PHYSICIAN OWNERSHIP OF. AND REFERRAL TO, HEALTH CARE ENTITIES.

SEC. 6204. PHYSICIAN OWNERSHIP OF. AND REFERRAL TO, HEALTH CARE ENTITIES. (a) Prohibition of Certain Financial Arrangements Between Referring Physicians and Clinical Laboratories.—Title XVIII of the Social Security Act is amended by inserting after section 1876 the following new section: “limitation on certain physician referrals “Sec. 1877. (a) Prohibition of Certain Referrals.— “(1) In general.— Except as provided in subsection (b), if a physician (or 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 clinical laboratory services for which payment otherwise may be made under this title, and “(B) the entity may not present or cause to be presented a claim under this title or bill to any individual, third party payor, or other entity for clinical laboratory 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 immediate family member) with an entity specified in this paragraph is— “(A) except as provided in subsections (c) and (d), an ownership or investment interest in the entity, or “(B) except as provided in subsection (e), a compensation arrangement (as defined in subsection (h)(1)(A)) between the physician (or immediate family member) and the entity. An ownership or investment interest described in subparagraph (A) may be through equity, debt, or other means. “(b) General Exceptions to Both Ownership and Compensation Arrangement Prohibitions.—Subsection (a)(1) shall not apply in the following cases: “(1) Physicians’ services.—In the case of physicians’ services (as defined in section 1861(q)) provided personally by (or under the personal supervision of) another physician in the same group practice (as defined in subsection (h)(4)) as the referring physician. “(2) In-office ancillary services.—In the case of services— “(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 employed by such physician or group practice and who are personally 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 clinical laboratory 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 for the centralized provision of the group’s clinical laboratory services, and 103 STAT. 2237 “(B) that are billed by the physician performing or supervising the services, by a group practice of which such physician is a member, 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— “(A) by an organization with a contract under section 1876 to an individual enrolled with the organization, “(B) by an organization described in section 1833(a)(1)(A) to an individual enrolled with the organization, or “(C) by an organization receiving payments on a prepaid basis, under a demonstration project under section 402(a) of the Social Security Amendments of 1967 or under section 222(a) of the Social Security Amendments of 1972, 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. “(c) General Exception Related Only to Ownership or Investment Prohibition for Ownership in Publicly-Traded Securities.—Ownership of investment securities (including shares or bonds, debentures, notes, or other debt instruments) which were purchased on terms generally available to the public and which are in a corporation that— “(1) is listed for trading on the New York Stock Exchange or on the American Stock Exchange, or is a national market system security traded under an automated interdealer quotation system operated by the National Association of Securities Dealers, and “(2) had, at the end of the corporation’s most recent fiscal year, total assets exceeding $100,000,000, shall not be considered to be an ownership or investment interest described in subsection (a)(2)(A). “(d) Additional Exceptions Related Only to Ownership or Investment Prohibition.—The following, if not otherwise excepted under subsection (b), shall not be considered to be an ownership or investment interest described in subsection (a)(2)(A): “(1) Hospitals in Puerto rico.—In the case of clinical laboratory services provided by a hospital located in Puerto Rico. “(2) Rural provider.—In the case of clinical laboratory services if the laboratory furnishing the services is in a rural area (as defined in section 1886(d)(2)(D)). “(3) Hospital ownership.— In the case of clinical laboratory 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, and “(B) the ownership or investment interest is in the hospital itself (and not merely in a subdivision thereof). “(e) Exceptions Relating to Other Compensation Arrangements.—The following shall not be considered to be a compensation arrangement described in subsection (a)(2)(B): “(1) Rental of office space.— Payments made for the rental or lease of office space if— 103 STAT. 2238 “(A) there is a written agreement, signed by the parties, for the rental or lease of the space, which agreement— “(i) specifies the space covered by the agreement and dedicated for the use of the lessee, “(ii) provides for a term of rental or lease of at least one year; “(iii) provides for payment on a periodic basis of an amount that is consistent with fair market value; “(iv) provides for an amount of aggregate payments that does not vary (directly or indirectly) based on the volume or value of any referrals of business between the parties; and “(v) would be considered to be commercially reasonable even if no referrals were made between the parties; “(B) in the case of rental or lease of office space in which a physician who is an interested investor (or an interested investor who is an immediate family member of the physician) has an ownership or investment interest, the office space is in the same building as the building in which the physician (or group practice of which the physician is a member) has a practice; and “(C) the arrangement meets such other requirements as the Secretary may impose by regulation as needed to protect against program or patient abuse. “(2) Employment and service arrangements with hospitals.— An arrangement between a hospital and a physician (or immediate family member) for the employment of the physician (or family member) or for the provision of administrative services, if— “(A) the arrangement is for identifiable services; “(B) the amount of the remuneration under the arrangement— “(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 hospital; and “(D) the arrangement meets such other requirements as the Secretary may impose by regulation as needed to protect against program or patient abuse. “(3) Other service arrangements.— Remuneration from an entity (other than a hospital) under an arrangement if— “(A) the arrangement is— “(i) for specific identifiable services as the medical director or as a member of a medical advisory board at the entity pursuant to a requirement of this title, “(ii) for specific identifiable physicians’ services to be furnished to an individual receiving hospice care if payment for such services may only be made under this title as hospice care, “(iii) for specific physicians’ services furnished to a nonprofit blood center, or 103 STAT. 2239 “(iv) for specific identifiable administrative services (other than direct patient care services), but only under exceptional circumstances specified by the Secretary in regulations; “(B) 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 a hospital; and “(C) the arrangement meets such other requirements as the Secretary may impose by regulation as needed to protect against program or patient abuse. “(4) 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. “(5) Isolated transactions.— In the case of an isolated financial transaction, such as a one-time sale of property, 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 a hospital, and “(B) the transaction meets such other requirements as the Secretary may impose by regulation as needed to protect against program or patient abuse. “(6) Salaried physicians in a group practice.—A compensation arrangement involving payment by a group practice of the salary of a physician member of the group practice. “(f) Reporting Requirements.—Each entity providing covered items or services for which payment may be made under this title shall provide the Secretary with the information concerning the entity’s ownership arrangements, including— “(1) the covered items and services provided by the entity, and “(2) the names and all of the medicare provider numbers of the physicians who are interested investors or who are immediate relatives of interested investors. Such information shall be provided in such form, manner, and at such times as the Secretary shall specify. Such information shall first be provided not later than 1 year after the date of the enactment of this section. “(g) Sanctions.— “(1) Denial of payment.—No payment may be made under this title for a clinical laboratory service which is provided in violation of subsection (a)(1). “(2) Requiring refunds for certain claims.—If a person collects any amounts that were billed in violation of subsection (a)(1), the person shall be liable to the individual for, and shall refund on a timely basis to the individual, any amounts so collected. 103 STAT. 2240 “(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 1128A (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 1128A(a). “(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 1128A (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 1128A(a). “(5) Failure to report information.—Any person who is required, but fails, to meet a reporting requirement of subsection (f) 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. “(h) Definitions.—For purposes of this section: “(1) Compensation arrangement; remuneration.—(A) The term ‘compensation arrangement’ means any arrangement involving any remuneration between a physician (or immediate family member) and an entity. “(B) The term ‘remuneration’ includes any remuneration, directly or indirectly, overtly or covertly, in cash or in kind. “(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.— The term ‘group practice’ means a group of two or more physicians legally organized as a partnership, professional corporation, foundation, not-for-profit corporation, faculty practice plan, or similar association— “(A) in which each physician who is a member of the group provides substantially the full range of services 103 STAT. 2241which the physician routinely provides (including medical care, consultation, diagnosis, or treatment) through the joint use of shared office space, facilities, equipment, and personnel; “(B) for which substantially all of the services of the physicians who are members of the group are provided through the group and are billed in the name of the group and amounts so received are treated as receipts of the group; “(C) in which the overhead expenses of and the income from the practice are distributed in accordance with methods previously determined by members of the group; and “(D) which meets such other standards as the Secretary may impose by regulation. In the case of a faculty practice plan associated with a hospital 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), the previous sentence shall be applied only with respect to the services provided within the faculty practice plan. “(5) Interested investor; disinterested investor.—The term ‘interested investor’ means, with respect to an entity, an investor who is a physician in a position to make or to influence referrals or business to the entity (or who is an immediate family member of such an investor), and the term ‘disinterested investor’ means an investor other than an interested investor. “(6) Referral; referring physician.— “(A) Physicians’ services.—Except as provided in subparagraph (C), in the case of a clinical laboratory service which under law is required to be provided by (or under the supervision of) a physician, the request by a physician for the 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), in the case of another clinical laboratory service, the request or establishment of a plan of care by a physician which includes the provision of the clinical laboratory 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, if such services are furnished by (or under the supervision of) such pathologist pursuant to a consultation requested by another physician does not constitute a ‘referral’ by a ‘referring physician’.”. (b) Requiring Requests for Payment to Include Information on Referring Physician.—Section 1833 of such Act (42 U.S.C. 1395l) is amended by adding at the end the following new subsection: “(q)(1) Each request for payment, or bill submitted, for an item or service furnished by an entity for which payment may be made under this part and for which the entity knows or has reason to believe there has been a referral by a referring physician (within the 103 STAT. 2242meaning of section 1877) shall include the name and provider number for the referring physician and indicate whether or not the referring physician is an interested investor (within the meaning of section 1877(h)(5)). “(2)(A) In the case of a request for payment for an item or service furnished by an entity under this part on an assignment-related basis and for which information is required to be provided under paragraph (1) but not included, payment may be denied under this part. “(B) In the case of a request for payment for an item or service furnished by an entity under this part not submitted on an assignment-related basis and for which information is required to be provided under paragraph (1) but not included— “(i) if the entity knowingly and willfully fails to provide such information promptly upon request of the Secretary or a carrier, the entity may be subject to a civil money penalty in an amount not to exceed $2,000, and “(ii) if the entity knowingly, willfully, and in repeated cases fails, after being notified by the Secretary of the obligations and requirements of this subsection to provide the information required under paragraph (1), the entity may be subject to exclusion from participation in the programs under this Act for a period not to exceed 5 years, in accordance with the procedures of subsections (c), (f), and (g) of section 1128. The provisions of section 1128A (other than subsections (a) and (b)) shall apply to civil money penalties under clause (i) in the same manner as they apply to a penalty or proceeding under section 1128A(a).”. (c) Effective Dates.— (1) Except as provided in paragraph (2), the amendments made by this section shall become effective with respect to referrals made on or after January 1, 1992. (2) The reporting requirement of section 1877(f) of the Social Security Act shall take effect on October 1, 1990. (d) Deadline for Certain Regulations.—The Secretary of Health and Human Services shall publish final regulations to carry out section 1877 of the Social Security Act by not later than October 1, 1990. (e) GAO Study of Ownership by Referring Physicians.—The Comptroller General shall conduct a study of the ownership of hospitals and other providers of medicare services by referring physicians. Such study shall investigate— (1) the types of such ownership arrangements and types of services offered under such arrangements, (2) the returns generally earned by physician investors in such arrangements, (3) the effect of such arrangements on (A) the utilization of items and services by medicare beneficiaries, (B) medicare expenditures, and (C) other entities providing items and services in the communities served, (4) the effect of such arrangements on independent providers of similar services, and (5) the effect on the provision of in-office clinical laboratory services of the limitation on payment for certain referrals contained in section 1877 of the Social Security Act. By not later than February 1, 1991, the Comptroller General shall report to Congress on the results of such study. 103 STAT. 2243 (f) Quarterly Reports to Congress on Comparative Utilization.—The Secretary of Health and Human Services shall submit to the Congress and the Comptroller General, not later than 90 days after the end of each calendar quarter, a report which provides a statistical profile (by State and type of item or service) comparing utilization of items and services by medicare beneficiaries served by entities in which the referring physician has a direct or indirect financial interest and by medicare beneficiaries served by other entities.