[Federal Register Volume 65, Number 85 (Tuesday, May 2, 2000)]
[Proposed Rules]
[Pages 25460-25463]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-10695]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of Inspector General

42 CFR Part 1003

RIN 0991-AB04


Medicare and State Health Care Programs: Fraud and Abuse; Civil 
Money Penalty Safe Harbor To Protect Payment of Medicare Supplemental 
Insurance and Medigap Premiums for ESRD Beneficiaries

AGENCY: Office of Inspector General (OIG), HHS.

ACTION: Notice of proposed rulemaking.

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SUMMARY: In accordance with section 5201 of the Omnibus Consolidated 
and Emergency Supplemental Appropriations Act for Fiscal Year 1999, 
this proposed rule would set forth in the OIG's civil money penalty 
provisions in 42 CFR part 1003 a new safe harbor for unlawful 
inducements to beneficiaries to provide protection for independent 
dialysis facilities that pay, in whole or in part, premiums for 
Supplementary Medical Insurance (Medicare Part B) or Medicare 
Supplemental Health Insurance policies (Medigap) for financially needy 
Medicare beneficiaries with end-stage renal disease (ESRD). This safe 
harbor would specifically establish various standards and guidelines 
that, if met, would result in the particular arrangement being 
protected from civil sanctions under section 1128A(a)(5) of the Social 
Security Act.

DATES: To assure consideration, public comments on this proposed rule 
must be delivered to the address provided below by no later than 4:30 
p.m. on July 3, 2000.

ADDRESSES: Please mail or deliver your written comments to the 
following address: Office of Inspector General, Department of Health 
and Human Services, Attention: OIG-699-P, Room 5546, Cohen Building, 
330 Independence Avenue, S.W., Washington, D.C. 20201. We do not accept 
comments by facsimile (FAX) transmission. In commenting, please refer 
to code OIG-699-P.

FOR FURTHER INFORMATION CONTACT: Julie Kass (202) 205-9501 or Joel 
Schaer (202) 619-0089, Office of Counsel to the Inspector General.

SUPPLEMENTARY INFORMATION:

I. Background

A. Section 1128A(a)(5) of the Social Security Act

    The Health Insurance Portability and Accountability Act of 1996 
(HIPAA), Public Law 104-191, amended the Social Security Act (Act) to 
prohibit providers from offering patients any inducement to order or 
receive items or services from a particular provider, practitioner or 
supplier. Specifically, section 231(h) of HIPAA established a new 
provision--section 1128A(a)(5) of the Act--to provide for the 
imposition of a civil money penalty (CMP) against any person who:

    Offers or transfers remuneration to any individual eligible for 
benefits under [Medicare or Medicaid] that such person knows or 
should know is likely to influence such individual to order or 
receive from a particular provider, practitioner, or supplier any 
item or service for which payment may be made, in whole or in part, 
under [Medicare or Medicaid].

    Section 231(h) of HIPAA also created a new section 1128A(i)(6) of 
the Act to define the term ``remuneration'' for purposes of the new 
CMP. The section defines ``remuneration,'' in relevant part, as 
``transfers of items or services for free or for other than fair market 
value.'' Remuneration does not include certain enumerated practices, 
including waivers of coinsurance and deductible amounts, if the waiver: 
(1) Is not advertised; (2) is not routinely offered; and (3) is made 
following an individualized good faith assessment of financial need or 
is made after reasonable efforts to collect the coinsurance or 
deductible amounts have failed. There is no exception for the payment 
of Medicare Part B or Medigap insurance premiums on behalf of 
beneficiaries even when the same criteria are met.

[[Page 25461]]

    On October 21, 1998, Congress enacted the Omnibus Consolidated and 
Emergency Supplemental Appropriations Act for Fiscal Year 1999 
(OCESAA), Public Law 105-277. Section 5201 of OCESAA specifically 
authorized the Secretary to issue regulations establishing ``safe 
harbors'' under section 1128A(a)(5) of the Act for payment practices 
that would otherwise run afoul of the statute. (In addition to this 
provision, the Secretary is vested with the authority to issue advisory 
opinions providing legal and regulatory guidance to providers under 
this section.) With respect to the payment of Medicare Part B and 
Medigap premiums for ESRD patients, Congress required any exception to 
be established through a rulemaking process and limited it to the two-
year period beginning on the date the final rule is promulgated. In 
addition, if the Secretary promulgates a safe harbor for ESRD premiums, 
Congress required the Comptroller General of the United States to 
conduct a study of any disproportionate impact on specific issuers of 
Medigap insurance policies due to adverse selection in enrolling 
Medicare ESRD beneficiaries. The Comptroller report would include a 
recommendation as to whether the time limit on the safe harbor should 
be extended.

B. End-Stage Renal Disease and Medicare's Dialysis Benefit

    End-stage renal disease is a chronic disease that requires regular 
renal replacement therapy, such as dialysis treatments, as well as 
regular monitoring of laboratory values, diet and medication. In 
addition to irreversible renal failure, ESRD patients commonly suffer 
from certain co-morbid conditions, such as diabetes, anemia, 
hypertension and congestive heart failure. Without ongoing dialysis 
treatment or a transplant, ESRD is a fatal condition. End-stage renal 
disease affects a disproportionate share of minority populations that 
also have a higher than average incidence of poverty.
    In 1978, Congress amended title 11 of the Act to create a special 
Medicare benefit under Public Law 95-292 for eligible individuals with 
ESRD (or dependents of those who are eligible). In accordance with 
section 226A of the Act, eligible persons are entitled to benefits 
under Medicare Part A and are eligible to enroll under Part B of the 
Medicare program. End-stage renal disease benefits include all Part A 
and Part B items and services covered under the Medicare program, and 
ESRD beneficiaries are subject to all the regular deductible, premium 
and coinsurance provisions of Part A and Part B.
    Medicare pays a composite rate to dialysis facilities for each 
dialysis treatment. The composite rate includes: (1) Medically 
necessary dialysis equipment, (2) home dialysis support services, (3) 
all necessary dialysis supplies, (4) routine ESRD-related laboratory 
tests and (5) all dialysis services furnished by the dialysis 
facility's staff. Certain other ESRD services, such as non-routine 
laboratory tests, may be paid to the facility outside of the composite 
rate.
    Medicare Part B payments generally cover 80 percent of the 
composite rate. End-stage renal disease patients are responsible for 
the remaining 20 percent coinsurance and any deductibles. Typically, 
ESRD patients are responsible for approximately $5,000 per year in 
coinsurance for their dialysis treatments alone. This amount does not 
include the cost of coinsurance associated with hospital and physician 
services. In addition, ESRD patients must pay for a number of related 
drugs that are not covered by Medicare. On average the cost of Medigap 
insurance can range from approximately $1,200 to $3,600, depending on 
what the policy covers.

C. Effects of Section 1128A(a)(5) on the ESRD Population

    After the enactment of HIPAA, representatives of a number of ESRD 
providers informed the OIG that many ESRD providers had been paying for 
Medicare Part B premiums and Medigap policies for financially needy 
patients who could not afford to purchase such insurance. Under the new 
statutory CMP provision, the OIG concluded that such premium subsidies 
could be unlawful in many circumstances, and dialysis providers 
subsequently suspended the purchase of Medigap policies and payment of 
Medicare Part B premiums for their patients. However, some providers 
entered into arrangements with nonprofit organizations that agreed to 
pay premiums on behalf of needy ESRD patients.
    To date, in accordance with statutory authority under section 
1128D(b) of the Act, the OIG has issued three advisory opinions 
approving the payment by unrelated entities of insurance premiums for 
financially needy ESRD patients. In the first opinion, the American 
Kidney Fund (AKF)--a bona fide section 501(c)(3) charitable and 
educational organization--and a number of dialysis providers 
established an arrangement whereby providers make contributions to the 
AKF which, in turn, independently screens candidates for financial need 
and then pays Medicare Part B and Medigap premiums on behalf of 
qualifying patients \1\. We have indicated that this system does not 
violate the CMP provision because the dialysis providers are not making 
payments to patients or on their patients' behalf, and there is no 
``pass through'' of specific payments to specific patients. The two 
other advisory opinion requests, which were also approved, involved a 
State-funded program and a Statewide program modeled on the AKF 
arrangement. \2\
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    \1\ See OIG Advisory Opinion 97-1.
    \2\ See OIG Advisory Opinions 97-2 and 98-17.
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    Providers claim that these new premium payment programs are 
unwieldy, create delays and uncertainty for beneficiaries, and create 
unnecessary paperwork and bureaucracy. In addition, the provider 
community has indicated that the risks to the Medicare and Medicaid 
programs and to the patients do not appear to differ significantly from 
when dialysis providers paid the premiums directly.

II. Provisions of the Proposed Rule

    We are proposing an exception to section 1128A(a)(5) of the Act for 
independent dialysis facilities, as defined in 42 CFR 413.174, that pay 
for Medicare Part B and Medigap premiums for financially needy ESRD 
patients when:
    <bullet> The payment is not advertised;
    <bullet> The dialysis facility does not routinely make payments for 
such policies; and
    <bullet> The dialysis facility makes a good faith determination 
that the individual is financially needy.
    Protection would not extend to the payment of Medicare Part B or 
Medigap premiums on behalf of any other beneficiaries (i.e., 
beneficiaries without ESRD) or by any other provider, conduct which 
section 1128A(a)(5) of the Act specifically prohibits.
    The OIG is concerned that by offering to provide financial 
assistance to ESRD patients as part of an advertisement or 
solicitation, providers might influence a beneficiary's choice of 
provider. Therefore, to fit within the proposed exception, independent 
dialysis facilities would have to refrain from advertising any offer to 
make such payments. Without advertising the payment of premiums, the 
likelihood increases that ESRD patients will have selected their 
dialysis provider prior to receiving the offer of payment for Medicare 
Part B or Medigap premiums.
    Moreover, we believe that it is inappropriate for health care 
providers

[[Page 25462]]

to pay Medicare Part B or Medigap premiums routinely on behalf of ESRD 
beneficiaries, rather than to make payment decisions on a case-by-case 
basis. In this proposed rule, we are not specifying any particular 
method of determining financial need, since what may constitute 
``financial need'' will vary depending on various factors and 
circumstances. What is important is that providers make determinations 
of financial need on an individualized, case-by-case basis in 
accordance with a reasonable set of income guidelines uniformly applied 
in all cases. The guidelines should be based on objective criteria and 
appropriate for the applicable locality. We believe that it is not 
appropriate to apply inflated income guidelines that result in waivers 
of copayments for persons not in genuine financial need.
    Limited applicability. Despite the similarity of the criteria for 
the proposed payment of premium safe harbor to the statutory criteria 
for the waiver of copayment exception, we wish to emphasize that the 
proposed regulatory protection would apply only to payments by 
independent dialysis facilities that have no hospital, physician or 
other provider or supplier ownership. While waivers of copayments are 
themselves suspect, the payment of insurance premiums by a provider or 
supplier who is paid on a fee-for-service basis significantly increases 
the incentive for overutilization and other abuse.
    In the case of dialysis, providers are paid a prospectively fixed 
payment for the dialysis services provided to each patient. Thus, there 
is less incentive to overutilize or provide unnecessary services, 
notwithstanding the additional insurance coverage. By contrast, we 
believe that a provider or supplier that is treating a patient with a 
chronic condition on a fee-for-service basis has a strong incentive to 
recoup its outlay for the premium by providing additional services. In 
the case of a hospital-based dialysis facility or independent dialysis 
facility in which a hospital, physician or other provider or supplier 
has an ownership interest, we are concerned that these providers or 
suppliers would have the same incentive as other providers or suppliers 
paid on a fee-for-service basis, especially given the substantial 
amount of health care services required by ESRD patients for co-morbid 
conditions. Accordingly, we are excluding from this proposed exception 
hospital-based dialysis facilities and independent dialysis facilities, 
owned in whole or in part by a hospital, physician or other provider or 
supplier paid on a fee-for-service basis, and seek specific comments on 
this exclusion from the exception. We are also concerned with the 
potential impact of adverse selection on the Medigap insurance market, 
and seek specific comments concerning the potential effects this 
provision may have on Medigap plans.

III. Regulatory Impact Statement

Executive Order 12866, the Unfunded Mandates Reform Act and the 
Regulatory Flexibility Act

    The Office of Management and Budget (OMB) has reviewed this 
proposed rule in accordance with the provisions of Executive Order 
12866 and the Regulatory Flexibility Act (5 U.S.C. 601-612), and has 
determined that the rulemaking does not meet the criteria for a 
significant regulatory action. Executive Order 12866 directs agencies 
to assess all costs and benefits of available regulatory alternatives 
and, when rulemaking is necessary, to select regulatory approaches that 
maximize net benefits, including potential economic, health and equity 
effects. The Unfunded Mandates Reform Act (Public Law 104-4) requires 
that agencies prepare an assessment of anticipated costs and benefits 
on any rulemaking that may result in an expenditure by State, local or 
tribal government, or by the private sector of $100 million or more in 
any given year. In addition, under the Regulatory Flexibility Act, if a 
rule has a significant economic effect on a substantial number of small 
businesses, the Secretary must specifically consider the economic 
effect of a rule on small business entities and analyze regulatory 
options that could lessen the impact of the rule.

Executive Order 12866

    Executive Order 12866 requires that all regulations reflect 
consideration of alternatives, costs, benefits, incentives, equity and 
available information. Regulations must meet certain standards, such as 
avoiding unnecessary burden. We believe that this proposed rule would 
have no significant economic impact. The proposed safe harbor provision 
being set forth is designed to permit individuals and entities to 
freely engage in business practice and arrangements that encourage 
competition, choice and economy. In doing so, the rule would impose no 
requirements on any party. Independent dialysis facilities may 
voluntarily seek to comply with this proposed provision so that their 
business practice is not subject to enforcement actions under the civil 
money penalty statute. Any aggregate economic effect of this safe 
harbor rule would be minimal, allowing independent dialysis facilities 
to do directly what some dialysis facilities are already allowed to do 
indirectly through the AKF (in accordance with OIG Advisory Opinion 97-
1). As such, we believe that the aggregate economic impact of this 
proposed safe harbor rule would be minimal and would have no effect on 
the economy or on Federal or State expenditures.

Unfunded Mandates Reform Act

    Additionally, in accordance with the Unfunded Mandates Reform Act 
of 1995, since there are no significant costs associated with this 
proposed safe harbor guideline that would impose any mandates on State, 
local or tribal governments, or the private sector that would result in 
an expenditure of $100 million or more in any given year, we have 
determined that a full analysis under the Act is not necessary.
Regulatory Flexibility Act
    In accordance with Regulatory Flexibility Act (RFA) of 1980, and 
the Small Business Regulatory Enforcement Act of 1996, which amended 
the RFA, we have determined that this proposed rule would have no 
significant economic effect on a substantial number of small entities. 
While this proposed safe harbor may have an impact on some small 
entities, we believe that the aggregate economic impact of this 
rulemaking should be minimal, since it is the nature of a violation and 
not the size of the entity that determines whether the OIG will pursue 
a sanction action. Since this proposed safe harbor would offer 
individuals and entities greater flexibility in their business 
arrangements, we believe that the proposed regulations should not have 
a significant economic impact on a number of small business providers, 
and that a regulatory flexibility analysis is not required for this 
rulemaking.

IV. Public Inspection of Comments

    Comments will be available for public inspection beginning on May 
16, 2000 in Room 5518 of the Office of Inspector General at 330 
Independence Avenue, SW., Washington, DC, on Monday through Friday of 
each week from 8:00 a.m. to 4:30 p.m., (202) 619-0089. Because of the 
large number of comments we normally receive on regulations, we cannot 
acknowledge or respond to them individually. However, we will consider 
all timely and appropriate comments when developing the final rule.

List of Subjects in 42 CFR Part 1003

    Administrative practice and procedure, Fraud, Grant programs--
health, Health facilities, Health

[[Page 25463]]

professions, Maternal and child health, Medicare, Medicaid, Penalties.

    Accordingly, 42 CFR part 1003 would be amended as set forth below:

PART 1003--[AMENDED]

    1. The authority citation for part 1003 would be revised to read as 
follows:

    Authority: 42 U.S.C. 1302, 1320-7, 1320a-7a, 1320b-10, 1395u(j), 
1395u(k), 1395dd(d)(1), 1395mm, 1395nn, 1395ss(d), 1396b(m), 
11131(c), 11137(b)(2).

    2. Section 1003.101 would be amended by:
    a. Republishing the introductory text; and
    b. Amending the definition of renumeration by revising the 
introductory text and paragraphs (3) and (4), and by adding a new 
paragraph (5).


Sec. 1003.101  Definitions.

    For purposes of this part:
* * * * *
    Remuneration, as set forth in Sec. 1003.102(b)(12) of this part, is 
consistent with the definition contained in section 1128A(i)(6) of the 
Act, and includes the waiver of coinsurance and deductible amounts (or 
any part thereof) and transfers of items or services for free or for 
other than fair market value. The term ``remuneration'' does not 
include--
* * * * *
    (3) Differentials in coinsurance and deductible amounts as part of 
a benefit plan design (as long as the differentials have been disclosed 
in writing to all beneficiaries, third party payers and providers), to 
whom claims are presented;
    (4) Incentives given to individuals to promote the delivery of 
preventive care services where the delivery of such services is not 
tied (directly or indirectly) to the provision of other services 
reimbursed in whole or in part by Medicare or an applicable State 
health care program. Such incentives may include the provision of 
preventive care, but may not include--
    (i) Cash or instruments convertible to cash; or
    (ii) An incentive the value of which is disproportionately large in 
relationship to the value of the preventive care service (i.e., either 
the value of the service itself or the future health care costs 
reasonably expected to be avoided as a result of the preventive care); 
or
    (5) Any payments for Supplementary Medical Insurance (Medicare Part 
B) or Medicare Supplemental Health Insurance (Medigap) premium amounts 
(or any parts thereof) by an independent dialysis facility, as defined 
in Sec. 413.174 of this title, that is not owned in whole or in part by 
a hospital, physician, or other provider or supplier paid on a fee-for-
service basis, as long as all of the following three standards are met 
--
    (i) The payment is not offered as part of any advertisement or 
solicitation;
    (ii) The facility does not routinely make payments for such 
premiums; and
    (iii) The facility makes the payment for such premiums only after 
determining in good faith that the individual on behalf of whom such 
payment is made is in financial need.
* * * * *

    Dated: August 9, 1999.
June Gibbs Brown,
Inspector General.
Approved: September 2, 1999.

Editorial Note: This document was received at the Office of the 
Federal Register on April 25, 2000.
Donna E. Shalala,
Secretary.
[FR Doc. 00-10695 Filed 5-1-00; 8:45 am]
BILLING CODE 4152-01-P