CMS Spotlights AP as It Delays Anti-Markup Rule

Anti-Markup rule implemented on January 1 targets one specific type of anatomic path lab

CEO SUMMARY: When Medicare officials postponed implementing a new anti-markup rule late last month, it did so because of questions about how the new rule will be applied. However, the Centers for Medicare & Medicaid Services (CMS) did implement an aspect of the anti-markup rule on January 1, 2008, that affects one anatomic pathology laboratory model. Attorney Rick Hindmand offers fives steps to help pathologists comply with the newly implemented anti-markup rule.

FEDERAL OFFICIALS ARE CONCERNED that physicians who send anatomic pathology (AP) specimens to clinical laboratories may be gaming the system, says a lawyer who follows federal healthcare reimbursement issues.

“Last month, the federal Centers for Medicare & Medicaid Services (CMS) announced it would delay implementation of new anti-markup rules, originally scheduled to take effect on January 1, 2008, with respect to a broad range of diagnostic testing services,” stated Rick Hindmand, a attorney in Chicago for McDonald Hopkins, a national law firm. “In response to questions about how the new rules would be applied, CMS will conduct further review and may revise these rules prior to their implementation on January 1, 2009. This delay, however, generally does not apply to condo/pod labs and similar anatomic pathology arrangements maintained offsite by group practices.

“These actions show that CMS now has anatomic pathology in the spotlight,” Hindmand said. “That spotlight is no longer shared with imaging centers and various other types of diagnostic testing. Of course, CMS has long-standing concerns about other services that referring physicians pur- chase. But, for the moment, CMS is focusing its attention on anatomic pathology.

“This year, CMS will look closely at anatomic pathology operations within group practices of referring physicians. In recent years, CMS has expressed its concern about AP arrangements that allow physicians to profit from the anatomic pathology work generated by their patients,” he noted. “For example, CMS is concerned that some ordering physicians may have a financial incentive to order more tests, meaning they could be gaming the system in some way.

AP Arrangements

“The Stark Rule restricts the ability of physicians to refer work to facilities they own, but some physicians have gotten around the Stark Law limitations in various ways,” noted Hindmand. “Because CMS is turning the spotlight on physicians who use anatomic pathology services, both pathologists and referring physicians should thoroughly understand the rules.

“Keep in mind that the new anti-markup rules were put in place in addition to the Stark Law,” Hindmand continued. “Therefore, physicians seeking to be in compliance with all federal rules will need to comply with both the Stark Law and the anti-markup rule.”

It was on November 1, 2007, that CMS issued the 2008 Medicare Physician Fee Schedule final rule. Included was an expansion of rules that prohibit physicians from marking up diagnostic tests that outside suppliers perform. The revisions to this regulation were scheduled to become effective on January 1, 2008.

CMS Decides To Delay Rule

But on December 28, CMS delayed implementing the anti-markup revisions in the fee schedule. It wanted more time to study the location standard and issue clarifications. In a statement, CMS cited arrangements involving AP diagnostic testing as a “core concern.” As a result of this concern, CMS did not delay the rule with respect to anatomic pathology diagnostic testing services furnished in a group practice’s centralized building that does not qualify as the “same building” under the Stark regulations. This statement is widely viewed to apply to anatomic pathology condo/pod laboratory arrangements.

The final 2008 Medicare Physician Fee Schedule rule that CMS was prepared to implement included specific anti-markup requirements. These requirements would apply whenever a physician practice or other supplier bills the Medicare program for the technical or professional component of a diagnostic test that the supplier or a related party ordered and the diagnostic test was either: 1) purchased from an outside supplier; or, 2) performed at a site other than the office of the billing supplier. In either of these situations, payment to the billing supplier for the service that is subject to the anti-markup rule and may not exceed: 1) the lowest of the performing supplier’s net charge; 2) the billing supplier’s actual charge; or, 3) the Medicare fee schedule amount.

Hindmand advised that pathologists and their practice administrators should take five steps to understand the implications of these new regulations. “First, it is important to recognize that the one-year postponement does not apply to anatomic pathology tests that are performed at an off-site group practice location used by the group practice of the ordering physician, for example in condo/pod labs,” Hindmand explained. “Thus, physicians who operate these types of AP laboratories need to recognize that this arrangement is now subject to the anti-markup rule which became effective on January 1, 2008. Pathologists who provide services to these types of AP laboratories must also recognize how the anti-markup rule governs their relationship with the referring physicians.

“The rule which became effective on January 1 doesn’t apply to everyone,” he added. “For example, if an orthopedic surgeon has an imaging center in his office, the orthopedist may not have to worry about the anti-markup rule. But a physician who uses pathologists may not be off the hook and so should learn more about the rules.

Review With Legal Counsel

“Second, because of how the newly implemented and the pending anti-markup rules will alter existing anatomic pathology referral and billing arrangements, it would be wise for referring physicians and the pathologists serving them to conduct a detailed review with their legal counsel,” advised Hindmand. “If it is determined that the existing AP arrangement is covered by the anti-markup rule, then changes in billing practices may be required to bring the arrangement into compliance.

“Third, those pathologists who order anatomic pathology tests need to be aware of how the rule applies,” Hindmand added. “If the pathologist orders a test that is performed offsite, that test may be covered under the anti-markup rule as it applies now. For example, you may have a pathologist who orders a follow-up test or who uses the services of another pathologist in a subspecialty and then bills globally for that work. The pathologist who ordered the test may be covered under the anti-markup rules.

“Fourth, the location where the test is performed is a crucial part of the anti-markup rule,” he explained. “If the test is performed in a centralized building offsite [like a condo/pod lab complex], then it will be covered by the anti-markup rule, unless in that same building, the billing supplier (meaning the group practice) maintains a medical office. The key issue is whether the physicians of the group practice see patients in the same building. If not, the group practice may be subject to the new rule.

“Fifth, pathologists and lab directors should follow CMS’ actions closely this year because CMS will make clarifications regarding the anti-markup rule and perhaps issue amendments with regard to their location tests,” Hindmand said. “CMS probably will make clarifications regarding other issues, such as how the price limitations come into play.

“CMS is likely to make these clarifications and amendments in advance of the new rule going into effect on January 1, 2009,” he added. “When they do make the clarifications, the clarifications will apply to anatomic pathologists as well as to other specialists.”

Did Physician Questions About Lab Locations Cause CMS to Change Course?

QUESTIONS AND COMMENTS from pathologists, lab directors, and referring physicians apparently caused the federal Centers for Medicare & Medicaid Services (CMS) to delay implementation of the anti-markup rules, said Rick Hindmand, an attorney with McDonald Hopkins.

“CMS was confronted with a number of details that need clarification, particularly on location issues,” he explained. “That’s why they postponed the implementation.

“Many physicians and their attorneys were concerned about the application of the location requirement—particularly for tests performed in the same building,” Hindmand added. “For example, to avoid the anti-markup restriction, the rule specified that the test had to be performed within the same space where the group provides medical services.

“That raised questions,” he noted. “What if a group practice has an imaging center on the first floor and a medical practice on the second? How does the rule apply to that situation? CMS decided to look at the location requirement more closely, because it was concerned about the unintended consequences that might result from the rule.”

“Physicians asked how the rule would apply depending on whether a patient can get to a test without going through a common hallway in the medical office building, for example,” Hindmand said. “Let’s say a physician practice is on two floors of the same building and the practice has a common stairway leading from the medical clinic to the pathology lab. Is that deemed to be in the same space or a different space? CMS realized that it would need to refine the rule to clarify its interpretation.”

Hindmand noted that under the anti- markup rule as currently in effect with respect to anatomic pathology, the physical location where the diagnostic test is performed needs to satisfy the “same building” standards under Stark regulations in order to avoid the anti-markup rule. “Group practices that currently have condo or pod labs offsite, in order to comply with the Stark regulations, will now be subject to the anti-markup rule,” he said, “Only if the group maintains a substantial medical office in the same building where the condo or pod lab is located would it be allowed to mark up its Medicare claims.”


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