2009 Final Physician Fee Schedule Makes More Changes Directed at Diagnostic Tests

The Centers for Medicare & Medicaid Services (CMS) used the 2009 Medicare final physician fee schedule (2009 PFS) to make additional changes to the complex rules governing diagnostic testing.

Among the most significant of these provisions are changes to the Medicare program's "anti-markup" rule. Other provisions include new standards requiring "mobile" diagnostic testing providers to enroll in the Medicare program as independent diagnostic testing facilities (IDTF) and bill Medicare directly for their services.

While CMS declined to adopt its July 2008 proposal to require physician practices that furnish diagnostic services to qualify and enroll as IDTFs, the agency also declined to take this proposal off of the table for potential future implementation—so more changes may be on the horizon.

The following article provides an overview of the anti-markup rule and other changes related to diagnostic testing services paid for by Medicare Part B.

Anti-Markup Rule Background

Medicare has historically prohibited physicians and other suppliers from "marking up" the amount billed under Medicare Part B for certain diagnostic tests. The Medicare anti-markup rule is based on authority contained in the Social Security Act that, by its terms, limits Medicare reimbursement for certain diagnostic tests where the physician performing or supervising the test does not "share a practice" with the billing supplier.

Until 2008, this anti-markup prohibition applied solely to the technical component (TC) of "purchased" diagnostic tests. But in the 2008 PFS, CMS applied the anti-markup rule to both the professional component (PC) and TC of "purchased" diagnostic tests.

Where the anti-markup rule applies, it acts to limit what Medicare will pay as reimbursement for the PC and/or TC of diagnostic tests to the lesser of the billing supplier's actual charge, the "net charge" or the Medicare fee schedule amount. The anti-markup rule does not impact whether a diagnostic test may be furnished, but where the rule applies, it will limit what Medicare will pay for the services.

Provisions of the expanded 2008 rule went into effect on January 1, 2008, to eliminate "pod" anatomical pathology laboratory and similar arrangements. CMS delayed other aspects of the rule, however, including key requirements defining when tests would be deemed to be "purchased" and what constitutes the "office of the billing physician." CMS outlined alternative proposals to address these concerns in the 2009 Medicare proposed Physician Fee Schedule, published in July 2009.

In the 2009 PFS final rule, CMS moved beyond the concept of purchased tests to focus instead on the statutory concept of whether the billing entity and the physician performing the PC or TC of the test "share a practice."

New Rule Focuses on Relationships

In the 2009 PFS, CMS replaced the historic concept of "purchased" tests with a rule that looks at the relationship between key parties involved in the performance of diagnostic testing services. Specifically, the anti-markup rule payment limitation will only apply where the billing physician or other supplier and the physician performing the test do not "share a practice."

While the "share a practice" analysis is critical to the rule's application as a threshold matter, other more basic circumstances must be present before the rule can apply.

Is the Rule Implicated?

Regardless of whether the billing entity and performing physician "share a practice," the anti-markup rule will only be implicated in certain instances. Where diagnostic tests subject to the rule are involved, a two-step analysis is required to determine whether the anti-markup rule applies to limit what can be billed to Medicare.

First, while the rule governs reimbursement for virtually all diagnostic tests including X-rays, MRI, CT, PET/CT, sleep labs studies, it does not apply to clinical diagnostic laboratory tests and certain others tests. Therefore, assessing what tests are involved is critical to determining application of the rule.

A second prerequisite to the rule's application is that the "ordering" physician or other supplier, e.g., nurse practitioner or other non-physician practitioner (NPP) and the "billing" physician or other supplier must be either the same party or different parties related by common ownership or control. In this context, the ordering physician or NPP is the individual who requests a diagnostic test and who will use the test results in the care and treatment of the ordering physician or NPP's patient. The billing physician or other supplier is the enrolled individual, entity or other Medicare supplier, e.g., clinic, group or independent diagnostic testing facility (IDTF) that requests payment from Medicare Part B for the PC and/or TC of the diagnostic test.

The rule will not be implicated—and the anti-markup analysis will not be required—where the ordering and the billing suppliers are neither the same nor related in any way. Such is the case when a physician group or IDTF bills for diagnostic tests ordered by physicians who are not related to and who are outside of the physician group or IDTF for the test.

Does the Rule Apply?

Even where the anti-markup rule is implicated, payment from Medicare will only be limited if the physician who performs the PC or TC of the test does not "share a practice" with the billing physician or other supplier. The "performing" physician for purposes of the rule is, in the case of the PC, the physician who performs the professional interpretation of the test, and in the case of the TC, the physician who supervises the test in accordance with the Medicare program's diagnostic testing supervision requirements.

Where the anti-markup rule applies, the rule limits the amount that can be billed to Medicare for the PC or TC and requires the billing supplier to identify the performing supplier and that supplier's "net charge" on the claim form. This makes the "share the practice" assessment critical to an evaluation of compliance with the rule.

Share the Practice Alternatives

In the 2009 PFS, CMS adopted an "either/or" approach, using two alternative means to meet the anti-markup rule's "share a practice" requirement. Both alternatives focus on the relationship between the diagnostic test billing supplier and the performing physician, but the two alternatives evaluate this relationship in different ways. The alternatives are just that—alternative approaches to avoiding the rule's application—so meeting either will suffice.

Since the anti-markup rule applies to both the PC and TC of diagnostic tests, each test component must be considered separately. Alternative 1 should generally be assessed before moving to Alternative 2, but if either is satisfied, the "share the practice" requirement will be met and the anti-markup rule's limitation on payment will not apply.

Alternative 1: The "Substantially All" Test

Alternative 1 permits the billing supplier to avoid the anti-markup rule's application as long as the performing physician furnishes "substantially all" —defined as at least 75 percent—of his or her professional services through the billing physician or other supplier. Alternative 1 does not require the performing physician to be exclusively employed by or contracted with a single billing organization, but it does require at least 75 percent of the performing physician's medical practice services—generally measured by time—to be furnished through the supplier that is billing for the component of the diagnostic test performed by the physician.

Among other things, this "substantially all" requirement will permit:

• A physician who works part time (e.g., 3 days a week) to spend 75 percent of his/her work time (e.g., 2.25 out of 3 days) working for and billing through a single clinic, physician group or other billing supplier to which reassignment is made.
• A physician to spend 75 percent or more of his/her time working for one physician group, while working part-time for other practices. However, since the physician's part-time work will not involve "substantially all" (i.e., 75 percent or more) of the physician's time, the suppliers with whom the physician has part-time arrangements will not satisfy "share a practice" Alternative 1, so the part-time relationships must either satisfy Alternative 2, or the diagnostic tests performed and/or supervised by the physician in those part-time relationships will be subject to the anti-markup rule.

Alternative 2: The "Office of the Billing Physician or Other Supplier"

Under Alternative 2, the performing physician will be deemed to "share a practice" with the billing supplier where the physician performing the PC or TC of the test is an owner, employee or contractor of the billing supplier, and the test is performed in the "office" in which the ordering physician or other supplier regularly provides patient care, including space used for diagnostic testing located in the same building in which the ordering physician or other supplier regularly furnishes patient care.

In the case of billing suppliers that are defined as "physician organizations" under the Stark law, the office of the billing physician or other supplier is space in which the ordering physician provides substantially the full range of patient care services the ordering physician provides generally. This Alternative 2 permits a "site of service" alternative to be applied on a test-by-test basis. Where the PC and/or TC is performed in the "office of the billing physician or other supplier" by an owner, employee, or independent contractor of the billing supplier, then Alternative 2 will be satisfied and the rule's limit on the amount that can be charged Medicare will not apply.

Alternative 2 will have a number of practical implications, including the following:

• Diagnostic testing service locations that comply with the centralized building" option under the Stark law's in-office ancillary services exception will not comply with Alternative 2's "same office" requirement because, by definition, a "centralized building" under Stark is not in the "same building" in which the ordering physician furnishes diagnostic testing services. Importantly, the billing group practice can still avoid the anti-markup provision by ensuring that the physician performing the PC and/or TC meets Alternative 1 by furnishing substantially all (75 percent or more) of his/her services through the group billing for the services.
• A physician "performs" the PC for purposes of the rule, when the physician interprets a diagnostic test. Therefore, where the ordering and interpreting physicians are in different locations, Alternative 2 will not be available and the interpreting physician must furnish substantially all of his/her services for the ordering physician's group in order to avoid application of the rule.
• A physician performs the TC of a diagnostic test when the physician supervises the test in accordance with the Medicare program's diagnostic test supervision requirements. Accordingly, where the relationship between the billing supplier and the performing physician does not meet Alternative 1 (because the performing physician does not furnish substantially all (75 percent) or more of his/her services for the billing supplier), to meet Alternative 2, the physician supervising the TC must be physically present in the building in which the TC is performed—even when the Medicare diagnostic test supervision rule requires only general supervision of the test.
• The practical implications of the requirement above will also vary depending on whether the billing supplier is a physician practice or an IDTF. In the case of physician practices, when the Medicare program's diagnostic testing supervision rules require only general supervision, these requirements can be satisfied by any physician in the practice because Medicare does not impose specific qualifications or requirements on the supervising physician in physician groups.
• However, Medicare imposes more restrictive requirements on IDTFs. Accordingly, where the billing supplier is an IDTF and Alternative 2 is the only available option, the IDTF's supervising radiologist or other specialist physician must be physically present in the IDTF when the TC is being performed.

Avoiding the Rule and Additional Implications

Now that the anti-markup rule is final, the regulatory and operational landscape governing diagnostic testing services has changed. The new rule's requirements are likely to effect diagnostic testing arrangements and service relationships in numerous ways, including the following:

• Replacing "global" billing of diagnostic tests by suppliers, with "split billing" in which the PC and TC are billed separately. This is likely to be more common, in particular where physician groups and other billing suppliers are unable to satisfy Alternative 1 by employing or contracting with interpreting physicians on a largely full time basis. Split billing will permit radiologists and other physicians performing the PC to submit a separate claim for the services they provide.
• Alternatively, even where the anti-markup rule applies, because it limits what Medicare will pay, a billing supplier can submit the claim for both the TC and the PC on a split bill basis. They can comply with the rule's payment limitation by identifying the performing supplier and indicating the supplier's "net charge" on the claim form.
• Many physician groups and IDTFs may be driven to seek largely exclusive employment or independent contractor arrangements with one or more radiologists and certain other service providers to provide necessary test interpretation and supervision services.

While CMS provided two alternatives to meet the new rule's "share the practice" requirement, Alternative 1—which requires the performing physician to furnish substantially all of his/her services for the billing supplier—provides the greatest operational flexibility. Groups with multiple practice locations will be less likely to meet the Alternative 2 office and site of service requirements. This is likely to be of even greater importance if CMS eventually requires physician practices that perform diagnostic testing services to enroll as IDTFs as the agency proposed the 2009 PFS proposal discussed below.

IDTF Enrollment Requirements

In the 2009 PFS, CMS declined to finalize proposals that would have applied the Medicare's IDTF enrollment standards to diagnostic testing furnished by physician and non-physician practitioner (NPP) organizations such as physician practices and groups. CMS declined to finalize the proposal due, in part, to the enactment of § 135 of the Medicare Improvement for Patients and Providers Act of 2008 (MIPPA), which requires the implementation of an accreditation process for entities that furnish and bill for Medicare Part B for advanced diagnostic testing procedures (e.g., MRI, CAT scans, nuclear medicine including PET Scans) by January 1, 2012.

Physician Organizations Can Retain Diagnostic Testing Arrangements

The agency's decision drew both criticism and praise from the physician community. Criticism originated from radiologists, pathologists and other specialists who have expressed concerns with non-specialist involvement in the delivery of diagnostic tests. These specialties have frequently advocated for the imposition of the more rigid IDTF enrollment and qualifying physician supervision requirements. Other segments of the physician community breathed a collective sigh of relief as CMS' decision enrollment will permit the physician organizations to retain their existing diagnostic testing arrangements without having to comply with the IDTF standards that would likely increase costs and/or eliminate many common arrangements.

Mobile Providers Must Enroll in and Bill Medicare

CMS did, however, finalize standards applicable to mobile diagnostic testing service providers by requiring, effective January 1, 2009, that all entities that furnish mobile diagnostic services to Medicare beneficiaries must enroll in and directly bill Medicare for their services. These enrollment standards apply to mobile test providers regardless of whether the services are furnished in a mobile facility (e.g., truck trailer) or fixed-based (e.g., physician office) location.

The new rule requires mobile entities to comply with existing and additional IDTF performance standards that, among other things, will require mobile providers to:

• Use qualified physician or non-physician personnel to perform diagnostic tests;
• Ensure the mobile entity's supervising physician demonstrates proficiency in the performance and interpretation of each type of diagnostic test performed by the IDTF, and prohibit a single physician from supervising more than three IDTFs; and
• Bar the mobile entity from sharing diagnostic testing equipment with other individuals or organizations enrolled in Medicare.

CMS stated the new rule is intended to create a single, universal standard for quality among all mobile imaging providers. Mobile entities that furnish services that are billed by a hospital "under arrangements" are required to qualify and enroll as IDTFs, but they are excluded from the new rule's direct billing requirement.

The new rule will adversely affect certain arrangements between mobile testing entities and physician organizations. In particular, mobile entities that lease equipment and provide technicians to conduct Medicare payable diagnostic tests in a physician's office will need to enroll in Medicare as an IDTF and bill Medicare directly for its services.

This same analysis would appear to apply to physician practices that make equipment and technicians available to other physicians on a similar basis (e.g., by leasing those services to an unrelated physician organization on a block of time basis). These physician practices would also likely need to enroll in Medicare as an IDTF and directly bill Medicare for the mobile services it provides.

Unfortunately, the new rule fails to provide a clear definition of what precisely is a "mobile diagnostic testing service provider." It is unclear therefore whether the rule would apply to a physician practice in this second example, and also unclear whether the new rule will require physician practices with mobile facilities (e.g., mobile MRI trucks that qualify as centralized buildings under the Stark final rule) to enroll their mobile resources as an IDTF. As discussed above, if IDTF enrollment is mandated, the applicable IDTF standards will have dramatic implications for the manner in which the services are furnished and billed.

Conclusion

CMS continues to look for and implement new approaches to reign in the proliferation of diagnostic testing services and associated expenditures under the Medicare program. The expansion of the anti-markup rule and the application of IDTF enrollment standards to mobile entities are two tools that CMS has elected to use to address financial, quality and other concerns.