section 1861(w)(1) of the Act, it is the hospital and not the group practice physicians that is making a referral for the purposes of the self- referral proscription found in section 1877 of the Act. We responded that we did not believe that the Congress intended to allow physicians to circumvent the referral prohibition by imputing their referrals to an operating entity such as a clinic, hospital, or other institution. We acknowledged that ‘‘theexception in section 1877(e)(7) of the Act could apply to allow referrals based on part of this scenario’’ but

[t]here is, however, a complicating factor in the commenter’s scenario. That is, the group practice physicians are referring to their own group practice laboratory. It is likely that these physicians are receiving compensation from the group practice that owns the laboratory or that they own some portion of the group practice and the laboratory. The compensation or ownership interests involved here would require a separate exception in order to allow the group practice physicians to refer. The services could, for example, be excepted under the in- office ancillary services exception in section 1877(b)(2) of the Act, which allows a group practice to refer to its own laboratory if certain criteria are met (66 FR 41941).

4. Suggested Changes and Clarifications to Definition of ‘‘Performs the Service’’

Comment: One commenter, although supporting generally the proposal, was concerned that the proposal that an entity that ‘‘performs’’ the DHS is a DHS entity within the meaning of § 411.351,may not have its desired effect because of the potential ambiguity of the meaning of ‘‘performs.’’ The commenter suggested that the final rule give a specific definition of ‘‘performs.’’ One commenter stated that the proposed language in the definition ‘‘hasperformed the DHS’’ was ambiguous, and questioned whether it included individuals, management companies, lessors or vendors. Two commenters asked us to provide a clear definition of performing DHS. A commenter said that

it is very common, with respect to a variety of healthcare participants, for equipment to be leased from one party, space to be leased from another, and personnel employed, leased or contracted from or by multiple organizations. Two commenters said that the meaning of the phrase ‘‘personor entity that has performed the DHS’’is unclear because the phrase could apply to the physician who performs the service, the location where the services are performed, the person or entity that owns the equipment with which a DHS is performed, or possibly some other person.

Another commenter cautioned that further guidance may be necessary to better define who ‘‘performs’’ DHS in fact patterns in which billing entities acquire inputs from multiple sources to deliver DHS. A commenter that supported the proposal suggested that a better way to define ‘‘entity’’ would be to specify ‘‘entity’’ as any business arrangement, and provide one exception for physician investment in a large publicly traded corporation. Another commenter that supported the proposal said that the definition could be improved if, in addition to including the person or entity that furnished the service or billed for it, we also included ‘‘the person or entity that owns or leases the space or equipment to either of the above.’’ One commenter questioned whether the definition of entity would extend to entities that provide billing staff or equipment used in furnishing DHS, because neither of these activities constitutes providing DHS. A commenter stated that it is unclear whether an entity that performs a component of DHS ‘‘performs’’ the DHS. The commenter stated it does not believe that an entity that provides management services performs DHS within the meaning of the proposed definition. Another commenter stated that although it believes that providing only some of the components of DHS should not be considered performing DHS or causing a claim to be submitted, the proposed rule created a level of uncertainty. The commenter stated that, taken to its extreme, the proposed definition of ‘‘entity’’ could be viewed as making any equipment lessor or entity that performs services for a DHS entity, even a provider of linens or food services, into a DHS entity itself. The commenter further stated that the provision of equipment and customized devices for a medical procedure and/or the services of a technician to monitor the equipment should not be defined as ‘‘performing the DHS.’’ A large association representing group practices

said that if we were to adopt the proposal, we should make clear that the new provision does not apply to companies that merely lease equipment.

Response: We decline to provide a specific definition of ‘‘perform,’’ but rather intend that it should have its common meaning. We note that the language ‘‘performing’’ a service, or ‘‘perform’’ a service, or ‘‘performed’’ a service, or ‘‘services performed’’ appears numerous times in title XVIII of the Act and in our regulations, without a definition of what ‘‘perform’’ or any of its derivations means. For example, section 1861(q) of the Act defines ‘‘physicians’ services’’ as ‘‘professionalservices performed by physicians’’without elaboration as to what ‘‘performed’’ means. Physicians and other suppliers and providers generally know when they have performed a service and when they are entitled to bill for it. By way of example only, we consider a service to have been ‘‘performed’’ by a physician or physician organization service if the physician or physician organization does the medical work for the service and could bill for the service, but the physician or physician organization has contracted with a hospital and the hospital bills for the service instead. We do not mean to imply that a physician service provider can escape the reach of the physician self-referral statute by doing substantially all of the necessary medical work for a service, and arranging for the billing entity or some other entity to complete the service. We do not consider an entity that leases or sells space or equipment used for the performance of the service, or furnishes supplies that are not separately billable but used in the performance of the medical service, or that provides management, billing services, or personnel to the entity performing the service, to perform DHS.

Comment: Commenters addressed the issue of whether physician-owned implant or other medical device companies should or should not be considered to be an entity within the meaning of § 411.351. One commenter noted that orthopedic surgeons may have an ownership interest in a manufacturer of spinal implants that sells its implants to the hospital where the surgeon performs his or her surgeries. The commenter also stated that, because the proposed definition of ‘‘entity’’ would extend to an entity that ‘‘performs the DHS,’’ arguably the manufacturer could be considered to be an ‘‘entity’’ under § 411.351. This commenter urged us to exclude such manufacturers from the definition of ‘‘entity.’’ It stated that the indirect types

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48727Federal Register / Vol. 73, No. 161 / Tuesday, August 19, 2008 / Rules and Regulations

of arrangements involving spinal implants would still trigger the self- referral prohibition if they are not at fair market value. Comments submitted on behalf of a manufacturer of spinal implants asserted that, despite superficial similarities, joint ventures involving medical devices differ in many material ways from the types of arrangements over which we expressed concern. This commenter also said that the meaning of ‘‘has performed the DHS’’ is unclear and that we should clarify that the proposal applied only to ‘‘true’’ under arrangement relationships with hospitals, but that, in any event, implantable devices are not DHS. The commenter further stated that, even if implantable devices were deemed to be DHS, the rigorous physician self-referral exceptions (for example, the indirect compensation exception) are still available to protect the arrangement, and that if we were to interpret the proposal as applying beyond formal ‘‘under arrangement’’ relationships, we would be sliding down an impermissibly slippery slope if we in fact intend our approach to be different than the one that was proposed by MedPAC.

After the comment period closed for the CY 2008 PFS proposed rule, we received a comment from a large medical device manufacturer that requested that we examine the current prevalence of physician-owned implant companies and the impact that these ventures have on program or patient abuse, as well as what it considered to be the negative impact on competition among physician investor ventures and non-physician ventures. The commenter suggested that we deem physician- owned implant companies to be DHS entities under certain circumstances. The commenter also suggested that a physician-owned implant company should not be considered to have caused a claim to be presented where the referring physician is named as an inventor on an issued patent for the implantable item and the physician does not receive any remuneration from the company based on the value or volume of referrals, or where the physician’s investment interest meets the requirements of § 411.356(a) for large, publicly traded entities.

Response: In this final rule, we are not adopting the position that physician- owned implant or other medical device companies necessarily ‘‘perform the DHS’’ and are therefore an ‘‘entity’’ on that basis. In the FY 2009 IPPS proposed rule, we solicited comments as to whether such companies should be considered to be an ‘‘entity’’ within the meaning of § 411.351. We may decide to

issue proposed rulemaking on this issue in the future.

5. Cause Claim To Be Submitted Comment: Some commenters were

concerned with the aspect of the proposal that would include ‘‘a person or entity that causes claims to be submitted’’ within the definition of ‘‘entity.’’ Another commenter stated that the term ‘‘causes a claim to be submitted’’ is unclear and is susceptible to varying interpretations. One commenter asserted that our interpretation would make all vendors DHS entities. A commenter maintained that we did not indicate which entities would be subject to the physician self- referral prohibition as an individual or entity ‘‘that causes claims to be submitted.’’ An association that represents oncologists was concerned that the proposed definition could be read to include management and billing companies. Because billing and management companies submit claims for DHS on behalf of their physician or provider clients, arguably they ‘‘cause a claim to be presented’’ for DHS. The commenter stated that it believed that we did not foresee or intend this result.

Response: The proposed rule would have amended the definition of ‘‘entity’’in § 411.351 to provide that ‘‘[a] person or entity is considered to be furnishing DHS if it—(i) Is the person or entity that has performed the DHS, or (ii) Presented a claim or caused a claim to be presented for Medicare benefits for the DHS.’’ We are not revising the definition of ‘‘entity’’ in § 411.351 to include the ‘‘or cause a claim to be presented’’language in proposed paragraph (ii). As noted above, section 1877(a)(1)(A) of the Act and our regulations define ‘‘entity’’as any organization that is ‘‘furnishing’’DHS, and section 1877(a)(1)(B) of the Act and § 411.353(b) of our regulations prohibits an entity that receives a prohibited referral from presenting a claim to Medicare or causing such a claim to be presented. In this final rule we are revising the definition of ‘‘entity’’ to clarify that a person or entity that is performing DHS is furnishing DHS (as is a person or entity that presents a claim for Medicare benefits for DHS). We believe that an entity that performs services that are billed as DHS is furnishing DHS and, therefore, is a DHS entity. Under section 1877(a)(1) of the Act, and in accordance with our current regulations at § 411.353, once a person or entity has furnished DHS, and therefore is considered to be a DHS entity with respect to that service, the person or entity is prohibited from either presenting a claim or causing a claim to be submitted if the referral for

the DHS was prohibited. We do not believe it is practical to attempt to define, through general rulemaking, what does or does not constitute causing a claim to be submitted. Rather, such a determination must be made, through adjudication, on a case-by-case basis.

6. Proposal Based on Anecdotal Evidence

Comment: A large association representing internists and medical students stated that, whereas it fully understands and shares concerns about inappropriate utilization of certain services, completely restricting the ability of physicians to invest in their own industry is far from the answer. The commenter noted that throughout the proposal, we continued to cite anecdotal evidence of arrangements that are at risk for fraud and abuse, yet provided no actual evidence of program abuse. Other commenters stated that we have not substantiated our concerns with comprehensive analyses or objective data. One commenter, an association of cardiologists, stated that its members can demonstrate that collaborations between physicians and hospitals reduce duplication of services and competition for technical staff within local service areas, thus reducing practice expense and equipment costs for Medicare providers and the Medicare program.

Response: We are finalizing the proposal because we believe that it would be inconsistent with Congress’sintent to not consider an entity that performs DHS as a DHS entity. In addition, we have concerns that contractual arrangements between physician-owned service providers and hospitals may lead to overutilization and anti-competitive behavior. These concerns are based on studies that show an increase in utilization where physician ownership of services is involved, as well as anecdotal evidence.

7. Community Benefit and Access to Care

Comment: One commenter stated that, in contrast to past policy statements, the proposed rule did not in any way recognize the positive role of arranged- for services in today’s health care system, but instead seems to condemn them all with one-size-fits-all sweeping claims. According to the commenter, in the Phase I rule, we recognized that under arrangement relationships ‘‘arepervasive in the hospital industry’’ and that many help ‘‘avoid unnecessary duplication of costs and underutilization of expensive equipment.’’ (66 FR 942). One commenter stated that, although the


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proposed rule discusses anecdotal reports related to ‘‘under arrangements’’ventures that are presumably abusive, there is no suggestion that these concerns are equally applicable to all types of services, and yet, the proposed changes would eliminate completely this significant option utilized by hospitals, particularly those without significant financial resources, to bring certain services, such as new technology, to their community. The commenter believed that before we implement any changes to the physician self-referral regulations that will restrict or eliminate ‘‘under arrangements’’ventures with entities that are owned in whole or in part by physician referral sources, it is imperative that we assess the potentially significant impact such a change will have on the quality and scope of care offered by many institutions.

One commenter stated that many organized independent medical groups have fostered good working relationships with hospitals that benefit the community. A regional state-of-the- art cancer center that is a joint venture between physicians and a hospital allows Medicare beneficiaries to receive high quality, cost effective care in one setting. This type of arrangement is in contrast to one where each physician group in the community buys duplicative cancer technology, competes directly with the hospital, and little collaboration among providers exists.

A health system stated that in circumstances where particular services are needed, but not frequently performed, having one provider develop consistent practices and expertise may afford a higher quality of care for patients seeking the service and ‘‘underarrangements’’ contracts prevent multiple health care providers from purchasing the same types of equipment in any given community, and as a result, the cost of care is actually reduced because of efficient resource management. One commenter stated that many of the ‘‘under arrangements’’contracts result in significant community benefit and patient benefit, and avoid duplication of services, thus producing cost savings to the program. Another commenter, representing a public hospital district, stated that there are compelling and legitimate reasons for public hospitals and local physicians to create collaborative arrangements to deliver care in the community. It asserted that participation in collaborative ventures with local physicians reduces the operating burden on public hospitals.

Another commenter said that hospitals that enter into ‘‘underarrangements’’ relationships are relieved of the burden of maintaining or expanding a particular service line, while still being able to provide much needed services to members of its community. This frees hospital capital to be spent on other needed services and space and other resources within the hospital to be used on other services. The commenter said that it has been its experience that hospitals have found themselves unable to keep up with the demand for outpatient surgery capacity and have found investing in ASCs to be a better use of their resources as compared to building and staffing larger outpatient surgery areas within the hospitals.

Two commenters stated that we should encourage ‘‘under arrangements’’contracts between physicians and hospitals. They stated that, in many instances, it can make financial and clinical sense to enter into a venture with a partner that can provide capital, shared risk, and operational expertise to a hospital striving to improve its specialty services and programs. The commenters further stated that the fact that physicians can sometimes bring these resources to a hospital should not exclude them automatically as participants in these efforts, and in many ways physicians are ideal hospital partners and offer benefits to hospitals beyond mere referral of patients, such as careful cost control and quality improvement expertise. Another commenter stated that it appeared incongruous that we appear to support gainsharing but also appear ready to prohibit economic models that seeks to align physician incentives with those of hospitals.

Many commenters also expressed concern that if we finalize the proposal access to care will be disrupted, particularly in underserved or rural areas. A large association representing group practices commented that if we finalize our proposal, we should clarify that the ‘‘new restriction’’ will not impact the exception available for rural markets. The commenter further asserted that it would be an ironic result and an unfortunate policy if a physician’s referral to a rural hospital were prohibited because of an ‘‘underarrangements’’ contract between the hospital and an entity in which the physician had an interest, when the same physician’s referral to the same entity would be clearly protected. A rural hospital commented that, in its market, provider-based entities protect against unnecessary duplication of services, equipment, staff and facilities

and offer several other advantages. Some urologists complained that the proposal would prohibit providing lithotripsy and other services to rural patients. For example, one urologist said that adoption of the proposal would prohibit the provision of many services, including, but not limited to, laser services, cryotherapy services and IMRT, as well as the newer services transurethral microwave therapy (TUMT) and transurethral needle ablation of the prostate, which, more often than not, are performed in the office. Other physicians, primarily urologists, and an organization whose members form joint ventures with urologists, commented that physician joint ventures have provided Medicare beneficiaries with access to effective treatments that they otherwise would not have had and/or have saved Medicare millions of dollars.

Comments submitted on behalf of a large multi-specialty physician group asserted that many ‘‘underarrangements’’ relationships have existed for many years and benefit both the hospital and the patient. The comments maintained that the hospital is able to secure services that it otherwise could not provide efficiently, through contracting with an outside supplier that often is an expert in these services. In addition, the comments stated that not all ‘‘under arrangements’’relationships result in higher Medicare reimbursement levels, but where this is true, we should address any incentives due to differences in reimbursement between the PFS and OPPS by eliminating those differences in reimbursement rather than by revising the definition of entity. Finally, comments stated that independent physician groups cannot be further disadvantaged to the benefit of hospital system providers that enjoy special privileges of significantly higher reimbursement for similar services, wide latitude to create built-in referral relationships by employing physicians and, in many instances, the financial benefit of tax-exempt status.

Response: We recognize that in some circumstances, providing services ‘‘under arrangements’’ may be beneficial to patients, providers and the program. We are not prohibiting services to be furnished ‘‘under arrangements.’’

We are finalizing the proposal because we believe that it would be inconsistent with the Congress’s intent to not consider an entity that performs DHS as a DHS entity. We note that in enacting ownership exceptions, the Congress did not provide for an exception based on lack of access per se, but rather enacted an exception only for


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rural providers. With respect to service providers that furnish services to rural patients, our proposal as adopted in this final rule does not alter the availability of the exception for an ownership interest in a rural provider. However, as clarified in this final rule, as a DHS entity, a physician owner/investor in such a service provider would need an ownership exception (such as the rural provider exception) in order to protect his or her referrals to the service provider.

With respect to ownership/investment interests that will not qualify for the rural provider exception because of the patient population they serve, we do not believe that patient access will be significantly disrupted, for several reasons. First, we are not prohibiting physician group practices or other physician organizations from contracting with hospitals for the provision of services ‘‘underarrangements.’’ Any physician that has a compensation arrangement with, but not an ownership/investment interest in, the physician group practice or other physician organization (such as an employee or contractor physician with the group practice or other physician organization) may refer patients for services that are provided by a hospital ‘‘under arrangements’’ provided that one of the compensation exceptions is met. Also, the definition of ‘‘referral’’ at § 411.351 excepts services that are personally performed by the referring physician. Thus, to the extent that an owner/investor in the physician service provider has referred the patient for a service but then personally performs the service, there is no ‘‘referral’’ within the meaning of § 411.351 and the physician self-referral law is not implicated. (Note that if there is a technical component to a service or a facility fee, that is billed by a provider ‘‘under arrangements,’’ the fact that the referring physician performs the professional component, and thus there is no ‘‘referral’’ for the professional component, does not alter the fact that there is a ‘‘referral’’ for the TC or the facility fee. Note also that the definition of ‘‘referral’’ states that DHS is not personally performed or provided by the referring physician if it is performed or provided by any other person, including, but not limited to, the referring physician’s employees, independent contractors, or group practice members. See, e.g., 66 FR 941.) Also, we expect that hospitals that have not been furnishing services directly, but rather have been furnishing them ‘‘under arrangements,’’ will begin doing so. We believe that, in some instances, hospitals would prefer to furnish

services directly but have been concerned about losing referral streams if they compete with physician service providers. (In this regard we note that we received very few comments from hospitals objecting to our proposal, and instead two major hospital associations were generally supportive of it.) We also believe that, conversely, in many cases physician groups could provide the services and bill for them directly, that is, without the need to contract with a hospital to provide them ‘‘underarrangements’’, and that, to the extent the services would be DHS when performed and billed by the physician group, referrals to the physician entity could be protected by the in-office ancillary services exception or another exception. We also note that to the extent that the physician service providers are furnishing lithotripsy (and based on the comments we received it appears that lithotripsy makes up a significant portion of the services furnished ‘‘under arrangements’’), we presently do not consider lithotripsy to be a DHS. Finally, the delayed effective date of the revision to § 411.351, that is October 1, 2009, will provide sufficient time for arrangements to be restructured.

8. Hospitals as Risk-Averse Comment: Several urologists objected

to what they perceive as our view that physicians who invest in joint ventures to provide services ‘‘underarrangements’’ do so at the expense of good patient care. These commenters and others stated that hospitals balk at investing in new technology because of the risk of obsolescence (that is, what is new technology today may be soon outmoded) and because doing so will result in lesser use of other services that they currently provide. Also, a single hospital often does not have the volume to justify the expense of a large capital investment. Joint ventures involve physicians so that usage can be spread among several hospitals.

One urologist stated that urologic joint ventures have been able to offer state-of-the-art services to the community while lowering costs and improving care. An association that represents urologists stated that state-of- the-art equipment made available by physician-owned companies fills the critical gap between what advances the latest technology can offer and what hospitals can afford.

Response: With respect to the commenters’ assertions that physicians are willing to take risks in bringing services to communities and that hospitals are risk averse, to the extent that this is true, it begs the question of

whether physicians are less concerned about risk because they can control the referral stream and whether hospitals are more concerned about risk because they fear that referrals will go to their competitors if they do not enter into contractual arrangements with physician groups. We believe that the proposal as finalized will create a more level playing field between hospitals and physicians and also among hospital competitors. We note that, although many of the physician commenters emphasized the benefits to hospitals of contracting with physician groups to provide services ‘‘under arrangements,’’the hospital associations and hospitals that commented on the proposal generally did not support this view.

9. Cardiac Catheterization and Personally Performed Services

Comment: Several commenters stressed the efficiency and quality of services offered by their joint ventures with hospitals for the provision of cardiac catheterization services. Some commenters stated that the vast bulk of the services provided to the hospital are based on flat fees for specific categories of services, which include the full costs for these services, and thus, the joint venture assumes the risk of all costs of providing the services. They further stated that the agreed-upon fees are reviewed periodically by a third-party valuation company to ensure that the fees are at fair market value. Other commenters stated that the physicians can provide the service at a lower cost than the hospital, that the physicians desire a greater level of clinical excellence by becoming more involved in the management of the service, and the service is not a priority for the hospital but is a priority for the physicians.

Several commenters stated that the proposed rule made no attempt to distinguish under arrangement services involving personally performed services as opposed to other services. Another commenter stated that if services such as cardiac catheterizations or outpatient surgery were performed in an ASC or physician’s practice, they would not qualify as DHS and therefore would not be subject to the physician self-referral law. Commenters recommended that we should clarify that these services constitute personally performed services excepted from the definition of ‘‘referral’’ or exclude these types of service providers from the definition of ‘‘entity.’’

Response: This final rule does not prohibit physician group practices and other physician organizations from furnishing cardiac catheterization


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services. Where a group practice or other physician organization provides the service and bills for it, the service is not DHS and the physician self- referral statute will not apply. Where a group practice or other physician organization provides the service and, pursuant to a contractual arrangement, a hospital bills for it as an outpatient or inpatient service, the service is DHS and therefore the group practice or other physician organization would be a DHS entity with respect to that service. If the referral to the group practice or other physician organization is made by a physician owner/investor, an ownership exception would be needed to protect the referral. If the referral is made by a non-owner/investor physician who has a compensation relationship with the group practice or other physician organization (that is a physician employee or contractor), a compensation exception would be needed to protect the referral. The definition of ‘‘referral’’ at § 411.351excepts services that are personally performed by the referring physician. Note that the definition of ‘‘referral’’states that DHS is not personally performed or provided by the referring physician if it is performed or provided by any other person, including, but not limited to, the referring physician’semployees, independent contractors, or group practice members. (Note also that if there is a technical component to a service or a facility fee, that is billed by a provider ‘‘under arrangements,’’ the fact that the referring physician performs the professional component, and thus there is no ‘‘referral’’ for the professional component, does not alter the fact that there is a ‘‘referral’’ for the TC or the facility fee.)

10. Lithotripsy and Therapeutic Versus Diagnostic Procedures

Comment: Several commenters stated that, because we do not consider lithotripsy to be a DHS because of the district court decision of Am.Lithotripsy Soc. v. Thompson, 215 F. Supp. 2d 23 (D.D.C. 2002), they cannot be deemed to be performing DHS or causing a claim to be submitted when performing lithotripsy procedures. Some commenters stated that because the American Lithotripsy Society caseheld that lithotripsy is not DHS, common sense would dictate that other therapeutic procedures performed by urologists would also not be DHS. Other commenters requested that we clarify that lithotripsy would not be subject to the proposal. Another commenter stated that, generally, the physician who refers a patient for lithotripsy is the same physician who performs the service.

Response: We presently do not consider lithotripsy to be a DHS, regardless of whether it is performed by a physician-owned service provider and billed by that provider, or whether it is sold by such a provider to a hospital that bills for it. Because the AmericanLithotripsy Society case was limited to lithotripsy, we see no reason to except other therapeutic services from being DHS if they are billed by a hospital as outpatient or inpatient hospital services. As noted in the response to the previous comment, the definition of ‘‘referral’’excepts services that are personally performed by the referring physician.

Comment: Many urologists asserted that, unlike diagnostic testing, lithotripsy and other urological procedures, such as BPH, do not present a risk of overutilization because they are therapeutic procedures. For example, the presence of kidney stones can be objectively determined, therefore lithotripsy is only used when needed by the patient. One commenter said that it is quite clear that if a patient does not have a stone, lithotripsy would not be appropriate. Another commenter said that urology joint ventures are not amenable to abuse unless fraud is being perpetrated. One commenter stated that, in 1992, Florida studied therapeutic versus diagnostic services and concluded that there was no overutilization where physicians have ownership in and render therapeutic services. Other commenters said that there has been no objective proof of overutilization of lithotripsy and other therapeutic urologic procedures. One commenter stated that because the procedure is done in a hospital, there is additional scrutiny, including peer review, which guards against overutilization. An organization whose members form joint ventures with urologists stated that our perspective is overly cynical. This organization asserted that in the late 1990s many of the urologists who formed joint ventures to purchase first generation TUMT units came to realize that the older surgical approach for BPH was better for most of their patients and therefore did not use the TUMT partnership equipment despite their financial investment, and as a result, the joint ventures failed. The commenter also stated that, despite the fact that laser ventures are only minimally profitable, urologists are willing to invest in newer equipment to more effectively treat their patients. Finally, the commenter stated that, although a significant number of its members purchased one type of laser, they purchased newer and more expensive higher-powered lasers,

despite having a significant investment in the older model, despite still owing money on loans for the older model, and despite being advised that there was no resale market for the older model.

Response: As stated above, we believe that the Congress intended that an entity that performs services that are billed as DHS is a DHS entity, irrespective of whether it or some other entity does the billing for the services. The Congress did not provide for a general ownership exception for therapeutic procedures. Inpatient and outpatient hospital services are DHS, and thus subject to the general prohibition on ownership/ investment interests in a DHS facility, regardless of whether the service is surgical or medical, or therapeutic or diagnostic. Although we do not doubt that the great majority of physicians are honest and honorable, the profit potential inherent in self-referral can corrupt medical decision-making both through deliberate and less-conscious behavior. In a self-disclosure case, a hospital agreed to pay $270,000 to maintain its existing compliance program and to undertake certain integrity obligations for a three-year period to resolve its liability under the CMP provisions applicable to kickbacks. The OIG alleged that the hospital entered into a series of contracts with an entity owned by urologists under which the hospital paid the entity in excess of fair market value for the lease of a lithotripter and contracted lithotripsy services. The OIG alleged that the hospital’s payments were made to induce Federal healthcare program referrals from the urologists who owned the lithotripsy entity.

In an example of overutilized therapeutic treatments, we note that a large hospital system settled a case against several of their physicians who were accused of performing unnecessary cardiac surgeries. Federal officials alleged that the physicians entered a scheme to cause patients to undergo unneeded, invasive, cardiac procedures such as artery bypass and heart valve replacement surgeries. The hospital system agreed to pay $54 million to settle the Federal case.

We are also mindful of the comments we received on this proposal, our proposal on ‘‘per-click’’ lease payments, and our solicitation of comments on the in-office ancillary services exception, that self-referral of therapeutic procedures is abusive at times, because patients are being steered to one type of procedure when another procedure may be more appropriate or less costly, and because in some cases it is appropriate that patients have no procedure at all.


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Comment: Several commenters stated that the proposal would ban legitimate physician joint ventures from contracting with hospitals to provide therapeutic services that are DHS only because they are performed in a hospital setting. According to the commenters, such therapeutic procedures include a variety of laser procedures for benign prostate disease and cryotherapy for cancer of the prostate. Some commenters asserted that we want to ban services furnished ‘‘underarrangements’’ because it has heard of questionable diagnostic imaging arrangements. Commenters further argued that the Congress made diagnostic imaging DHS regardless of the setting in which the imaging is performed, due to overutilization and improper referrals as identified in studies, and that we do not identify any overuse of, or improper referrals for, other services, such as laser services or other urological procedures. According to some commenters, simple fairness dictates that the proposal should not apply to services that are not DHS if they are not furnished in a hospital. Other commenters stated that it would be helpful if we excepted other procedures that are not DHS when not performed ‘‘under arrangements’’ from the proposed changes. One commenter stated that the applicable physician referral triggering the physician self- referral law is the referral for inpatient and outpatient hospital services. According to the commenter, inherent in this logic is that the hospital is the entity furnishing DHS, which contrasts with the proposed rule that attempts to invoke physician self-referral law jurisdiction on the ‘‘underarrangements’’ service provider by declaring it is an entity furnishing DHS.

Response: As discussed above, we believe that a more reasonable, (and perhaps the better), reading of the statute is that an entity that performs DHS is a DHS entity, as is the entity that submits the claim for the DHS (which continues under our regulations to be treated as an entity that has furnished the DHS). Also as discussed above, we have program integrity concerns relating to services provided ‘‘underarrangements’’, and these concerns are not limited to diagnostic imaging. We disagree that it is unfair that an entity that performs services should be considered to have performed DHS if those services are billed as outpatient or inpatient hospital services. Where an entity performs services that are billed as DHS, we believe that it is appropriate and consistent with Congressional intent to consider the entity to have

furnished DHS and to be a DHS entity with respect to such services.

11. Professional Fee Greater Than Incremental Return for Technical Component

Comment: Several urologists and a law firm representing urologists stated that when urologists refer patients for therapeutic procedures that the urologists perform, the fee the urologist receives for performing the professional component of the procedure is greater than the incremental increase in the profit distribution to the urologist as a result of his or her participation in the joint venture. Therefore, the commenters maintained, the referring physician is not likely to be induced to refer based on the portion of the technical fee he or she will earn in distributions from the investment, and, accordingly, we should not prohibit services to be furnished ‘‘underarrangements’’ where the investor physician performs the professional portion of the procedure. An association whose members form joint ventures with urologists offered similar comments and stated further that underlying the proposal is our sense that surgeons in general, and urologists in particular, recommend a particular surgical procedure based on the professional fee they will receive rather than because the patient needs the procedure.

Response: The arguments raised by the commenters would seem to be applicable to physician ownership in any DHS entity, including those that bill Medicare, yet Congress did not except professional fees for ownership/ investment interests in DHS entities. In the Phase I rule, we stated that creating an exception for implants furnished in an ASC would not increase the risk of overutilization beyond what is already presented by the surgeon’s professional fee and was consistent with Congress’sdecision not to include ASC services as a specific DHS. However, we noted there that in creating the exception we were motivated by our desire not to cause a site of service shift for implants to the more expensive setting of hospital outpatient services, and we specifically declined to allow the exception for implants in a setting other than an ASC (66 FR 934). In contrast, services provided ‘‘under arrangements’’ by a hospital are, by definition, billed at the outpatient or inpatient rate.

12. Existing Exceptions Are Sufficient Protection

Comment: Several commenters said that it is not necessary to adopt the proposal and revise the definition of

‘‘entity’’ because the existing protections in our physician self-referral rules and the anti-kickback safe harbors are adequate. Some of these commenters pointed specifically to the indirect compensation exception at § 411.357(p).One commenter stated that the indirect compensation exception strikes an appropriate balance between permitting physician investment in entities that do business with hospitals and ensuring that physician-owned businesses are not overpaid by hospitals and other DHS entities to which they refer. Another commenter said that any profit a referring physician could make through his ownership of the entity that provides DHS to an entity that bills for the DHS would be limited to fair market value under the current physician self- referral exceptions, as well as under the anti-kickback statute.

Response: For the reasons explained above, we believe that under the statute, an entity that performs a service and contracts with a hospital or other provider in order for the hospital or other provider to furnish the services as DHS ‘‘under arrangements,’’ is properly considered a DHS entity. The statute requires referrals from a physician who has (or whose immediate family member has) an ownership/investment interest in a DHS entity to be protected by an ownership exception. In addition, we note that some of the protections contained in the compensation exceptions, such as the requirement that the compensation be at fair market value and not determined on the basis of the volume or value of referrals, would not provide protection against overutilization or anti-competitive behavior caused by inappropriate referrals from physician owners. The potential for overutilization or anti- competitive behavior that exists where a physician refers patients for DHS to an entity in which he or she has an ownership/investment interest and which perform DHS under contract for a hospital or other provider occurs because of the returns on investment such physician stands to earn, regardless of whether the physician also has a compensation arrangement with the hospital that is at fair market value.

Commenter: A commenter agreed that the proposed rule identified a number of potentially abusive arrangements, but said such troubling arrangements clearly violate the existing physician self- referral rules, the anti-kickback statute or our ‘‘under arrangement’’ payment rules. The commenter further stated that, because the proposed rule fails to identify any loopholes that need to be closed, we should enforce the physician self-referral rules and not create more


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regulations. With respect to the physician self-referral rules, the commenter stated that the most applicable exception is the fair market value exception. The commenter noted that, to be in compliance with that exception, the arrangement must, among other things, be commercially reasonable but for referrals, with the compensation consistent with fair market value, and the arrangements described in the proposed rule fail these tests. With respect to the anti-kickback statute, the commenter acknowledged that determining whether there is a violation of that statute is difficult and fact-intensive, but asserted that the arrangements described in the proposed rule would likely be investigated by the OIG and the Department of Justice as they appear to be driven by referrals without any bona fide clinical reasons.

Response: With respect to the comment that the arrangements described in the proposed rule necessarily violate the existing physician self-referral rules, the anti- kickback statute or our ‘‘underarrangement’’ payment rules, we do not agree. We did not suggest in the proposed rule that the compensation relationship between physician-owned service providers and hospitals are not at fair market value, or that they violate the anti-kickback statute. To the contrary, we assume that in the great majority of cases the compensation relationships between physicians and hospitals or other providers are at fair market value, and again, the fact that a compensation interest is at fair market value does not address the Congress’sgeneral prohibition on physician ownership in DHS entities and the potential for abuse that exists through the returns on equity. Likewise, we assume that the great majority of arrangements between physicians and hospitals or other providers do not involve illegal kickback schemes. Also, irrespective of whether the arrangements described in the proposed rule could violate the anti-kickback statute (and we express no opinion on the matter), we would be abrogating our statutory authority under the physician self-referral statute if we were to refrain from attempting to regulate what we see are potentially abusive arrangements simply because we might believe that the government might be able to prove that certain conduct violates the anti- kickback statute.

13. Differences in Payment For Services Rendered in Hospital Setting Versus Payment for Same Services in ASC Setting

Comment: Two commenters stated that the proposal was inconsistent with the legislative intent to allow physicians to refer patients to ASCs in which they have ownership or investment interests, which is allowed based on the evidence that surgical cases are by nature not subject to unnecessary referrals. A third commenter said that several urologic procedures such as lithotripsy, green light photo vaporization of the prostate, and cryotherapeutic ablation of the prostate can be easily, safely and more cost effectively performed on an outpatient basis in an ASC, yet inequities in the present reimbursement rules make it cost prohibitive to perform these procedures in an ASC, and thus they must be performed in a hospital setting. In addition, the commenter stated, hospitals encourage a one-day stay for cryotherapeutic ablation of the prostate patients, because outpatient PPS reimbursement is not sufficient to cover the cost of the procedure. A fourth commenter, an association that represents urologists, stated that therapeutic services provided ‘‘underarrangements’’ can be provided only in the hospital or a provider-based department of a hospital, and therefore, our concern that patients are receiving services in a less medically-intensive setting than a hospital is misplaced with respect to therapeutic services.

Response: In the Phase I rule we agreed that prosthetic devices implanted in a Medicare-certified ASC by the referring physician or a member of the referring physician’s group practice should be protected. We stated that we were taking this position because implanted prosthetic devices, implanted prosthetics and implanted DME are not included in the bundled ASC payment rate (and thus would not fall under the exception to the definition of DHS for items paid under a composite rate such as the ASC payment rate), and that, as a practical matter, the absence of an exception for these items implanted in an ASC was likely to result in these procedures moving to more costly outpatient settings (66 FR 934). As we noted in the proposed rule, we are concerned that services that are relatively less resource intensive are being furnished ‘‘under arrangements’’in order to secure higher reimbursement. The third commenter, although opposed to the proposal, reinforced this concern through its statements. We believe that the reimbursement under the ASC payment

system is fair and adequate, and that it is inappropriate for us to provide an incentive to game the system by allowing self-referral for services furnished through an ‘‘underarrangements’’ contract with a hospital that otherwise would be safely and effectively performed in an ASC or similar setting. Likewise, we do not believe it is appropriate for hospitals to admit a patient, in order to gain the higher inpatient reimbursement, for a procedure than can be safely and effectively performed on an outpatient basis. The fourth commenter is correct that, under § 410.27 of our regulations, therapeutic procedures (urologic or otherwise) that are furnished ‘‘underarrangements’’ by a hospital must be performed in the hospital or in space that we designate as a department of a hospital.

14. Exceptions to Definition of DHS Entity

Comment: Several commenters stated that if we were to adopt the proposal it should create one or more exceptions, so that not all physician-owned service entities are considered DHS entities. Two commenters stated that we should craft an exception for DHS that are furnished by a physician-owned entity, where the DHS involve a technology that requires a considerable capital investment and where the risk of overutilization is minimal because the number of patients to be treated with the technology is relatively small. One of these commenters stated that the exception could be narrowed further by requiring the technology or service to be used in the treatment of a serious or life- threatening illness or injury. Another commenter urged us to institute a degree of materiality into the existing ‘‘under arrangements’’ payment rules, rather than revise the definition of ‘‘entity.’’ The commenter stated that, for example, we could require that if some material portion of the service (perhaps 50 percent) is outsourced to a provider in a less intensive setting, the hospital will be reimbursed at a reduced rate for the service rather than the higher provider-based rate. Another commenter suggested that if we adopt the proposal we should either prohibit physicians from owning or operating certain ancillary service providers, thereby ensuring sufficient demand for the hospital service, or devise an exception that will allow hospitals and physicians to provide services to their respective patients on a cost-sharing basis.

Another commenter recommended an exception for high cost, low volume procedures such as lithotripsy, dialysis, radiation therapy, and cardiac


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catheterization labs. This commenter pointed out that in 2001–2003, 60.6 percent of stable angina patients who received cardiac catheterization immediately underwent a percutaneous coronary intervention. Another commenter stated that we should consider applying the proposal only to entities that provide services ‘‘underarrangements’’ for a fixed fee that does not vary based on the volume of services provided.

One commenter stated that although it would be desirable to carve out an exception to the proposed definition in the case of arms-length transactions in areas that are underserved, in practice, if a physician owns any part of an entity (other than a publicly traded entity) that provides products or services to a facility, he or she will benefit from referrals.

Response: As noted above, we are finalizing the proposal in part because we believe the better reading of the statute is that an entity that performs services that are billed as DHS is a DHS entity, as is the entity that submits the claim for the DHS (which continues under our regulations to be treated as an entity that has furnished the DHS. Also as noted above, we are delaying the date of applicability for revised § 411.351until October 1, 2009 because we wish to give parties time to restructure arrangements if necessary. We have authority under section 1877(b)(4) of the Act to create exceptions in addition to those specified in the statute only where we conclude there is no risk of program or patient abuse. We are not establishing an ownership exception for ownership/ investment interests in one or more types of physician-owned service providers because we do not have sufficient information to persuade us that such an exception is necessary or to allow us to craft appropriate conditions for such an exception. In any event, if we were to create such an exception at this time we might be proceeding outside the scope of the proposed rulemaking. We welcome comments on whether we should create such an exception, and if so, what conditions for the exception should be included. We may issue a proposed rulemaking for such an exception in the future.

15. Outpatient Services Treated Differently Than Inpatient Services

Comment: Commenters stated that, in several places, the proposal expressed a higher level of concern about the incentives inherent with arranged-for outpatient hospital services than with respect to inpatient hospital services. The commenters inferred that we might

decide to regulate such outpatient hospital services differently from inpatient services, and that any differentiation would be misguided.

Response: The final rule makes no distinction between outpatient and inpatient hospital services. If an entity performs services that, pursuant to a contractual arrangement with a hospital or other provider, are ultimately billed as DHS, the entity will be considered to have furnished DHS, regardless of whether the services are billed as outpatient hospital services, inpatient hospital services, or some other category of DHS.

16. Miscellaneous Services Comment: One commenter stated that

the proposal would require a large number of sleep centers to restructure or unwind their ‘‘under arrangements’’joint ventures, which would create a patient access problem.

Response: Services performed at freestanding sleep centers generally are not DHS. Therefore, to the extent that sleep centers wish to perform sleep study services as well as bill for them, the physician self-referral statute will not be implicated. However, if the services are sold to a hospital for the hospital to bill for them as hospital services, the services will be DHS, because Congress included all inpatient and outpatient hospital services as DHS, and referrals from physician owners/ investors in a sleep center will need to be protected by an ownership exception. As noted above, referrals from non- owner/investor physicians to a physician-owned service provider should be able to fit within a compensation exception. Also as discussed above, we believe that most services currently performed by a physician-owned service provider but sold to a hospital could continue to be performed by the physician-owned service provider and billed by that provider. In this regard, we note that the commenter provided no explanation as to why it believes that the final rule will create an access problem for patients in need of sleep studies.

Comment: One commenter stated that, in many rural areas, hospitals do not have either the technical or financial ability to provide dialysis services, especially if the need is only intermittent or involves a small number of patients, and that such hospitals need to be able to provide dialysis services to inpatients. The commenter further stated that because hospitals lose money on inpatient care furnished to ESRD patients, a hospital would not maintain a dialysis service simply to encourage admissions of ESRD patients, and that it

is difficult to overutilize dialysis because the need for dialysis is very well defined.

Response: The physician self-referral statute applies only to referrals for DHS. One category of DHS is inpatient hospital services. However, the definition of inpatient hospital services at § 411.351 excludes dialysis furnished by a hospital that is not certified to provide ESRD services under subpart U of 42 CFR part 405. We believe the exclusion addresses the commenter’sconcerns.

17. Effective Date Comment: One commenter stated that

the proposal, if adopted, would result in a significant restructuring of a number of arrangements currently in effect and would have a significant impact on both DHS providers and physicians. Another commenter stated that it would be unfair for us to reverse our position after years of reliance on it by the industry and that it would require the unwinding and dissolution of numerous arrangements that have heretofore constituted lawful co-ownership of non- DHS entities. A national hospital association, while supporting our proposal, urged us to consider a phase- in of any changes, which would permit the termination or restructuring of existing relationships and arrangements before absolute compliance is triggered. Three commenters asked that we grandfather all arrangements existing at the time the proposed rule was published, because it would be unfair to apply the changes ‘‘retroactively.’’

Response: We are providing a delayed effective date until October 1, 2009. We are interested in receiving comments on whether we should create any exception for physician ownership/investment interests in physician service providers, and if so, what conditions the exception should contain, for consideration in any future rulemaking. We are not grandfathering existing arrangements because we believe it is inconsistent with the statute to treat an entity that performs DHS as something other than a DHS entity.

H. Exceptions for Obstetrical Malpractice Insurance Subsidies

In Phase II, we rejected the wholesale importation of the anti-kickback statute safe harbors into the physician self- referral law exceptions, but, using our authority under section 1877(b)(4) of the Act, we determined that exceptions for referral services and obstetrical malpractice insurance subsidies could be established by incorporating the corresponding safe harbors in § 1001.952(f) and (o), respectively (69


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FR 16115, 16141). Accordingly, we created a new exception in § 411.357(r)for arrangements involving the provision of obstetrical malpractice insurance subsidies that complied with the anti-kickback statute safe harbor for such arrangements. In response to Phase II, we received a comment asserting that the exception in § 411.357(r) is too narrow. The commenter noted that even an agreement that received a favorable advisory opinion from OIG, despite not fitting within the safe harbor, would fail to satisfy the requirements of § 411.357(r) and, thus, would be prohibited under the physician self- referral law.

Our conclusion in Phase II that the wholesale importation of safe harbors would be problematic was based, in part, on our recognition that the anti- kickback statute safe harbors and the physician self-referral law exceptions appropriately diverge in some instances for reasons attributable to the difference in the scope of the statutes, core prohibited conduct, or liability standards (69 FR 16115). We continue to believe that differences in the anti- kickback and physician self-referral regulatory schemes are appropriate and sometimes necessary. We further believe that, upon revisiting the exception in § 411.357(r) and reviewing the comments received in response to our proposal in the CY 2008 PFS proposed rule, the physician self-referral law exception need not incorporate by reference without modification the safe harbor in § 1001.952(o) in order to provide adequate protection against program and patient abuse.

In the CY 2008 PFS proposed rule, we expressed concern that the current exception for obstetrical malpractice insurance subsidies may be too narrow, and proposed revising the exception in § 411.357(r) to list specifically the conditions that we believe are appropriate to safeguard against program or patient abuse when remuneration is provided by a hospital to a physician in the form of an obstetrical malpractice insurance subsidy (72 FR 38182). As with the Phase III revisions to the exceptions for retention payments and physician recruitment noted above, concern regarding beneficiary access to services was a significant basis for our proposal. We requested comments regarding barriers to patient access to obstetrical care in communities in which obstetrical malpractice insurance premiums are relatively high. We also requested recommendations for revising the exception without creating a risk of program or patient abuse.

We received 14 comment letters in response to our proposal to revise the exception in § 411.357(r) for obstetrical malpractice insurance subsidies. All commenters agreed with the concerns that we expressed in the CY 2008 PFS proposed rule that the current exception for obstetrical malpractice insurance subsidies is unnecessarily restrictive. Many commenters stated that the existing exception is unlikely to have the effect of increasing access to obstetrical care. Commenters generally supported revisions to the exception, and offered various suggestions for requirements we might include in a revised exception.

After consideration of the public comments received, in this final rule we are revising § 411.357(r) to (1) retain the provisions of the current exception (renumbered as § 411.357(r)(1)); and (2) provide an alternative set of requirements under which hospitals, federally qualified health centers, and rural health clinics (but not other entities) may provide obstetrical malpractice insurance subsidies (new § 411.357(r)(2)). We believe that the provisions in new § 411.357(r)(2) will reduce perceived obstacles to maintaining or improving patient access to needed obstetrical services by providing flexibility for the provision to qualifying physicians of obstetrical malpractice insurance subsidies. New § 411.357(r)(2) allows hospitals, federally qualified health centers, and rural health clinics to provide an obstetrical malpractice insurance subsidy to a physician who regularly engages in obstetrical practice as a routine part of a medical practice that is: (1) Located in a primary care HPSA, rural area, or area with a demonstrated need, as determined by the Secretary in an advisory opinion; or (2) is comprised of patients at least 75 percent of whom reside in a medically underserved area (MUA) or are part of a medically underserved population (MUP). The expansion to additional practice locations and patient populations is found also in the requirements regarding the composition of the patient population treated by the physician under the coverage of the malpractice insurance and the determination of ‘‘costs of malpractice insurance premiums.’’ Where possible, we maintain parallel structure and conditions in the exceptions to the physician self-referral law. In Phase III, we similarly revised the exception for retention payments in underserved areas in § 411.357(t) to incorporate criteria that are based on the patient population served by the physician

receiving the retention payment, rather than focusing the requirements of the exception solely on the location of the hospital making the retention payment (72 FR 51065 through 51068). Our concerns regarding beneficiary access to services was a significant basis for this revision, as well as for the revisions to the exception for physician recruitment in § 411.357(e) with respect to the allocation of certain costs where a physician is recruited into a practice in a rural area or HPSA to replace a retired, relocated, or deceased physician (72 FR 51047 through 51054).

We are not revising the exception to adopt only the provisions in new § 411.357(r)(2) and to discard the provisions of the current exception, because the current exception, through its incorporation of § 1001.952(o),applies to subsidies provided by a ‘‘hospital or other entity,’’ and we did not propose in the CY 2008 PFS proposed rule to limit the types of entities that may provide subsidies under the exception. On the other hand, we are unwilling to extend the provisions in new § 411.357(r)(2) to entities beyond hospitals, federally qualified health centers, and rural health clinics, because we are not persuaded that, if we did so, there would be no risk of program or patient abuse (as required under section 1877(b)(4) of the Act for new exceptions or modifications to existing exceptions). (We note that, although the provisions of new § 411.357(r)(2) apply to hospitals, federally qualified health centers, and rural health clinics, for ease of reference and readability, we refer throughout the discussion below to all three types of entities as ‘‘hospitals.’’)

Finally, our revisions to the exception in § 411.357(r) for obstetrical malpractice insurance subsidies should not be construed as having any effect on the safe harbor under the anti-kickback statute for obstetrical malpractice insurance subsidies in § 1001.952(o),nor as a commentary on what we believe is or is not permitted under the anti-kickback statute. We discuss below the specific comments that we received in response to our proposal in the CY 2008 PFS proposed rule.

Comment: Several commenters asserted that conditioning the availability of an obstetrical malpractice insurance subsidy on the location of the physician’s medical practice in a primary care HPSA disadvantages patients. Numerous commenters questioned the link between a hospital’sability to provide an obstetrical malpractice insurance subsidy and the lack of primary care physicians in a particular area. (The exception in


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§ 411.357(r), by incorporating § 1001.952(o), requires that the physician’s medical practice be located in a primary care HPSA.) These commenters noted that a community may be underserved with respect to obstetrical services, even if it is not underserved with respect to primary care services; in fact, an increase in primary care physicians in an area could cause the area to lose its HPSA designation, despite no corresponding increase in obstetrical services. Many of the commenters suggested that the exception should condition a hospital’sability to provide an obstetrical malpractice insurance subsidy on the location of the physician’s practice in an area that has a shortage of obstetrical services. One commenter provided possible criteria for determining whether an area is an ‘‘obstetricianshortage area.’’

Response: We agree generally with the commenters that asserted that, rather than be restricted to providing obstetrical malpractice insurance subsidies only in situations where the physician’s practice is located in a primary care HPSA, a hospital should be able to provide a subsidy to physicians who serve underserved areas or patient populations. We share the commenters’ concern that an increase in primary care physicians in an area could cause the area to lose its HPSA designation, thus making all physicians in the area ineligible to receive a needed obstetrical malpractice insurance subsidy. However, we continue to believe that designation as a primary care HPSA is one appropriate way to establish need for additional obstetrical patient care services, because obstetrics is one of the specialties included by HRSA in its determination regarding whether an area should be designated as a primary care HPSA (together with general family practice, general internal medicine, pediatrics, and gynecology).

In this final rule, we provide greater flexibility for hospitals (and federally qualified health centers and rural health clinics, as discussed above) to facilitate continued patient access to obstetrical patient care services through the provision of needed obstetrical malpractice insurance subsidies. Under new § 411.357(r)(2), a physician who engages in obstetrical practice as a routine part of his or her medical practice will be eligible for receipt of an obstetrical malpractice insurance subsidy if his or her medical practice is: (1) Located in a primary care HPSA, a rural area, or an area with demonstrated need for the physician’s obstetrical services, as determined by the Secretary in an advisory opinion; or (2) is

comprised of patients, at least 75 percent of whom reside in a MUA or are members of a MUP. We are not adopting the commenter’s suggestion that we adopt a definition for ‘‘obstetricianshortage area’’ and permit the provision of obstetrical malpractice insurance subsidies in such an area. We believe that it would be difficult to define ‘‘obstetrician shortage area’’ (and maintain updates to the definition), and that our policy as finalized here affords sufficient flexibility for physicians and for hospitals, federally qualified health centers, and rural health clinics.

Comment: Two commenters suggested that we remove all requirements in the exception relating to the location of the physician practice receiving the subsidy. Three commenters suggested that we impose no limitations at all on the location of the hospital providing the obstetrical malpractice insurance subsidy. Another commenter suggested that the exception permit obstetrical malpractice insurance subsidies where there is no other facility to which the physician receiving the subsidy could refer his or her obstetrical patients.

Response: We agree with the commenters with respect to not including requirements for the location of the hospital making the obstetrical malpractice insurance subsidy payment, but disagree with the commenters that a practice location restriction on the eligibility for receipt of an obstetrical malpractice insurance subsidy is unnecessary or inappropriate. The provision of obstetrical malpractice insurance (or a contribution towards its cost) is a valuable benefit to a physician, and we believe that the requirement that the physician provide obstetrical services in an underserved area (that is, a primary care HPSA, rural area, or area of designated need) or to an underserved population is necessary to help ensure that this valuable benefit is provided only to maintain or improve patient access to needed obstetrical services, rather than as an inducement for referrals to the hospital providing the subsidy. This requirement, in combination with the other requirements in new § 411.357(r)(2), is necessary to satisfy the mandate of section 1877(b)(4) of the Act that any exception issued using such authority pose no risk of program or patient abuse. As we described in the previous response, although we continue to include requirements with respect to the location of a physician’s medical practice as a determining factor for eligibility for receipt of an obstetrical malpractice insurance subsidy, we are permitting subsidies to physicians who provide obstetrical services in medical

practices located in areas other than a primary care HPSA and to patient populations that reside in areas other than a primary care HPSA.

We disagree with the commenter that advocated permitting obstetrical malpractice insurance subsidies to physicians where there is no other facility to which the physician could refer his or her obstetrical patients. We believe that the commenter is arguing that there is no risk of program or patient abuse if a hospital provides an obstetrical malpractice insurance subsidy payment to a physician who would have referred all of his or her obstetrical patients to the hospital regardless of the existence of the subsidy. We do not believe that the risk of program or patient abuse is reduced merely because the physician would have referred his or her obstetrical patients to the hospital regardless of the subsidy. The subsidy could serve as an inducement for referrals to the hospital of other DHS.

Comment: One commenter urged that the exception in § 411.357(r) be revised to permit a hospital located in a rural area to provide an obstetrical malpractice insurance subsidy, regardless of the location of the physician’s medical practice. The commenter argued that there would be no risk of program or patient abuse if we adopt this suggestion given the nature of obstetrical services; that is, according to the commenter, obstetricians have no ability to increase the number of deliveries that they perform because the volume of deliveries is determined by the number of pregnancies in the area, and not based on the therapy choice of a physician. The commenter contrasted this with the risk of program and patient abuse in other specialties where a physician who wishes to increase his or her revenue could do so by increasing the number of procedures that he or she performs.

Response: We do not agree necessarily with the commenter’s assertion regarding the relative risk of program or patient abuse between obstetrical services and other medical specialties, and we decline to adopt the commenter’s suggestion. We believe that a restriction on the location of the hospital providing the obstetrical malpractice insurance subsidy, by itself, does not guarantee an improvement to or the maintenance of access to obstetrical services to patients most in need of the services. Rather, we believe that the location or composition of the physician’s medical practice is a better indicator of which physicians are providing obstetrical services to the patient populations we believe would


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be harmed if the physician discontinued his or her obstetrical medical practice. We continue to require that the location or composition of the physician’sobstetrical medical practice determine the availability of the exception in § 411.357(r), although we have expanded the exception to cover obstetrical medical practices located in rural areas. With respect to the commenter’s point that obstetricians have no ability to increase the number of deliveries that they perform because the volume of deliveries is determined by the number of pregnancies in the area, we reiterate that obstetrical malpractice insurance subsidies can serve as an inducement for referrals of other DHS.

Comment: Some commenters suggested that we revise or eliminate the requirement that 75 percent of the patients treated under the subsidy reside in a HPSA or MUA, or be part of a MUP. Two commenters asserted that this requirement imposes a substantial administrative burden on physicians, as the determination of whether a patient resides in a HPSA or MUA must be completed manually; that is, there is no automated, simple way to determine the information needed to make the certification required in § 1001.952(o)(2), as incorporated by reference in § 411.357(r). Moreover, according to one of the commenters, determining the exact location or boundaries of a HPSA is difficult because HPSAs are registered by census tract with boundaries that are not easily defined. According to the other commenter, physician practice management systems are not configured so that the physician can abstract HPSA or MUA status from patient records. Rather, systems are equipped to capture zip code information, not the census data that delineate HPSAs and MUAs. One commenter suggested that the exception require only that a physician who receives an obstetrical malpractice insurance subsidy from a hospital certify initially that his or her medical practice is in or near a HPSA, and that more than one half of his or her patients are expected to reside in a MUA or be part of a MUP. This commenter and another suggested that certification be required less frequently than annually.

Response: We continue to believe that this requirement is necessary to ensure that arrangements that satisfy the requirements of the exception in § 411.357(r) (whether under renumbered § 411.357(r)(1) or new § 411.357(r)(2))pose no risk of program or patient abuse. We understand the commenters’assertions regarding administrative burden. However, particularly in light of

the expansion of the exception to permit the inclusion of patients who live in rural areas in the calculation of patients treated under the subsidized malpractice insurance coverage, we do not believe that this requirement is an undue burden for a physician where the physician is receiving a valuable benefit in the form of an obstetrical malpractice insurance subsidy. For purposes of satisfying the exception under the new alternative requirements in § 411.357(r)(2), we are permitting the inclusion of patients who reside in a rural area when calculating whether at least 75 percent of the patients treated under the coverage of the subsidized malpractice insurance reside in an underserved area (that is, a HPSA or MUA) or are part of a MUP. We believe that doing so adds needed flexibility without posing a risk of program or patient abuse. We have made no other changes to this requirement, however. (We note that ‘‘rural area’’ is defined at § 411.351 as an area that is not an urban area. ‘‘Urban area’’ is defined at § 412.62(f)(1)(ii) as a Metropolitan Statistical Area (MSA) or New England County Metropolitan Area (NECMA), as defined by the Executive Office of Management and Budget (or certain New England counties specified in the regulation.) Determining whether a patient lives in a rural area should be simple and not pose an undue administrative burden.) Given our concerns regarding the maintenance or improvement of patient access to needed obstetrical services described above, we believe that it is important to require the continued provision of services to the neediest patients in exchange for a physician’s receipt of an obstetrical malpractice insurance subsidy.

Comment: Several commenters argued that the requirement that 75 percent of the physician’s obstetrical patients be treated under the coverage of the malpractice insurance for which the subsidy is provided may be too high, given the low reimbursement rates for obstetrical services and the high cost of malpractice insurance. One commenter suggested that the obstetrical patient treatment requirement be lowered to 25 percent of the physician’s obstetrical patients treated under the coverage of the malpractice insurance.

Response: We disagree with the commenters. We believe that requiring less than 75 percent of the physician’sobstetrical patients to be treated under the coverage of the malpractice insurance for which the subsidy is provided may be insufficient to ensure continued access to obstetrical services for the neediest patients. We also

believe that the 75 percent threshold, in combination with the other requirements of the exception, ensures that arrangements protected by the exception pose no risk of program or patient abuse.

Comment: Numerous commenters urged us to expand the scope of the exception in § 411.357(r) to permit malpractice insurance subsidies to specialties other than obstetrics. The commenters’ arguments in support of such an expansion include the increase in malpractice insurance premiums generally; an expansion would be in keeping with guidance provided by OIG regarding malpractice insurance assistance (specifically, OIG’s Letter on Hospital Corporation’s Malpractice Insurance Assistance Program, its Compliance Guidance for Hospitals, and OIG Advisory Opinion 04–19); and the lack of statutory authority to limit any exception to certain medical specialties, rural areas, or HPSAs.

One commenter asserted that, because malpractice insurance is unaffordable in some geographic locations, some physicians practice medicine without any professional malpractice insurance coverage. According to the commenter, this disadvantages patients and other providers, because insurers’ costs in defending malpractice claims against physicians with no insurance coverage are passed on disproportionately to hospitals (because hospitals are named as co-defendants). The commenter suggested that we expand the exception to include other physician specialties, and recommended that the subsidy be available only to a physician practicing in a particular specialty that is identified by an independent third party as having a demonstrated shortage of physicians practicing in that particular specialty in the geographic area served by the hospital providing the malpractice insurance subsidy. In addition, according to the commenter, the amount of the subsidy could be capped at the amount that the average premium for that specialty in the hospital’s community exceeds the national average for that specialty. The commenter suggested further protection against program and patient abuse, for example, a requirement that hospitals not provide malpractice insurance subsidies in a targeted, preferential or discriminating manner, or in a manner that takes into account the volume or value of referrals or other business generated by the referring physician.

One commenter suggested that we permit a hospital to provide a malpractice insurance subsidy to any member of the hospital’s medical staff, regardless of the physician’s specialty.


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Another commenter suggested that we permit hospitals to provide malpractice insurance subsidies to physicians who practice in any specialty in a State in which malpractice premiums are ‘‘relatively high,’’ and suggested that we could compare the percentage increase of malpractice insurance premiums to the salary of the average physician in that specialty to determine this relativity. A different commenter suggested that, if we expand the exception to cover all medical specialties, we could impose a cost sharing requirement similar to that included in our exception for the donation of electronic health records items and services in § 411.357(w).

Response: In Phase III, we addressed the issue of our statutory authority to limit the exception in § 411.357(r) to physician practices in HPSAs (72 FR 51064). There, we stated:

Section 1877(b)(4) of the Act allows us to create additional exceptions to the general prohibition on physician self-referral where doing so would not result in a risk of program or patient abuse. It does not require us, where we exercise such authority, to make the additional exceptions available to all types of entities and physicians, or make them applicable in all areas. The Congress and CMS have long recognized the special needs and character of rural, urban, and underserved areas. Malpractice insurance availability in HPSAs poses specific concerns not present in other areas and supports a targeted exception.

Our position with respect to limiting the exception to physician practices in certain identified locations has not changed, nor are we persuaded by the commenters’ similar argument regarding our statutory authority to limit the applicability of the exception to obstetrical malpractice insurance only (rather than to permit subsidies of malpractice insurance for all specialties or for certain specified medical specialties).

We decline to expand the exception to cover the provision of malpractice insurance subsidies to physicians practicing in other medical specialties, as suggested by many of the commenters. The commenters did not provide us with information indicating that, without an expansion of the exception, beneficiary access to necessary medical services is hindered, nor are we independently aware of such data. Such information would be helpful to ensuring that an expansion of the exception to other (or all) medical specialties would not pose a risk of program or patient abuse. We note also that we addressed this issue in Phase III in response to a comment urging us to expand the exception to all specialties

and hospitals (72 FR 51063). There, we stated:

The exception in § 411.357(r) is one of several exceptions that allow DHS entities to provide assistance with malpractice insurance. Other exceptions that permit DHS entities to provide such assistance are the fair market value compensation exception (as discussed above in response to the previous comment) in § 411.357(l), the exception for bona fide employment relationships in § 411.357(c), and the exception for personal service arrangements in § 411.357(d)(provided that the value of the assistance is commensurate with the value of actual services furnished to the hospital by the physician). These exceptions allow any DHS entity to provide assistance with malpractice insurance, without regard to the specialty of the physician or the area in which the physician practices.

We believe that the exceptions to the physician self-referral prohibition discussed in our Phase III response provide sufficient flexibility for hospitals that desire to provide assistance with the costs of malpractice insurance coverage.

Comment: According to one commenter, it would be more cost- effective for hospitals to subsidize malpractice premiums to retain physicians than to lose those physicians and have to pay expensive recruitment packages to recruit new physicians to the area.

Response: We assume that the commenter is arguing that the exception should be expanded in light of the commenter’s assertion regarding the cost-effectiveness of providing malpractice insurance subsidies versus recruitment packages to replace physicians who leave the geographic area due to high malpractice insurance costs. Regardless of whether the commenter’s assertion regarding cost- effectiveness is accurate, cost effectiveness is not an indicator that an arrangement is without risk of program or patient abuse, and we are obliged to follow the mandate in section 1877(b)(4) of the Act that new exceptions that we create under that authority, or modifications of existing exceptions created under that authority, must not pose a risk of program or patient abuse. We believe that the provisions of new § 411.357(r)(2) will enable hospitals to subsidize obstetrical malpractice premiums for some physicians who would not have qualified for them under our previous rules.

I. Ownership or Investment Interest in Retirement Plans

In the CY 2008 proposed rule we proposed to revise § 411.354(b)(3)(i) to clarify that the exclusion from the definition of ‘‘ownership or investment

interest’’ of an interest in a retirement plan pertains only to an interest in an entity arising from a retirement plan offered by that entity to the physician (or the physician’s immediate family member) through the physician’s (or immediate family member’s)employment with that entity (72 FR 38224). That is, where a physician has an interest in a retirement plan offered by Entity A, through the physician’s (or immediate family member’s)employment with Entity A, we intended to except from the definition of ‘‘ownership or investment interest’’ any interest the physician would have in Entity A by virtue of his or her interest in the retirement plan; we did not intend to exclude from the definition of ‘‘ownership or investment interest’’ any interest the physician may have in Entity B through the retirement plan’spurchase of an interest in Entity B.

As we explained in the CY 2008 PFS proposed rule, we made our proposal because we were concerned that some physicians may be using retirement plans to purchase or invest in other entities (that is, entities other than the one that is sponsoring the retirement plan) to which they refer patients for DHS (72 FR 38183). After consideration of the public comments, we are adopting our proposal. We address below the specific comments we received in response to out proposal in the CY 2008 PFS proposed rule.

Comment: Three commenters agreed with the proposed revision. Another commenter stated that the proposal ‘‘represented another example of our broad-brush approach to physician practices by punishing and restricting all physicians based on negligible and likely unsubstantiated, anecdotal evidence of questionable physician investment.’’

Response: The commenter that did not agree with our proposal offered no reason why the exclusion from the definition of ‘‘ownership and investment interest’’ in § 411.354(b)(3)(i)should pertain to a physician’s (or immediate family member’s) interest in an entity that is purchased by the retirement plan in which the physician (or immediate family member) has an interest by virtue of the physician’s (or immediate family member’s)employment, regardless of how frequent or infrequent such purchases by retirement plans take place. The purpose of the original exclusion in § 411.354(b)(3)(i), and as clarified in this final rule, is to exclude automatically a physician’s (or immediate family member’s) interest in a retirement plan offered by an entity as a result of the physician’s (or immediate family


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member’s) employment from being considered an ‘‘ownership or investment interest’’ in that entity. Without such a per se exclusion, a physician’s ability to refer patients for DHS to an entity that extends a retirement plan to the physician (or his or her immediate family member) as a result of the physician’s (or immediate family member’s) employment without running afoul of the physician self- referral rules would be in doubt in some cases, because what would otherwise be a compensation arrangement (based on the physician’s or immediate family member’s employment) could be considered to be an ownership or investment interest. Where a retirement plan offered by the entity that employs the physician (or his or her immediate family member) purchases or invests in another DHS entity, however, we see no need to exclude per se the physician’s(or immediate family member’s) interest in the retirement plan from being considered an ownership or investment interest in the other entity. To do otherwise would create the potential for abuse. For example, assume that a group practice offers a retirement plan to its members and, through the assets of the retirement plan, purchases or invests in an imaging facility to which the members of the group practice refer patients for DHS. Had the members of the group practice purchased or invested directly in the imaging facility, the requirements of an exception (such as the rural provider exception) would need to be satisfied in order for the physicians to refer patients to the imaging facility for DHS. If, however, the members of the group practice used the assets of the retirement plan to purchase the imaging facility, in the absence of the regulatory provision finalized here, the members of the group practice would have effectively skirted the general prohibition on ownership in entities to which they refer patients for DHS.

J. Burden of Proof

In the CY 2008 PFS proposed rule, we proposed to add a new regulatory provision to clarify that, consistent with our existing procedures with respect to claims denials, in any appeal of a denial of payment for a designated health service that was made on the basis that the service was furnished pursuant to a prohibited referral, the burden is on the entity submitting the claim for payment to establish that the service was not furnished pursuant to a prohibited referral (72 FR 38224). That is, the burden of proof is not on us or our contractors to establish that the service

was furnished pursuant to a prohibited referral.

We received several public comments objecting to our proposal as unfair or inconsistent with the current rules. After consideration of the public comments, we are adopting our proposal as final and clarifying that the burden of proof (otherwise known as the burden of persuasion) is on the claimant throughout the course of the appellate proceeding (and at each level of appeal), whereas the burden of production initially is on the claimant but may shift to us or our contractor during the course of the proceeding. The new provision is codified in revised § 411.353(c)(2) in this final rule. We address below the specific comments that we received in response to our proposals in the CY 2008 PFS proposed rule.

Comment: Many commenters expressed concern regarding the statement in the CY 2008 PFS proposed rule that, in an appeal brought by a provider, the burden of proof is on the entity submitting the claim for payment to establish that a service was not furnished pursuant to a prohibited referral. Some commenters asserted that the burden of proof should be on us because, according to these commenters, the law historically places the burden on the party that makes the rules. The commenters concluded that we are in a better position to determine whether actions were illegal, as we draft the regulations that provide interpretations of whether these actions are legal. Other commenters asserted that placing the burden on providers makes us ‘‘thejudge and jury,’’ fails to adhere to the fundamental principle that people are ‘‘innocent until proven guilty,’’ or amounts to us taking an unconstitutional action. Some commenters concluded that the proposed language amounts to a ‘‘hidden tax’’ requiring physicians to prove that they conducted their actions legally. One commenter expressed concern that providers already render healthcare services for the prices we set, and placing the burden of proof on providers is an additional onus that impacts them unfairly.

Response: Our proposal was intended only to clarify existing procedures with respect to the Medicare claims appeals process (which is the administrative remedy for providers and suppliers, regardless of whether the denial is for physician self-referral reasons, lack of medical necessity grounds, or some other reason). The claimant traditionally has borne the ultimate burden of proof in the Medicare claims appeals process, which is set forth in 42 CFR Part 405, Subpart I of our regulations (and which

formerly appeared in 42 CFR Part 405, Subparts G and H), as well as in the Social Security beneficiary claims appeals process, which is set forth in 20 CFR Part 404, Subpart J (and which is the model upon which the Medicare claims appeals process is based). Because government funds are at issue, it is appropriate to place the burden on providers and suppliers to show that they are entitled to payments from the public fisc, and not on the government to show that the provider or supplier is not entitled to such payments. Our regulations expressly state that the provider, supplier or beneficiary must furnish sufficient information for our contractors to determine whether payment is due and the amount of such payment. (See 42 CFR 424.5(a)(6); seealso section 1833(e) of the Act.) We note also that section 205(a) of the Act, as incorporated into title XVIII by section 1872 of the Act, gives the Secretary broad authority to allocate the burden of proof. The Supreme Court has noted that the general rule is that the burden of proof lies with the party seeking relief, and that the Congress expressed its approval of the general rule when it chose to apply it to administrative proceedings under the Administrative Procedure Act (5 U.S.C. 556(d)). (SeeShaffer v. West, 546 U.S. 49, 57–58(2005).) We do not agree that, because we draft the physician self-referral regulations, the burden of proof should be on us and the Medicare program.

Comment: One commenter stated that, because many exceptions to the physician self-referral prohibition require compliance with the anti- kickback statute, the proposal would require a provider to satisfy the burden of proving that it: (1) Meets an anti- kickback statute safe harbor; (2) has received a favorable advisory opinion from OIG; or (3) otherwise does not violate the anti-kickback statute. The commenter concluded that providers will have the unreasonable burden of having to ‘‘prove a negative,’’ even though the government has the burden to prove intent under the anti-kickback statute. Two other commenters expressed similar concerns, and stated that the language in the proposed regulation would shift the burden from the government to the provider with respect to the anti-kickback statute. Other commenters expressed concerns about having to ‘‘prove a negative’’ with respect to other requirements of exceptions for certain compensation arrangements, such as the requirements that: (1) Compensation does not take into account the volume or value of referrals or other business between the


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parties; (2) equipment or space is not shared by others; (3) an arrangement would be commercially reasonable even in the absence of referrals; and (4) no payment is made directly or indirectly as an inducement to reduce or limit medically necessary services.

Response: Section 1877(b)(4) of the Act authorizes us to create additional exceptions to the physician self-referral statute, provided that such exceptions do not pose a risk of program or patient abuse. All of the exceptions for financial relationships promulgated using our authority in section 1877(b)(4) of the Act include the requirement that the financial relationship covered by the exception not violate the anti-kickback statute, which is an intent-based criminal statute, or any Federal or State law or regulation governing billing or claims submission. Similarly, most of the exceptions applicable to compensation arrangements, including those prescribed by statute and those created using our authority in section 1877(b)(4) of the Act, contain a requirement that the compensation not take into account the volume or value of referrals or other business generated between the parties. We recognize that requiring claimants to prove that they did not violate the anti-kickback statute may, in some cases, be difficult. However, our proposal and this final rule pertain to the ultimate burden of proof (or burden of persuasion) and not to the burden of production (or burden of going forward with evidence).

As explained by courts and legal commentators, the burden of proof remains on the same party throughout the appellate proceeding, whereas the burden of production on a particular issue or element may shift from one party to another (and even back to the first party) as evidence is put forth. We believe it is appropriate that the burden of production be on the claimant initially with respect to all requirements in our physician self-referral regulations. The claimant may produce evidence in such quantity or quality so as to shift the burden of production to the Medicare program requiring us to show that the requirement was not met. Thus, although a claimant would have the initial burden to show that it did not violate the anti-kickback statute, the claimant may produce evidence that is conclusive on the issue (such as showing that the arrangement satisfied a safe harbor to the anti-kickback statute) or is sufficient to shift the burden of production to the government to show that the financial relationship at issue did violate the anti-kickback statute. We decline to attempt to prescribe by regulation what type or quantity of

evidence is sufficient to shift the burden of production to us on any given requirement of our physician self- referral regulations, as this would be impractical, if not impossible, to do given the infinite factual variations that may be present. We instead leave to the adjudicators that hear the appeals the question of whether the burden of production has shifted.

Comment: Several commenters asserted that it will be difficult for providers to prove that compensation arrangements were made at fair market value because valuation experts may disagree about what constitutes fair market value. A few commenters stated that hospitals may contract with physicians at a rate that was low in an effort not to have the arrangement questioned, and complained that requiring a hospital to prove fair market value will further disadvantage parties negotiating rates under hospital- physician contractual arrangements.

Response: In Phase III, we addressed requests for us to comment on fair market valuation methodologies. There, we stated ‘‘[n]othing precludes parties from calculating fair market value using any commercially reasonable methodology that is appropriate under the circumstances and otherwise fits the definition at section 1877(h) of the Act and § 411.351. Ultimately, fair market value is determined based on facts and circumstances. The appropriate method will depend on the nature of the transaction, its location, and other factors’’ (72 FR 51015 through 51016).

We believe that, in most instances, what constitutes fair market value for an item or service will be expressed as a range and, accordingly, claimants should not face significant difficulty in establishing fair market value, provided that they use a methodology that is reasonable under the facts and circumstances, determine a payment amount that is within the range that the methodology yields, and maintain documentation regarding the determination of fair market value that was created at the time of the financial relationship. We disagree that codifying burden of proof obligations should have the negative impact on business arrangements claimed by the commenters, these are the procedures that claimants must currently follow.

Comment: One commenter expressed concern that large fines may be imposed upon any party whom we believe violates the physician self-referral law. Another commenter asserted that the proposed provision should not affect the burden of proof that is applicable to other governmental sanction and

enforcement provisions (including civil monetary penalties and exclusions).

Response: Our proposal (now finalized in § 411.353(c)(2) in this final rule) related only to administrative appeals of claims denials under the appeals process in 42 CFR Part 405, Subpart I of our regulations. Appeals of civil monetary penalties, exclusions or other remedies imposed because of a determination that a DHS entity or a physician knowingly violated the self- referral statute or regulations involve other appeals processes.

Comment: One commenter asked if the proposed regulation would trump evidentiary rules that may exist elsewhere, including under the False Claims Act.

Response: No, it would not. Our proposal was not intended to have any impact on the evidentiary rules in False Claims Act cases or in other types of cases, but instead was intended only to clarify existing procedures with respect to the Medicare claims appeals process. New § 411.353(c)(2) does not establish any standards of knowledge or other evidentiary rules, but merely clarifies that, in any case in which a claim is denied for failure to comply with the physician self-referral rules, the ultimate burden of proof (that is, the burden of persuasion) is on the claimant to demonstrate compliance and not on the Medicare program to demonstrate noncompliance. Thus, for example, if a claim is denied and a DHS entity appeals on the basis that it did not know the identity of the referring physician, the current standard of knowledge in § 411.353(e) (that is, the entity did not have actual knowledge of, and did not act in reckless disregard or deliberate ignorance of, the identity of the referring physician) continues to be applicable. The claimant would have the burden of persuasion that it did not know the identity of the referring physician, using the standard contained in § 411.353(e).

Comment: One commenter asked if the burden of proof remains on the provider at every level of appeal.

Response: At every level of appeal, the burden of proof (that is, the burden of persuasion) remains on the entity that submitted the claim.

Comment: One commenter suggested that, although providers have the burden to prove that services they provided are covered by Medicare, the same standard should not apply to compliance with the physician self- referral law and regulations. The commenter argued that an appeal of a claim that was denied due to lack of medical necessity differs from an appeal of a claim denied due to noncompliance with the physician self-referral law,


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because the congressional intent underlying the two types of appeals is different and the potential consequences of failure to comply with the physician self-referral statute are significant.

Response: We do not agree that the allocation of the burden of proof should vary depending on the underlying reason for the claim denial. We note that the Congress has not indicated any intent to make such a differentiation. With respect to the commenter’sstatement that the potential consequences of failure to comply with the physician self-referral statute are significant, the same can be said for medical necessity denials and other types of coverage denials. Where a financial relationship between an entity and one or more referring physicians is found to fail to meet an exception, a few or many claims may be at issue, depending on the circumstances. Likewise, a contractor’s denial, on medical necessity or other grounds, may affect a few claims of a supplier or provider or may affect an entire class of claims.

Comment: Several commenters reasoned that, because the physician self-referral law is a strict liability statute, it is even more important for the burden of proof to be on the government. One of these commenters asserted that we have the ‘‘weight of the Federal bureaucracy behind [us]’’ and that we should prove our case if a benefit is denied.

Response: We reiterate that the language finalized in § 411.353(c)(2) of this final rule is entirely consistent with the allocation of the burden of proof in appeals of Medicare claims denied for reasons other than due to a prohibited referral. Virtually all coverage rules carry with them ‘‘strict liability,’’ and, where a claim is denied, the burden of proof is on the claimant to establish coverage and not on the government to prove noncoverage. (We note an exception to the strict liability rule in section 1879 of the Act, under which Medicare may pay the provider or supplier if the provider or supplier can establish that neither it nor the beneficiary knew or reasonably should have known that the item or service was not covered. The Congress has not authorized such limitation of liability protection for physician self-referral denials.)

Comment: Two commenters disagreed that the proposal is consistent with our general policy and procedures regarding the appeals of claims denials. The commenters asserted that, when a claim is denied (in circumstances other than when a prohibited referral occurred), all that the provider must do to receive

payment is produce a medical record that indicates that the service was provided and, in combination with accepted standards of care, was reasonable and necessary. In these circumstances, according to the commenters, each appeal is for only a single claim. The commenters contended that, when we do not pay a claim due to a violation of the physician self-referral law, thousands of claims are at stake, a huge fine is possible, and exclusion from Federal health care programs may occur.

Response: The Congress has enacted a general prohibition against physician self-referral that is subject to certain exceptions (most created under our regulatory authority in section 1877(b)(4) of the Act). We believe that it is appropriate to require a provider or supplier to be prepared to demonstrate that its financial relationship with a referring physician does, in fact, satisfy an exception and that the claims at issue should be paid. Also, in most instances, the question of whether a provider or supplier meets an exception will be a factual one. The documentation containing the particulars of the financial relationship at issue will be in the possession of the provider or supplier (and most often will not be in the possession of us or our contractors).

Although the commenters claim that appeals of claims denied for reasons other than alleged violations of the physician self-referral rules involve a single claim each and that the claimants need only produce the medical record to demonstrate medical necessity, many such appeals involve large numbers of aggregated claims and complex coverage issues. In addition, it is not true necessarily that any claims denial based on an alleged violation of the physician self-referral rules will involve thousands of claims or complex issues. In any event, it is not apparent to us why the number of claims, the amount of money involved, or the complexity of the issues should cut in favor of the government having the burden of proof, rather than the claimant. Finally, with respect to the commenters’ point that the burden of proof should be on the government because an alleged violation of the physician self-referral rules may lead to a large fine and exclusion from Federal health care programs, the proposal, which is finalized in § 411.353(c)(2) in this final rule, relates only to appeals of claims denials, not to appeals of the imposition of civil monetary penalties, exclusion or other remedies.

Comment: Two commenters stated that the proposed rule will provide greater incentive for Medicare contractors to deny claims based on

alleged violations of the physician self- referral law.

Response: We disagree with the commenters’ assertion that the proposal, which is finalized in § 411.353(c)(2) in this final rule, will induce our contractors to deny claims based on physician self-referral violations. The burden has always been on the party seeking Medicare payment to prove entitlement to payment if the claim is denied, and we assume that our contractors have been aware of this longstanding policy. Contractors should make determinations to deny claims based on the merits of the case and not based on concerns as to who bears the burden of proof. However, to the extent that any contractor, prior to this final rule, may have been less inclined to deny a claim due to its mistaken belief that it would bear the burden of proof, it is appropriate that it be apprised of the proper allocation of the burden of proof.

IX. Financial Relationships Between Hospitals and Physicians

Most, if not all, hospitals have financial relationships with referring physicians. These financial relationships may involve ownership or investment interests, compensation arrangements, or both. The financial relationships may be direct or they may be indirect (such as through a physician group practice or limited liability company). The physician self-referral statute was first enacted in 1989, and the reporting requirements in the regulations in § 411.361 were first implemented in our December 3, 1991 interim final rule with comment period, published in the Federal Register at 56 FR 61374. Since that time, we have not engaged in a comprehensive reporting initiative to examine financial relationships between hospitals and physicians. Consistent with Congressional intent in enacting the physician self-referral statute, we believe it is important to query hospitals concerning their financial relationships with physicians.

To assist in enforcement of the physician self-referral statute and implementing regulations, we created an information collection instrument, referred to as the Disclosure of Financial Relationships Report (‘‘DFRR’’). The DFRR is designed to collect information concerning the ownership and investment interests and compensation arrangements between hospitals and physicians. In the FY 2009 IPPS proposed rule, using our authority under section 1877(f) of the Act and § 411.361, we proposed to send the DFRR to 500 hospitals, (both general


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acute care hospitals and specialty hospitals), a number that we believe is necessary to provide us with sufficient information: (1) To identify arrangements that potentially may not be in compliance with the physician self-referral statute and implementing regulations; and (2) to identify practices that may assist us in any future rulemaking concerning the reporting requirements and other physician self- referral provisions (73 FR 23697). We note that to the extent we do not find a physician self-referral violation based on the results of the DFRR, this should not be taken as an affirmative statement that the financial relationships are in compliance, and the government will not be estopped from determining that there is a violation based on further review of information collected as part of the DFRR or additional different information. At this time we are proceeding with our proposal to send the DFRR to 500 hospitals (both general acute care hospitals and specialty hospitals). However, based on further review and comments we may receive in response to the revised Paperwork Reduction Act (PRA) package that will be published separately in the FederalRegister, we may decide to decrease (but not increase) the number of hospitals to which we would send the DFRR.

In the FY 2009 IPPS proposed rule, we provided a discussion of the potential burden associated with completing the DFRR, including an analysis that provided estimates of the burden for small, medium, and large hospitals. In the proposed rule, based on a review of the DFRR by 33 hospitals, we estimated that the average number of hours to complete the DFRR was 31 hours. In addition, we sought comment on the accuracy of the time and burden estimates associated with this information collection instrument. Because the DFRR requires information that hospitals already should be keeping in the normal course of their business activities (even apart from the need to document compliance with the physician self-referral law), we anticipated that the majority of the time spent completing the DFRR would be spent by administrative staff. We believed that the tasks involved would include retrieving the information and printing it from electronic files or copying it from hard files, which largely should involve administrative personnel. In addition, the review and organization of the materials would also impose burden on the respondent. Nevertheless, in order to err on the side of more potential burden rather than

less, we calculated costs using an hourly rate for accountants (73 FR 23697).

As discussed more thoroughly below, we have revised our estimate of the time it will take each hospital to complete the DFRR from 31 hours to 100 hours and concluded that many hospitals may choose to involve accounting staff and attorneys for legal review. Therefore, the costs per hospital, associated with completing the DFFR has increased from $1,550 to $4,080. We have calculated a revised total burden for 500 hospitals to be $2,040,000. A more detailed discussion of the aggregate burden may be found in the PRA section, section XI., of the preamble of this final rule. A revised PRA notice will be published separately in the Federal Register. The revised PRA notice will set forth a public comment period of 30 days from the date of display.

In the FY 2009 IPPS proposed rule, we proposed that the DFRR be completed, certified by the appropriate officer of the hospital, and received by us within 60 days of the date that appears on the cover letter or e-mail transmission of the DFRR. We solicited comments on the proposed 60-day timeframe for completing the DFRR (73 FR 23697). Although we received a few comments objecting to the proposed 60- day timeframe, we are adopting the proposed 60-day limit for completing the DFRR. In the FY 2009 IPPS proposed rule, we noted that § 411.361(f) provides that failure to submit timely the requested information concerning an entity’s ownership, investment, and compensation arrangements may result in civil monetary penalties of up to $10,000 for each day beyond the deadline established for disclosure. Although we have the authority to impose civil monetary penalties, we indicated in the proposed rule that we seek not to invoke this authority and will work with entities to comply with the reporting requirements. Prior to imposing a civil monetary penalty in any amount, we would issue a letter to any hospital that does not return the completed DFRR, inquiring as to why the hospital did not return timely the completed DFRR. In addition, a hospital may, upon a demonstration of good cause, receive an extension of time to submit the requested information (73 FR 23697). Although we did not make a specific proposal concerning the imposition of civil money penalties, we are informing the public in this final rule that, before imposing any civil money penalties, we will follow the procedures described above.

In the FY 2009 IPPS proposed rule, we solicited comments on the DFRR information collection instrument as follows:

• Whether the DFRR should be recurring, and, if so, whether it should be implemented on an annual or some other periodic basis;

• Whether the DFRR collects too much or not enough information, and whether it collects the correct (or incorrect) type of information;

• The amount of time it will take hospitals to complete the DFRR, the costs associated with completing the DFRR, and the amount of time we should give hospitals to complete and return their responses to us;

• Whether we should direct the collection instrument to all hospitals, and, if so, whether we should stagger the collection so that only a certain number of hospitals are subject to it in any given year;

• Whether hospitals, once having completed the DFRR, should have to send us yearly updates and report only changed information.

After consideration of the public comments we received, we are not adopting a regular reporting or disclosure process at this time, and thus, the DFRR will be used, at this time, as a one-time collection effort. (Depending on the information we receive on the DFRR and other factors, we may propose future rulemaking to use the DFRR or some other instrument as a periodic or regular collection instrument.) We have concluded that we are collecting the correct type and appropriate amount of information, and thus, we are finalizing the DFRR, as proposed, with minor modifications. (We refer readers to the revised PRA notice that will be published separately in the Federal Register which will offer the public the opportunity to comment on the proposed collection of information.) As discussed more thoroughly below and in section XI. of the preamble of this final rule, we are increasing the amount of time it will take hospitals to complete the DFRR from 31 hours to 100 hours, and the costs associated with completing the DFRR are being increased from $1,550 to $4,080 per hospital. We are finalizing our timeframe of 60 days to complete, certify, and return the DFRR to us.

We respond to specific comments below.

Comment: Several commenters asserted that neither the Deficit Reduction Act (DRA) of 2005, nor section 1877(f) of the Act, nor § 411.361grants us the authority to impose ‘‘sucha far-reaching request,’’ especially without the articulation of a specific


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compliance problem to be addressed related to community hospitals. The commenters encouraged us to limit the scope of the DFRR to physician-owned specialty hospitals, as directed by the DRA. The commenters stated that, alternatively, and at the very least, the burden of the demand should be significantly reduced and the request be narrowly tailored to result in information aimed at addressing a clearly defined compliance problem.

Response: Our authority for the DFRR is not based on the DRA. We believe section 1877(f) of the Act and § 411.361of our regulations give us authority to collect this information. These provisions provide that entities must submit to us information concerning their financial relationships with referring physicians in the form, manner and at the times we specify. Nor do we agree that the DRA directed us to confine the scope of the DFRR (which did not exist at the time of the DRA), or any other collection instrument, to physician-owned specialty hospitals. As stated above, since the enactment of the physician self-referral statute, we have not engaged in a comprehensive reporting initiative to examine financial relationships between hospitals and physicians, and consistent with section 1877(f) of the Act, we believe it is important to query hospitals concerning their financial relationships with physicians. Section 5006 of the Deficit Reduction Act of 2005 required the Secretary to develop a strategic and implementing plan to address certain issues relating to physician-owned specialty hospitals. The strategic and implementing plan that was included in our ‘‘Final Report to the Congress and Strategic and Implementing Plan Required under Section 5006 of the Deficit Reduction Act of 2005’’ issued on August 8, 2006, is available on our Web site at http://www.cms.hhs.gov/PhysicianSelfReferral/06a_DRA_Reports.asp (hereinafterreferred to as the ‘‘DRA Report to Congresss.’’. We also refer to the DRA Report to Congress, at page 69, wherein we stated that we would require hospitals to provide us information on a periodic basis concerning their investment and compensation relationships with physicians.

Comment: One commenter stated that we incorrectly asserted that section 1877(f) of the Act gives us the authority to obtain information about compensation arrangements that comply with an exception. The commenter stated that instead, section 1877(f) of the Act allows us to seek information only about compensation arrangements that do not meet an exception in section

1877(e) of the Act. The commenter further stated that section 1877(f) of the Act states that we may require information concerning compensation arrangements that are ‘‘described in subsection (a)(2)(B) of [section 1877 of the Act].’’ The commenter contended that section 1877(a)(2)(B) of the Act describes compensation arrangements that do not meet any of the exceptions contained in section 1877(e) of the Act. The commenter concluded that by including certain information that entities must report, Congress effectively excluded other information from our authority.

Response: We believe that Congress did not intend to limit our ability to capture information about compensation arrangements that meet an exception. Section 1877(f) of the Act states that ‘‘each entity * * * shall provide the Secretary with the information concerning entity’s * * * compensation arrangements * * * including the names and [UPINs] of all physicians with a compensation arrangement (as described in subsection (a)(2)(B)) * * *’’ (emphasis added). We believe Congress’ use of the word ‘‘including’’ meant that it was providing only examples of the type of information that we may require. To read the statute otherwise would effectively negate our ability to make fully informed decisions about the extent to which entities are complying with the physician self-referral law and instead, allow entities to report information only about those compensation relationships that they self-determine are out of compliance.

Comment: Most commenters stated that our estimated burden of 31 hours still fell short of what will be required within a facility to complete the DFRR. They indicated that steps a hospital will likely engage in are: (1) Identification of the relevant contracts; (2) retrieval of the contracts; (3) review and analysis of the contracts to determine the appropriate response to the DFRR; (4) review by an attorney for accuracy; (5) copying for submission; and (6) CEO certification. The commenters noted, anecdotally, the burden estimates for hospitals include at least 200 hours just to identify and assemble all the relevant contracts, 4 weeks to fully prepare responses, 3 months to respond with 1 FTE’s time. Another commenter, a 232 bed hospital, identified similar steps (including the creation of an ad hoc committee), and provided a total estimate of 120 hours. Another commenter suggested that the burden hours were underestimated and that we should either abandon the DFRR or redesign the tool to reduce the scope of the information requested.

Response: Some of the commenters have identified an additional, self- imposed step in the process that, if taken into account, would increase the time and burden estimate, namely, legal review of all supporting documentation (including contracts). The DFRR requires hospitals to supply certain information and documentation concerning existing ownership/ investment and compensation relationships with physicians, which relationships, presumably, underwent legal review prior to their inception. The information and documentation required by the DFRR is that which hospitals should already be keeping in the normal course of their business activities (even apart from the need to document compliance with the physician self-referral law), and therefore, the only burden imposed by the DFRR is the time needed to locate and compile the information and documentation. Notwithstanding our view that the true burden of responding to the DFRR does not properly include time for legal or other professional review, we have increased our time and burden estimates from 31 to 100 hours to complete and submit the DFRR. With respect to the suggestion that we either abandon the DFRR or reduce the scope of the information requested, we are adopting the DFRR as final, with some modification. (We refer readers to the revised PRA notice that will be published separately in the FederalRegister.) We believe that each piece of information requested in the various worksheets of the DFRR is necessary to assist us in identifying arrangements between hospitals and physicians that may not be compliant with the physician self-referral prohibition regulations, and to identify examples and areas of noncompliance that may assist us in future rulemaking concerning our existing, and potentially new, exceptions. We remind the reader that to the extent we do not find a physician self-referral violation based on results of the DFRR, this should not to be taken as an affirmative statement that the financial relationships are in compliance, and the government will not be estopped from determining that there is a violation based on further review of information collected as part of the DFRR, or additional, different information.

Comment: One commenter believed that we continue to underestimate the burdensomeness and costs associated with completing the DFRR. For example, the commenter believes that the estimated hours to respond will range between 50 hours for a smaller


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facility to over 200 hours for a larger facility. Cost estimates for personnel needed to complete the work, which would include clerical, administrative, accounting and legal support, would range from $5,000 to $15,000. The estimate of $50 an hour, based on accounting personnel, underestimates the manpower costs of fully and accurately completing the survey document and that accountants and legal counsel will review all documentation related to the DFRR so their involvement should be considered when calculating the burden. Several commenters asserted that some questions require information on arrangements of which a simple review of the agreement will not be sufficient. Another commenter expressed a similar objection stating that administrative staff would not be able to complete Worksheet 7 with the instruction that reads ‘‘ For those compensation arrangements listed in Columns A through D, include not only those that you believe fit within an exception in 42 CFR 411.357, but those that are implicated by the referenced exception.’’ Several comments argued that knowing which specific exception an arrangement relied on, when more than one may be applicable, will not necessarily be noted in the contract. The commenters further stated that only an attorney’s review will allow a hospital to determine that information

Response: As noted above, we have taken into account the time and costs involved for hospitals to involve attorneys in the process of completing and submitting the DFRR to ensure that all supporting documentation satisfies the specific exception(s) upon which the arrangement relied on when the agreement was executed. Therefore, we have revised the costs associated with completing the DFRR. As discussed more thoroughly in section XI. of the preamble of this final rule, we have increased the time and burden estimate (per hospital) from 31 to 100 hours. In addition, we have calculated costs using an hourly rate for accountants and attorneys. Specifically, we are attributing 60 hours to administrative and accounting staff that will assemble relevant documentation, and we are allotting an additional 40 hours to account for the burden associated with hospitals that voluntarily seek input from legal counsel. We are revising our average cost per hospital to $4,080. A more detailed analysis of the total time and burden estimate associated with the DFRR may be found in section XI. of the preamble of this final rule and in the revised PRA notice that will be

published separately in the FederalRegister.

Comment: A commenter recommended that if the DFRR is implemented, it be initially tested as a targeted pilot program. The commenter stated that the pilot should be limited to a minimum number of hospitals needed to test the accuracy of the survey instrument and its effectiveness in securing the information sought.

Response: We do not believe that testing the DFRR with a pilot group of hospitals is necessary. As we stated in the FY 2009 IPPS proposed rule, we proposed to send the DFRR to 500 hospitals, a number that we believe is necessary to provide us with sufficient information: (1) To identify arrangements that potentially may not be in compliance with the physician self-referral statute and implementing regulations; and (2) to identify practices that may assist us in future rulemaking. As stated earlier, we note to the extent we do not find a physician self-referral violation based on the results of the DFRR, this should not be taken as an affirmative statement that the financial relationships are in compliance, and the government will not be estopped from determining that there is a violation based on further review of information collected as part of the DFRR or additional, different information. At this time, we are proceeding with our proposal to send the DFRR to 500 hospitals. However, based on further review and comments we may receive in response to the revised PRA package that will be published separately in the Federal Register, we may decide to decrease (but not increase) the number of hospitals that we would send the DFRR. With respect to the commenter’sconcern about the accuracy of the instrument, the DFRR builds upon information that was previously requested in the voluntary DRA survey, and thus, should help increase the accuracy of the instrument. In addition, as a result of public comments received in response to our PRA packages published in the Federal Register onMay 18, 2007 (72 FR 28056), and September 14, 2007 (72 FR 52568), respectively, we have revised the DFRR instructions and worksheets to address ambiguities.

Comment: Many commenters noted that the DFRR requires information on nine different categories of compensation arrangements. These commenters stated that, depending on the size of the hospital, documents will be required for hundreds or thousands of contracts. Another commenter, a 300 bed hospital, estimated that it would spend approximately 80 hours to gather

data from 224 agreements with physicians to complete Worksheets 7 and 8. The commenter stated that the hours would be much less if the proposed DFRR were to address only compensation arrangements that involve a physician owner.

Response: We acknowledge that the DFRR would take less time to complete if we required hospitals to report only compensation arrangements involving a physician owner. However, confining the DFRR to such relationships would significantly reduce the scope of the collection instrument and, therefore, potentially fail to capture much needed information. Moreover, so restricting the DFRR would be inconsistent with the commitment we made at page 69 of the DRA Report to Congress to require hospitals to provide us information on a periodic basis concerning their investment and compensation relationships with physicians. As stated above, the DFRR is designed to identify arrangements between hospital and physicians that may not be in compliance with the physician self- referral statute and regulations and to assist with our statutory obligation to ensure that no payment is made for a prohibited referral. In addition, in the DRA Report to Congress at page 69, we noted that a physician may be just as likely to refer patients to a hospital with which he or she has a compensation relationship, given that the physician may see a direct and immediate financial benefit from the compensation arrangement. To adopt the commenter’ssuggestion would have the effect of disproportionately impacting physician- owned hospitals.

Comment: Several commenters argued that under the current rule at § 411.361,routine mandatory reporting is not required. They stated that it was included in the 1998 proposed rule on reporting, and after receiving comments that routine mandatory reporting would be unduly burdensome, we decided not to use that approach. They further stated that the proposed rule on reporting also made clear that we were not developing any forms or recordkeeping requirements specific to reporting. They concluded that the DFRR, therefore, would circumvent our own rulemaking decision. Another commenter urged us to return to the position taken in the Phase II regulations in 2004 and not require each and every provider to supply the information required by the DFRR but merely to request information on a case-by-case basis.

Response: In the correction notice of the interim final rule with comment period entitled, Physicians’ Referrals to Health Care Entities With Which They


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Have Financial Relationships (Phase II); published in the Federal Register onApril 6, 2004 (72 FR 17934), we stated that we did not intend at that time to develop any forms for the submission of information. The language referenced by the commenter referred to the creation of forms for a regular reporting process. At this time, we are not creating forms for a regular reporting process. Rather, we are pursuing a one-time collection effort which involves the use of the DFRR. Thus, we believe it would be best to proceed with sending the DFRR to the hospitals, and upon completion of the reviews, decide whether to issue a notice of proposed rulemaking concerning both the frequency of a reporting or disclosure process and any revisions to the DFRR to focus upon certain types of financial relationships or certain hospitals. We believe the use of a uniform information collection instrument is more efficient than a case- by-case approach because we are capturing the same type of information and analyzing it in the same manner. We disagree that proceeding with the DFRR is, in any way, inconsistent with, or circumvents, a prior ‘‘rulemakingdecision.’’

Comment: One commenter recommended that the DFRR should not require paper submission of any kind, but rather all data should be scanned and submitted electronically to save hospitals significant unfunded administrative burden, as well as to spare us the storage capacity required for millions of paper pages. However, most commenters stated that recordkeeping is predominantly manual, not electronic, documents are decentralized, not centralized; there is no ‘‘self-referral law’’ filing system required, and of course the number of physicians on staff will affect the number of potential contracts. Thus, the commenters asserted that the burden estimate and our description of what a response will require are at odds with current recordkeeping processes in hospitals.

Response: We considered requiring hospitals to scan documents and submit them electronically, but we concluded that there was great variation in the recordkeeping systems of most hospitals. Therefore, we chose to encourage, but not require, that an electronic copy of the DFRR worksheets be submitted. We recognize that many hospitals will submit paper copies of all supporting documentation, and we have made arrangements for storage of the information collected. In response to an earlier comment, we have increased the time and burden estimate, which should assist in affording hospitals time in

which to locate all required documentation.

Comment: Several commenters stated that under any new reporting initiative there will be a necessary ‘‘learningcurve’’ for hospitals to determine the type of data necessary to accurately complete the report. The commenters asserted that this is especially true for the DFRR, as it will only be sent to a small subset of hospitals, and the hospitals will not know it is coming until it arrives. The commenters requested that we adopt a 5-month due date for the report, consistent with the time frame for completion of the Medicare cost report.

Response: We are not adopting the commenter’s suggestions. The DFRR is not as complex as the Medicare cost report; and we believe that the 60-day timeframe specified in the proposed rule provides hospitals with sufficient time to complete and submit the DFRR to us. In addition, we will grant extensions of time beyond the 60 days to complete the DFRR in appropriate cases.

Comment: Many commenters also recommended that the DFRR be a one- time data collection effort, until we have fully evaluated responses from the initial reports filed. One of the commenters opposed an annual DFRR filing requirement, and supported a periodic or staggered filing requirement. The commenter also stated that where a pattern or history of problems was known to exist, more frequent reporting might be warranted.

Response: At this time we believe it is best to proceed with sending the DFRR to the hospitals, and upon completion of the reviews, decide whether to issue a notice of proposed rulemaking concerning both the frequency of a reporting or disclosure process and any revisions to the DFRR to focus upon certain types of financial relationships or certain hospitals.

Comment: One commenter recommended that hospitals should not have to submit a signed copy of each agreement related to Worksheet 7, unless we deem it necessary. If copies of agreement must be submitted, the commenter suggested that we permit hospitals to submit copies of uniform rental or recruitment agreements in those instances where a uniform rental or recruitment agreement has been prepared by the hospital and all of the elements present are materially the same.

Response: We are revising Worksheet 7 of the DFRR and the corresponding instructions to permit hospitals to submit one copy of a uniform rental or recruitment agreement. (Worksheet 7

also allows parties to submit one copy of a uniform personal services agreement.) We caution, however, that we consider an agreement to be ‘‘uniform’’ only if all material terms are the same. The following examples may prove helpful.

Example 1: Hospital has entered into lease agreements with different physicians or physician practices for space in the same medical office building (MOB A), and the value of the space is not materially different from one office to the next, the price per square foot charged to the physician or physician practice by the hospital is the same in all agreements (notwithstanding that amount of square footage, and thus, the monthly rental charges, may differ from office to office), and the rights and obligations are the same under each lease agreement. Under these facts, we would consider the agreements to be uniform for purposes of the DFRR and the hospital would need to transmit only one copy of the agreement (although it would be required to identify the other physicians who have entered into the similar agreements).

Example 2: Same facts as Example 1, with the additional facts that Hospital also owns medical office buildings B, C, and D (MOBs B, C, and D), which it also leases to physicians or physician practices. Within each building, the lease terms are materially the same, as described in Example 1, from office tenant to office tenant, although the lease terms vary significantly from MOB to MOB (for example, the price per square foot is much less for MOB C than it is for MOB D). Under these facts, we would consider the lease agreements to be uniform with respect to each MOB, but not uniform across all MOBs. Therefore, in responding to the DFRR, the hospital would need to send one copy of the lease agreement for MOB A, one copy of the lease agreement for MOB B, one copy of the lease agreement for MOB C, and one copy of the lease agreement for MOB D.

Example 3: Same facts as Example 1, except that the price per square foot varies slightly from office to office, with no two offices having the same price per square foot. In this case, we do not consider there to be a uniform agreement; therefore, in responding to the DFRR, the hospital would need to send a copy of the lease agreement for each physician or physician practice.

Comment: One commenter stated that the data requested would contain confidential information, and despite the reference to the Federal Trade Secrets Act (18 U.S.C. 1905) and the Freedom of Information Act (5 U.S.C. 552(b)(6)), which prevent information


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provided to us from being released, expressed concern as to the specific safeguards in place to prevent such a release from occurring.

Response: We have established numerous safeguards to physically house the data provided to us. In addition, we will release such information, where appropriate, to federal law enforcement agencies such as the HHS’s Office of Inspector General (OIG) and the Department of Justice (DOJ). We will not release information contained in the DFRR as matter of course to law enforcement agencies, but rather will do so only where we believe a specific referral to the OIG, DOJ, or other agency is warranted. Our policy is not to release any confidential business information or FOIA-protected personally identifiable information to the public. More detailed information concerning our disclosure policy is set forth in the general instructions accompanying the DFRR. We note that whereas the Trade Secrets Act prohibits federal agencies from releasing certain information under certain circumstances, the FOIA does not prohibit federal agencies from releasing information—rather, the FOIA allows us to withhold certain information under certain circumstances.

Comment: One commenter questioned the placement of the DFRR within the FY 2009 IPPS proposed rule and stated that the DFRR should be evaluated and approved by OMB and be consistent with the PRA. In addition, the commenter stated that we should contact physicians directly, rather than requesting that hospitals gather this information from each of their physicians.

Response: Our aim in including the DFRR in the FY 2009 IPPS proposed rule was to increase the likelihood that the general public would be aware of our proposed information collection request and submit comments concerning it. Therefore, we outlined the proposed requirements of the DFRR in the preamble, included a discussion of the costs associated with the DFRR in the Collection of Information section (section XI.B.) of the preamble of the proposed rule, and sent forth to OMB a PRA package concerning the DFRR. Pursuant to procedures required by the PRA, a revised PRA package, reflecting the changes to the DFRR that we have made based on comments received thus far, has been sent to OMB for its review and approval. The revised PRA notice will be published separately in the Federal Register. The revised PRA notice will set forth a public comment period of 30 days from the date of display.

X. MedPAC Recommendations

We are required by section 1886(e)(4)(B) of the Act to respond to MedPAC’s recommendations regarding hospital inpatient payments in our annual proposed and final IPPS rules. Having reviewed both MedPAC’s March 2008 ‘‘Report to the Congress: Medicare Payment Policy’’ and its June 2007 ‘‘Report to Congress: Promoting Greater Efficiency in Medicare,’’ we have given those reports careful consideration in conjunction with the policies set forth in this document.

Recommendation 2A–1: MedPAC’sMarch 2008 Report to Congress states that ‘‘The Congress should increase payment rates for the acute inpatient and outpatient prospective payment systems in 2009 by the projected rate of increase in the hospital market basket index, concurrent with implementation of a quality incentive payment program.’’ This recommendation is discussed in Appendix B to this final rule.

Recommendation 2A–2: MedPAC also recommended that ‘‘The Congress should reduce the indirect medical education adjustment in 2009 by 1 percentage point to 4.5 percent per 10 percent increment in the resident-to-bed ratio. The funds obtained by reducing the indirect medical education adjustment should be used to fund a quality incentive payment program.’’

Response to Recommendation 2A–2:Redirecting funds obtained by reducing the IME adjustment to fund a quality incentive payment program is consistent with the VBP initiatives to improve the quality of care and, therefore, merits consideration. However, section 502(a) of Public Law 108–173 modified the formula multiplier (c) to be used in the calculation of the IME adjustment beginning midway through FY 2004 and provided for a new schedule of formula multipliers for FYs 2005 and thereafter. Consequently, CMS does not have the authority to implement MedPAC’srecommendation to reduce the IME adjustment in 2009. We note that included in the President’s FY 2009 budget proposal was a proposal to reduce the IME adjustment from 5.5 percent to 2.2 percent over 3 years, starting in FY 2009, in order to better align IME payments with the estimated costs per case that teaching hospitals may face.

In its June 2007 Report to Congress, MedPAC made recommendations concerning the Medicare hospital wage index. Section 106(b)(1) of the MIEA–TRHCA (Pub. L. 109–432) required MedPAC to submit to Congress, not later than June 30, 2007, a report on the

Medicare hospital wage index classification system applied under the Medicare IPPS, including any alternatives that MedPAC recommended to the method to compute the wage index under section 1886(d)(3)(E) of the Act. In addition, section 106(b)(2) of the MIEA–TRHCA required the Secretary taking into account MedPAC’srecommendations on the Medicare hospital wage index classification system, to include in this FY 2009 IPPS proposed rule one or more policies to revise the wage index adjustment applied under section 1886(d)(3)(E) of the Act for purposes of the IPPS. The MedPAC recommendations and our policies concerning the Medicare hospital wage index are discussed in section III.B. of the preamble of the FY 2009 IPPS proposed rule and this final rule.

For further information relating specifically to the MedPAC reports or to obtain a copy of the reports, visit MedPAC’s Web site at: http://www.medpac.gov.

XI. Other Required Information

A. Requests for Data From the Public

In order to respond promptly to public requests for data related to the prospective payment system, we have established a process under which commenters can gain access to raw data on an expedited basis. Generally, the data are available in computer tape or cartridge format. However, some files are available on diskette as well as on the Internet at: http://www.cms.hhs.gov/providers/hipps. We listed the data files and the cost for each file, if applicable, in the FY 2009 IPS proposed rule (73 FR 23698 through 23700).

Commenters interested in discussing any data used in constructing the proposed rule or this final rule should contact Nisha Bhat at (410) 786–5320.

B. Collection of Information Requirements

1. Legislative Requirement for Solicitation of Comments

Under the Paperwork Reduction Act of 1995, we are required to provide 60- day notice in the Federal Register andsolicit public comment before a collection of information requirement is submitted to the Office of Management and Budget (OMB) for review and approval. In order to fairly evaluate whether an information collection should be approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995 requires that we solicit comment on the following issues:


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• The need for the information collection and its usefulness in carrying out the proper functions of our agency.

• The accuracy of our estimate of the information collection burden.

• The quality, utility, and clarity of the information to be collected.

• Recommendations to minimize the information collection burden on the affected public, including automated collection techniques.

2. Requirements in Regulatory Text In the FY 2009 IPPS proposed rule (73

FR 23700 through 23702), we solicited public comment on each of the issues listed under section XI.B.1. of this preamble for the following sections of this document that contain information collection requirements (ICRs). We discuss and respond to any public comments we received in each individual sections.

a. ICRs Regarding Reporting Requirements (§ 411.361)

Section 411.361(a) of the regulations states that, except for entities that furnish 20 or fewer Part A and Part B services during a calendar year, or for Medicare covered services furnished outside the United States, all entities furnishing services for which payment may be made under Medicare must submit information to CMS or to the Office of the Inspector General (OIG) concerning their reportable financial relationships (any ownership or investment interest, or compensation arrangement) in the form, manner, and within the timeframe that CMS or OIG specifies. As described in section IX.C. of the preamble of this final rule and in accordance with its authority under § 411.361(e), we are requiring that hospitals provide information concerning their ownership, investment, and compensation arrangements with physicians by completing the DFRR instrument.

An information collection request concerning the DFRR was previously submitted to OMB for approval. We announced and sought public comment on the information collection request in both 60-day and 30-day FederalRegister notices that were published on May 18, 2007 (72 FR 28056), and September 14, 2007 (72 FR 52568), respectively. In the FY 2009 IPPS proposed rule (73 FR 23695 and 23700), we discussed the requirement for submission of information using the DFRR instrument and the time and cost burden associated with completing and submitting the instrument.

As further discussed in section IX.C. of the preamble of this final rule, we have decided to obtain additional input

from the public concerning the time and cost burden associated with completing and submitting the DFRR instrument. In addition to the discussion of the revised burden estimates for the DFRR information collection request included in the preamble of this final rule and below in this collection of information section, we will publish, under a separate notice and comment period, a 30-day Federal Register notice for the associated information collection request prior to submitting the information collection request to OMB for review and approval.

We believe that hospital accounting personnel will be responsible for: (1) Ensuring that the appropriate data or supporting documentation is retrieved; (2) completing the DFRR instrument; and (3) submitting the DFRR to the Chief Executive Officer, Chief Financial Officer, or comparable officer of the hospital for his or her signature on the certification statement.

Initially, CMS would require (no greater than) 500 hospitals to complete and submit the DFRR instrument. Based on public comments we received, we have revised our estimated completion time for the DFRR that we presented in the proposed rule. The estimated amount of time needed to comply with this information collection request is 100 hours for each of the hospitals. Thus, the total number of burden hours required for 500 hospitals to complete the DFRR instrument is 50,000 hours.

b. ICRs Regarding Risk Adjustment Data (§ 422.310)

As discussed in section IV.H. of the preamble of the proposed rule and this final rule, § 422.310(b) states that each MA organization must submit to CMS (in accordance with CMS instructions) the data necessary to characterize the context and purposes of each item and service provided to a Medicare enrollee by a provider, supplier, physician, or other practitioner. In addition, § 422.310(b) states that CMS may collect data necessary to characterize the functional limitations of enrollees of each MA organization. Section 422.310(c) lists the nature of the data elements to be submitted to CMS.

For the proposed rule, we estimated the burden associated with these requirements to be the time and effort necessary for the MA organization to submit the necessary data to CMS. These requirements are subject to the PRA and the associated burden is currently approved under OMB control number 0938–0878. However, we noted that under notice and comment periods separate from the proposed rule, we intended to revise the currently

approved information collection request to include burden estimates as they pertain to § 422.310. The preliminary burden estimate for the proposed rule was as follows: Currently, there are 676 MA organizations. Assuming that 99 percent of encounter data claims are submitted electronically and 1 percent are submitted manually, we estimated that it would take 1,089 hours annually for submission of electronic claims and 73,335 hours annually for submission of manual claims. The estimated annual burden associated with these requirements was an annual average of 110 hours per MA organization.

Comment: A few commenters stated that the burden estimates in the proposed rule were inadequate to capture the time associated with collecting and submitting risk adjustment data. Another commenter stated that CMS’ estimate did not account for the impact on a plan’salready-existing verification processes and procedures, including internal audit processes, which are undertaken to ensure the ‘‘completeness, truthfulness and accuracy’’ of the data. One commenter requested that CMS discuss in more detail the current impact analysis before finalizing the rule. One commenter noted that, while the estimates in the proposed rule gauged that an MA plan would spend less than 110 hours annually to comply with this request, its plan’s RAPS transmission takes about 2 hours each month to run. Another commenter stated that CMS’preliminary estimate that 99 percent of claims are assumed to be electronic is inaccurate for the majority of PACE organizations. One commenter estimated that the cost of submitting encounter data would be no less than 2,000 hours a year in addition to having to retool internal systems as well as change or amend provider contracts.

Response: We appreciate the input of the commenters on their plans regarding the time and effort involved in their data collection efforts. While we will take these commenters’ concerns into account, we also plan to obtain feedback from a wide variety of MA organizations regarding the work that would be involved in implementing and reporting encounter data. Because we want to wait until we have designed our reporting process and have obtained specific information about what work will be needed on the part of MA organizations to report such data, in this final rule, we are not changing our preliminary burden estimates presented in the FY 2009 IPPS proposed rule. Instead, we will address the issue in the PRA information collection request that will be released for public comment


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prior to the implementation of encounter data collection.

c. ICRs Regarding Basic Commitments of Providers (§ 489.20)

As discussed in section IV.I. of the preamble of this final rule, § 489.20(r)(2)states that a hospital, as defined in § 489.24(b), must maintain an on-call list of physicians on its medical staff who are available to provide treatment necessary to stabilize patients who are receiving services required under § 489.24 in accordance with the resources available to the hospital. The burden associated with this requirement is the time and effort necessary to draft, maintain, and periodically update the list of on-call physicians. We estimate that it will take 3 hours for each Medicare-participating hospitals (including CAHs) to comply with this recordkeeping requirement. The estimated annual burden associated with this requirement is 300 hours.

However, after further review, we have determined that maintenance of a list of on-call physicians is a usual and customary business practice as hospitals routinely maintain the required information. Hospitals are required to maintain an on-call list of physicians to comply with the section 1866(a)(1)(I)(iii) of the Act. In accordance with 5 CFR 1320.3(b)(2), we are removing the aforementioned 300-hour annual burden associated with this requirement. As stated in 5 CFR 1320.3(b)(2), the burden associated with the time, effort, and financial resources necessary to comply with an ICR that would be incurred by persons in the normal course of their activities (that is, in compiling and maintaining business records) is exempt from the PRA.

As discussed in section VII. of the preamble of this final rule, § 489.20(u)(1) states that, in the case of a physician-owned hospital as defined in § 489.3, the hospital must furnish written notice to all patients at the beginning of their hospital stay or outpatient visit that the hospital is a physician-owned facility. In addition, patients must be advised that a list of the hospital’s owners or investors who are physicians (or immediate family members of physicians) is available upon request. Upon receiving the request of the patient or an individual on behalf of the patient, a hospital must immediately disseminate the list to the requesting patient.

The burden associated with the requirements in this section is the time and effort necessary for a hospital to furnish written notice to all patients that the hospital is a physician-owned hospital. Because this requirement is

subject to the PRA, the associated burden is currently approved under OMB control number 0938–1034, with an expiration date of February 28, 2011.

In addition, there is burden associated with furnishing a patient with the list of the hospital’s owners or investors who are physicians (or immediate family members of physicians) at the time of the patient’s request. However, CMS has no way to accurately quantify the burden because we cannot estimate the number of this type of requests that a hospital may receive. We solicited public comments on the annual number of requests a hospital may receive for lists of physician owners and investors in the FY 2009 IPPS proposed rule (73 FR 23528). However, we did not receive any public comments to assist us in our burden analysis. While we acknowledge that there is a burden associated with this ICR, we also acknowledge that we have no way to quantify this requirement’s burden. For that reason, we are assigning 1 token burden hour to this requirement until such a time that we can conduct an accurate burden analysis for this information collection requirement.

Section 489.20(u)(2) requires disclosure of physician ownership as a condition of continued medical staff membership or admitting privileges. The burden associated with this requirement is the time and effort required for a hospital to develop, draft, and implement changes to its medical staff bylaws and other policies governing admitting privileges. Approximately 175 physician-owned hospitals will be required to comply with this requirement. We estimate that it will require a hospital’s general counsel 4 hours to revise a hospital’smedical staff bylaws and policies governing admitting privileges. Therefore, the total annual hospital burden is 700 hours.

In addition, § 489.20(u)(2) imposes a burden on physicians. As stated earlier, all physicians who are also members of the hospital’s medical staff must agree, as a condition of continued medical staff membership or admitting privileges, to disclose, in writing, to all patients they refer to the hospital any ownership or investment interest in the hospital held by themselves or by an immediate family member. The disclosure must be made at the time the referral is made. The burden associated with this requirement is the time and effort necessary for a physician to draft a disclosure notice and to provide it to the patient at the time the referral is made to the physician-owned hospital. We estimate that it will take each physician, or designated office staff

member, 1 hour to develop a disclosure notice and make copies that will be distributed to patients. In addition, we estimate that it will take 30 seconds to provide the disclosure notice to each patient and an additional 30 seconds to record proof of disclosure in each patient’s medical record.

Although we can estimate the number of physician-owned hospitals, we are unable to quantify the numbers of physicians (or their immediate family members) that possess an ownership or investment interest in hospitals. There is limited data available concerning physician ownership in hospitals. The studies to date, including those by CMS and the GAO, pertain to physician ownership in specialty hospitals (cardiac, orthopedic, and surgical hospitals). These specialty hospital studies published data concerning the average percentage of shares of direct ownership by physicians (less than 2 percent), indirect ownership through group practices, and the aggregate percentage of physician ownership, but did not publish the number of physician owners in these types of hospitals. More importantly, § 489.20(u)(2) applies to physician ownership in any type of hospital. Our other research involved a review of enrollment data. However, the CMS Medicare enrollment application (CMS 855) requires that physicians report ownership interests that exceed 5 percent or greater, and, thus, most physician ownership is not captured. While we acknowledge there is a burden associated with this ICR, we also acknowledge that we have no way to quantify this requirement’s burden. For that reason, we are assigning 1 token burden hour to this requirement until such a time that we can conduct an accurate burden analysis for this information collection requirement.

Section 489.20(v) states that the aforementioned requirements in § 489.20(u)(1) and (u)(2) do not apply to a physician-owned hospital that does not have at least one referring physician who has an ownership or investment interest in the hospital, or who has an immediate family member who has an ownership or investment interest in the hospital. To comply with this exception, an eligible hospital must sign an attestation to that effect and maintain the document in its records. Therefore, the number of hospitals that are subject to the disclosure requirement would be slightly reduced. However, there may be a minimal burden attributable to the requirement that the hospital maintain an attestation statement in its records.

The burden associated with this requirement is limited to those physician-owned hospitals that do not


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have at least one referring physician who has an ownership or investment interest in the hospital, or who has an immediate family member who has an ownership or investment interest in the hospital. The burden includes the time and effort for these hospitals to develop, sign, and maintain the attestations in their records. We estimate that 10 percent, or approximately 18, of the estimated 175 physician-owned hospitals will be subject to this requirement. We estimate that it will take each of these physician-owned hospitals an average of 1 hour to develop, sign, and maintain the attestation in its records. The estimated annual burden associated with this requirement is 18 hours. However, we have no way of knowing for certain the number of physician-owned hospitals

that do not have at least one referring physician who has an ownership or investment interest in the hospital, or who has an immediate family member who has an ownership or investment interest in the hospital.

In the FY 2009 IPPS proposed rule (73 FR 23528), we solicited public comments on the number of physician- owned hospitals that do not have at least one referring physician who has an ownership or investment interest in the hospital, or who has an immediate family member who has an ownership or investment interest in the hospital. However, we did not receive any public comments to assist us in our burden analysis. Therefore, we are submitting the burden estimate for this requirement as it appeared in the proposed rule.

Section 489.20(w) requires all hospitals, as defined in § 489.24(b), to

furnish all patients notice, in accordance with § 482.13(b)(2), at the beginning of their hospital stay or outpatient visit if a doctor of medicine, or a doctor of osteopathy, is not present in the hospital 24 hours per day, 7 days per week. The notice must indicate how the hospital will meet the medical needs of any inpatient who develops an emergency medical condition, as defined in § 489.24(b), at a time when there are no physicians present in the hospital. The burden associated with this requirement is the time and effort necessary for each hospital to develop a standard notice to furnish to its patients. Because this requirement is subject to the PRA, the associated burden is approved under OMB control number 0938–1034, with a current expiration date of February 28, 2011.

ESTIMATED ANNUAL REPORTING AND RECORDKEEPING BURDEN

Regulation section(s) OMB control No. Respondents Responses Burden per response(hours)

Total annual burden(hours)

§ 411.361 ........................................... 0938–New ........................................ 500 500 100 *50,000 § 422.310(b) ...................................... 0938–0878 ....................................... 676 676 110 **74,424 § 489.20(u)(1) and (w) ....................... 0938–1034 ....................................... 2,679 49,735,635 *** 839,599 § 489.20(u)(2) .................................... 0938–New ........................................ 175 175 4 700 § 489.20(v) ......................................... 0938–New ........................................ 18 18 1 18

Total ........................................... ........................................................... ........................ ........................ ........................ 964,741

*For a comprehensive summary of our rationale for modifying these burden estimates, we refer readers to section IX.C. of the preamble of this final rule.

**Burden estimate is based on revisions to the currently approved OMB control number. *** There are multiple requirements associated with the regulation section approved under this OMB control number. There is no uniform esti-

mate of the burden per response.

3. Associated Information Collections Not Specified in Regulatory Text

As we indicated in the FY 2009 IPPS proposed rule, this final rule imposes ICRs as outlined in the regulation text and specified above. However, this rule also makes reference to several associated information collections that are not discussed in the regulation text. The following is a discussion of these collections, which have received OMB approval.

a. Present on Admission (POA) Indicator Reporting

Section II.F.8 of the preamble of this final rule discusses the POA indicator reporting requirements. As stated earlier, POA indicator information is necessary to identify which conditions are acquired during hospitalization for the hospital-acquired condition (HAC) payment provision, and for broader public health uses of Medicare data. Through Change Request No. 5499 (released May 11, 2007), CMS issued instructions that require IPPS hospitals

to submit POA indicator data for all diagnosis codes on Medicare claims.

The burden associated with this requirement is the time and effort necessary to place the appropriate POA indicator codes on Medicare claims. Because the requirement is subject to the PRA; the associated burden is approved under OMB control number 0938–0997, with an expiration date of August 31, 2009.

b. Add-On Payments for New Services and Technologies

Section II.J. of the preamble of the FY 2009 IPPS proposed rule and this final rule discusses add-on payments for new services and technologies. Specifically, this section states that applicants for add-on payments for new medical services or technologies for FY 2010 must submit a formal request. A formal request includes a full description of the clinical applications of the medical service or technology and the results of any clinical evaluations demonstrating that the new medical service or technology represents a substantial

clinical improvement. In addition, the request must contain a significant sample of the data to demonstrate that the medical service or technology meets the high-cost threshold.

We detailed the burden associated with this requirement in the September 7, 2001 IPPS final rule (66 FR 46902). As stated in that final rule, we believe the associated burden is exempt from the PRA as stipulated under 5 CFR 1320.3(h)(6). Collection of the information for this requirement is conducted on individual case-by-case basis.

c. Reporting of Hospital Quality Data for Annual Hospital Payment Update

As noted in section IV.B. of the preamble of the proposed rule and this final rule, the RHQDAPU program was originally established to implement section 501(b) of Public Law 108–173,thereby expanding our voluntary HQI. The RHQDAPU program originally consisted of a ‘‘starter set’’ of 10 quality measures. OMB approved the collection of data associated with the original


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starter set of quality measures under OMB control number 0938–0918, with a current expiration date of January 31, 2010.

We added additional quality measures to the RHQDAPU program and submitted the information collection request to OMB for approval. This expansion of the RHQDAPU measures was part of our implementation of section 5001(a) of the DRA. Section 1886(b)(3)(B)(viii)(III) of the Act, added by section 5001(a) of the DRA, requires that the Secretary expand the ‘‘starterset’’ of 10 quality measures that were established by the Secretary as of November 1, 2003, to include measures ‘‘that the Secretary determines to be appropriate for the measurement of the quality of care furnished by hospitals in inpatient settings.’’ The burden associated with these reporting requirements is currently approved under OMB control number 0938–1022with a current expiration date of June 30, 2011.

However, for FY 2009, we submitted to OMB for approval a revised information collection request using the same OMB control number (0938–1022).In the revised request, we added three new RHQDAPU quality measures that we adopted for the FY 2009 RHQDAPU program to the PRA process. These three measures are as follows:

• Pneumonia 30-day Mortality (Medicare patients);

• SCIP Infection 4: Cardiac Surgery Patients with Controlled 6AM Postoperative Serum Glucose; and

• SCIP Infection 6: Surgery Patients with Appropriate Hair Removal

The revised information collection request was announced in the FederalRegister via an emergency notice on January 28, 2008 (73 FR 4868). The burden associated with these reporting requirements has been approved under OMB control number 0938–1022, with a current expiration date of June 30, 2011. However, as stated in section IV.V.2. of this final rule, we are submitting another revised information collection request to obtain approval for the 13 new RHQDAPU program measures listed below;

• SCIP Cardiovascular 2: Surgery Patients on a Beta Blocker Prior to Arrival Who Received a Beta Blocker During the Perioperative Period

• Heart Failure (HF) 30–Day Risk Standardized Readmission Measure

• Death among surgical patients with treatable serious complications (Medicare patients)

• Iatrogenic pneumothorax, adult (Medicare patients)

• Postoperative wound dehiscence (Medicare patients)

• Accidental puncture or laceration (Medicare patients)

• Abdominal aortic aneurysm (AAA) mortality rate (with or without volume) (Medicare patients)

• Hip fracture mortality rate (Medicare patients)

• Mortality for selected surgical procedures (composite) (Medicare patients)

• Complication/patient safety for selected indicators (composite) (Medicare patients)

• Mortality for selected medical conditions (composite) (Medicare patients)

• Failure to Rescue (Medicare claims only)

• Participation in a Systematic Database for Cardiac Surgery

Section IV.B.5. of the preamble of the proposed rule and this final rule also discusses the requirements for the continuous collection of HCAHPS quality data. The HCAHPS survey is designed to produce comparable data regarding the patient’s perspective on care that allows objective and meaningful comparisons between hospitals on domains that are important to consumers. We also added the HCAHPS survey to the PRA process in the information collection request currently approved under OMB control number 0938–1022, with a current expiration date of June 30, 2011.

Section IV.B.9. of the preamble of the FY 2009 IPPS proposed rule and this final rule addresses the reconsideration and appeal procedures for a hospital that we believe did not meet the RHQDAPU program requirements. If a hospital disagrees with our determination, it may submit a written request to CMS requesting that we reconsider our decision. The hospital’sletter must explain the reasons why it believes it did meet the RHQDAPU program requirements. While this is a reporting requirement, the burden associated with it is not subject to the PRA under 5 CFR 1320.4(a)(2). The burden associated with information collection requirements imposed subsequent to an administrative action is not subject to the PRA.

d. Occupational Mix Adjustment to the FY 2009 Index (Hospital Wage Index Occupational Mix Survey)

Section III. of the preamble of this final rule details the changes to the hospital wage index. Specifically, section III.D. addresses the occupational mix adjustment to the FY 2009 wage index. While the preamble does not contain any new ICRs, it is important to note that there is an OMB approved

information collection request associated with the hospital wage index.

Section 304(c) of Public Law 106–554amended section 1886(d)(3)(E) of the Act to require CMS to collect data at least once every 3 years on the occupational mix of employees for each short-term, acute care hospital participating in the Medicare program in order to construct an occupational mix adjustment to the wage index. We collect the data via the occupational mix survey.

The burden associated with this information collection requirement is the time and effort required to collect and submit the data in the Hospital Wage Index Occupational Mix Survey to CMS. Because this burden is subject to the PRA, it is approved under OMB control number 0938–0907, with an expiration date of February 28, 2011.

C. Waiver of Proposed Rulemaking, Waiver of Delay in Effective Date, and Retroactive Effective Date

1. Requirements for Waivers and Retroactive Rulemaking

We ordinarily publish a notice of proposed rulemaking in the FederalRegister to provide for public comment before the provisions of a rule take effect in accordance with section 553(b) of the Administrative Procedure Act (APA). However, we can waive notice and comment procedures if the Secretary finds, for good cause, that the notice and comment process is impracticable, unnecessary, or contrary to the public interest, and incorporates a statement of the finding and the reasons therefore in the rule. Section 553(d) of the APA also ordinarily requires a 30-day delay in effective date of final rules after the date of their publication. However, this 30- day delay in effective date can be waived if an agency finds for good cause that the delay is impracticable, unnecessary, or contrary to the public interest, and the agency incorporates a statement of the findings and its reasons in the rule issued. Moreover, section 1871(e)(1)(A) of the Act generally prohibits the Secretary from making retroactive substantive changes in policy unless retroactive application of the change is necessary to comply with statutory requirements or failure to apply the change retroactively would be contrary to the public interest.

2. FY 2008 Puerto Rico-Specific Rates

We are waiving notice-and-comment procedures and the 30-day delay in effective date with respect to the application of the documentation and coding adjustment to the Puerto Rico- specific operating standardized amounts


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and the Puerto Rico specific capital payment rate for FY 2008. As discussed in section II.D.3. of this final rule, the documentation and coding adjustment established in the FY 2008 final rule with comment period relied upon our authority under section 1886(d)(3)(A)(vi) of the Act, which provides the authority to adjust ‘‘thestandardized amounts computed under this paragraph’’ to eliminate the effect of changes in coding or classification that do not reflect real change in case-mix. We believe that the application of the documentation and coding adjustment to the Puerto-Rico specific rates in the FY 2008 IPPS final rule was not consistent with the plain meaning of section 1886(d)(3)(A)(vi) of the Act. Therefore, we are revising the Puerto- Rico specific rates for FY 2008 to remove the application of the documentation and coding adjustment. We are waiving notice and comment procedures with respect to this policy change because we believe it would be unnecessary and contrary to the public interest to undertake notice-and- comment procedures prior to changing our policy to make the policy consistent with the plain meaning of the section of the statute upon which the policy was based. For the same reasons, we are waiving the 30-day delay in effective date because we believe it would be unnecessary and contrary to the public interest to delay the policy change beyond the October 1, 2007 effective date of the FY 2008 IPPS final rule. We are also applying this policy change retroactive to October 1, 2007, under section 1871(e)(1)(A)(i) of the Act because it would be contrary to the public interest for our policy not to be consistent with the plain meaning of the section of the statute upon which the policy was based.

3. Rebasing of Payments to SCHs We are waiving notice-and-comment

procedures with respect to the provisions relating to the rebasing of payments to SCHs discussed in section IV.D.2. of the preamble of this final rule. As discussed in that section, section 122 of the Medicare Improvements for Patients and Providers Act of 2008 (Pub. L. 110–275) provides that, for cost reporting periods beginning on or after January 1, 2009, SCHs will be paid based on an FY 2006 hospital-specific rate (that is, based on their updated costs per discharge based on their 12- month cost reporting period beginning during Federal fiscal year 2006), if this results in the greatest payment to the SCH. Therefore, effective with cost reporting periods beginning on or after January 1, 2009, SCHs will be paid

based on the rate that results in the greatest aggregate payment using either the Federal rate or their hospital- specific rate based on their 1982, 1987, 1996, or 2006 costs per discharge. This statutory provision is self- implementing. Therefore, we are waiving notice-and-comment procedures with respect to incorporating this change in our regulations. We believe it is unnecessary and contrary to the public interest to undertake notice-and-comment procedures prior to incorporating the policy in the regulations, consistent with the provisions of the statute.

4. Technical Change to Regulations Governing Payments to Hospitals With High Percentage of ESRD Discharges

As discussed in section II.G.12.g. of the preamble of this final rule, the existing regulation at § 412.104 specifies the rules for an additional payment to hospitals where 10 percent or more of their patients who are discharged receive dialysis treatment during an inpatient stay. However, there are specific DRGs cited in the regulation that are excluded from this additional payment. Because, beginning in FY 2008, we adopted MS–DRGs to replace the DRGs cited in the regulation, we are making a technical change to cite the appropriate replacement MS–DRGs. We believe that it is unnecessary and contrary to the public interest to undertake notice and comment procedures for this technical conforming change.

5. Changes to Regulations at 42 CFR 412.230, 412.232, and 412.234 Relating to Procedures for Terminating and Withdrawing Certain Reclassifications

Our changes to 42 CFR 412.230, 412.232, and 412.234 will be effective on September 2, 2008, the deadline for hospitals to submit applications for reclassifications for the FY 2010 wage index. In addition, the procedures we have described in section III.I.7. of the preamble of this final rule will be effective upon publication. It is in the public interest of hospitals for the changes to the reclassification thresholds to be in place at the time their applications are due to the MGCRB for FY 2010. This provides confidence to hospitals that the applications they are filing are using correct thresholds. It also is unnecessary for the changes to §§ 412.230, 412.232, and 412.234 to have a delayed effective date, as the changes to these regulatory provisions will have no effect on FY 2009 reclassifications but rather will affect only FY 2010 reclassifications. Thus, in the most practical sense, hospitals have

more than a year’s worth of notice regarding the standards that will be applied for FY 2010. Finally, even if the thresholds were effective at a later date, the MGCRB would use the thresholds that are in effect at the time it makes its reclassification decisions.

The rules discussed in section III.I.7. of the preamble of this final rule are simply procedural and thus are not subject to any delay in effective date. Even if they were, however, it is in the public interest to make them effective upon publication, as they provide a necessary and expeditious timetable for both CMS and hospitals to respond to intervening MIPPA legislation. In addition, we view these rules as ‘‘relieving a restriction’’ under 5 U.S.C. 553(d)(1), as they allow affected hospitals another opportunity to withdraw or terminate reclassifications in response to the intervening MIPPA legislation. Finally, we note that section 1871(b)(2)(B) of the Act allows for waiver of notice and comment rulemaking when a statute creates a deadline for implementation that is less than 150 days after the date of enactment of the statute. The time between MIPPA enactment (July 15, 2008) and the date by which the extended reclassifications and special exceptions must take effect (October 1, 2008) is less than 150 days.

List of Subjects

42 CFR Part 411

Kidney diseases, Medicare, Physician referral, Reporting and recordkeeping requirements.

42 CFR Part 412

Administrative practice and procedure, Health facilities, Medicare, Puerto Rico, Reporting and recordkeeping requirements.

42 CFR Part 413

Health facilities, Kidney diseases, Medicare, Puerto Rico, Reporting and recordkeeping requirements.

42 CFR Part 422

Administrative practice and procedure, Grant programs—health,Health care, Health insurance, Health maintenance organizations (HMO), Loan programs—health, Medicare, Reporting and recordkeeping requirements.

42 CFR Part 489

Health facilities, Medicare, Reporting and recordkeeping requirements. ■ For the reasons stated in the preamble of this final rule, the Centers for Medicare & Medicaid Services is amending 42 CFR Chapter IV as follows:


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PART 411—EXCLUSIONS FROM MEDICARE AND LIMITATIONS ON MEDICARE PAYMENT

■ 1. The authority citation for part 411 continues to read as follows:

Authority: Secs. 1102, 1860D–1 through 1860D–42, 1871, and 1877 of the Social Security Act (42 U.S.C. 1302, 1395w–101through 1395w–152, 1395hh, and 1395nn). ■ 2. Section 411.351 is amended by—■ a. Revising paragraph (1) of the definition of ‘‘entity’’.■ b. Revising the definition of ‘‘physician’’.■ c. Revising the definition of ‘‘physician organization’’.

The revisions read as follows:

§ 411.351 Definitions. * * * * *

Entity means—(1) A physician’s sole practice or a

practice of multiple physicians or any other person, sole proprietorship, public or private agency or trust, corporation, partnership, limited liability company, foundation, nonprofit corporation, or unincorporated association that furnishes DHS. An entity does not include the referring physician himself or herself, but does include his or her medical practice. A person or entity is considered to be furnishing DHS if it—

(i) Is the person or entity that has performed services that are billed as DHS; or

(ii) Is the person or entity that has presented a claim to Medicare for the DHS, including the person or entity to which the right to payment for the DHS has been reassigned in accordance with § 424.80(b)(1) (employer) or (b)(2) (payment under a contractual arrangement) of this chapter (other than a health care delivery system that is a health plan (as defined at § 1001.952(l)of this title), and other than any managed care organization (MCO), provider-sponsored organization (PSO), or independent practice association (IPA) with which a health plan contracts for services provided to plan enrollees). * * * * *

Physician means a doctor of medicine or osteopathy, a doctor of dental surgery or dental medicine, a doctor of podiatric medicine, a doctor of optometry, or a chiropractor, as defined in section 1861(r) of the Act. A physician and the professional corporation of which he or she is a sole owner are the same for purposes of this subpart. * * * * *

Physician organization means a physician, a physician practice, or a group practice that complies with the requirements of § 411.352.* * * * *

■ 3. Section 411.353 is amended by—■ a. Revising paragraph (c). ■ b. Adding a new paragraph (g).

The revision and addition read as follows:

§ 411.353 Prohibition on certain referrals by physicians and limitations on billing.

* * * * * (c) Denial of payment for services

furnished under a prohibited referral. (1) Except as provided in paragraph

(e) of this section, no Medicare payment may be made for a designated health service that is furnished pursuant to a prohibited referral. The period during which referrals are prohibited is the period of disallowance. For purposes of this section, with respect to the following types of noncompliance, the period of disallowance begins at the time the financial relationship fails to satisfy the requirements of an applicable exception and ends no later than—

(i) Where the noncompliance is unrelated to compensation, the date that the financial relationship satisfies all of the requirements of an applicable exception;

(ii) Where the noncompliance is due to the payment of excess compensation, the date on which all excess compensation is returned, by the party that received it, to the party that paid it and the financial relationship satisfies all of the requirements of an applicable exception; or

(iii) Where the noncompliance is due to the payment of compensation that is of an amount insufficient to satisfy the requirements of an applicable exception, the date on which all additional required compensation is paid, by the party that owes it, to the party to which it is owed and the financial relationship satisfies all of the requirements of an applicable exception.

(2) When payment for a designated health service is denied on the basis that the service was furnished pursuant to a prohibited referral, and such payment denial is appealed—

(i) The ultimate burden of proof (burden of persuasion) at each level of appeal is on the entity submitting the claim for payment to establish that the service was not furnished pursuant to a prohibited referral (and not on CMS or its contractors to establish that the service was furnished pursuant to a prohibited referral); and

(ii) The burden of production on each issue at each level of appeal is initially on the claimant, but may shift to CMS or its contractors during the course of the appellate proceeding, depending on the evidence presented by the claimant. * * * * *

(g) Special rule for certain arrangements involving temporary noncompliance with signature requirements. (1) An entity may submit a claim or bill and payment may be made to an entity that submits a claim or bill for a designated health service if—

(i) The compensation arrangement between the entity and the referring physician fully complied with an applicable exception in § 411.355,§ 411.356 or § 411.357, except with respect to the signature requirement in § 411.357(a)(1), § 411.357(b)(1),§ 411.357(d)(1)(i), § 411.357(e)(1)(i),§ 411.357(e)(4)(i), § 411.357(l)(1),§ 411.357(p)(2), § 411.357(q)(incorporating the requirement contained in § 1001.952(f)(4)),§ 411.357(r)(2)(ii), § 411.357(t)(1)(ii) or (t)(2)(iii) (both incorporating the requirement contained in § 411.357(e)(1)(i)), § 411.357(v)(7)(i), or § 411.357(w)(7)(i); and

(ii) The failure to comply with the signature requirement was—

(A) Inadvertent, and the parties obtain the required signature(s) within 90 consecutive calendar days immediately following the date on which the compensation arrangement becomes noncompliant (without regard to whether any referrals occur or compensation is paid during such 90- day period) and the compensation arrangement otherwise complies with all criteria of the applicable exception; or

(B) Not inadvertent, and the parties obtain the required signature(s) within 30 consecutive calendar days immediately following the date on which the compensation arrangement becomes noncompliant (without regard to whether any referrals occur or compensation is paid during such 30- day period) and the compensation arrangement otherwise complies with all criteria of the applicable exception.

(2) Paragraph (g)(1) of this section may be used by an entity only once every 3 years with respect to the same referring physician. * * * * * ■ 4. Section 411.354 is amended by—■ a. Revising paragraph (b)(3)(i). ■ b. Revising paragraph (c)(1)(ii). ■ c. Revising paragraph (c)(2)(iv). ■ d. Revising paragraph (c)(3)(ii). ■ e. Adding paragraphs (c)(3)(iii).

The revisions and additions read as follows:

§ 411.354 Financial relationship, compensation, and ownership or investment interest.

(b) * * * (3) * * *


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(i) An interest in an entity that arises from a retirement plan offered by that entity to the physician (or a member of his or her immediate family) through the physician’s (or immediate family member’s) employment with that entity; * * * * *

(c) * * * (1) * * * (ii) Except as provided in paragraph

(c)(3)(ii)(C) of this section, a physician is deemed to stand in the shoes of his or her physician organization and have a direct compensation arrangement with an entity furnishing DHS if—

(A) The only intervening entity between the physician and the entity furnishing DHS is his or her physician organization; and

(B) The physician has an ownership or investment interest in the physician organization.

(iii) A physician (other than a physician described in paragraph (c)(1)(ii)(B) of this section) is permitted to ‘‘stand in the shoes’’ of his or her physician organization and have a direct compensation arrangement with an entity furnishing DHS if the only intervening entity between the physician and the entity furnishing DHS is his or her physician organization.

(2) * * * (iv)(A) For purposes of paragraph

(c)(2)(i) of this section, except as provided in paragraph (c)(3)(ii)(C) of this section, a physician is deemed to ‘‘stand in the shoes’’ of his or her physician organization if the physician has an ownership or investment interest in the physician organization.

(B) For purposes of paragraph (c)(2)(i) of this section, a physician (other than a physician described in paragraph (c)(2)(iv)(A) of this section) is permitted to ‘‘stand in the shoes’’ of his or her physician organization.

(3) * * * (ii) The provisions of paragraphs

(c)(1)(ii) and (c)(2)(iv)(A) of this section—

(A) Need not apply during the original term or current renewal term of an arrangement that satisfied the requirements of § 411.357(p) as of September 5, 2007 (see 42 CFR Parts 400–413, revised as of October 1, 2007);

(B) Do not apply to an arrangement that satisfies the requirements of § 411.355(e); and

(C) Do not apply to a physician whose ownership or investment interest is titular only. A titular ownership or investment interest is an ownership or investment interest that excludes the ability or right to receive the financial benefits of ownership or investment, including, but not limited to, the

distribution of profits, dividends, proceeds of sale, or similar returns on investment.

(iii) An arrangement structured to comply with an exception in § 411.357(other than § 411.357(p)), but which would otherwise qualify as an indirect compensation arrangement under this paragraph as of August 19, 2008, need not be restructured to satisfy the requirements of § 411.357(p) until the expiration of the original term or current renewal term of the arrangement. * * * * * ■ 5. Section 411.357 is amended by—■ a. Republishing the introductory text of the section. ■ b. Revising paragraph (a). ■ c. Revising paragraph (b). ■ d. Revising paragraph (l). ■ e. Revising paragraph (p)(1). ■ f. Revising paragraph (r).

The revisions read as follows:

§ 411.357 Exceptions to the referral prohibition related to compensation arrangements.

For purposes of § 411.353, the following compensation arrangements do not constitute a financial relationship:

(a) Rental of office space. Paymentsfor the use of office space made by a lessee to a lessor if there is a rental or lease agreement that meets the following requirements:

(1) The agreement is set out in writing, is signed by the parties, and specifies the premises it covers.

(2) The term of the agreement is at least 1 year. To meet this requirement, if the agreement is terminated during the term with or without cause, the parties may not enter into a new agreement during the first year of the original term of the agreement.

(3) The space rented or leased does not exceed that which is reasonable and necessary for the legitimate business purposes of the lease or rental and is used exclusively by the lessee when being used by the lessee (and is not shared with or used by the lessor or any person or entity related to the lessor), except that the lessee may make payments for the use of space consisting of common areas if the payments do not exceed the lessee’s pro rata share of expenses for the space based upon the ratio of the space used exclusively by the lessee to the total amount of space (other than common areas) occupied by all persons using the common areas.

(4) The rental charges over the term of the agreement are set in advance and are consistent with fair market value.

(5) The rental charges over the term of the agreement are not determined—

(i) In a manner that takes into account the volume or value of any referrals or

other business generated between the parties; or

(ii) Using a formula based on—(A) A percentage of the revenue

raised, earned, billed, collected, or otherwise attributable to the services performed or business generated in the office space; or

(B) Per-unit of service rental charges, to the extent that such charges reflect services provided to patients referred between the parties.

(6) The agreement would be commercially reasonable even if no referrals were made between the lessee and the lessor.

(7) A holdover month-to-month rental for up to 6 months immediately following the expiration of an agreement of at least 1 year that met the conditions of paragraphs (a)(1) through (a)(6) of this section satisfies the requirements of paragraph (a) of this section, provided that the holdover rental is on the same terms and conditions as the immediately preceding agreement.

(b) Rental of equipment. Paymentsmade by a lessee to a lessor for the use of equipment under the following conditions:

(1) A rental or lease agreement is set out in writing, is signed by the parties, and specifies the equipment it covers.

(2) The equipment rented or leased does not exceed that which is reasonable and necessary for the legitimate business purposes of the lease or rental and is used exclusively by the lessee when being used by the lessee and is not shared with or used by the lessor or any person or entity related to the lessor.

(3) The agreement provides for a term of rental or lease of at least 1 year. To meet this requirement, if the agreement is terminated during the term with or without cause, the parties may not enter into a new agreement during the first year of the original term of the agreement.

(4) The rental charges over the term of the agreement are set in advance, are consistent with fair market value, and are not determined—

(i) In a manner that takes into account the volume or value of any referrals or other business generated between the parties; or

(ii) Using a formula based on—(A) A percentage of the revenue

raised, earned, billed, collected, or otherwise attributable to the services performed on or business generated by the use of the equipment; or



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(5) The agreement would be commercially reasonable even if no referrals were made between the parties.

(6) A holdover month-to-month rental for up to 6 months immediately following the expiration of an agreement of at least 1 year that met the conditions of paragraphs (b)(1) through (b)(5) of this section satisfies the requirements of paragraph (b) of this section, provided that the holdover rental is on the same terms and conditions as the immediately preceding agreement. * * * * *

(l) Fair market value compensation. Compensation resulting from an arrangement between an entity and a physician (or an immediate family member) or any group of physicians (regardless of whether the group meets the definition of a group practice set forth in § 411.352) for the provision of items or services (other than the rental of office space) by the physician (or an immediate family member) or group of physicians to the entity, or by the entity to the physician (or an immediate family member) or a group of physicians, if the arrangement is set forth in an agreement that meets the following conditions:

(1) The arrangement is in writing, signed by the parties, and covers only identifiable items or services, all of which are specified in the agreement.

(2) The writing specifies the timeframe for the arrangement, which can be for any period of time and contain a termination clause, provided that the parties enter into only one arrangement for the same items or services during the course of a year. An arrangement made for less than 1 year may be renewed any number of times if the terms of the arrangement and the compensation for the same items or services do not change.

(3) The writing specifies the compensation that will be provided under the arrangement. The compensation must be set in advance, consistent with fair market value, and not determined in a manner that takes into account the volume or value of referrals or other business generated by the referring physician. Compensation for the rental of equipment may not be determined using a formula based on—

(i) A percentage of the revenue raised, earned, billed, collected, or otherwise attributable to the services performed or business generated through the use of the equipment; or

(ii) Per-unit of service rental charges, to the extent that such charges reflect services provided to patients referred between the parties.

(4) The arrangement is commercially reasonable (taking into account the

nature and scope of the transaction) and furthers the legitimate business purposes of the parties.

(5) The arrangement does not violate the anti-kickback statute (section 1128B(b) of the Act), or any Federal or State law or regulation governing billing or claims submission.

(6) The services to be performed under the arrangement do not involve the counseling or promotion of a business arrangement or other activity that violates a Federal or State law. * * * * *

(p) Indirect compensation arrangements. Indirect compensation arrangements, as defined at § 411.354(c)(2), if all of the following conditions are satisfied:

(1)(i) The compensation received by the referring physician (or immediate family member) described in § 411.354(c)(2)(ii) is fair market value for services and items actually provided and not determined in any manner that takes into account the volume or value of referrals or other business generated by the referring physician for the entity furnishing DHS. Compensation for the rental of office space or equipment may not be determined using a formula based on—

(A) A percentage of the revenue raised, earned, billed, collected, or otherwise attributable to the services performed or business generated in the office space or to the services performed or business generated through the use of the equipment; or


(ii) The compensation arrangement described in § 411.354(c)(2)(ii) is set out in writing, signed by the parties, and specifies the services covered by the arrangement, except in the case of a bona fide employment relationship between an employer and an employee, in which case the arrangement need not be set out in a written contract, but must be for identifiable services and be commercially reasonable even if no referrals are made to the employee; and

(iii) The compensation arrangement does not violate the anti-kickback statute (section 1128B(b) of the Act), or any Federal or State law or regulation governing billing or claims submission. * * * * *

(r) Obstetrical malpractice insurance subsidies. Remuneration that meets all of the conditions of paragraph (r)(1) or (2) of this section.

(1) Remuneration that meets all of the conditions set forth in § 1001.952(o) of this title.

(2) A payment from a hospital, federally qualified health center, or rural health clinic that is used to pay for some or all of the costs of malpractice insurance premiums for a physician who engages in obstetrical practice as a routine part of his or her medical practice, if all of the following conditions are met:

(i)(A) The physician’s medical practice is located in a rural area, a primary care HPSA, or an area with demonstrated need for the physician’sobstetrical services as determined by the Secretary in an advisory opinion issued in accordance with section 1877(g)(6) of the Act; or

(B) At least 75 percent of the physician’s obstetrical patients reside in a medically underserved area or are members of a medically underserved population.

(ii) The arrangement is set out in writing, is signed by the physician and the hospital, federally qualified health center, or rural health clinic providing the payment, and specifies the payments to be made by the hospital, federally qualified health center, or rural health clinic and the terms under which the payments are to be provided.

(iii) The arrangement is not conditioned on the physician’s referral of patients to the hospital, federally qualified health center, or rural health clinic providing the payment.

(iv) The hospital, federally qualified health center, or rural health clinic does not determine (directly or indirectly) the amount of the payment based on the volume or value of any actual or anticipated referrals by the physician or any other business generated between the parties.

(v) The physician is allowed to establish staff privileges at any hospital(s), federally qualified health center(s), or rural health clinic(s) and to refer business to any other entities (except as referrals may be restricted under an employment arrangement or services contract that complies with § 411.354(d)(4)).

(vi) The payment is made to a person or organization (other than the physician) that is providing malpractice insurance (including a self-funded organization).

(vii) The physician treats obstetrical patients who receive medical benefits or assistance under any Federal health care program in a nondiscriminatory manner.

(viii) The insurance is a bona fide malpractice insurance policy or program, and the premium, if any, is calculated based on a bona fide assessment of the liability risk covered under the insurance.


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Documents

48726 Federal Register /Vol. 73, No. 161/Tuesday, August ... · 48726 Federal Register/Vol. 73, No. 161/Tuesday, August 19, 2008/Rules and Regulations We also believe that the preamble