I
103D CONGRESS
1ST SESSION
H. R. 3046
To amend the Public Health Service Act to limit the referral by a physician
to certain services in which the physician has a financial relationship.
IN THE HOUSE OF REPRESENTATIVES
SEPTEMBER 9, 1993
Mr. WAXMAN (for himself and Mr. STARK) introduced the following bill; which
was referred to the Committee on Energy and Commerce
A BILL
To amend the Public Health Service Act to limit the referral
by a physician to certain services in which the physician
has a financial relationship.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Physician Ownership
and Referral Act of 1993’’.
SEC. 2. PUBLIC HEALTH SERVICE ACT AMENDMENT.
(a) IN GENERAL.—The Public Health Service Act is
amended by adding at the end the following new title:
‘‘TITLE XXVII—LIMITATION ON
CERTAIN PHYSICIAN REFER-
RALS
‘‘SEC. 2701. LIMITATION ON CERTAIN PHYSICIAN REFER-
RALS.
‘‘(a) PROHIBITION OF CERTAIN REFERRALS.—
‘‘(1) IN GENERAL.—Except as provided in sub-
section (b), if a physician (or an immediate family
member of such physician) has a financial relation-
ship with an entity specified in paragraph (2),
then—
‘‘(A) the physician may not make a refer-
ral to the entity for the furnishing of designated
health services for which a charge is imposed,
and
‘‘(B) the entity may not present or cause
to be presented a claim or bill to any individual,
third party payor, or other entity for designated
health services furnished pursuant to a referral
prohibited under subparagraph (A).
‘‘(2) FINANCIAL
RELATIONSHIP
SPECIFIED.—
For purposes of this section, a financial relationship
of a physician (or an immediate family member of
such physician) with an entity specified in this para-
graph is—
‘‘(A) except as provided in subsections (c)
and (d), an ownership or investment interest in
the entity, or
‘‘(B) except as provided in subsection (e),
a compensation arrangement (as defined in sub-
section (h)(1)) between the physician (or an im-
mediate family member of such physician) and
the entity.
An ownership or investment interest described in
subparagraph (A) may be through equity, debt, or
other means and includes an interest in an entity
that holds an ownership or investment interest in
any entity providing the designated health service.
‘‘(b) GENERAL EXCEPTIONS TO BOTH OWNERSHIP
AND COMPENSATION ARRANGEMENT PROHIBITIONS.—
Subsection (a)(1) shall not apply in the following cases:
‘‘(1) PHYSICIANS’ SERVICES.—In the case of
physicians’ services (as defined in section 1861(q) of
the Social Security Act) provided personally by (or
under the personal supervision of) another physician
in the same group practice (as defined in subsection
(h)(4)) as the referring physician.
‘‘(2) IN-OFFICE ANCILLARY SERVICES.—In the
case of services (other than durable medical equip-
ment (excluding infusion pumps) and parenteral and
enteral nutrients, equipment, and supplies)—
‘‘(A) that are furnished—
‘‘(i) personally by the referring physi-
cian, personally by a physician who is a
member of the same group practice as the
referring physician, or personally by indi-
viduals who are directly supervised by the
physician or by another physician in the
group practice, and
‘‘(ii)(I) in a building in which the re-
ferring physician (or another physician
who is a member of the same group prac-
tice) furnishes physicians’ services unre-
lated to the furnishing of designated health
services, or
‘‘(II) in the case of a referring physi-
cian who is a member of a group practice,
in another building which is used by the
group practice—
‘‘(aa) for the provision of some or
all of the group’s clinical laboratory
services, or
‘‘(bb) for the centralized provi-
sion of the group’s designated health
services (other than clinical laboratory
services),
unless the Secretary determines other
terms and conditions under which the pro-
vision of such services does not present a
risk of program or patient abuse, and
‘‘(B) that are billed by the physician per-
forming or supervising the services, by a group
practice of which such physician is a member
under a billing number assigned to the group
practice, or by an entity that is wholly owned
by such physician or such group practice,
if the ownership or investment interest in such serv-
ices meets such other requirements as the Secretary
may impose by regulation as needed to protect
against program or patient abuse.
‘‘(3) PREPAID PLANS—In the case of services
furnished by an organization—
‘‘(A) with a contract under section 1876 of
the Social Security Act to an individual enrolled
with the organization,
‘‘(B) described in section 1833(a)(1)(A) of
such Act to an individual enrolled with the or-
ganization,
‘‘(C) receiving payments on a prepaid
basis, under a demonstration project under sec-
tion 402(a) of the Social Security Amendments
of 1967 or under section 222(a) of the Social
Security Amendments of 1972, to an individual
enrolled with the organization, or
‘‘(D) that is a qualified health maintenance
organization (within the meaning of section
1310(d)) to an individual enrolled with the or-
ganization.
‘‘(4) OTHER
PERMISSIBLE
EXCEPTIONS.—In
the case of any other financial relationship which the
Secretary determines, and specifies in regulations,
does not pose a risk of program or patient abuse.
‘‘(c) GENERAL EXCEPTION RELATED ONLY TO OWN-
ERSHIP OR INVESTMENT PROHIBITION FOR OWNERSHIP
IN
PUBLICLY
TRADED
SECURITIES
AND
MUTUAL
FUNDS.—Ownership of the following shall not be consid-
ered to be an ownership or investment interest described
in subsection (a)(2)(A):
‘‘(1) Ownership of investment securities (includ-
ing shares or bonds, debentures, notes, or other debt
instruments) which may be purchased on terms gen-
erally available to the public and which are—
‘‘(A)(i) securities listed on the New York
Stock Exchange, the American Stock Exchange,
or any regional exchange in which quotations
are published on a daily basis, or foreign securi-
ties listed on a recognized foreign, national, or
regional exchange in which quotations are pub-
lished on a daily basis, or
‘‘(ii) 
traded 
under 
an 
automated
interdealer quotation system operated by the
National Association of Securities Dealers, and
‘‘(B) in a corporation that had, at the end
of the corporation’s most recent fiscal year, or
on average during the previous 3 fiscal years,
stockholder equity exceeding $75,000,000.
‘‘(2) Ownership of shares in a regulated invest-
ment company as defined in section 851(a) of the
Internal Revenue Code of 1986, if such company
had, at the end of the company’s most recent fiscal
year, or on average during the previous 3 fiscal
years, total assets exceeding $75,000,000.
‘‘(d) ADDITIONAL EXCEPTIONS RELATED ONLY TO
OWNERSHIP OR INVESTMENT PROHIBITION.—The follow-
ing, if not otherwise excepted under subsection (b), shall
not be considered to be an ownership or investment inter-
est described in subsection (a)(2)(A):
‘‘(1) HOSPITALS IN PUERTO RICO.—In the case
of designated health services provided by a hospital
located in Puerto Rico.
‘‘(2) RURAL PROVIDER.—In the case of des-
ignated health services furnished in a rural area (as
defined in section 1886(d)(2)(D) of the Social Secu-
rity Act) by an entity, if substantially all of the des-
ignated health services furnished by such entity are
furnished to individuals residing in such a rural
area.
‘‘(3) HOSPITAL
OWNERSHIP.—In the case of
designated health services provided by a hospital
(other than a hospital described in paragraph (1))
if—
‘‘(A) the referring physician is authorized
to perform services at the hospital, and
‘‘(B) the ownership or investment interest
is in the hospital itself (and not merely in a
subdivision of the hospital).
‘‘(e) EXCEPTIONS RELATING TO OTHER COMPENSA-
TION ARRANGEMENTS.—The following shall not be consid-
ered to be a compensation arrangement described in sub-
section (a)(2)(B):
‘‘(1) RENTAL OF OFFICE SPACE; RENTAL OF
EQUIPMENT.—
‘‘(A) OFFICE SPACE.—Payments made by
a lessee to a lessor for the use of premises if—
‘‘(i) the lease is set out in writing,
signed by the parties, and specifies the
premises covered by the lease,
‘‘(ii) the space rented or leased does
not exceed that which is reasonable and
necessary for the legitimate business pur-
poses of the lease or rental and is used ex-
clusively by the lessee when being used by
the lessee, except that the lessee may make
payments for the use of space consisting of
common areas if such payments do not ex-
ceed the lessee’s pro rata share of expenses
for such space based upon the ratio of the
space used exclusively by the lessee to the
total amount of space (other than common
areas) occupied by all persons using such
common areas,
‘‘(iii) the lease provides for a term of
rental or lease for at least 1 year,
‘‘(iv) the rental charges over the term
of the lease are set in advance, are consist-
ent with fair market value, and are not de-
termined in a manner that takes into ac-
count the volume or value of any referrals
or other business generated between the
parties,
‘‘(v) the lease would be commercially
reasonable even if no referrals were made
between the parties, and
‘‘(vi) the lease meets such other re-
quirements as the Secretary may impose
by regulation as needed to protect against
program or patient abuse.
‘‘(B) EQUIPMENT.—Payments made by a
lessee of equipment to the lessor of the equip-
ment for the use of the equipment if—
‘‘(i) the lease is set out in writing,
signed by the parties, and specifies the
equipment covered by the lease,
‘‘(ii) the equipment rented or leased
does not exceed that which is reasonable
and necessary for the legitimate business
purposes of the lease or rental and is used
exclusively by the lessee when being used
by the lessee,
‘‘(iii) the lease provides for a term of
rental or lease of at least 1 year,
‘‘(iv) the rental charges over the term
of the lease are set in advance, are consist-
ent with fair market value, and are not de-
termined in a manner that takes into ac-
count the volume or value of any referrals
or other business generated between the
parties,
‘‘(v) the lease would be commercially
reasonable even if no referrals were made
between the parties, and
‘‘(vi) the lease meets such other re-
quirements as the Secretary may impose
by regulation as needed to protect against
program or patient abuse.
‘‘(2) BONA
FIDE
EMPLOYMENT
RELATION-
SHIPS.—Any amount paid by an employer to a phy-
sician (or an immediate family member of such phy-
sician) who has a bona fide employment relationship
with the employer for the provision of services if—
‘‘(A) the employment is for identifiable
services,
‘‘(B) the amount of the remuneration
under the employment—
‘‘(i) is consistent with the fair market
value of the services, and
‘‘(ii) is not determined in a manner
that takes into account (directly or indi-
rectly) the volume or value of any referrals
by the referring physician,
‘‘(C) the remuneration is provided pursu-
ant to an agreement which would be commer-
cially reasonable even if no referrals were made
to the employer, and
‘‘(D) the employment meets such other re-
quirements as the Secretary may impose by reg-
ulation as needed to protect against program or
patient abuse.
Subparagraph (B)(ii) shall not prohibit the payment
of remuneration in the form of a productivity bonus
based on services performed personally by the physi-
cian (or an immediate family member of such physi-
cian).
‘‘(3) PERSONAL SERVICE ARRANGEMENTS.—
‘‘(A) IN
GENERAL.—Remuneration from
an entity under an arrangement (including re-
muneration for specific physicians’ services fur-
nished to a nonprofit blood center) if—
‘‘(i) the arrangement is set out in
writing, signed by the parties, and specifies
the services covered by the arrangement,
‘‘(ii) the arrangement covers all of the
services to be provided by the physician (or
an immediate family member of such phy-
sician) to the entity,
‘‘(iii) the aggregate services con-
tracted for do not exceed those that are
reasonable and necessary for the legitimate
business purposes of the arrangement,
‘‘(iv) the term of the arrangement is
for at least 1 year,
‘‘(v) the compensation to be paid over
the term of the arrangement is set in ad-
vance, does not exceed fair market value,
and except in the case of a physician in-
centive plan described in subparagraph
(B), is not determined in a manner that
takes into account the volume or value of
any referrals or other business generated
between the parties,
‘‘(vi) the services to be performed
under the arrangement do not involve the
counseling or promotion or a business ar-
rangement or other activity that violates
any State or Federal law, and
‘‘(vii) the arrangement meets such
other requirements as the Secretary may
impose by regulation as needed to protect
against program or patient abuse.
‘‘(B) PHYSICIAN INCENTIVE PLAN EXCEP-
TION.—
‘‘(i) IN GENERAL.—In the case of a
physician incentive plan (as defined in
clause (ii)) between a physician and an en-
tity, the compensation may be determined
in a manner (through a withhold, capita-
tion, bonus, or otherwise) that takes into
account directly or indirectly the volume or
value of any referrals or other business
generated between the parties, if the plan
meets the following requirements:
‘‘(I) No specific payment is made
directly or indirectly under the plan to
a physician or a physician group as an
inducement to reduce or limit medi-
cally necessary services provided with
respect to a specific individual en-
rolled with the entity.
‘‘(II) In the case of a plan that
places a physician or a physician
group at substantial financial risk as
determined by the Secretary pursuant
to section 1876(i)(8)(A)(ii) of the So-
cial Security Act, the plan complies
with any requirements the Secretary
may impose pursuant to such section.
‘‘(III) Upon request by the Sec-
retary, the entity provides the Sec-
retary with access to descriptive infor-
mation regarding the plan, in order to
permit the Secretary to determine
whether the plan is in compliance with
the requirements of this clause.
‘‘(ii) PHYSICIAN INCENTIVE PLAN DE-
FINED.—For purposes of this subpara-
graph, the term ‘physician incentive plan’
means any compensation arrangement be-
tween an entity and a physician or physi-
cian group that may directly or indirectly
have the effect of reducing or limiting serv-
ices provided with respect to individuals
enrolled with the entity.
‘‘(4) REMUNERATION UNRELATED TO THE PRO-
VISION OF DESIGNATED HEALTH SERVICES.—In the
case of remuneration which is provided by a hospital
to a physician if such remuneration does not relate
to the provision of designated health services.
‘‘(5) PHYSICIAN RECRUITMENT.—In the case of
remuneration which is provided by a hospital to a
physician to induce the physician to relocate to the
geographic area served by the hospital in order to be
a member of the medical staff of the hospital, if—
‘‘(A) the physician is not required to refer
patients to the hospital,
‘‘(B) the amount of the remuneration
under the arrangement is not determined in a
manner that takes into account (directly or in-
directly) the volume or value of any referrals by
the referring physician, and
‘‘(C) the arrangement meets such other re-
quirements as the Secretary may impose by reg-
ulation as needed to protect against program or
patient abuse.
‘‘(6) ISOLATED TRANSACTIONS.—In the case of
an isolated financial transaction, such as a one-time
sale of property or practice, if—
‘‘(A) the requirements described in sub-
paragraphs (B) and (C) of paragraph (2) are
met with respect to the entity in the same man-
ner as they apply to an employer, and
‘‘(B) the transaction meets such other re-
quirements as the Secretary may impose by reg-
ulation as needed to protect against program or
patient abuse.
‘‘(7) CERTAIN
GROUP
PRACTICE
ARRANGE-
MENTS WITH A HOSPITAL.—
‘‘(A) IN GENERAL.—An arrangement be-
tween a hospital and a group under which des-
ignated health services are provided by the
group but are billed by the hospital if—
‘‘(i) with respect to services provided
to an inpatient of the hospital, the ar-
rangement is pursuant to the provision of
inpatient hospital services under section
1861(b)(3) of the Social Security Act,
‘‘(ii) the arrangement began before
December 19, 1989, and has continued in
effect without interruption since such date,
‘‘(iii) with respect to the designated
health services covered under the arrange-
ment, substantially all of such services fur-
nished to patients of the hospital are fur-
nished by the group under the arrange-
ment,
‘‘(iv) the arrangement is pursuant to
an agreement that is set out in writing and
that specifies the services to be provided by
the parties and the compensation for serv-
ices provided under the agreement,
‘‘(v) the compensation paid over the
term of the agreement is consistent with
fair market value and the compensation
per unit of services is fixed in advance and
is not determined in a manner that takes
into account the volume or value of any re-
ferrals or other business generated between
the parties,
‘‘(vi) the compensation is provided
pursuant to an agreement which would be
commercially reasonable even if no refer-
rals were made to the entity, and
‘‘(vii) the arrangement between the
parties meets such other requirements as
the Secretary may impose by regulation as
needed to protect against program or pa-
tient abuse.
‘‘(8) PAYMENTS BY A PHYSICIAN FOR ITEMS
AND SERVICES.—Payments made by a physician—
‘‘(A) to a laboratory in exchange for the
provision of clinical laboratory services, or
‘‘(B) to an entity as compensation for
other items or services if the items or services
are furnished at a price that is consistent with
fair market value.
‘‘(f) REPORTING REQUIREMENTS.—Each entity pro-
viding covered items or services for which a charge is im-
posed shall provide the Secretary with the information
concerning the entity’s ownership arrangements, includ-
ing—
‘‘(1) the covered items and services provided by
the entity, and
‘‘(2) the names and unique physician identifica-
tion numbers (used under title XVIII of the Social
Security Act) of all physicians with an ownership or
investment interest (as described in subsection
(a)(2)(A)) in the entity, or whose immediate rel-
atives have such an ownership or investment.
Such information shall be provided in such form, manner,
and at such times as the Secretary shall specify, Such in-
formation shall first be provided not later than December
31, 1994. The requirement of this subsection shall not
apply to covered items and services furnished outside the
United States or to entities which the Secretary deter-
mines furnishes services for which a charge is imposed
very infrequently.
‘‘(g) SANCTIONS.—
‘‘(1) NO LIABILITY FOR PAYMENT.—No individ-
ual, third party payer, or other entity is liable for
payment for designated health services for which a
claim is presented in violation of subsection
(a)(1)(B).
‘‘(2) 
REQUIRING
REFUNDS
FOR
CERTAIN
CLAIMS.—If a person collects any amounts that were
billed in violation of subsection (a)(1), the person
shall be liable to the individual for, and shall refund
on a timely basis to the individual, any amounts so
collected.
‘‘(3) CIVIL MONEY PENALTY AND EXCLUSION
FOR IMPROPER CLAIMS.—Any person that presents
or causes to be presented a bill or a claim for a serv-
ice that such person knows or should know is for a
service for which payment may not be made under
paragraph (1) or for which a refund has not been
made under paragraph (2) shall be subject to a civil
money penalty of not more than $15,000 for each
such service.
‘‘(4) CIVIL MONEY PENALTY AND EXCLUSION
FOR CIRCUMVENTION SCHEMES.—Any physician or
other entity that enters into an arrangement or
scheme (such as a cross-referral arrangement) which
the physician or entity knows or should know has as
a principal purpose of assuring referrals by the phy-
sician to a particular entity which, if the physician
directly made referrals to such entity, would be in
violation of this section, shall be subject to a civil
money penalty of not more than $100,000 for each
such arrangement or scheme.
‘‘(5) FAILURE TO REPORT INFORMATION.—Any
person who is required, but fails, to meet a reporting
requirement of subsection (f) if subject to a civil
money penalty of not more than $10,000 for each
day for which reporting is required to have been
made.
‘‘(6) CIVIL
MONEY
PENALTY
PROCEDURES.—
The provisions of section 1128A of the Social Secu-
rity Act (other than the first sentence of subsection
(a) and other than subsection (b)) shall apply to a
civil money penalty under this subsection in the
same manner as such provisions apply to a penalty
or proceeding under section 1128A(a) of such Act.
‘‘(h) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section:
‘‘(1) COMPENSATION
ARRANGEMENT; REMU-
NERATION.—(A) The term ‘compensation arrange-
ment’ means any arrangement involving any remu-
neration between a physician (or an immediate fam-
ily member of such physician) and an entity other
than an arrangement involving only remuneration
described in subparagraph (C).
‘‘(B) The term ‘remuneration’ includes any re-
muneration, directly or indirectly, overtly or covertly,
in cash or in kind.
‘‘(C) Remuneration described in this subpara-
graph is any remuneration consisting of any of the
following:
‘‘(i) The forgiveness of amounts owed for
inaccurate tests or procedures, mistakenly per-
formed tests or procedures, or the correction of
minor billing errors.
‘‘(ii) The provision of items, devices, or
supplies that are used solely to—
‘‘(I) collect, transport, process, or
store specimens for the entity providing
the item, device, or supply, or
‘‘(II) order or communicate the re-
sults of tests or procedures for such entity.