CMS Expected to Revise Condo Lab & TC/PC Rules

Rule changes could come this summer and may also involve physician self-referral

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CEO SUMMARY: Expectations are that the Centers for Medicare & Medicaid Services (CMS) will take further action to rein in anatomic pathology arrangements used by physicians to capture revenue from their patient referrals. This may happen as soon as next month, when CMS publishes the 2009 Medicare Physician Fee Schedule (MPFS) Update and requests public comment on proposed new rules. Attorneys tracking these developments believe that both anatomic pathology condo labs and TC/PC arrangements are likely to be the subject of these new rules.

WITHIN THE NEXT FEW MONTHS, federal officials are likely to publish the proposed 2009 Medicare Physician Fee Schedule (MPFS) Rule and ask for public comment. Certain to be in the bull’s eye of federal rulemakers are anatomic pathology (AP) condominium (pod) laboratories and other types of pathology arrangements involving referring physicians.

“At a recent conference of the American Health Lawyers Association (AHLA) in Washington, DC, it was clear that the Centers for Medicare & Medicaid Services (CMS) continues to work on regulations intended to cover anatomic pathology (AP) condo/pod labs,” said Jane Pine Wood, an attorney with McDonald Hopkins, a national law firm in Cleveland, Ohio. “CMS likely will do something this summer as part of developing the physician fee schedule for 2009. I believe we will see specific proposals from CMS that will go through the formal rule-making process.

“One speaker at the AHLA conference was Donald H. Romano, Director of the Division of Technical Payment Policy at CMS,” noted Wood. “In his remarks, Romano explained that CMS will likely go through formal rule making and will be considering revisions to the Stark Law and also the ancillary service exemption. CMS will consider what Congress meant when it originally created that exemption.

Patient-Care Issues

“Romano discussed CMS’ concern regarding Congress’ intent when it developed the ancillary service exemption,” explained Wood. “Romano’s comments indicated that CMS believes Congress’ intent was to protect a situation where a doctor, when seeing a patient in his/her office, orders ancillary services for that patient from the doctor’s on-site ancillary services. The patient waits in the office and, when the results are ready, the doctor could use these results to help diagnose the patient. Romano indicated this situation makes sense as an exemption that would fit Congress’ intent.

“In addition, Romano gave an example of a patient who is referred for an MRI and the physician making the referral has an ownership interest in the company that offers the MRI,” Wood explained. “Based on Romano’s remarks, it appears as though CMS is asking questions, such as: ‘Where is the patient convenience in that? How is that related to the patient care visit?’

What Did Congress Intend?

“Given Romano’s presentation at the AHLA conference, CMS is clearly considering what Congress intended to cover when it passed Stark and anti-markup laws,” observed Wood. “This intent includes services that have a patient convenience factor and that promote diagnosis and care during the same patient visit.

“When an ancillary service is not related to patient convenience or diagnosis in that visit—and could just as easily have been ordered from a free-standing imaging center or from a hospital laboratory—then CMS appears to be challeng- ing whether such an arrangement was what Congress had in mind when it passed this legislation,” stated Wood.  “In general, comments at the AHLA conference were not as specific as I would have liked,” Wood added. “But one could infer, after listening to Romano’s remarks, that these are the steps CMS is considering and CMS is not finished with this topic.’

“However, CMS still must deal with the ‘moving target’ aspect of AP services performed as an ancillary service provided by referring physicians to their patients,” continued Wood. “Even as CMS issues rules to address AP condo/pod laborato- ries that are physically located off-site from the physicians’ office, these same federal officials know well that a growing number of AP labs are now located within physicians’ offices. Physicians can easily move things within their offices and get away from the anti-markup rule. So, now the question facing federal rulemakers is: ‘How do you address this situation where the pathology laboratories are physically located in physicians’ offices?’

“There is an exemption under the Stark Law for in-office ancillary services and CMS is looking at what Congress intended when it created this exemption,” Wood continued. “Since I have not recently read the Congressional record of the debates regarding the original Stark legislation as it was enacted in 1989, I will not speculate as to the intent of Congress. Further, healthcare has changed since 1989. In the late 1980s, urologists were not operating anatomic pathology labs. There were urologists doing simple urinalysis in their offices but not operating AP labs. So, the market for pathology services has changed greatly in the decades since Congress passed the Stark laws.” Rick Hindmand, a health law attorney in the Chicago office of McDonald Hopkins, agreed that officials at CMS seem to be looking more closely at condo/pod labs and other contracts between referring physicians and pathologists. “With the passage of time, CMS is becoming more sophisticated in how it views AP condo/pod labs and in-office pathology laboratory arrangements,” Hindmand commented.

Patient Care And Diagnosis

“The in-office ancillary services exception currently does not distinguish between a pathology laboratory arrangement set up to facilitate patient care and diagnosis, on the one hand, and a pathology lab arrangement designed for financial gain by allowing a physician to refer to a facility in which he or she has an ownership interest on the other hand,” Hindmand said. “Moreover, CMS could be considering a broader-based change to ancillary service arrangements than new rules that would primarily affect pathology. In either case, forthcoming changes are likely to have a significant effect on existing arrangements pathologists have with referring physicians.”

Wood and Hindmand are not alone in warning the physician community that CMS will continue to take steps to rein in various ancillary service arrangements. Attorneys Peter M. Kazon and Catherine A. Martin of Alston & Bird, LLP, based in Washington, DC, are also alerting physicians to expect further regulation by CMS on ancillary service arrangements, particularly those involving anatomic pathology services. (See sidebar on this page.)

Will CMS be successful in stamping out the more egregious and abusive forms of in-house ancillary service arrangements involving pathology? That remains to be seen. However, at the least, pathologists and specialty physicians, including urologists and gastroenterologists, are on notice that major changes lie ahead.

Predictions on How Federal Officials Will Act to Curb Pathology In-House Ancillary Service Arrangements

PHYSICIANS CURRENTLY OPERATING ANATOMIC PATHOLOGY (AP) LABORATORIES are getting the same message as pathologists about the intent of federal healthcare officials to curb or ban ancillary service arrangements that are considered abusive.

In a recent article published in EndoEconomics, health attorneys Peter M. Kazon and Catherine A. Martin of Alston & Bird, LLP, in Washington, DC., warned gastroenterologists about changes that may come when the Centers for Medicare & Medicaid Services (CMS) issue new rules governing ancillary service arrangements, including anatomic pathology laboratories.

Anti-Markup Rule Changes

Kazon and Martin reviewed the 2008 Medicare Physician Fee Schedule (MPFS) Final Rule, which involved changes to the anti-markup rule. The two attorneys wrote: “When fully implemented, these restrictions may curb the growth of condo/pod laboratory arrangements, where the performing pathologist is located outside the referring physician’s office, by eliminating the economic incentive for the referral. This new provision applies to both the technical component and the professional component of a diagnostic service.”

Kazon and Martin advised readers that CMS may be considering taking other action to curb what it considers to be abusive practices. “Relationships between referring physicians and pathologists are likely to continue to garner the attention of CMS,” noted Kazon and Martin. “It seems unlikely that CMS will retreat from its continued fight against what it views to be highly problematic physician relationships.

“There are several reasons to expect this is the case,” continued the attorneys. “First, federal authorities have indicated increasingly that they recognize that physicians’ economic interests in ancillary facilities have the impact of increasing utilization and costs. In the MPFS Final Rule, CMS noted that a variety of studies had shown a link between physician’s economic incentives and increasing utilization. Not only has CMS recognized this fact, but the Medicare Payment Advisory Commission (“MedPAC”), which advises Congress on health care issues, has noted the same thing. Moreover, in the original proposal of the anti-markup rule, CMS did not distinguish between in-office procedures and those done outside the office; rather, it would have imposed an anti-markup requirement on all services not performed by a full-time employee.”

As a result, the authors conclude that CMS may be considering taking additional action directed at the in-office ancillary services exception and such changes could have an effect on pathology services.

 

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