OIG Issues Ten New Safe Harbors and Clarifies Six Existing Safe Harbors


On November 19, 1999, the U.S. Department of Health and Human Services. Office of Inspector General (OIG) published eight new safe harbor regulations to the Anti-Kickback Statute. In addition, the OIG clarified six of the original eleven safe harbors. The OIG also published two safe harbors as interim final rules, implementing the shared risk exception created by the Health Insurance Portability and Accountability Act.

The federal Anti-Kickback Statute prohibits the knowing payment of anything of value to influence the referral of federal healthcare business, including Medicare and Medicaid. The safe harbors immunize from criminal and civil penalties certain payment and business practices that are prohibited by the Anti-Kickback Statute. Falling outside a safe harbor does not mean an arrangement is necessarily illegal, but means that the arrangement will be evaluated based on a facts and circumstances analysis.

Set forth below is a brief discussion of the highlights of the new safe harbors and the clarification of the existing safe harbors.

Eight New Final Safe Harbors

Joint Ventures in Underserved Areas. The new joint venture safe harbor is designed to assist underserved areas in developing health care services while maintaining the anti-fraud aspect of the Anti-Kickback Statute. For purposes of this safe harbor, an .underserved area. is an area designated by the Health Resources and Services Administration (HRSA) as a medically underserved area (MUA), and includes both rural and urban areas.

For a joint venture to comply with this safe harbor, the OIG requires that no more than 50% of the investment interests in the joint venture be held by referral source investors. Investment interests must be offered to all passive investors on the same terms. In addition, the joint venture.s items or services may not be marketed to passive investors differently than to non-investors. At least 75% of the joint venture.s dollar volume of business must be derived from residents of MUAs or members of medically underserved populations (MUPs), as designated by the HRSA. The joint venture and its investors may not loan money to a referral source if such referral source will use the money to invest in the joint venture. The return on investment interest must be .directly proportional. to an investor.s capital investment.

If an investment in a joint venture fulfills the requirements of the safe harbor and then the area ceases to meet the definition of an MUA, the OIG grants a grace period of up to three years before such investment is no longer protected by the safe harbor.

Ambulatory Surgical Centers. The ambulatory surgical center (ASC) safe harbor protects investment payments from ASCs to their physician-investors who perform procedures at the ASC because the OIG believes that the risk of impermissible referrals is low when an ASC functions as an extension of the physician.s office. Since the facility fee generated by the referral to the ASC is substantially lower than the professional fee, the OIG explains in the preamble that the ASC profits distributed to the physician-investors (which profits are derived from the facility fee) are not great enough to induce physician-investors to refer to ASCs.

The ASC safe harbor is divided into four categories described below. In addition to the specific requirements of each category, each category must fulfill certain common requirements, including the following: the ASC must be Medicare certified; the ASC and its investors may not loan money to potential investors for the purpose of investing in the ASC; and neither the ASC nor the physicians practicing at the ASC may discriminate against beneficiaries of the federal health care programs. The ASC safe harbor also requires that patients referred to an ASC by an investor be .fully informed. of such investment interest.

  • Surgeon-Owned ASC. This category protects ASC investments in which all the investors are either: (i) general surgeons or engaged in the same surgical specialty and who are in a position to refer patients to the ASC and perform procedures on referred patients; (ii) group practices composed of such surgeons; or (iii) investors who do not provide items or services to the ASC or its investors, are not employed by such entities, and are not in a position to influence referrals to such entities. Surgeon investors are in a position to refer patients to ASCs and perform procedures there if they derive at least one-third of their medical practice income from their performance of procedures that require an ASC or hospital surgical setting in accordance with Medicare reimbursement rules (the .one-third practice income test.).
  • Single-Specialty ASC. This category is similar to the first category but the physician investors must be in the same medical specialty, although they need not be traditional surgeons. In addition, the one-third practice income test applies to such investors.
  • Multi-Specialty ASC. This category is similar to the first two categories but permits the physician investors to be a mix of specialists. The one-third practice income test applies to such investors. In addition, at least one-third of the physician.s procedures that require an ASC or hospital surgical setting must be performed at the ASC in which the physician is investing.
  • Hospital/Physician ASC. In this category, at least one investor must be a hospital and the remaining investors must be a non-referral source investor or a physician or group practice that qualifies under one of the other categories of the ASC safe harbor. The hospital must not be in a position to refer patients to the ASC or to the other investors. The OIG also states in the preamble that any space that is leased by the hospital to the ASC and any services that are provided by the hospital to the ASC must meet separate safe harbors.

Investment Interests in Group Practices. The investment interests safe harbor protects investments by physicians in their own medical practice, if the practice meets the federal anti-referral (Stark) definition of a .group practice.. This safe harbor also protects an investment by a solo physician in his or her own professional corporation or other legal entity.

Practitioner Recruitment in Underserved Areas. The practitioner recruitment safe harbor protects recruitment payments made to persuade physicians and other practitioners to relocate or, for new practitioners, to locate, to a rural or urban health professional shortage area (HPSA), as designated by HRSA. The recruitment arrangement must be in writing and must not require the practitioner to refer patients to the recruiting entity or prohibit the practitioner from establishing staff privileges at other entities. In addition, the recruitment payments may not vary in accordance with the volume or value of referrals.

If a practitioner is relocating, at least 75% of the revenues of the new practice must be generated by new patients. Regardless of whether a practitioner is locating or relocating, at least 75% of the revenues of the new practice must be generated from patients residing in an HPSA or an MUA or who are part of an MUP. Interestingly, the OIG is not requiring that the recruiting entity be located in an underserved area.

Recruitment benefits may be provided for up to three years even if the area loses its designation as a HPSA during such time. While the practitioner recruitment safe harbor does not apply beyond an initial three-year period, the OIG is considering a physician retention safe harbor.

Obstetrical Malpractice Insurance Subsidies in Underserved Areas. This safe harbor protects payments by hospitals or other entities made to an entity providing malpractice insurance (including self-funded insurance) to pay the costs of obstetrical malpractice insurance premiums for a practitioner. The practitioner, a term defined to include physicians and certified nurse-midwives, must practice in a primary care HPSA and meet certain specified requirements, including the practitioner certifying for the initial coverage period that at least 75% of his or her obstetrical patients will live in an HPSA or an MUA or will be part of an MUP. If the practitioner does not provide the described services on a full-time basis, the payment must be in proportion to the amount of the practitioner.s practice that fulfills such requirements.

Referral Agreements for Specialty Services. The referral agreements safe harbor protects a party referring a patient to a second party for specialty services that the first party does not provide, in exchange for the second party referring the patient back to the first at a clinically appropriate time. The referring party and the specialty party may not receive any payment from each other for the referral and may not split a global payment from a federal health care program.

Cooperative Hospital Service Organization. A cooperative hospital service organization (CHSO) is an organization formed by two or more tax-exempt hospitals (called patron hospitals) to provide specific services solely to their patron hospitals. These services may include purchasing, billing or clinical services. CHSOs are tax exempt under the Internal Revenue Code, and all net earnings of CHSOs are required by law to be distributed to their patron hospitals.

The CHSO safe harbor protects payments from a patron hospital to a CHSO to support the CHSO.s operational costs, and protects payments that the CHSO is required by law to make to its patron hospitals. To qualify for safe harbor protection, the CHSO must be wholly owned by its patron hospitals.

Sale of Practices in Underserved Areas. The sale of practices safe harbor protects hospitals or other entities that buy and hold a retiring or relocating physician.s practice until a new physician can be recruited to take the first physician.s place. The retiring or relocating physician.s practice must be located in an HPSA, and the sale must be completed within three years. The retiring or relocating physician, after the sale, must not be in a position to generate referrals or business for the purchasing entity for which payment may be made by a federal health care program.

The purchasing entity must .diligently and in good faith engage in commercially reasonable recruitment activities. to replace the retiring or relocating physician. Any recruitment payments made to the replacement physician would have to be evaluated under the recruitment safe harbor discussed above.

In the preamble, the OIG explains that it refused to provide safe harbor protection for specific valuation methods of a physician.s practice because of its worry that payments for intangibles may be prohibited payments for referrals.

Two New Interim Final Safe Harbors Applicable to Risk Sharing Arrangement

The Anti-Kickback Statute could be construed to apply to many managed care arrangements because, typically, managed care arrangements offer physicians, hospitals and other providers increased patient volume in return for fee discounts. Accordingly, many health care providers were concerned that commercial managed care arrangements might violate the Anti-Kickback Statute because such discounts could be considered to be remuneration for purposes of the Anti-Kickback Statute. The Anti-Kickback Statute, however, contains a statutory exception applicable to remuneration paid as part of a risk sharing arrangement. The interim final rules establish two new regulatory safe harbors to the Anti-Kickback Statute that correspond to the two categories of managed care arrangements identified in the statutory exception.

The first safe harbor protects various financial arrangements between an eligible managed care organization (EMCO) that receives a fixed or capitated amount from the federal health care programs and any of its direct contracting providers and next tier downstream providers so long as the agreement between the EMCO and the direct provider and the downstream provider: (i) is in writing and signed by the parties; (ii) specifies the items or services covered by the agreement; (iii) is for a period of one year; and (iv) specifies that the downstream provider cannot claim payment in any form from a federal health care program. In addition, in establishing the terms of the agreement, neither party may give or receive remuneration in return for, or to induce, the provision or acceptance of business for which payment may be made by a federal health care program on a fee-for-service basis.

The second safe harbor protects contractual relationships between managed care entities and their contractors and subcontractors where the contractors and subcontractors are at .substantial financial risk. for the cost or utilization of items or services they provide or order for federal health care program beneficiaries. .Substantial financial risk. is defined by either the method of payment for services or by calculating the percentage of compensation subject to a withhold. Ultimately, this second safe harbor will have little impact because the first safe harbor covers managed care arrangements involving downstream risk from a federal health care program, and in almost all other managed care arrangements, the providers are reimbursed on a fee-for-service basis by a federal health care program.

Clarification of Six Existing Safe Harbors

The OIG stated that the intent of the clarifications of the existing safe harbors is to make it easier for the healthcare industry to understand and apply the safe harbors to a particular factual situation. The specific clarifications are summarized below.

Investment Interests. The purpose of the investment interest safe harbor is to allow physicians and other healthcare providers to invest in entities that provide healthcare services without being subject to either criminal or civil penalties provided that certain safeguards ensure that the physicians or other health care providers are not receiving remuneration in exchange for referrals. The investment interests safe harbor was modified in the following manner: (i) to clarify that for purposes of either the $50,000,000 asset threshold for .large entities. or the 60-40 gross revenue test for .small entities,. only assets or revenues related to the furnishing of healthcare items or services should be counted; (ii) to expand the prohibition against an entity loaning funds to an investor to be used to purchase the investor.s interest in the entity; and (iii) to make certain changes to the application of the 60-40 gross revenue test for small entities.

Space Rental, Equipment Rental, and Personal Services and Management Contracts. The purpose of these safe harbors is to allow physicians and other healthcare providers to lease space and equipment and offer personal and management services to healthcare providers without being subject to either criminal or civil penalties as long as the physicians or other healthcare providers satisfy certain criteria. The space rental, equipment rental, and personal services and management services safe harbors were revised to preclude schemes involving the use of multiple overlapping contracts to circumvent the safe harbor requirement that space rental, equipment rental, personal services and management contracts be for terms of at least one year. Next, such safe harbors were revised to preclude safe harbor protection for healthcare providers that either rent more space or equipment or purchase more services than they actually need as a means of paying for referrals.

Referral Services. The referral services safe harbor exists to ensure that payments by physicians and other healthcare providers to referral services such as professional societies or other consumer oriented groups do not violate Anti-Kickback Statute. The referral services safe harbor requires that any fee a referral service charges a participant be .based on the cost of operating the referral service, and not on the volume or value of any referrals to or business otherwise generated by the participants for the referral service . . . .. This language created an unintended ambiguity which allowed a referral service to adjust its fee based on the volume of referrals it made to participants of the referral service. The OIG clarified this safe harbor by precluding protection for payments from participants in the referral service to the referral service that are based on the volume or value of referrals to, or business otherwise generated, by either party for the other party.

Discounts. The purpose of the discounts safe harbor is to protect physicians and other healthcare providers who offer discounts for goods and services provided to other healthcare providers from civil or criminal penalties under the Anti-Kickback Statute. As a result of uncertainty over what obligations individuals or entities had to satisfy in order to receive protection under the discount safe harbor, the OIG has revised such safe harbor by dividing the parties subject to the discount safe harbor into three groups: (i) buyers; (ii) sellers; and (iii) offerors of discounts, with descriptions of each group.s obligations in separate paragraphs .rebate. to include any discount the terms of which are fixed at the time of sale of the good or service and disclosed to the buyer, but which is not received at the time of the sale of the service or good.


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