U.S. Department of Health & Human Services
Improving the health, safety, and well-being of America	Frequent Questions Search

Font Size     Print     Download Reader

This is an archive page. The links are no longer being updated.

The self-referral law prohibits physicians from referring Medicare patients for certain health care services to entities with which the physicians or their immediate family members have a financial relationship. A financial relationship can be either an ownership interest or a compensation arrangement, and can be direct or indirect. The law also contains a number of exceptions.

"We've taken a common-sense approach to the law to prevent potentially abusive referrals while recognizing many legitimate business practices and financial arrangements," Secretary Shalala said. "Physicians should be able to structure their business arrangements to comply with the law, while continuing to provide high quality health care to beneficiaries."

Studies by the HHS Office of Inspector General and other governmental agencies have shown that referrals to entities with which physicians have a financial relationship encourage excessive use of those services. In certain cases, the practices are also considered unethical by the American Medical Association.

"We believe this statute is a powerful deterrent to fraud and abuse," said HHS Inspector General June Gibbs Brown. "The regulation will be another strong step in the department's efforts to reduce waste, fraud and abuse in the Medicare program." The physician referral law provides a variety of sanctions including denial or refund of payment and civil monetary penalties.

Consistent with the proposed rule, the final rule prohibits physicians from making referrals for the targeted services to most entities which the physicians own in whole or in part. In contrast, the final rule generally permits physicians to refer to entities with which they have a compensation relationship, as long as the compensation paid to the physician is no more than would be paid to someone who provided the same services but was not in a position to generate business for the entity.

The final rule also clarifies some of the exceptions to the self-referral prohibition and offers clear guidance regarding how to structure financial arrangements to comply with the exceptions. To give physicians time to adjust existing business arrangements that would not previously have triggered the referral prohibition, the rule will be effective on Jan. 4, 2002--one year after its publication in the Federal Register.

"The final rule should allow physicians and health care businesses to stay competitive in a rapidly changing industry while protecting beneficiaries and taxpayers," said Robert Berenson, acting deputy administrator of the Health Care Financing Administration (HCFA), the agency that runs Medicare. "We know that most doctors refer with the best interests of their patients in mind. I believe that the statute and this final regulation allow doctors to continue to meet the needs of their patients."

The final rule also substantially reduces the potential financial liability of hospitals and other entities that provide any of the targeted services and submit claims for prohibited referrals, if they neither knew nor had reason to suspect that they had an indirect financial relationship with a referring physician. Under the proposed rule, any claim submitted by an entity for services rendered pursuant to a prohibited referral would have been denied, even if the entity had no reason to suspect that it had an indirect financial relationship with the referring physician.

In defining what practices the law exempts from the self-referral prohibition, the final rule expands the law's exceptions for services provided in a physician's office and for services provided by managed-care plans. In addition, it allows exceptions to permit certain indirect compensation arrangements, to allow small, non-monetary gifts, and to protect financial arrangements between academic medical centers and their faculties if certain criteria are met.

The self-referral law, as enacted in 1989, prohibited a physician from referring a patient to a clinical laboratory with which he or she (or an immediate family member) has a financial relationship. Effective Jan. 1, 1995, Congress extended the law to prohibit a physician from referring patients to providers of 10 other categories of health care services if the physician (or an immediate family member) has a financial relationship with the service provider. The 10 affected services are: physical therapy services; occupational therapy services; radiology services and supplies; 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; and inpatient and outpatient hospital services. The law also prohibits an entity from billing for services provided as the result of a prohibited referral.

The provisions in the physician self-referral rule complement other laws designed to combat waste, fraud, and abuse, including the anti-kickback law. Potentially abusive financial relationships that may be permitted under the physician self-referral law could be addressed through other laws.

HCFA published a final rule covering physician self-referrals for clinical laboratory services on Aug. 14, 1995. The agency then published a proposed rule to implement the expanded law in 1998 and received almost 13,000 comments from the public. The new final rule modifies the proposed rule, addressing the most contentious issues raised in the proposal.

HCFA intends to address in another final rule comments received on provisions of the proposed rule that are not addressed in today's final rule. The second final rule also will address public comments on this week's final rule. HCFA intends to move as quickly as possible on the second rule.

###