Section 1877 of the Social Security Act (the Act) prohibits physicians from referring Medicare patients for certain designated health services (DHS) to an entity with which the physician or a member of the physician's immediate family has a financial relationship--unless an exception applies. Section 1877 also prohibits an entity from presenting or causing to be presented a bill or claim to anyone for a DHS furnished as a result of a prohibited referral.

When enacted in 1989, section 1877 applied only to physician referrals for clinical laboratory services. In 1993 and 1994, Congress expanded the prohibition to ten additional DHS and applied certain aspects of the law to the Medicaid program.  In 1997, Congress added a provision permitting the Secretary to issue written advisory opinions concerning whether a referral relating to DHS (other than clinical laboratory services) is prohibited under section 1877.

Under section 101 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) (see the provisions of section 1860D-4(e)(6) of the Act), Congress authorized an exception to the physician self-referral prohibition for certain arrangements in which the physician receives necessary non-monetary remuneration that is used solely to receive and transmit electronic prescription information. 

In 2003, Congress amended section 1877 by establishing an 18-month moratorium on physician referrals to certain specialty hospitals in which the referring physician has an ownership or investment interest. Under the moratorium, specialty hospitals cannot fill or submit claims to anyone for DHS furnished as a result of a referral that is prohibited under the moratorium.  The moratorium was in effect from December 8, 2003 through June 7, 2005.  When the moratorium ended, CMS instituted a temporary suspension on the processing of specialty hospital applications for participation in the Medicare program.  In 2006, Congress extended that suspension until the earlier of the date that the Secretary submits the final report on physician investment in specialty hospitals or August 8, 2006 (unless the Secretary extends the deadline an additional two months as authorized under section 5006(c)(2) of the Deficit Reduction Act of 2005).

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Section 1877 of the Social Security Act [PDF, 68KB]
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Page Last Modified: 06/01/2006 12:00:00 AM
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