TITLE 42--PUBLIC HEALTH
CHAPTER IV--CENTERS FOR MEDICARE
& MEDICAID SERVICES,
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
PART 411_EXCLUSIONS FROM MEDICARE AND LIMITATIONS ON MEDICARE PAYMENT
--Table of Contents
Subpart J_Financial Relationships Between Physicians and Entities
Furnishing Designated Health Services
Sec. 411.354 Financial relationship, compensation, and ownership or
investment interest.
(a) Financial relationships. (1) Financial relationship means--
(i) A direct or indirect ownership or investment interest (as
defined in paragraph (b) of this section) in any entity that furnishes
DHS; or
(ii) A direct or indirect compensation arrangement (as defined in
paragraph (c) of this section) with an entity that furnishes DHS.
(2) Types of financial relationships. (i) A direct financial
relationship exists if remuneration passes between the referring
physician (or a member of his or her immediate family) and the entity
furnishing DHS without any intervening persons or entities between the
entity furnishing DHS and the referring physician (or a member of his
or her immediate family).
(ii) An indirect financial relationship exists under the conditions
described in paragraphs (b)(5) and (c)(2) of this section.
(b) Ownership or investment interest. An ownership or investment
interest in the entity may be through equity, debt, or other means, and
includes an interest in an entity that holds an ownership or investment
interest in any entity that furnishes DHS.
(1) An ownership or investment interest includes, but is not
limited to, stock, stock options other than those described in Sec.
411.354(b)(3)(ii), partnership shares, limited liability company
memberships, as well as loans, bonds, or other financial instruments
that are secured with an entity's property or revenue or a portion of
that property or revenue.
(2) An ownership or investment interest in a subsidiary company is
neither an ownership or investment interest in the parent company, nor
in any other subsidiary of the parent, unless the subsidiary company
itself has an ownership or investment interest in the parent or such
other subsidiaries. It may, however, be part of an indirect financial
relationship.
(3) Ownership and investment interests do not include, among other
things--
(i) An interest in a retirement plan;
(ii) Stock options and convertible securities received as
compensation until the stock options are exercised or the convertible
securities are converted to equity (before this time the stock options
or convertible securities are compensation arrangements as defined in
paragraph (c) of this section);
(iii) An unsecured loan subordinated to a credit facility (which is
a compensation arrangement as defined in paragraph (c) of this
section);
(iv) An ``under arrangements'' contract between a hospital and an
entity owned by one or more physicians (or a group of physicians)
providing DHS ``under arrangements'' with the hospital (such a contract
is a compensation arrangement as defined in paragraph (c) of this
section); or
(v) A security interest held by a physician in equipment sold by
the physician to a hospital and financed through a loan from the
physician to the hospital (such an interest is a compensation
arrangement as defined in paragraph (c) of this section).
(4) An ownership or investment interest that meets an exception set
forth in Sec. 411.355 or Sec. 411.356 need not also
meet an exception for compensation arrangements set forth in Sec.
411.357 with respect to profit distributions, dividends, or interest
payments on secured obligations.
(5)(i) An indirect ownership or investment interest exists if--
(A) Between the referring physician (or immediate family member)
and the entity furnishing DHS there exists an unbroken chain of any
number (but no fewer than one) of persons or entities having ownership
or investment interests; and
(B) The entity furnishing DHS has actual knowledge of, or acts in
reckless disregard or deliberate ignorance of, the fact that the
referring physician (or immediate family member) has some ownership or
investment interest (through any number of intermediary ownership or
investment interests) in the entity furnishing the DHS.
(ii) An indirect ownership or investment interest exists even
though the entity furnishing DHS does not know, or acts in reckless
disregard or deliberate ignorance of, the precise composition of the
unbroken chain or the specific terms of the ownership or investment
interests that form the links in the chain.
(iii) Notwithstanding anything in this paragraph (b)(5), common
ownership or investment in an entity does not, in and of itself,
establish an indirect ownership or investment interest by one common
owner or investor in another common owner or investor.
(iv) An indirect ownership or investment interest requires an
unbroken chain of ownership interests between the referring physician
and the entity furnishing DHS such that the referring physician has an
indirect ownership or investment interest in the entity furnishing DHS.
(c) Compensation arrangement. A compensation arrangement is any
arrangement involving remuneration, direct or indirect, between a
physician (or a member of a physician's immediate family) and an
entity. An ``under arrangements'' contract between a hospital and an
entity providing DHS ``under arrangements'' to the hospital creates a
compensation arrangement for purposes of these regulations. A
compensation arrangement does not include the portion of any business
arrangement that consists solely of the remuneration described in
section 1877(h)(1)(C) of the Act and in paragraphs (1) through (3) of
the definition of the term ``remuneration'' at Sec. 411.351. (However,
any other portion of the arrangement may still constitute a
compensation arrangement.)
(1)(i) A direct compensation arrangement exists if remuneration
passes between the referring physician (or a member of his or her
immediate family) and the entity furnishing DHS without any intervening
persons or entities.
(ii) A physician is deemed to have a direct compensation
arrangement with an entity furnishing DHS if the only intervening
entity between the physician and the entity furnishing DHS is his or
her physician organization. In such situations, for purposes of this
section, the physician is deemed to stand in the shoes of the physician
organization.
(2) An indirect compensation arrangement exists if--
(i) Between the referring physician (or a member of his or her
immediate family) and the entity furnishing DHS there exists an
unbroken chain of any number (but not fewer than one) of persons or
entities that have financial relationships (as defined in paragraph (a)
of this section) between them (that is, each link in the chain has
either an ownership or investment interest or a compensation
arrangement with the preceding link);
(ii) The referring physician (or immediate family member) receives
aggregate compensation from the person or entity in the chain with
which the physician (or immediate family member) has a direct financial
relationship that varies with, or takes into account, the volume or
value of referrals or other business generated by the referring
physician for the entity furnishing the DHS, regardless of whether the
individual unit of compensation satisfies the special rules on unit-
based compensation under paragraphs (d)(2) or (d)(3) of this section.
If the financial relationship between the physician (or immediate
family member) and the person or entity in the chain with which the
referring physician (or immediate family member) has a direct financial
relationship is an ownership or investment interest, the determination
whether the aggregate compensation varies with, or takes into account,
the volume or value of referrals or other business generated by the
referring physician for the entity furnishing the DHS will be measured
by the nonownership or noninvestment interest closest to the referring
physician (or immediate family member). (For example, if a referring
physician has an ownership interest in company A, which owns company B,
which has a compensation arrangement with company C, which has a
compensation arrangement with entity D that furnishes DHS, we would
look to the aggregate compensation between company B and company C for
purposes of this paragraph (c)(2)(ii)); and
(iii) The entity furnishing DHS has actual knowledge of, or acts in
reckless disregard or deliberate ignorance of, the fact that the
referring physician (or immediate family member) receives aggregate
compensation that varies with, or takes into account, the volume or
value of referrals or other business generated by the referring
physician for the entity furnishing the DHS.
(iv) For purposes of paragraph (c)(2)(i), a physician is deemed to
``stand in the shoes'' of his or her physician organization.
(3)(i) For purposes of paragraphs (c)(1)(ii) and (c)(2)(iv), a
physician who ``stands in the shoes'' of his or her physician
organization is deemed to have the same compensation arrangements (with
the same parties and on the same terms) as the physician organization.
For purposes of applying the exceptions in Sec. 411.355 and Sec.
411.357 to arrangements described in paragraphs (c)(1)(i) and
(c)(2)(i), the ``parties'' to the arrangements are considered to be the
entity furnishing DHS and the physician organization (including all
members, employees, or independent contractor physicians).
(ii) The provisions of paragraphs (c)(1)(ii) and (c)(2)(iv) need
not apply during the original term or current renewal term of an
arrangement that satisfied the requirements of Sec. 411.357(p) as of
September 5, 2007.
(d) Special rules on compensation. The following special rules
apply only to compensation under section 1877 of the Act and subpart J
of this part:
(1) Compensation is considered ``set in advance'' if the aggregate
compensation, a time-based or per-unit of service-based (whether per-
use or per-service) amount, or a specific formula for calculating the
compensation is set in an agreement between the parties before the
furnishing of the items or services for which the compensation is to be
paid. The formula for determining the compensation must be set forth in
sufficient detail so that it can be objectively verified, and the
formula may not be changed or modified during the course of the
agreement in any manner that takes into account the volume or value of
referrals or other business generated by the referring physician.
(2) Unit-based compensation (including time-based or per-unit of
service-based compensation) is deemed not to take into account ``the
volume or value of referrals'' if the compensation
is fair market value for services or items actually provided and does
not vary during the course of the compensation arrangement in any
manner that takes into account referrals of DHS.
(3) Unit-based compensation (including time-based or per-unit of
service-based compensation) is deemed not to take into account ``other
business generated between the parties,'' provided that the
compensation is fair market value for items and services actually
provided and does not vary during the course of the compensation
arrangement in any manner that takes into account referrals or other
business generated by the referring physician, including private pay
health care business (except for services personally performed by the
referring physician, which are not considered ``other business
generated'' by the referring physician).
(4) A physician's compensation from a bona fide employer or under a
managed care contract or other contract for personal services may be
conditioned on the physician's referrals to a particular provider,
practitioner, or supplier, provided that the compensation arrangement
meets all of the following conditions. The compensation arrangement:
(i) Is set in advance for the term of the agreement.
(ii) Is consistent with fair market value for services performed
(that is, the payment does not take into account the volume or value of
anticipated or required referrals).
(iii) Otherwise complies with an applicable exception under Sec.
411.355 or Sec. 411.357.
(iv) Complies with both of the following conditions:
(A) The requirement to make referrals to a particular provider,
practitioner, or supplier is set forth in a written agreement signed by
the parties.
(B) The requirement to make referrals to a particular provider,
practitioner, or supplier does not apply if the patient expresses a
preference for a different provider, practitioner, or supplier; the
patient's insurer determines the provider, practitioner, or supplier;
or the referral is not in the patient's best medical interests in the
physician's judgment.
(v) The required referrals relate solely to the physician's
services covered by the scope of the employment or the contract, and
the referral requirement is reasonably necessary to effectuate the
legitimate business purposes of the compensation arrangement. In no
event may the physician be required to make referrals that relate to
services that are not provided by the physician under the scope of his
or her employment or contract.