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More safe harbor regulations for physicians

By Michael R. Burke, Esq.

On November 19, 1999, the Office of Inspector General of the Department of Health and Human Services (OIG) promulgated new regulations that both issued new Safe Harbor Regulations to the federal Anti-Kickback Statute and modified certain of the existing Safe Harbor Regulations.

The federal Anti-Kickback Statute prohibits an individual or entity from knowingly or willfully offering, soliciting or paying remuneration for the referral or generation of Medicare, Medicaid or other federal health care program business. The OIG is required by statute to publish regulations (the Safe Harbor Regulations) to protect arrangements that meet certain requirements from violating the Anti-Kickback Statute. Please note, however, that failure to satisfy the Safe Harbor Regulations does not necessarily mean that the federal Anti-Kickback Statute has been violated. In such an instance, an analysis of the facts and circumstances underlying the arrangement must be undertaken in order to determine if a violation has occurred or will occur.

In addition to adding several new Safe Harbor Regulations, the regulations published by the OIG on November 19, 1999 revised several of the existing Safe Harbor Regulations. Some of the relevant revisions to the existing Safe Harbors are as follows.

Commercially reasonable business purposes. In the Safe Harbors dealing with the rental of space and equipment and with personal service and management contracts, the OIG is now requiring that these arrangements be for “commercially reasonable business purposes” instead of “legitimate business purposes.” This requirement intended to preclude protecting health care providers that indirectly pay for referrals by renting more space or equipment or purchasing more services than the provider actually needs from a source of referrals. This phrase is designed to mean that the purpose of an arrangement must be reasonably calculated to further the business of the lessee of space or equipment or the purchaser of services.

One year term requirement. The Safe Harbor Regulations for equipment and space leases and for personal service or management contracts require that the leases or contracts be for at least a one year term. In the preamble to the regulations, the OIG stated that the termination of such agreements for cause is permitted where it is connected with a prohibition on the renegotiation of the agreement or from entering into further financial arrangements between the parties for the duration of the original one year term. However, having a provision that allows “without cause” termination will not satisfy this Safe Harbor Regulation, even if there is a one year prohibition on renegotiation or entering into further financial arrangements after a “without cause” provision is triggered.

Changes to Discount Safe Harbor. The OIG made several changes to the discount Safe Harbor Regulation in order to hopefully make it more understandable and easier to satisfy. The new Safe Harbor is divided into three sections that are applicable to buyers, sellers and offerers of discounts. These new categories offer to give buyers notice of their obligations to report discounts in a manner that is reasonably calculated to give buyers notice of their reporting obligations to Medicare. The OIG notes that charged-based providers such as physicians are no longer required to report discounts on claims submitted to Medicare or other federal health care programs, but are required to provide documentation of discounts to the OIG upon request. However, this may not be true in all cases, such as when a physician purchases a diagnostic test, which cannot be “marked up” over its cost when it is billed to Medicare.

In addition to the changes made to the existing Safe Harbors, several new Safe Harbors were added that are relevant to physician practices. These safe harbors are as follows.

Investment interests in group practices. Although the OIG has stated that investment interests held by physicians in group practices are not suspect “per se” under the Anti-Kickback Statute, the scope of the Anti-Kickback Statute is broad enough to include such investment interests within its prohibitions. As such, the OIG developed a Safe Harbor for investment interests in group practices. Among other things, this Safe Harbor requires that a physician group satisfy the definition of a “group practice” under the Stark II Legislation and “be a unified business with centralized decision making, pooling of expenses and revenues, and a compensation/profit distribution system that is not based on satellite offices operating substantially as if they were separate enterprises or profit centers.” This language is consistent with language contained in the proposed Stark II Regulations and is a concern to many physician group practices that traditionally divide revenues and expenses at least in part based on a cost-center approach where the group has physicians practicing in different office locations. Again, it is not necessary to satisfy a Safe Harbor to comply with the federal Anti-Kickback Statute; however, if the final Stark II Regulations also include this type of provision in them, many physician groups may have to restructure their compensation arrangements to avoid a cost-center approach if they provide “designated health services” such as physical therapy, radiology or laboratory services.

Referral agreements for specialty services. This Safe Harbor is designed to protect certain arrangements whereby a provider refers a patient to a specialist in return for the agreement of the specialist to refer the patient back at a certain time and under certain circumstances. There are several key provisions to this Safe Harbor, the first being that no payment is to be exchanged between the parties and the parties are not permitted to split a global fee from any Federal health care program in connection with the referred patient. Each party is permitted to individually bill a third party payor and/or patient as appropriate, but no payment is to be exchanged between the parties in connection with the provision of services. In addition, the service for which the initial referral is made must not be within the medical expertise of the referring provider and must be within the special expertise of the party receiving the referral. The final key is that the condition for the referral back to the original referring provider must be based upon a mutually agreed upon time or circumstance that is “clinically appropriate.” The OIG did not define what “clinically appropriate” is because this will depend upon the particular facts and circumstances in a given patient’s treatment.

Investment interests in underserved areas. The proposed Safe Harbor published in September, 1993 by the OIG originally protected only certain investment interests in “rural areas.” The final Safe Harbor Regulation published in November, 1999 expanded upon the proposed Safe Harbor Regulation by using the term, “medically underserved area,” which is defined by the Health Care Financing Administration and may be in an urban or rural area. A physician or other individual may own an interest in and make referrals to an entity that is located in a medically underserved area if the requirements set forth within the Safe Harbor Regulation are satisfied.

The entity must be located in a medically underserved area and at least 75 percent of the dollar volume of the entity’s business must be derived from providing services to persons who reside in an underserved area or who are members of a “medically underserved population.” In addition, no more than 50 percent of the value of the investment interests in the entity may be held by investors who are in a position to make or influence referrals to, furnish items or services to, or otherwise generate business for the entity. This last requirement was not included in the original Safe Harbor proposed in 1993 by the OIG, but was added to address the concerns of those entities that would be placed in a competitive disadvantage if there were no limits on the number of investors in an entity who were in a position to refer to the entity.

Practitioner recruitment in HPSAs. One of the new Safe Harbor Regulations deals with the recruitment of physicians who locate or relocate into a HPSA for his or her specialty area; recruitment agreements that induce physicians into other areas would not be covered by this Safe Harbor. Several critical requirements must be met in order to satisfy this safe harbor.

First, the recruitment benefits may not be provided to the recruited physician over a period exceeding three years. Second, the recruited practitioner may not be restricted from establishing staff privileges at another hospital or referring services to any other entity. Third, at least 75 percent of the revenues of the new practice must be generated from patients residing in a HPSA or a medically underserved area or who are part of a medically underserved population. In addition, if a practitioner is leaving an established practice and relocating in a HPSA, at least 75 percent of the revenues of the new practice must be generated from new patients not previously seen by the practitioner at his or her former practice.

Michael R. Burke, Esq., is a shareholder in the health care law firm of Kalogredis, Sansweet, Dearden and Burke, Ltd. located in Wayne, Pennsylvania.

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