Federal Register / Vol. 72, No. 220 / Thursday, November 15, 2007 / Rules and Regulations 64161 

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. 

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 § 411.354(c)(1)(ii), 

§ 411.354(c)(2)(iv), and § 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 

§ 411.354 (72 FR 51026 through 51030). 

A ‘‘physician organization’’ is defined at 

§ 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 

§ 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 

§ 411.354(c)(1)(ii), § 411.354(c)(2)(iv), 

and § 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: 

• With respect to an AMC as 

described in § 411.355(e)(2), 

compensation arrangements between a 

faculty practice plan and another 

component of the same AMC; and 

• 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 


rfrederick on PROD1PC67 with RULES
64162 Federal Register / Vol. 72, No. 220 / Thursday, November 15, 2007 / Rules and Regulations 

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 § 411.354(c)(1)(ii), § 411.354(c)(2)(iv), 

and § 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 § 411.354(c)(1)(ii), 

§ 411.354(c)(2)(iv), and § 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 § 411.354(c)(1)(ii), 

§ 411.354(c)(2)(iv), and § 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 


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