CMS Finalizes the Anti-Markup Rule in the 2009 Final Physician Fee Schedule

The Center for Medicare and Medicaid Services (“CMS”) Final Physician Fee Schedule for Calendar Year 2009 (2009 MPFS) was released on October 20, 2008, and published in the Federal Register on November 18th.  The 2009 MPFS includes final regulations regarding Medicare payment limitations for certain reassigned diagnostic tests.

Background

Historically, CMS prohibited the markup of the technical component (“TC”) of diagnostic tests (other than clinical laboratory tests) when a physician or other supplier ordered and billed for a test that was either outright purchased from, or performed by, an outside supplier.  This was commonly referred to as the “purchased diagnostic test rule” and limited the Medicare payment to the billing physician or other supplier for the TC of the test to the lowest of:  (1) the performing supplier’s net charge to the billing physician or other supplier; (2) the billing physician’s or outside supplier’s actual charge; or (3) the fee schedule amount for the test that would be allowed if the performing supplier billed Medicare directly (the “Anti-Markup Rule”).

2008 Proposed Changes

In the 2008 MPFS, CMS extended the Anti-Markup Rule to apply to both the TC and the professional component (“PC”) of diagnostic tests that are purchased outright.  CMS also created a new site-of-service test which would have made the Anti-Markup Rule applicable to all diagnostic tests performed at a site other than “the office of the billing physician or other supplier.” 

These revisions were scheduled to become effective on January 1, 2008.  However, amid protest from the industry, CMS soon acknowledged that the definition of “office of the billing physician or other supplier” was not entirely clear and could have unintended consequences for many arrangements which were set up to comply with the federal Stark statue.  In order to issue further clarification and consider changes, CMS delayed the implementation of the new Anti-Markup Rule until January 1, 2009 (except for its application to existing payment limitations on purchased TCs and certain anatomic pathology services performed outside of the billing physician’s office).

Final Revised Anti-Markup Rule

The 2009 MPFS provides that the TC or PC of a diagnostic test is subject to the Anti-Markup Rule if the physician ordering the PC or TC also bills for the test and if the physician actually performing the PC or supervising the TC does not share a practice with the ordering/billing physician. CMS adopted a two-alternative approach to determine whether the performing/supervising physician “shares a practice” with the billing physician.  Providers are permitted to meet either one of the tests.  Under either alternative, each component can be analyzed separately, such that either the TC or PC (or both) can be exempt from the Anti-Markup Rule.  CMS states that providers should first analyze their arrangement under Alternative 1 and then look to Alternative 2 if the arrangement cannot be excepted from the Anti-Markup Rule under Alternative 1.  The effective date of the revised Anti-Markup Rule is January 1, 2009.

Alternative 1--“Substantially All Professional Services” Test 

Alternative 1 provides that if the physician performing the PC or supervising the TC provides “substantially all” (at least 75%) of his or her professional services for the billing physician or other supplier, they will be deemed to share a practice, and the PC and/or TC will not be subject to the Anti-Markup Rule.  Under this alternative, the focus is on the extent of the professional relationship between the billing physician/supplier and the physician actually performing the PC or supervising the TC.  The location where the physician performs or supervises the diagnostic test is not relevant to an analysis under Alternative 1.

To rely on this alternative, the billing physician or supplier must have a “reasonable belief” that (1) the performing physician has met the “substantially all” requirement for the 12 months prior to and including the month in which the diagnostic test was performed, or (2) the performing physician is expected to satisfy the requirement for the following 12 months, including the month that the diagnostic test was provided.

Alternative 2--“Site of Service” Test

Alternative 2 is a location-based test, which will be considered if the professional service requirement of Alternative 1 is not satisfied.  Under Alternative 2, the physician performing or supervising a diagnostic test must be an owner, employee or independent contractor of the billing physician or other supplier and must perform the TC or PC in the “office of the billing physician or other supplier.”  CMS defines the “office of the billing physician or other supplier” as medical office space where the billing physician or other supplier regularly furnishes patient care, and includes space that is located in the “same building” in which the physician furnishes care.  “Same building,” however, does not include mobile vehicles, vans or trailers located on the exterior property of a building.  In the case where the billing physician or other supplier is a physician organization, this space is where the physician organization provides substantially the full range of patient care services that the physician organization generally provides, regardless of the number of office locations the physician organization may have.

If neither alternative is met, then the billing physician or other supplier must bill Medicare according to the Anti-Markup Rule for the TC and/or PC.

Miscellaneous Points

The following are some other notable aspects of the new Anti-Markup Rule:

• Applicability to IDTFs.  It is unlikely that the Anti-Markup Rule will apply to IDTFs since they do not usually order the test for which they bill.  The Anti-Markup Rule is only applicable to the TC or the PC of the diagnostic test where the billing and the ordering entity are the same or have common ownership/control.  If an order stems from a physician outside the physician organization, from an independent lab, or from an IDTF, the billing entity will not be subject to the Anti-Markup Rule. 
• “Net Charges” and Overhead Costs.  This will undoubtedly be the major issue whenever the Anti-Markup Rule is applicable.  For purposes of employing the Anti-Markup Rule, CMS states that the performing supplier’s “net charge” to the billing physician or other supplier must be calculated exclusive of any charge that is intended to reflect the cost of equipment or space leased to the performing supplier by the billing physician or other supplier.  Many providers have expressed concern about the fairness of prohibiting them from recovering any overhead costs.  CMS, however, asserts that allowing billing physicians and other suppliers to recoup these costs where the Anti-Markup Rule applies would undermine the purpose of the payment limitation since the incentive to overutilize diagnostic tests would still be present.

In addition, calculating an accurate net charge is not always clear cut.  Where a fixed fee exists for the purchase of the TC or PC of a diagnostic test, the net charge is simple to determine.  But, when a fixed fee is not charged and the performing physician is not compensated on a per-test basis (e.g., he or she receives a monthly or per diem fee), the calculation becomes less definite.  In the latter case, the net charge is likely limited to the salary and benefits paid to the supplier of the TC or PC (excluding overhead costs).  In any case, the billing physician or supplier is responsible for determining and documenting the net charge calculation and appropriate documentation should be retained in the event that CMS requests justification of that calculation.

• Omission of “Purchased from an Outside Supplier.”  The new rule can no longer be termed a “purchased diagnostic test” rule since the application of the Anti-Markup Rule turns not on whether the test was purchased from an outside supplier, but instead on whether the conditions of Alternative 1 or Alternative 2 are satisfied.  Consequently, CMS has deleted any references to purchased tests or interpretations from an “outside supplier.”

Similarly, the issue of whether the performing supplier is an employee or independent   contractor of the billing entity is no longer relevant, since as long as one of the alternative tests is satisfied, the Anti-Markup Rule will not apply, regardless of whether the test is performed by an employee or not. 

Practical Consequences

Under the new rules, the majority of billing physician organizations will be able to avoid the application of the Anti-Markup Rule to the TC of most diagnostic tests by having one of the group’s full-time physicians supervise the performance of the TC.  Supervision need only to meet the standard Medicare requirements, which will be general supervision for most diagnostic tests.

Since the PC is frequently preformed by independent contractors of the physician organization (e.g., an independent radiologist), and since this independent contractor would rarely meet the “substantially all” test under Alternative 1, Alternative 2 is the more important route in exempting the PC from the Anti-Markup Rule.  If the PC is subject to the Anti-Markup Rule, the billing physician may either bill the PC without mark-up or allow the performing physician to bill separately for those services.