Hospital and physician groups are objecting to a federal anti-kickback enforcement proposal because they say it could prevent physician-hospital organizations from entering direct contracts with employers.
Under a proposal announced last week by HHS' inspector general's office, PHOs whose physicians own a financial stake in the corporation would be excluded from a special legal "safe harbor" being created for risk-sharing organizations.
Provider financial transactions that fall within a safe harbor aren't considered illegal kickback arrangements. Arrangements that fall outside a safe harbor aren't necessarily illegal but don't enjoy the protection of the law.
Federal kickback laws bar any form of remuneration to induce the referral of Medicare or Medicaid patients. HHS issued seven anti-kickback safe harbors in September 1993 and 11 in July 1991.
In leaning against including certain PHOs in the safe harbor, HHS officials said they were concerned that physicians' ownership in a PHO could increase fee-for-service Medicare referrals in the PHO because the physicians' income would rise with the referrals.
Hospital and physician groups said, however, that by failing to immunize the PHOs, the HHS proposal would erect another barrier to direct PHO contracts with employers. That would be the case, provider groups said, because employee pools can include workers 65 and older who are covered simultaneously by Medicare and their employers' plan.
A capitated Medicare managed-care plan covering those Medicare-eligible employees would be protected from prosecution, however.
Without the safe harbor, PHOs could be blocked from a fairly significant market. Some 10.9 million Americans 65 and older received employment-based coverage in 1996, representing about 6.8% of the 160.7 million Americans receiving coverage from employers, according to the Employee Benefit Research Institute.
"It's almost as if disaggregation of providers is encouraged, and running everything through a federally qualified HMO is the only safe way to go," said Edward Hirshfeld, associate general counsel for the American Medical Association.
After listening to providers' concerns, D. McCarty Thornton, chief counsel in the inspector general's office, said he would reconsider the agency's proposal. Physician ownership in PHOs "is a nest of issues we're still working on," he said.
The officials from the inspector general's office outlined the proposal at an HHS-convened panel assigned to develop anti-kickback safe harbors for plans and providers that share financial risk. The panel is operating under the authority of a 1996 health insurance reform law.
The panel's sixth meeting last week was to be its last, but it added a seventh in January to reach consensus on new safe harbors.