CMS gets tough with freestanding imaging facilities

The Centers for Medicare and Medicaid Services made good on a New Year's resolution to curb imaging overutilization and allegedly abusive billing practices by coming up with strong regulatory language aimed at independent diagnostic testing facilities. So strong, in fact, that industry insiders contend the agency might have overstepped its authority.

Independent diagnostic testing facilities had come under scrutiny as early as 2004, when an audit from the Department of Health and Human Services' Office of Inspector General found more than $70 million in erroneous payments to these facilities. CMS noted in its proposed changes to the Physician Fee Schedule for 2007 that IDTFs in California and other states were "perpetrating schemes to defraud" Medicare.

The CMS document reported that the number of IDTFs billing Medicare had increased more than 400% from 2000 to 2005 in California alone. This booming growth rate, however, concerned CMS less than the need to be able to pore over the IDTFs' records. The agency thus proposed 14 performance standards similar to those applied to other CMS suppliers. Following its regular rule-making process, CMS published the proposed changes in August, sought comments from the public, and came out with the final ruling in November.

On Jan. 26, however, CMS issued a change request to its Program Integrity Manual that included two controversial requirements to prohibit IDTFs from sharing space or equipment with another active Medicare supplier.

"When CMS came out with the final performance standards in November, these two subrequirements were not in there. That has prompted some people to say this was an improper rule making on the part of CMS, and they may challenge it on that basis," said W. Kenneth Davis Jr., a partner of the Katten Muchin Rosenman law firm in Chicago.

CMS did not respond to requests from Diagnostic Imaging for comment.

CMS beefed up the application process for IDTFs and their billing requirements. It now asks that owners get a license or certificate for nonphysician personnel or hire technologists full time. They won't be able to contract with an individual or entity that provides these license-based services.

Although the new rules include exceptions for physician-owned IDTFs, their impact could be significant. Radiology groups tend not to enroll their facilities as IDTFs, so these rules won't apply to them. But they will apply to a large number of freestanding outpatient facilities. The new requirements may also effectively bar IDTFs from doing lease deals with other physician groups, though this issue could prove contentious.

"These issues have raised significant concern with respect to whether they are overly broad and describe requirements that are not capable of being reasonably complied with by enrolled IDTFs," said Thomas Greeson, a partner in the healthcare group Reed Smith LLP in Falls Church, VA.

Interpretation of CMS' new performance standard requirements could prove troublesome. The rules do not make clear, for instance, whether an IDTF that has a common waiting room with a physician practice but no other financial relationship would be out of compliance. They could also affect IDTF arrangements with referring physician groups that are fully compliant with Stark II and fit within any kickback-safe harbor and put into question arrangements between IDTFs and hospitals for emergency room patients when the latter cannot provide for them, Greeson said.

"There is a significant amount of urgency related to this issue for CMS to rethink the transmittal and, hopefully, delay implementation to allow it to get more feedback from industry if they are going to develop further quality standards for IDTFs," he said.

Changes related to billing requirements may also hit hard. In the past, IDTFs could back-bill CMS for services performed since the date of application. Under the new rules, an IDTF will not be able to bill Medicare until its application is approved. Local Medicare carriers have often needed three or more months to process such applications.

The Jan. 26 rules announcement caught many IDTF operators by surprise. Some observers fear that operators will not have enough time to assemble everything that is necessary to have their applications delivered to the mailroom of their local Medicare contractor before Feb. 26. Failure to meet the deadline means that services rendered before the day the contractor approves the application will not be covered, according to the announcement.

To add insult to injury, private payers may choose to emulate Medicare's policy. Current trends indicate that this is a real possibility, and IDTFs could end up going for a long time without getting paid by anyone, according to Davis.

"As people see Medicare saying 'thou shall not bill until you have your number,' you may also see a lot of private payers following suit," he said.

Just as the new no-sharing requirements may have the effect of barring IDTFs from doing lease-type deals with physician practices, the new billing requirement is going to make it more expensive, and therefore more difficult, to set up IDTFs, Davis said.

These restrictions may be welcomed by some imaging service providers, according to Greeson.

For more information from the Diagnostic Imaging archives:

Hasty budget action spurs petition for delay

Utilization rules should target self-referral

Teleradiology opens some doors, closes others

Danger lurks in schemes involving outside reads

PACS can help reduce regulatory burden