2122 Federal Register / Vol. 61, No. 17 / Thursday, January 25, 1996 / Rules and Regulations

List of Subjects in 41 CFR Part 101–20

Concessions, Federal buildings and

facilities, Government property

management.

For the reasons set forth in the

preamble, 41 CFR Part 101–20 is

amended as follows:

PART 101–20—MANAGEMENT OF

BUILDINGS AND GROUNDS

1. The authority citation for Part 101–

20 continues to read as follows:

Authority: Sec. 205(c), 63 Stat. 390 (40

U.S.C. 486(c)

Subpart 101–20.2—Vending Facility

Program for Blind Persons

2. Section 101–20.109 is amended by

adding paragraph (d) to read as follows:

§ 101–20.109 Concessions.

* * * * *

(d) Public Law 104–52, Section 636,

prohibits the sale of tobacco products in

vending machines in Government–

owned and leased space under the

custody and control of GSA. The

Administrator of GSA or the head of an

Agency may designate areas not subject

to the prohibition, if the area prohibits

minors and reports are made to the

appropriate committees of Congress.

2. Section 101–20.204 is amended by

revising paragraph (c)(3) to read as

follows:

§ 101–20.204 Terms of permit.

* * * * *

(c) * * *

(3) Articles sold at vending facilities

operated by blind licensees may consist

of newspapers, periodicals,

publications, confections, tobacco

products, foods, beverages, chances for

any lottery authorized by State law and

conducted by an agency of a State

within such State, and other articles or

services as are determined by the State

licensing agency, in consultation with

GSA to be suitable for a particular

location. Such articles and services may

be dispensed automatically or manually

and may be prepared on or off the

premises. Public Law 104–52, Section

636, prohibits the sale of tobacco

products in vending machines in

Government-owned and leased space

under the custody and control of GSA.

3. Section 101–20.309 is revised to

read as follows:

§ 101–20.309 Posting and distributing

materials.

(a) Public Law 104–52, Section 636,

prohibits the distribution of free

samples of tobacco products in or

around Federal buildings.

(b) Posting or affixing materials, such

as pamphlets, handbills, or flyers, on

bulletin boards or elsewhere on GSAcontrolled property is prohibited, except

as authorized in § 101–20.308 or when

these displays are conducted as part of

authorized Government activities.

Distribution of materials, such as

pamphlets, handbills, or flyers is

prohibited, except in the public areas of

the property as defined in § 101–

20.003(z), unless conducted as part of

authorized Government activities. Any

person or organization proposing to

distribute materials in a public area

under this section shall first obtain a

permit from the building manager under

Subpart 101–20.4 and shall conduct

distribution in accordance with the

provisions of Subpart 101–20.4. Failure

to comply with those provisions is a

violation of these regulations.

Dated: January 5, 1996.

Roger W. Johnson,

Administrator of General Services.

[FR Doc. 96–1088 Filed 1–24–96; 8:45 am]

BILLING CODE 6820–23–M

DEPARTMENT OF HEALTH AND

HUMAN SERVICES

Office of Inspector General

42 CFR Part 1001

RIN 0991–AA69

Medicare and State Health Care

Programs: Fraud and Abuse; Safe

Harbors for Protecting Health Plans

AGENCY: Office of Inspector General

(OIG), HHS.

ACTION: Final rule.

SUMMARY: In accordance with section 14

of the Medicare and Medicaid Patient

and Program Protection Act of 1987, this

final rule sets forth various standards

and guidelines for safe harbor

provisions designed to protect certain

health care plans, such as health

maintenance organizations and

preferred provider organizations, under

the Medicare and State health care

programs’ anti-kickback statute. These

safe harbor provisions were originally

published in the Federal Register on

November 5, 1992 in interim final form.

In response to the various public

comments received, this final rule

revises and clarifies various aspects of

that earlier rulemaking.

EFFECTIVE DATE: This rule is effective on

January 25, 1996.

FOR FURTHER INFORMATION CONTACT:

Linda Grabel or Tom Hoffman, Office of

the General Counsel, (202) 619–0335

Joel Schaer, Office of Inspector General,

(202) 619–3270.

Please send comments regarding the

paperwork reduction and information

collection requirements discussed in

section IV.B. of this preamble in writing

to: Joel Schaer, Regulations Officer,

Office of Inspector General, Room 5550

Cohen Building, 330 Independence

Avenue SW., Washington, D.C. 20201.

SUPPLEMENTARY INFORMATION:

I. Background

On November 5, 1992, we published

an interim final rule with comment

period establishing two new safe

harbors, and amending one existing safe

harbor, to provide protection for certain

health care plans, such as health

maintenance organizations (HMOs) and

preferred provider organizations (PPOs)

(57 FR 52723). The first new safe harbor

provision, set forth in § 1001.952(l),

protects certain incentives to enrollees

(including waiver of coinsurance and

deductible amounts) paid by health care

plans. The second new provision, set

forth in § 1001.952(m), protects certain

negotiated price reduction agreements

between health care plans and contract

health care providers. In addition, the

existing safe harbor addressing the

waiver of beneficiary coinsurance and

deductible amounts, codified in

§ 1001.952(k), was amended to protect

certain agreements entered into between

hospitals and Medicare SELECT

insurers.

These safe harbors set forth various

standards and guidelines that, if met,

allow specific business arrangements

and payment practices of certain health

care plans not to be treated as criminal

offenses under section 1128B(b) of the

Social Security Act (the Act) and not to

serve as a basis for a program exclusion

under section 1128(b)(7) of the Act. As

with the other safe harbor provisions

codified in § 1001.95 of the regulations,

these new safe harbors placed no

affirmative obligation on any individual

or entity.

Although the regulations were issued

in final form and became effective on

their date of publication, we indicated

in the preamble of that November 5,

1992 document that we were allowing a

60-day public comment period during

which time interested parties could

submit comments and concerns

regarding these safe harbors. An

additional 60-day extension to the

public comment period was published

in the Federal Register on January 7,

1993 (58 FR 2989).
Federal Register / Vol. 61, No. 17 / Thursday, January 25, 1996 / Rules and Regulations 2123

II. Summary of the Interim Final Rule

A. Section 1001.952(l)—Increased

Coverage, Reduced Cost-Sharing

Amounts, or Reduced Premium

Amounts Offered by Health Plan

As indicated above, a new safe harbor,

set forth in § 1001.952(l), was created to

protect certain incentives to enrollees

(including increased benefits and

waiver of deductible and coinsurance

amounts) offered by health plans. This

safe harbor contained two parts

designed to protect incentives offered by

health care plans under contract with

the Health Care Financing

Administration (HCFA) or a State health

care program.

The first part of this safe harbor

protected risk-based health plans, like

HMOs, competitive medical plans

(CMPs) and prepaid health plans

(PHPs), under contract with HCFA or a

State health care program; and operating

(i) in accordance with section 1876(g) or

1903(m) of the Act, (ii) under a Federal

statutory demonstration authority, or

(iii) under other Federal statutory or

regulatory authority. Under this part,

the only standard for such health plans

was that the health care plan could not

discriminate in the offering of these

incentives, but must offer the same

incentives to all enrollees unless

otherwise specifically approved by

HCFA or a State health care program.

The second part of this safe harbor

protected incentives offered to enrollees

by HMOs, CMPs, PHPs and health care

prepaid plans (HCPPs) that are under

contract with HCFA or a State health

care program, and that are paid on a

reasonable cost or similar basis. For

these plans to be under the safe harbor,

two standards had to be met—(1) the

same incentives must be offered to all

enrollees for all covered services, and

(2) the health plan may not claim the

cost of these incentives as bad debts or

otherwise shift the burden of these

incentives onto Medicare, the State

health care programs, other payers or

individuals.

B. Section 1001.952(m)—Price

Reductions Offered to Health Plans

The safe harbor in § 1001.952(m) was

created to protect certain negotiated

price reduction agreements between

health care plans and contract health

care providers, and was set forth in

three parts. The first two parts were

designed to protect risk-based and costreimbursed health care plans that

operate in accordance with a contract or

agreement with HCFA or a State health

care program; the third part established

additional standards to protect health

plans that do not have contracts or

agreements with HCFA or State health

care programs. In order to comply with

this price reduction safe harbor, three

fundamental prerequisites were to be

met in all cases—(1) the protected

remuneration was the contract health

care provider’s reduction of its usual

charges for the services; (2) the terms of

the agreement between the parties must

be in writing; and (3) the agreement

must be for the sole purpose of having

the contract health care provider furnish

enrollees items or services that are

covered by the health plan, Medicare or

the State health care program.

The first part of this safe harbor

(§ 1001.952(m)(1)(i)) protected riskbased HMOs, CMPs and PHPs under

contract with HCFA or a State health

care program; and operating (i) in

accordance with section 1876(g) or

1903(m) of the Act, (ii) under a Federal

demonstration authority, or (iii) under

other Federal statutory or regulatory

authority. In addition to the three

prerequisites mentioned above, in order

to be covered under the safe harbor riskbased contract health plans under this

part could not separately bill Medicare,

Medicaid or another State health care

program for items and services

furnished under the agreement with the

health plan (except as specifically

authorized by HCFA or the State health

care program), and could not otherwise

shift the burden of the agreement onto

Medicare, Medicaid, other payers or

individuals.

The second part (§ 1001.952(m)(1)(ii))

protected health care plans that have

executed a contract or agreement with

HCFA or a State health care program to

have payment made on a reasonable

cost or similar basis. In addition to the

three prerequisites, price reduction

agreements with contract health care

providers under this safe harbor were

protected if (1) the term of the

agreement was not less than one year;

(2) the agreement specified in advance

the covered items and services that the

contract health care provider will

furnish to enrollees and the

methodology for computing the

payment to the contract health care

provider; (3) the health plan fully and

accurately reported to HCFA or the State

health care program the amount it paid

the contract health care provider in

accordance with the agreement; and (4)

the contract health care provider could

not claim payment in any form unless

specifically authorized by HCFA or the

State health care program.

Lastly, the third part of this safe

harbor (§ 1001.952(m)(1)(iii)) protected

reductions offered by contract health

care providers to all other health plans

when six standards, in addition to the

three prerequisites, were met. The six

standards set forth required (1) the term

of the price reduction agreement not be

less than one year; (2) the agreement

specify in advance the covered items

and services, which party is to file

claims or requests for payment with

Medicare, Medicaid and other State

health care programs, and the schedule

of fees that contract provider will be

paid; (3) the schedule remain in effect

throughout the term of the agreement

(unless a fee update is specifically

authorized by HCFA or a State health

care program); (4) the party submitting

claims for items or services under the

agreement not claim or request payment

for amounts in excess of the fee

schedule; (5) full and accurate reporting

of costs be made by the health plan or

the contract health care provider; and

(6) a prohibition on the party that is not

responsible under the agreement for

seeking reimbursement from Medicare,

Medicaid and any other State health

care program from claiming payment or

otherwise shifting the burden of the

price reduction onto Medicare,

Medicaid, other payers or individuals.

C. Section 1001.952(k)—Waiver of

Beneficiary Coinsurance and Deductible

Amounts

The existing safe harbor in

§ 1001.952(k), the waiver of coinsurance

and deductible amounts, was also

amended to protect certain agreements

entered into between hospitals and

Medicare SELECT insurers. Medicare

SELECT is a type of supplemental

policy under which reduced benefits

may be paid for the use of an out-ofnetwork health care provider. Under

this amended safe harbor, waivers or

reductions of inpatient hospital

coinsurance and deductibles by a

hospital in accordance with an

agreement with a Medicare SELECT

insurer were protected by amending the

third of the existing 3 standards set forth

in § 1001.952(k)(1). The prior standard

required that the reduction or waiver

not result from an agreement between a

hospital and a third-party payer. The

amended standard exempted

agreements that are part of a contract

between a hospital and a Medicare

SELECT insurer for furnishing items or

services to Medicare SELECT

beneficiaries when (1) the insurer issued

a Medicare SELECT insurance policy

under the terms of section 1882(t)(1) of

the Act, and (2) the waiver of

coinsurance or deductible amounts

provided under the agreement were

limited to beneficiaries covered by the

insurer’s Medicare SELECT policy. The

other requirements of the existing safe
2124 Federal Register / Vol. 61, No. 17 / Thursday, January 25, 1996 / Rules and Regulations

harbor still apply to such waivers or

reductions.

III. Response to Comments and

Summary of Revisions

As a result of our request for

comments, we received a total of 42

timely-filed public comments from

various health care associations, health

care plans and medical groups,

professional and business organizations,

and insurance companies on how best

to protect HMOs, PPOs and other

managed care plans. The comments

included both general and broad

concerns about the impact of the

regulations, and specific comments on

those areas and the safe harbor

provisions about which we invited

public input. The following is a

summary of the issues raised through

that public comment process, our

response to those various comments,

and a summary of the specific revisions

and clarifications being made to these

regulations.

A. General Comments

Comment: Commenters generally

objected that the safe harbors would

inhibit or ‘‘chill’’ existing activities in

which managed care plans engage and

thereby jeopardize numerous

arrangements. They specifically asserted

that should HMOs and PPOs not receive

safe harbor protection, vast networks of

providers would be at risk and would

therefore refuse to enter into discount

arrangements with such entities.

Response: The commenters have

misconstrued the effect of the safe

harbor provisions. The interim final rule

did not expand the zone of illegal

conduct under the anti-kickback statute.

Legally and logically, the safe harbors

can only make the zone of illegal

conduct smaller. As indicated above,

compliance with the safe harbors is

completely voluntary. If a practice or

arrangement does not fall within a safe

harbor, it has precisely the same legal

risk that it had before the safe harbor

was promulgated. The safe harbors are

designed to provide a means through

which plans and providers can be

assured that their arrangements are

immune from potential criminal and

administrative sanctions under the antikickback statute.

Comment: Several commenters wrote

that the regulations do not address

numerous activities that managed care

entities engage in, and thus imply that

such activities could be considered

unlawful or would be subject to

heightened scrutiny.

Response: Commenters should not

infer that because a safe harbor

provision does not specifically refer to

a particular arrangement or activity, it is

unlawful. Nor should they interpret that

lack of a safe harbor to mean that these

activities will be subjected to

heightened scrutiny. Moreover, the safe

harbors do not create affirmative

obligations on individuals or entities

since compliance with these safe

harbors is purely voluntary. The failure

to comply with a safe harbor means only

that the practice or arrangement does

not have the absolute assurance of

protection from anti-kickback liability.

Comment: Certain commenters argued

that the statute does not apply to

particular arrangements. For instance,

one commenter claimed that a hospital’s

agreement with a managed care plan to

forego a deductible or coinsurance does

not violate the statute because

‘‘payment’’ is made to a third party

payer. Other commenters contended

that since the statute confers exempt

status on health plans for all discounted

transactions, a safe harbor for price

reduction agreements is unnecessary.

Some commenters further indicated that

the statute does not apply to the

enrollment of persons in a health plan.

These commenters opined that the

regulations erroneously indicate that

HMOs, especially independent

practitioner association models, are

‘‘providers’’ in a position to refer

patients.

Response: We believe that the antikickback statute is broad enough to

potentially cover each of these types of

arrangements. The statute prohibits any

remuneration which is in return for, or

which is designed to induce, the flow of

Medicare and Medicaid program-related

business. Therefore, it could cover a

hospital’s agreement to forego or reduce

coinsurance or deductibles in exchange

for increased program-related business.

It does not matter that the payment is

made to a third party rather than the

beneficiary.

The current discount statutory

exception and the discount safe harbor

are generally not applicable to the

discounts involved in managed care

plans. The statutory exception covers

discounts obtained by buyers which are

to be reported to the programs by such

buyers with costs and charges reduced

appropriately to reflect the discounts. In

managed care plans, the provider is the

‘‘seller’’ who provides a discount to the

plan/patient ‘‘buyer.’’ Where the

provider/seller submits a claim to the

program, the statutory requirements

have not been met and therefore, the

discount is not exempted. The discount

safe harbor (which encompasses all

conduct under the statutory discount

exception) also requires that the

discount be offered to Medicare and

Medicaid. In the case of managed care

contracts with providers, the discount is

offered only to the managed care plan.

Since the discounted fees are not offered

to Medicare or Medicaid, the

arrangement does not fall within the

parameters of the safe harbor. An

additional safe harbor is therefore

necessary to protect discounts between

managed care plans and providers.

Enrollment in a health plan falls

within the scope of the anti-kickback

statute where such enrollment involves

Medicare or Medicaid beneficiaries and

results from various incentives offered

to these individuals by the managed

care plan. The incentives offered to

beneficiaries constitute remuneration

with the meaning of the statute. Once

enrolled, the plan is entitled to receive

Medicare or Medicaid reimbursement

for the services directly provided to

program beneficiaries. Alternatively, the

plan steers enrollees to certain providers

who furnish reimbursable services. The

incentives offered to program

beneficiaries can be in return for

obtaining reimbursable program

business and, therefore, are covered by

the statute.

Moreover, one does not have to be a

‘‘provider’’ or make an actual ‘‘referral’’

to be covered by the anti-kickback

statute. The statute covers any persons

who offer, pay, solicit, or receive any

unlawful remuneration. The scope of

prohibited conduct includes not only

that which is intended to induce

referrals, but also that which is intended

to induce the purchasing, leasing,

ordering or arranging for any good,

facility, service or item paid for by

Medicare or Medicaid. Accordingly, the

statute covers recommendations on

which providers to use, and would

include the preferred or approved

provider lists of HMOs or PPOs,

especially where such providers have

agreed to discount their fees in return

for such designations.

Comment: Some commenters wanted

the OIG to obtain industry input before

finalizing these safe harbor regulations.

Response: The interim final rule

originally provided for a 60-day public

comment period. The OIG subsequently

agreed to extend the comment period an

additional 60 days. Consequently, we do

not believe that further public comment

is necessary before the regulations are

revised to take into account the public

comments received.

Comment: One commenter requested

that the OIG provide a mechanism by

which members of the public could seek

advance rulings on whether practices

violate the anti-kickback statute or fall

within the safe harbor regulations.
Federal Register / Vol. 61, No. 17 / Thursday, January 25, 1996 / Rules and Regulations 2125

Response: As we explained in the July

29, 1991 final safe regulations setting

forth the original safe harbor provisions,

we understand and appreciate the desire

for legal security in parties’ business

relations. However, we are unable to

provide a mechanism responding to

individual requests for advisory

opinions about the legality of a

particular business arrangement under

the statute for several reasons. The

Department of Justice (DOJ) has

exclusive authority to enforce all

criminal laws of the United States such

as the anti-kickback statute. (See 28

U.S.C. 516, 519 and 547.) Any advisory

opinions that we would issue would not

be binding on DOJ and could serve to

impede the prosecution of a particular

case. Moreover, the statute requires

proof of knowing and willful intent,

which is generally impossible to

evaluate on the basis of written

submissions from interested requestors.

Comment: Certain commenters wrote

that the OIG should publish a new safe

harbor exempting managed care entities

from the 60/40 investor and revenue

provisions of the small entity safe

harbor on investment interests.

Response: These issues lie beyond the

scope of this rulemaking and would

require separate notice and public

comment in order to be adopted. The

OIG will consider whether

circumstances warrant the future

revision of that safe harbor for managed

care entities.

Comment: Some commenters

addressed the issue of independent

agents and brokers in the managed care

arena. They asserted that the OIG

should revise the existing safe harbor on

personal or management services or

create an additional safe harbor to

protect an HMO’s or PPO’s use of

independent agents and brokers. They

believed that independent broker

representatives have been the most

effective marketing tool for Medicare

coverage products. These commenters

stated that HMOs or PPOs cannot meet

the personal services safe harbor

because they cannot establish the

aggregate compensation element in

advance of a transaction.

Response: This issue is beyond the

scope of the interim final rule and

would require separate notice and

public comment in order to be adopted.

In addition, we disagree that the OIG

should protect independent agents or

brokers used by HMOs or PPOs.

Widespread abusive practices have

occurred in several States involving

independent contractors who

misrepresent the nature of a plan’s

coverage in attempting to enroll

individuals. As discussed in the

preamble to the July 29, 1991 final safe

harbor regulations, we are unpersuaded

that such contractors would be subject

to adequate supervision or control

unless they become employees. We

recognize that various personal services

arrangements are not covered by these

regulations but reiterate that the OIG

must reasonably protect the Medicare

and State health care programs from

abuse.

Comment: Some commenters

requested that the OIG seek to amend

the anti-kickback statute to clarify its

parameters and provide ample scope to

managed care entities for their

contracting and pricing practices.

Response: The OIG clearly lacks

authority in these regulations to amend

the anti-kickback statute, which only

Congress may do. Therefore, the

commenters’ suggestion falls outside the

scope of this rulemaking. The OIG will,

however, continue to consider from

time to time whether additional safe

harbors are appropriate or whether other

specific managed care contracting or

pricing practices should be protected.

Comment: One commenter stated that

the revised final rule should clearly

prohibit providers from balance billing

Medicare patients any amounts which

exceed either Federal or State law. The

commenter noted that currently Federal

law permits providers generally to

balance bill their patients up to 115

percent of the Medicare allowable

amount and that some States do not

allow any balance billing whatsoever.

Response: The commenter raises an

issue which is beyond the purview of

these managed care safe harbor

regulations. Neither the new safe

harbors nor the amended Medicare

SELECT provision addresses the balance

billing practices of providers. As the

commenter indicates, Federal law

precludes providers from charging

beneficiaries more than 15 percent

above the fee schedule or other

allowable charge. The Medicare statute

includes a specific remedy for violations

of the limitations on balance billing.

Moreover, some States like New York

absolutely ban balance billing and have

mechanisms to enforce those

requirements. Therefore, we believe that

both Federal and State law already

adequately regulate balance billing

practices.

B. Comments Applicable to the Two

New Safe Harbors

1. The Definition of ‘‘Health Plan’’

Comment: The vast majority of

commenters objected to the scope of the

definition of health plan used in the

regulations as being too narrow and

requested that it be broadened.

Commenters specifically requested that

the definition should be expanded to

include ERISA plans, employer selffunded plans, union welfare funds, nonpremium or uninsured HMOs, exclusive

provider organizations (EPOs),

physician/hospital organizations

(PHOs), and PPOs which serve as

intermediaries between providers and

plans or between providers and

employers.

Response: We agree that the definition

of health plan should be broadened and

have revised the definition to include

two additional categories of entities. We

had not intended to exclude ERISA

plans or other company or union

sponsored health plans, and we had

specifically mentioned these types of

plans as legitimate health plans in the

preamble to the interim final rule. As

we discussed in that preamble, our

primary concern in requiring a health

plan to charge a premium and in

requiring State regulation of that

premium was to exclude phony

insurance plans from protection. We

still believe it is necessary for the

definition to exclude such phony

insurance plans because if such plans

were not excluded, we would have lost

a major tool to combat them and, if they

were immunized from liability under

the anti-kickback statute, we would

have only limited ability to take

effective action against these types of

abusive arrangements. For example, the

requirement is necessary to prevent

entities from establishing ‘‘insurance

plans’’ that charge only minimal

premiums, such as $1.00, that are

unrelated to the cost or level of services

provided. Often, such plans are merely

an attempt to legitimize an unlawful

waiver of coinsurance or deductibles.

The requirement is also necessary to

prevent the creation and use of ‘‘shell’’

entities, which would qualify as a

health plan and would, in turn,

subcontract all of its responsibilities to

other entities or insurance companies.

We believe the revisions we have made

to the definition of health plan will

allow a wide variety of legitimate

managed care health plans to qualify for

protection.

The revised definition maintains the

requirement that the entity furnish or

arrange for the furnishing of items or

services to enrollees of the plan through

contracts or agreements with health care

providers, or furnish insurance coverage

for the provision of such items or

services. However, we have broadened

the definition to provide that the entity

must furnish or arrange for the

provision of items or services to

enrollees in exchange for either a
2126 Federal Register / Vol. 61, No. 17 / Thursday, January 25, 1996 / Rules and Regulations

premium or a fee. The fee is designed

to cover those situations where a

premium is not charged, such as where

an employer negotiates directly with

providers the fees it will pay for the

provision of health care services. It

would also cover situations where an

entity establishes a network of providers

and markets that network to an

employer or an insurance company, in

return for a fee for administering the

plan. The fee must reflect the fair

market value of administering the plan

or the network.

Additionally, in order to qualify as a

health plan, the entity must fall within

one of four categories. The entity must

(1) operate in accordance with a

contract, agreement, or statutory

demonstration authority approved by

HCFA or a State health care program; (2)

charge a premium and have its premium

structure regulated under a State

insurance statute or a State enabling

statute governing HMOs or PPOs; (3) be

an employer or a union welfare fund

whose enrollees are current or retired

employees or union members,

respectively; or (4) be licensed in the

State, be under contract with an

employer, a union welfare fund, or a

health insurance company, which meets

the requirements of (2) or (3), and be

paid a fee for the administration of the

plan. The first two categories were

included in the original definition of

health plan. The third category is

designed to cover ERISA plans, or other

employer or union plans which are selfinsured or self-funded and which

contract directly with health care

providers or insurance companies. In

order to exclude bogus or sham entities,

we have required that the enrollees of

such plans be limited to current or

retired employees or current union

members, and their families. By union

welfare funds, we mean those funds

which are operated by bona fide labor

organizations. The fourth category is

designed to cover entities such as PPOs

that act as intermediaries between

contract health care providers and

employers, union welfare funds or

insurance companies. Again, to exclude

entities that are not bona fide

intermediaries, we have required that

the entity be furnishing or arranging for

services under contract with a bona fide

insurance company, employer, or union

welfare fund.

We elected to broaden the definition

of health plan by referring to categories

of entities based on how they operate or

arrange for services rather than by

specifically naming different types of

common managed care entities, such as

HMOs, PPOs, EPOs, or PHOs. We

believe this is a preferable approach

because there are no single or

commonly recognized definitions of

each of these types of entities. Any

definition we might choose to use

would likely be viewed as arbitrary and

would likely exclude some otherwise

legitimate arrangements. We believe that

the majority of legitimate managed care

entities will be able to fit into one of the

four categories contained in the

definition.

We would also point out that the

broadening of the definition of health

plan to cover preferred provider

organizations which act as

intermediaries does not provide

automatic safe harbor protection for the

arrangement between the organization

and the insurance company, employer,

or union welfare fund. It only enables

such organizations to qualify as a health

plan for purposes of negotiating

protected price reduction agreements

with contract health care providers. In

order for the PPO’s intermediary

arrangement to qualify for safe harbor

protection, it must meet the

requirements of the personal services

and management contracts safe harbor

in § 1001.952(d).

Comment: A number of commenters

argued that legitimate managed care

health plans can be identified through

the accreditation process by AAPI or

NCQA or by requiring non-accredited

entities to meet the requirements of

those bodies. They believed that the

definition of health plan should be

revised to include all managed care

plans and that the safe harbor should

require accreditation or that entities

meet the standards for such

accreditation.

Response: We do not believe that it is

appropriate to require health plans to

seek accreditation from private

companies or require them to comply

with the standards developed by such

private companies. We would have no

way to determine compliance with

those standards if an entity did not seek

accreditation. Moreover, accreditation is

not a widespread practice and the

standards used by such companies are

not universally recognized or accepted

as minimum standards that should be

required for all managed care plans.

Finally, we are not aware of any

evidence that health plans or entities

that do not meet these accreditation

standards are abusive or illegitimate,

nor do we have any evidence that

accredited plans are less likely than

other managed care plan to engage in

practices that may violate the antikickback statute. Therefore, we have

declined to require or incorporate

accreditation as a part of the definition

of a health plan or as a requirement of

a safe harbor.

Comment: Some commenters believed

that the OIG should pursue ‘‘sham’’

arrangements via ‘‘selective

enforcement’’ of Fraud Alert standards

rather than through limiting the

definition of a health plan.

Response: We disagree that the OIG

should allow any managed care entity to

qualify as a health plan because the OIG

can effectively pursue sham transactions

through the selective enforcement of the

Fraud Alert standards. First, the Fraud

Alerts issued by the OIG do not

establish standards which can be

enforced. The standards that exist are

established by the anti-kickback statute

or other federal statutes and regulations.

The Fraud Alerts only set forth practices

that have been identified as abusive or

that may be potentially abusive

depending on the circumstances and the

intent of the parties. The Fraud Alerts

are intended to provide guidance to the

public on how they can avoid violations

of the statute. Second, the purpose of

the safe harbor regulations is both to

identify practices or arrangements that

fall within the broad scope of the antikickback statute but that are not

abusive, and to immunize those

practices or arrangements from criminal

or civil liability. Our intent in

establishing these safe harbors is to

include only those practices or

arrangements that we are confident are

not abusive. Accordingly, we believe it

is appropriate to limit the definition of

health plans to exclude sham managed

care plans or phony insurance plans to

ensure that such plans do not qualify for

protection under a safe harbor.

2. Shifting the Burden

Comment: The commenters

universally objected to the interim final

rule’s prohibition against plans ‘‘shifting

the burden’’ of increased coverage,

reduced cost-sharing or price reductions

onto other payers. Most commenters

asserted that this standard was unclear

and imposed a burdensome requirement

on health plans that the government

should not be imposing. They argued

that without the ability to shift the

revenue loss from incentives or

discounts across their entire customer

base, health plans would be unable to

offer incentives and providers would be

unwilling or unable to offer discounts.

Response: We continue to believe that

enrollee incentives and provider price

reductions should be economically

sensible, i.e., they should not be driven

by a motive to shift costs to the

government or other payers. A health

plan should not be offering incentives or

provider discounts unless they believe
Federal Register / Vol. 61, No. 17 / Thursday, January 25, 1996 / Rules and Regulations 2127

the cost of those incentives or discounts

can be recovered through lower

operating costs resulting from increased

volume, economies of scale or other

efficiencies. We also believe that

practices should be protected only if

they do not cause harm to the Medicare

and Medicaid programs. Accordingly,

we are only willing to protect incentives

and price reductions that do not result

in increased costs to the programs. In

order to ensure that result, we believe it

is necessary to include a requirement

which prohibits cost shifting to the

Medicare and Medicaid programs. We

recognize that the prohibition as

originally drafted went beyond what

was necessary to protect these Federal

programs. We have therefore narrowed

the scope of the prohibition against cost

shifting to the Medicare and State health

care programs and have clarified the

circumstances when cost shifting is

considered to have occurred, i.e. when

an arrangement or agreement results in

increased payments being claimed from

the Medicare or State health care

programs.

Comment: Some commenters

requested that the OIG set standards

establishing when cost shifting has

occurred. They complained that plans

and providers have no way to tell if they

are in compliance with this

requirement.

Response: We do not believe it would

be possible to provide a complete or

exhaustive list of situations where cost

shifting has occurred. We believe that

plans and providers make judgments

that they expect to forego income to

maintain market share, or that they

expect to recover lost income resulting

from incentives to enrollees or

discounts to plans. These plans and

providers make judgments whether

those means involve allocating

increased costs to other customers or

payers. Certainly, in any case where a

plan or provider raises its costs or fees

to others or reduces the services it

provides to others as a result of an

incentive or a discount, prohibited cost

shifting has occurred. Claiming certain

costs, such as waivers of coinsurance or

deductibles, as bad debt would also

constitute impermissible cost shifting.

C. Provision-by-Provision Analysis of

Safe Harbors

1. Waiver of Part A Deductible and

Coinsurance Amounts in Accordance

With an Agreement Between a Hospital

and a Medicare SELECT Insurer

Comment: Several commenters

objected to the expansion of this safe

harbor provision being limited to

Medicare SELECT plans for a variety of

different reasons. These included the

fact that Medicare SELECT is only

available in 15 States; that other

Medigap plans or preferred provider

plans provide no greater risk of abuse

than do Medicare SELECT plans; that

Medicare SELECT was not intended to

be the exclusive mechanism for

allowing new and innovative Medigap

benefits; and that preferred provider

plans that existed prior to the enactment

of Medicare SELECT and that now have

frozen enrollments due to the

standardization of Medigap policies

should be allowed to continue to

arrange for waivers through agreements

with hospitals.

Response: We believe that it

continues to be appropriate to limit the

amendment of the safe harbor on

inpatient hospital waivers of

coinsurance and deductibles to

Medicare SELECT. As we noted in the

preamble to the interim final rule, the

Medicare SELECT program is a

demonstration project, authorized in

only 15 States, and scheduled to operate

only from January 1, 1992 until the end

of 1994. In order to provide any

protection during the demonstration

period, it was necessary to publish the

safe harbor promptly and in final form.

Since we had not previously received

comments on this issue from managed

care entities, we did not believe a broad

waiver was appropriate without

subjecting the proposal to notice and

comment. Therefore, a limited waiver

was included in order to permit the

demonstration projects to enter into

agreements with hospitals for the waiver

of inpatient deductibles and

coinsurance amounts without fear of

prosecution under the anti-kickback

statute. We also believe that the

amendment was appropriately limited

to Medicare SELECT because the

demonstration project included an

evaluation and report that would enable

the OIG to determine whether the

amendment had any undesirable effects.

We believe that such evaluation will

also provide a factual basis for the OIG

to decide whether the amendment

should be continued or expanded to

other similar types of arrangements.

The demonstration project is still in

progress and no final report has yet been

issued evaluating the different Medicare

SELECT plans that are operating in the

15 States participating in the

demonstration project. However, we

have reviewed some of the preliminary

results of the evaluation. While the data

indicate that most beneficiaries who

purchase a Medicare SELECT policy pay

a lower premium than they would pay

for the same package of benefits under

a regular supplemental policy, in most

cases the lower premiums are the result

of the waiver of inpatient hospital

deductibles and coinsurance by

hospitals rather than the result of

reduced utilization or improved

management of care. The amendment to

the safe harbor permitting agreements

between hospitals and Medicare

SELECT insurers for the waiver of these

cost sharing obligations seems to be the

variable that enables Medicare SELECT

insurers to reduce claims and thereby

offer lower premiums to beneficiaries.

The evaluation of service utilization

by beneficiaries with Medicare SELECT

policies is expected to take several

months to complete. We expect that this

part of the evaluation will provide

information as to whether the

amendment has affected costs to the

Medicare program or other payers, or

whether it promotes or helps to control

overutilization or inappropriate

utilization of inpatient hospital or other

services. Additionally, it will provide

information on whether the Medicare

SELECT program is fulfilling the

legislative intent of establishing a

‘‘managed care’’ Medicare supplement

alternative. Specifically, the intent of

Medicare SELECT was to give

beneficiaries some of the benefits of a

managed care plan enrollment, that is,

case management, a primary care

physician and cost effective care; it was

not intended to be a mere discounting

arrangement between hospitals and

insurers.

Accordingly, we believe it is

appropriate to reserve the option of

expanding, revising or rescinding the

amendment until we have had an

opportunity to consider the complete

results of the Medicare SELECT

evaluation report.

We do not see any basis for providing

safe harbor protection to non-SELECT

plans which offer preferred provider

provisions merely because such plans

predate the enactment of the Medicare

SELECT program or because their

enrollment is frozen as the result of the

new standardized Medigap program

rules. The mere existence of a practice

or arrangement is not a sufficient basis

to exempt that practice or arrangement

from the reach of the anti-kickback

statute. Our position is that we will not

provide safe harbor protection for any

practice or arrangement unless we are

confident the practice or arrangement is

not abusive. We do not currently have

any evidence to show that the waivers

negotiated by these plans are not

abusive or harmful to the programs. The

fact that enrollment in these plans is

frozen does not make the waivers any

less potentially abusive or any less

risky. The enactment of Medicare
2128 Federal Register / Vol. 61, No. 17 / Thursday, January 25, 1996 / Rules and Regulations

SELECT and the standardization of

Medigap benefits and policies did

nothing to affect or change the legal

status of routine waivers of coinsurance

or deductibles. Consequently, they do

not provide any justification for an

extension of the existing safe harbor.

We believe that the Medicare SELECT

demonstration project is also

distinguishable from other preferred

provider arrangements on other

grounds. First, section 1882(t) of the

Social Security Act establishes certain

minimum standards that Medicare

SELECT plans must meet. These

standards include a provider network to

provide all services with sufficient

access, full benefits for emergency care,

an ongoing quality assurance program,

and provisions to ensure that

beneficiaries are fully informed about

the benefits and restrictions of the plan.

Medicare SELECT plans are also subject

to the imposition of civil monetary

penalties for the failure to meet certain

requirements, including the failure to

provide medically necessary services

within the provider network. No other

Medigap plans or preferred provider

plans are subject to these standards or

penalties. Finally, the Medicare SELECT

program is subject to ongoing evaluation

and expires at the end of 1994. We

believe the requirements imposed on

Medicare SELECT plans and the timelimited nature of the demonstration

provide substantially more protection

and less risk to both the Medicare

program and Medicare beneficiaries

than do other plans.

Contrary to one commenter’s belief,

we do not view the Medicare SELECT

program to be the exclusive vehicle for

providing new or innovative Medigap

benefit packages. Since it is an existing

program, we considered whether it was

appropriate to provide any safe harbor

protection. To the extent that a State

approves a new or innovative Medigap

benefit package, we would similarly

consider whether any additional safe

harbor protection was necessary or

appropriate. While States may have the

authority to approve the sale of certain

non-standardized benefit packages, they

do not have the authority to exempt any

such benefit packages from the

prohibitions of the anti-kickback statute.

As we were unwilling to provide a

blanket exemption for the Medicare

SELECT program, we are unwilling to

commit in advance to a blanket

exemption for any State-approved

innovative benefit package. The

approval of additional benefits as part of

a Medigap policy would not necessarily

implicate the anti-kickback statute and

therefore no automatic protection would

be necessary. However, the

arrangements that insurers may enter

into in order to be able to furnish those

benefits economically or without

additional premium costs could be

violative of the anti-kickback statute.

Comment: Some commenters believed

that this safe harbor should allow

inpatient waivers for agreements with

third party payers for all managed care

entities. Other commenters requested

that safe harbor protection be extended

to entities having risk or cost contracts

with HCFA.

Response: We disagree. At the present

time, we do not believe there is

sufficient evidence to demonstrate that

waivers that result from agreements

between hospitals and third party

payers, such as insurers or health plans,

are not abusive. We believe there are

significant differences between waivers

of deductibles and coinsurance offered

by hospitals directly to beneficiaries and

those negotiated between hospitals and

health plans. When we promulgated the

original safe harbor provision, we noted

that there is a limited risk of abuse

because of various factors. First, the

Medicare program is not directly

harmed since hospitals receive a

predetermined amount under the

prospective payment system for each

admission regardless of their costs or

charges. Second, hospital admissions

are subject to peer review and there is

a relatively fixed level of patient

demand for hospital services. Third,

physicians, rather than patients, make

the decision whether admission is

medically indicated and their practice

patterns and admitting privileges also

affect the decision as to which hospital

will be selected. Therefore, we believed

that a waiver of inpatient beneficiary

fees would not be likely to increase

utilization significantly, especially if

hospitals could not discriminate on the

basis of length of stay or type of

diagnosis.

These limiting factors do not exist

where waivers result from agreements

between hospitals and insurers or plans.

In contrast to the effect of a waiver given

to a beneficiary which affects only a

single admission, health plans or

insurers have the capacity to direct the

flow of large numbers of admissions to

specific hospitals by designating them

as preferred or exclusive providers in

return for an agreement to waive

coinsurance and deductibles. Where

this flow results from the hospital’s

agreement to waive inpatient

beneficiary fees or to reduce its charges,

or both, the practice can be abusive and

anti-competitive. Hospital

reimbursement rates differ and the

designation of certain hospitals as

preferred or exclusive providers in a

particular geographic area could result

in a direct increase in the amounts paid

by the Medicare program for inpatient

hospital costs. Thus, while the plan or

insurer would save money, the

Medicare program would not. Similarly,

a health plan or insurer’s designation of

certain hospitals could result in

substantial decreases in the number of

admissions to other area hospitals and

might eventually result in the closure of

some facilities, thus lessening

competition. Reduced competition

could lead to increased charges by the

remaining hospitals. Additionally, the

waiver of beneficiary fees or reduced

charges that the hospital has agreed to

in order to obtain the health plan or

insurer’s business may ultimately be

passed along to the Medicare program or

other payers. Finally, we are concerned

about the possibility of overutilization

or inappropriate use of services that

may result from a waiver of beneficiary

fees. Where Medicare is the primary

payer, a hospital’s waiver of inpatient

deductible and coinsurance amounts

results in the insurer or health plan

having no financial liability. Since the

plan or insurer has no financial stake, it

may be less concerned about guarding

against the overutilization or

inappropriate utilization of services.

We have made, however, a minor

change to the regulation to clarify the

meaning of ‘‘third party payer.’’ There

has been some question as to whether

that term would include PPOs that serve

as intermediaries between health care

providers and insurers or employers,

but who are not responsible for the

payment of claims for services provided

to beneficiaries. We have revised the

regulation to indicate that a third party

payer includes any entity that meets the

definition of a health plan set forth in

§ 1001.952(l)(2) of the regulation. With

the limited exception for Medicare

SELECT, it is our intent, as discussed in

the preamble to the July 29, 1991 final

safe harbor regulations, to protect only

those waivers that are given by hospitals

directly to beneficiaries. We did not

intend to protect any waivers that

resulted from contractual agreements

entered into by hospitals.

Comment: A number of commenters,

including some who are Medicare

SELECT insurers, raised objections to

the effect that even where Medicare

SELECT is in place, the safe harbor does

not permit waiver of coinsurance for a

large number of services that are

essential to cost-efficient managed care

networks (e.g., hospital outpatient

services, ambulatory surgical centers,

physician services) because it is limited

to inpatient hospital services. They

urged that the safe harbor be expanded
Federal Register / Vol. 61, No. 17 / Thursday, January 25, 1996 / Rules and Regulations 2129

to cover services reimbursed under Part

B of Medicare.

Response: We do not believe that safe

harbor protection is appropriate for

routine waivers of coinsurance and

deductibles for outpatient services

covered under the Medicare Part B

program. We also do not believe that

such waivers are necessary or essential

to the efficient or cost-effective

operation of managed care plans.

Managed care plans are free to seek

discounts or price reductions from

providers that lower the costs of

providing services, as long as those

reductions are reflected as a lowering of

the provider’s total charge for the

service. We have expressly provided

protection for this type of discount in

the safe harbor on price reductions

offered to health plans.

As we indicated in the preamble to

the interim final rule, routine waivers of

coinsurance and deductibles are an area

of significant abuse in the Medicare

program. Such waivers result in the

submission of false claims to the

Medicare program because providers

misstate their charges on claims

submitted to the program. For example,

if a provider’s usual charge is $100 and

he or she routinely waives the 20

percent coinsurance, then the provider’s

actual charge for providing the service

is really only $80, the amount he or she

expects to receive as payment for the

service. If the provider submits a claim

to the Medicare program for $100, he or

she has misrepresented the actual

charge and the Medicare program will

reimburse the provider a higher than

appropriate amount. If the Medicare

program reimburses the provider $80,

then the program will have paid for the

entire cost of providing the service,

rather than the 80 percent authorized by

law. In this single instance, the program

would have overpaid the provider by

$16 (the difference between $80 and

$64, which is 80 percent of the

provider’s actual fee of $80). Thus, the

waiver of coinsurance results in

substantially higher costs to the

Medicare program. Similar problems

may arise with cost-based health care

providers. We would also note that the

Secretary’s authority to grant safe harbor

protection extends only to violations of

the anti-kickback statute. The Secretary

has no authority to provide protection

from criminal, civil, or administrative

liability arising from the submission of

false claims to the Medicare program.

We also believe that the routine

waiver of coinsurance and deductibles

may result in overutilization or

inappropriate utilization of services.

Cost sharing is an essential element of

the Medicare program. To the extent

that beneficiaries have a financial stake

in the cost of services, they have a direct

interest in seeking the most efficient and

economical providers and are deterred

from seeking unnecessary services. As a

result, Medicare program expenditures

are lower. Where Medicare beneficiaries

have no financial stake because a

provider has waived their coinsurance

amount, they are less likely to be

concerned over whether the charge for

the service is $10 or $100, and are less

likely to question the medical necessity

of the item or service provided or

ordered. Similarly, where a health plan

(or insurer) is responsible for paying a

Medicare beneficiary’s coinsurance or

deductible amounts, it is concerned

about the cost or necessity of the

services provided to their enrollees.

However, where a health plan negotiates

a waiver of Medicare coinsurance or

deductible amounts with providers, it

no longer has a financial stake because

there are no costs it incurs for the

services provided by that provider to

Medicare beneficiaries. Once again, the

Medicare program ends up paying for

the full cost of care.

We have no evidence to indicate that

Medicare SELECT plans are

significantly different from other

Medigap plans or other types of

managed care health plans in this

respect, or that they will adequately

protect the Medicare program from

higher costs or inappropriate

expenditures. Section 1882(t) of the Act

does not provide any specific safeguards

against the abuses that occur from the

waiver of Medicare Part B coinsurance

or deductibles. Thus, we continue to

decline to provide any expanded

protection for Medicare SELECT plans.

Comment: One commenter indicated

that the False Claims Act and other

laws, but not this rule, should address

situations where waivers of coinsurance

and deductibles might result in

inaccurate charges billed to Medicare

program.

Response: We disagree that abuses

arising from the waiver of coinsurance

and deductibles should be addressed

through the use of the False Claims Act

and other laws and regulations. One of

the primary purposes of the antikickback statute is to protect the

Medicare program from higher costs and

overutilization that occur when

financial incentives are offered or given

in order to obtain Medicare program

business. Thus, the anti-kickback statute

is an appropriate mechanism to deal

with higher program costs resulting

from inaccurate charges and claims

submitted to the Medicare program.

Moreover, the purpose of the safe

harbor regulations is to exempt from

criminal or civil liability those practices

which, although they violate the antikickback statute, are not harmful to the

Medicare or State health care programs.

As discussed above, routine waivers of

Medicare Part B coinsurance and

deductible amounts are harmful and

abusive because they regularly lead to

false claims and increased costs and

because they encourage overutilization

or inappropriate utilization of services.

Thus, safe harbor protection is

unwarranted and inappropriate.

Finally, another purpose of the safe

harbor regulations is to provide

standards which providers and other

persons or entities can comply with and

be assured that they will not be subject

to criminal or civil prosecution or

exclusion from program participation.

We actively encourage providers to

come into compliance with applicable

safe harbor provisions. It would be

unfair and misleading, if not an abuse

of discretion, for us to provide an

exception under the anti-kickback

statute for certain behavior when

compliance with that exception would

subject providers and plans or insurers

to the very same criminal, civil, and

administrative sanctions under the False

Claims Act or other provisions. The

mission of the OIG is to prevent fraud

and abuse, not to encourage it.

Comment: One commenter indicated

that the OIG should, at a minimum,

publish a new Federal Register notice

that lists examples of coinsurance

waiver arrangements that may not

qualify for safe harbor protection, but

‘‘probably would not be pursued

criminally or civilly by the OIG.’’

Response: We do not believe that

there are any specific types of situations

involving a routine waiver of

coinsurance or deductibles that we

would decline to pursue as a general

rule. Thus, we believe that publication

of a new Federal Register notice is not

necessary. In the OIG Fraud Alert on

this subject, we have indicated that

waivers were only appropriate on a

case-by-case basis in consideration of a

patient’s financial hardship or where a

good faith effort to collect has been

made. We have not changed our

position.

2. Incentives to All Enrollees

Comment: Some commenters

maintained that a literal reading of the

enrollee incentive safe harbor would

necessitate uniformity among all

products, thereby eliminating any

incentive. The commenters encouraged

the OIG to eliminate the provision or

restrict it to all enrollees of a particular

product.
2130 Federal Register / Vol. 61, No. 17 / Thursday, January 25, 1996 / Rules and Regulations

Response: The purpose of the

requirement that incentives be provided

to all enrollees was to restrict the ability

of health plans to target particular

Medicare or Medicaid beneficiaries or

groups of such beneficiaries and induce

them to enroll in the plan by providing

incentives. We were concerned that

plans would target healthy beneficiaries

by offering them increased services or

reductions in cost sharing and attempt

to avoid older or sicker beneficiaries or

those with expensive or chronic health

conditions requiring a high utilization

of services by offering only the same

services available through a fee-forservice plan. Accordingly, we are

reluctant to eliminate this requirement

from the safe harbor. We are also

reluctant to limit the regulation to a

product-specific approach because we

are concerned that the same type of

abuses could occur where health plans

offered several different products.

Comment: A number of commenters

urged the OIG to restrict the scope of

‘‘enrollee’’ only to members of the

Medicare or State health care programs.

They believed that the inclusion of all

enrollees was unwarranted and

exceeded the scope of the Medicare and

Medicaid Patient Program Protection

Act (MMPPPA) of 1987.

Response: Although we do not agree

that the scope of the provision exceeded

our authority under MMPPPA, we

believe that these concerns can be

adequately addressed by limiting the

provision to all enrollees who are also

beneficiaries of the Medicare and State

health care programs. Accordingly, we

have revised the safe harbor on

incentives to enrollees to require that

incentives offered by health plans be

offered to all Medicare or State health

care program enrollees of the plan. We

believe that this limitation will

adequately safeguard against the

possibility that health plans may

improperly favor certain healthy

beneficiaries or use incentives to

improperly encourage utilization when

the item or service is furnished.

3. Incentives by Non-Contract Health

Plans

Comment: Several commenters

believed that safe harbor protection

should be given to any managed care

plan that offers a higher level of benefits

or services obtained from a contract

provider. They believed that protection

should be given for all incentives by

managed care plans, including those

providing Medicare supplemental

coverage. Other commenters indicated

that coinsurance waivers and other

financial incentives to encourage the

use of a preferred provider panel were

historically legitimate managed care

incentives that do not cause harm to

Medicare or Medicaid and should

therefore be recognized.

Response: We remain unpersuaded at

this time that safe harbor protection is

appropriate for health plans that are not

under contract with HCFA or a

Medicaid State agency. Unlike contract

plans that are limited to a few types of

arrangements, non-contract plans

consist of widely varying arrangements

and widely differing scopes of benefits.

These plans are subject to little

oversight. Most of the commenters who

requested a broadening of the safe

harbor failed to provide any discussion

of precisely how the Medicare and

Medicaid programs would or could be

protected against abuses if all managed

care plans were permitted to offer any

kind of incentives free of anti-kickback

liability. Nor did they provide any

substantive evidence that the majority of

the existing managed care plans have

effective mechanisms and controls that

would adequately protect the Medicare

and Medicaid programs against higher

costs or overutilization. Finally, the

commenters did not suggest any

standards we could impose which

would eliminate plans that do not have

in effect adequate mechanisms to

protect the Medicare or Medicaid

programs from abuse.

Moreover, we believe that the fact that

the Medicare and Medicaid programs

reimburse services provided to enrollees

of non-contract plans on a fee-forservice basis makes these situations

subject to the same potential abuses and

risks as exist with incentives offered by

non-managed care plans or providers.

Where a health care provider who is

part of a preferred provider network

treats a beneficiary and will be paid for

each service that he or she provides on

a fee-for-service basis by Medicare or

Medicaid, that provider has no built-in

incentive not to overutilize. To the

extent that the provider has agreed to

accept reduced fees for the treatment of

plan enrollees, he or she may have a

direct incentive to increase the number

of services to make up for the reduction

in fees. Similarly, if the beneficiary has

reduced or no cost sharing obligations,

the beneficiary faces no disincentive to

overutilization. The plan does not

prevent reimbursement for these

unnecessary services because the claims

are directly submitted to and paid by

Medicare or Medicaid. Finally, where

managed care providers agree to accept

Medicare payment as payment in full,

the burden of the reduced cost sharing

incentives offered to beneficiaries comes

at the expense of the Medicare program,

because the program will end up paying

100 percent of the provider’s fee. Thus,

these incentives can cause harm to the

Medicare and Medicaid programs.

Comment: Some commenters argued

that incentives by non-contract plans

should be allowed because most

managed care plans adequately monitor

for overutilization, and that many noncontract plans are monitored either as

Federally-qualified HMOs or as a result

of accreditation by independent

organizations. They also argued that

Medicare and Medicaid patients cannot

be carved out of a managed care plan’s

incentive programs, and that a loss of

administrative efficiencies could result

if plans need to handle program

beneficiaries differently than others

covered under group plans.

Response: We do not believe that

existing utilization review mechanisms

are sufficient to protect the Medicare

and Medicaid programs against abuses

associated with self-referral. One major

problem is that there are no widely

accepted definitions or standards

governing utilization review. This

presents a major barrier to drafting a

safe harbor with clear, well-defined

standards. Additionally, most

utilization review activity is focused on

expensive procedures or on patterns of

care, and therefore does not address

individual physician decisions on

diagnostic or other treatment services,

where many self-referral abuses occur.

Utilization review is also designed to

identify and address medical care that

falls outside of accepted medical

parameters or norms. Most of the

problems we have observed in the area

of self-referral involve physician

treatment decisions that are within the

range of accepted parameters or norms,

but where financial incentives may

improperly influence or affect physician

judgments. Accordingly, we are not at

all confident that utilization review will

cure or prevent self-referral problems

that the anti-kickback statute was

intended to address. Therefore, it would

be unwise to adopt utilization review

mechanisms as an appropriate standard

for safe harbor protection.

Where Medicare or Medicaid are

responsible for paying for a portion of

the care rendered to enrollees of a

managed care plan, the plan must

already have some procedures that are

different from those used where the

plan is solely responsible for the cost of

care. For example, separate claims must

be submitted to those programs either

before or after claims are submitted to

the managed care health plan. We

believe that managed care plans can

handle potential differences between

Medicare’s and the plan’s coinsurance

amounts in ways that are efficient and
Federal Register / Vol. 61, No. 17 / Thursday, January 25, 1996 / Rules and Regulations 2131

economical as well as in compliance

with the requirements of Federal law.

Comment: One commenter

specifically urged that safe harbor

protection should be limited to plans

under contract with HCFA or a State

agency, arguing that if it is broadened it

will result in unfair competitive

practices and illegal waivers of

coinsurance and deductibles. A second

commenter agreed, but believed an

exception should be made for situations

where dual coverage exists and the

second plan adopts a non-duplication of

benefits or preservation of deductibles

and coinsurance posture.

Response: We share the concerns of

the commenters that expansion of the

safe harbor provision could result in

abusive or illegal practices. As we

indicated in an earlier response, we

remain concerned that because services

provided to enrollees of non-contract

plans are reimbursed on a fee-for-service

basis, the plans would pose the same

risks to the Medicare and Medicaid

programs as typical fee-for-service

plans. In the case of contract plans, the

reimbursement formulae take into

account the cost sharing obligations of

beneficiaries that the Medicare or

Medicaid programs may require, so

there is no problem with illegal waivers

of coinsurance or deductibles. We also

believe that the rules applicable to

contract plans and the oversight

provided by HCFA or a State Medicaid

agency should be sufficient to prevent

anti-competitive or other abusive

practices from occurring in contract

plans.

We do not believe that a special safe

harbor provision is necessary or

warranted at this time to deal with dual

coverage situations. Dual coverage is

where a person is covered by more than

one health insurance policy. An

example would be where a husband and

wife are both employed and each is

covered by an employer policy that

includes family members. We do not

believe that dual coverage (to be

distinguished from Medicare

supplemental or Medigap coverage) is a

problem that affects significant numbers

of Medicare or Medicaid beneficiaries.

Companies are expressly prohibited by

law from selling Medicare beneficiaries

health insurance coverage that

duplicates any existing coverage that

they may have. Medicaid is a payer of

last resort and will not pay for services

covered by other health insurance or

plans.

4. Price Reduction Agreements

Comment: One commenter questioned

why the price reduction safe harbor

applicable to plans not under contract

with HCFA or a Medicaid State agency

was drafted on a fee-for-service concept.

Response: The safe harbor was drafted

in this manner because that is how the

Medicare and Medicaid programs

almost exclusively pay for services

furnished to program beneficiaries by

non-contract managed care health plans

or by providers who are affiliated with

non-contract plans. Such plans and

providers are reimbursed for each

separate covered service provided to

Medicare or Medicaid beneficiaries on

the basis of fee schedules or allowable

charges. Capitated payment

arrangements and reasonable costrelated reimbursement are only directly

allowed in plans which are under

contract. We have dealt with those types

of arrangements in the first two parts of

the price reduction safe harbor dealing

with plans under contract with HCFA or

a Medicaid State agency. Therefore, we

did not believe it was necessary or

appropriate to provide for safe harbor

protection for other types of payment

mechanisms in the price reduction safe

harbor for non-contract plans.

Comment: Many commenters objected

to the fact that this safe harbor

exempted only remuneration in the

form of a reduction in the provider’s

usual charge for the service, thereby not

protecting capitation agreements,

bonuses, and withhold arrangements.

These commenters believed that the safe

harbor should protect all HMO or PPO

compensation arrangements, including

risk incentive pools and volume rebates,

so long as they were not linked to

referrals of Medicare or Medicaid

patients.

Response: We have reconsidered our

position that we did not need to address

capitated arrangements in the safe

harbor for price reductions in noncontract health plans. Although the

Medicare and Medicaid programs may

pay for services on a fee-for-service

basis, some health plans contract with

individual health care providers for the

provision of services using a variety of

different mechanisms, including

capitation. Since the amount paid to a

provider under a capitated arrangement

may represent a reduction in the

amount he or she would otherwise

receive for treating a particular patient

and the provider agrees to accept such

payment amount in return for an agreed

upon or anticipated flow of patients, the

anti-kickback statute may be implicated.

Therefore, we believe that some

protection for these arrangements may

be warranted.

Our experience has indicated that the

most common risks that the antikickback statute is directed toward

preventing are not present in the case of

at-risk, capitated payment mechanisms.

Where a provider is paid a fixed amount

for all the services provided to a patient,

there is no incentive for overutilization.

If anything, there is an incentive to

underutilize. Accordingly, the Medicare

and Medicaid programs face little risk of

overutilization or the increased costs

that accompany such overutilization

where services are provided by a

provider who is paid solely on an at-risk

or capitated basis. For these reasons, we

believe it would be appropriate for us to

provide safe harbor protection for such

arrangements.

Accordingly, we have revised the

price reduction safe harbor to add a new

category of price reduction agreement

applicable to capitated payment

arrangements to providers. In order to

qualify for safe harbor protection, both

the health plan and the contract health

care provider must comply with five

standards. First, the term of the

agreement must be for not less than one

year. Second, the agreement must

specify the covered items or services

that will be furnished to enrollees of the

plan and the total amount per enrollee

that the provider will be paid for such

covered items or services, including any

copayments to be paid by enrollees. The

amount the provider will be paid per

enrollee may be expressed in a per

month or other time period basis. Third,

the payment amount set forth in the

agreement must remain in effect

throughout the term of the agreement.

Fourth, the health plan and the provider

must fully and accurately report to the

Medicare and State health care

programs upon request, the terms of the

agreement and the amounts paid in

accordance with the agreement. Finally,

the provider must not claim or request

payment in any form from the

Department, a State health care program

or an enrollee (other than specified

copayment amounts) for covered items

or services. Similarly, the health plan

must not pay the provider in excess of

the amounts provided by the agreement

for the provision of covered items or

services.

For the most part, the conditions

applicable to this new category of price

reduction agreement are the same or

comparable to those applicable to feefor-service arrangements. We believe

these conditions are necessary to

prevent plans or providers from

manipulating the terms of the agreed

upon arrangement and adjusting the

level of reimbursement or the scope of

covered services for improper or illegal

purposes. We believe that providers and

plans should take steps to ensure that

they have sufficient information

concerning the costs of providing
2132 Federal Register / Vol. 61, No. 17 / Thursday, January 25, 1996 / Rules and Regulations

services and the frequency and types of

services that will be required for the

plan’s enrollees before they enter into

these types of arrangements. We believe

that the restrictions on seeking or

paying additional amounts for covered

services and the requirements for

disclosure are necessary to ensure that

the Medicare and Medicaid programs

are not being charged excessive or

inappropriate amounts.

We have declined to provide specific

safe harbor protection to withhold

pools, risk incentive pools, or other

types of incentive programs offered by

non-contract managed care plans. One

problem we have with these types of

arrangements is that there are no

uniform standards or definitions

applicable to each of these different

types of mechanisms. Each health plan

sets its own standards or risk pools and

determines the amounts that will be

paid or withheld. Because these types of

arrangements vary so widely in amounts

and scope, and because there are no

commonly accepted minimum

standards as to what criteria an

incentive plan should include, we do

not believe that it would be feasible for

us to set adequate or appropriate

minimum standards for a safe harbor.

Moreover, because these types of

payment mechanisms offer additional

remuneration to providers that is related

to the volume or value of services

provided, their use is particularly

vulnerable to abuse. They can be used

to manipulate provider payment levels

and can be used to inappropriately

affect the flow of Medicare and

Medicaid reimbursable business. We are

not confident that we could create a safe

harbor where we would be reasonably

certain that any individual incentive

plan qualifying for protection would be

non-abusive.

We also believe that withhold

arrangements present additional

problems. We are concerned that in

some cases providers subject to a

withhold may be submitting false claims

to the Medicare and Medicaid programs.

If the provider does not ultimately

receive the withheld amount or does not

have a reasonable expectation of

receiving it, and includes the full

amount of the potential fee on the claim

form, he or she has misrepresented the

amount of his or her fee and stands to

be overpaid by the Medicare or

Medicaid programs. For example, if a

provider’s agreed upon fee is $100 but

the health plan has a 20 percent

withhold in place, he or she is only

assured of receiving $80 in payment for

the services provided. If that provider

submits a claim to the Medicare

program for $100 and is paid $80, that

provider will have received full

payment from the Medicare program

unless he or she also receives the

withheld amount. The net effect is the

same as an express waiver of

coinsurance.

In some cases involving withholds,

there is little likelihood that the

payment amounts withheld will

actually be made to providers. We are

unwilling to protect any practice that

may result in the submission of false or

improper claims to the programs.

Comment: Some commenters objected

to the fact that this safe harbor provision

does not recognize compensation based

on reasonable and customary

allowances, such as a discount from

usual charges.

Response: We believe that reasonable

and customary or usual charges have no

fixed meaning and are subject to change

at the provider’s discretion and,

therefore, subject to manipulation and

abuse. We believe it is necessary to have

a fixed and identifiable list of charges

and services in order to be able to

determine compliance with the terms of

the safe harbor. If the provider had a list

of his or her reasonable and customary

or usual charges that was incorporated

as a part of the agreement with the

health plan, and the agreement specified

that the agreed upon payment rate

would be 80 percent of the charges on

the list, we believe that would be

acceptable under the terms of the safe

harbor because the price for each service

would be a fixed and readily

ascertainable amount. Of course, it

would be the reduced amount that is the

provider’s charge for services to the

plan’s enrollees, not the reasonable and

customary or usual charge, and that

reduced amount would be required to

be submitted on any claims or requests

for payment to the Medicare or

Medicaid programs for services

rendered to plan enrollees.

Comment: Some commenters objected

to the prohibition against submitting a

claim in excess of the fee schedule

because it prohibits plans or

intermediaries that operate by

negotiating discounts with providers

and marking up the fees to the

purchaser. This is the PPO’s mechanism

for defraying its costs. They indicated

that such arrangements should be

allowed because fees are still less than

what the purchaser would otherwise

pay. Specifically, commenters stated

that the safe harbor should cover fees to

providers that are a percentage of

charges billed by the contracting

provider and are attributable to the

PPO’s marketing services to third party

payers.

Response: We believe any

arrangements that set fees based on the

volume or value of services provided to

patients are subject to abuse and

therefore, we decline blanket protection

for them. We have seen instances where

such payments are really only thinly

disguised attempts to pay for referrals.

Moreover, there is also no guarantee that

the marked-up charges submitted to the

Medicare and Medicaid programs would

be any lower than the provider’s usual

charges to the programs. Thus, there is

no guarantee that the programs will

benefit from allowing such

arrangements. We believe that there are

enough other options a PPO can employ

to cover its administrative or marketing

costs. The PPO can include such costs

in the premiums charged to plan

enrollees or in fees charged to insurers

or employers where the PPO

administers the plan for such entities.

The PPO is also free to enter into

separate contracts with providers for

management services. Of course, in

order to qualify for safe harbor

protection, such contracts would have

to meet the terms of the safe harbor on

management or personal services

contracts. We also wish to emphasize

that by not protecting such payment

mechanisms under the safe harbor, we

do not prohibit them, as the commenters

believe. The failure to fall within a safe

harbor means only that they are subject

to the anti-kickback statute in precisely

the same manner that they were prior to

the issuance of the safe harbor.

Comment: Some commenters opposed

the regulation’s ‘‘sole purpose’’

requirement as being inconsistent with

the structures of managed care plans.

These commenters argued that

providers qualifying for the safe harbors

should be allowed to contribute

activities such as pre-enrollment

screening, utilization review and quality

assurance services.

Response: Our intent in creating the

safe harbor for price reduction

agreements was to protect only those

discounts given by contract health care

providers for the items and services they

furnish to enrollees. In order to ensure

that we can determine whether the

discounts given by providers comply

with all of the requirements of the safe

harbor, it is necessary to have a separate

agreement that covers only the

discounted arrangements that fall

within the scope of the safe harbor. We

have not prohibited managed care

entities from entering into separate

agreements with providers for other

activities such as utilization review, preenrollment screening or even marketing

activities. However, contracts for such

activities will be scrutinized separately
Federal Register / Vol. 61, No. 17 / Thursday, January 25, 1996 / Rules and Regulations 2133

and will only be afforded safe harbor

protection if they meet the requirements

of the existing management and

personal services safe harbor.

We are unwilling to expand the price

reduction safe harbor to cover these

activities because, as we noted in the

preamble to the interim final rule, we

have observed that some HMOs have

abused their contractual relationships

with medical groups where individuals

in the groups have conducted abusive or

illegal activities on behalf of the HMO.

For instance, various contract health

plans have engaged in pre-enrollment

screening in order to deny or discourage

relatively sick beneficiaries from

enrolling. Such activities in at least one

case resulted in a criminal conviction.

Additionally, it is easy to manipulate

agreements for the provision of

utilization review services and other

activities to make payments to reward

providers for certain actions or to

provide additional reimbursement to

certain providers in violation of the

anti-kickback statute. For these reasons,

we believe the standards of the

management and personal services safe

harbor should continue to be applied to

personal services contracts between

managed care entities and contract

health care providers.

Comment: A number of commenters

wanted the OIG to protect volumesensitive fee schedules, subject to

‘‘possible pricing adjustments,’’ if the

schedule is stated in the contract and

not increased during its term. These

commenters would like to render higher

payment to providers who service a

greater number of managed care patients

to ensure access to care.

Response: We decline to protect

volume-sensitive fee schedules. We

have found that volume-sensitive

reimbursement levels are often

extremely abusive. These types of

schedules offer increased incentives for

providers to overutilize, since the

payments they receive will be higher if

they provide more services to more

patients. We are not sure what one of

the commenters meant specifically by

the term ‘‘possible pricing adjustments,’’

but we are concerned that any such

adjustments could create a referraldriven mechanism that would not serve

the interests of the programs. We believe

that other mechanisms exist through

which health plans may ensure that

providers give adequate coverage to

patients or through which plans could

reimburse providers who agree to treat

a larger number of plan enrollees. For

example, plans could require that

providers agree to treat minimum

numbers of enrollees and set the amount

of compensation based on that number.

Alternatively, providers could agree to

treat all plan enrollees who need

services up to a certain number, with

higher reimbursement levels for larger

numbers of patients.

Comment: Several commenters took

exception to the one-year term

minimum requirement, contending that

it excludes common contract terms,

such as reciprocal termination clauses

and inhibits plans, that may need to

contract with a particular provider for

less than one year. Other commenters

argued that the requirement unduly

restricts HMOs and does not allow for

alterations based on changed

circumstances. These commenters

asserted that a change during the

contract year in the percentage of fee

schedule an HMO will pay is not a

means of inducing referrals of patients

enrolled in a plan.

Response: We have found that

reciprocal termination clauses can result

in parties engaging in ‘‘sham’’ contracts

whereby they terminate the contract and

renegotiate terms to gain more favorable

financial positions. Alternatively, they

may terminate contracts in order to

enter into contracts with more favorable

financial terms with other providers.

These renegotiations may affect the flow

of Medicare or Medicaid reimbursable

business. We believe it is necessary for

the contracts to have a fixed term of at

least one year in order to avoid such

manipulations. We have adopted a oneyear term for all of the safe harbor

provisions involving contracts. The

commenters have not demonstrated any

reasons why managed care contracts

necessitate a different length.

Accordingly, if parties alter contractual

terms based on purportedly changed

circumstances, that alteration will not

enjoy safe harbor protection.

Termination ‘‘for cause’’ clauses drafted

in compliance with Internal Revenue

Service or other legal or regulatory

requirements should not jeopardize safe

harbor status if the purpose of the

termination clause is to comply with

these requirements and not to facilitate

renegotiation of contract terms. If a

contract is terminated in accordance

with a legally enforceable termination

clause, the failure to renew the contract

would indicate that the termination was

effectuated for a legitimate business

purpose. As to other types of

termination clauses, the OIG will

examine such conduct on a case-by-case

basis to assess whether it is abusive and

harmful.

We acknowledge that health care

providers may enter into short-term

service contracts for legitimate business

reasons and not because of referral

opportunities. However, we cannot

ensure that only legitimate short-term

contracts will be covered if we delete

the one-year requirement. We would

also note that the one-year term does not

refer to the length of time that services

will be necessarily provided, but rather

to the length of time within which the

fees for the services covered by the

agreement may not be changed. So long

as the contract terms are not altered

within a one-year period, an agreement

that is performed in less than one year

will meet the one-year requirement in

the safe harbor provision.

Comment: Some commenters

requested that the price reductions

allowed under the safe harbor should be

limited to a specific amount, e.g., a

Medicare-approved rate or a percentage.

They claimed that this restriction is

necessary to prevent providers from

accepting below-cost prices and

increasing prices for non-managed care

Medicare patients and others.

Response: We understand that

providers negotiate discounted prices

with health plans in order to increase

the number of patients in their

practices. Providers may expect that

they can make up for the reductions in

their charges by providing services to a

greater number of patients. Generally,

providers may anticipate a certain

number of new patients as a result of

entering into a contract with a managed

care plan. However, the commenters

raise a valid concern that the price

reductions given, if great enough, may

shift the burden of the price reduction

to others by resulting in increased prices

for non-managed care Medicare

patients. We have specifically addressed

that concern in the safe harbor by

including a prohibition against costshifting onto the Medicare or State

health care programs. Therefore, we are

not convinced that setting limitations on

the amount of a discount a provider may

offer is necessary to prevent abuse. We

also believe that the wide variations in

providers’ rates and costs make

identifying a fixed ‘‘below-cost’’ point

virtually impossible. We would have to

assess a provider’s entire billing practice

to determine whether, in a given case,

services were offered at rates below

actual cost.

Comment: A number of commenters

contended that managed care plans

cannot reasonably ensure that its

contract providers are not submitting

claims which violate the contract’s

terms or claims that exceed the fee

schedule. According to these

commenters, Medicare should recoup

the amounts erroneously paid to the

provider rather than deprive both the

provider and the plan of safe harbor

protection.
2134 Federal Register / Vol. 61, No. 17 / Thursday, January 25, 1996 / Rules and Regulations

Response: We believe it is appropriate

to condition the granting of safe harbor

protection on compliance by both plans

and providers. Managed care health

plans have an ongoing relationship with

contract health care providers that

includes monitoring and utilization

review of the services provided to plan

enrollees. This relationship is different

from the usual relationship between

buyers and sellers. Because of this

special, ongoing relationship, health

plans have a greater ability to monitor

and ensure compliance with the

requirements of the safe harbor

regarding the submission of claims to

the Medicare or Medicaid programs.

Unless plans are held accountable in

some way for the propriety of claims

submitted to the programs, they will

have no interest in ensuring the

accuracy of those claims.

We also believe that health plans have

available to them several ways to

monitor or ensure compliance. For

example, plans may require that the

plan submit all claims to the Medicare

or Medicaid programs. Alternatively, as

part of their contracts with providers,

plans have the ability to require

providers to furnish copies of claims

submitted to the programs for plan

enrollees or to allow a review of their

billing records. Plans can include as a

contract term the requirement to submit

program claims according to the agreed

upon fee schedule and provide for

termination of the contract for noncompliance. We would also expect

plans to report to the Medicare or

Medicaid programs any contract-related

violations of which they become aware

so the programs can take appropriate

steps to deal with the improper billing,

including recovery of any overpayments

made to the provider. We would

consider the actions taken by the health

plan in deciding whether any action

was warranted under the anti-kickback

statute.

Comment: Several commenters wrote

that the price reduction safe harbor

imposes unnecessary and impractical

standards regarding advance disclosure

of covered fees and services, fee

schedules and cost shifting that will

impede negotiations and increase costs.

These commenters urged the OIG to

permit other methods of describing

covered items or services, such as

incorporation by reference of benefit

summaries.

Response: We are uncertain how the

requirement that the agreement spell out

the agreed-upon fees will result in an

increase in costs or will impede

negotiations between health plans and

providers. This safe harbor merely

requires that the agreement specify in

writing what the parties have already

agreed upon, i.e., the items and services

that will be furnished to plan enrollees

and the prices that the provider will

charge for them. We have no objections

if the parties wish to reference the

covered items and services and the

schedule of fees for those services in an

attachment to the contract. However,

those attachments must clearly indicate

the specific amounts that will be paid to

the provider for each of the covered

items and services he or she furnishes

to plan enrollees in order to comply

with the safe harbor. General summaries

of plan benefit coverage and references

to percentages of usual charges will not

suffice. We reserve the right to closely

scrutinize these attachments to ensure

that the parties have adequately

identified these items or services. We

believe it is important for both the

providers and the plans to know what

the contract covers and the amounts

they are entitled to bill the plan, the

Medicare and Medicaid programs and

the program beneficiaries.

Comment: One commenter objected to

the safe harbor requirements on the

grounds that managed care contracts

with providers rarely establish fees for

services covered by others nor do they

specify billing procedures for services

not billable to the managed care plan.

Response: We believe that the

commenter has misconstrued the safe

harbor’s requirements. The safe harbor

does not broaden the scope of managed

care plans’ coverage to services covered

by other plans nor does it require a price

reduction agreement between a

managed care plan and a provider to

establish fees for services provided by

others or for services not billable to the

plan. The agreement need only identify

those services that the provider will be

paid for by the plan and only those

services that are covered by the plan

and provided to plan enrollees.

IV. Additional Information

A. Regulatory Impact Statement

The Office of Management and Budget

(OMB) has reviewed this revised final

rule in accordance with the provisions

of Executive Order 12866. As indicated

in the original safe harbor provisions

published on July 29, 1991 and the

interim final rule for these safe harbors

published on November 5, 1992, the

safe harbor provisions set forth in this

rulemaking are designed to permit

individuals and entities to freely engage

in business practices and arrangements

that encourage competition, innovation

and economy. In doing so, these

regulations impose no requirements on

any party. Health care providers and

others may voluntarily seek to comply

with these provisions so that they have

the assurance that their business

practices are not subject to any

enforcement action under the antikickback statute. As such, we believe

that the economic impact of these

regulations is minimal and have no

effect on the economy or on Federal or

State expenditures.

In addition, we generally prepare a

regulatory flexibility analysis that is

consistent with the Regulatory

Flexibility Act (5 U.S.C. 601–612). We

believe that the majority of health care

providers and practitioners do not

engage in illegal remuneration schemes,

and that the aggregate economic impact

of this provision should, in effect, be

minimal, affecting only those who have

chosen to engage in prohibited payment

schemes in violation of the statutory

intent. As indicated above, this revised

final rule serves to clarify various

aspects of the safe harbor provisions

originally published on November 5,

1992 to enable entities to more easily

immunize themselves from potential

criminal and administrative sanctions,

and to eliminate potential barriers to the

provision of coordinated health care

under the Medicare and State health

care programs. As a result, we have

determined, and the Secretary certifies,

that this final rule will not have a

significant economic impact on a

number of small business entities, and

we have, therefore, not prepared a

regulatory flexibility analysis.

B. Paperwork Reduction Act

Under the Paperwork Reduction Act

of 1995, agencies are required to provide

60-day notice in the Federal Register

and solicit public comment before a

collection of information requirement is

submitted to OMB for review and

approval. In order to fairly evaluate

whether an information collection

should be approved by OMB, section

3506(c)(2)(A) of the Paperwork

Reduction Act of 1995 requires that we

solicit comments on the following

issues:

• Whether the information collection

is necessary and useful to carry out the

proper functions of the agency;

• The accuracy of the agency’s

estimate of the information collection

burden;

• The quality, utility and clarity of

the information to be collected; and

• Recommendations to minimize the

information collection burden on the

affected public, including automated

collection techniques.

As a result, we are soliciting public

comment on the information collection

requirements being set forth in sections
Federal Register / Vol. 61, No. 17 / Thursday, January 25, 1996 / Rules and Regulations 2135

1001.952(m)(1) (ii), (iii) and (iv) of these

regulations.

Under the safe harbor for price

reductions offered to health plans, if a

health plan is an HMO, competitive

medical plan, health care prepayment

plan, prepaid health plan or other

health plan that has executed a contract

or agreement with HCFA or a State

health care program to receive payment

for enrollees on a reasonable cost or

similar basis, the health plan and the

contract health care provider must

comply with four standards. One of

those standards is that the plan must

fully and accurately report the amount

it has paid the contract health care

provider under the agreement for the

covered items and services furnished to

enrollees on the applicable cost report

or other claim form filed with the

Department or the State health care

program (§ 1001.952(m)(1)(ii)).

Similarly, if a health plan is not

described in section 1001.952(m)(1) (i)

and (ii) of the regulations, and the

contract health care provider is not paid

on an at-risk, capitated basis, both the

plan and contract provider must, among

the six standards set forth, fully and

accurately report any cost report filed

with Medicare or a State health care

program the fee schedule amounts

charged in accordance with the

agreement (§ 1001.952(m)(1)(iii)).

In addition, under sections

1001.952(m)(1) (iii) and (iv), both the

health plan and the provider, upon

request, must report to the Medicare or

State health care program the terms of

the agreement and amounts paid in

accordance with the agreement.

We estimate that the current burden

associated with the submitting the data

would be minimal, i.e., less than one

hour per request. Specifically, we

anticipate that any data request will not

involve the creation of any new

documents or the calculation of new

figures by entities. Rather, we would be

seeking only copies of those agreements

that have already been executed by

entities and those amounts paid to

individual providers that are already

maintained for general business and tax

purposes. Since most plans maintain

such information on electronic data

bases and have these contracts on file,

we believe such requests can be

produced and provided in less than one

hour’s time. Further, we believe that

only a very small number of plans and

providers—less than 3 percent of the

nation’s health care plans and contract

providers—would be potentially

impacted by this request. Accordingly,

we estimate that the total number of

requests will be no more than 10 to 12

per year since they will be made only

where there is a question of whether a

specific plan or provider has violated

the statute and claims immunity based

on these safe harbor regulations. Based

on an estimate of less than one dozen

requests per year, the estimated total

burden on these entities will be under

20 hours.

This information collection and

recordkeeping requirement is not

effective until it has been approved by

OMB. A notice will be published in the

Federal Register when approval is

obtained. As indicated in the

INFORMATION CONTACT section at the

beginning of this preamble,

organizations and individuals wishing

to submit comments on this information

collection and recordkeeping

requirement should direct them to the

Office of Inspector General, Office of

Management and Policy, Room 5550,

Cohen Building, Washington, D.C.

20201, Attention: Joel Schaer,

Regulations Officer.

C. Department of Justice Review

In accordance with the provisions of

Public Law 100–93, these regulations

have been developed in consultation

with the Department of Justice.

List of Subjects in 42 CFR Part 1001

Administrative practice and

procedure, Fraud, Health facilities,

Health professions, Medicare.

TITLE 42—PUBLIC HEALTH

CHAPTER V—OFFICE OF INSPECTOR

GENERAL—HEALTH CARE, DEPARTMENT

OF HEALTH AND HUMAN SERVICES

42 CFR Part 1001 is amended as set

forth below:

PART 1001—PROGRAM INTEGRITY—

MEDICARE AND STATE HEALTH

CARE PROGRAMS

1. The authority citation for part 1001

is revised to read as follows:

Authority: 42 U.S.C. 1302, 1320a–7,

1320a–7b, 1395u(j), 1395u(k), 1395y(e), and

1395hh.

2. Section 1001.952 is amended by

republishing the introductory text of

both paragraph (k) and (k)(1) and

revising paragraphs (k)(1)(iii), (l), and

(m) to read as follows:

§ 1001.952 Exceptions.

* * * * *

(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—

* * * * *

(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.

* * * * *

(l) Increased coverage, reduced costsharing 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 HCFA 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 HCFA 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 HCFA or with a State

health care program to receive payment
2136 Federal Register / Vol. 61, No. 17 / Thursday, January 25, 1996 / Rules and Regulations

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 HCFA 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

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

HCFA 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 HCFA

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 HCFA

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 HCFA 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 HCFA

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 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
Federal Register / Vol. 61, No. 17 / Thursday, January 25, 1996 / Rules and Regulations 2137

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.

Dated: June 21, 1995.

June Gibbs Brown,

Inspector General.

Approved: September 12, 1995.

Donna E. Shalala,

Secretary, Department of Health and Human

Services.

[FR Doc. 96–1073 Filed 1–24–96; 8:45 am]

BILLING CODE 4150–04–P

DEPARTMENT OF THE INTERIOR

Bureau of Land Management

43 CFR Chapter II

[WO–420–1820–00–24 1A]

RIN 1004–AC47

Table of Public Land Orders; Removal

AGENCY: Bureau of Land Management,

Interior.

ACTION: Final rule; removal.

SUMMARY: This administrative final rule

removes the Appendix to 43 CFR

chapter II which constitutes a Table of

Public Land Orders (PLOs), 1942-

Present.

EFFECTIVE DATE: February 26, 1996.

FOR FURTHER INFORMATION CONTACT:

Matthew Reed, 202–452–5069.

SUPPLEMENTARY INFORMATION: The

Bureau of Land Management (BLM) is

not statutorily required to include this

Appendix in the CFR. The material

contained in the Appendix is an

unindexed, strictly chronological list of

PLOs from 1942 until 1995. The Table

includes only a PLO number, a

signature date, a brief subject heading

describing effect, and a Federal Register

citation for each PLO. The Table is

organized neither geographically nor by

subject classification. In sum, the Table

is of extremely limited utility as a

reference tool for persons attempting to

determine the status of any particular

tract of the public lands. The public

may obtain the relevant information

contained in the Appendix more

efficiently by contacting the BLM State

Office managing the subject lands. The

master title plat for each jurisdiction

will reveal the impact of any and all

PLOs affecting the public lands within

the jurisdiction. Additionally, the BLM

will maintain the Table electronically

on the Bureau’s Internet Homepage.

The 1996 edition of title 43 of the CFR

will be the last to include the Appendix.

This edition may be retained for future

reference. Additionally, one may

consult the annual Federal Register

index to locate Public Land Orders

issued within any subsequent given

year. As the Appendix currently

comprises nearly 200 pages of printed

text in Title 43 of the CFR, removal of

the Appendix will produce significant

cost and printed space savings for the

BLM without depriving the public of its

sole or best source of information

concerning the PLOs. In light of the

foregoing analysis, the BLM has

determined for good cause that notice

and public procedure on this rule are

unnecessary and contrary to the public

interest. The principal author of this

final rule is Matthew Reed, Regulatory

Management Team, BLM.

This rule is an administrative action

and not a major rule for the purposes of

E.O. 12291. Accordingly, neither an

environmental impact analysis nor a

regulatory flexibility analysis is

required. This rule does not contain

information collection requirements that

require approval by the Office of

Management and Budget under 44

U.S.C. 3501 et seq.

List of Subjects for 43 CFR Chapter II

Public land orders.

For the reasons stated in the preamble

and under the authority of 43 USC 1740,

the Appendix to chapter II of subtitle B

of title 43 of the Code of Federal

Regulations is removed in its entirety.

Appendix to Chapter II of Subtitle B

[Removed]

Removed in its entirety.

Dated: December 18, 1995.

Bob Armstrong,

Assistant Secretary of the Interior.

[FR Doc. 96–1183 Filed 1–24–96; 8:45 am]

BILLING CODE 4310–84–P

43 CFR Public Land Order 7179

[CA–940–5700–00; CACA 32220]

Withdrawal of National Forest System

Land for a University of CaliforniaBerkeley Seismic Observatory;

California

AGENCY: Bureau of Land Management,

Interior.

ACTION: Public land order.

SUMMARY: This order withdraws 45 acres

of National Forest System land from

mining for a period of 20 years to

protect the seismic integrity of a

University of California-Berkeley

seismic observatory. The land has been

and will remain open to mineral leasing.

EFFECTIVE DATE: January 25, 1996.

FOR FURTHER INFORMATION CONTACT:

Duane Marti, BLM California State

Office (CA–931), 2800 Cottage Way,