[Code of Federal Regulations]
[Title 42, Volume 3]
[Revised as of October 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 42CFR1001.952]
[Page 1120-1143]
TITLE 42--PUBLIC HEALTH
GENERAL--HEALTH CARE, DEPARTMENT OF HEALTH AND HUMAN SERVICES
PART 1001_PROGRAM INTEGRITY_MEDICARE AND STATE HEALTH CARE PROGRAMS--Table of Contents
Subpart C_Permissive Exclusions
Sec. 1001.952 Exceptions.
The following payment practices shall not be treated as a criminal
offense under section 1128B of the Act and shall not serve as the basis
for an exclusion:
(a) Investment interests. As used in section 1128B of the Act,
``remuneration'' does not include any payment that is a return on an
investment interest, such as a dividend or interest income, made to an
investor as long as all of the applicable standards are met within one
of the following three categories of entities:
(1) If, within the previous fiscal year or previous 12 month period,
the entity possesses more than $50,000,000 in undepreciated net tangible
assets (based on the net acquisition cost of purchasing such assets from
an unrelated entity) related to the furnishing of health care items and
services, all of the following five standards must be met--
(i) With respect to an investment interest that is an equity
security, the equity security must be registered with the Securities and
Exchange Commission under 15 U.S.C. 781 (b) or (g).
(ii) The investment interest of an investor in a position to make or
influence referrals to, furnish items or services to, or otherwise
generate business for the entity must be obtained on terms (including
any direct or indirect transferability restrictions) and at a price
equally available to the public when trading on a registered securities
exchange, such as the New York Stock Exchange or the American Stock
Exchange, or in accordance with the National Association of Securities
Dealers Automated Quotation System.
(iii) The entity or any investor must not market or furnish the
entity's items or services (or those of another
[[Page 1121]]
entity as part of a cross referral agreement) to passive investors
differently than to non-investors.
(iv) The entity or any investor (or other individual or entity
acting on behalf of the entity or any investor in the entity) must not
loan funds to or guarantee a loan for an investor who is in a position
to make or influence referrals to, furnish items or services to, or
otherwise generate business for the entity if the investor uses any part
of such loan to obtain the investment interest.
(v) The amount of payment to an investor in return for the
investment interest must be directly proportional to the amount of the
capital investment of that investor.
(2) If the entity possesses investment interests that are held by
either active or passive investors, all of the following eight
applicable standards must be met--
(i) No more than 40 percent of the value of the investment interests
of each class of investment interests may be held in the previous fiscal
year or previous 12 month period by investors who are in a position to
make or influence referrals to, furnish items or services to, or
otherwise generate business for the entity. (For purposes of paragraph
(a)(2)(i) of this section, equivalent classes of equity investments may
be combined, and equivalent classes of debt instruments may be
combined.)
(ii) The terms on which an investment interest is offered to a
passive investor, if any, who is in a position to make or influence
referrals to, furnish items or services to, or otherwise generate
business for the entity must be no different from the terms offered to
other passive investors.
(iii) The terms on which an investment interest is offered to an
investor who is in a position to make or influence referrals to, furnish
items or services to, or otherwise generate business for the entity must
not be related to the previous or expected volume of referrals, items or
services furnished, or the amount of business otherwise generated from
that investor to the entity.
(iv) There is no requirement that a passive investor, if any, make
referrals to, be in a position to make or influence referrals to,
furnish items or services to, or otherwise generate business for the
entity as a condition for remaining as an investor.
(v) The entity or any investor must not market or furnish the
entity's items or services (or those of another entity as part of a
cross referral agreement) to passive investors differently than to non-
investors.
(vi) No more than 40 percent of the entity's gross revenue related
to the furnishing of health care items and services in the previous
fiscal year or previous 12-month period may come from referrals or
business otherwise generated from investors.
(vii) The entity or any investor (or other individual or entity
acting on behalf of the entity or any investor in the entity) must not
loan funds to or guarantee a loan for an investor who is in a position
to make or influence referrals to, furnish items or services to, or
otherwise generate business for the entity if the investor uses any part
of such loan to obtain the investment interest.
(viii) The amount of payment to an investor in return for the
investment interest must be directly proportional to the amount of the
capital investment (including the fair market value of any pre-
operational services rendered) of that investor.
(3)(i) If the entity possesses investment interests that are held by
either active or passive investors and is located in an underserved
area, all of the following eight standards must be met--
(A) No more than 50 percent of the value of the investment interests
of each class of investments may be held in the previous fiscal year or
previous 12-month period by investors who are in a position to make or
influence referrals to, furnish items or services to, or otherwise
generate business for, the entity. (For purposes of paragraph
(a)(3)(i)(A) of this section, equivalent classes of equity investments
may be combined, and equivalent classes of debt instruments may be
combined.)
(B) The terms on which an investment interest is offered to a
passive investor, if any, who is in a position to make or influence
referrals to, furnish items or services to, or otherwise generate
business for the entity must be no different from the terms offered to
other passive investors.
[[Page 1122]]
(C) The terms on which an investment interest is offered to an
investor who is in a position to make or influence referrals to, furnish
items or services to, or otherwise generate business for the entity must
not be related to the previous or expected volume of referrals, items or
services furnished, or the amount of business otherwise generated from
that investor to the entity.
(D) There is no requirement that a passive investor, if any, make
referrals to, be in a position to make or influence referrals to,
furnish items or services to, or otherwise generate business for the
entity as a condition for remaining as an investor.
(E) The entity or any investor must not market or furnish the
entity's items or services (or those of another entity as part of a
cross-referral agreement) to passive investors differently than to non-
investors.
(F) At least 75 percent of the dollar volume of the entity's
business in the previous fiscal year or previous 12-month period must be
derived from the service of persons who reside in an underserved area or
are members of medically underserved populations.
(G) The entity or any investor (or other individual or entity acting
on behalf of the entity or any investor in the entity) must not loan
funds to or guarantee a loan for an investor who is in a position to
make or influence referrals to, furnish items or services to, or
otherwise generate business for the entity if the investor uses any part
of such loan to obtain the investment interest.
(H) The amount of payment to an investor in return for the
investment interest must be directly proportional to the amount of the
capital investment (including the fair market value of any pre-
operational services rendered) of that investor.
(ii) If an entity that otherwise meets all of the above standards is
located in an area that was an underserved area at the time of the
initial investment, but subsequently ceases to be an underserved area,
the entity will be deemed to comply with paragraph (a)(3)(i) of this
section for a period equal to the lesser of:
(A) The current term of the investment remaining after the date upon
which the area ceased to be an underserved area or
(B) Three years from the date the area ceased to be an underserved
area.
(4) For purposes of paragraph (a) of this section, the following
terms apply. Active investor means an investor either who is responsible
for the day-to-day management of the entity and is a bona fide general
partner in a partnership under the Uniform Partnership Act or who agrees
in writing to undertake liability for the actions of the entity's agents
acting within the scope of their agency. Investment interest means a
security issued by an entity, and may include the following classes of
investments: shares in a corporation, interests or units in a
partnership or limited liability company, bonds, debentures, notes, or
other debt instruments. Investor means an individual or entity either
who directly holds an investment interest in an entity, or who holds
such investment interest indirectly by, including but not limited to,
such means as having a family member hold such investment interest or
holding a legal or beneficial interest in another entity (such as a
trust or holding company) that holds such investment interest. Passive
investor means an investor who is not an active investor, such as a
limited partner in a partnership under the Uniform Partnership Act, a
shareholder in a corporation, or a holder of a debt security.
Underserved area means any defined geographic area that is designated as
a Medically Underserved Area (MUA) in accordance with regulations issued
by the Department. Medically underserved population means a Medically
Underserved Population (MUP) in accordance with regulations issued by
the Department.
(b) Space rental. As used in section 1128B of the Act,
``remuneration'' does not include any payment made by a lessee to a
lessor for the use of premises, as long as all of the following six
standards are met--
(1) The lease agreement is set out in writing and signed by the
parties.
(2) The lease covers all of the premises leased between the parties
for the term of the lease and specifies the premises covered by the
lease.
(3) If the lease is intended to provide the lessee with access to
the premises
[[Page 1123]]
for periodic intervals of time, rather than on a full-time basis for the
term of the lease, the lease specifies exactly the schedule of such
intervals, their precise length, and the exact rent for such intervals.
(4) The term of the lease is for not less than one year.
(5) The aggregate rental charge is set in advance, is consistent
with fair market value in arms-length transactions and is not determined
in a manner that takes into account the volume or value of any referrals
or business otherwise generated between the parties for which payment
may be made in whole or in part under Medicare, Medicaid or other
Federal health care programs.
(6) The aggregate space rented does not exceed that which is
reasonably necessary to accomplish the commercially reasonable business
purpose of the rental. Note that for purposes of paragraph (b) of this
section, the term fair market value means the value of the rental
property for general commercial purposes, but shall not be adjusted to
reflect the additional value that one party (either the prospective
lessee or lessor) would attribute to the property as a result of its
proximity or convenience to sources of referrals or business otherwise
generated for which payment may be made in whole or in part under
Medicare, Medicaid and all other Federal health care programs.
(c) Equipment rental. As used in section 1128B of the Act,
``remuneration'' does not include any payment made by a lessee of
equipment to the lessor of the equipment for the use of the equipment,
as long as all of the following six standards are met--
(1) The lease agreement is set out in writing and signed by the
parties.
(2) The lease covers all of the equipment leased between the parties
for the term of the lease and specifies the equipment covered by the
lease.
(3) If the lease is intended to provide the lessee with use of the
equipment for periodic intervals of time, rather than on a full-time
basis for the term of the lease, the lease specifies exactly the
schedule of such intervals, their precise length, and the exact rent for
such interval.
(4) The term of the lease is for not less than one year.
(5) The aggregate rental charge is set in advance, is consistent
with fair market value in arms-length transactions and is not determined
in a manner that takes into account the volume or value of any referrals
or business otherwise generated between the parties for which payment
may be made in whole or in part under Medicare, Medicaid or all other
Federal health care programs.
(6) The aggregate equipment rental does not exceed that which is
reasonably necessary to accomplish the commercially reasonable business
purpose of the rental. Note that for purposes of paragraph (c) of this
section, the term fair market value means that the value of the
equipment when obtained from a manufacturer or professional distributor,
but shall not be adjusted to reflect the additional value one party
(either the prospective lessee or lessor) would attribute to the
equipment as a result of its proximity or convenience to sources of
referrals or business otherwise generated for which payment may be made
in whole or in part under Medicare, Medicaid or other Federal health
care programs.
(d) Personal services and management contracts. As used in section
1128B of the Act, ``remuneration'' does not include any payment made by
a principal to an agent as compensation for the services of the agent,
as long as all of the following seven standards are met--
(1) The agency agreement is set out in writing and signed by the
parties.
(2) The agency agreement covers all of the services the agent
provides to the principal for the term of the agreement and specifies
the services to be provided by the agent.
(3) If the agency agreement is intended to provide for the services
of the agent on a periodic, sporadic or part-time basis, rather than on
a full-time basis for the term of the agreement, the agreement specifies
exactly the schedule of such intervals, their precise length, and the
exact charge for such intervals.
(4) The term of the agreement is for not less than one year.
(5) The aggregate compensation paid to the agent over the term of
the agreement is set in advance, is consistent with fair market value in
arms-
[[Page 1124]]
length transactions and is not determined in a manner that takes into
account the volume or value of any referrals or business otherwise
generated between the parties for which payment may be made in whole or
in part under Medicare, Medicaid or other Federal health care programs.
(6) The services performed under the agreement do not involve the
counselling or promotion of a business arrangement or other activity
that violates any State or Federal law.
(7) The aggregate services contracted for do not exceed those which
are reasonably necessary to accomplish the commercially reasonable
business purpose of the services.
For purposes of paragraph (d) of this section, an agent of a
principal is any person, other than a bona fide employee of the
principal, who has an agreement to perform services for, or on behalf
of, the principal.
(e) Sale of practice. (1) As used in section 1128B of the Act,
``remuneration'' does not include any payment made to a practitioner by
another practitioner where the former practitioner is selling his or her
practice to the latter practitioner, as long as both of the following
two standards are met--
(i) The period from the date of the first agreement pertaining to
the sale to the completion of the sale is not more than one year.
(ii) The practitioner who is selling his or her practice will not be
in a professional position to make referrals to, or otherwise generate
business for, the purchasing practitioner for which payment may be made
in whole or in part under Medicare, Medicaid or other Federal health
care programs after 1 year from the date of the first agreement
pertaining to the sale.
(2) As used in section 1128B of the Act, ``remuneration'' does not
include any payment made to a practitioner by a hospital or other entity
where the practitioner is selling his or her practice to the hospital or
other entity, so long as the following four standards are met:
(i) The period from the date of the first agreement pertaining to
the sale to the completion date of the sale is not more than three
years.
(ii) The practitioner who is selling his or her practice will not be
in a professional position after completion of the sale to make or
influence referrals to, or otherwise generate business for, the
purchasing hospital or entity for which payment may be made under
Medicare, Medicaid or other Federal health care programs.
(iii) The practice being acquired must be located in a Health
Professional Shortage Area (HPSA), as defined in Departmental
regulations, for the practitioner's specialty area.
(iv) Commencing at the time of the first agreement pertaining to the
sale, the purchasing hospital or entity must diligently and in good
faith engage in commercially reasonable recruitment activities that:
(A) May reasonably be expected to result in the recruitment of a new
practitioner to take over the acquired practice within a one year period
and
(B) Will satisfy the conditions of the practitioner recruitment safe
harbor in accordance with paragraph (n) of this section.
(f) Referral services. As used in section 1128B of the Act,
``remuneration'' does not include any payment or exchange of anything of
value between an individual or entity (``participant'') and another
entity serving as a referral service (``referral service''), as long as
all of the following four standards are met--
(1) The referral service does not exclude as a participant in the
referral service any individual or entity who meets the qualifications
for participation.
(2) Any payment the participant makes to the referral service is
assessed equally against and collected equally from all participants,
and is only based on the cost of operating the referral service, and not
on the volume or value of any referrals to or business otherwise
generated by either party for the referral service for which payment may
be made in whole or in part under Medicare, Medicaid or other Federal
health care programs.
(3) The referral service imposes no requirements on the manner in
which the participant provides services to a referred person, except
that the referral service may require that the participant charge the
person referred at the
[[Page 1125]]
same rate as it charges other persons not referred by the referral
service, or that these services be furnished free of charge or at
reduced charge.
(4) The referral service makes the following five disclosures to
each person seeking a referral, with each such disclosure maintained by
the referral service in a written record certifying such disclosure and
signed by either such person seeking a referral or by the individual
making the disclosure on behalf of the referral service--
(i) The manner in which it selects the group of participants in the
referral service to which it could make a referral;
(ii) Whether the participant has paid a fee to the referral service;
(iii) The manner in which it selects a particular participant from
this group for that person;
(iv) The nature of the relationship between the referral service and
the group of participants to whom it could make the referral; and
(v) The nature of any restrictions that would exclude such an
individual or entity from continuing as a participant.
(g) Warranties. As used in section 1128B of the Act,
``remuneration'' does not include any payment or exchange of anything of
value under a warranty provided by a manufacturer or supplier of an item
to the buyer (such as a health care provider or beneficiary) of the
item, as long as the buyer complies with all of the following standards
in paragraphs (g)(1) and (g)(2) of this section and the manufacturer or
supplier complies with all of the following standards in paragraphs
(g)(3) and (g)(4) of this section--
(1) The buyer must fully and accurately report any price reduction
of the item (including a free item), which was obtained as part of the
warranty, in the applicable cost reporting mechanism or claim for
payment filed with the Department or a State agency.
(2) The buyer must provide, upon request by the Secretary or a State
agency, information provided by the manufacturer or supplier as
specified in paragraph (g)(3) of this section.
(3) The manufacturer or supplier must comply with either of the
following two standards--
(i) The manufacturer or supplier must fully and accurately report
the price reduction of the item (including a free item), which was
obtained as part of the warranty, on the invoice or statement submitted
to the buyer, and inform the buyer of its obligations under paragraphs
(a)(1) and (a)(2) of this section.
(ii) Where the amount of the price reduction is not known at the
time of sale, the manufacturer or supplier must fully and accurately
report the existence of a warranty on the invoice or statement, inform
the buyer of its obligations under paragraphs (g)(1) and (g)(2) of this
section, and, when the price reduction becomes known, provide the buyer
with documentation of the calculation of the price reduction resulting
from the warranty.
(4) The manufacturer or supplier must not pay any remuneration to
any individual (other than a beneficiary) or entity for any medical,
surgical, or hospital expense incurred by a beneficiary other than for
the cost of the item itself.
For purposes of paragraph (g) of this section, the term warranty
means either an agreement made in accordance with the provisions of 15
U.S.C. 2301(6), or a manufacturer's or supplier's agreement to replace
another manufacturer's or supplier's defective item (which is covered by
an agreement made in accordance with this statutory provision), on terms
equal to the agreement that it replaces.
(h) Discounts. As used in section 1128B of the Act, ``remuneration''
does not include a discount, as defined in paragraph (h)(5) of this
section, on an item or service for which payment may be made in whole or
in part under Medicare, Medicaid or other Federal health care programs
for a buyer as long as the buyer complies with the applicable standards
of paragraph (h)(1) of this section; a seller as long as the seller
complies with the applicable standards of paragraph (h)(2) of this
section; and an offeror of a discount who is not a seller under
paragraph (h)(2) of this section so long as such offeror complies with
the applicable standards of paragraph (h)(3) of this section.
(1) With respect to the following three categories of buyers, the
buyer
[[Page 1126]]
must comply with all of the applicable standards within one of the three
following categories--
(i) If the buyer is an entity which is a health maintenance
organization (HMO) or a competitive medical plan (CMP) acting in
accordance with a risk contract under section 1876(g) or 1903(m) of the
Act, or under another State health care program, it need not report the
discount except as otherwise may be required under the risk contract.
(ii) If the buyer is an entity which reports its costs on a cost
report required by the Department or a State health care program, it
must comply with all of the following four standards--
(A) The discount must be earned based on purchases of that same good
or service bought within a single fiscal year of the buyer;
(B) The buyer must claim the benefit of the discount in the fiscal
year in which the discount is earned or the following year;
(C) The buyer must fully and accurately report the discount in the
applicable cost report; and
(D) the buyer must provide, upon request by the Secretary or a State
agency, information provided by the seller as specified in paragraph
(h)(2)(ii) of this section, or information provided by the offeror as
specified in paragraph (h)(3)(ii) of this section.
(iii) If the buyer is an individual or entity in whose name a claim
or request for payment is submitted for the discounted item or service
and payment may be made, in whole or in part, under Medicare, Medicaid
or other Federal health care programs (not including individuals or
entities defined as buyers in paragraph (h)(1)(i) or (h)(1)(ii) of this
section), the buyer must comply with both of the following standards--
(A) The discount must be made at the time of the sale of the good or
service or the terms of the rebate must be fixed and disclosed in
writing to the buyer at the time of the initial sale of the good or
service; and
(B) the buyer (if submitting the claim) must provide, upon request
by the Secretary or a State agency, information provided by the seller
as specified in paragraph (h)(2)(iii)(B) of this section, or information
provided by the offeror as specified in paragraph (h)(3)(iii)(A) of this
section.
(2) The seller is an individual or entity that supplies an item or
service for which payment may be made, in whole or in part, under
Medicare, Medicaid or other Federal health care programs to the buyer
and who permits a discount to be taken off the buyer's purchase price.
The seller must comply with all of the applicable standards within one
of the following three categories--
(i) If the buyer is an entity which is an HMO a CMP acting in
accordance with a risk contract under section 1876(g) or 1903(m) of the
Act, or under another State health care program, the seller need not
report the discount to the buyer for purposes of this provision.
(ii) If the buyer is an entity that reports its costs on a cost
report required by the Department or a State agency, the seller must
comply with either of the following two standards--
(A) Where a discount is required to be reported to Medicare or a
State health care program under paragraph (h)(1) of this section, the
seller must fully and accurately report such discount on the invoice,
coupon or statement submitted to the buyer; inform the buyer in a manner
that is reasonably calculated to give notice to the buyer of its
obligations to report such discount and to provide information upon
request under paragraph (h)(1) of this section; and refrain from doing
anything that would impede the buyer from meeting its obligations under
this paragraph; or
(B) Where the value of the discount is not known at the time of
sale, the seller must fully and accurately report the existence of a
discount program on the invoice, coupon or statement submitted to the
buyer; inform the buyer in a manner reasonably calculated to give notice
to the buyer of its obligations to report such discount and to provide
information upon request under paragraph (h)(1) of this section; when
the value of the discount becomes known, provide the buyer with
documentation of the calculation of the discount identifying the
specific goods or services purchased to which the discount will be
applied; and refrain from doing anything which would impede
[[Page 1127]]
the buyer from meeting its obligations under this paragraph.
(iii) If the buyer is an individual or entity not included in
paragraph (h)(2)(i) or (h)(2)(ii) of this section, the seller must
comply with either of the following two standards--
(A) Where the seller submits a claim or request for payment on
behalf of the buyer and the item or service is separately claimed, the
seller must provide, upon request by the Secretary or a State agency,
information provided by the offeror as specified in paragraph
(h)(3)(iii)(A) of this section; or
(B) Where the buyer submits a claim, the seller must fully and
accurately report such discount on the invoice, coupon or statement
submitted to the buyer; inform the buyer in a manner reasonably
calculated to give notice to the buyer of its obligations to report such
discount and to provide information upon request under paragraph (h)(1)
of this section; and refrain from doing anything that would impede the
buyer from meeting its obligations under this paragraph.
(3) The offeror of a discount is an individual or entity who is not
a seller under paragraph (h)(2) of this section, but promotes the
purchase of an item or service by a buyer under paragraph (h)(1) of this
section at a reduced price for which payment may be made, in whole or in
part, under Medicare, Medicaid or other Federal health care programs.
The offeror must comply with all of the applicable standards within the
following three categories--
(i) If the buyer is an entity which is an HMO or a CMP acting in
accordance with a risk contract under section 1876(g) or 1903(m) of the
Act, or under another State health care program, the offeror need not
report the discount to the buyer for purposes of this provision.
(ii) If the buyer is an entity that reports its costs on a cost
report required by the Department or a State agency, the offeror must
comply with the following two standards--
(A) The offeror must inform the buyer in a manner reasonably
calculated to give notice to the buyer of its obligations to report such
a discount and to provide information upon request under paragraph
(h)(1) of this section; and
(B) The offeror of the discount must refrain from doing anything
that would impede the buyer's ability to meet its obligations under this
paragraph.
(iii) If the buyer is an individual or entity in whose name a
request for payment is submitted for the discounted item or service and
payment may be made, in whole or in part, under Medicare, Medicaid or
other Federal health care programs (not including individuals or
entities defined as buyers in paragraph (h)(1)(i) or (h)(1)(ii) of this
section), the offeror must comply with the following two standards--
(A) The offeror must inform the individual or entity submitting the
claim or request for payment in a manner reasonably calculated to give
notice to the individual or entity of its obligations to report such a
discount and to provide information upon request under paragraphs (h)(1)
and (h)(2) of this section; and
(B) The offeror of the discount must refrain from doing anything
that would impede the buyer's or seller's ability to meet its
obligations under this paragraph.
(4) For purposes of this paragraph, a rebate is any discount the
terms of which are fixed and disclosed in writing to the buyer at the
time of the initial purchase to which the discount applies, but which is
not given at the time of sale.
(5) For purposes of this paragraph, the term discount means a
reduction in the amount a buyer (who buys either directly or through a
wholesaler or a group purchasing organization) is charged for an item or
service based on an arms-length transaction. The term discount does not
include--
(i) Cash payment or cash equivalents (except that rebates as defined
in paragraph (h)(4) of this section may be in the form of a check);
(ii) Supplying one good or service without charge or at a reduced
charge to induce the purchase of a different good or service, unless the
goods and services are reimbursed by the same Federal health care
program using the same methodology and the reduced charge is fully
disclosed to the Federal
[[Page 1128]]
health care program and accurately reflected where appropriate, and as
appropriate, to the reimbursement methodology;
(iii) A reduction in price applicable to one payer but not to
Medicare, Medicaid or other Federal health care programs;
(iv) A routine reduction or waiver of any coinsurance or deductible
amount owed by a program beneficiary;
(v) Warranties;
(vi) Services provided in accordance with a personal or management
services contract; or
(vii) Other remuneration, in cash or in kind, not explicitly
described in paragraph (h)(5) of this section.
(i) Employees. As used in section 1128B of the Act, ``remuneration''
does not include any amount paid by an employer to an employee, who has
a bona fide employment relationship with the employer, for employment in
the furnishing of any item or service for which payment may be made in
whole or in part under Medicare, Medicaid or other Federal health care
programs. For purposes of paragraph (i) of this section, the term
employee has the same meaning as it does for purposes of 26 U.S.C.
3121(d)(2).
(j) Group purchasing organizations. As used in section 1128B of the
Act, ``remuneration'' does not include any payment by a vendor of goods
or services to a group purchasing organization (GPO), as part of an
agreement to furnish such goods or services to an individual or entity
as long as both of the following two standards are met--
(1) The GPO must have a written agreement with each individual or
entity, for which items or services are furnished, that provides for
either of the following--
(i) The agreement states that participating vendors from which the
individual or entity will purchase goods or services will pay a fee to
the GPO of 3 percent or less of the purchase price of the goods or
services provided by that vendor.
(ii) In the event the fee paid to the GPO is not fixed at 3 percent
or less of the purchase price of the goods or services, the agreement
specifies the amount (or if not known, the maximum amount) the GPO will
be paid by each vendor (where such amount may be a fixed sum or a fixed
percentage of the value of purchases made from the vendor by the members
of the group under the contract between the vendor and the GPO).
(2) Where the entity which receives the goods or service from the
vendor is a health care provider of services, the GPO must disclose in
writing to the entity at least annually, and to the Secretary upon
request, the amount received from each vendor with respect to purchases
made by or on behalf of the entity. Note that for purposes of paragraph
(j) of this section, the term group purchasing organization (GPO) means
an entity authorized to act as a purchasing agent for a group of
individuals or entities who are furnishing services for which payment
may be made in whole or in part under Medicare, Medicaid or other
Federal health care programs, and who are neither wholly-owned by the
GPO nor subsidiaries of a parent corporation that wholly owns the GPO
(either directly or through another wholly-owned entity).
(k) Waiver of beneficiary coinsurance and deductible amounts. As
used in section 1128B of the Act, ``remuneration'' does not include any
reduction or waiver of a Medicare or a State health care program
beneficiary's obligation to pay coinsurance or deductible amounts as
long as all of the standards are met within either of the following two
categories of health care providers:
(1) If the coinsurance or deductible amounts are owed to a hospital
for inpatient hospital services for which Medicare pays under the
prospective payment system, the hospital must comply with all of the
following three standards--
(i) The hospital must not later claim the amount reduced or waived
as a bad debt for payment purposes under Medicare or otherwise shift the
burden of the reduction or waiver onto Medicare, a State health care
program, other payers, or individuals.
(ii) The hospital must offer to reduce or waive the coinsurance or
deductible amounts without regard to the reason for admission, the
length of stay of the beneficiary, or the diagnostic related
[[Page 1129]]
group for which the claim for Medicare reimbursement is filed.
(iii) The hospital's offer to reduce or waive the coinsurance or
deductible amounts must not be made as part of a price reduction
agreement between a hospital and a third-party payer (including a health
plan as defined in paragraph (l)(2) of this section), unless the
agreement is part of a contract for the furnishing of items or services
to a beneficiary of a Medicare supplemental policy issued under the
terms of section 1882(t)(1) of the Act.
(2) If the coinsurance or deductible amounts are owed by an
individual who qualifies for subsidized services under a provision of
the Public Health Services Act or under titles V or XIX of the Act to a
federally qualified health care center or other health care facility
under any Public Health Services Act grant program or under title V of
the Act, the health care center or facility may reduce or waive the
coinsurance or deductible amounts for items or services for which
payment may be made in whole or in part under part B of Medicare or a
State health care program.
(l) Increased coverage, reduced cost-sharing amounts, or reduced
premium amounts offered by health plans. (1) As used in section 1128B of
the Act, ``remuneration'' does not include the additional coverage of
any item or service offered by a health plan to an enrollee or the
reduction of some or all of the enrollee's obligation to pay the health
plan or a contract health care provider for cost-sharing amounts (such
as coinsurance, deductible, or copayment amounts) or for premium amounts
attributable to items or services covered by the health plan, the
Medicare program, or a State health care program, as long as the health
plan complies with all of the standards within one of the following two
categories of health plans:
(i) If the health plan is a risk-based health maintenance
organization, competitive medical plan, prepaid health plan, or other
health plan under contract with CMS or a State health care program and
operating in accordance with section 1876(g) or 1903(m) of the Act,
under a Federal statutory demonstration authority, or under other
Federal statutory or regulatory authority, it must offer the same
increased coverage or reduced cost-sharing or premium amounts to all
Medicare or State health care program enrollees covered by the contract
unless otherwise approved by CMS or by a State health care program.
(ii) If the health plan is a health maintenance organization,
competitive medical plan, health care prepayment plan, prepaid health
plan or other health plan that has executed a contract or agreement with
CMS or with a State health care program to receive payment for enrollees
on a reasonable cost or similar basis, it must comply with both of the
following two standards--
(A) The health plan must offer the same increased coverage or
reduced cost-sharing or premium amounts to all Medicare or State health
care program enrollees covered by the contract or agreement unless
otherwise approved by CMS or by a State health care program; and
(B) The health plan must not claim the costs of the increased
coverage or the reduced cost-sharing or premium amounts as a bad debt
for payment purposes under Medicare or a State health care program or
otherwise shift the burden of the increased coverage or reduced cost-
sharing or premium amounts to the extent that increased payments are
claimed from Medicare or a State health care program.
(2) For purposes of paragraph (l) of this section, the terms--
Contract health care provider means an individual or entity under
contract with a health plan to furnish items or services to enrollees
who are covered by the health plan, Medicare, or a State health care
program.
Enrollee means an individual who has entered into a contractual
relationship with a health plan (or on whose behalf an employer, or
other private or governmental entity has entered into such a
relationship) under which the individual is entitled to receive
specified health care items and services, or insurance coverage for such
items and services, in return for payment of a premium or a fee.
Health plan means an entity that furnishes or arranges under
agreement with contract health care providers for
[[Page 1130]]
the furnishing of items or services to enrollees, or furnishes insurance
coverage for the provision of such items and services, in exchange for a
premium or a fee, where such entity:
(i) Operates in accordance with a contract, agreement or statutory
demonstration authority approved by CMS or a State health care program;
(ii) Charges a premium and its premium structure is regulated under
a State insurance statute or a State enabling statute governing health
maintenance organizations or preferred provider organizations;
(iii) Is an employer, if the enrollees of the plan are current or
retired employees, or is a union welfare fund, if the enrollees of the
plan are union members; or
(iv) Is licensed in the State, is under contract with an employer,
union welfare fund, or a company furnishing health insurance coverage as
described in conditions (ii) and (iii) of this definition, and is paid a
fee for the administration of the plan which reflects the fair market
value of those services.
(m) Price reductions offered to health plans. (1) As used in section
1128B of the Act, ``remuneration'' does not include a reduction in price
a contract health care provider offers to a health plan in accordance
with the terms of a written agreement between the contract health care
provider and the health plan for the sole purpose of furnishing to
enrollees items or services that are covered by the health plan,
Medicare, or a State health care program, as long as both the health
plan and contract health care provider comply with all of the applicable
standards within one of the following four categories of health plans:
(i) If the health plan is a risk-based health maintenance
organization, competitive medical plan, or prepaid health plan under
contract with CMS or a State agency and operating in accordance with
section 1876(g) or 1903(m) of the Act, under a Federal statutory
demonstration authority, or under other Federal statutory or regulatory
authority, the contract health care provider must not claim payment in
any form from the Department or the State agency for items or services
furnished in accordance with the agreement except as approved by CMS or
the State health care program, or otherwise shift the burden of such an
agreement to the extent that increased payments are claimed from
Medicare or a State health care program.
(ii) If the health plan is a health maintenance organization,
competitive medical plan, health care prepayment plan, prepaid health
plan, or other health plan that has executed a contract or agreement
with CMS or a State health care program to receive payment for enrollees
on a reasonable cost or similar basis, the health plan and contract
health care provider must comply with all of the following four
standards--
(A) The term of the agreement between the health plan and the
contract health care provider must be for not less than one year;
(B) The agreement between the health plan and the contract health
care provider must specify in advance the covered items and services to
be furnished to enrollees, and the methodology for computing the payment
to the contract health care provider;
(C) The health plan must fully and accurately report, on the
applicable cost report or other claim form filed with the Department or
the State health care program, the amount it has paid the contract
health care provider under the agreement for the covered items and
services furnished to enrollees; and
(D) The contract health care provider must not claim payment in any
form from the Department or the State health care program for items or
services furnished in accordance with the agreement except as approved
by CMS or the State health care program, or otherwise shift the burden
of such an agreement to the extent that increased payments are claimed
from Medicare or a State health care program.
(iii) If the health plan is not described in paragraphs (m)(1)(i) or
(m)(1)(ii) of this section and the contract health care provider is not
paid on an at-risk, capitated basis, both the health plan and contract
health care provider must comply with all of the following six
standards--
(A) The term of the agreement between the health plan and the
contract
[[Page 1131]]
health care provider must be for not less than one year;
(B) The agreement between the health plan and the contract health
care provider must specify in advance the covered items and services to
be furnished to enrollees, which party is to file claims or requests for
payment with Medicare or the State health care program for such items
and services, and the schedule of fees the contract health care provider
will charge for furnishing such items and services to enrollees;
(C) The fee schedule contained in the agreement between the health
plan and the contract health care provider must remain in effect
throughout the term of the agreement, unless a fee increase results
directly from a payment update authorized by Medicare or the State
health care program;
(D) The party submitting claims or requests for payment from
Medicare or the State health care program for items and services
furnished in accordance with the agreement must not claim or request
payment for amounts in excess of the fee schedule;
(E) The contract health care provider and the health plan must fully
and accurately report on any cost report filed with Medicare or a State
health care program the fee schedule amounts charged in accordance with
the agreement and, upon request, will report to the Medicare or a State
health care program the terms of the agreement and the amounts paid in
accordance with the agreement; and
(F) The party to the agreement, which does not have the
responsibility under the agreement for filing claims or requests for
payment, must not claim or request payment in any form from the
Department or the State health care program for items or services
furnished in accordance with the agreement, or otherwise shift the
burden of such an agreement to the extent that increased payments are
claimed from Medicare or a State health care program.
(iv) If the health plan is not described in paragraphs (m)(1)(i) or
(m)(1)(ii) of this section, and the contract health care provider is
paid on an at-risk, capitated basis, both the health plan and contract
health care provider must comply with all of the following five
standards--
(A) The term of the agreement between the health plan and the
contract health provider must be for not less than one year;
(B) The agreement between the health plan and the contract health
provider must specify in advance the covered items and services to be
furnished to enrollees and the total amount per enrollee (which may be
expressed in a per month or other time period basis) the contract health
care provider will be paid by the health plan for furnishing such items
and services to enrollees and must set forth any copayments, if any, to
be paid by enrollees to the contract health care provider for covered
services;
(C) The payment amount contained in the agreement between the health
care plan and the contract health care provider must remain in effect
throughout the term of the agreement;
(D) The contract health care provider and the health plan must fully
and accurately report to the Medicare and State health care program upon
request, the terms of the agreement and the amounts paid in accordance
with the agreement; and
(E) The contract health care provider must not claim or request
payment in any form from the Department, a State health care program or
an enrollee (other than copayment amounts described in paragraph
(m)(2)(iv)(B) of this section) and the health plan must not pay the
contract care provider in excess of the amounts described in paragraph
(m)(2)(iv)(B) of this section for items and services covered by the
agreement.
(2) For purposes of this paragraph, the terms contract health care
provider, enrollee, and health plan have the same meaning as in
paragraph (l)(2) of this section.
(n) Practitioner recruitment. As used in section 1128B of the Act,
``remuneration'' does not include any payment or exchange of anything of
value by an entity in order to induce a practitioner who has been
practicing within his or her current specialty for less than one year to
locate, or to induce any other practitioner to relocate, his or her
primary place of practice into a HPSA for
[[Page 1132]]
his or her specialty area, as defined in Departmental regulations, that
is served by the entity, as long as all of the following nine standards
are met--
(1) The arrangement is set forth in a written agreement signed by
the parties that specifies the benefits provided by the entity, the
terms under which the benefits are to be provided, and the obligations
of each party.
(2) If a practitioner is leaving an established practice, 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.
(3) The benefits are provided by the entity for a period not in
excess of 3 years, and the terms of the agreement are not renegotiated
during this 3-year period in any substantial aspect; provided, however,
that if the HPSA to which the practitioner was recruited ceases to be a
HPSA during the term of the written agreement, the payments made under
the written agreement will continue to satisfy this paragraph for the
duration of the written agreement (not to exceed 3 years).
(4) There is no requirement that the practitioner make referrals to,
be in a position to make or influence referrals to, or otherwise
generate business for the entity as a condition for receiving the
benefits; provided, however, that for purposes of this paragraph, the
entity may require as a condition for receiving benefits that the
practitioner maintain staff privileges at the entity.
(5) The practitioner is not restricted from establishing staff
privileges at, referring any service to, or otherwise generating any
business for any other entity of his or her choosing.
(6) The amount or value of the benefits provided by the entity may
not vary (or be adjusted or renegotiated) in any manner based on the
volume or value of any expected referrals to or business otherwise
generated for the entity by the practitioner for which payment may be
made in whole or in part under Medicare, Medicaid or any other Federal
health care programs.
(7) The practitioner agrees to treat patients receiving medical
benefits or assistance under any Federal health care program in a
nondiscriminatory manner.
(8) 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 (MUA) or who are part of a Medically Underserved Population (MUP),
all as defined in paragraph (a) of this section.
(9) The payment or exchange of anything of value may not directly or
indirectly benefit any person (other than the practitioner being
recruited) or entity in a position to make or influence referrals to the
entity providing the recruitment payments or benefits of items or
services payable by a Federal health care program.
(o) Obstetrical malpractice insurance subsidies. As used in section
1128B of the Act, ``remuneration'' does not include any payment made by
a hospital or other entity to another entity that is providing
malpractice insurance (including a self-funded entity), where such
payment is used to pay for some or all of the costs of malpractice
insurance premiums for a practitioner (including a certified nurse-
midwife as defined in section 1861(gg) of the Act) who engages in
obstetrical practice as a routine part of his or her medical practice in
a primary care HPSA, as long as all of the following seven standards are
met--
(1) The payment is made in accordance with a written agreement
between the entity paying the premiums and the practitioner, which sets
out the payments to be made by the entity, and the terms under which the
payments are to be provided.
(2)(i) The practitioner must certify that for the initial coverage
period (not to exceed one year) the practitioner has a reasonable basis
for believing that at least 75 percent of the practitioner's obstetrical
patients treated under the coverage of the malpractice insurance will
either--
(A) Reside in a HPSA or MUA, as defined in paragraph (a) of this
section; or
(B) Be part of a MUP, as defined in paragraph (a) of this section.
(ii) Thereafter, for each additional coverage period (not to exceed
one year), at least 75 percent of the practitioner's obstetrical
patients treated under the prior coverage period (not to exceed one
year) must have--
[[Page 1133]]
(A) Resided in a HPSA or MUA, as defined in paragraph (a) of this
section; or
(B) Been part of a MUP, as defined in paragraph (a) of this section.
(3) There is no requirement that the practitioner make referrals to,
or otherwise generate business for, the entity as a condition for
receiving the benefits.
(4) The practitioner is not restricted from establishing staff
privileges at, referring any service to, or otherwise generating any
business for any other entity of his or her choosing.
(5) The amount of payment may not vary based on the volume or value
of any previous or expected referrals to or business otherwise generated
for the entity by the practitioner for which payment may be made in
whole or in part under Medicare, Medicaid or any other Federal health
care programs.
(6) The practitioner must treat obstetrical patients who receive
medical benefits or assistance under any Federal health care program in
a nondiscriminatory manner.
(7) 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. For
purposes of paragraph (o) of this section, costs of malpractice
insurance premiums means:
(i) For practitioners who engage in obstetrical practice full-time,
any costs attributable to malpractice insurance; or
(ii) For practitioners who engage in obstetrical practice on a part-
time or sporadic basis, the costs:
(A) Attributable exclusively to the obstetrical portion of the
practitioner's malpractice insurance and
(B) Related exclusively to obstetrical services provided in a
primary care HPSA.
(p) Investments in group practices. As used in section 1128B of the
Act, ``remuneration'' does not include any payment that is a return on
an investment interest, such as a dividend or interest income, made to a
solo or group practitioner investing in his or her own practice or group
practice if the following four standards are met--
(1) The equity interests in the practice or group must be held by
licensed health care professionals who practice in the practice or
group.
(2) The equity interests must be in the practice or group itself,
and not some subdivision of the practice or group.
(3) In the case of group practices, the practice must:
(i) Meet the definition of ``group practice'' in section 1877(h)(4)
of the Social Security Act and implementing regulations; and
(ii) 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.
(4) Revenues from ancillary services, if any, must be derived from
``in-office ancillary services'' that meet the definition of such term
in section 1877(b)(2) of the Act and implementing regulations.
(q) Cooperative hospital service organizations. As used in section
1128B of the Act, ``remuneration'' does not include any payment made
between a cooperative hospital service organization (CHSO) and its
patron-hospital, both of which are described in section 501(e) of the
Internal Revenue Code of 1986 and are tax-exempt under section 501(c)(3)
of the Internal Revenue Code, where the CHSO is wholly owned by two or
more patron-hospitals, as long as the following standards are met--
(1) If the patron-hospital makes a payment to the CHSO, the payment
must be for the purpose of paying for the bona fide operating expenses
of the CHSO, or
(2) If the CHSO makes a payment to the patron-hospital, the payment
must be for the purpose of paying a distribution of net earnings
required to be made under section 501(e)(2) of the Internal Revenue Code
of 1986.
(r) Ambulatory surgical centers. As used in section 1128B of the
Act, ``remuneration'' does not include any payment that is a return on
an investment interest, such as a dividend or interest income, made to
an investor, as long as the investment entity is a certified ambulatory
surgical center (ASC)
[[Page 1134]]
under part 416 of this title, whose operating and recovery room space is
dedicated exclusively to the ASC, patients referred to the investment
entity by an investor are fully informed of the investor's investment
interest, and all of the applicable standards are met within one of the
following four categories--
(1) Surgeon-owned ASCs--If all of the investors are general surgeons
or surgeons engaged in the same surgical specialty, who are in a
position to refer patients directly to the entity and perform surgery on
such referred patients; surgical group practices (as defined in this
paragraph) composed exclusively of such surgeons; or investors who are
not employed by the entity or by any investor, are not in a position to
provide items or services to the entity or any of its investors, and are
not in a position to make or influence referrals directly or indirectly
to the entity or any of its investors, all of the following six
standards must be met--
(i) The terms on which an investment interest is offered to an
investor must not be related to the previous or expected volume of
referrals, services furnished, or the amount of business otherwise
generated from that investor to the entity.
(ii) At least one-third of each surgeon investor's medical practice
income from all sources for the previous fiscal year or previous 12-
month period must be derived from the surgeon's performance of
procedures (as defined in this paragraph).
(iii) The entity or any investor (or other individual or entity
acting on behalf of the entity or any investor) must not loan funds to
or guarantee a loan for an investor if the investor uses any part of
such loan to obtain the investment interest.
(iv) The amount of payment to an investor in return for the
investment must be directly proportional to the amount of the capital
investment (including the fair market value of any pre-operational
services rendered) of that investor.
(v) All ancillary services for Federal health care program
beneficiaries performed at the entity must be directly and integrally
related to primary procedures performed at the entity, and none may be
separately billed to Medicare or other Federal health care programs.
(vi) The entity and any surgeon investors must treat patients
receiving medical benefits or assistance under any Federal health care
program in a nondiscriminatory manner.
(2) Single-Specialty ASCs--If all of the investors are physicians
engaged in the same medical practice specialty who are in a position to
refer patients directly to the entity and perform procedures on such
referred patients; group practices (as defined in this paragraph)
composed exclusively of such physicians; or investors who are not
employed by the entity or by any investor, are not in a position to
provide items or services to the entity or any of its investors, and are
not in a position to make or influence referrals directly or indirectly
to the entity or any of its investors, all of the following six
standards must be met--
(i) The terms on which an investment interest is offered to an
investor must not be related to the previous or expected volume of
referrals, services furnished, or the amount of business otherwise
generated from that investor to the entity.
(ii) At least one-third of each physician investor's medical
practice income from all sources for the previous fiscal year or
previous 12-month period must be derived from the surgeon's performance
of procedures (as defined in this paragraph).
(iii) The entity or any investor (or other individual or entity
acting on behalf of the entity or any investor) must not loan funds to
or guarantee a loan for an investor if the investor uses any part of
such loan to obtain the investment interest.
(iv) The amount of payment to an investor in return for the
investment must be directly proportional to the amount of the capital
investment (including the fair market value of any pre-operational
services rendered) of that investor.
(v) All ancillary services for Federal health care program
beneficiaries performed at the entity must be directly and integrally
related to primary procedures performed at the entity, and
[[Page 1135]]
none may be separately billed to Medicare or other Federal health care
programs.
(vi) The entity and any physician investors must treat patients
receiving medical benefits or assistance under any Federal health care
program in a nondiscriminatory manner.
(3) Multi-Specialty ASCs--If all of the investors are physicians who
are in a position to refer patients directly to the entity and perform
procedures on such referred patients; group practices, as defined in
this paragraph, composed exclusively of such physicians; or investors
who are not employed by the entity or by any investor, are not in a
position to provide items or services to the entity or any of its
investors, and are not in a position to make or influence referrals
directly or indirectly to the entity or any of its investors, all of the
following seven standards must be met--
(i) The terms on which an investment interest is offered to an
investor must not be related to the previous or expected volume of
referrals, services furnished, or the amount of business otherwise
generated from that investor to the entity.
(ii) At least one-third of each physician investor's medical
practice income from all sources for the previous fiscal year or
previous 12-month period must be derived from the physician's
performance of procedures (as defined in this paragraph).
(iii) At least one-third of the procedures (as defined in this
paragraph) performed by each physician investor for the previous fiscal
year or previous 12-month period must be performed at the investment
entity.
(iv) The entity or any investor (or other individual or entity
acting on behalf of the entity or any investor) must not loan funds to
or guarantee a loan for an investor if the investor uses any part of
such loan to obtain the investment interest.
(v) The amount of payment to an investor in return for the
investment must be directly proportional to the amount of the capital
investment (including the fair market value of any pre-operational
services rendered) of that investor.
(vi) All ancillary services for Federal health care program
beneficiaries performed at the entity must be directly and integrally
related to primary procedures performed at the entity, and none may be
separately billed to Medicare or other Federal health care programs.
(vii) The entity and any physician investors must treat patients
receiving medical benefits or assistance under any Federal health care
program in a nondiscriminatory manner.
(4) Hospital/Physician ASCs--If at least one investor is a hospital,
and all of the remaining investors are physicians who meet the
requirements of paragraphs (r)(1), (r)(2) or (r)(3) of this section;
group practices (as defined in this paragraph) composed of such
physicians; surgical group practices (as defined in this paragraph); or
investors who are not employed by the entity or by any investor, are not
in a position to provide items or services to the entity or any of its
investors, and are not in a position to refer patients directly or
indirectly to the entity or any of its investors, all of the following
eight standards must be met--
(i) The terms on which an investment interest is offered to an
investor must not be related to the previous or expected volume of
referrals, services furnished, or the amount of business otherwise
generated from that investor to the entity.
(ii) The entity or any investor (or other individual or entity
acting on behalf of the entity or any investor) must not loan funds to
or guarantee a loan for an investor if the investor uses any part of
such loan to obtain the investment interest.
(iii) The amount of payment to an investor in return for the
investment must be directly proportional to the amount of the capital
investment (including the fair market value of any pre-operational
services rendered) of that investor.
(iv) The entity and any hospital or physician investor must treat
patients receiving medical benefits or assistance under any Federal
health care program in a nondiscriminatory manner.
(v) The entity may not use space, including, but not limited to,
operating
[[Page 1136]]
and recovery room space, located in or owned by any hospital investor,
unless such space is leased from the hospital in accordance with a lease
that complies with all the standards of the space rental safe harbor set
forth in paragraph (b) of this section; nor may it use equipment owned
by or services provided by the hospital unless such equipment is leased
in accordance with a lease that complies with the equipment rental safe
harbor set forth in paragraph (c) of this section, and such services are
provided in accordance with a contract that complies with the personal
services and management contracts safe harbor set forth in paragraph (d)
of this section.
(vi) All ancillary services for Federal health care program
beneficiaries performed at the entity must be directly and integrally
related to primary procedures performed at the entity, and none may be
separately billed to Medicare or other Federal health care programs.
(vii) The hospital may not include on its cost report or any claim
for payment from a Federal health care program any costs associated with
the ASC (unless such costs are required to be included by a Federal
health care program).
(viii) The hospital may not be in a position to make or influence
referrals directly or indirectly to any investor or the entity.
(5) For purposes of paragraph (r) of this section, procedures means
any procedure or procedures on the list of Medicare-covered procedures
for ambulatory surgical centers in accordance with regulations issued by
the Department and group practice means a group practice that meets all
of the standards of paragraph (p) of this section. Surgical group
practice means a group practice that meets all of the standards of
paragraph (p) of this section and is composed exclusively of surgeons
who meet the requirements of paragraph (r)(1) of this section.
(s) Referral arrangements for specialty services. As used in section
1128B of the Act, ``remuneration'' does not include any exchange of
value among individuals and entities where one party agrees to refer a
patient to the other party for the provision of a specialty service
payable in whole or in part under Medicare, Medicaid or any other
Federal health care programs in return for an agreement on the part of
the other party to refer that patient back at a mutually agreed upon
time or circumstance as long as the following four standards are met--
(1) The mutually agreed upon time or circumstance for referring the
patient back to the originating individual or entity is clinically
appropriate.
(2) The service for which the referral is made is not within the
medical expertise of the referring individual or entity, but is within
the special expertise of the other party receiving the referral.
(3) The parties receive no payment from each other for the referral
and do not share or split a global fee from any Federal health care
program in connection with the referred patient.
(4) Unless both parties belong to the same group practice as defined
in paragraph (p) of this section, the only exchange of value between the
parties is the remuneration the parties receive directly from third-
party payors or the patient compensating the parties for the services
they each have furnished to the patient.
(t) Price reductions offered to eligible managed care organizations.
(1) As used in section 1128(B) of the Act, ``remuneration'' does not
include any payment between:
(i) An eligible managed care organization and any first tier
contractor for providing or arranging for items or services, as long as
the following three standards are met--
(A) The eligible managed care organization and the first tier
contractor have an agreement that:
(1) Is set out in writing and signed by both parties;
(2) Specifies the items and services covered by the agreement;
(3) Is for a period of at least one year; and
(4) Specifies that the first tier contractor cannot claim payment in
any form directly or indirectly from a Federal health care program for
items or services covered under the agreement, except for:
(i) HMOs and competitive medical plans with cost-based contracts
under
[[Page 1137]]
section 1876 of the Act where the agreement with the eligible managed
care organization sets out the arrangements in accordance with which the
first tier contractor is billing the Federal health care program;
(ii) Federally qualified HMOs without a contract under sections 1854
or 1876 of the Act, where the agreement with the eligible managed care
organization sets out the arrangements in accordance with which the
first tier contractor is billing the Federal health care program; or
(iii) First tier contractors that are Federally qualified health
centers that claim supplemental payments from a Federal health care
program.
(B) In establishing the terms of the agreement, neither party gives
or receives remuneration in return for or to induce the provision or
acceptance of business (other than business covered by the agreement)
for which payment may be made in whole or in part by a Federal health
care program on a fee-for-service or cost basis.
(C) Neither party to the agreement shifts the financial burden of
the agreement to the extent that increased payments are claimed from a
Federal health care program.
(ii) A first tier contractor and a downstream contractor or between
two downstream contractors to provide or arrange for items or services,
as long as the following four standards are met--
(A) The parties have an agreement that:
(1) Is set out in writing and signed by both parties;
(2) Specifies the items and services covered by the agreement;
(3) Is for a period of at least one year; and
(4) Specifies that the party providing the items or services cannot
claim payment in any form from a Federal health care program for items
or services covered under the agreement.
(B) In establishing the terms of the agreement, neither party gives
or receives remuneration in return for or to induce the provision or
acceptance of business (other than business covered by the agreement)
for which payment may be made in whole or in part by a Federal health
care program on a fee-for-service or cost basis.
(C) Neither party shifts the financial burden of the agreement to
the extent that increased payments are claimed from a Federal health
care program.
(D) The agreement between the eligible managed care organization and
first tier contractor covering the items or services that are covered by
the agreement between the parties does not involve:
(1) A Federally qualified health center receiving supplemental
payments;
(2) A HMO or CMP with a cost-based contract under section 1876 of
the Act; or
(3) A Federally qualified HMO, unless the items or services are
covered by a risk based contract under sections 1854 or 1876 of the Act.
(2) For purposes of this paragraph, the following terms are defined
as follows:
(i) Downstream contractor means an individual or entity that has a
subcontract directly or indirectly with a first tier contractor for the
provision or arrangement of items or services that are covered by an
agreement between an eligible managed care organization and the first
tier contractor.
(ii) Eligible managed care organization \1\ means--
---------------------------------------------------------------------------
\1\ The eligible managed care organizations in paragraphs
(u)(2)(ii)(A)-(F) of this section are only eligible with respect to
items or services covered by the contracts specified in those
paragraphs.
---------------------------------------------------------------------------
(A) A HMO or CMP with a risk or cost based contract in accordance
with section 1876 of the Act;
(B) Any Medicare Part C health plan that receives a capitated
payment from Medicare and which must have its total Medicare beneficiary
cost sharing approved by CMS under section 1854 of the Act;
(C) Medicaid managed care organizations as defined in section
1903(m)(1)(A) that provide or arrange for items or services for Medicaid
enrollees under a contract in accordance with section 1903(m) of the Act
(except for fee-for-service plans or medical savings accounts);
(D) Any other health plans that provide or arrange for items and
services for Medicaid enrollees in accordance
[[Page 1138]]
with a risk-based contract with a State agency subject to the upper
payment limits in Sec. 447.361 of this title or an equivalent payment
cap approved by the Secretary;
(E) Programs For All Inclusive Care For The Elderly (PACE) under
sections 1894 and 1934 of the Act, except for for-profit demonstrations
under sections 4801(h) and 4802(h) of Pub. L. 105-33; or
(F) A Federally qualified HMO.
(iii) First tier contractor means an individual or entity that has a
contract directly with an eligible managed care organization to provide
or arrange for items or services.
(iv) Items and services means health care items, devices, supplies
or services or those services reasonably related to the provision of
health care items, devices, supplies or services including, but not
limited to, non-emergency transportation, patient education, attendant
services, social services (e.g., case management), utilization review
and quality assurance. Marketing and other pre-enrollment activities are
not ``items or services'' for purposes of this section.
(u) Price reductions offered by contractors with substantial
financial risk to managed care organizations. (1) As used in section
1128(B) of the Act, ``remuneration'' does not include any payment
between:
(i) A qualified managed care plan and a first tier contractor for
providing or arranging for items or services, where the following five
standards are met--
(A) The agreement between the qualified managed care plan and first
tier contractor must:
(1) Be in writing and signed by the parties;
(2) Specify the items and services covered by the agreement;
(3) Be for a period of a least one year;
(4) Require participation in a quality assurance program that
promotes the coordination of care, protects against underutilization and
specifies patient goals, including measurable outcomes where
appropriate; and
(5) Specify a methodology for determining payment that is
commercially reasonable and consistent with fair market value
established in an arms-length transaction and includes the intervals at
which payments will be made and the formula for calculating incentives
and penalties, if any.
(B) If a first tier contractor has an investment interest in a
qualified managed care plan, the investment interest must meet the
criteria of paragraph (a)(1) of this section.
(C) The first tier contractor must have substantial financial risk
for the cost or utilization of services it is obligated to provide
through one of the following four payment methodologies:
(1) A periodic fixed payment per patient that does not take into
account the dates services are provided, the frequency of services, or
the extent or kind of services provided;
(2) Percentage of premium;
(3) Inpatient Federal health care program diagnosis-related groups
(DRGs) (other than those for psychiatric services);
(4) Bonus and withhold arrangements, provided--
(i) The target payment for first tier contractors that are
individuals or non-institutional providers is at least 20 percent
greater than the minimum payment, and for first tier contractors that
are institutional providers, i.e., hospitals and nursing homes, is at
least 10 percent greater than the minimum payment;
(ii) The amount at risk, i.e., the bonus or withhold, is earned by a
first tier contractor in direct proportion to the ratio of the
contractor's actual utilization to its target utilization;
(iii) In calculating the percentage in accordance with paragraph
(u)(1)(i)(C)(4)(i) of this section, both the target payment amount and
the minimum payment amount include any performance bonus, e.g., payments
for timely submission of paperwork, continuing medical education,
meeting attendance, etc., at a level achieved by 75 percent of the first
tier contractors who are eligible for such payments;
(iv) Payment amounts, including any bonus or withhold amounts, are
reasonable given the historical utilization patterns and costs for the
same or comparable populations in similar managed care arrangements; and
(v) Alternatively, for a first tier contractor that is a physician,
the qualified managed care plan has placed the physician at risk for
referral services
[[Page 1139]]
in an amount that exceeds the substantial financial risk threshold set
forth in 42 CFR 417.479(f) and the arrangement is in compliance with the
stop-loss and beneficiary survey requirements of 42 CFR 417.479(g).
(D) Payments for items and services reimbursable by Federal health
care program must comply with the following two standards--
(1) The qualified managed care plan (or in the case of a self-funded
employer plan that contracts with a qualified managed care plan to
provide administrative services, the self-funded employer plan) must
submit the claims directly to the Federal health care program, in
accordance with a valid reassignment agreement, for items or services
reimbursed by the Federal health care program. (Notwithstanding the
foregoing, inpatient hospital services, other than psychiatric services,
will be deemed to comply if the hospital is reimbursed by a Federal
health care program under a DRG methodology.)
(2) Payments to first tier contractors and any downstream
contractors for providing or arranging for items or services reimbursed
by a Federal health care program must be identical to payment
arrangements to or between such parties for the same items or services
provided to other beneficiaries with similar health status, provided
that such payments may be adjusted where the adjustments are related to
utilization patterns or costs of providing items or services to the
relevant population.
(E) In establishing the terms of an arrangement--
(1) Neither party gives or receives remuneration in return for or to
induce the provision or acceptance of business (other than business
covered by the arrangement) for which payment may be made in whole or in
part by a Federal health care program on a fee-for-service or cost
basis; and
(2) Neither party to the arrangement shifts the financial burden of
such arrangement to the extent that increased payments are claimed from
a Federal health care program.
(ii) A first tier contractor and a downstream contractor, or between
downstream contractors, to provide or arrange for items or services, as
long as the following three standards are met--
(A) Both parties are being paid for the provision or arrangement of
items or services in accordance with one of the payment methodologies
set out in paragraph (u)(1)(i)(C) of this section;
(B) Payment arrangements for items and services reimbursable by a
Federal health care program comply with paragraph (u)(1)(i)(D) of this
section; and
(C) In establishing the terms of an arrangement--
(1) Neither party gives or receives remuneration in return for or to
induce the provision or acceptance of business (other than business
covered by the arrangement) for which payment may be made in whole or in
part by a Federal health care program on a fee-for-service or cost
basis; and
(2) Neither party to the arrangement shifts the financial burden of
the arrangement to the extent that increased payments are claimed from a
Federal health care program.
(2) For purposes of this paragraph, the following terms are defined
as follows:
(i) Downstream contractor means an individual or entity that has a
subcontract directly or indirectly with a first tier contractor for the
provision or arrangement of items or services that are covered by an
agreement between a qualified managed care plan and the first tier
contractor.
(ii) First tier contractor means an individual or entity that has a
contract directly with a qualified managed care plan to provide or
arrange for items or services.
(iii) Is obligated to provide for a contractor refers to items or
services:
(A) Provided directly by an individual or entity and its employees;
(B) For which an individual or entity is financially responsible,
but which are provided by downstream contractors;
(C) For which an individual or entity makes referrals or
arrangements; or
(D) For which an individual or entity receives financial incentives
based on its own, its provider group's, or its qualified managed care
plan's performance (or combination thereof).
(iv) Items and services means health care items, devices, supplies
or services
[[Page 1140]]
or those services reasonably related to the provision of health care
items, devices, supplies or services including, but not limited to, non-
emergency transportation, patient education, attendant services, social
services (e.g., case management), utilization review and quality
assurance. Marketing or other pre-enrollment activities are not ``items
or services'' for purposes of this definition in this paragraph.
(v) Minimum payment is the guaranteed amount that a provider is
entitled to receive under an agreement with a first tier or downstream
contractor or a qualified managed care plan.
(vi) Qualified managed care plan means a health plan as defined in
paragraph (l)(2) of this section that:
(A) Provides a comprehensive range of health services;
(B) Provides or arranges for--
(1) Reasonable utilization goals to avoid inappropriate utilization;
(2) An operational utilization review program;
(3) A quality assurance program that promotes the coordination of
care, protects against underutilization, and specifies patient goals,
including measurable outcomes where appropriate;
(4) Grievance and hearing procedures;
(5) Protection of enrollees from incurring financial liability other
than copayments and deductibles; and
(6) Treatment for Federal health care program beneficiaries that is
not different than treatment for other enrollees because of their status
as Federal health care program beneficiaries; and
(C) Covers a beneficiary population of which either--
(1) No more than 10 percent are Medicare beneficiaries, not
including persons for whom a Federal health care program is the
secondary payer; or
(2) No more than 50 percent are Medicare beneficiaries (not
including persons for whom a Federal health care program is the
secondary payer), provided that payment of premiums is on a periodic
basis that does not take into account the dates services are rendered,
the frequency of services, or the extent or kind of services rendered,
and provided further that such periodic payments for the non-Federal
health care program beneficiaries do not take into account the number of
Federal health care program fee-for-service beneficiaries covered by the
agreement or the amount of services generated by such beneficiaries.
(vii) Target payment means the fair market value payment established
through arms length negotiations that will be earned by an individual or
entity that:
(A) Is dependent on the individual or entity's meeting a utilization
target or range of utilization targets that are set consistent with
historical utilization rates for the same or comparable populations in
similar managed care arrangements, whether based on its own, its
provider group's or the qualified managed care plan's utilization (or a
combination thereof); and
(B) Does not include any bonus or fees that the individual or entity
may earn from exceeding the utilization target.
(v) Ambulance replenishing. (1) As used in section 1128B of the Act,
``remuneration'' does not include any gift or transfer of drugs or
medical supplies (including linens) by a hospital or other receiving
facility to an ambulance provider for the purpose of replenishing
comparable drugs or medical supplies (including linens) used by the
ambulance provider (or a first responder) in connection with the
transport of a patient by ambulance to the hospital or other receiving
facility if all of the standards in paragraph (v)(2) of this section are
satisfied and all of the applicable standards in either paragraph
(v)(3)(i), (v)(3)(ii) or (v)(3)(iii) of this section are satisfied.
However, to qualify under paragraph (v), the ambulance that is
replenished must be used to provide emergency ambulance services an
average of three times per week, as measured over a reasonable period of
time. Drugs and medical supplies (including linens) initially used by a
first responder and replenished at the scene of the illness or injury by
the ambulance provider that transports the patient to the hospital or
other receiving facility will be deemed to have been used by the
ambulance provider.
(2) To qualify under paragraph (v) of this section, the ambulance
replenishing arrangement must satisfy all of the following four
conditions--
[[Page 1141]]
(i)(A) Under no circumstances may the ambulance provider (or first
responder) and the receiving facility both bill for the same replenished
drug or supply. Replenished drugs or supplies may only be billed
(including claiming bad debt) to a Federal health care program by either
the ambulance provider (or first responder) or the receiving facility.
(B) All billing or claims submission by the receiving facility,
ambulance provider or first responder for replenished drugs and medical
supplies used in connection with the transport of a Federal health care
program beneficiary must comply with all applicable Federal health care
program payment and coverage rules and regulations.
(C) Compliance with paragraph (v)(2)(i)(B) of this section will be
determined separately for the receiving facility and the ambulance
provider (and first responder, if any), so long as the receiving
facility, ambulance provider (or first responder) refrains from doing
anything that would impede the other party or parties from meeting their
obligations under paragraph (v)(2)(i)(B).
(ii)(A) The receiving facility or ambulance provider, or both, must
(1) Maintain records of the replenished drugs and medical supplies
and the patient transport to which the replenished drugs and medical
supplies related;
(2) Provide a copy of such records to the other party within a
reasonable time (unless the other party is separately maintaining
records of the replenished drugs and medical supplies); and
(3) Make those records available to the Secretary promptly upon
request.
(B) A pre-hospital care report (including, but not limited to, a
trip sheet, patient care report or patient encounter report) prepared by
the ambulance provider and filed with the receiving facility will meet
the requirements of paragraph (v)(2)(ii)(A) of this section, provided
that it documents the specific type and amount of medical supplies and
drugs used on the patient and subsequently replenished.
(C) For purposes of paragraph (v)(2)(ii) of this section,
documentation may be maintained and, if required, filed with the other
party in hard copy or electronically. If a replenishing arrangement
includes linens, documentation need not be maintained for their
exchange. If documentation is not maintained for the exchange of linens,
the receiving facility will be presumed to have provided an exchange of
comparable clean linens for soiled linens for each ambulance transport
of a patient to the receiving facility. Records required under paragraph
(v)(2)(ii)(A) of this section must be maintained for 5 years.
(iii) The replenishing arrangement must not take into account the
volume or value of any referrals or business otherwise generated between
the parties for which payment may be made in whole or in part under any
Federal health care program (other than the referral of the particular
patient to whom the replenished drugs and medical supplies were
furnished).
(iv) The receiving facility and the ambulance provider otherwise
comply with all Federal, State, and local laws regulating ambulance
services, including, but not limited to, emergency services, and the
provision of drugs and medical supplies, including, but not limited to,
laws relating to the handling of controlled substances.
(3) To qualify under paragraph (v) of this section, the arrangement
must satisfy all of the standards in one of the following three
categories:
(i) General replenishing. (A) The receiving facility must replenish
medical supplies or drugs on an equal basis for all ambulance providers
that bring patients to the receiving facility in any one of the
categories described in paragraph (v)(3)(i)(A)(1), (2), or (3) of this
section. A receiving facility may offer replenishing to one or more of
the categories and may offer different replenishing arrangements to
different categories, so long as the replenishing is conducted uniformly
within each category. For example, a receiving facility may offer to
replenish a broader array of drugs or supplies for ambulance providers
that do no not charge for their services than for ambulance providers
that charge for their services. Within each category, the receiving
facility may limit its replenishing arrangements to the replenishing of
emergency ambulance transports only. A receiving
[[Page 1142]]
facility may offer replenishing to one or more of the categories--
(1) All ambulance providers that do not bill any patient or insurer
(including Federal health care programs) for ambulance services,
regardless of the payor or the patient's ability to pay (i.e., ambulance
providers, such as volunteer companies, that provide ambulance services
without charge to any person or entity);
(2) All not-for-profit and State or local government ambulance
service providers (including, but not limited to, municipal and
volunteer ambulance services providers); or
(3) All ambulance service providers.
(B)(1) The replenishing arrangement must be conducted in an open and
public manner. A replenishing arrangement will be considered to be
conducted in an open and public manner if one of the following two
conditions are satisfied:
(i) A written disclosure of the replenishing program is posted
conspicuously in the receiving facility's emergency room or other
location where the ambulance providers deliver patients and copies are
made available upon request to ambulance providers, Government
representatives, and members of the public (subject to reasonable
photocopying charges). The written disclosure can take any reasonable
form and should include the category of ambulance service providers that
qualifies for replenishment; the drugs or medical supplies included in
the replenishment program; and the procedures for documenting the
replenishment. A sample disclosure form is included in Appendix A to
subpart C of this part for illustrative purposes only. No written
contracts between the parties are required for purposes of paragraph
(v)(3)(i)(B)(1)(i) of this section; or
(ii) The replenishment arrangement operates in accordance with a
plan or protocol of general application promulgated by an Emergency
Medical Services (EMS) Council or comparable entity, agency or
organization, provided a copy of the plan or protocol is available upon
request to ambulance providers, Government representatives and members
of the public (subject to reasonable photocopying charges). While
parties are encouraged to participate in collaborative, comprehensive,
community-wide EMS systems to improve the delivery of EMS in their local
communities, nothing in this paragraph shall be construed as requiring
the involvement of such organizations or the development or
implementation of ambulance replenishment plans or protocols by such
organizations.
(2) Nothing in this paragraph (v)(3)(i) shall be construed as
requiring disclosure of confidential proprietary or financial
information related to the replenishing arrangement (including, but not
limited to, information about cost, pricing or the volume of replenished
drugs or supplies) to ambulance providers or members of the general
public.
(ii) Fair market value replenishing. (A) Except as otherwise
provided in paragraph (v)(3)(ii)(B) of this section, the ambulance
provider must pay the receiving facility fair market value, based on an
arms-length transaction, for replenished medical supplies; and
(B) If payment is not made at the same time as the replenishing of
the medical supplies, the receiving facility and the ambulance provider
must make commercially reasonable payment arrangements in advance.
(iii) Government mandated replenishing. The replenishing arrangement
is undertaken in accordance with a State or local statute, ordinance,
regulation or binding protocol that requires hospitals or receiving
facilities in the area subject to such requirement to replenish
ambulances that deliver patients to the hospital with drugs or medical
supplies (including linens) that are used during the transport of that
patient.
(4) For purposes of paragraph (v) of this section--
(i) A receiving facility is a hospital or other facility that
provides emergency medical services.
(ii) An ambulance provider is a provider or supplier of ambulance
transport services that provides emergency ambulance services. The term
does not include a provider of ambulance transport services that
provides only non-emergency transport services.
(iii) A first responder includes, but is not limited to, a fire
department, paramedic service or search and rescue
[[Page 1143]]
squad that responds to an emergency call (through 9-1-1 or other
emergency access number) and treats the patient, but does not transport
the patient to the hospital or other receiving facility.
(iv) An emergency ambulance service is a transport by ambulance
initiated as a result of a call through 9-1-1 or other emergency access
number or a call from another acute care facility unable to provide the
higher level care required by the patient and available at the receiving
facility.
(v) Medical supplies includes linens, unless otherwise provided.
[57 FR 3330, Jan. 29, 1992, as amended at 57 FR 52729, Nov. 5, 1992; 61
FR 2135, Jan. 25, 1996; 64 FR 63513, Nov. 19, 1999; 64 FR 63551, Nov.
19, 1999; 64 FR 71317, Dec. 21, 1999; 66 FR 62989, Dec. 4, 2001; 66 FR
63749, Dec. 10, 2001; 67 FR 11933, Mar. 18, 2002]