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Summary of Self-Referral and Anti-Kickback Regulations

Under Medicare and Medicaid

On this page: Physician Self-Referral ("Stark II") | Anti-Kickback Laws & Safe Harbor Regulations | Summary of Safe Harbor Regulations

Physician Self-Referral ("Stark II")

Congress enacted a physician self-referral law in 1993 after learning the incidence of radiology procedures and physical therapy greatly increased when the patient's physician had an ownership interest in the facility or clinic. This law is the result of legislation introduced by Representative Fortney (Pete) Stark (D-CA), then Chairman of the U.S. House Ways and Means Health Subcommittee. An earlier self-referral law ("Stark I") had been enacted for clinical laboratory services only. The self-referral amendments of the Omnibus Budget Reconciliation Act of 1993(OBRA '93) went into effect January 1, 1995. However, enforcement has been limited because the final regulations (for Medicare only) were not issued until January 4, 2001, and not effective until January 4, 2002.

The self-referral law prohibits Medicare and Medicaid payments when a physician refers any of ten "designated health services" (DHS) to an entity where the physician has a financial relationship. Employees or contractors of physicians are exempt from this law when providing in-office ancillary services (see further discussion below). CMS interpreted the "physical therapy" DHS as including speech-language pathology services, based on parenthetical wording in the longstanding Medicare statute, despite ASHA's detailed rebuttal.

The effect of speech-language pathology services as a DHS is that physicians will be reluctant to financially assist speech-language pathologists in establishing a practice (and creating an investment interest) because the physician would be forbidden to refer Medicare or Medicaid patients. In ASHA's regulatory comments to CMS, we supported the freedom for physicians to have an investment interest in our members' practices without the creation of a non-referral barrier.

While audiology services are not mentioned in the law's DHS list, hearing aids may be included under the durable medical equipment (DME) DHS where a state Medicaid program defines hearing aids as DME. For such states, ASHA has not seen a definitive legal opinion that would require the sale of hearing aids to be independent of a physician's practice. The hearing aid/DME implications are not clear at this time. As of July, 2005, self-referral regulations applicable to state Medicaid programs have not yet been issued.

Physician employees or contractors are exempt from the self-referral law as long as their services are

  1. supervised by the referring physician or by another physician in the group practice (meeting the supervision requirements under applicable Medicare and Medicaid payment or coverage rules);
  2. rendered in a building where the referring or group physician furnishes non-DHS services; or in a centralized site used exclusively by the group for providing DHS; and
  3. billed by the physician supervising the services, by a group practice of which the physician is a member, or by an entity that is wholly owned by such physician or group practice. [ 1]

For additional information, see Question & Answer: Self-Referral/Stark Law and Anti-Kickback Regulations Under Medicare & Medicaid.

Certain financial relationships between the audiologist or speech-language pathologist and physician are protected (i.e., are "safe") as long as rules described in the "safe harbor" regulations are adhered to.

Anti-Kickback Laws and Safe Harbor Regulations

Self-referral is enforced separately from the Medicare and Medicaid anti-kickback laws. While the self-referral law must involve physicians, anti-kickback regulations apply to anyone who "knowingly and willfully offers, pays, solicits, or receives remuneration in order to induce business reimbursed under the Medicare or Medicaid programs."[ 2]

The safe harbor regulations define payment and business practices that will not be considered kickbacks, bribes, or rebates that unlawfully induce payment by Medicare or Medicaid programs. The regulations specify allowable financial and referral relationships between physicians or other providers and suppliers.

A basic rule dominant in the safe harbor regulations is that financial transactions between potential referring parties be conducted at fair market value. For example, if an audiologist pays a physician monthly rent for office space that is one-half the going rate or fair market value, that low rate represents remuneration to the audiologist. Such sweetheart deals are likely to induce the audiologist to refer a patient to the physician landlord rather than any other physician. The law does not care that the audiologist knows and trusts the physician and the referral is convenient for the patient. The law was passed because a practitioner can be financially motivated to refer a patient to a specific practitioner rather than selecting the most expert practitioner for that particular patient.

Employees of physicians, as in the self-referral law, are exempt from anti-kickback laws [(see regulation section 1001.952(i)]

Summary of Safe Harbor Regulations

Authorized by the Anti-Kickback Provisions of the Medicare and Medicaid Anti-Fraud and Abuse Amendments of 1977 and the Medicare and Medicaid Patient and Program Protection Act of 1987.

Certain financial relationships between referring providers of services and supplies can be defined as kickbacks, i.e., some type of financial reward in exchange for giving or receiving referrals. The Centers for Medicare and Medicaid Services (CMS) developed regulations that describe financial relationships that would clearly be safe from prosecution under the anti-kickback laws. Thus, the regulations are known as "safe harbors." They specify payment and business practices that are guaranteed to not be considered as kickbacks, bribes, or rebates under the Medicare and Medicaid programs.

The safe harbor regulations [42 CFR 1001.952 (a)-(u)] describe protected business relationships in the following areas

(a) investments in other practices and businesses

  • up to 40% of gross revenue of your practice can come from referrals or other business that is generated or influenced by investors
  • investors in a position to make or influence referrals may own up to 40% of the value of the investment interest in your practice
  • terms offered to investors must have no relation to previous or expected volume of referrals, items, or services furnished

(b) rental of space

  • at fair market value (i.e., not greatly above or below the cost of comparable office space)
  • rental charge is not based on volume or value of referrals or other business generated between the lessee and lessor that is covered by Medicare or Medicaid

(c) rental of equipment

  • same limitations as "rental of space," above
  • lease must identify all the equipment covered by the lease

(d) personal services and management contracts

  • Payments to contractors are not determined by volume or value of referrals or other business generated by the parties that is covered by Medicare or Medicaid

(e) sale of practices

  • The practitioner selling his or her practice cannot make referrals or otherwise generate business for the purchasing practitioner after one year

(f) referral services

  • cannot exclude any individual or entity that is qualified to participate in Medicare or Medicaid

(g) warranties of equipment

  • The buyer must accurately report (in the applicable cost reporting mechanism of Medicare or Medicaid) any price reduction of the item (including a free item) obtained as part of the warranty

(h) discounts

  • must be based on purchases of the same good or service bought within a single fiscal year

(i) remuneration to employees

(j) group purchasing organizations

  • The practitioner or other provider cannot pay more than a 3% fee to the group purchasing organization (based on the purchase price of goods or services)

(k) waiver of beneficiary coinsurance and deductible amounts

  • Waivers are not allowed unless the Medicare or Medicaid beneficiary qualifies for subsidized services under title V or XIX of the Social Security Act or a provision of the Public Health Services Act

(l) increased coverage, reduced cost-sharing or reduced premium amounts offered by HMOs or other prepaid health plans

  • must be offered to all Medicare or Medicaid enrollees

(m) price reductions offered to health plans

  • The contract health care provider cannot seek payment directly from Medicare or Medicaid
  • For non-prepaid health plans, the contract provider's payment amount must remain in effect throughout the term of the agreement with the plan

(n) practitioner recruitment

  • Remuneration to induce a practitioner to relocate may not directly or indirectly benefit any person or entity in a position to make or influence referrals
  • The amount or value of benefits provided by the entity may not vary based on the volume or value of any expected referrals for services covered by Medicare or Medicaid

(p) investment in group practices

  • The equity interests must be held by licensed health care professionals who practice in the group
  • Satellite offices that operate as separate profit centers cannot be the basis for profit distribution

[(o) and (q)-(s) impact medical specialties or hospital cooperatives]

(t) price reductions offered to eligible managed care organizations (MCOs)

  • varied requirements for first tier contractors and "downstream contractors" that subcontract with a first tier entity
  • price reductions offered by contractors with substantial financial risk to MCOs

For additional information, please contact Mark Kander, ASHA's Director of Health Care Regulatory Analysis, at 800-498-2071, ext. 5669 or e-mail mkander@asha.org.

[ 1] 42 CFR 411.355(b)(1), (b)(2)

[ 2] Section 1128B(b) of the Social Security Act

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