CMS issues interim final rule addressing physician self-referrals

Sunday, March 28, 2004

March 29, 2004

BALTIMORE - CMS last week issued the second phase of its final regulations addressing physician referrals to entities with which they have a financial relationship.  This interim final regulation will protect beneficiaries and taxpayers from abusive referral patterns, while providing straightforward rules for physicians and providers to comply with the law.
"The new regulations will protect Medicare and Medicaid beneficiaries from potentially abusive referrals, while accommodating legitimate business and financial arrangements, including those that enhance the emerging national health information infrastructure," said CMS Acting Administrator Dennis Smith.  "Overall, there shouldn't be any additional burden on physicians trying to structure their business arrangements to comply with the law, and the regulations will not prevent doctors from continuing to provide high quality health care services to their patients."
The physician self-referral law prohibits a physician from referring Medicare and Medicaid patients for certain designated health services to entities with which the physician (or a member of they physician's immediate family) has a financial relationship, unless an exception applies.  The law also prohibits an entity from billing for services provided as a result of a prohibited referral.  There are eleven designated health services to which the prohibition applies, including durable medical equipment and supplies; parenteral and enteral nutrients, equipment and supplies; home health services; outpatient prescription drugs; clinical laboratory services, physical therapy services, including speech-language pathology services; occupational therapy services; radiology and certain other imaging services; radiation therapy services and supplies; prosthetics, orthotics, and prosthetic devices and supplies; and inpatient and outpatient hospital services. 
A financial relationship can be either a compensation arrangement or an ownership or investment interest, and it can be either direct or indirect.
The law was passed after studies conducted by the Department of Health and Human Services' Office of the Inspector General and other agencies showed that excessive use of some services is encouraged when physicians have a financial relationship with the entities to which they refer patients.
Final regulations applicable only to physician referrals for clinical laboratory services were published in August 1995.  A proposed rule applicable to physician referrals for all designated health services was published in January 1998.  In January 2001, CMS published the "Phase I" final rule, which finalized a significant portion of the 1998 proposed rule.  The Phase I final rule defined many of the terms in the statute, interpreted some of the major statutory exceptions, and created a number of new regulatory exceptions.
This second phase of the regulations responds to comments CMS received on the first phase of the regulations, covers the remaining statutory exceptions not covered in the first phase, and creates several new regulatory exceptions for nonabusive financial relationships. 
The new regulations were published in the Federal Register on Friday and will be effective on July 24.  In general, the new regulation conforms to existing coverage and payment rules; protects beneficiary access to care; and establishes bright-line rules and administrative simplicity where possible.