• CMS' Controversial Anti-Markup Rule Draws New Fire
  • April 21, 2008 | Author: Barron P. Bogatto
  • Law Firm: Jackson Walker L.L.P. - Houston Office
  • In a case demonstrating aggressive Medicare rulemaking running aground in a storm of controversy, the U.S. District Court for the District of Columbia has issued a preliminary injunction barring HHS and CMS from enforcement of that portion of the Medicare anti-markup final rule that applied to anatomic pathology testing services. This is notable in that, besides granting providers temporary relief from CMS’ new anti-markup rules, CMS has been reigned in by the courts after its aggressive rulemaking practices.
    The Medicare anti-markup rule, 42 C.F.R §414.50, prohibits a physician from billing Medicare for diagnostic tests purchased from a third party in excess of the amount paid to that third party.  The rule has long been in effect and generally observed without objection.  CMS revised the rule significantly, however, in the proposed 2008 Physician Fee Schedule (PFS) regulations (July 12, 2007). The proposed rule extended the anti-markup prohibition to include professional interpretations of diagnostic tests and extended its application not just to services purchased from third parties, but to any services not furnished “in the office of the billing physician.”
    The anti-markup changes were packaged in the proposed PFS regulations with numerous (and controversial) changes to the Stark regulations. In response to the controversy over the proposed Stark changes (reflected in reportedly over 1,100 comments), CMS tabled many of those proposed changes.  However, CMS forged ahead with its significant revisions to the anti-markup rule, publishing them in the final PFS regulations, to be effective January 1, 2008.
    The controversy didn’t subside however.  A major concern of the healthcare industry with the new anti-markup rule was the provision requiring that diagnostic tests be performed in the “office of the billing physician,” a concept more restrictive than the “centralized building” or “same building” concepts under Stark.  Providers realized they could perform certain diagnostic tests in compliance with the Stark law, but fail to comply with the “office of the billing physician” requirement of the anti-markup rule.  Providers who had invested perhaps hundreds of thousands of dollars to provide ancillary services in compliance with Stark, suddenly realized under the new rule they could not bill any more (and in some cases less) than their costs.
    In response to the continued industry uproar, CMS issued a final rule published on January 3, 2008, delaying the applicability of the revised anti-markup rule until January 1, 2009.  Such delay, however, did not apply to (1) the technical component of all purchased diagnostic tests, which had already been the law for some time, or (2) any anatomic pathology diagnostic testing services furnished in space that (i) is utilized by a physician group practice as a “centralized building” (as defined at § 411.351) for complying with the physician self-referral rules and (ii) does not qualify as a “same building” under § 411.355(b)(2)(i).  CMS acknowledged that it ordinarily publishes a notice of proposed rulemaking and invites public comment on the proposed rule, but  in this case, CMS asserted that the notice and comment rulemaking procedure was not required under the circumstances, and thus issued its rule as final. 
    Although CMS postponed the effective date of most of the anti-markup rule, a number of plaintiffs immediately challenged the revised rule and its applicability to anatomic pathology services. On March 31, 2008, the D.C. District Court granted the plaintiffs’ request for a preliminary injunction.  See Atlantic Urological Associates, P.A., et al., v. Michael O. Levitt, Secretary, Department of Health and Human Services, D.D.C., No. 1:08-cv-00141-RMC (Mar. 31, 2008).  As a result, physicians and other healthcare providers may continue to bill for such anatomic pathology testing services in a manner compliant with the pre-November 2007 anti-markup rules until such time as the preliminary injunction is lifted. 
    However, it is too early for providers to celebrate because this was not a permanent injunction or a favorable final ruling for the plaintiffs on the merits.  Providers will need to monitor this case, which is likely to generate a lot of interest beyond its mere impact upon the content and enforcement of the anti-markup rule, because it is also likely to impact every administrative agency’s rulemaking process under the federal Administrative Procedures Act.  One would bet that other federal agencies will also be watching this case for its potential precedential value over them, especially if they attempt to employ the “informal” rulemaking process that HHS and CMS utilized with regard to this rule.