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Implications of the Safe Harbor Regulations

On July 29, 1991, the Office of the Inspector General of the Department of Health and Human Services (OIG) promulgated the final "safe harbor" regulations. When Congress amended the fraud and abuse law, it directed the OIG to develop guidelines to help physicians avoid unintentional violations of the law. The proposed regulation was published in January 1989, and the agency received extensive comments from physicians and other medical care businesses.

The final safe harbor regulation is much more restrictive than many physicians anticipated. Rather than expanding the range of allowable activities, the regulations stick close to the statutory language that prohibits all inducements to refer patients. This disturbed many, who expected the regulations to accept the legality of current business (the following comments and responses are taken from the safe harbor regulation):

Comment: Numerous commenters expressed concern about the difficulty in revising a business arrangement that they entered into with a good-faith belief that the arrangement did not violate the statute, but which they now find does not qualify under one of the safe harbor provisions. They suggested that the OIG either "grandfather" these arrangements or provide a reasonable period of time before initiating enforcement action to enable health care providers to restructure their arrangements to meet the safe harbor provisions.

Response: The failure of a particular business arrangement to comply with these provisions does not determine whether or not the arrangement violates the statute because, as we stated above, this regulation does not make conduct illegal. Any conduct that could be construed to be illegal after the promulgation of this rule would have been illegal at any time since the current law was enacted in 1977. Thus illegal arrangements entered into in the past were undertaken with a risk of prosecution. This regulation is intended to provide a formula for avoiding risk in the future.

We also recognize, however, that many health care providers have structured their business arrangements based on the advice of an attorney and in good-faith believed that the arrangement was legal. In the event that they now find that the arrangement does not comply fully with a particular safe harbor provision and are working with diligence and good faith to restructure it so that it does comply, we will use our discretion to be fair to the parties to such arrangements.

Nonetheless, we believe that it would be inappropriate for us to provide a blanket protection, even for a limited period of time, for all business arrangements that do not qualify for a safe harbor. As we stated above, certain business arrangements that do not qualify may warrant immediate enforcement action. (56 Federal Register 35952 1991)

The safe harbor regulations draw a bright line between many acceptable and unacceptable business practices. Some practices, such as the sale of an ongoing practice to a hospital, have been specifically disallowed. Others, such as businesses that do not meet the percentage ownership requirements for nonreferring investors, are in clear violation of at least some aspects of the law. The legal significance of the regulations is that they put physicians on notice that they are violating the law. This leaves physicians with the question of what to do next.

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