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Proposed safe harbor "clarification" would ban sham transactions.

The Medicare Antikickback Statute prohibits anyone from "knowingly and willfully" soliciting or receiving "any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind" in return for referring patients for items or services or for purchasing, leasing, ordering, or arranging for items for which payment may be made by Medicare or Medicaid. Violations of the statute are felonies, subject to fines of up to $25,000, imprisonment of up to five years, or both. The Office of the Inspector General of the Department of Health and Human Services (OIG) may also bring an action to exclude a violator from the Medicare and Medicaid programs.

Congress, recognizing the breadth of these prohibitions, has provided for five exceptions:

* Discounts or other reductions in price if the reduction is properly disclosed and appropriately reflected in the costs claimed or charges made.

* Payments by an employer to an employee with a bona fide employment relationship.

* Amounts paid by a vendor of goods and services to group purchasing organizations.

* Waivers of coinsurance under Medicare Part B by a federally qualified health care center.

* Any other payment practices specified by the Secretary of the Department of Health and Human Services.

The result of the mandate in the fifth category was issuance in 1991 by OIG of 11 "safe harbors":

* Investment interests.

* Space rental.

* Equipment rental.

* Personal services and management contracts.

* Sale of practice.

* Referral services.

* Warranties.

* Discounts.

* Employees.

* Group purchasing organizations (GPOs).

* Waiver of beneficiary coinsurance and deductible amounts for certain Part A services.

The purpose of the safe harbors was to provide protection from both civil and criminal liability for certain payment practices. Despite expectations throughout the health care community that the regulations would provide bright lines for permissible activities, the rules instead provided narrow passages under which the industry could operate in comfort, leaving many common, innocuous business practices subject to potential prosecution. Unfortunately, the proposed regulation threatens to eliminate or limit even those few protections that were afforded the health care community.

Sham Transactions

Most important, the proposed "clarification" would add a provision allowing OIG to disregard "sham" transactions or devices used "for the purpose of appearing to fit within a safe harbor" and to determine whether the arrangement is protected by the safe harbor "by the substance of the transaction or device." As a practical matter, the revision would mean that even arrangements that fit squarely within the safe harbor criteria still could be challenged as "sham" transactions, thus furnishing no certainty of protection at all. Essentially, the health care community would be back at "square one" in its attempt to achieve certainty in antikickback interpretation. Significantly, there is no explanation of what types of arrangements could be viewed as "shams," except for an ominous reference to restrictions on stock transfers as "shams" in connection with the safe harbor for investment interests. Consequently, all health care arrangements would be evaluated on a "facts and circumstances" approach even if they are structured to fit within an existing safe harbor.

Publicly Traded Corporations

1991 Safe Harbor. One of the most controversial of the safe harbors was the provision relating to investment interests. In actually two safe harbors in one, the provision sets forth two sets of criteria for investment interests. The first set of criteria applies to investment interests in certain large, publicly held companies, while the second is for investment interests held by providers in smaller health care entities, such as joint ventures involving physicians.

To qualify for protection under the large entity safe harbor, large publicly traded companies must have at least $50 million in undepreciated net tangible assets. In addition, the investment interest must be obtained on terms equally available to the public through trading on a registered national securities exchange.

The small investment interest safe harbor sets forth eight standards that must be met to qualify for protection. The most significant of these and the most difficult to meet are the 60/40 Investment Rule and the 60/40 Revenue Rule, under which 60 percent of the investors may not be and 60 percent of the revenue may not come from investors who are in a position to make or influence referrals to, furnish items or services to, or generate business for the entity.

Proposed Changes. OIG is proposing to adopt substantive changes to the safe harbor for publicly traded corporations that, if finalized, would place in jeopardy many restructurings and acquisitions that have taken place since issuance of the first set of final safe harbor regulations in July 1991. In particular, OIG now is taking the position that in order for "interested investors" to obtain their investment interests "on terms equally available to the public," the investment interests must be purchased from the public exchange and not merely be available on an equal basis. This means that provider-owned entities that were sold to publicly traded companies in an effort to comply with the initial safe harbor issuance or to meet the Medicare physician self-referral ban may now need to be reassessed.

Another significant proposal would limit the assets for publicly traded corporations that may be considered for meeting the $50 million asset threshold to health care assets only. Thus, an investment in a publicly traded conglomerate that has multiple lines of business may not qualify for safe harbor protection if the conglomerate's health care line of business does not meet the $50 million asset threshold.

Discount Safe Harbor

Despite the fact that discounts are protected by both a statutory exception and a safe harbor, very few discounts ave been afforded any meaningful protection, if the OIG's interpretation and implementation of the law are any indication. After waiting three years for clarification of transactions protected under the discount safe harbor, the health care industry may be as confused as ever. OIG is proposing to amend the discount provision in several aspects but has failed to clarify some basic concerns arising from the 1991 final safe harbor regulations, such as what "other reductions in price," as permitted by the are protected; whether the provision of goods that relate to the original product constitute impermissible "free goods"; and how detailed discount reporting be when provided on numerous products at the same time.

One significant proposed change relates to the reporting requirements associated with safe harbor compliance. For instance, OIG is proposing that the seller inform the buyer in an effective manner of its obligation and refrain from doing anything that would impede the buyer's ability to meet its reporting obligations. There is no definition of what would be considered "effective."

There is one bright spot in the discount provision, however. OIG is proposing to allow sellers to provide discounts - other than forgiveness of deductibles and coinsurance - directly to beneficiaries.

Referral Services

The regulations include a safe harbor for payments to referral services. Under this safe harbor, a referral service may not exclude any person or entity that meets participation qualifications. In the proposed regulation, changes are contemplated expressly providing that physicians cannot be charged varying membership fees based on referral patterns.

Space and Equipment Rentals, Personal Services,

and Management Contracts

OIG is also proposing clarifications to space and equipment rental, personal services, and management contracts safe harbors. These safe harbors, which contain similar provisions, protect agreements to lease space and equipment and to provide personal and management services. The requirements are straightforward, with the linchpin being that the payments must be based upon fair market value. OIG is proposing to prohibit parties subject to any of these agreements from creating multiple overlapping agreements that purport to meet the safe harbors.

The proposed safe harbors, if adopted in final form, pose yet another obstacle to members of the health care community seeking certainty in their various business arrangements. If the health care community is to succeed in its attempts to restructure and find cost-effective means for delivering services in this new era of cost containment and health care reform, the government must reassess its methods and provide positive direction, rather than continually throwing obstacles in the roadway.
COPYRIGHT 1994 American College of Physician Executives
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1994, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
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Author:Riordan, Retta M.
Publication:Physician Executive
Date:Sep 1, 1994
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