42 U.S.C. § 1395xx — Payment of provider-based physicians and payment under certain percentage arrangements

(a) Criteria and payment amounts. (1) The Secretary^* must use regulations^* to distinguish services provided in hospitals or skilled nursing facilities, including inpatient and outpatient services: (A) professional medical services personally provided by a physician^* to an individual patient that help diagnose or treat that patient, which may be reimbursed as physicians’ services under part B; and (B) professional services provided for the general benefit of patients in the hospital or facility, which may be reimbursed only as reasonable costs or under the bases described in section 1395ww. (2)(A) For cost reimbursement, the Secretary must recognize as a hospital or facility’s reasonable cost only the part of the costs attributable to a physician’s services described in paragraph (1)(B). The costs must be divided according to the actual time the physician spent providing those services. (B) After that division, the Secretary may not count as reasonable, for efficient health-service delivery, the part of those costs that exceeds the reasonable compensation equivalent for the services. The Secretary must set the reasonable compensation equivalent for each service by regulation. (C) A hospital or facility may show that reimbursement limits under this subsection keep it from recruiting or keeping enough physicians. If it makes that showing, the Secretary may make the exceptions needed to let the provider pay enough to obtain adequate physician services.

(b) Payments under certain percentage agreements. (1) Except as paragraph (2) provides, this rule applies to a provider paid under this subchapter on a reasonable-cost basis, or another reasonable cost-related basis, that has contracted for services furnished for or on its behalf. The Secretary may not include a cost incurred under the contract if the provider’s payment for that cost is based on a percentage or other proportion of the provider’s charges, revenues, or reimbursement claim. (2) Paragraph (1) does not apply: (A) to physician services described in subsection (a)(1)(B) and covered by regulations under subsection (a); or (B) under the Secretary’s regulations, when the amount under the percentage contract is reasonable and the contract either (i) follows a customary commercial business practice, or (ii) gives incentives for the provider to operate efficiently and economically.