Final safe harbor rules restricting referring-physician investmentsin medical centers hit diagnostic imaging joint ventures harderthan expected. The Department of Health and Human Services issuedthe regulations last Tuesday and published them in the
Final safe harbor rules restricting referring-physician investmentsin medical centers hit diagnostic imaging joint ventures harderthan expected. The Department of Health and Human Services issuedthe regulations last Tuesday and published them in the FederalRegister on July 29.
Safe harbor directives outline legitimate investments underMedicare's stringent anti-kickback law.
While falling short of an outright ban, the safe harbors raiseformidable barriers to participation by referring physicians inthe ownership of medical centers. Eleven safe harbors were announced.They became effective immediately and carry no provision to exemptentities in business before finalization of the safe harbors.
"This regulation will give health-care providers the guidancethey have been looking for as to how to operate in a lawful mannervis-a-vis the anti-kickback statute," said HHS secretaryLouis W. Sullivan. His statement accompanied disclosure of therules.
The final regulations are tougher than a leaked version ofa final draft that was widely distributed in 1989. The final versioncreates a safe harbor for investment in large, publicly tradedcenter companies that have total assets greater than $50 million.The 1989 version carried a $5 million threshold.
The safe harbor covering smaller entities protects them whenat least 60% of their revenue derives from referring physicianswho do not hold ownership interests in the firms. Physicians whorefer patients to the concern may constitute no more than 40%of the investors in a medical center.
The 1989 version carried a 50/50 breakdown for each of theseprovisions. Most industry analysts considered the 50/50 requirementto be the most onerous of the safe harbors for joint-ventureddiagnostic imaging services. The 40/60 requirement will be evenmore difficult to meet.
Medical center ventures must also demonstrate that the generalcommunity had an equal opportunity to invest in the enterprises.They lose protection from prosecution by specifically targetingreferring physicians for investment.
The safe harbors will not allow the entity to lend money toprospective investors, and they require that dividends reflectthe investors' actual business holdings. Centers are prohibitedfrom disclosing to investors how many referrals originate fromphysicians who hold an ownership share.
Like the draft proposal, the final rule generally does notrequire referring-physician investors to disclose their financialinterests to patients. But a referral service must tell consumershow it chooses physician participants, whether the physician participantspay for the service, and whether the physician selected for theconsumer has an ownership interest in the referral service.
Three safe harbor practices cover physician participation inspace rental, equipment rental and personal service contracts.These arrangements must be covered by a written contract of atleast one year's duration, and charges must reflect fair marketvalue.
The safe harbors generally prohibit hospitals from buying physicianpractices. Hospitals had increasingly used this technique to expandinto primary care medicine.
Physician-to-physician sales of practices are protected whenthe seller retires, discontinues the practice or moves out ofthe area. The final regulation allows a one-year transition periodin which the selling physician may assist the new physician ownerin learning the business.
The safe harbors make no mention of exemptions for rural facilitiesor sole community providers.
Announcement of the final regulations came 30 months afterthe Jan. 23, 1989 release of draft safe harbor rules. Implementationwas delayed by intense debate among the Justice Department, theCongressional Office of Management and Budget and the IG overfinal language.
The safe harbors impact hundreds of physician joint venturesthat own and operate diagnostic imaging centers, outpatient surgerycenters, cardiac catheterization services and equipment leasebackarrangements between physicians and hospitals. Joint venturesrank with leasing as the most popular alternative financing mechanismshospitals use to pay for MRI and other expensive equipment.
Many physician joint ventures consist of practitioners whosecombined control of referral volume guarantees the equipment willbe profitable. Critics claim these business arrangements exploitpatients and invite overutilization. Their proponents vociferouslydeny the charges.
Physicians found guilty of violating Medicare's anti-kickbackprovision face stringent penalties. Felony offenses are punishableby fines up to $25,000 and up to five years' imprisonment. Violatorscan be barred from future Medicare participation.