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Analysis encourages comments on CMS fee schedule proposal


After absorbing the details contained in 924 pages, analysts are finding reasons for both optimism and caution regarding the proposed 2008 Physician Fee Schedule from the Centers for Medicare and Medicaid Services. Radiologists may immediately focus on its 9.9% rate reduction, but the mammoth document also lays out sweeping reforms covering the hot points of alleged kickback and self-referral abuses.

After absorbing the details contained in 924 pages, analysts are finding reasons for both optimism and caution regarding the proposed 2008 Physician Fee Schedule from the Centers for Medicare and Medicaid Services. Radiologists may immediately focus on its 9.9% rate reduction, but the mammoth document also lays out sweeping reforms covering the hot points of alleged kickback and self-referral abuses."This is a great document," said Dr. Alan Kaye, radiology director at Bridgeport Hospital in Connecticut. "It shows that Medicare understands some of the issues with regard to imaging overutilization. They are trying to clamp down on inappropriate use."CMS is addressing practice conditions similar to those experienced in the early 1990s, before the passage of two sets of laws introduced by Rep. Pete Stark (D-CA) that first banned physician self-referral for Medicare services and then extended the law to apply to medical imaging. Kaye said. Before the Stark laws, physicians could pool their resources for joint-venture MR centers that catered to their self-referred patients. This led to imaging overutilization in the same way the in-office equipment exemption to Stark is churning imaging overutilization today, Kaye said.The Physician Fee Schedule proposal is so aggressive that CMS took the extraordinary step of announcing it on July 2, several weeks earlier than in previous years, said Thomas W. Greeson, a partner in the law firm Reed Smith LLP in Falls Church, VA. "The proposed changes are usually not so far-reaching," he said.The report (CMS-1385-P) was published in the July 12 edition of the Federal Register (2007;72[133}:38121-39045). CMS set an Aug. 31 deadline for comment. The final rule will be published in the fall and enacted on Jan. 1, 2008.

Highlights include:

  • a 9.9% across-the-board rate cut to the Physician Fee Schedule
  • antimarkup restrictions for the professional and technical components of diagnostic imaging
  • rules forbidding independent diagnostic testing facilities (IDTFs) from sharing space, equipment, and personnel with other individuals or groups
  • expansion of Stark to restrict under-arrangement deals between referring physicians and hospitals
  • an invitation for comments about the in-office ancillary equipment exemption to the Stark restrictions

The proposed 9.9% rate cut was expected. Congress instructed CMS to adjust the rates annually to maintain budget neutrality under specific sustainable growth rate requirements. Capitol Hill has rescued physicians from proposed cuts in each of the past three years with 11th-hour legislation delaying implementation.

Most analysts expect Congress to again intervene with at least partial relief. The House of Representatives passed a bill Aug. 1 that would set aside the proposed CMS cuts in favor of 0.5% increases in each of the next two years. The Children's Health and Medicare Protection (CHAMP) Act features numerous reforms that apply to medical imaging, but President Bush has threatened to veto that proposal.Still, there is reason for concern, according to Dr. Paul Berger, CEO of NightHawk Radiology Services. Though the cuts would not directly affect NightHawk, they would erode consumer access to imaging."It is just too big a hammer to use in a specialty that is so important to the quality of patient care," he said.Dr. Robert Henkin, professor emeritus of radiology at Loyola University Medical Center in Maywood, IL, criticized CMS for placing budgetary constraints ahead of the actual cost of imaging in its rate-setting process."What drives the fee schedule?" he said. "It is how much money is available for payments, not how much it takes to do anything. Private payers link their rates to Medicare -- whatever it does is picked up by everybody else.


A CMS proposal to adopt the American College of Radiology's recommendations concerning the formula for radiology practice expense could soften the blow slightly. Backed by a detailed practice survey and a six-year-long lobbying effort, the ACR persuaded CMS to propose increasing the hourly expense rate for radiology by $30.68 to $204.86 per hour. Radiology's supporters were also encouraged by the decision not to modify the assumed 50% imaging equipment utilization rate or the assumed 11% interest rate on loans for equipment purchases. Both variables affect the rates that radiologists are ultimately paid by Medicare for nonhospital outpatient imaging services.That could all change if CHAMP becomes law. It would boost the assumed imaging utilization rate to 75%, and the policy governing the assumed interest rate would change. CMS would be directed to lower the assumption to the fair market rate not to exceed 11%.


The proposed antimarkup rule would ban physician group practices, including radiology groups, from billing Medicare more than they pay contractors and part-time employees for the professional component of outpatient Medicare services. Orthopedic groups, for example, could no longer contract with part-time radiologists to read their imaging studies at a discount and then bill Medicare for the full allowable professional fee. CMS also broadened antimarkup restrictions on the technical component of some diagnostic testing services. If implemented, the antimarkup rule would have an immediate, widespread effect, Greeson said."To the extent that an interpretation service is performed and billed by a physician practice, unless that physician service is performed by a full-time employee, the antimarkup applies," he said. The proposal shows the government doesn't want providers making money off the backs of radiologists, said W. Kenneth Davis Jr., a partner with the law firm Katten Muchin Rosenman LLP in Chicago. Radiologists who do business with nonradiologists would be protected against pressures to accept less than the rate defined by Medicare for interpretative services."They will be able to simply say, 'You can't charge Medicare more than you are paying me, so why don't you just pay me what Medicare will pay you?'" he said.Locum tenens arrangements would not be affected by the rule, Greeson said, since locum tenens billing is done using the absent regular physician's provider identification number.The markup rule would also not affect the billing of preliminary interpretations that make up most nighthawk business, according to Berger.


Citing concerns about self-referred imaging and violations of Medicare's anti-kickback regulations, CMS proposed banning IDTFs from sharing space, equipment, or personnel with other organizations and individuals. If adopted, the restriction would outlaw time block leasing deals. These popular arrangements allow IDTFs to legally sell referring physicians blocks of imaging time and the right to bill Medicare for procedures performed on their patients during the leased period. A prohibition against sharing would be the death knell for referring physician equipment leasing, according to Paul Viviano, CEO of Alliance Imaging. The fixed-site and mobile imaging service company owns about 200 IDTFs."It would make it almost impossible," he said. "Creative minds will try to think of ways to circumvent these regulations to the extent they are codified as proposed, but it would make it very difficult to do so, if they are passed as proposed."CMS issued 14 restrictions affecting IDTFs in the 2007 fee schedule. It followed on Jan. 27 with a prohibition against sharing space, personnel, and equipment but quickly withdrew the rules after providers complained that the announcement bypassed Medicare's normal rule-making process. CMS addressed that criticism by including the prohibition in the 2008 PFS proposal, Greeson said.


The proposed rules affirmed that owners and managers are responsible for quality-related oversight of their IDTFs. The 2007 rules wrongly implied that the responsibility was shifted to the supervising physician. The new rule would allow general supervising physicians to oversee only up to three fixed-site IDTFs simultaneously. CMS invited comment on allowing simultaneous oversight of multiple mobile sites.


CMS proposed to stop allowing IDTFs to bill Medicare for services performed months before their enrollment in the Medicare program. The existing rule allows IDTFs to bill Medicare services rendered up to 27 months before enrollment. The situation places the program at risk of paying for services that do not comply with Medicare performance standards, according to the proposal. The 2008 rule would ban reimbursement for services performed either before the IDTF applied for Medicare enrollment or when the practice location opened and began providing services, whichever is later.


The 2008 proposed rule would require outpatient image facilities to collect data for quality measures from the AQA alliance starter set, tabulate National Quality Forum's ambulatory care performance measurements, and perform new quality measures being developed with ACR participation by the American Medical Association's Physician Consortium for Performance Improvement.


CMS proposes to apply Stark self-referral prohibitions to per-click leases involving referring physicians who have an investment interest in a lessor (the entity that owns the equipment) and hospitals that act as lessees (the entity that leases the equipment from the lessor). An example of such arrangements involves an orthopedic surgeon that purchases ownership in a multislice CT scanner and leases it to the hospital, which pays a per-click fee to the lessor whenever the machine is used, including when the orthopod refers his or her patients to the machine for imaging. This proposal implements a suggestion made by MedPAC in its 2005 recommendations to Congress on imaging services.


An "under-arrangement" deal is a common way for hospitals and referring physicians groups to jointly invest in services related to the physicians' practices. A cardiologist group, for example, may enter into a joint venture with a hospital for a new cardiac catheterization lab. Money from both sources would be invested in the joint venture to finance the service. The joint venture would then provide catheterization services to the hospital under arrangement. The hospital would bill Medicare and pay the joint venture a per-procedure fee. The joint venture's profits are distributed to the hospital and cardiology group partners. Under-arrangement venturing gained popularity as differences between PFS or Ambulatory Surgery Center reimbursement payment rates and hospital outpatient payment rates increased, Greeson said. The hospital outpatient system pays more, so it has made financial sense for the hospital to do the billing. With a semantic twist, CMS is attempting to eliminate this incentive. CMS proposes expanding the definition of "entity" to include not only the billing entity but also the physician-owned entity involved in the designated health service. Stark would apply because of this small change, making it far harder for referring physicians to earn additional income from services provided to their patients in these situations.


Stark self-referral rules have permitted medical imaging performed in referring physician offices via the in-office ancillary services exception. This exemption purportedly aids patient convenience and adds to the continuity of care, but it has been criticized for carrying a built-in incentive for physicians who profit from the equipment to inflate its use. Critics claim the in-office exception has fueled the explosive procedural growth of MR, CT, PET, and other lucrative imaging modalities. Some have suggested that it has spurred insurers to cut payment rates to counterbalance increasing utilization.

CMS decided against proposing amendments to the in-office ancillary exception in the 2008 proposal. Instead, it appealed to interested parties for comments including opinions about the following issues:

  • whether some services should be disqualified from the exemption
  • if the definitions of "same building" and "centralized building," which define the acceptable placement of ancillary equipment, should be changed
  • if nonspecialist physicians should be allow to refer patients for specialized services on equipment owned by nonspecialists
  • if other restrictions could curtail abuse


The following are also discussed:

  • mandatory files that document consumer complaints
  • a required increase in the minimum liability insurance to $300,000 per incident instead of per location
  • a shorter deadline for informing CMS about changes of ownership, location, or supervision to 30 days

Refer to these and other articles in the Diagnostic Imaging archives for information about Medicare reimbursement proposals:

Medicare bundling raises concern

CMS gets an earful for reimbursement for coronary CTA

CMS proposes 10% rate cut and self-referral restriction in 2008 Medicare physician payment schedule

Assault on lease deals could bring their demise

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