Current Status Introducing Body:House Bill Number:3566 Primary Sponsor:Corning Committee Number:27 Type of Legislation:GB Subject:Provider Self-Referral Act of 1993 Residing Body:House Current Committee:Medical Military, Public and Municipal Affairs Companion Bill Number:466 Computer Document Number:436/12948AC.93 Introduced Date:19930224 Last History Body:House Last History Date:19930224 Last History Type:Introduced, read first time, referred to Committee Scope of Legislation:Statewide All Sponsors:Corning Sharpe Waldrop T.C. Alexander G. Bailey Carnell Cato Chamblee Davenport Fulmer Harrison Jaskwhich Kennedy Lanford Littlejohn Meacham Riser Simrill R. Smith Townsend Vaughn Wells Wilkins Witherspoon Wofford Wright A. Young R. Young Type of Legislation:General Bill
Bill Body Date Action Description CMN Leg Involved
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3566 House 19930224 Introduced, read first time, 27
referred to Committee
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TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA, 1976, BY ADDING CHAPTER 113 TO TITLE 44 SO AS TO ENACT THE PROVIDER SELF-REFERRAL ACT; TO PROHIBIT HEALTH CARE PROVIDERS FROM REFERRING PATIENTS TO FACILITIES AND SERVICES IN WHICH THE PROVIDER HAS A FINANCIAL INTEREST UNLESS CERTAIN CONDITIONS ARE MET; TO PROVIDE PENALTIES; TO DIRECT THE DEPARTMENT OF HEALTH AND ENVIRONMENTAL CONTROL TO GATHER DATA AND TO REPORT TO THE GENERAL ASSEMBLY.
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. Whereas, it is recognized by the General Assembly that the referral of a patient by a health care provider to a provider of health care services in which the referring health care provider has an investment interest represents a potential conflict of interest. The General Assembly finds these referral practices may limit or eliminate competitive alternatives in the health care services market, may result in overutilization of health care services, may increase costs to the health care system, and may adversely affect the quality of health care. The General Assembly also recognizes, however, that it may be appropriate for providers to own entities providing health care services and to refer patients to these entities, as long as certain safeguards are present in the arrangement. It is the intent of the General Assembly to provide guidance to health care providers regarding prohibited patient referrals between health care providers and entities providing health care services and to protect the citizens of South Carolina from unnecessary and costly health care expenditures.
SECTION 2. This act may be cited as the "Provider Self-Referral Act".
SECTION 3. Title 44 of the 1976 Code is amended by adding:
Section 44-113-10. This chapter may be cited as the `Provider Self-Referral Act of 1993'.
Section 44-113-20. As used in this chapter:
(1) `Board' means the State Board of Medical Examiners and the South Carolina Board of Chiropractic Examiners.
(2) `Comprehensive rehabilitation services' means services that are provided by health care professionals licensed under Chapter 36, Chapter 45, or Chapter 67 of Title 40 to provide speech, occupational, or physical therapy services on an outpatient or ambulatory basis.
(3) `Department' means the South Carolina Department of Health and Environmental Control.
(4) `Designated health services' means clinical laboratory services, physical therapy services, comprehensive rehabilitation services, diagnostic imaging services, and radiation therapy services.
(5) `Entity' means an individual, partnership, firm, corporation, or other business entity.
(6) `Fair market value' means value in arms length transactions, consistent with the general market value, and, with respect to rentals or leases, the value of rental property for general commercial purposes, not taking into account its intended use, and in the case of a lease of space, not adjusted to reflect the additional value the prospective lessee or lessor would attribute to the proximity or convenience to the lessor where the lessor is a potential source of patient referrals to the lessee.
(7) `Health care facility' means a health care facility as defined in Section 44-7-130(1O).
(8) `Health care provider' or `provider' means a physician, surgeon, or osteopath licensed under Title 40, Chapter 47 or a chiropractor licensed under Title 40, Chapter 9.
(9) `Immediate family member' means a health care provider's spouse, child, child's spouse, grandchild, grandchild's spouse, parent, parent-in-law, or sibling.
(10) `lnvestment interest' means an equity or debt security issued by an entity, including, except as provided below, but not limited to, shares of stock in a corporation, units or other interests in a partnership, bonds, debentures, notes, other equity interests, or debt instruments. The following investment interests are excepted from this definition:
(a) an investment interest in an entity that is the sole provider of designated health services in a rural area;
(b) an investment interest in notes, bonds, debentures, or other debt instruments issued by an entity which provides designated health services as an integral part of a plan by the entity to acquire an investor's equity investment interest in the entity, provided that the interest rate is consistent with fair market value and that the maturity date of the notes, bonds, debentures, or other debt instruments issued by the entity to the investor is not later than October 1, 1996;
(c) an investment interest in real property resulting in a landlord-tenant relationship between the health care provider and the entity in which the equity interest is held, unless the rent is determined, in whole or in part, by the business
volume or profitability of the tenant or exceeds fair market value; or
(d) an investment interest is an entity which owns or leases and operates a hospital or a nursing home facility licensed under Title 44, Chapter 7.
(11) `Investor' means a person or entity owning a legal or beneficial ownership or investment interest, directly or indirectly, including, but not limited to, through an immediate family member, trust, or corporation, the stock of which is owned in whole or in part by the investor or another entity related to the investor.
(12) `Referral' means a referral of a patient by a health care provider for health care services, including, but not limited to:
(a) the forwarding of a patient by a health care provider to another health care provider or to an entity which provides or supplies designated health services or any other health care item or service; or
(b) the request or establishment of a plan of care by a health care provider, which includes the provision of a designated health service or any other health care item or service.
(13) `Rural area' means a county with a population of one hundred thousand persons or less according to the latest United States census.
Section 44-113-30. (A) Except as provided in this section:
(1) A health care provider may not refer a patient for the provision of designated health services to an entity in which the health care provider is an investor or has an investment interest; however, this item does not apply to referrals to radiation therapy centers managed by an entity or subsidiary or general partner thereof, which performed radiation therapy services or had a binding purchase contract on and a nonrefundable deposit paid for a linear accelerator before January 1, 1993.
(2) A health care provider may not refer a patient for the provision of any other health care item or service to an entity in which the health care provider is an investor unless:
(a) the provider's investment interest is in registered securities purchased on a national exchange or over-the-counter market and issued by a publicly-held corporation:
(i) whose shares are traded on a national exchange or on the over-the-counter market and
(ii) whose total assets at the end of the corporation's most recent fiscal quarter exceeded fifty million dollars; or
(b) with respect to an entity other than a publicly-held corporation described in subsection (A)(2)(a) and a referring provider's investment interest in the entity, each of the following requirements are met:
(i) no more than fifty percent of the value of the investment interests are held by investors who are in a position to make referrals to the entity;
(ii) the terms under which an investment interest is offered to an investor who is in a position to make referrals to the entity are no
different from the terms offered to investors who are not in a position to make referrals;
(iii) the terms under which an investment interest is offered to an investor who is in a position to make referrals to the entity are not
related to the previous or expected volume of referrals from that investor to the entity;
(iv) there is no requirement that an investor make referrals or be in a position to make referrals to the entity as a condition for becoming
or remaining an investor;
(c) with respect to an entity or to a publicly-held corporation in subsection (A)(2)(a):
(i) the entity or corporation does not lend funds to or guarantee a loan for an investor who is in a position to make referrals to the entity or corporation if the investor uses any part of the loan to obtain the investment interest;
(ii) the amount distributed to an investor representing a return on the investment interest is directly proportional to the amount of the capital investment, including the fair market value of preoperational services rendered in the entity or corporation by that investor.
(B) No claim for payment may be presented by an entity to an individual, third party payor, or other entity for a service furnished pursuant to a
referral prohibited under this section.
(C) If an entity collects any amount that was billed in violation of this section, the entity shall refund the amount on a timely basis to the payor or individual, whichever is applicable.
(D) A health care provider who makes a referral prohibited by this section or presents or causes to be presented a bill or a claim for services that the health care provider knows or should know is for a service for which payment may not be made under subsection (B) or for which a refund has not been made under subsection (C) is subject to a civil penalty of not more than fifty thousand dollars for each such service, to be imposed and collected by the appropriate board.
(E) A health care provider or other entity that enters into an arrangement or scheme, such as a cross referral arrangement, which the physician or
entity knows or should know has a principal purpose of assuring referrals by the physician to a particular entity which, if the physician directly made referrals to the entity would be in violation of this section, is subject to a civil penalty of not more than one hundred thousand dollars for each circumvention arrangement or scheme to be imposed and collected by the appropriate board.
(F) A violation of this section by a health care provider constitutes grounds for disciplinary action to be taken by the applicable board. A hospital licensed under Title 44, Chapter 7 found in violation of this section is subject to the regulations promulgated by the department.
(G) A hospital licensed under Title 44, Chapter 7 that discriminates against or otherwise penalizes a health care provider for compliance with this chapter is subject to a civil penalty of not more than one hundred thousand dollars to be imposed and collected by the department.
(H) Each board, and in the case of hospitals the department, shall encourage the use by licensees of an advisory opinion procedure to determine the applicability of this section or any regulation promulgated pursuant to this section as it applies solely to the licensee. Each board shall submit to the department the name of any entity in which a provider investment interest has been approved pursuant to this section, and the department shall promulgate regulations providing for periodic quality assurance and utilization review of these entities.
Section 44-113-40. (A) A health care provider may refer a patient to an entity in which the health care provider is an investor if the referral is permitted under Section 44-113-30 and if before the referral the provider furnishes the patient with a written disclosure form informing the patient of:
(1) the existence of the investment interest;
(2) the name and address of each applicable entity in which the referring health care provider is an investor;
(3) the patient's right to obtain the item or services for which the patient has been referred at the location or from the provider or supplier of the patient's choice, including the entity in which the referring provider is an investor;
(4) the name and addresses of at least two alternative sources of these items or services available to the patient.
(B) An entity may not provide items or services to a patient unless, before providing the item or service, the entity obtains the signature of the patient on a written disclosure form informing the patient of:
(1) the existence or nonexistence of any financial relationship with the health care provider who referred the patient:
(2) a schedule of typical fees for items or services usually provided by the entity or, if impracticable because of the nature of the treatment, a written estimate specific to the patient;
(3) the patient's right to obtain the items or services for which the patient has been referred at a location or from a supplier of the patient's choice, including an entity with which the referring health care provider may have a financial
relationship; and
(4) the names, addresses, and telephone numbers of at least two reasonable alternative sources for these items or services available to the patient.
(C) A health care provider and an entity shall post a copy of their respective disclosure forms in conspicuous public places in their offices.
(D) The obligation to disclose provided in this section applies only to referrals permitted under Section 44-113-30(A)(2) and to referrals not prohibited under Section 44-113-30(A)(1).
(E) A person who violates this section for which a penalty is not otherwise provided is subject to a civil penalty of not more than $25,000 to be imposed and collected by the appropriate board. In addition to any other penalties or remedies provided, a violation of this section is grounds for disciplinary action by the appropriate board.
Section 44-113-50. The results of an action taken by the respective boards pursuant to this
chapter must be reported promptly to the department with a full description of the proceedings.
Section 44-113-60. (A) As used in this section, the term `kickback' means a remuneration or payment back pursuant to an investment interest, compensation arrangement, or otherwise by a provider of health care services or items of a portion of the charges for services rendered to a referring health care provider as an incentive or inducement to refer patients for future services or items when the payment is not tax deductible as an ordinary and necessary expense.
(B) It is unlawful for a health care provider or a provider of health care services to offer, pay, solicit, or receive a kickback, directly or indirectly, overtly or covertly, in cash or in kind, for referring or soliciting patients.
(C) A person who violates this section is guilty of a misdemeanor and, upon conviction, must be fined not more than one thousand dollars or imprisoned for not more than 30 days.
Section 44-113-70. A health care provider may not charge an additional amount for services rendered by an entity outside of that provider's practice. However, a handling fee of no more than two dollars may be charged as long as each charge is separately disclosed and itemized as part of the provider's bill for services.
Section 44-113-80. (A) The department may conduct data-based studies and evaluations and make recommendations to the General Assembly and the Governor concerning exemptions, the effectiveness of limitations of referrals, restrictions on investment interests, and compensation arrangements, and effectiveness of public disclosure. Each analysis may include, but is not limited to, utilization of services, cost of care, quality of care, and access to care.
(B) The department may require health care facilities, health care providers, and health insurers, domestic and foreign, authorized to transact accident and health insurance in this State pursuant to Section 38-5-30, to submit data necessary to carry out the department's duties.
(C) This data may include, but are not limited to, ownership, Medicare and Medicaid, charity care, types of services offered to patients, revenues and expenses, patient encounters data, and other data as reasonably are necessary to study utilization patterns and to study the impact of health care provider ownership interests in health care related entities on the cost, quality, and accessibility of health care. The department may collect this data from a health care facility as a special study.
(D) Each health care facility and health care provider shall submit an accounting report to the Department on forms prescribed in regulation and furnished by the department. The report shall include:
(1) a balance sheet detailing the assets, liabilities, and net worth; (2) a statement of income and expenses;
(3) a statement of cash flows;
(4) utilization and staffing and standard units of measure as prescribed by regulations.
Section 44-113-90. The department shall promulgate regulations as provided for in this chapter and as necessary to carry out its duties under this chapter."
SECTION 4. The department shall gather data as authorized by Section 44-113-80, as added by Section 3 of this act, and shall report its first findings to the General Assembly by January 1, 1995. The report shall include recommendations by the department regarding the need for additional legislation relating to health care providers self-referral practices.
SECTION 5. This act takes effect upon approval by the Governor and applies to referrals for designated health services or any other health care item or service made on or after this act's effective date, except that with respect to an investment interest acquired before March 15, 1993, referrals may be made until October 1, 1996, without penalty.