CMS Anti-Markup Rules Target In-Office Ancillaries

Changes ahead for specialist doctors using TC/PC arrangements or operating AP labs

CEO SUMMARY: Medicare officials are again attempting to rein in what they consider to be potentially abusive forms of in-office ancillary services, including anatomic pathology. Proposed new rules published this month would clarify and perhaps expand the application of the Medicare anti-markup for purchased diagnostic testing services and for diagnostic tests provided by an ordering physician or supplier, including the professional and technical components.

As Expected, Federal Healthcare Officials are again tinkering with anti-markup rules. Their latest effort is directed toward curbing arrangements where physicians profit from purchased diagnostic testing services generated by their patient referrals, including anatomic pathology services.

New proposed revisions to the Medicare anti-markup rules were included in the Medicare Part B Physician Fee Schedule (PFS) Proposed Rule for Calendar Year 2009. This was published by the federal Centers for Medicare & Medicaid Services (CMS) earlier this month. The public comment period ends on August 29, 2008. CMS will respond to public comments and expects to publish the final rule by November 1, 2008. The final rule likely will become effective on January 1, 2009.

“If approved, these rules would extend to all purchased diagnostic testing services,” observed attorney Jane Pine Wood, of McDonald Hopkins, a national law firm. “Anti-markup provisions would apply to both the technical component (TC) and professional component (PC) of diagnostic testing.

“Currently, the Medicare anti-markup rules apply only to anatomic pathology services,” added Wood. “However, on January 1, 2009, published rules take effect that will apply anti-markup rules to all diagnostic testing services. CMS recognizes that the language of these existing anti-markup rules is somewhat ambiguous in actual application to particular billing situations. CMS hopes the newly- proposed rules will provide greater clarity.

Two Alternatives

“The government is requesting comments on two different ways to apply anti-markup rules,” explained Wood. “The first alternative focuses on whether the physician or supplier who performs or supervises the diagnostic testing services shares a practice with the billing physician or supplier organization on a substantially exclusive basis. The other alternative focuses on the location where the diagnostic testing services are performed.

“The text of the proposed revision to the anti-markup rule,” she continued, “provides that the diagnostic testing service would not be subject to the anti-markup restriction if: 1) service is performed and supervised within the office of the billing physician or supplier; 2) if the supervising physician is an employee or independent contractor of the billing physician or other supplier; and 3) if the supervising physician provides services exclusively for such billing physician or supervisor.

Anti-Markup Rules

“What’s interesting is that CMS is squeezing down on the potential for overuse of diagnostic testing services, particularly anatomic pathology testing and imaging services,” stated Wood. “These proposed rules seem to be intended to expand the range of services that would be subject to the anti-markup rules.

“If approved, these rules would not prohibit anyone from providing these services,” she noted, “but they would mean that, when providing diagnostic testing for Medicare patients, the anti-markup rules would apply more broadly than they do now—in any situation where the supervising or performing physician does not work exclusively for the billing physician or supplier.

“If implemented as now written, these new rules will likely limit the profit margin on the provision of pathology services and other diagnostic testing services currently provided under the Stark exception for in-office ancillary services,” Wood added. “That is the reason pathologists should study these proposals and take the opportunity to submit comments to CMS. The com- ment period ends on August 29.

“No one knows precisely how the final regulations will be worded,” she said. “It is clear that the likely effect of these regulations, as written now, will be to make it more difficult for specialists to achieve a profitable in-office pathology arrangement. From that perspective, many pathologists will welcome the proposed anti-markup rule.

“As pathologists know, the anti- markup rule put in place on January 1, 2008, restricts mark-ups for anatomic pathology (AP) services for Medicare patients when those services are done off-site from that physician’s office,” she explained. “Since January 1, 2008, a urologist or a gastroenterologist cannot markup the cost of AP services if the work is done in a laboratory outside of the urology or GI practice, for example. This restriction covers AP condo/pod laboratories. The new proposed regulations would take the anti-markup concept to the next step.

“Under the proposed alternative, CMS would not prohibit anyone from doing work in their own in-office laboratory. But it would expand the circumstances where the anti-markup rule applies,” stated Wood. “For example, the proposed regulations would not permit a mark-up by a urology or gastroenterology (GI) practice on services supervised or performed by a pathologist who works for more than one practice (including his or her own pathology practice).

Favorable to Pathologists

“Thus, if the physician group wants the ability to mark up the costs when billing Medicare for the anatomic pathology services, it means the pathologist per- forming the professional interpretations cannot work anywhere else,” she commented. “That pathologist must work exclusively for the ordering practice for the practice to bill Medicare at the full rate for the interpretations.

“In addition, CMS also would apply this same rule to the supervision of technical component (TC) services. Thus, the group could only bill TC at the full rate if supervision is done by a physician employed exclusively by that group.

“This aspect of the anti-markup rule is a significant change,” explained Wood. “Take the example of a urology group that wants to bill at full rate for the pathology services provided to Medicare patients. Either the group must have enough work to employ the pathologist full time, or, the group must use a part-time pathologist who does not work for any other practice.”

As Wood points out, the new anti-markup rules proposed by CMS earlier this month definitely target in-office ancillary services and TC/PC arrangements. Since this is the second consecutive year that CMS has written proposed rules to apply anti-markup statutes to these activities, it is unlikely that public comments will cause CMS to soften or alter these rules in any tangible manner.

However, because so many specialists now view anatomic pathology services as a lucrative ancillary service, the pathology profession can expect continued efforts by these physicians to capture AP revenues to their personal benefit.

With Its Proposed New Anti-Markup Rules, CMS Puts TC/PC and In-House Ancillary Services on Radar Screen

IN A PUBLIC STATEMENT POSTED ON ITS WEB SITE, the Centers for Medicare & Medicaid Services (CMS) identified issues that the proposed new anti-markup rules would address. The statements make it clear that CMS is intent on reining in in-house ancillary services, such as anatomic pathology and imaging. Below are the summary statements of these points as provided by CMS:

  • Clarify that the “office of the billing physician or other supplier” includes space in which diagnostic testing is performed that is located in the same building in which the billing physician or other supplier regularly furnishes patient care;
  • Clarify that, with respect to TCs, the anti-markup provision applies if the TC is either conducted or supervised outside of the office of the billing physician or other supplier;
  • Clarify that a TC of a diagnostic test is not purchased from an outside supplier if the TC is supervised by a physician located in the office of the billing physician or other supplier;
  • Clarify that, for purposes of applying the payment limitation in 42 CFR 414.50(a)(1)(i) only, the “performing supplier” with respect to the TC is the physician who supervised the TC and, with respect to the PC, the “performing supplier” is the physician who performed the PC; and
  • Propose an exception for diagnostic tests ordered by a physician in a physician organization that does not have any owners who have the right to receive profit distributions.

CMS also solicits comments regarding:

  • Defining the “net charge;”
  • Whether, in addition to or in lieu of, the anti-markup provision, CMS should prohibit reassignment in certain situations and require the physician supervising the TC or performing the PC to bill Medicare directly; and
  • Whether CMS should delay, beyond January 1, 2009, the effective date of certain anti-markup provisions published in the MPFS final rule for 2008, or delay the effective date of any proposed revisions to that rule, to the extent they are finalized in the MPFS final rule for 2009, or both.

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