CMS backtracks on enforcement of tough anti-markup rules

January 9, 2008

Under intense pressure from groups representing referring physicians, the Centers for Medicare and Medicaid Services will delay the implementation of tough anti-markup rules for Medicare Part B providers by one year to January 2009.

Under intense pressure from groups representing referring physicians, the Centers for Medicare and Medicaid Services will delay the implementation of tough anti-markup rules for Medicare Part B providers by one year to January 2009.

The rules, which were part of the Medicare Physician Fee Schedule enacted Jan.1, 2008, would have forbidden billing physician groups from profiting from the technical or professional components of diagnostic testing services. The anti-markup provisions would no longer have allowed billing entities to charge Medicare more than the fees paid to subcontracted imaging facilities for procedures or to radiologists for their interpretation of imaging studies.

The delay did not apply to an anti-markup rule directed at so-called pod pathology labs. That restriction was implemented Jan. 1 as planned. Pod labs are established in a centralized building, as defined by federal Stark self-referral law, and are leased to numerous internal medicine and other group practices for self-referred pathology services. The labs became a target for CMS action for flouting federal Stark law by involving referring physicians in profitable deals that lacked the element of financial risk.

The delay also did not affect enforcement of new rules that prohibit independent diagnostic testing facilities (IDTFs) from sharing space or equipment with physicians and physician groups. The restriction, also implemented Jan. 1, severely limits the ability of IDTFs to participate in controversial time block leasing arrangements with referring physicians.

By delaying the implementation of some anti-markup rules, however, CMS opened the door for non-IDTF entities to have leasing arrangements with referring physician groups, said Thomas Greeson, a partner in the law firm of Reed Smith LLP in Falls Church, VA.

"From an economic standpoint, the CMS action will allow self-referring groups to continue to profit from their referrals, including those involving lease arrangements between the referring physician group and non-IDTF imaging suppliers," he said.

The technical component of a purchased diagnostic test is the only radiology-related service that cannot be marked up, according to the American College of Radiology. The professional component remains subject to Stark. Under the Stark III regulations, a physician practice must now secure signed contracts with each radiologist who provides such services and reassigns the right to bill to that referring physician group.

The delay also rolls back the implementation date to 2009 for its planned waiver of Stark requirements for onsite reading by independent contractors. In 2008, radiologists contracted to read studies of an ordering physician, who refers his or her own patients for in-office imaging services, must perform those interpretations at the ordering physician's site to comply with Stark law when Medicare is billed for the professional component. The ACR advises interpreting radiologists and their group practices to bill Medicare separately for the professional component when the reading is performed offsite.

The applicable rule in 2008 does not apply to radiology groups that read for teleradiology companies. Radiology groups may continue to contract for teleradiology services because they are not considered to be referring physician groups as defined by Stark law and regulation, Greeson said.

CMS announced the one-year delay Dec. 28, 2007, following a month of intense criticism from self-referring physicians and their lobbyists. The agency planned to use its standard Frequently Asked Questions report to respond to questions posed after the rule was announced in December, Greeson said.

"Ultimately, they must have decided there were too many questions to more forward," he said.

The announcement was CMS's second reversal of rules aimed at tightening self-referral restrictions last year. In January 2007, it issued a transmittal that would have banned IDTFs from sharing equipment, space, and personnel. It rescinded the order in February after providers complained the agency had not followed its standard rules-making process before announcing the new standards. Some provisions reappeared in the proposed Physician Fee Schedule and were enacted by CMS in November.

The rollback left some observers wondering if CMS will ultimately apply the anti-markup restrictions.

"What we had was a significant set of rule-making on the part of CMS that was targeted toward self-referral," Greeson said. "At least for now, CMS has retreated."

For more information from the Diagnostic Imaging archives:

New CMS rules will prohibit certain equipment leasing arrangements

CMS may take aim at interpretation services

CMS backs down on freestanding facility standards

CMS gets tough with freestanding imaging facilities