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Physicians' Referrals to Health Care Entities
With Which They Have Financial Relationships

Section 1877 of the Social Security Act (upd_1877.pdf) (Adobe pdf 69Kb) 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.

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA 2003) (Public Law 108-173) further altered section 1877 by establishing an 18-month moratorium on physician ownership of or investment in certain specialty hospitals. The moratorium is in effect from December 8, 2003 through June 7, 2005.

On August 14, 1995, we published a final rule with comment period (60 FR 41914) incorporating into regulations the physician self-referral prohibition as it applied to clinical laboratory services. The 1995 rule did not address the other DHS.

On January 9, 1998, we published a proposed rule (63 FR 1659) (Adobe pdf 485Kb) that would revise the regulations to cover the additional designated health services and the Medicaid expansion. We finalized the proposed rule in two phases. On January 4, 2001, we issued the "Phase I" final rule with comment period (66 FR 856) (Adobe pdf 692Kb), and on March 26, 2004, we issued the "Phase II" interim final rule with comment period (69 FR 16054) (Adobe pdf 536Kb).

• 1809-FC (Adobe pdf 692Kb)
  The Phase I final rule with comment period addresses section 1877 of the Act, paragraphs (a) and (b) (regarding the general prohibition and the exceptions applicable to both ownership and compensation arrangements), defines key terms, and creates a number of new regulatory exceptions. The regulations became effective on January 4, 2002, with two exceptions. First, the changes made to 42 CFR 424.22 (regarding limitations on physician performance of home health certification and plan of treatment functions) became effective April 6, 2001 (adobe pdf 49Kb). Second, the effective date of the last sentence of 42 CFR 411.354(d)(1) (concerning the definition of compensation that is "set in advance" as it relates to percentage compensation arrangements) was delayed until July 7, 2004 through the following series of Federal Register publications:
  • December 3, 2001 (66 FR 60154) (Adobe PDF 42Kb)
  • November 22, 2002 (67 FR 70322) (Adobe PDF 38Kb)
  • April 25, 2003 (68 FR 20347) (Adobe PDF 37Kb)
  • December 24, 2003 (68 FR 74491) (Adobe PDF 37Kb)
• 1810-IFC (Adobe pdf 536Kb)
  The Phase II interim final rule with comment period (69 FR 16054) addresses the statutory exceptions related to ownership and investment interests (section 1877 of the Act, paragraphs (c) and (d)), the statutory exceptions for certain compensation arrangements (section 1877(e) of the Act), and the reporting requirements (section 1877(f) of the Act). Phase II also creates some new regulatory exceptions and addresses public comments on Phase I. The effective date of Phase II is July 26, 2004.
• 1810-CN (Adobe pdf 59Kb)
  This correction notice published on April 6, 2004 (69 FR 17933) includes two sections, "Section IX. Reporting Requirements" and "Section X. Sanctions," that were inadvertently omitted from the Phase II preamble.

• One -Time Notification issued March 19, 2004 (Adobe pdf 286Kb)
  This publication implements the 18-month moratorium on physician referrals to specialty hospitals in which they have an ownership or investment interest. The moratorium was established by section 507 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, which amended the "whole hospital" and "rural provider" ownership exceptions to the physician self-referral prohibition. The moratorium is in effect from December 8, 2003 through June 7, 2005. Note regarding instructions in the One-Time Notification: Among other things, the one-time notification stated that we would use our advisory opinion procedures to issue determinations regarding whether a hospital is subject to the moratorium. Our advisory opinion procedures and the one-time notification instruct parties to submit advisory opinion requests to a post office box address. However, if a requestor wishes to use a package delivery service that will not deliver to a post office box address, the advisory opinion request may be delivered to Kara Cosby, Centers for Medicare and Medicaid Services, 7500 Security Blvd/C3-09-27, Baltimore, MD 21244-1850.



• Specialty Hospital Advisory Opinions
  • AO-SH-2004-06-01 (Adobe pdf 35Kb) June 8, 2004 (concerning whether a specialty hospital was under development as of November 18, 2003)
  
  
  
  • AO-SH-2004-08-02 (Adobe pdf 32Kb) August 4, 2004 (concerning whether a specialty hospital was under development as of November 18, 2003)
  
  
  
  • AO-SH-2004-08-03 (Adobe pdf 34Kb) August 5, 2004 (concerning whether a specialty hospital was under development as of November 18, 2003)
  • AO-SH-2004-09-04 (Adobe pdf 48Kb) September 21, 2004 (concerning whether a specialty hospital was under development as of November 18, 2003) New
  
   Annual DHS Update Documents: 

  In the January 4, 2001 final rule with comment period, we published an attachment listing all of the CPT and HCPCS codes that defined the scope of the following DHS: clinical laboratory services; physical therapy services (including speech-language pathology services); occupational therapy services; radiology and certain other imaging services; and radiation therapy services and supplies. In that rule, we stated that we would update the list of codes used to define these DHS in an addendum to the annual final rule concerning physician fee schedule payment policies. The updates are provided below.

  • Update Published November 1, 2001
    On November 1, 2001, we published in the Federal Register (66 FR 55246, 55311, 55500) an update--effective January 4, 2002--to the codes defining certain DHS. The update appears in the final rule with comment period concerning physician fee schedule payment policies for calendar year 2002. The entire physician fee schedule rule is located at http://cms.hhs.gov/physicians/pfs/cms1169fc.asp. We have included below the section of the preamble of that rule that highlights the specific DHS additions and deletions, along with the complete list of codes published in the rule.
    • Additions and deletions published on November 1, 2001 (ZIP Format 6KB)
    • List of codes published on November 1, 2001 (ZIP Format 12KB)
  • Correction Notice for November 1, 2001 Update
    On April 26, 2002, we published in the Federal Register (67 FR 20681) a notice correcting technical errors in the November 1, 2001 final rule. The entire correction notice is located at http://cms.hhs.gov/medicare/CMS1169cn.pdf (127KB Adobe PDF file). We have included below the sections of the correction notice that concern additions and deletions to the DHS, as well as the list of codes reflecting those changes. The effective date for corrections to the DHS is January 4, 2002.
    • Additions and deletions published on April 26, 2002
    • List of codes including April 26, 2002 changes (PDF Format 208Kb)
  • Update Published December 31, 2002
    On December 31, 2002, we published in the Federal Register (67 FR 79966, 80016, 80172) an update--effective March 1, 2003--to the codes defining certain DHS. The update appears in the final rule with comment period concerning physician fee schedule payment policies. The entire physician fee schedule rule is located at http://cms.hhs.gov/regulations/pfs/default.asp (scroll down to CMS-1204-FC). We have included below the section of the preamble of that rule that highlights the specific DHS additions and deletions, along with the complete list of codes published in the rule.
    • Additions and deletions published on December 31, 2002(PDF Format 45Kb)
    • List of codes including December 31, 2002 changes (PDF Format 38Kb)
  • Correction Notice for December 31, 2002 Update
    On May 30, 2003, we published in the Federal Register (68 FR 32400) a notice correcting technical errors in the December 31, 2002 final rule. The entire correction notice is located at http://cms.hhs.gov/providerupdate/regs/cms1204cn.pdf (45KB Adobe PDF file). We have included below the sections of the correction notice that concern additions and deletions to the DHS. The effective date for corrections to the DHS is March 1, 2003.
    • Additions and deletions published on May 30, 2003(pdf format 109Kb)
    • List of Codes including May 30, 2003 changes.(242KB Adobe PDF file).
  • Update Published November 7, 2003
    On November 7, 2003, we published in the Federal Register (68 FR 63196) (Adobe pdf 1.5MB) an update to the codes defining certain DHS, effective January 1, 2004. The update appears in the final rule with comment period concerning physician fee schedule payment policies for the year 2004. For the section of the preamble of that rule that highlights the specific DHS additions and deletions, scroll to column 1, section "V. Update to the Codes for Physician Self-Referral Prohibition" (pages 63237-63239). For the complete list of codes published in the rule, scroll to Addendum F (pages 63392-63395).
  • Correction Notice for November 7, 2003 Update
    We published a correction notice (Adobe pdf 54Kb) on March 26, 2004 to correct technical errors in the November 7, 2003 final rule. The effective date for the corrections is January 1, 2004. For the list of codes including these corrections, see "Current List of Codes" below.
  
  

  Complete List of Codes Defining the Scope of Certain DHS

   Current List of Codes: 
  This list is updated each time we publish a document affecting the DHS codes.
  • List of codes including March 26, 2004 changes (Adobe pdf 169Kb). The effective date for this list is January 1, 2004.
   Resources: 
  • Physicians Home Page
  • Advisory Opinions
  • National Correct Coding Initiative Edits
  • Physician Fee Schedule Look-Up
  • Physician Fee Schedule
  • Physician Regulatory Issues Team (PRIT)
  • Telehealth
  • Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS)
  • Estimated Sustainable Growth Rate and Conversion Factor: for Medicare Payments to Physicians
  • CMS and Related Laws and Regulations
  • The CMS Quarterly Provider Update: A Source for National Medicare Provider Information

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