[Federal Register Volume 72, Number 220 (Thursday, November 15, 2007)]
[Rules and Regulations]
[Pages 64161-64162]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 07-5655]



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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 411

[CMS-1810-F2]
RIN 0938-AK67


Medicare Program; Delay of the Date of Applicability for Certain 
Provisions of Physicians' Referrals to Health Care Entities With Which 
They Have Financial Relationships (Phase III)

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Final rule.

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SUMMARY: This final rule delays the date of applicability of certain 
specified compensation arrangements only, until December 4, 2008.

DATES: Effective Date: The provisions of this final rule are effective 
December 4, 2007 as specified in the September 5, 2007 final rule (72 
FR 51012). However, the date of applicability of the provisions of 
Sec.  411.354(c)(1)(ii), Sec.  411.354(c)(2)(iv), and Sec.  
411.354(c)(3) with respect to certain compensation arrangements 
involving physician organizations and academic medical centers or 
integrated section 501(c)(3) health care systems, as described herein, 
are delayed until December 4, 2008.

FOR FURTHER INFORMATION CONTACT: Lisa Ohrin, (410) 786-4565.

SUPPLEMENTARY INFORMATION:

I. Background

    The final rule, entitled ``Medicare Programs; Physicians' Referrals 
to Health Care Entities With Which They Have Financial Relationships 
(Phase III),'' published in the Federal Register on September 5, 2007 
(72 FR 51012), interpreted and implemented certain provisions of 
section 1877 of the Social Security Act (the Act). Under section 1877 
of the Act, if a physician or a member of a physician's immediate 
family has a financial relationship with a health care entity, the 
physician may not make referrals to that entity for the furnishing of 
designated health services (DHS) payable under the Medicare program, 
and the entity may not bill for the services, unless an exception 
applies.

II. Provisions of the Final Regulations

    The Phase III final rule includes provisions under which referring 
physicians will be treated as ``standing in the shoes'' of their 
physician organizations for purposes of applying the rules that 
describe direct and indirect compensation arrangements in Sec.  411.354 
(72 FR 51026 through 51030). A ``physician organization'' is defined at 
Sec.  411.351 as ``a physician (including a professional corporation of 
which the physician is the sole owner), a physician practice, or a 
group practice that complies with the requirements of Sec.  411.352.'' 
Therefore, for purposes of determining whether a direct or indirect 
compensation arrangement exists between a physician and an entity to 
which the physician refers Medicare patients for DHS, the referring 
physician stands in the shoes of: (1) Another physician who employs the 
referring physician; (2) his or her wholly-owned professional 
corporation; (3) a physician practice (that is, a medical practice) 
that employs or contracts with the referring physician; or (4) a group 
practice of which the referring physician is a member or independent 
contractor. The referring physician is considered to have the same 
compensation arrangements (with the same parties and on the same terms) 
as the physician organization in whose shoes the referring physician 
stands.
    Subsequent to the publication of Phase III, we received informal 
comments on the Phase III ``stand in the shoes'' provisions from 
affected industry stakeholders. These comments addressed the 
application of the Phase III ``stand in the shoes'' provisions in the 
academic medical center (AMC) setting or similar settings (such as a 
nonprofit integrated health care system in which each affiliated 
organization qualifies for exemption from federal income taxation under 
section 501(c)(3) of the Internal Revenue Code (for purposes of this 
final rule, referred to as an ``integrated section 501(c)(3) health 
care system'')) where ``support payments'' or other similar monetary 
transfers are common. The commenters asserted that, under Phase III, 
support payments that previously did not trigger application of the 
physician self-referral law will need to satisfy the requirements of an 
exception if, for example, a DHS entity component (for example, a 
hospital) of an AMC transfers funds to the faculty practice plan 
component of the AMC. Specifically, in the situation where a physician 
stands in the shoes of his or her faculty practice plan, the 
compensation arrangement between the AMC component providing the 
support payment and the faculty practice plan will be considered to be 
a direct compensation arrangement between the component and the 
physician. If the component making the support payment is a DHS entity 
to which the physician refers Medicare patients, the arrangement 
between the component and the faculty practice plan would need to 
satisfy the requirements of a direct compensation arrangement exception 
if the physician were to continue referring Medicare patients to the 
component for DHS. A similar analysis applies in the case of an 
integrated section 501(c)(3) health care system that includes both a 
hospital affiliate and a nonprofit physician practice affiliate. 
According to the commenters, it is unlikely that the requirements of 
any available exception could be satisfied given the nature of support 
payments (that is, support payments usually are not tied to specific 
items or services provided by the faculty practice plan (or nonprofit 
group practice within the health system), but rather are intended to 
support the overall mission of the AMC or nonprofit integrated health 
system).
    We understand the commenters' concerns and intend to review the 
application of the Phase III ``stand in the shoes'' provisions in the 
situations described above. In addition, we are cognizant of the 
special nature of AMCs and nonprofit integrated health care systems, 
specifically with respect to their community service and teaching 
missions. In order to evaluate fully the impact of the Phase III 
``stand in the shoes'' provisions on remunerative relationships within 
AMCs and nonprofit integrated health care systems that, prior to Phase 
III, did not trigger application of the physician self-referral laws, 
we are delaying the date of applicability of the provisions in Sec.  
411.354(c)(1)(ii), Sec.  411.354(c)(2)(iv), and Sec.  411.354(c)(3) for 
12 months after the effective date of Phase III (that is, until 
December 4, 2008) as to the following compensation arrangements between 
the following physician organizations and entities ONLY:
    <bullet> With respect to an AMC as described in Sec.  
411.355(e)(2), compensation arrangements between a faculty practice 
plan and another component of the same AMC; and
    <bullet> With respect to an integrated section 501(c)(3) health 
care system, compensation arrangements between an affiliated DHS entity 
and an affiliated physician practice in the same integrated section 
501(c)(3) health care system.
    We note that, in a prior rulemaking (Phase I), in response to a 
comment that compensation arrangements between organizations regulated 
under the IRS rules pose minimal risk of program or patient abuse, we 
indicated that regulation under IRS rules, though

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beneficial, is not necessarily sufficient to prevent fraud or abuse (66 
FR 917). Our action delaying the date of applicability of the Phase III 
provisions in Sec.  411.354(c)(1)(ii), Sec.  411.354(c)(2)(iv), and 
Sec.  411.354(c)(3) with respect to integrated section 501(c)(3) health 
care systems should not be read as a reversal of our previous position. 
As stated above, we are delaying the date of applicability of these 
provisions in a targeted manner in order to evaluate any unintended 
impact of the Phase III ``stand in the shoes'' provisions.

III. Waiver of Proposed Rulemaking

    We ordinarily publish a notice of proposed rulemaking and invite 
public comment on the proposed rule. The notice and comment rulemaking 
procedure is not required, however, if the rule is interpretive or 
procedural in nature, and it may be waived if there is good cause that 
it is impracticable, unnecessary, or contrary to the public interest 
and we incorporate in the rule a statement of such a finding and the 
reasons supporting that finding. Likewise, we ordinarily provide for a 
delayed date of applicability of a final rule, but we are not required 
to do so if the rule is procedural or interpretive. Where a delayed 
date of applicability is required, this requirement may be waived for 
good cause. Although we believe that this rule is procedural in nature 
and, therefore, prior notice and comment and a delayed date of 
applicability are not necessary, to the extent that it could be 
considered to be a substantive rule, we set forth below our finding of 
good cause for the waiver of notice and comment rulemaking and the 
waiver of a delayed date of applicability.
    Our implementation of this action without opportunity for public 
comment and without a delayed date of applicability is based on the 
good cause exceptions in 5 U.S.C. 553(b)(3)(B) and (d), respectively. 
We find that seeking public comment on this action is impracticable, 
unnecessary, and contrary to the public interest. We are implementing 
this delayed date of applicability as a result of our review of the 
informal comments on the Phase III ``stand in the shoes'' provisions 
from various stakeholders. As discussed above, we understand from those 
comments that, unless we delay the date of applicability of Sec.  
411.354(c)(1)(ii), Sec.  411.354(c)(2)(iv), and Sec.  411.354(c)(3) 
with respect to the compensation arrangements described herein only, 
compensation arrangements that previously did not trigger application 
of the physician self-referral law may need to satisfy the requirements 
of an exception, requiring renegotiation of a large number of 
contracts, or the restructuring of many common arrangements involving 
AMCs and integrated 501(c)(3) health care systems, potentially causing 
significant disruption within the health care industry. We are 
concerned that the disruption could unnecessarily inconvenience 
Medicare beneficiaries or interfere with their medical care and 
treatment. Likewise, if we do not make this final rule effective upon 
publication, arrangements described herein that have been in compliance 
may fall temporarily out of compliance.

IV. Collection of Information Requirements

    This document does not impose information collection and 
recordkeeping requirements. Consequently, it need not be reviewed by 
the Office of Management and Budget under the authority of the 
Paperwork Reduction Act of 1995 (44 U.S.C. 35).

V. Regulatory Impact Statement

    We do not believe that this delay in the date of applicability will 
result in any significant economic impact on any small entity. Until 
the effective date of the provisions of Sec.  411.354(c)(1)(ii), Sec.  
411.354(c)(2)(iv), and Sec.  411.354(c)(3) with respect to the types of 
compensation arrangements described herein as subject to the delayed 
date of applicability, physicians, AMCs, and certain nonprofit 
integrated health care systems do not have to comply with the 
requirements of the ``stand in the shoes'' provisions of the Phase III 
final rulemaking and may continue to rely on whichever appropriate 
exceptions they used before the creation of the new provisions.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: November 2, 2007.
Kerry Weems,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: November 6, 2007.
Michael O. Leavitt,
Secretary.
[FR Doc. 07-5655 Filed 11-9-07; 2:46 pm]
BILLING CODE 4120-01-P