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CMS expands the applicability of the Anti-Markup Rule effective January 1, 2009
Posted in General

On October 30, 2008, the Centers for Medicare and Medicaid Services (CMS) issued the Final 2009 Medicare Physician Fee Schedule (MPFS) and expanded the applicability of the Anti-Markup Rule due to CMS’ concern over certain arrangements that may technically meet the Stark Law in-office ancillary services exception, but are not within what CMS views as the exception’s intended purpose. At the same time, CMS has provided billing physicians with greater flexibility in structuring in-office diagnostic testing to avoid the application of the Anti-Markup Rule.

In the past, the Anti-Markup Rule applied only to the technical component of diagnostic tests that were ordered and billed by a physician, but purchased from another physician. The billing physician could not mark up the purchased test, which meant that the Medicare payment could not exceed the lowest of the net charge of the physician who supervised the test, the actual charge of the billing physician or the fee schedule amount.

CMS expanded the applicability of the Anti-Markup Rule to the professional component of a diagnostic test and, for the first time, defined the term “net charge” narrowly to mean the net cost for the supervision of the technical component or the test interpretation. CMS also changed the structure of the Anti-Markup Rule by focusing exclusively on the question of whether the performing or supervising physician “shares a practice” with the ordering or billing physician. The only situation where the Anti-Markup Rule now applies is when a physician bills for the technical or professional component of a test ordered by an outside physician, and that test is performed by a physician who does not “share a practice” with the billing physician.

The Final 2009 MPFS gives billing physicians the option of relying on either of two alternative tests in determining whether a diagnostic test is performed by a physician that “shares a practice” with the billing physician. Under alternative one, the “substantially all test,” the interpreting or supervising physician shares a practice with an ordering or billing physician if the performing physician furnishes substantially all (at least 75%) of his or her patient care services through the billing physician. Therefore, the professional and technical components of a diagnostic test will be deemed to be performed or supervised by a physician sharing a practice with the billing physician if he or she furnishes at least 75% of his or her professional services through the billing physician. As a result, the performing or supervising physician does not need to work exclusively for the billing physician, and may provide up to 25% of his or her professional services for other entities and still be deemed “sharing a practice” with his or her billing physician for purposes of the Anti-Markup Rule.

The “substantially all” test is indifferent to whether the performing physician is an employee or an independent contractor of the billing physician, or whether the diagnostic test is performed in the same office or building where the billing physician provides the full range of his or her physician services. Consequently, the supervision of the technician and the test interpretations can be performed at any location as long as the physician performing the services provides at least 75% of his or her professional services through the billing physician. For example, if a billing physician has multiple medical office sites, and the practice has centralized its diagnostic imaging services in a building or office suite where only some of the physicians of the practice provide patient care services, or even where the practice does not maintain any medical offices at all, the Anti-Markup Rule will not apply.

If the “substantially all” test is not met, then the arrangement should be analyzed to determine if alternative two, the “same building” test, can be met. The same building test will be met if the supervision of the technician or the interpretation of the test is performed by an owner, employee or independent contractor physician in an office suite located in the “same building” where the billing physician provides substantially the full range of patient care services that the billing physician provides generally. The term “same building” means a structure with, or combination of structures that share, a single street address as assigned by the U.S. Postal Service, excluding open spaces, interior loading docks, parking garages, mobile vehicles, vans and trailers. In addition, for purposes of the “same building” test, the diagnostic test is considered to be performed where the test is conducted, i.e., where the equipment and technologists are located and where the supervising physician is located.

The “same building” test allows billing physicians to share space for the provision of diagnostic testing services so long as the physicians are located in the same office building and each performs substantially his or her full range of patient care services in that office building. (While the physician’s full-range of practice must be provided, this does not mean that the billing physicians exclusively in that building.) As a result, the physicians meeting the “same building” test could engage an independent contractor physician to supervise the technician or perform the test interpretations on a part-time basis without being subject to the Anti-Markup Rule’s prohibitions.

Physician diagnostic testing arrangements that fall within the ambit of the Anti-Markup Rule will be subject to payment limitations. Consequently, payment to the billing physician will be limited to the lowest of: (1) the performing physician’s net charge to the billing physician; (2) the billing physician’s actual charge or (3) the fee schedule amount for the test that would be allowed if the performing physician billed Medicare directly. The term “net charge” includes only the net cost for the supervision of the technical component or performing test interpretation. The net charge cannot reflect the performing physician’s cost of leasing space or equipment. The billing physician has the responsibility to determine a reasonable manner to calculate an accurate net charge.

As a consequence of CMS’ net charge approach, billing physicians subject to the Anti-Markup Rule will be precluded from taking into account the cost of equipment or space when billing for the supervision of the technician or the interpretation of the tests that do not meet the “shared practice” exception. For example, if a billing physician leases additional space, purchases or leases or finances expensive diagnostic equipment, and incurs the full cost of employing the technician, the Medicare reimbursement is effectively limited to the supervising physician’s net charge. Costs related to the diagnostic equipment, office lease or employment of the technician may not be included in the amount reimbursed by Medicare to the billing physician. This means that the billing physician would operate the diagnostic test at a financial loss because the physician could not recover any overhead costs associated with providing the test, other than the cost of the supervising physician. According to CMS, if the billing physician were able to recoup such overhead, the Anti-Markup Rule would be undermined because of the incentive to overutilize the services.

Physicians who provide diagnostic testing to their patients and physicians who contract with other physicians (e.g., radiologists) to provide the interpretation of diagnostic tests will most likely be significantly affected by the newly expanded Anti-Markup Rule. All physicians who currently provide these services should have their arrangements reviewed to ensure compliance with the new Anti-Markup Rule, which went into effect on January 1, 2009. Failure to comply with the Anti-Markup Rule may create liability under the False Claims Act and other applicable laws and regulations.

  • Partner

    John is a partner in the firm's Estate Planning Department. He focuses his practice on estates, trusts, family business and disability planning, and the administration of estates and trusts. John also has an active health law ...

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