H 3566 Session 110 (1993-1994)
H 3566 General Bill, By R.S. Corning, Alexander, Bailey, Carnell, Cato,
C.D. Chamblee, Davenport, R.C. Fulmer, Harrison, M.F. Jaskwhich, Kennedy,
Lanford, Littlejohn, Meacham, Riser, Sharpe, Simrill, R. Smith, Townsend,
Vaughn, D.C. Waldrop, C.C. Wells, Wilkins, Witherspoon, S.S. Wofford,
D.A. Wright, Young-Brickell and R.M. Young
Similar(S 466)
A Bill 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.
02/24/93 House Introduced and read first time HJ-10
02/24/93 House Referred to Committee on Medical, Military,
Public and Municipal Affairs HJ-10
A BILL
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:
"CHAPTER 113
Provider Self-Referral
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.
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