Medicare’s Anti-Markup Rule – CMS Finalizes Two Alternatives

On October 30, 2008, CMS released the 2009 MFPFS.  In the 2009 MFPFS, with respect to the application of the anti-markup rule to the provision of certain diagnostic testing services, effective January 1, 2009, CMS adopted two alternative tests for determining the applicability of the anti-markup rule.

The Final Anti-Markup Rule

Specifically, the following principles determine the applicability of the anti-markup rule:

(1)  Alternative 1 – “Substantially All Test.”  Arrangements should first be analyzed under this Alternative.  If the performing physician (i.e., the physician who supervises the TC or performs the PC, or both) performs substantially all (at least 75 percent) of his or her professional services for the billing physician or other supplier, the services will not be subject the anti-markup rule payment limitations.  If the “substantially all” services requirement is not satisfied, an analysis under Alternative 2 may be applied.

(2)  Alternative 2 – “Site of Service Test.”   TCs conducted and supervised in, and PCs performed in, the “office of the billing physician”, which includes the “same building”, by an employee or independent contractor physician avoid the anti-markup payment limitation.

These alternative tests measure whether or not a performing or supervising physician “shares a practice” with the billing physician or other supplier.  A physician is no longer required to exclusively work for one physician practice; rather, a physician need only “share a practice” with a physician or physician organization.  This change aligns certain provisions of the Stark group practice definition with the anti-markup provisions.

Additionally, the 2009 MFPFS provides that a billing physician or other supplier satisfies Alternative 1 if he or she has a reasonable belief, at the time he or she submits a claim, that either:  (1) the performing physician furnished substantially all of his or her professional services through the billing physician or other supplier for the period of 12 months prior to and including the month in which the service was performed; or (2) the performing physician is expected to furnish substantially all of his or her professional services through the billing physician or other supplier during the following 12 months (including the month the service is performed).

With respect to Alternative 2, CMS aligns the location test with the Stark Law “same building” test by clarifying that a physician or other supplier may have more than one “office of the billing physician or other supplier”.  Such space is one in which the ordering physician or ordering supplier regularly furnishes patient care (and with respect to physician organizations or group practices, the space in which the ordering physician performs substantially the full range of patient care services that the ordering physician provides generally). Additionally, CMS requires the physician supervising the TC to be an owner, employee, or independent contractor of the billing physician or other supplier.  With respect to the PC, the performing physician must be an employee or independent contractor of the billing physician or supplier.

As a practical matter, the final anti-markup provisions permit the use of shared space imaging arrangements between physicians that occur in the “same building”.  Nevertheless, CMS notes that centralized building locations raise concerns for over-utilization and are not permitted for the provision of diagnostic tests.  CMS further cautions that despite its flexibility, it has concerns with the present use of the IOAS exception under Stark and may issue future changes.

Of particular significance for those physicians providing imaging services in reliance on Alternative 2, the TC must be both conducted and supervised in the “office of the billing physician or other supplier” (“the Same Office Requirement”).  While Stark Law generally applies the Medicare coverage and payment regulations governing supervision of tests (“Medicare Coverage Requirements”), providers seeking to rely on Alternative 2 must meet the Same Office Requirement.  This is due to CMS’s belief that the Same Office Requirement is necessary to minimize the potential for overutilization and program abuse.

Arrangements that fall within the ambit of the anti-markup provisions are subject to restrictive payment limitations, such that payment to the billing entity will be limited to the lowest of the following:  (1) the performing physician’s or other supplier’s net charge to the billing entity; (2) the billing entity’s actual charge; or (3) the fee schedule amount for the test that would be allowed if the performing physician or supplier billed directly.

Significantly, the net charge amount must be determined without reference to any charge that is intended to reflect the cost of equipment or space leased to the performing supplier by or through the billing physician or other supplier.   Therefore, the billing physician, or other supplier may only recover costs for the salary and benefits it paid to the performing supplier of the TC or PC.  As a result, billing physicians or other suppliers who implicate the anti-markup rule will likely receive reimbursement that fails to even cover the costs of providing the services.

Below are two examples of the final anti-markup provisions and their application to common imaging services arrangements:

(1)  Group Practice Independent Radiologist Arrangement.  A physician in a multi-specialty group practice orders an x-ray and the part-time technician employee performs the x-ray in the group’s office.  The ordering physician works exclusively for the multi-specialty group and supervises the test in the group’s office.  A radiologist, who is an independent contractor with the multi-specialty group practice, performs the PC of the test in the group’s office and reassigns his right to payment to the group.  The radiologist provides professional services to several groups and hospitals in the area.  He performs approximately 20 percent of his professional services for the multi-specialty group practice.   The anti-markup rule does not apply to the group’s billing of the TC because the supervising physician (i.e., the performing physician) “shares a practice” with the billing group insofar as he performs at least 75 percent of his professional services for the group.  With respect to the PC of the test, the independent contractor (i.e., the performing physician) does not perform substantially all of his professional services to the group (he performs approximately 20 percent).  Thus, an analysis under Alternative 2 applies.  Under the “site of service” test, the anti-markup rule does not apply because the performing radiologist provided the interpretation on-site in the group’s office.

(2)  IDTF Arrangement.  A physician orders a diagnostic test from an IDTF.  The IDTF bills globally for the test (TC and PC).  The anti-markup rule does not apply because the IDTF did not order the test; rather, it was ordered by an outside physician.

IDTF Performance Standards for Mobile Imaging Providers

Conclusion

Through a series of regulatory actions, CMS has been targeting diagnostic imaging arrangements.  Diagnostic imaging providers and suppliers should be attentive to developments with future rulemakings, which may significantly affect the structure of many current imaging arrangements. As a result, we advise providers to incorporate mechanisms into their current contractual arrangements that will permit these arrangements to adopt a more stringent regulatory framework.  Finally, the regulatory changes discussed in this article likely will not be CMS’s final word on diagnostic imaging.  Providers should be mindful of this before entering into structures that cannot be unwound or modified.