• New Laws Limit Billing and Service Arrangements for Radiology and Other Diagnostic Services
  • January 26, 2009 | Author: Michael A. Dowell
  • Law Firm: Theodora Oringher Miller & Richman PC - Los Angeles Office
  • When a patient receives a diagnostic service, such as diagnostic imaging, EKG, laboratory or pathology service, there are two parts to the charge. These are known as the technical and professional components. The technical component ("TC") consists of the charge for all of the non-professional costs associated with operating the diagnostic facility, including the equipment, supplies, and the cost of the technical personnel who perform the diagnostic service. The professional component ("PC") refers to the charge of the radiologist, cardiologist, pathologist or other professional who provides the professional interpretation of the diagnostic service. These components may be separately billed, or they may be combined and billed by one entity under a "global fee." In order to encourage physicians to refer to diagnostic service providers, a common marketing strategy involves a financial arrangement between the diagnostic service company and the referring physician. These financial arrangements take the form of part-time and block time-sharing leases, space sharing arrangements, and service contracts – or a combination thereof. When the patient obtains the diagnostic service, the referring physician globally bills – claiming to have provided the PC and TC. From the revenues received from the global billing, the referring physician reimburses the diagnostic service company a portion of the TC, and retains the rest for the physician practice. In the event that the referring physician was not qualified to provide the professional interpretation, the business arrangement includes a subcontract with a qualified physician to provide the professional interpretation, and allows the referring physician to retain a portion of the PC through the contractual arrangement with the interpreting physician. The referring physician, who generally provides the diagnosis which results in the diagnostic testing procedure, financially benefits from the referral to the diagnostic service company and/or interpreting physician because he/she is able to retain a portion of the TC and PC of the payments received for the provision of the diagnostic service. Recent changes in federal and state laws will significantly impact physician service and billing arrangements for any diagnostic test reimbursed by Medicare.

    New Federal Anti-Markup Rule for Diagnostic Services

    The final Medicare payment rule prohibits an ordering physician or other supplier (the billing entity) from billing more than the lesser of three amounts for the TC or PC of diagnostic tests (except certain diagnostic laboratory tests) if those tests are supervised (the TC) or performed (the PC) by a physician who does not "share a practice" with the billing entity.

    When the anti-markup rule applies, the billing entity may bill no more than the lowest of the (i) performing supplier or physician's net charge to the billing entity; (ii) the billing entity's actual charge; or (iii) the fee schedule amount allowed if the performing physician billed for the test directly. A billing entity "shares a practice" with a physician who supervises the TC or performs the PC if the physician (i) furnishes at least 75 percent of his or her total professional services through the billing entity (based on a 12-month trailing or forward-looking analysis) or (ii) is an owner, employee or independent contractor of the billing entity and supervises the TC or performs the PC in the office of the billing entity. The office of the billing entity is any medical office space, regardless of the number of locations, in which the ordering physician regularly furnishes patient care. If a billing entity regularly furnishes patient care in a location, the office includes the entirety of the same building of that location (as defined in 42 C.F.R. § 411.351). If the billing entity is a group practice, the office includes any space in which the ordering physician as an individual provides substantially the full range of that physician's patient care services. Shared or leased-space arrangements for diagnostic tests are in the office of the billing entity if the arrangement otherwise satisfies one of the two standards for "sharing a practice."

    New California Anti-Markup Rule for Diagnostic Imaging Services

    Assembly Bill 2794, effective January 1, 2009, adds Section 655.8 to the California Business and Professions Code, to prohibit a California licensed physician, chiropractor, podiatrist or dentist from charging, billing, or soliciting payment from any patient, client, or 3rd-party payer, as defined, for performance of the TC of specified diagnostic imaging services not rendered by the licensees or persons under their supervision, as defined. The new law also requires a radiological facility or imaging center performing the TC of those diagnostic imaging services to directly bill either the patient or the responsible third party payer for the services, and prohibits the radiological facility or imaging center from billing the physician, chiropractor, podiatrist or dentist who requested the services. The bill exempts certain specified persons, radiological facilities, imaging centers, clinics, health care programs, or the performance of diagnostic imaging services within a licensee's office, from these provisions.

    Imaging Centers that will not be affected include imaging facilities that exist within a physician's office practice, facilities operated by health care services plans, those operated by public entities, and those operated by licensed charitable community clinics. The law does permit physicians, chiropractors, podiatrists and dentists and professional entities, such as a medical corporation or general professional partnership, to bill globally under certain circumstances. The law also permits physicians and/or medical groups to own imaging facilities as part of their medical practice and to bill globally for services provided. Under a special exception contained in subsection 655.8(d), the law permits a physician or medical group to contract with another entity that will own the equipment and hire the technicians, provided that neither the physician nor a member of the physician's medical group has ordered the diagnostic imaging services, and provided that the professional interpretation is performed by the physician or a member of the physician's medical group.

    Workers Compensation Provider Networks. The new law also restricts the ability of diagnostic imaging facilities, providing MRI, CT or PET, to contract with certain types of Workers Compensation networks. The law mandates that a diagnostic imaging facility that is billing the TC, bill the patient or "the responsible third-party payer" "directly." The "responsible third-party payer" is defined as ". . . any person or entity who is responsible to pay for CT, PET or MRI services. . . ." It would not be lawful for the diagnostic imaging facility to send a bill to a workers compensation provider network (or other intermediary) unless the entity has a legal responsibility to pay for such services (e.g. a workers compensation insurance carrier or entity subcontracted with the workers compensated insurance carrier).

    Mobile Diagnostic Service IDTF Enrollment and Direct Billing Requirement

    In a new federal rule likely to have a significant impart upon providers of mobile diagnostic testing services and physicians who contract with such providers, effective January 1, 2009, all mobile entities providing diagnostic testing must enroll in the Medicare program as Independent Diagnostic Testing Facilities ("IDTFs") and bill Medicare directly for all services furnished to Medicare beneficiaries. According to the preamble to the new rule, these new billing/enrollment provisions apply to all mobile entities who lease equipment and technicians to other Medicare enrolled suppliers and providers, including physician practices. Although not specifically stated in the rule or preamble, this may include mobile entities leasing equipment only, irrespective of whether the services are furnished in a mobile or fixed base location. Further, the owner of a mobile IDTF has the responsibility to ensure the mobile IDTF meets all applicable regulatory obligations required under Medicare, which will be verified through the Medicare enrollment process. The effect of the new rule is that mobile IDTFs can no longer sell diagnostic tests provided to Medicare beneficiaries to a physician group, and for which the physician group would then bill.

    One exception to the new rule on mobile diagnostic services is that the direct billing requirement does not apply if the mobile supplier has a documented arrangement with a hospital to provide testing services to inpatients and outpatients of the hospital. Documentation of "under arrangements" services by mobile IDTFs to hospitals must be provided to the Center for Medicaid and Medicare Services for initial and ongoing enrollment purposes.


    Several of the regulatory changes discussed in this legal update will require physician practices furnishing diagnostic imaging or other diagnostic services to reevaluate their contractual arrangements. Many of the arrangements may need to be restructured or unwound prior to the end of 2008. Diagnostic imaging facilities and other providers of diagnostic services should carefully review the new requirements and consult with qualified health care legal counsel to ensure that all billing and service arrangements comply with the new laws.