Medicare Program; Physicians' Referrals; Issuance of Advisory Opinions

SUMMARY: This final rule with comment period incorporates into HCFA's

regulations the provisions of section 1877(g)(6) of the Social Security

Act (the Act), as added by section 4314 of the Balanced Budget Act of

1997. Section 1877(g)(6) requires that the Secretary issue written

advisory opinions to outside parties concerning whether the referral of

a Medicare patient by a physician for certain designated health

services (other than clinical laboratory services) is prohibited under

the physician referral provisions in section 1877 of the Act. Section

1877 not only prohibits certain referrals under the Medicare program,

but also affects Federal financial participation payments to States

under the Medicaid program for medical assistance consisting of

designated health services furnished as the result of certain physician

referrals. This final rule sets forth the specific procedures HCFA will

use to issue advisory opinions.

EFFECTIVE DATES: The regulations are effective January 9, 1998.

Comment Date: Comments will be considered if we receive them at the

appropriate address as provided below, no later than 5 p.m on March 10,

1998.

ADDRESSES: Mail written comments (1 original and 3 copies) to the

following address: Health Care Financing Administration, Department of

Health and Human Services, Attention: HCFA-1902-IFC, P.O. Box 26688,

Baltimore, MD 21207.

If you prefer, you may deliver your written comments (1 original

and 3 copies) to one of the following addresses:

Room 309-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW.,

Washington, DC 20201, or

Room C5-09-26, 7500 Security Boulevard, Baltimore, MD 21244-1850.

Comments may also be submitted electronically to the following e-

mail address: hcfa1902ifc.hcfa.gov. E-mail comments must include the

full name and address of the sender and must be submitted to the

referenced address in order to be considered. All comments must be

incorporated in the e-mail message because we may not be able to access

attachments. Because of staffing and resource limitations, we cannot

accept comments by facsimile (FAX) transmission. In commenting, please

refer to file code HCFA-1902-IFC. Comments received timely will be

available for public inspection as they are received, generally

beginning approximately 3 weeks after publication of a document, in

Room 309-G of the Department's offices at 200 Independence Avenue, SW.,

Washington, DC, on Monday through Friday of each week from 8:30 a.m. to

5 p.m. (phone: (202) 690-7890).

Copies: To order copies of the Federal Register containing this

document, send your request to: New Orders, Superintendent of

Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. Specify the date

of the issue requested and enclose a check or money order payable to

the Superintendent of Documents, or enclose your Visa or Master Card

number and expiration date. Credit card orders can also be placed by

calling the order desk at (202) 783-3238 or by faxing to (202) 275-

6802. The cost for each copy is $8. As an alternative, you can view and

photocopy the Federal Register document at most libraries designated as

Federal Depository Libraries and at many other public and academic

libraries throughout the country that receive the Federal Register.

This Federal Register document is also available from the Federal

Register online database through GPO Access, a service of the U.S.

Government Printing Office. Free public access is available on a Wide

Area Information Server (WAIS) through the Internet and via

asynchronous dial-in. Internet users can access the database by using

the World Wide Web; the Superintendent of Documents home page address

is http://www.access.gpo.gov/su__docs/, by using local WAIS client

software, or by telnet to swais.access.gpo.gov, then log in as guest

(no password required). Dial-in users should use communications

software and modem to call (202) 512-1661; type swais, then log in as

guest (no password required).

FOR FURTHER INFORMATION CONTACT: Joanne Sinsheimer (410) 786-4620.

SUPPLEMENTARY INFORMATION:

I. Background

A. Legislative history of section 1877

Section 6204 of the Omnibus Budget Reconciliation Act of 1989

(OBRA`89), Public Law 101-239, enacted on December 19, 1989, added

section 1877 to the Social Security Act (the Act). (Unless we indicate

otherwise, all references in this document to sections of the law are

references to the Act.) In general, section 1877 as it read under

OBRA`89 provided that, if a physician (or an immediate family member of

a physician) had a financial relationship with a clinical laboratory,

that physician could not make a referral to the laboratory for the

furnishing of clinical laboratory services for which Medicare might

otherwise pay. It also provided that the laboratory could not present

or cause to be presented a Medicare claim or bill to any individual,

third party payer, or other entity for clinical laboratory services

furnished under the prohibited referral. Additionally, it required a

refund of any amount collected from an individual as the result of

billing for an item or service furnished under a prohibited referral.

These provisions were effective for referrals made on or after January

1, 1992.

The statute defined ``financial relationship'' as an ownership or

investment interest in the entity providing clinical laboratory

services or a compensation arrangement between the physician (or

immediate family member) and the entity. The statute provided a number

of exceptions to the prohibition. Some of these exceptions applied to

both ownership/investment interests and compensation arrangements,

while other exceptions applied to only one or the other of these.

Additionally, the statute imposed reporting requirements relating to a

physician's (or family member's) financial relationships and provided

for sanctions.

Section 4207(e) of the Omnibus Budget Reconciliation Act of 1990

(OBRA`90), Public Law 101-508, enacted on November 5, 1990, amended

certain provisions of section 1877 to clarify the definitions in

section 1877(h), alter the reporting requirements, and to provide an

additional exception to the prohibition.

Section 1877 was extensively revised by section 13562 of the

Omnibus Budget Reconciliation Act of 1993 (OBRA`93, Public Law 103-66,

enacted on August 10, 1993). It modified the prior law to apply to

referrals for ten ``designated health services'' in addition to

clinical

[[Page 1647]]

laboratory services, modified some exceptions, and added new ones. Some

of the amendments were retroactively effective to January 1, 1992,

while others (such as the expansion to the additional designated health

services) did not become effective until January 1, 1995. Section 152

of the Social Security Act Amendments of 1994 (SSA`94), Public Law 103-

432, enacted on October 31, 1994, amended the list of designated

services, effective January 1, 1995. It also changed the reporting

requirements in section 1877(f) and amended some of the effective dates

of the OBRA`93 provisions. The amended list of designated health

services includes:

Clinical laboratory services.

Physical therapy services.

Occupational therapy services.

Radiology services, including magnetic resonance imaging,

computerized axial tomography scans, and ultrasound services.

Radiation therapy services and supplies.

Durable medical equipment and supplies.

Parenteral and enteral nutrients, equipment, and supplies.

Prosthetics, orthotics, and prosthetic devices and

supplies.

Home health services.

Outpatient prescription drugs.

Inpatient and outpatient hospital services.

Section 13624 of OBRA`93 extended aspects of the referral

prohibition to the Medicaid program, adding a new paragraph (s) to

section 1903 of the Social Security Act. This provision denies Federal

financial participation (FFP) payment under the Medicaid program to a

State for certain expenditures for designated health services. A State

cannot receive FFP for designated health services furnished to an

individual on the basis of a physician referral that would result in a

denial of payment under the Medicare program if Medicare covered the

services to the same extent and under the same terms and conditions as

under the State Medicaid plan. Section 13624 also specified that the

reporting requirements in section 1877(f) and the civil money penalty

provision in section 1877(g)(5) (which relates to reporting) apply to a

provider of a designated health service for which payment may be made

under Medicaid in the same manner as they apply to a provider of a

designated health service for which payment may be made under Medicare.

Section 1903(s) applies to a physician's referrals made on or after

December 31, 1994.

B. Regulations relating to section 1877

On March 11, 1992, we published a proposed rule (57 FR 8588)

setting forth the self-referral prohibition and exceptions to the

prohibition in section 1877, as enacted by OBRA' 89 and amended by OBRA

'90, relating to a physician's referrals for clinical laboratory

services.

On August 14, 1995, we published, at 60 FR 41914, a final rule with

comment period that incorporated into the Medicare regulations the

provisions of section 1877 that relate to the prohibition on physician

referrals for clinical laboratory services. The August 1995 final rule

contains revisions to the March 11, 1992, proposal based on comments

submitted by the public. Further, it incorporates the amendments and

exceptions created by OBRA '93 and the amendments in SSA '94 that

relate to referrals for clinical laboratory services. It addresses only

those changes that had a retroactive effective date of January 1, 1992;

it does not incorporate those modifications to section 1877 that became

effective for referrals made on or after January 1, 1995. (Even though

the August 1995 final rule incorporates OBRA '93 and SSA '94

provisions, it generally only reiterates them without interpreting

them. We interpreted the new provisions only in a few instances in

which it was necessary to do so in order to implement the statute at

all.)

We are publishing elsewhere in this same issue of the Federal

Register a proposed rule that interprets the OBRA`93 and SSA `94

provisions described above and incorporates and interprets the

provisions of section 1877 that became effective on January 1, 1995,

and concern the other designated health services. This proposed rule

also addresses the application of sections 1877 and 1903(s) to the

Medicaid program.

C. Advisory Opinions: Section 4314 of Public Law 105-33

Section 4314 of the Balanced Budget Act of 1997, Public Law 105-33,

enacted on August 5, 1997, added section 1877(g)(6) to the Act. This

provision requires that the Department provide additional formal

guidance to outside parties regarding the application of the physician

referral statute.

Section 1877(g)(6)(A) requires that the Secretary issue written

advisory opinions concerning whether a referral relating to designated

health services (other than clinical laboratory services) is prohibited

under the provisions in section 1877. This paragraph states that each

advisory opinion issued by the Secretary will be binding on the

Secretary and the party or parties who requested the opinion.

Section 1877(g)(6)(B) requires the Secretary, in issuing physician

referral advisory opinions, to apply the rules in paragraphs (b)(3) and

(4) of section 1128D of the Act, to the extent practicable. Section

1128D was added to the Act by section 205 of the Health Insurance

Portability and Accountability Act of 1996, Public Law 104-191,

effective August 21, 1996. It requires the Secretary, in consultation

with the Attorney General, to issue written advisory opinions to

particular parties on certain specified matters involved in applying

the anti-kickback statute in section 1128B(b) of the Act, the safe

harbor provisions in 42 CFR 1001.952, as well as other health care

fraud and abuse sanctions handled by the Office of Inspector General

(OIG).

Section 1128D(b)(3)(A) prohibits the OIG in its advisory opinions

from addressing whether fair market value will be or was paid or

received for any goods, services, or property. Section 1128D(b)(3)(B)

prohibits the OIG from addressing whether an individual is a bona fide

employee within the requirements of section 3121(d)(2) of the Internal

Revenue Code of 1986. As noted above, HCFA is required to apply these

provisions ``to the extent practicable.'' We are incorporating these

provisions in their entirety into our own advisory opinion rules.

Section 1128D(b)(4)(A) states that the OIG advisory opinions are

binding on the Secretary and the party or parties requesting the

opinion. Section 1128D(b)(4)(B) provides that if a party fails to seek

an advisory opinion, this fact may not be introduced into evidence to

prove that the party intended to violate the provisions of sections

1128, 1128A, or 1128B. We are also required to apply these provisions

``to the extent practicable.'' We are incorporating section

1128D(b)(4)(B) in its entirety. However, we are not incorporating

section 1128D(b)(4)(A) because we believe that it is redundant with our

own advisory authority in section 1877(g)(6)(A). This provision states

that each advisory opinion issued by the Secretary will be binding on

the Secretary and on the party or parties requesting the opinion.

Section 1877(g)(6)(B) also requires us to take into account the

regulations promulgated by the OIG to cover advisory opinions, issued

by the OIG under the authority of section 1128D(b)(5). We believe that

``take into account'' means that we should use the OIG regulations as

our model, but that we are not bound to follow them. We have attempted

to follow the OIG

[[Page 1648]]

regulations as closely as possible in each instance in which we

believed that it was reasonable to do so.

Section 1128D(b)(5)(A) states that the OIG's regulations must

provide for--

The procedure to be followed by a party applying for an

advisory opinion;

The procedure to be followed by the Secretary in

responding to a request for an advisory opinion;

The interval in which the Secretary will respond;

The reasonable fee to be charged to the party requesting

an advisory opinion; and

The manner in which advisory opinions will be made

available to the public.

Under section 1128D(b)(5)(B), the OIG is required to issue an

advisory opinion to a party by not later than 60 days after receiving

the request for the opinion and to charge the requesting party a fee

that is equal to the costs the Secretary incurs in responding to the

request.

The OIG's procedures for advisory opinions are set forth in 42 CFR

part 1008. They were published as an interim final rule with comment

period on February 19, 1997 (62 FR 7350). In section III. of this

preamble, we discuss each of the elements required by section

1128D(b)(5)(A) (for the OIG's regulations). Many of our procedures are

based on those articulated in the OIG regulations.

II. Provisions of the Interim Final Rule with Comment Period

A. Overview of the advisory opinion requirement

This interim final rule with comment period creates regulations at

sections 411.370 through 411.389 that establish procedures for the

advisory opinions described in section 1877(g)(6). These advisory

opinions will provide the public with meaningful advice regarding

whether, based on specific facts, a physician's referrals for a

designated health service (other than a clinical laboratory service)

are prohibited by the referral provisions in section 1877. The advisory

opinion process will be meaningful to any parties who are interested in

learning whether a particular business arrangement involving a

physician (or a physician's immediate family member) will result in the

physician being prohibited from making certain referrals under the

Medicare program. This process also could prove significant to parties

who are interested in the status of a physician's referrals under the

Medicaid program. That is because the FFP provision in section 1903(s)

of the Act depends upon whether a physician's referrals would be

prohibited under the Medicare rules if the Medicare program covered a

designated health service in the same manner as it is covered under the

State Medicaid plan.

In an advisory opinion, we will restate the material facts known to

us, present our analysis, and provide conclusions about how we believe

the law applies to the facts presented. We will base our analysis on

our interpretation of the provisions in section 1877.

Section 1877(g)(6) requires advisory opinions only on the issue of

whether a referral relating to designated health services (other than

clinical laboratory services) is a prohibited referral under section

1877. If a physician has an unexcepted financial relationship with an

entity, as defined by the statute and our regulations, then that

physician's referrals for designated health services for a Medicare

patient would be prohibited, regardless of the intent of any of the

parties involved in the arrangement. Thus, our advisory opinions will

be fact-based, and will contain no discussions about what we believe

the parties knew when they entered into the arrangement or what they

may have intended.

While section 1877 is primarily a payment ban that is effective

regardless of the intent of the parties involved, there are additional

sanctions under section 1877(g)(3) and (g)(4) that include elements of

knowledge or intent. Section 1877(g)(4), in fact, imposes a penalty for

certain referrals that might not otherwise be prohibited, if the

parties involved in an arrangement have a particular purpose in mind.

This provision applies to any physician or other entity that enters

into an arrangement or scheme (such as a cross-referral arrangement)

that the physician or entity knows or should know has a principal

purpose of ensuring referrals by the physician to a particular entity

that, if the physician directly made referrals to that entity, would be

in violation of section 1877. Sanctions under this provision include

potentially significant civil money penalties and possible exclusion

from the Medicare and other health care programs.

We do not believe that section 1877(g)(6) requires us to express

any opinion about what the parties to an arrangement knew or intended,

for purposes of any of the sanctions in section 1877(g) (3) and (4).

Even if we wished to comment on any intent-based aspect of the referral

provisions, we believe that it is not practical for us to make an

independent determination of the subjective intent of the parties based

only upon written materials that have been submitted by the requestor.

While we expect requestors to submit complete written descriptions of

their arrangements and transactions, along with relevant portions of

documents, these materials do not afford a satisfactory basis upon

which we could make a reliable determination of subjective intent.

Section 1877(g)(6)(A) states that an advisory opinion shall be

binding on the Secretary and on the party or parties requesting an

opinion. It is also our view that an advisory opinion may legally be

relied upon only by the requestors.

We believe that advisory opinions are capable of being misused by

persons not a party to the transaction in question in order to

inappropriately escape liability. Advisory opinions are intended only

to address the facts of a particular arrangement. A third party may

implement an arrangement that appears similar to the arrangement

described in the advisory opinion, but the third party may introduce

additional factors that may make a difference in the outcome of an

advisory opinion.

As set forth below, this interim final rule with comment period has

been developed primarily to address the following issues:

The procedure to be followed by a party applying for an

advisory opinion.

The procedure we will follow in responding to a request.

The interval within in which we will respond to a request

for an advisory opinion.

The reasonable fee we will charge to the party requesting

an advisory opinion.

The manner in which we will make advisory opinions

available to the public.

This final rule with comment period does not address the substance

or the content of advisory opinions issued by us.

B. Responsibilities of outside parties seeking advisory opinions

1. Who can request an advisory opinion

Any individual or entity may submit a request to us for a written

advisory opinion about whether a physician's referral relating to a

designated health service, other than a clinical laboratory service, is

prohibited under section 1877. We anticipate that most requests will

involve financial relationships that involve health care business

arrangements. Therefore, for purposes of this discussion, we will

generally use the term ``arrangement'' to refer to the factual

circumstances that are involved

[[Page 1649]]

in a request for an advisory opinion, even though some requests might

involve facts that are not related to a business arrangement.

As indicated above, the advisory opinion process is designed to

provide authoritative guidance to participants in particular

arrangements. Therefore, the arrangement in question must either be in

existence at the time of the request for an advisory opinion or, with

respect to prospective arrangements, there must be a good faith

intention to enter into the described arrangement in the near future.

(With respect to prospective conduct, we are stating that the requestor

can declare the intention to enter into the arrangement contingent upon

receiving a favorable advisory opinion from us or from both us and the

OIG.)

Requestors who are not individuals are required to disclose certain

ownership information, so that we can check to ensure that the matter

which is the subject of the advisory opinion request is not under

current investigation. We are also requiring that requestors inform us,

to the best of their knowledge, about whether the arrangement involved

in the request is the subject of any current investigations.

2. Matters not subject to an advisory opinion

As explained above, even if a party requests it, we will not

address the issue of whether fair market value was, or will be, paid or

received for any goods, services, or property or the issue of whether

an individual is a bona fide employee within the requirements of

section 3121(d)(2) of the Internal Revenue Code of 1986.

In addition, we do not believe that it is appropriate to provide

advisory opinions to persons not involved in the arrangement in

question. For example, we believe that a description of a competitor's

arrangement is not the proper subject of an advisory opinion since the

participants to the particular transaction would not be involved in the

request. A party to an actual arrangement--either existing or about to

be entered into--is in a position to provide full and complete

information regarding the facts in question. By contrast, third parties

are not in a position to provide a reliable statement about the facts

of a particular arrangement in which the third party is not a

participant. In addition, it is unclear who would be bound by an

advisory opinion on an arrangement that does not involve the requestor.

Similarly, we do not believe it is appropriate to provide advisory

opinions on hypothetical or generalized arrangements. Section

1877(g)(6) requires the Secretary to issue advisory opinions concerning

``whether a referral relating to designated health services (other than

clinical laboratory services) is prohibited under this section.''

(Emphasis added.) We interpret this provision to mean a specific

referral involving a physician in a specific situation. We also believe

there are reasons to avoid opinions on generalized arrangements.

Because of the complexity of the business arrangements that exist in

today's health care community, physician referral cases are not likely

to be the same in all material respects. The introduction by a party of

any additional factors could make a material difference in the

resulting opinion. We believe it would not be possible for an advisory

opinion to reliably identify all the possible hypothetical factors that

might lead to different results.

3. Initiating the process for an advisory opinion

A requestor must submit a written request for an advisory opinion

in order to initiate the process. The request must clearly and

thoroughly present a complete description of the situation that is the

subject of the advisory opinion. The request should include all facts

that would be relevant in determining whether a particular situation

could result in a physician's referrals being prohibited under section

1877. To the extent that the request provides the necessary information

in a clear and orderly manner, we will be better able to process it.

We are requiring any submission to include copies of all relevant

documents or relevant portions of documents, such as financial

statements, contracts, leases, employment agreements and court

documents (requestors may withhold irrelevant portions), as well as

descriptions of any other arrangements or relationships that may affect

the documents or our analysis. In addition, the submission should

include a narrative description of the arrangement. In making the

request, a requestor must include the identities (including names and

addresses) of the requestor and all other actual and potential parties

to the arrangement, to the extent known to the requestor. In addition,

the request must include the Taxpayer Identification Number (TIN) of

the requestor. The Debt Collection Improvement Act of 1996 (section

31001 of Public Law 104-134) requires agencies to collect the TIN from

all persons or businesses ``doing business with a Federal agency.''

(See 31 U.S.C. 7701(c).) We believe that requesting, receiving, and

paying for our work on an advisory opinion fits into the category of

``doing business with a Federal agency.'' Therefore, a request for an

advisory opinion must include the TIN of the requestor. The TIN will be

used for purposes of collecting and reporting on any delinquent amounts

arising out of the requestor's failure to render proper payment for the

advisory opinion. In addition to the above information, we are also

requiring the requestor to identify a designated contact person who

will be available to communicate with us.

We are also requiring that requestors make two certifications as

part of their request for an advisory opinion. If the requestor is an

individual, the individual must sign the certification; if the

requestor is a corporation, it must be signed by the Chief Executive

Officer, or a comparable officer; if the requestor is a partnership, it

must be signed by a managing partner; and, if the requestor is a

limited liability company, the certification must be signed by a

managing member. The responsible individual must certify that all of

the information provided as part of the request is true and correct,

and constitutes a complete description of the facts regarding which an

advisory opinion is being sought, to the best of the requestor's

knowledge. If the request relates to prospective conduct, the

regulations state that the request must also include a certification

that the requestor intends in good faith to enter into the arrangement

described in the request. A requestor may make this certification

contingent upon receiving a favorable advisory opinion from us or from

both us and the OIG.

While all submissions should include the above categories of

information, we cannot in these interim final regulations provide

complete details on exactly what information a requestor must provide.

We anticipate that we will receive requests that involve a wide variety

of business arrangements, some of which may be quite complex. At a

minimum, any request must describe the entities and parties involved in

an arrangement, the specific terms of the arrangement, and the direct

or indirect relationship between the physician (or a physician's

immediate relative) and any entity that furnishes designated health

services. Requestors should also include any information they believe

demonstrates that the arrangement meets one of the exceptions to the

referral prohibition.

We are soliciting public comment and input on any other types of

information that a requestor should routinely provide and intend to

address this point

[[Page 1650]]

further in any revised final rulemaking. In the interim, prior to

submitting a request for an advisory opinion, we strongly advise that a

requestor contact us to inquire about the information HCFA will need to

process a request of the type the requestor intends to submit.

Inquiries can be made by telephoning Joanne Sinsheimer at (410) 786-

4620. We may, depending on the subject matter of the inquiry,

informally provide parties with preliminary questions to help them

structure their requests. Our goal is to help ensure that the requests

include the factual information we will need to respond to them.

Requestors should (but are not required to) answer these questions in

their requests for an advisory opinion. If the information we need is

in the first submission, we will be better able to render a prompt,

concise, and appropriate advisory opinion. We welcome comments on this

approach.

The regulation also requires that a requestor inform us about

whether the parties involved in the request have also asked for or are

planning to ask for an advisory opinion on the arrangement in question

from the OIG under section 1128D(b) of the Act. We plan to routinely

exchange information with the OIG on requests that we receive and on

our intended responses. We plan, in particular, to establish a system

that will help guarantee adequate coordination when parties have asked

for opinions from both us and the OIG.

4. Fees charged to requesting parties

There is no express authority for us to charge a user fee to

individuals who request an advisory opinion under section 4314 of the

Balanced Budget Act of 1997. However, in the absence of express

authority for this particular purpose, we can rely on the authority for

collecting such a fee provided by the Independent Offices

Appropriations Act of 1952 (IOAA), 31 U.S.C. 9701. That statute

generally governs Federal agencies' imposition and collection of user

fees. In Sec. 9701(a), the Congress expressed its intent that each

service or thing of value provided by a Government agency to a person

is to be self-sustaining to the extent possible. Section 9701(b)

authorizes agencies to prescribe regulations establishing the fee for a

service or thing of value provided by the agency. The fee must be

``fair'' and based on the cost to the government of providing the

service or thing, the value of the service or thing to the recipient,

public policy or interest served, and other relevant facts. 31 U.S.C.

9701(b).

In 1974, the Supreme Court ruled that the user fee statute must be

read narrowly as authorizing not a ``tax'' (which may be levied only by

Congress and need not relate to benefits bestowed on the taxpayer), but

a ``fee'' for a particular benefit. National Cable Television Ass'n,

Inc. v. United States, 415 U.S. 336 (1974)(FCC had authority to impose

fees; costs that inure to the public's benefit should not be included

in the fee imposed). In a companion case, Federal Power Commission v.

New England Power Company, 415 U.S. 345 (1974), the Court opined that

the Office of Management and Budget (OMB) had properly construed the

user fee statute in a 1959 circular, which stated that a reasonable

charge ``should be made to each identifiable recipient for a measurable

unit or amount of government service or property from which he derives

a special benefit.'' Id. at 349. The OMB Circular A-25 was revised in

1993, and currently provides under the heading ``General policy'' that

a user charge ``will be assessed against each identifiable recipient

for special benefits derived from Federal activities beyond those

received by the general public.'' 58 FR 38142, 38144. The language of

currently applicable OMB guidance to agencies about when a ``special

benefit'' will be considered to accrue for purposes of imposing a

charge is virtually identical to that cited by the Court with approval.

Id. at 349, fn. 3.

More recent appellate court decisions addressing agencies'

authority to impose user fees similarly examine the extent to which

there is a ``specific service that confers a special private benefit on

an identifiable beneficiary.'' Seafarers Int'l Union of N. Am. v. Coast

Guard, 81 F.3d 179, 184 (D.C. Cir. 1996) (emphasis in original). See,

also, Engine Mfrs. Ass'n v. EPA, 20 F.2d 1177 (D.C. Cir. 1994) and

Central & Southern Motor Freight Tariff Ass'n v. United States, 777

F.2d 722 (D.C. Cir. 1985). We believe that the advisory opinions we

must provide under section 4314 fall squarely into this category. That

is, they are an ``extra'' service that an interested party can request

from the Secretary, they relate to the party's own, unique situation,

and they are binding on the Secretary and the requesting party alone,

with no general application.

Section 411.372(b)(9) requires that a requestor make payment for an

advisory opinion directly to us. We believe that HCFA has the authority

to both collect and retain the fees. Annual appropriations acts have

since 1996 authorized our retention of otherwise authorized user fees,

and this authority would apply to all user fees we are authorized to

collect. The retention language appears in the most recent

appropriations act, enacted on November 13, 1997, Public Law 105-78, in

the paragraphs covering appropriations for our program management. This

language states that, in carrying out titles XVIII and XIX of the Act,

the Secretary is authorized to use a specific amount of money that will

be transferred from the Federal Hospital Insurance and the Federal

Supplementary Medical Insurance Trust Funds, together with ``such sums

as may be collected from authorized user fees and the sale of data,

which shall remain available until expended, * * *.''

Since section 1877(g)(6) of the Act requires that we take into

account the OIG regulations implementing section 1128D(b)(5), we have

modeled our user fee on the fee that appears in those regulations.

Under section 1128D(b)(5)(A)(iv), the OIG regulations must provide for

a ``reasonable fee'' to be charged to the party requesting an advisory

opinion. Section 1128D(b)(5)(B)(ii) requires that requestors be charged

a fee equal to the costs incurred by the Department in responding to

the request.

We have adopted the ``actual cost'' fee from the OIG regulations.

Section 411.375(b) of our regulations indicates that in determining the

actual costs, we will factor in the salary, benefits, and overhead

costs of policy analysts, attorneys, and others who may work on

analyzing requests and writing advisory opinions, including

administrative and supervisory support for these individuals. Because

we expect that requests may range widely in their complexity, we do not

believe it is possible to calculate or accurately estimate the cost of

providing an advisory opinion in advance. In fact, the OIG has

interpreted section 1128D(b)(5)(B)(ii) to require a fee that represents

the actual costs that it has incurred in processing each individual

request. We are also reflecting this concept in our regulations.

We have included in our regulations the OIG's requirement that,

once the advisory opinion process is complete, either because we have

issued the opinion or the request has been withdrawn, the requestor is

responsible for paying an amount equal to the costs incurred by the

Government in responding to the request.

Although we cannot reliably project the processing costs in

advance, we can make broad estimates that may be of use to prospective

requestors. We estimate that, currently, the actual cost of processing

a request, including salaries, benefits and overhead, would be

approximately $75 an hour. We must include in our estimate the time of

[[Page 1651]]

technical staff, attorneys, supervisors, and support staff, as well as

others with whom we may consult on various issues.

The time it will take us to process a request will depend on the

complexity of the request and the quality of the submission. Simple

requests might only take a few hours. For example, a request concerning

whether a physician can refer patients to his wife, who works for a

physical therapy facility, may take approximately 3 hours to analyze

and produce a written opinion. On the other hand, a request involving

the application of the physician referral rules to a large, multi-

party, intricate business arrangement may take us in excess of 40 hours

to fully analyze and produce a written advisory opinion.

We believe that it is reasonable to expect that requests for an

advisory opinion will, at present, cost at least $250 for initial

processing. It will take time for us to carefully read and analyze

every request for an advisory opinion and to ensure that we have

accurately understood all the material facts in each request.

Accordingly, the regulations provide for a nonrefundable payment of

$250 that must accompany any request for an advisory opinion that we

receive through the end of 1998. Once we have gained experience in

estimating the resources we will need and have factored in any

inflation in our costs, we may need to revise our initial fee through a

program issuance. We expect to revise the fee periodically after

December 31, 1998.

Because we do not believe that we can accurately estimate our costs

in advance for a particular request, we intend to try to accommodate

requestors who may want to limit the costs of receiving an advisory

opinion. The regulations provide that requestors may designate a

``triggering dollar amount'' in their requests for an advisory opinion.

If we calculate that the cost of processing a request has reached, or

is likely to exceed, that triggering amount, we will stop processing

the request and promptly notify the requestor. The requestor may then

decide to either authorize us to continue or withdraw the request. We

believe we will be able to more accurately reflect costs in advance

once we have gained experience. In the interim, this triggering

mechanism should be useful in helping to ensure that requestors do not

pay costs far in excess of what they expect to pay when they submit

their requests.

Section 411.375(c)(4) of the regulations specifically indicates

that, while a requestor may withdraw a request for an advisory opinion

at any time, he or she will be responsible for any costs we incurred in

processing the request before it was withdrawn.

When we have completed the advisory opinion as discussed below, or

the requestor has withdrawn the request, we will calculate the total

costs that we incurred in processing the request. In calculating this

amount, we will take into account any previous payments associated with

the request, such as the initial $250 fee, and then notify the

requestor of the amount he or she still owes. Once the requestor has

paid the full cost, we will release the opinion to the requestor.

We believe that our approach for payment and release will be

sufficient for the vast majority of requests for advisory opinions.

However, we also believe that we need an additional procedure for cases

in which the request will necessitate that we acquire expert advice. We

may, for example, need to consult with accountants or with business

professionals in order to better understand complex financial

relationships.

Because such expert reviews will entail additional time and

expense, we believe that we should treat differently any request that

requires outside consultation rather than just a standard application

of the governing law to a given set of facts. If we determine that we

require an expert opinion, we will obtain an estimate for the costs of

the opinion and provide the requestor with that estimate. The requestor

may then decide to either pay the estimated cost of the expert review

or withdraw the request. If the requestor pays the estimated cost, we

will promptly refer the matter to the expert for review. Once the

outside expert has provided us with the review, we will continue the

advisory opinion process by applying the expert evaluation to the legal

questions at issue. If the expert evaluation ultimately costs more than

the estimated cost, we will bill the requestor for the additional

expense as part of the Department's overall costs in responding to the

request. These additional costs will be included when we determine

whether we are approaching a requestor's ``triggering dollar amount.''

We intend to begin processing requests as soon as we receive them.

However, although we will be charging user fees for the cost to the

Government for responding to these requests, we will not be adding

staff until we determine the volume of requests and the complexity of

the legal issues and fact patterns. Once we have had some experience

processing requests for advisory opinions, we intend to reconsider the

method described in this section for calculating fees. We are

specifically soliciting comments on our methodology for determining

costs.

C. HCFA's responsibilities

1. Reviewing requests for advisory opinions

Once we receive a request for an advisory opinion, we will promptly

examine it to determine if it appears to contain sufficient information

for us to form the basis for an informed advisory opinion. (Generally

speaking, a request is most likely to be sufficient if the requestor

sought our advice before submitting a formal request, and the request

contains responses to any preliminary questions we may have posed at

that time.) If a request does not appear to us to be sufficient, we

will promptly notify the requestor about the additional information we

need. On the other hand, if the request appears to be sufficient, we

will accept the request. In all cases, we will either ask for

additional information or accept the request within 15 working days

after we receive the request. If we have requested additional

information and the requestor resubmits the advisory opinion request,

we will assess the resubmission within 15 working days to determine

whether it can be accepted or whether we still need further

information. At the point when we accept the request, we will notify

the requestor by U.S. mail of the date of our acceptance.

We believe that this approach will provide us with a reasonable

amount of time to identify requests that do not contain sufficient

information. We are limiting the time period for this initial

assessment in order to ensure that we promptly process requests that

appear to be complete. We are interested in public comments on whether

we have developed an appropriate method for screening advisory opinion

requests before we accept them.

Even in situations in which we have accepted a request, we reserve

the right to later determine that we need additional information. If we

decide that additional information is necessary, we will notify the

requestor in the same manner as we would notify a requestor before

accepting a request. The time period between when we notify the

requestor about the additional information we need and when we receive

the requested information will not be counted as part of the time

within which we must issue an opinion.

Because we believe that we may need to make fact-intensive

inquiries in order to render many advisory opinions, we

[[Page 1652]]

anticipate that we may need to request additional information from many

requestors. In responding, the requestor should provide us with the

necessary information and include with it a certification from the same

individual who certified the original request for an advisory opinion

(or, if the requestor is an entity, from an individual who is in a

comparable position).

2. Timeframe for issuing advisory opinions

Section 1128D(b)(5)(B) of the Act requires that the OIG issue an

advisory opinion within 60 days after it has received the request for

the opinion. The OIG has reflected this timeframe in its regulations at

42 CFR 1008.43. Because section 1877(g)(6) does not impose any

deadline, we have established our own 90-day timeframe for most

requests. In addition, for requests that we determine, in our

discretion, involve complex legal issues or highly complicated fact

patterns, we reserve the right to issue an advisory opinion within a

reasonable timeframe. We have created this timeframe based upon our

perception that we will receive many requests for advisory opinions and

that a large percentage will involve complex fact patterns. This

perception is based on the quantity and the nature of phone calls we

have received, on a daily basis, over many years. We believe that the

number of requests will be affected by the fact that the referral

provisions in section 1877 apply to many parties because they can be

triggered regardless of the intent of the parties. In addition, if an

arrangement involves a physician who has a problematic financial

relationship with an entity that furnishes designated health services,

the parties must know that the arrangement meets an exception before

that physician can refer. We have also based our timeframe on staffing

limitations.

Although we will be charging user fees for the cost to the

Government for responding to these requests, we will not be adding

staff until we determine the volume of requests and the complexity of

the legal issues and fact patterns.

Once we have had some experience processing requests for advisory

opinions, we intend to reevaluate the timeframe to ensure that it is

fair and to determine whether more staff is necessary. We are

specifically soliciting comments on this issue.

We intend to begin processing requests as soon as we receive them.

Once we receive a request that appears to meet all the submission

criteria, we will promptly accept the request and our 90-day period for

issuing an opinion will begin. We will send the advisory opinion to the

requestor by regular U.S. mail by the end of the 90-day period and once

the requestor has paid all the required fees.

We believe that under certain circumstances the running of our 90-

day period for issuing an opinion should be tolled (suspended). The

suspended periods will only reflect time when we cannot work on

analyzing the request. If we notify a requestor that the costs have

reached, or are likely to exceed, the triggering amount designated by

that requestor, we will stop processing the request until the requestor

instructs us to continue. Similarly, if we notify a requestor of the

need for, and estimated cost of, an outside expert opinion on a

nonlegal issue, the regulations state that we will stop processing the

request until the requestor pays the estimated cost and the outside

expert provides its opinion. Likewise, in those instances in which we

request additional information from the requestor that we believe is

necessary for us to issue the advisory opinion, we will stop processing

the opinion until we receive the additional information.

The time period for issuing an advisory opinion does not include

the time after we notify the requestor that the advisory opinion is

complete and the requestor must pay the full balance due for the cost

of the opinion.

While we intend to issue advisory opinions within 90 days of

receiving the request, we do not believe that the 90-day time period

should include delays in the processing of the request that are not

within our control. With the exception of the delay that occurs while

we wait for a necessary outside expert opinion, all of the possible

events that can suspend the period are under the exclusive control of

the requestor. We believe that for the vast majority of advisory

opinion requests, the 90-day period will only be suspended for those

periods during which the requestor has not paid a required fee or has

not provided the information we need to process the request.

We will issue an advisory opinion to the requestor after we have

considered the complete description of all the facts the requestor has

provided to us. In the opinion, we will restate the material facts

known to us, present our analysis, and provide conclusions about how we

believe the law applies to the facts presented to us.

3. Dissemination of advisory opinions

Section 1128D(b)(5)(A)(v) requires that the OIG's regulations

describe the manner in which advisory opinions will be made available

to the public. We have adopted the OIG's policy as follows: As set

forth in Sec. 411.384(b) of these regulations, once we issue an

advisory opinion to a requestor, we will promptly make a copy of that

opinion available for public inspection (in Room 309-G of the

Department's offices at 200 Independence Avenue, SW., Washington, DC

(phone: 202-690-7890)) during our normal hours of operation and on our

web site (http://www.hcfa.gov/regs/aop/). We also anticipate that

commercial publishers and trade groups are likely to make advisory

opinions widely available to interested members of the public. We

welcome public comments and additional suggestions about disseminating

advisory opinions to the public.

We will make available documents that are related to a request for

an advisory opinion and have been submitted to us and any related

internal government documents, to the extent we are required to do so

by the Freedom of Information Act (FOIA) (5 U.S.C. 552). If a requestor

provides information it believes is not subject to disclosure under

FOIA, such as items that the requestor believes are trade secrets or

privileged and confidential commercial or financial information, the

requestor should identify this information in the manner described in

45 CFR 5.65 (c) and (d). The requestor's assertions about the nature of

the information, however, are not controlling.

In addition, although a document may be exempt from disclosure

under FOIA, facts reflected in that document may become part of the

advisory opinion that HCFA will provide to the public. We will describe

the material facts of the arrangement in question in the body of each

advisory opinion, which will be made fully available to the public. To

the extent that it may be necessary to reveal specific facts that could

be regarded as confidential information, we believe we have the

authority to do so under sections 1106(a) and 1877(g)(6) of the Act. We

do not intend to release any such facts unless we believe it is

necessary to do so.

4. Rescission of an advisory opinion

Section 411.382 reserves our right to rescind or revoke an advisory

opinion after we issue it, in limited circumstances. For example, we

can rescind an opinion if we learn after issuing it that the

arrangement in question may lead to fraud and abuse. In such a

situation, we will notify the requestor that we have rescinded and make

the notice available to the same extent as an advisory opinion. The

[[Page 1653]]

requestor would not be subject to sanctions for any actions it took

prior to the notice of rescission, if the requestor relied in good

faith on the advisory opinion (unless we establish that the requestor

failed to provide us with material information when it submitted the

request for the opinion) and where the parties promptly discontinue the

action upon receiving notice that we have rescinded or revoked our

approval. We would also allow the parties to discontinue the action

within what we believe is a reasonable ``wind down'' period, if we

believe that the business arrangement is one that cannot be

discontinued immediately. We are specifically soliciting comments on

whether this approach reasonably balances the Government's need to

ensure that advisory opinions are legally correct and the requestor's

interest in finality.

5. Scope and effect of advisory opinions

Section 411.387 of these regulations addresses the scope and effect

of advisory opinions. When we issue an advisory opinion under this

process, it is legally binding on the Department and the requestor, but

only with respect to the specific conduct of the particular requestor.

Section 1877(g)(6)(A) requires only that an advisory opinion issued by

the Secretary be binding upon the Secretary and the party or parties

requesting the opinion. In light of this provision, the Department is

not legally bound with respect to the conduct of a third party, even if

the conduct of that party appears similar to the conduct of the

requestor. Thus, under these regulations, no third parties are bound by

nor may they rely upon an advisory opinion. Each advisory opinion will

apply legal standards to a set of facts involving certain known persons

who provide specific statements about key factual issues. A third party

may create a look-alike arrangement, but any additional characteristics

could lead to an unfavorable opinion. Therefore, by their very nature,

advisory opinions cannot be applied generally.

We believe that even if a party has received a favorable advisory

opinion from us regarding a particular arrangement, the Government is

not totally prevented from commencing an action against a party to that

arrangement. For example, this could occur if a requestor has failed to

disclose a material fact. In any such action under sections 1128, 1128A

or 1128B of the Act, an individual or entity who has requested and

received an advisory opinion from us regarding the arrangement in

question may seek to introduce the advisory opinion into evidence in

the proceeding.

III. Regulatory Impact Analysis

We have examined the impact of this rule as required by Executive

Order 12866 and the Regulatory Flexibility Act (RFA) (Pub. L. 96-354).

Executive Order 12866 directs agencies to assess all costs and benefits

of available regulatory alternatives and, when regulation is necessary,

to select regulatory approaches that maximize net benefits (including

potential economic, environmental, public health and safety effects,

distributive impacts, and equity). The RFA requires agencies to analyze

options for regulatory relief of small businesses. For purposes of the

RFA, most hospitals, and most other providers, physicians, and health

care suppliers are small entities, either by nonprofit status or by

having revenues of $5 million or less annually.

Section 1102(b) of the Social Security Act requires us to prepare a

regulatory impact analysis for any proposed rule that may have a

significant impact on the operations of a substantial number of small

rural hospitals. This analysis must conform to the provisions of

section 603 of the RFA. For purposes of section 1102(b) of the Act, we

define a small rural hospital as a hospital that is located outside a

Metropolitan Statistical Area and has fewer than 50 beds.

This rule establishes procedures for us to receive, review, and

respond to requests for advisory opinions on the issue of whether a

physician's referrals for certain designated health services are

prohibited under section 1877 of the Social Security Act. This rule

does not address the substance of section 1877 nor the substance or

content of the advisory opinions we may issue in the future. Any effect

an advisory opinion may have on the behavior of health care providers

is the result of the substantive content of section 1877 and of the

advisory opinions themselves, and not this rule.

Parties interested in advisory opinions will incur certain costs in

requesting the opinions. However, it is the law that allows us to

require that requestors pay cost-based fees for advisory opinions. This

rule merely lays out procedures for paying the costs.

Estimated number of respondents: Many individuals and entities that

provide certain designated health services that may be paid for by

Medicare or Medicaid could potentially have questions regarding the

referral provisions in section 1877.

We estimate that, within the last year, we received an average of

eight telephone calls each day regarding the physician self-referral

provisions. We believe that some percentage of calls involved issues

and situations about which the callers would be unlikely to request

written advisory opinions. Nevertheless, we believe that we can use the

number of inquiries as a basis for estimating the number of requests we

are likely to receive for advisory opinions. Using this basis, we

estimate that 200 physicians, health care entities, and other entities

or individuals will request advisory opinions within the first year

following publication of this rule. We also anticipate that the number

of requests will decline in subsequent years, unless there are

significant changes in the law. The costs to these requestors will vary

depending on the complexity of each request. Compared, however, to the

costs of seeking private legal advice, we believe that the fees charged

for our review will not be substantial, and in many cases will not

exceed the $250 minimum payment.

Obviously, the actual number of requests could be larger since, for

the first time, formal written opinions are available. Conversely, the

numbers could be smaller for a combination of many unquantifiable

reasons, such as the desire not to subject an arrangement to official

scrutiny.

Under the Regulatory Flexibility Act (5 U.S.C. 601-612), if a rule

has a significant economic effect on a substantial number of small

businesses, the Secretary must specifically consider the effects of the

rule on small business entities and analyze regulatory options that

could lessen the impact of the rule. As stated above, this rule does

not address the substance of section 1877 of the Act or the substance

of advisory opinions that may be issued in the future. It describes the

process by which an individual or entity may receive an opinion about

how section 1877 applies to particular business practices. The

aggregate economic impact of this rulemaking on small business entities

should, therefore, be minimal.

Thus, we have concluded, and the Secretary certifies, that this

final rule will not have a significant economic impact on a substantial

number of small business entities, and that a regulatory flexibility

analysis is not required for this rulemaking.

In accordance with the provisions of E.O. 12866, this regulation

was reviewed by the Office of Management and Budget.

[[Page 1654]]

IV. Authority for an Interim Final Rule with Comment Period, and

Waiver of Delayed Effective Date

We ordinarily publish a general notice of proposed rulemaking in

the Federal Register and invite public comment on the proposed rule.

That rule would have included a reference to the legal authority under

which we are proposing it, and the terms and substance of the proposed

rule or a description of the subjects and issues involved. Further, we

generally provide for final rules to be effective no sooner than 30

days after the date of publication unless we find good cause to waive

the delay.

In order to implement the provisions in section 1877(g)(6) in a

timely manner, section 1877(g)(6)(C) gives us the authority to

promulgate regulations that take effect on an interim basis after

notice and pending opportunity for public comment. We have chosen to

exercise this authority for the following reasons. We believe that the

statutory requirement that we accept requests for advisory opinions

that are submitted on or after November 4, 1997, makes it imperative

that, by that date, we have in place specific procedures to address how

we will receive and process advisory opinion requests. It would be

contrary to the public interest for us to receive and process advisory

opinions without first setting forth procedural guidelines. We also

believe that the 60-day period for public comment established by this

interim final rule will protect the public's interest in this

rulemaking, while providing us with additional input and

recommendations, without unduly delaying the advisory opinion process.

We are therefore publishing the advisory opinion procedures as an

interim final rule with comment period. We also find that for good

cause it would be against the public interest to delay the effective

date of this rule. We will respond to all appropriate and relevant

public comments that we receive during the 60-day comment period, and

we will make any necessary revisions to these regulations through a

revised final rule.

V. Collection of Information Requirements

In order to provide appropriate advisory opinions, we will need

certain information from the parties who request advisory opinions.

Sections 411.372, 411.373, and 411.378 of this interim final rule

contain information collection requirements that require approval by

OMB. We are required to solicit public comments under section

3506(c)(2)(A) of the Paperwork Reduction Act of 1995. Specifically,

comments are invited on (1) whether the proposed collection of

information is necessary for the proper performance of the functions of

the agency, including whether the information will have practical

utility; (2) the accuracy of the estimate of the burden of the proposed

collection of information; (3) ways to enhance the quality, utility and

clarity of the information collected; and (4) ways to minimize the

burden of the collection of information on respondents, including

through the use of automated collection techniques or other forms of

information technology.

We are requesting an emergency review of this interim final rule

with comment period. In compliance with section 3506(c)(2)(A) of the

Paperwork Reduction Act of 1995, we are submitting to OMB the

collection of information requirements described below for emergency

review. We are requesting an emergency review because the collection of

this information is needed before the expiration of the normal time

limits under OMB's regulations at 5 CFR part 1320, to ensure compliance

with section 1877(g)(6)(D) of the Act, which was added by section 4314

of the Balanced Budget Act of 1997. Section 1877(g)(6)(D) requires us

to respond to requests for advisory opinions that are submitted after

November 3, 1997. We cannot reasonably comply with normal clearance

procedures because of the statutory deadline and public harm is likely

to result if the agency cannot provide for advisory opinions.

We are providing a 3-day public comment period from the date of

publication of this interim final rule, with OMB review and approval 4

days from the date of publication, and a 180-day approval. During this

180-day period, we will publish a separate Federal Register notice

announcing the initiation of an extensive 60-day agency review and

public comment period on these requirements. We will submit the

requirements for OMB review and an extension of this emergency

approval.

Title: HCFA Advisory Opinion Procedure.

Summary of the collection of information: Section 4314 of Public

Law 105-33, in establishing section 1877(g)(6) of the Act, requires the

Department to provide advisory opinions to the public regarding whether

a physician's referrals for certain designated health services are

prohibited under the other provisions in section 1877 of the Act. These

regulations provide the procedures under which members of the public

may request advisory opinions from HCFA. Because all requests for

advisory opinions are purely voluntary, respondents will only be

required to provide information to us that is relevant to their

individual requests.

The following discussion describes the aggregate effect of the

collections of information included in the text of this interim final

rule.

Respondents: The ``respondents'' for the collection of information

described in these regulations will be self-selected individuals and

entities that choose to submit requests for advisory opinions to HCFA.

We anticipate that the respondents will include health care providers

of many types, from physicians who are sole practitioners to large

diversified publicly-traded corporations.

Estimated number of respondents: 200. This estimate is based on the

number of telephone calls we have received regarding the physician

referral provisions.

Estimated number of responses per respondent: 1.

Estimated total annual burden on respondents: We believe that the

burden of preparing a request for an advisory opinion will vary widely

depending upon the size and complexity of the business transactions in

question. We estimate that the average burden for each submitted

request for an advisory opinion will be in the range of 2 to 40 hours.

We further believe that the burden for most requests will be closer to

the lower end of the range, with an average burden of 10 hours per

respondent. Total burden for this proposed information collection is

estimated to be 2000 hours.

We are requiring that requests for advisory opinions involve

existing conduct, or conduct in which the requestor intends to engage.

We anticipate that most requests will involve business arrangements

into which the requesting party intends to enter. Because the facts

will relate to business plans, we believe the requesting party in many

cases will already have collected and analyzed all or almost all of the

information we will need in order to review the request. Therefore, in

order to request an advisory opinion, the requestor will most likely

simply need to compile for our examination information that the

requestor has already collected and reviewed. In some cases, however,

the requestor may need to expend a more significant amount of time in

order to submit information relating to a complex arrangement that

involves a large number of parties.

Comments on this information collection should be sent to both:

[[Page 1655]]

Health Care Financing Administration, Office of Information Services,

Information Technology Investment Management Group, Division of HCFA

Enterprise Standards, Attn: HCFA-1902-IFC, Room C2-26-17, 7500 Security

Boulevard, Baltimore, MD 21244-1850

and

Allison Herron Eydt, HCFA Desk Officer, Office of Management and

Budget, Room 10235, New Executive Office Building, 725 17th Street, NW,

Washington, D.C. 20503.

You may also fax comments on these paperwork reduction requirements

to the Health Care Financing Administration at (410) 786-1415 and to

Ms. Eydt at (202) 395-6974. All comments should refer to file code

HCFA-1902-IFC.

To be considered, you must submit comments on these paperwork

reduction requirements to the individuals listed above within 3 days

after this interim final rule is published in the Federal Register.

List of Subjects in 42 CFR Part 411

Administrative practice and procedures, Fraud, Grant programs--

health, Health facilities, Health professions, Medicaid, Medicare,

Penalties.

42 CFR part 411 is amended as set forth below:

PART 411--EXCLUSIONS FROM MEDICARE AND LIMITATIONS ON MEDICARE

PAYMENT

1. The authority citation for part 411 continues to read as

follows:

Authority: Secs. 1102 and 1871 of the Social Security Act (42

U.S.C. 1302 and 1395hh).

2. Sections 411.370, 411.372, 411.373, 411.375, 411.377 through

411.380, 411.382, 411.384, and 411.386 through 411.389 are added to

subpart J to read as follows:

Sec. 411.370 Advisory opinions relating to physician referrals.

(a) Period during which HCFA will accept requests. The provisions

of Secs. 411.370 through 411.389 apply to requests for advisory

opinions that are submitted to HCFA after November 3, 1997, and before

August 21, 2000, and to any requests submitted during any other time

period during which HCFA is required by law to issue the advisory

opinions described in this subpart.

(b) Matters that qualify for advisory opinions and who may request

one. Any individual or entity may request a written advisory opinion

from HCFA concerning whether a physician's referral relating to

designated health services (other than clinical laboratory services) is

prohibited under section 1877 of the Act. In the advisory opinion, HCFA

determines whether a business arrangement described by the parties to

that arrangement appears to constitute a ``financial relationship'' (as

defined in section 1877(a)(2) of the Act) that could potentially

restrict a physician's referrals, and whether the arrangement or the

designated health services at issue appear to qualify for any of the

exceptions to the referral prohibition described in section 1877 of the

Act.

(1) The request must involve an existing arrangement or one into

which the requestor, in good faith, specifically plans to enter. The

planned arrangement may be contingent upon the party or parties

receiving a favorable advisory opinion. HCFA does not consider, for

purposes of an advisory opinion, requests that present a general

question of interpretation, pose a hypothetical situation, or involve

the activities of third parties.

(2) The requestor must be a party to the existing or proposed

arrangement.

(c) Matters not subject to advisory opinions. HCFA does not address

through the advisory opinion process--

(1) Whether the fair market value was, or will be, paid or received

for any goods, services, or property; and

(2) Whether an individual is a bona fide employee within the

requirements of section 3121(d)(2) of the Internal Revenue Code of

1986.

(d) Facts subject to advisory opinions. HCFA considers requests for

advisory opinions that involve applying specific facts to the subject

matter described in paragraph (b) of this section. Requestors must

include in the advisory opinion request a complete description of the

arrangement that the requestor is undertaking, or plans to undertake,

as described in Sec. 411.372.

(e) Requests that will not be accepted. HCFA does not accept an

advisory opinion request or issue an advisory opinion if--

(1) The request is not related to a named individual or entity;

(2) HCFA is aware that the same, or substantially the same, course

of action is under investigation, or is or has been the subject of a

proceeding involving the Department of Health and Human Services or

another governmental agency; or

(3) HCFA believes that it cannot make an informed opinion or could

only make an informed opinion after extensive investigation, clinical

study, testing, or collateral inquiry.

(f) Effects of an advisory opinion on other Governmental authority.

Nothing in this part limits the investigatory or prosecutorial

authority of the OIG, the Department of Justice, or any other agency of

the Government. In addition, in connection with any request for an

advisory opinion, HCFA, the OIG, or the Department of Justice may

conduct whatever independent investigation it believes appropriate.

Sec. 411.372 Procedure for submitting a request.

(a) Format for a request. A party or parties must submit a request

for an advisory opinion to HCFA in writing, including an original

request and 2 copies. The request must be addressed to: Health Care

Financing Administration, Department of Health and Human Services,

Attention: Advisory Opinions, P.O. Box 26505, Baltimore, MD 21207.

(b) Information HCFA requires with all submissions. The request

must include the following:

(1) The name, address, telephone number, and Taxpayer

Identification Number of the requestor.

(2) The names and addresses, to the extent known, of all other

actual and potential parties to the arrangement that is the subject of

the request.

(3) The name, title, address, and daytime telephone number of a

contact person who will be available to discuss the request with HCFA

on behalf of the requestor.

(4) A complete and specific description of all relevant information

bearing on the arrangement, including--

(i) A complete description of the arrangement that the requestor is

undertaking, or plans to undertake, including: the purpose of the

arrangement; the nature of each party's (including each entity's)

contribution to the arrangement; the direct or indirect relationships

between the parties, with an emphasis on the relationships between

physicians involved in the arrangement (or their immediate family

members who are involved) and any entities that provide designated

health services; the types of services for which a physician wishes to

refer, and whether the referrals will involve Medicare or Medicaid

patients;

(ii) Complete copies of all relevant documents or relevant portions

of documents that affect or could affect the arrangement, such as

personal services or employment contracts, leases, deeds, pension or

insurance plans, financial statements, or stock certificates (or, if

these relevant documents do not yet exist, a complete description, to

the best of the requestor's knowledge, of what these documents are

likely to contain);

[[Page 1656]]

(iii) Detailed statements of all collateral or oral understandings,

if any; and

(iv) Descriptions of any other arrangements or relationships that

could affect HCFA's analysis.

(5) Complete information on the identity of all entities involved

either directly or indirectly in the arrangement, including their

names, addresses, legal form, ownership structure, nature of the

business (products and services) and, if relevant, their Medicare and

Medicaid provider numbers. The requestor must also include a brief

description of any other entities that could affect the outcome of the

opinion, including those with which the requestor, the other parties,

or the immediate family members of involved physicians, have any

financial relationships (either direct or indirect, and as defined in

section 1877(a)(2) of the Act and Sec. 411.351), or in which any of the

parties holds an ownership or control interest as defined in section

1124(a)(3) of the Act.

(6) A discussion of the specific issues or questions the requestor

would like HCFA to address including, if possible, a description of why

the requestor believes the referral prohibition in section 1877 of the

Act might or might not be triggered by the arrangement and which, if

any, exceptions to the prohibition the requestor believes might apply.

The requestor should attempt to designate which facts are relevant to

each issue or question raised in the request and should cite the

provisions of law under which each issue or question arises.

(7) An indication of whether the parties involved in the request

have also asked for or are planning to ask for an advisory opinion on

the arrangement in question from the OIG under section 1128D(b) of the

Act (42 U.S.C. 1320a-7d(b)) and whether the arrangement is or is not,

to the best of the requestor's knowledge, the subject of an

investigation.

(8) The certification(s) described in Sec. 411.373. The

certification(s) must be signed by--

(i) The requestor, if the requestor is an individual;

(ii) The chief executive officer, or comparable officer, of the

requestor, if the requestor is a corporation;

(iii) The managing partner of the requestor, if the requestor is a

partnership; or

(iv) A managing member, if the requestor is a limited liability

company.

(9) A check or money order payable to HCFA in the amount described

in Sec. 411.375(a).

(c) Additional information HCFA might require. If the request does

not contain all of the information required by paragraph (b) of this

section, or, if either before or after accepting the request, HCFA

believes it needs more information in order to render an advisory

opinion, it may request whatever additional information or documents it

deems necessary. Additional information must be provided in writing,

signed by the same person who signed the initial request (or by an

individual in a comparable position), and be certified as described in

Sec. 411.373.

Sec. 411.373 Certification.

(a) Every request must include the following signed certification:

``With knowledge of the penalties for false statements provided by 18

U.S.C. 1001 and with knowledge that this request for an advisory

opinion is being submitted to the Department of Health and Human

Services, I certify that all of the information provided is true and

correct, and constitutes a complete description of the facts regarding

which an advisory opinion is sought, to the best of my knowledge and

belief.''

(b) If the advisory opinion relates to a proposed arrangement, in

addition to the certification required by paragraph (a) of this

section, the following certification must be included and signed by the

requestor: ``The arrangement described in this request for an advisory

opinion is one into which [the requestor], in good faith, plans to

enter.'' This statement may be made contingent on a favorable advisory

opinion, in which case the requestor should add one of the following

phrases to the certification:

(1) ``if HCFA issues a favorable advisory opinion.''

(2) ``if HCFA and the OIG issue favorable advisory opinions.''

Sec. 411.375 Fees for the cost of advisory opinions.

(a) Initial payment. Parties must include with each request for an

advisory opinion submitted through December 31, 1998, a check or money

order payable to HCFA for $250. For requests submitted after this date,

parties must include a check or money order in this amount, unless HCFA

has revised the amount of the initial fee in a program issuance, in

which case, the requestor must include the revised amount. This initial

payment is nonrefundable.

(b) How costs are calculated. Before issuing the advisory opinion,

HCFA calculates the costs the Department has incurred in responding to

the request. The calculation includes the costs of salaries, benefits,

and overhead for analysts, attorneys, and others who have worked on the

request, as well as administrative and supervisory support for these

individuals.

(c) Agreement to pay all costs. (1) By submitting the request for

an advisory opinion, the requestor agrees, except as indicated in

paragraph (c)(3) of this section, to pay all costs the Department

incurs in responding to the request for an advisory opinion.

(2) In its request for an advisory opinion, the requestor may

designate a triggering dollar amount. If HCFA estimates that the costs

of processing the advisory opinion request have reached or are likely

to exceed the designated triggering dollar amount, HCFA notifies the

requestor.

(3) If HCFA notifies the requestor that the actual or estimated

cost of processing the request has reached or is likely to exceed the

triggering dollar amount, HCFA stops processing the request until the

requestor makes a written request for HCFA to continue. If HCFA is

delayed in processing the request for an advisory opinion because of

this procedure, the time within which HCFA must issue an advisory

opinion is suspended until the requestor asks HCFA to continue working

on the request.

(4) If the requestor chooses not to pay for HCFA to complete an

advisory opinion, or withdraws the request, the requestor is still

obligated to pay for all costs HCFA has identified as costs it incurred

in processing the request for an advisory opinion, up to that point.

(5) If the costs HCFA has incurred in responding to the request are

greater than the amount the requestor has paid, HCFA, before issuing

the advisory opinion, notifies the requestor of any additional amount

that is due. HCFA does not issue an advisory opinion until the

requestor has paid the full amount that is owed. Once the requestor has

paid HCFA the total amount due for the costs of processing the request,

HCFA issues the advisory opinion. The time period HCFA has for issuing

advisory opinions is suspended from the time HCFA notifies the

requestor of the amount owed until the time HCFA receives full payment.

(d) Fees for outside experts. (1) In addition to the fees

identified in this section, the requestor also must pay any required

fees for expert opinions, if any, from outside sources, as described in

Sec. 411.377.

(2) The time period for issuing an advisory opinion is suspended

from the time that HCFA notifies the requestor that it needs an outside

expert opinion

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until the time HCFA receives that opinion.

Sec. 411.377 Expert opinions from outside sources.

(a) HCFA may request expert advice from qualified sources if HCFA

believes that the advice is necessary to respond to a request for an

advisory opinion. For example, HCFA may require the use of accountants

or business experts to assess the structure of a complex business

arrangement or to ascertain a physician's or immediate family member's

financial relationship with entities that provide designated health

services.

(b) If HCFA determines that it needs to obtain expert advice in

order to issue a requested advisory opinion, HCFA notifies the

requestor of that fact and provides the identity of the appropriate

expert and an estimate of the costs of the expert advice. As indicated

in Sec. 411.375(d), the requestor must pay the estimated cost of the

expert advice.

(c) Once HCFA has received payment for the estimated cost of the

expert advice, HCFA arranges for the expert to provide a prompt review

of the issue or issues in question. HCFA considers any additional

expenses for the expert advice, beyond the estimated amount, as part of

the costs HCFA has incurred in responding to the request, and the

responsibility of the requestor, as described in Sec. 411.375(c).

Sec. 411.378 Withdrawing a request.

The party requesting an advisory opinion may withdraw the request

before HCFA issues a formal advisory opinion. This party must submit

the withdrawal in writing to the same address as the request, as

indicated in Sec. 411.372(a). Even if the party withdraws the request,

the party must pay the costs the Department has expended in processing

the request, as discussed in Sec. 411.375. HCFA reserves the right to

keep any request for an advisory opinion and any accompanying documents

and information, and to use them for any governmental purposes

permitted by law.

Sec. 411.379 When HCFA accepts a request.

(a) Upon receiving a request for an advisory opinion, HCFA promptly

makes an initial determination of whether the request includes all of

the information it will need to process the request.

(b) Within 15 working days of receiving the request, HCFA--

(1) Formally accepts the request for an advisory opinion;

(2) Notifies the requestor about the additional information it

needs, or

(3) Declines to formally accept the request.

(c) If the requestor provides the additional information HCFA has

requested, or otherwise resubmits the request, HCFA processes the

resubmission in accordance with paragraphs (a) and (b) of this section

as if it were an initial request for an advisory opinion.

(d) Upon accepting the request, HCFA notifies the requestor by

regular U.S. mail of the date that HCFA formally accepted the request.

(e) The 90-day period that HCFA has to issue an advisory opinion

set forth in Sec. 411.380(c) does not begin until HCFA has formally

accepted the request for an advisory opinion.

Sec. 411.380 When HCFA issues a formal advisory opinion.

(a) HCFA considers an advisory opinion to be issued once it has

received payment and once the opinion has been dated, numbered, and

signed by an authorized HCFA official.

(b) An advisory opinion contains a description of the material

facts known to HCFA that relate to the arrangement that is the subject

of the advisory opinion, and states HCFA's opinion about the subject

matter of the request based on those facts. If necessary, HCFA includes

in the advisory opinion material facts that could be considered

confidential information or trade secrets within the meaning of 18

U.S.C. 1095.

(c)(1) HCFA issues an advisory opinion, in accordance with the

provisions of this part, within 90 days after it has formally accepted

the request for an advisory opinion, or, for requests that HCFA

determines, in its discretion, involve complex legal issues or highly

complicated fact patterns, within a reasonable time period.

(2) If the 90th day falls on a Saturday, Sunday, or Federal

holiday, the time period ends at the close of the first business day

following the weekend or holiday;

(3) The 90-day period is suspended from the time HCFA--

(i) Notifies the requestor that the costs have reached or are

likely to exceed the triggering amount as described in

Sec. 411.375(c)(2) until HCFA receives written notice from the

requestor to continue processing the request;

(ii) Requests additional information from the requestor until HCFA

receives the additional information;

(iii) Notifies the requestor of the full amount due until HCFA

receives payment of this amount; and

(iv) Notifies the requestor of the need for expert advice until

HCFA receives the expert advice.

(d) After HCFA has notified the requestor of the full amount owed

and has received full payment of that amount, HCFA issues the advisory

opinion and promptly mails it to the requestor by regular first class

U.S. mail.

Sec. 411.382 HCFA's right to rescind advisory opinions.

Any advice HCFA gives in an opinion does not prejudice its right to

reconsider the questions involved in the opinion and, if it determines

that it is in the public interest, to rescind or revoke the opinion.

HCFA provides notice to the requestor of its decision to rescind or

revoke the opinion so that the requestor and the parties involved in

the requestor's arrangement may discontinue any course of action they

have taken in accordance with the advisory opinion. HCFA does not

proceed against the requestor with respect to any action the requestor

and the involved parties have taken in good faith reliance upon HCFA's

advice under this part, provided--

(a) The requestor presented to HCFA a full, complete and accurate

description of all the relevant facts; and

(b) The parties promptly discontinue the action upon receiving

notice that HCFA had rescinded or revoked its approval, or discontinue

the action within a reasonable ``wind down'' period, as determined by

HCFA.

Sec. 411.384 Disclosing advisory opinions and supporting information.

(a) Advisory opinions that HCFA issues and releases in accordance

with the procedures set forth in this subpart are available to the

public.

(b) Promptly after HCFA issues an advisory opinion and releases it

to the requestor, HCFA makes available a copy of the advisory opinion

for public inspection during its normal hours of operation and on the

DHHS/HCFA web site.

(c) Any predecisional document, or part of such predecisional

document, that is prepared by HCFA, the Department of Justice, or any

other Department or agency of the United States in connection with an

advisory opinion request under the procedures set forth in this part is

exempt from disclosure under 5 U.S.C. 552, and will not be made

publicly available.

(d) Documents submitted by the requestor to HCFA in connection with

a request for an advisory opinion are available to the public to the

extent they are required to be made available by 5 U.S.C. 552, through

procedures set forth in 45 CFR part 5.

(e) Nothing in this section limits HCFA's obligation, under

applicable

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laws, to publicly disclose the identity of the requesting party or

parties, and the nature of the action HCFA has taken in response to the

request.

Sec. 411.386 HCFA's advisory opinions as exclusive.

The procedures described in this subpart constitute the only method

by which any individuals or entities can obtain a binding advisory

opinion on the subject of a physician's referrals, as described in

Sec. 411.370. HCFA has not and does not issue a binding advisory

opinion on the subject matter in Sec. 411.370, in either oral or

written form, except through written opinions it issues in accordance

with this subpart.

Sec. 411.387 Parties affected by advisory opinions.

An advisory opinion issued by HCFA does not apply in any way to any

individual or entity that does not join in the request for the opinion.

Individuals or entities other than the requestor(s) may not rely on an

advisory opinion.

Sec. 411.388 When advisory opinions are not admissible evidence.

The failure of a party to seek or to receive an advisory opinion

may not be introduced into evidence to prove that the party either

intended or did not intend to violate the provisions of sections 1128,

1128A or 1128B of the Act.

Sec. 411.389 Range of the advisory opinion.

(a) An advisory opinion states only HCFA's opinion regarding the

subject matter of the request. If the subject of an advisory opinion is

an arrangement that must be approved by or is regulated by any other

agency, HCFA's advisory opinion cannot be read to indicate HCFA's views

on the legal or factual issues that may be raised before that agency.

(b) An advisory opinion that HCFA issues under this part does not

bind or obligate any agency other than the Department. It does not

affect the requestor's, or anyone else's, obligations to any other

agency, or under any statutory or regulatory provision other than that

which is the specific subject matter of the advisory opinion.

(Catalog of Federal Domestic Assistance Program No. 93.773,

Medicare--Hospital Insurance; and Program No. 93.774, Medicare--

Supplementary Medical Insurance Program)

Dated: December 2, 1997.

Nancy-Ann Min DeParle,

Administrator, Health Care Financing Administration.

Dated: December 30, 1997.

Donna E. Shalala,

Secretary.

[FR Doc. 98-270 Filed 1-5-98; 8:45 am]

BILLING CODE 4120-01-P