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.