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Medicare proposals attack self-referrals


Office released a major report on the growth of Medicare Part B imaging services at the same time the Centers for Medicare and Medicaid Services issued sweeping rules that target self-referred imaging services.

It is hardly a coincidence that the General Accountability Office released a major report on the growth of Medicare Part B imaging services at the same time the Centers for Medicare and Medicaid Services issued sweeping rules that target self-referred imaging services.

The GAO found that Medicare spending for imaging services paid under the Medicare Physician Fee Schedule more than doubled between 2000 and 2006. The GAO also documented a significant increase in the proportion of Medicare spending on imaging services that has migrated to physician office settings.

At the same time, CMS has proposed important changes to the Medicare rules designed to remove many of the incentives that have caused the increases documented by the GAO. CMS has proposed in its notice of the 2009 MPFS rule to require independent diagnostic testing facility (IDTF) enrollment for all physician office-based imaging practices. And CMS has proposed revisions to its purchased diagnostic test (anti-markup) rule, which could go into effect sometime in 2009. The two proposals together are flanking attacks on self-referral.

Over the last two years of MPFS rule-making, CMS has ratcheted up its rule-making relating to IDTFs. Under existing Medicare rules, physicians who perform diagnostic testing for their own patients are not required to meet any performance or quality standards. Should the rules proposed by CMS be adopted, that would no longer be the case.

CMS is proposing to add a new rule, Section 410.33(j), to the IDTF performance standards that would require any physician or nonphysician practitioner organization furnishing diagnostic testing services (except diagnostic mammography services) to enroll as an IDTF and be subject to most of the IDTF performance standards.

This means that physician offices would face the same nonphysician personnel credentialing requirements that are imposed upon IDTFs, resulting in a first-ever Medicare requirement that physician offices use only registered radiologic technologists (with modality-specific certification) to perform radiology studies.

Equally significant, under current Medicare rules, any supervising physicians in an IDTF must demonstrate "proficiency" in the performance and interpretation of the test they supervise. Most Medicare carriers have long required radiology studies performed in IDTFs to be supervised by board-certified radiologists.

And, because CMS considers responsibility for the IDTF's overall quality of imaging to be so important, no supervising physician can provide general supervision to more than three IDTF sites. This would end the practice of some teleradiology providers serving as the medical directors of imaging services for scores of physician groups.

Finally, the proposed rules subject physician offices to the IDTF rules that limit their ability to share a location with another enrolled physician or entity, or to lease or sublease space to another Medicare-enrolled individual or organization.


Last year, CMS adopted a rule prohibiting markups on tests whenever an ordering physician's group purchased the technical or professional component testing services from an outside supplier or the technical or professional service was performed at a site other than the "office" of the billing physician. When these testing services are billed to Medicare by the ordering physician's group, the physician or physician group could not profit from that order.

In the last days of 2007, CMS announced that it would delay implementation of the anti-markup rule until Jan. 1, 2009. The sole exception was that the anti-markup rule would continue to apply to anatomical pathology performed in a centralized location of the ordering physician's group.

This allowed CMS to take action against so-called pod labs, which CMS considered to be an abuse of the "centralized building" feature of the Stark In-Office Ancillary Service Exception.

In the 2008 definition of "office of the ordering/billing physician," CMS considered it to be the space in which the physician organization provides the range of patient care services that the organization provides generally; i.e., the office suite. So the concept of office under the anti-markup rule is now much narrower than either the "same building" or "centralized location" elements of the Stark exception. In essence, outside the office means outside the office suite under the 2008 rule.

For its 2009 rule-making, CMS is seeking public comment on two alternative proposals to revise the rule.

Under the first alternative, CMS would apply the anti-markup restriction to the technical or the professional component of diagnostic tests ordered by a billing physician when it is either purchased from an outside supplier or performed by a physician who does not share a practice with the billing physician or physician organization. Under the proposed rule, "share" a practice means that a physician is an employee or contractor only to a single physician or single physician practice. Thus, if the test is interpreted or supervised by a radiologist who is not employed or contracted solely by the billing physician practice, the anti-markup rule would be triggered.

I believe this first approach to creating a trigger for the anti-markup rule is unlikely to gain support or ultimately be adopted.

More likely is adoption of the second alternative being proposed. This proposal looks much like last year's rule. The anti-markup rule would be triggered when the professional or technical component of a diagnostic test is ordered by the billing physician and it is either purchased from an outside supplier or the test is performed "outside the office" of the billing physician.

The difference lies in how CMS defines the term office. In the 2009 proposed rule, it would incorporate any office in the same building where the physician practice provides substantially the full range of its services but would not include any "centralized location" of the billing physician practice.

Here are some examples of how this approach would work:

  • Example 1: Consider an orthopedic group that has an office on the third floor of a medical office building. The group operates an MR scanner in that third-floor office. Under both the 2008 and 2009 versions of the anti-markup rule, no anti-markup restrictions would apply.

  • Example 2: Consider the same orthopedic group with an office on the third floor of a medical office building. It has an imaging center (or perhaps an imaging lease agreement) for MR services on the first floor of the same building. Under the 2008 rule, that technical component MR service would be subject to the anti-markup restrictions. Under the 2009 proposal, it would not be subject to the anti-markup restrictions.

  • Example 3: Finally, consider a multispecialty group that has five offices throughout the community. In each of those offices, it performs evaluation and management and other medical services, but none of the offices contains any testing services. The multispecialty group operates a free-standing imaging center wholly owned and exclusively used by the multispecialty group. The "centralized location" aspect of this imaging center allows Medicare referrals under Stark. But under both the 2008 rule and the 2009 anti-markup proposal, the arrangement would subject any tests to the anti-markup restrictions.


As I noted earlier, it is my best guess that CMS will adopt its second alternative to amend the anti-markup rule. That being so, the modification of the definition of "office" should have little impact on the application of the anti-markup rule to purchased interpretations. The restriction will again be triggered when an interpretation ordered by the billing physician is either purchased by an outside supplier (not relevant in a professional component scenario where the ordering physician bills for the test) or is performed at a site other than the office of the billing physician.

Under both the 2008 and 2009 anti-markup restrictions, therefore, if a physician orders a test and the radiologist interprets the study offsite, it is subject to the anti-markup rule. Under both sets of rules, if the radiologist reads the study at the billing physician's office, the anti-markup rule is not applicable.

Should the radiologist read onsite, radiology groups should be aware of the Stark II, phase III requirement that the independent contractor interpreting physician have a "direct contract" relationship with the billing physician group. This is easily accomplished by adding the signature of each interpreting physician to a joinder addendum added to the professional services agreement between the radiology group and the referring physician group.

A modification that CMS made last year to the Stark rules is currently in effect but will not be operative until the anti-markup rule goes into place. Stark requires a contractor interpreting physician to provide interpretation services for Medicare services on the premises of the referring physician group in order to meet the requirements of the professional services exception to the Stark anti-referral prohibition.

Once the anti-markup rule goes into effect and is applicable to an interpretation service performed offsite, Stark will no longer require an onsite interpretation in order for the referring group to bill. The rationale for this is that CMS has relaxed the Stark rule because the referring physician group does not profit from that Medicare referral.

CMS has requested additional comments from industry regarding three aspects of the anti-markup rule:

  • How should the rule define "net charge" when restricting the billing physician group to no greater than the MPFS amount, the physician's actual charge, or the "net charge" of the billing physician?

  • Should CMS prohibit reassignment and require direct billing when the physician orders a test? A direct billing restriction would most likely apply to professional rather than technical component services.

  • Should the effective date of the anti-markup rule be delayed beyond Jan. 1, 2009?


The 2008 MPFS proposed rule had contained a number of significant and controversial Stark rule changes. Rumor has it that CMS has decided to adopt at least some of those Stark proposals sometime before the end of the year. Should CMS make final its Stark proposals, along with the proposed IDTF and anti-markup rules, these changes can be expected to have a dramatic impact on the delivery of diagnostic imaging services in 2009 and in the years to come.

Mr. Greeson is a partner in the healthcare group of Reed Smith LLP in Falls Church, VA. He can be reached at 703/641-4242 or tgreeson@reedsmith.com.

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