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Safe harbor regs clarify physician lab investments.

The Department of Health and Human Services moved to strengthen its anti-fraud and kick-back enforcement by issuing long-awaited final regulations on business arrangements that will not be subject to prosecution.

The so-called "safe harbor" provisions relate to a 1987 law aimed at protecting Medicare and Medicaid beneficiaries by limiting physician investments in labs and other facilities to which they refer patients. The Government has estimated that at least 25% of independent clinical labs are owned in whole or in part by referring physicians.

Arrangements that do not meet the rules for any of the 10 broad areas of protection will not automatically be prosecuted, but they are likely to come under close scrutiny from the HHS Office of the Inspector General (IG).

Physicians and labs will need to examine the regulations carefully because HHS declined to adopt a grandfather provision for existing business deals. What's more, the department decided it lacks authority to give investors advisory opinions on whether their specific arrangements are illegal.

The rules became effective upon their publication July 29. In announcing them, HHS Secretary Louis Sullivan, M.D., said, "We hope that health care providers will be encouraged to conform their business arrangements to the safe harbors and thereby engage in healthy competition that helps constrain health care costs." In fact, initial reaction from provider groups seemed positive. American Medical Association Executive Vice President James Todd, M.D., called the rules "really quite good" and a sign it's all right to invest in facilities to promote patient access but not simply to make referrals for profit.

One of the principal changes HHS made from the January 1989 proposed regulations pertains to the ways in which physician investors are solicited and retained. In essence, the department switched from a "process" to an "outcome" measure of an arrangement's legitimacy.

In the 1989 proposed regs, HHS suggested that a bona fide opportunity to invest in a facility should be extended to all doctors without regard to their ability to make referrals. But after reviewing the 754 public comments it received, HHS conceded that such a test would be "virtually impossible to monitor." It would require, for example, that a joint venture track all its solicitations and determine the referral potential of the physicians it may have reached.

As an alternative, HHS adopted a "bright line" test for investments in relatively small independent facilities such as clinical labs or imaging centers. The final rule says that no more than 40% of the investors in an operation may be doctors or others who do business with the facility.

To gain protection of the safe harbor regarding investments, the following standards also apply:

* No more than 40% of the operation's yearly gross revenue may come from referrals, items, or services furnished or business otherwise generated by investors.

* There can be no requirement that a physician must refer patients as a condition for remaining as an investor.

* The terms on which the investment is offered must not be related to the previous or expected volume of a doctor's referrals or business otherwise generated.

* The terms of investment must be the same for physicians in a position to refer patients as for those who are not.

* Returns paid to an investor must be directly proportional to the amount of capital (including the fair market value of any pre-operational services) furnished by that investor.

* The business must not loan funds to or guarantee a loan for a doctor who could make referrals.

With the exception of the 40% interest and revenue rules, the same standards apply to investment in large operations. The key difference from the proposed regs is that HHS altered the $5 million assets rule modeled after guidelines from the Securities and Exchange Commission.

After reviewing public comments and its own enforcement experience, IG officials decided the $5 million investment protection threshold was too low. They noted, for example, that an imaging center with two MRI machines would easily meet that test. Therefore the assets threshold was increased to $50 million. "Publicly traded entities of this size are sufficiently large to assure that abuse is minimal," IG concluded.

Other safe harbor provisions cover space and equipment rentals, personal services and management contracts, sale of a practice, paid referral services, business warranties, service discounts, employee solicitation payments, and group purchasing activities.

Numerous commenters to HHS expressed concern over the difficulty in revising existing business arrangements they believed conformed to the law but which do not now fit into a safe harbor.

But in resisting calls for a grandfather provision, the IG said it would be "inappropriate" to offer blanket protection, even for a limited period of time, to businesses that don't qualify for a safe harbor.

On the other hand, officials wrote, "We also realize that many health care providers have structured their business arrangements based on the advice of an attorney and in good faith believed that the arrangement was legal.

"In the event that they now find the arrangement does not comply fully with a particular safe harbor provision and are working with diligence and good faith to restructure it so that it does comply, we will use our discretion to be fair to the parties to such arrangements."

The IG also rejected requests that the department issue advisory opinions about the legality of proposed business arrangements. Such opinions, providers argued, would offer guidance concerning activities not addressed by the safe harbor regulations, curb illegal payment practices, and keep the Government informed of industry developments.

Explaining why it will not issue opinions, the IG said the Justice Department is the exclusive authority for enforcing the anti-kickback law and other criminal statutes.

In short, "Our charge to immunize, by regulation, conduct and arrangements potentially falling under the statute does not include judging whether the conduct of particular individuals violates the statute," the IG explained.

The final rules also seek to clear up confusion over the relationship between the safe harbor provisions and the Ethics in Patient Referrals Act of 1989. The latter initiative, which is commonly referred to as the Stark Bill, generally restricts physicians from making referrals for clinical laboratory services to facilities in which they have an ownership interest or any other compensation arrangement. Those restrictions will take effect Jan. 1 of next year.

Although aimed at the same perceived problems, the two efforts require different elements for proof of a violation and carry different penalties.

The Stark law is violated when a "financial relationship" exists between a laboratory and a referring physician and a claim is presented. The consequences include denial of payment and possible civil money penalties and program exclusion.

For the anti-kickback law to be broken, it must be shown that remuneration was intended to induce referrals of business payable by Medicare or Medicaid. The sanctions may also include criminal penalties.

CAP reviews AIDS policy

The board of governors of the College of American Pathologists is reviewing the appropriateness of its policy on protection against AIDS transmission in light of revised guidelines issued by the Centers for Disease Control.

Those guidelines, issued in July, urge all health care workers who perform "exposure prone" procedures--those in which workers might be cut and have their blood come in contact with patients--to undergo AIDS testing. Although not legally binding, the CDC recommendations are a vital policy benchmark for many provider groups. The Occupational Safety and Health Administration is expected to issue its final AIDS regulations this fall.

Analysts see the CDC guidelines as a fair compromise for factions that wanted mandatory testing of health care workers and those who say reliance on universal precautions is enough.

Offering a personal opinion, Paul Bachner, M.D., chairman of CAP's AIDS committee, said, "At first blush, I think the guidelines are very appropriate given the considerable pressure CDC was subject to."

CAP has previously supported voluntary testing for high-risk health care workers, eschewing mandates that might exacerbate personnel shortages. At this writing, it was expected the board would receive new policy recommendations from staff and the AIDS committee in late August.
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Title Annotation:Washinton Report; anti-fraud regulations
Publication:Medical Laboratory Observer
Date:Sep 1, 1991
Previous Article:Is anyone out there listening?
Next Article:Managing change in troublous times.

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