• CMS Poised to Move Beyond Stark with Additional Proposals Directed at Diagnostic Tests
  • September 26, 2008 | Authors: Bruce A. Johnson; Aileen T. Murphy
  • Law Firm: Faegre & Benson LLP - Denver Office
  • The Centers for Medicare and Medicaid Services (CMS) appears to have designated 2009 as the year in which it will move beyond the complex Stark physician self-referral prohibitions to address other perceived Medicare program abuses. The proposed Medicare Physician Fee Schedule for 2009 (2009 PFS proposed rule), published on July 9, 2008, contains proposals that would move well beyond the Stark Law and permit CMS to focus on Medicare program cost management using reimbursement rules.

    If enacted, the rules likely would have a significant impact on how health care services are delivered, to whom payment for those services is made, and potentially expedite a significant realignment of players in the nation's health care delivery system.

    Two of the more controversial proposals would, if enacted, deliver a one-two punch that would impact significantly diagnostic testing arrangements involving physician groups. These proposals and observations on their potential implications are reviewed below.

    IDTF Enrollment Requirements for Physician Offices

    The 2009 PFS proposed rule includes far reaching changes regarding independent diagnostic testing facilities (IDTFs)—a separate and distinct enrollment category and provider of diagnostic services under the Medicare program. It also proposes that physicians and nonphysician practitioner (NPP) organizations that furnish diagnostic testing services enroll each practice location that furnishes diagnostic testing services with Medicare as an IDTF. This represents a dramatic change from their current ability to furnish diagnostic tests as a physician office, clinic or group practice.

    CMS based this proposal on concerns that diagnostic testing services may be performed without the benefit of qualified nonphysician personal. A "physician or nonpractitioner organization" would be defined as any physician or NPP entity that enrolls in the Medicare program as a sole proprietorship or organizational entity such as a clinic or group practice.

    With this proposed enrollment requirement, CMS would require physicians, physician group practices, and physician clinics that furnish diagnostic tests to meet most of the stringent quality and compliance obligations applicable to IDTFs:

    • Restricting physicians from supervising more than three IDTFs
    • Requiring the IDTF's supervising physician to demonstrate proficiency in the performance and interpretation of each type of diagnostic test performed by the IDTF
    • Prohibiting the IDTF from leasing or subleasing its practice location to another Medicare-enrolled individual or organization
    • Prohibiting the IDTF from sharing diagnostic testing equipment with another Medicare-enrolled individual or organization

    The supervising physician requirements may prove to be particularly burdensome for physician offices because many local Medicare contractors require IDTFs to use only board certified specialists (e.g., radiologists) to supervise diagnostic tests within the IDTF. Thus, while Medicare already imposes diagnostic test supervision requirements that require general, direct or personal supervision of tests, the proposed rules could add an additional layer of compliance requirements by determining not only the level of supervision, but by whom (e.g., radiologist or other specialty) the supervision can be provided.

    If adopted, the proposal effectively could bar general practitioners and many specialists other than radiologists from supervising tests furnished in their own offices for their own patients. It also would eliminate shared facility and similar leasing arrangements where two or more physician groups or other organizations lease the same facility or equipment to furnish diagnostic services to their respective patients. When coupled with proposed changes relative to the Medicare "anti-markup" rule discussed below, the proposed IDTF enrollment requirements could significantly undermine the viability of many physician-owned diagnostic testing arrangements.

    If adopted, the proposed IDTF enrollment requirements would be effective on September 30, 2009, for practices that are currently enrolled with Medicare and billing for diagnostic tests, and on January 9, 2009 for new service providers. Penalties for noncompliance would include claims denial or revocation of the entity's billing privileges.

    CMS requested comments on whether the enrollment requirements should be limited solely to organizations providing imaging services or advanced diagnostic testing procedures (e.g., MRI scans, CAT scans or PET scans). CMS also requested comments on whether the proposal should apply to all diagnostic testing services.

    Anti-Markup Rule Changes


    A second, interrelated proposal, concerns the Medicare program's longstanding prohibition against "marking-up" the price of diagnostic tests. Since July of 2007, CMS has attempted to make sweeping changes to the Medicare program's historic diagnostic test "anti-markup" prohibition. Before 2007, the anti-markup rule effectively provided that where a test was "purchased" from an "outside supplier," the purchaser was required to indicate the outside supplier's actual charge for the test to the purchaser on the claim form, therefore limiting the price Medicare would pay for the test to the lesser of the Medicare fee schedule amount or the actual charge. Before 2007, the anti-markup rule applied solely to a diagnostic test's technical component (TC).

    In the 2008 PFS final rule published on November 7, 2007, CMS expanded the anti-markup rule to apply also to the PC of diagnostic tests, but it declined to adopt its original proposal focusing on the legal relationship between the billing entity and the personnel performing the tests to determine whether the test is deemed to be "purchased"—electing instead to use an office-based approach to determine whether the anti-markup rule applies.

    Specifically, the 2008 PFS final rule provided that the anti-markup provision would not apply to diagnostic tests performed in the billing supplier's office, but it defined "office" narrowly and in a manner that called into question many arrangements that were previously deemed to be acceptable. CMS received a firestorm of criticism regarding its narrow definition of "office" plus other provisions of the new rule, leading CMS to delay most aspects of the final rule until January 1, 2009. During the delay, the historic anti-markup rule continues to apply to the TC of any purchased diagnostic tests, while aspects of the new anti-markup rule now apply to all anatomic pathology services furnished in certain space, effectively eliminating "pod" anatomical pathology service arrangements.

    2009 PFS Proposed Anti-Markup Rule Changes

    In the 2009 PFS proposed rule, CMS proposes additional changes to the anti-markup rule that would address the provisions of the 2008 PFS final rule that were delayed. The agency set forth two alternative proposals.

    Clarification of "Purchased" Tests

    In all circumstances (and under both of CMS' alternative proposals), a physician practice would be subject to the anti-markup rule if the practice "purchases" the PC or TC of a diagnostic test. In the 2009 PFS proposed rule, CMS offered clarification on the factors one should use to determine if a test is "purchased" from an outside supplier, and it explicitly proposed that the technical component of a diagnostic test is not purchased if the technical component is (1) conducted and supervised in the office of the billing physician, and (2) the supervising physician is an employee or independent contractor of the billing physician.

    CMS did not define "supervision" in this context, so this two-prong test could potentially require physician presence in the same building in which diagnostic tests are furnished—even for tests in which Medicare coverage rules require only general supervision. Moreover, the combination of this proposal with CMS's proposed requirement that physician or non-physician practitioner organizations must enroll as IDTFs, could effectively require the radiologist or other qualified specialist who is designated as the IDTF's supervising physician to be physically present in the same building as the ordering physician. This could be the case even if applicable Medicare diagnostic test supervision requirements governing the particular test do not require such physician presence.

    CMS also proposed to clarify that where the anti-markup rule applies, the Medicare payment is limited to the lower of three changes, the lowest likely to be the "performing supplier's net charge." For purposes of determining this net charge, CMS proposed to define the performing supplier of the TC to be the supervising physician, and the performing supplier of the PC to be the interpreting physician.

    Two Alternative Approaches

    In addition to imposing the anti-markup rule on tests that are "purchased," the 2009 PFS proposed rule outlines two alternative proposed approaches to address concerns related to the 2008 PFS final rule's definition of "office." The first alternative focuses on whether test supervision is furnished by a physician who "shares a practice" with the ordering and billing physician. The second alternative provides a definition of a supplier's "office" that is more pragmatic (and realistic) than was provided in the delayed 2008 PFS final rule.

    Alternative #1: Share a Practice Test

    Under the first proposal, a physician practice would be subject to the anti-markup rule if the TC or PC of a diagnostic test is purchased, or if the physician who either performs or supervises the PC or TC does not "share a practice" with the billing physician or physician organization. Where the supervising or performing physician shares a practice with the billing entity, the anti-markup rule would not apply.

    CMS would define "share a practice" to mean that the supervising and/or performing physician has a relationship (either full-time or part-time) with only one physician organization as either an employee or independent contractor—meaning a single physician could "share a practice" with only a single physician or physician organization. CMS requested comments on how locum tenens and similar arrangements should be addressed.

    Adoption of this proposal would eliminate the ability of two or more physician groups to share a single physician to supervise and/or perform diagnostic test interpretations. It would mean, for example, that where a single radiologist provides services to more than one physician organization or billing physician, the anti-markup rule would apply to all of the services supervised by that radiologist because the multiple contractual relationships would violate the "share a practice" requirement in every case. Thus, medical groups would need to employ or contract exclusively with a single radiologist to provide all of the group's services. It would also likely encourage radiology practices to decline to enter into service relationships with third parties and encourage them to develop their own wholly-owned diagnostic imaging facilities, which would be exclusively staffed by the radiology group (and by radiologists who share a practice with one another).

    Alternative #2: Office of Billing Physician or Other Supplier

    Under CMS's alternative proposal, the agency switches its focus from the relationship between the physician organization and the performing or supervising physician, to the location in which the diagnostic testing services are provided. Thus, this alternative would apply the anti-markup rule to the TC and PC of tests that are "purchased" from an outside supplier and to all tests performed at sites outside of the "office of the billing physician or other supplier."

    Under this alternative, the definition of the "office" would be expanded to include any space in which diagnostic testing is performed that is located in the building in which the billing physician or other supplier regularly furnishes patient care. Mobile vehicles, vans and trailers would not be considered part of the same building such that a mobile diagnostic testing facility operated by the practice would be subject to the anti-markup provision.

    In this proposal, CMS attempts to accommodate multi-specialty physician groups with multiple offices. CMS provides in such instances the "office" is the space where the ordering physician provides substantially the full range of patient care services that the ordering physician provides generally. As a result, a physician who provides substantially the full range of services in the "same building" could order a diagnostic test for a patient at a diagnostic testing facility located in the "same building" and, so long as that the applicable interpretation and supervision requirements are met, the anti-markup rule would not apply.

    Under this proposal, interpretations performed by an employee or independent contractor of the practice would need to be performed in the same building in which the physician ordering the test provides substantially the full range of services. This alternative would apply the anti-markup rule to images that are transmitted to be interpreted by a physician at another group facility.

    Likewise, the anti-markup rule would also apply to diagnostic tests referred to diagnostic testing centers by a physician in the same group who does not substantially practice in the "same building" as the testing facility. As a result, although centralized facilities are allowed under the Stark law, diagnostic tests furnished in centralized facilities would be subject to the anti-markup provision.

    CMS recognizes that there may still be inherent problems with this proposal and has requested comments on an exception to the "same building" test for large group practices with multiple offices. In an effort to exempt certain arrangements from the anti-markup provisions, CMS is proposing an exception to the second alternative for diagnostic tests ordered by a physician in a physician organization that does not have any physician owners with rights to receive profit distributions. As a result, certain nonprofit physician organizations could bill for diagnostic tests furnished in any location without application of the anti-markup rule.

    What Does It All Mean?

    Keep in mind that the proposed changes are currently only proposals. While that's the case, these and other proposed rule changes illustrate CMS's concern with, if not outright hostility toward, the delivery of diagnostic services by physician organizations and practices.

    In the face of the growth in expenditures for diagnostic services, CMS is using all available means to try to reign in costs, including applying different standards to organizations that are physician-owned vs. those that are not, and imposing the IDTF enrollment standards and anti-markup rules referenced above.

    The practical effect of the proposals, if finalized without significant changes is relatively clear:

    1. Physicians and physician groups that have helped to address reimbursement cuts by developing in-office ancillary services will potentially find themselves with expensive equipment that is not capable of generating a profit when performing services for Medicare patients.
    2. Certain sub-specialists (principally radiologists) are likely to be placed in the driver's seat in determining which, if any, relationships they elect to create with their non-radiologist colleagues.
    3. Many physicians will find it increasingly difficult to survive economically without profits from diagnostic testing, which may lead them to form large physician groups or to integrate with hospitals and health systems.

    In these and other instances where CMS is moving to restrict payment rules, the message is clear: physicians can't be trusted to order necessary diagnostic tests in response to patient needs, and if they do so, they can profit from the tests only under very limited circumstances. CMS' policy focus and approach is consistent with those which were to be addressed by the Stark Law nearly 20 years ago. Now, however, CMS appears to have moved beyond Stark, settling instead into its historical comfort zone by using reimbursement rules to address cost -control concerns.