42 U.S.C. § 1395nn : US Code - Section 1395NN: Limitation on certain physician referrals

Search 42 U.S.C. § 1395nn : US Code - Section 1395NN: Limitation on certain physician referrals

(a) Prohibition of certain referrals
(1) In general
Except as provided in subsection (b) of this section, if a
physician (or an immediate family member of such physician) has a
financial relationship with an entity specified in paragraph (2),
then -
(A) the physician may not make a referral to the entity for
the furnishing of designated health services for which payment
otherwise may be made under this subchapter, and
(B) the entity may not present or cause to be presented a
claim under this subchapter or bill to any individual, third
party payor, or other entity for designated health services
furnished pursuant to a referral prohibited under subparagraph
(A).
(2) Financial relationship specified
For purposes of this section, a financial relationship of a
physician (or an immediate family member of such physician) with
an entity specified in this paragraph is -
(A) except as provided in subsections (c) and (d) of this
section, an ownership or investment interest in the entity, or
(B) except as provided in subsection (e) of this section, a
compensation arrangement (as defined in subsection (h)(1) of
this section) between the physician (or an immediate family
member of such physician) and the entity.
An ownership or investment interest described in subparagraph (A)
may be through equity, debt, or other means and includes an
interest in an entity that holds an ownership or investment
interest in any entity providing the designated health service.
(b) General exceptions to both ownership and compensation
arrangement prohibitions
Subsection (a)(1) of this section shall not apply in the
following cases:
(1) Physicians' services
In the case of physicians' services (as defined in section
1395x(q) of this title) provided personally by (or under the
personal supervision of) another physician in the same group
practice (as defined in subsection (h)(4) of this section) as the
referring physician.
(2) In-office ancillary services
In the case of services (other than durable medical equipment
(excluding infusion pumps) and parenteral and enteral nutrients,
equipment, and supplies) -
(A) that are furnished -
(i) personally by the referring physician, personally by a
physician who is a member of the same group practice as the
referring physician, or personally by individuals who are
directly supervised by the physician or by another physician
in the group practice, and
(ii)(I) in a building in which the referring physician (or
another physician who is a member of the same group practice)
furnishes physicians' services unrelated to the furnishing of
designated health services, or
(II) in the case of a referring physician who is a member
of a group practice, in another building which is used by the
group practice -
(aa) for the provision of some or all of the group's
clinical laboratory services, or
(bb) for the centralized provision of the group's
designated health services (other than clinical laboratory
services),
unless the Secretary determines other terms and conditions
under which the provision of such services does not present a
risk of program or patient abuse, and
(B) that are billed by the physician performing or
supervising the services, by a group practice of which such
physician is a member under a billing number assigned to the
group practice, or by an entity that is wholly owned by such
physician or such group practice,
if the ownership or investment interest in such services meets
such other requirements as the Secretary may impose by regulation
as needed to protect against program or patient abuse.
(3) Prepaid plans
In the case of services furnished by an organization -
(A) with a contract under section 1395mm of this title to an
individual enrolled with the organization,
(B) described in section 1395l(a)(1)(A) of this title to an
individual enrolled with the organization,
(C) receiving payments on a prepaid basis, under a
demonstration project under section 1395b-1(a) of this title or
under section 222(a) of the Social Security Amendments of 1972,
to an individual enrolled with the organization,
(D) that is a qualified health maintenance organization
(within the meaning of section 300e-9(d) (!1) of this title) to
an individual enrolled with the organization, or
(E) that is a Medicare+Choice organization under part C of
this subchapter that is offering a coordinated care plan
described in section 1395w-21(a)(2)(A) of this title to an
individual enrolled with the organization.
(4) Other permissible exceptions
In the case of any other financial relationship which the
Secretary determines, and specifies in regulations, does not pose
a risk of program or patient abuse.
(5) Electronic prescribing
An exception established by regulation under section 1395w-
104(e)(6) of this title.(!1)
(c) General exception related only to ownership or investment
prohibition for ownership in publicly traded securities and
mutual funds
Ownership of the following shall not be considered to be an
ownership or investment interest described in subsection (a)(2)(A)
of this section:
(1) Ownership of investment securities (including shares or
bonds, debentures, notes, or other debt instruments) which may be
purchased on terms generally available to the public and which
are -
(A)(i) securities listed on the New York Stock Exchange, the
American Stock Exchange, or any regional exchange in which
quotations are published on a daily basis, or foreign
securities listed on a recognized foreign, national, or
regional exchange in which quotations are published on a daily
basis, or
(ii) traded under an automated interdealer quotation system
operated by the National Association of Securities Dealers, and
(B) in a corporation that had, at the end of the
corporation's most recent fiscal year, or on average during the
previous 3 fiscal years, stockholder equity exceeding
$75,000,000.
(2) Ownership of shares in a regulated investment company as
defined in section 851(a) of the Internal Revenue Code of 1986,
if such company had, at the end of the company's most recent
fiscal year, or on average during the previous 3 fiscal years,
total assets exceeding $75,000,000.
(d) Additional exceptions related only to ownership or investment
prohibition
The following, if not otherwise excepted under subsection (b) of
this section, shall not be considered to be an ownership or
investment interest described in subsection (a)(2)(A) of this
section:
(1) Hospitals in Puerto Rico
In the case of designated health services provided by a
hospital located in Puerto Rico.
(2) Rural providers
In the case of designated health services furnished in a rural
area (as defined in section 1395ww(d)(2)(D) of this title) by an
entity, if -
(A) substantially all of the designated health services
furnished by the entity are furnished to individuals residing
in such a rural area; and
(B) effective for the 18-month period beginning on December
8, 2003, the entity is not a specialty hospital (as defined in
subsection (h)(7) of this section).
(3) Hospital ownership
In the case of designated health services provided by a
hospital (other than a hospital described in paragraph (1)) if -
(A) the referring physician is authorized to perform services
at the hospital;
(B) effective for the 18-month period beginning on December
8, 2003, the hospital is not a specialty hospital (as defined
in subsection (h)(7) of this section); and
(C) the ownership or investment interest is in the hospital
itself (and not merely in a subdivision of the hospital).
(e) Exceptions relating to other compensation arrangements
The following shall not be considered to be a compensation
arrangement described in subsection (a)(2)(B) of this section:
(1) Rental of office space; rental of equipment
(A) Office space
Payments made by a lessee to a lessor for the use of premises
if -
(i) the lease is set out in writing, signed by the parties,
and specifies the premises covered by the lease,
(ii) the space rented or leased does not exceed that which
is reasonable and necessary for the legitimate business
purposes of the lease or rental and is used exclusively by
the lessee when being used by the lessee, except that the
lessee may make payments for the use of space consisting of
common areas if such payments do not exceed the lessee's pro
rata share of expenses for such space based upon the ratio of
the space used exclusively by the lessee to the total amount
of space (other than common areas) occupied by all persons
using such common areas,
(iii) the lease provides for a term of rental or lease for
at least 1 year,
(iv) the rental charges over the term of the lease are set
in advance, are consistent with fair market value, and are
not determined in a manner that takes into account the volume
or value of any referrals or other business generated between
the parties,
(v) the lease would be commercially reasonable even if no
referrals were made between the parties, and
(vi) the lease meets such other requirements as the
Secretary may impose by regulation as needed to protect
against program or patient abuse.
(B) Equipment
Payments made by a lessee of equipment to the lessor of the
equipment for the use of the equipment if -
(i) the lease is set out in writing, signed by the parties,
and specifies the equipment covered by the lease,
(ii) the equipment rented or leased does not exceed that
which is reasonable and necessary for the legitimate business
purposes of the lease or rental and is used exclusively by
the lessee when being used by the lessee,
(iii) the lease provides for a term of rental or lease of
at least 1 year,
(iv) the rental charges over the term of the lease are set
in advance, are consistent with fair market value, and are
not determined in a manner that takes into account the volume
or value of any referrals or other business generated between
the parties,
(v) the lease would be commercially reasonable even if no
referrals were made between the parties, and
(vi) the lease meets such other requirements as the
Secretary may impose by regulation as needed to protect
against program or patient abuse.
(2) Bona fide employment relationships
Any amount paid by an employer to a physician (or an immediate
family member of such physician) who has a bona fide employment
relationship with the employer for the provision of services if -

(A) the employment is for identifiable services,
(B) the amount of the remuneration under the employment -
(i) is consistent with the fair market value of the
services, and
(ii) is not determined in a manner that takes into account
(directly or indirectly) the volume or value of any referrals
by the referring physician,
(C) the remuneration is provided pursuant to an agreement
which would be commercially reasonable even if no referrals
were made to the employer, and
(D) the employment meets such other requirements as the
Secretary may impose by regulation as needed to protect against
program or patient abuse.
Subparagraph (B)(ii) shall not prohibit the payment of
remuneration in the form of a productivity bonus based on
services performed personally by the physician (or an immediate
family member of such physician).
(3) Personal service arrangements
(A) In general
Remuneration from an entity under an arrangement (including
remuneration for specific physicians' services furnished to a
nonprofit blood center) if -
(i) the arrangement is set out in writing, signed by the
parties, and specifies the services covered by the
arrangement,
(ii) the arrangement covers all of the services to be
provided by the physician (or an immediate family member of
such physician) to the entity,
(iii) the aggregate services contracted for do not exceed
those that are reasonable and necessary for the legitimate
business purposes of the arrangement,
(iv) the term of the arrangement is for at least 1 year,
(v) the compensation to be paid over the term of the
arrangement is set in advance, does not exceed fair market
value, and except in the case of a physician incentive plan
described in subparagraph (B), is not determined in a manner
that takes into account the volume or value of any referrals
or other business generated between the parties,
(vi) the services to be performed under the arrangement do
not involve the counseling or promotion or a business
arrangement or other activity that violates any State or
Federal law, and
(vii) the arrangement meets such other requirements as the
Secretary may impose by regulation as needed to protect
against program or patient abuse.
(B) Physician incentive plan exception
(i) In general
In the case of a physician incentive plan (as defined in
clause (ii)) between a physician and an entity, the
compensation may be determined in a manner (through a
withhold, capitation, bonus, or otherwise) that takes into
account directly or indirectly the volume or value of any
referrals or other business generated between the parties, if
the plan meets the following requirements:
(I) No specific payment is made directly or indirectly
under the plan to a physician or a physician group as an
inducement to reduce or limit medically necessary services
provided with respect to a specific individual enrolled
with the entity.
(II) In the case of a plan that places a physician or a
physician group at substantial financial risk as determined
by the Secretary pursuant to section 1395mm(i)(8)(A)(ii) of
this title, the plan complies with any requirements the
Secretary may impose pursuant to such section.
(III) Upon request by the Secretary, the entity provides
the Secretary with access to descriptive information
regarding the plan, in order to permit the Secretary to
determine whether the plan is in compliance with the
requirements of this clause.
(ii) "Physician incentive plan" defined
For purposes of this subparagraph, the term "physician
incentive plan" means any compensation arrangement between an
entity and a physician or physician group that may directly
or indirectly have the effect of reducing or limiting
services provided with respect to individuals enrolled with
the entity.
(4) Remuneration unrelated to the provision of designated health
services
In the case of remuneration which is provided by a hospital to
a physician if such remuneration does not relate to the provision
of designated health services.
(5) Physician recruitment
In the case of remuneration which is provided by a hospital to
a physician to induce the physician to relocate to the geographic
area served by the hospital in order to be a member of the
medical staff of the hospital, if -
(A) the physician is not required to refer patients to the
hospital,
(B) the amount of the remuneration under the arrangement is
not determined in a manner that takes into account (directly or
indirectly) the volume or value of any referrals by the
referring physician, and
(C) the arrangement meets such other requirements as the
Secretary may impose by regulation as needed to protect against
program or patient abuse.
(6) Isolated transactions
In the case of an isolated financial transaction, such as a one-
time sale of property or practice, if -
(A) the requirements described in subparagraphs (B) and (C)
of paragraph (2) are met with respect to the entity in the same
manner as they apply to an employer, and
(B) the transaction meets such other requirements as the
Secretary may impose by regulation as needed to protect against
program or patient abuse.
(7) Certain group practice arrangements with a hospital
(A) (!2) In general
An arrangement between a hospital and a group under which
designated health services are provided by the group but are
billed by the hospital if -
(i) with respect to services provided to an inpatient of
the hospital, the arrangement is pursuant to the provision of
inpatient hospital services under section 1395x(b)(3) of this
title.
(ii) the arrangement began before December 19, 1989, and
has continued in effect without interruption since such date,
(iii) with respect to the designated health services
covered under the arrangement, substantially all of such
services furnished to patients of the hospital are furnished
by the group under the arrangement,
(iv) the arrangement is pursuant to an agreement that is
set out in writing and that specifies the services to be
provided by the parties and the compensation for services
provided under the agreement,
(v) the compensation paid over the term of the agreement is
consistent with fair market value and the compensation per
unit of services is fixed in advance and is not determined in
a manner that takes into account the volume or value of any
referrals or other business generated between the parties,
(vi) the compensation is provided pursuant to an agreement
which would be commercially reasonable even if no referrals
were made to the entity, and
(vii) the arrangement between the parties meets such other
requirements as the Secretary may impose by regulation as
needed to protect against program or patient abuse.
(8) Payments by a physician for items and services
Payments made by a physician -
(A) to a laboratory in exchange for the provision of clinical
laboratory services, or
(B) to an entity as compensation for other items or services
if the items or services are furnished at a price that is
consistent with fair market value.
(f) Reporting requirements
Each entity providing covered items or services for which payment
may be made under this subchapter shall provide the Secretary with
the information concerning the entity's ownership, investment, and
compensation arrangements, including -
(1) the covered items and services provided by the entity, and
(2) the names and unique physician identification numbers of
all physicians with an ownership or investment interest (as
described in subsection (a)(2)(A) of this section), or with a
compensation arrangement (as described in subsection (a)(2)(B) of
this section), in the entity, or whose immediate relatives have
such an ownership or investment interest or who have such a
compensation relationship with the entity.
Such information shall be provided in such form, manner, and at
such times as the Secretary shall specify. The requirement of this
subsection shall not apply to designated health services provided
outside the United States or to entities which the Secretary
determines provides (!3) services for which payment may be made
under this subchapter very infrequently.
(g) Sanctions
(1) Denial of payment
No payment may be made under this subchapter for a designated
health service which is provided in violation of subsection
(a)(1) of this section.
(2) Requiring refunds for certain claims
If a person collects any amounts that were billed in violation
of subsection (a)(1) of this section, the person shall be liable
to the individual for, and shall refund on a timely basis to the
individual, any amounts so collected.
(3) Civil money penalty and exclusion for improper claims
Any person that presents or causes to be presented a bill or a
claim for a service that such person knows or should know is for
a service for which payment may not be made under paragraph (1)
or for which a refund has not been made under paragraph (2) shall
be subject to a civil money penalty of not more than $15,000 for
each such service. The provisions of section 1320a-7a of this
title (other than the first sentence of subsection (a) and other
than subsection (b)) shall apply to a civil money penalty under
the previous sentence in the same manner as such provisions apply
to a penalty or proceeding under section 1320a-7a(a) of this
title.
(4) Civil money penalty and exclusion for circumvention schemes
Any physician or other entity that enters into an arrangement
or scheme (such as a cross-referral arrangement) which the
physician or entity knows or should know has a principal purpose
of assuring referrals by the physician to a particular entity
which, if the physician directly made referrals to such entity,
would be in violation of this section, shall be subject to a
civil money penalty of not more than $100,000 for each such
arrangement or scheme. The provisions of section 1320a-7a of this
title (other than the first sentence of subsection (a) and other
than subsection (b)) shall apply to a civil money penalty under
the previous sentence in the same manner as such provisions apply
to a penalty or proceeding under section 1320a-7a(a) of this
title.
(5) Failure to report information
Any person who is required, but fails, to meet a reporting
requirement of subsection (f) of this section is subject to a
civil money penalty of not more than $10,000 for each day for
which reporting is required to have been made. The provisions of
section 1320a-7a of this title (other than the first sentence of
subsection (a) and other than subsection (b)) shall apply to a
civil money penalty under the previous sentence in the same
manner as such provisions apply to a penalty or proceeding under
section 1320a-7a(a) of this title.
(6) Advisory opinions
(A) In general
The Secretary shall issue written advisory opinions
concerning whether a referral relating to designated health
services (other than clinical laboratory services) is
prohibited under this section. Each advisory opinion issued by
the Secretary shall be binding as to the Secretary and the
party or parties requesting the opinion.
(B) Application of certain rules
The Secretary shall, to the extent practicable, apply the
rules under subsections (b)(3) and (b)(4) of this section and
take into account the regulations promulgated under subsection
(b)(5) of section 1320a-7d of this title in the issuance of
advisory opinions under this paragraph.
(C) Regulations
In order to implement this paragraph in a timely manner, the
Secretary may promulgate regulations that take effect on an
interim basis, after notice and pending opportunity for public
comment.
(D) Applicability
This paragraph shall apply to requests for advisory opinions
made after the date which is 90 days after August 5, 1997, and
before the close of the period described in section 1320a-
7d(b)(6) of this title.
(h) Definitions and special rules
For purposes of this section:
(1) Compensation arrangement; remuneration
(A) The term "compensation arrangement" means any arrangement
involving any remuneration between a physician (or an immediate
family member of such physician) and an entity other than an
arrangement involving only remuneration described in subparagraph
(C).
(B) The term "remuneration" includes any remuneration, directly
or indirectly, overtly or covertly, in cash or in kind.
(C) Remuneration described in this subparagraph is any
remuneration consisting of any of the following:
(i) The forgiveness of amounts owed for inaccurate tests or
procedures, mistakenly performed tests or procedures, or the
correction of minor billing errors.
(ii) The provision of items, devices, or supplies that are
used solely to -
(I) collect, transport, process, or store specimens for the
entity providing the item, device, or supply, or
(II) order or communicate the results of tests or
procedures for such entity.
(iii) A payment made by an insurer or a self-insured plan to
a physician to satisfy a claim, submitted on a fee for service
basis, for the furnishing of health services by that physician
to an individual who is covered by a policy with the insurer or
by the self-insured plan, if -
(I) the health services are not furnished, and the payment
is not made, pursuant to a contract or other arrangement
between the insurer or the plan and the physician,
(II) the payment is made to the physician on behalf of the
covered individual and would otherwise be made directly to
such individual,
(III) the amount of the payment is set in advance, does not
exceed fair market value, and is not determined in a manner
that takes into account directly or indirectly the volume or
value of any referrals, and
(IV) the payment meets such other requirements as the
Secretary may impose by regulation as needed to protect
against program or patient abuse.
(2) Employee
An individual is considered to be "employed by" or an
"employee" of an entity if the individual would be considered to
be an employee of the entity under the usual common law rules
applicable in determining the employer-employee relationship (as
applied for purposes of section 3121(d)(2) of the Internal
Revenue Code of 1986).
(3) Fair market value
The term "fair market value" means the value in arms length
transactions, consistent with the general market value, and, with
respect to rentals or leases, the value of rental property for
general commercial purposes (not taking into account its intended
use) and, in the case of a lease of space, not adjusted to
reflect the additional value the prospective lessee or lessor
would attribute to the proximity or convenience to the lessor
where the lessor is a potential source of patient referrals to
the lessee.
(4) Group practice
(A) Definition of group practice
The term "group practice" means a group of 2 or more
physicians legally organized as a partnership, professional
corporation, foundation, not-for-profit corporation, faculty
practice plan, or similar association -
(i) in which each physician who is a member of the group
provides substantially the full range of services which the
physician routinely provides, including medical care,
consultation, diagnosis, or treatment, through the joint use
of shared office space, facilities, equipment and personnel,
(ii) for which substantially all of the services of the
physicians who are members of the group are provided through
the group and are billed under a billing number assigned to
the group and amounts so received are treated as receipts of
the group,
(iii) in which the overhead expenses of and the income from
the practice are distributed in accordance with methods
previously determined,
(iv) except as provided in subparagraph (B)(i), in which no
physician who is a member of the group directly or indirectly
receives compensation based on the volume or value of
referrals by the physician,
(v) in which members of the group personally conduct no
less than 75 percent of the physician-patient encounters of
the group practice, and
(vi) which meets such other standards as the Secretary may
impose by regulation.
(B) Special rules
(i) Profits and productivity bonuses
A physician in a group practice may be paid a share of
overall profits of the group, or a productivity bonus based
on services personally performed or services incident to such
personally performed services, so long as the share or bonus
is not determined in any manner which is directly related to
the volume or value of referrals by such physician.
(ii) Faculty practice plans
In the case of a faculty practice plan associated with a
hospital, institution of higher education, or medical school
with an approved medical residency training program in which
physician members may provide a variety of different
specialty services and provide professional services both
within and outside the group, as well as perform other tasks
such as research, subparagraph (A) shall be applied only with
respect to the services provided within the faculty practice
plan.
(5) Referral; referring physician
(A) Physicians' services
Except as provided in subparagraph (C), in the case of an
item or service for which payment may be made under part B of
this subchapter, the request by a physician for the item or
service, including the request by a physician for a
consultation with another physician (and any test or procedure
ordered by, or to be performed by (or under the supervision of)
that other physician), constitutes a "referral" by a "referring
physician".
(B) Other items
Except as provided in subparagraph (C), the request or
establishment of a plan of care by a physician which includes
the provision of the designated health service constitutes a
"referral" by a "referring physician".
(C) Clarification respecting certain services integral to a
consultation by certain specialists
A request by a pathologist for clinical diagnostic laboratory
tests and pathological examination services, a request by a
radiologist for diagnostic radiology services, and a request by
a radiation oncologist for radiation therapy, if such services
are furnished by (or under the supervision of) such
pathologist, radiologist, or radiation oncologist pursuant to a
consultation requested by another physician does not constitute
a "referral" by a "referring physician".
(6) Designated health services
The term "designated health services" means any of the
following items or services:
(A) Clinical laboratory services.
(B) Physical therapy services.
(C) Occupational therapy services.
(D) Radiology services, including magnetic resonance imaging,
computerized axial tomography scans, and ultrasound services.
(E) Radiation therapy services and supplies.
(F) Durable medical equipment and supplies.
(G) Parenteral and enteral nutrients, equipment, and
supplies.
(H) Prosthetics, orthotics, and prosthetic devices and
supplies.
(I) Home health services.
(J) Outpatient prescription drugs.
(K) Inpatient and outpatient hospital services.
(7) Specialty hospital
(A) In general
For purposes of this section, except as provided in
subparagraph (B), the term "specialty hospital" means a
subsection (d) hospital (as defined in section 1395ww(d)(1)(B)
of this title) that is primarily or exclusively engaged in the
care and treatment of one of the following categories:
(i) Patients with a cardiac condition.
(ii) Patients with an orthopedic condition.
(iii) Patients receiving a surgical procedure.
(iv) Any other specialized category of services that the
Secretary designates as inconsistent with the purpose of
permitting physician ownership and investment interests in a
hospital under this section.
(B) Exception
For purposes of this section, the term "specialty hospital"
does not include any hospital -
(i) determined by the Secretary -
(I) to be in operation before November 18, 2003; or
(II) under development as of such date;
(ii) for which the number of physician investors at any
time on or after such date is no greater than the number of
such investors as of such date;
(iii) for which the type of categories described in
subparagraph (A) at any time on or after such date is no
different than the type of such categories as of such date;
(iv) for which any increase in the number of beds occurs
only in the facilities on the main campus of the hospital and
does not exceed 50 percent of the number of beds in the
hospital as of November 18, 2003, or 5 beds, whichever is
greater; and
(v) that meets such other requirements as the Secretary may
specify.