Final safe harbor rules published - Medicaid/Medicare antifraud statutes

Healthcare Financial Management, Sept, 1991

Long-awaited final safe harbor rules were issued by the Department of Health and Human Services' (HHS') Office of the Inspector General (OIG) and published in the July 29 Federal Register. As published, the regulations define 11 separate safe harbors: investment interests, space rental, equipment rental, personal services and management contracts, sale of practice, referral services, warranties, discounts, employees, group purchasing organizations, and waiver of beneficiary deductibles and coinsurance.

The regulations were mandated by Congress in 1987 to provide guidance on provider arrnagements that will be protected from criminal prosecution or civil sanctions under the Medicare/Medicaid antifraud and abuse statute. Proposed rules were drafted in 1989, but an outpouring of comments from the healthcare industry and disagreements among Federal agencies delayed approval of the final rules. The rules took effect on July 29.

Concerned about broad language of HHS's interpretation of the anti-kickback statute even with safe harbors, HFMA and other healthcare groups pressed OIG to provide a mechanism for issuing advisory opinions on specific arrangements that providers have entered into or are considering. Although OIG will issue fraud alerts and "interpretive rules" to clarify ambiguities or potential conflicts, it will not issue case-by-case advisory opinions, according to D. McCarty Thornton, OIG chief counsel. Advisory opinions were rejected because of legal impediments and because the statute's required proof of knowing and willful intent make it impossible to give meaningful advice on liability based on paper evidence. "Requests for advice typically do not furnish complete and objective accounts of all the facts necessary to determine the subjective intent of the parties," the OIG said.

The OIG rejected requests for a grace period to bring current arrangements into compliance with the safe harbor rules. "Any conduct that could be construed to be illegal after the promulgation of this rule would have been illegal at any time since the current law was enacted in 1977," the OIG stated.

Providers also requested clarification that failure to comply fully with a safe harbor provision is not in itself illegal and does not mean prosecution automatically will follow. The OIG responded that "prosecutorial discretion would be exercised not to pursue cases where the participants appear to have acted in a good-faith attempt to comply with the terms of a safe harbor." Standards outlining the safe harbor for investment interests, including joint ventures, have been a major source of concern to providers. The final rule is even more stringent than the original 1989 proposal. For example, an original requirement that 50 percent of an entity's investors be non-referring and 50 percent of an entity's revenues come from disinterested sources was replaced by the standard that "no more than 40 percent of the entity may be controled by physicians and others that are in a position to control the flow of business to it." These "60/40 rules," according to Thornton, force an entity to become a legitimately functioning business and ensure that businesses are competing on a level playing field.

Another important safe harbor; allowing providers to waive beneficiaries' deductibles and coinsurance, was limited to inpatient hospital services and to certain community health centers. These providers fall within safe harbors only if:

* The waiver is offered to all MEdicare beneficiaries regardless of diagnosis or length of stay;

* A hospital does not claim the cost on its Medicare cost report; and

* The waiver is not partof a price reduction agreement between the hospital and a third-party payer.

The safe harbor covering sales of physicians' practices protects only retiring physicians selling practices to other physicians -- not hospitals that buy physician practices. The standard requires a sale to be completed within one year from the date of the agreement. After that, the practitioner must no longer be in a professional position to refer business.

In response to issues raised during the comment period, OIG is developing additional safe harbors that will be published as proposed rules at a later date. New safe harbors being considered will cover ambulatory surgical centers, physician recruitment efforts, health maintenance organizations and other managed care plans, subsidized malpractice insurance, and cross referrals.

Highlights of the final safe harbor regulations are available from either HFMA office.