Specific business arrangements that are protected under legislation and regulations governing parties doing business with Medicare or Medicaid are discussed. Regulations implementing the Medicare and Medicaid Patient Protection Act of 1987 specify practices and activities that are not subject to criminal penalties under the antikickback provisions of the Social Security Act or to exclusion from Medicare or state health-care programs. As of July 29, 1991, all organized health-care settings that receive payments from either Medicare or state health-care programs must comply with these regulations. The final rule sets forth "safe harbors"--exceptions to prohibitions against (1) kickbacks, bribes, rebates, and other illegal activities involving remunerations for patient referrals and (2) inducements to purchase or lease goods paid for by Medicare or state health-care programs. The safe harbors comprise 11 broad categories--investment interests, space rental, equipment rental, personal services and management contracts, purchase of a medical practice, referral services, warranties, discounts, employees, group purchasing organizations, and waiver of deductibles and coinsurance. Implications for pharmacy are discussed. These regulations will affect the purchase of pharmaceuticals by institutional pharmacies. Each institution should review its current practices to determine whether they are within the safe harbors.