Health Care Alert
July 2008
Authors:
Patricia Meador
919.466.1180
patricia.meador@klgates.com
Mary Beth Johnston
919.466.1181
marybeth.johnston@klgates.com
Kathy Barger
919.466.1185
kathy.barger@klgates.com
Kelly Furr
919.466.1240
kelly.furr@klgates.com
www.klgates.com
Proposed Changes to the Anti-Markup
Rule and Application of IDTF Standards to
Physician Practices
On June 30, 2008, the Centers for Medicare and Medicaid Services (“CMS”) released its
Proposed Physician Fee Schedule for Calendar Year 2009 (the “2009 Proposed Rule”). The
2009 Proposed Rule, published in the Federal Register on July 7, includes, among other
topics, comments and proposed changes to regulations surrounding the reassignment rules
related to diagnostic tests (the “Anti-Markup Rule”) and an expansion on the Independent
Diagnostic Testing Facility (“IDTF”) quality and program safeguard activities previously
established in the 2007 and 2008 Physician Fee Schedule final rules.
Anti-Markup Rule
Background
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Prior to November 1, 2007, Medicare regulations prohibited the markup of the technical
component of certain diagnostic tests when the test was purchased outright from or
performed by an outside supplier. For example, if a physician bills for the technical
component of a pap smear performed by an outside supplier, the physician must bill
Medicare the lowest of: (a) the supplier’s net charge to the physician, (2) the physician’s
actual charge; (3) the fee schedule amount for the test. In the Final 2008 Physician Fee
Schedule released in November of 2007 and effective January 1, 2008, CMS expanded
the rule to impose the prohibition on mark-ups to both the technical and professional
components of diagnostic tests if the component is (a) purchased outright or (b) performed
at a site other than “the office of the billing physician or other supplier.” Due to numerous
concerns and confusion expressed by industry stakeholders, on January 3, 2008,
CMS delayed the effective date of the expanded rule (with some exceptions) until
January 1, 2009.
2009 Proposed Rule
In the commentary to the 2009 Proposed Rule, CMS discusses two alternative approaches
to determine when the Anti-Markup Rule applies. Proposal 1 moves away from the
previous “site of service” analysis and focuses instead on the relationship between the
performing or supervising physician and the billing practice. The Anti-Markup Rule
would apply in this instance when the professional or technical component is either (a)
purchased from outside supplier or (b) performed or supervised by a physician who does
not share a practice with the billing physician or physician organization. A physician
would “share a practice” if s/he is employed by or contracts with just one practice (i.e., if
a physician is employed by or contracts with more than one practice, that physician would
not be deemed to “share a practice” with any of the groups with which s/he works). In
commentary, CMS specifically discusses its intent that Proposal 1 protect the viability of a
centralized laboratory staffed with full time employees that is used by a physician practice
with multiple office locations (referred to as “hub and spoke” arrangements). CMS solicits
comments on the circumstances under which physicians could be permitted to occasionally
provide services outside his or her organization without affecting the physician’s ability to
provide services for that organization without applying the Anti-Markup Rule (for example,
locum tenens services provided to another organization).
Health Care Alert
Proposal 2 is a re-proposal, with a few significant
changes and “clarifications,” of the regulations released
last year that emphasize the “site of service” analysis.
Proposal 2 would amend the applicable regulations to
clarify the areas set forth below.
• Definition of “office of the billing physician or other
supplier”: Under Proposal 2, CMS would amend
the definition to include space located in the same
building in which the ordering physician or supplier
regularly furnishes patient care. This clarifies that
the Anti-Markup Rule would not apply in situations
where a physician group treats patients on one floor
of a medical office building and performs diagnostic
tests on another floor of the same building. CMS
acknowledges that this proposal may adversely affect
hub and spoke arrangements, To narrowly address this
concern in Proposal 2, CMS would exempt from the
Anti-Markup Rule those diagnostic tests ordered by
physicians in a physician organization that fail to meet
the “office of the billing physician or other supplier”
but whose owners have no right to receive profit
distributions. CMS invites comments on whether
this exception is sufficient to address impediments to
non-abusive hub and spoke arrangements.
• Performance of the test at a site other than the billing
physician’s or other supplier’s office: Proposal 2
would clarify that the Anti-Markup Rule would
apply if either the performance or supervision of
the technical component of a test occurs outside the
office of the billing physician or supplier.
• “Purchased by an outside supplier”: With regard
to when a diagnostic test is purchased from an
outside supplier, CMS proposes rule text clarifying
that if the technical component is both conducted
and supervised by a physician located in the office
of the billing physician or other supplier, and the
supervising physician is an employee or independent
contractor of the billing physician or other supplier,
the Anti-Markup Rule would not apply.
• “Performing supplier”: CMS clarifies that for the
purposes of §414.50(a)(1)(i), the payment limitation
on the performing supplier’s net charge, a “performing
supplier” with respect to the technical component is
the physician who supervises the technical component
and with respect to the professional component, the
“performing supplier” is the physician who performs
the professional component.
In addition to its discussion of the two proposals
mentioned above, CMS solicits comments on how to
calculate the “net charge” for purposes of applying
the Anti-Markup Rule. CMS recognized concerns
from commentators regarding the detrimental financial
impact on suppliers’ practices and, consequently on
patient care, if overhead costs are excluded, and invites
comments on whether and how some overhead costs
should be permitted to be recovered. CMS’ failure to
address the overhead cost issue more directly may
disappoint some providers who were hoping for a
clear indication of CMS’ future direction in this area.
Finally, at the conclusion of its discussion regarding
the Anti-Markup Rule, CMS solicits comments on
whether it should further delay applicability of these
regulations past January 1, 2009.
IDTF Standards
Diagnostic Testing Services Furnished by Physician
and Nonphysician Practitioner Organizations.
Physicians and nonphysician practitioners (“NPPs”)
who perform diagnostic testing services for Medicare
beneficiaries and who are enrolled in the Medicare
program as a clinic, group practice or physician
office currently are not required to meet the IDTF
performance standards. CMS expressed concern in
the Proposed Rule that certain physician entities a)
may enroll as a group practice or clinic and provide
diagnostic testing services without the benefit of
qualified nonphysician personnel to conduct the
diagnostic testing, b) expecting to furnish diagnostic
testing services may enroll as a group or clinic
and circumvent the performance standards, and/or
c) furnish diagnostic tests using mobile equipment
provided by an entity that furnishes mobile diagnostic
testing services.
To address these concerns CMS proposes to require a
physician or NPP organization furnishing diagnostic
testing services, except diagnostic mammography
services, to enroll as in IDTF for each practice location
furnishing the services and be subject to most of
the IDTF standards, including compliance with the
following:
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Health Care Alert
• H aving a supervising physician who is limited
to providing general supervision to no more than
three IDTF sites and who evidences proficiency in
the performance and interpretation of each type of
diagnostic procedure performed by the IDTF;
• Having nonphysician personnel used to perform
tests who demonstrate the basic qualifications to
perform the tests and have documented training and
proficiency;
• Providing diagnostic tests which are specifically
ordered in writing by a physician who is furnishing
a consultation or treating a beneficiary for a specific
medical problem;
• Operating in compliance with all applicable Federal
and State licensure regulatory requirements for the
health and safety of patients;
• Providing complete and accurate information in its
enrollment application and reporting any changes in
ownership, location and general supervision as well
as adverse legal actions, within 30 days and other
updates within 90 days;
• M aintaining a physical facility which contains
space for equipment designated on the enrollment
application, facilities for hand washing, adequate
patient privacy accommodations and storage of
business records and current medical records within
the office setting;
• Maintaining a primary business phone under the
name of the designated business;
• Agreeing not to directly solicit patients, including
a prohibition on telephone, computer or in-person
contacts;
• Having all diagnostic testing equipment available
at the physical site (excluding portable equipment),
keeping equipment calibrated, maintaining it per
the equipment instructions and in compliance with
applicable manufacturers suggested maintenance and
calibration standards; and
• Having proper medical records storage with the
ability to retrieve records within two business days
if requested by CMS or its contractor.
The Proposed Rule does not require physician entities
to comply with certain IDTF standards, including:
a) maintaining additional comprehensive liability
insurance per practice location; b) maintaining a
formal clinical complaint process; c) posting IDTF
standards; d) maintaining a visible sign posting
business hours; and e) prohibiting sharing a practice
location with another Medicare-enrolled individual or
organization.
CMS specifically requests comments on the
following:
• Whether CMS should consider establishing additional
exceptions to the established performance standards
for physician and NPP organizations furnishing
diagnostic testing services.
• Whether physician or NPPs conduct diagnostic tests
without benefit of qualified nonphysician personnel
and under what circumstances the testing occurs.
• Whether to limit the IDTF enrollment requirement to
less than the full range of diagnostic testing services,
such as to procedures that generally involve more
costly testing and equipment.
• Whether the policy should apply only to imaging
services or whether it should also include other
diagnostic testing services such electrocardiograms or
other diagnostic testing services frequently furnished
by primary care physicians.
CMS proposes an effective date of September 30,
2009 for suppliers that have enrolled in the Medicare
program and January 1, 2009 for newly enrolling
suppliers.
Mobile Entity Billing Requirements
To ensure that entities furnishing mobile services
are providing quality services and are billing for the
diagnostic testing services they furnish to Medicare
beneficiaries, CMS proposes a new performance
standard for mobile entities which would require
entities furnishing mobile diagnostic services enroll
in Medicare and bill directly for the mobile diagnostic
services that they furnish regardless of where the
services are performed. The proposed provision, if
adopted, would be effective January 1, 2009.
Comments to the 2009 Proposed Rule should be
received by CMS by August 29 and CMS expects to
publish the final rule by November 1, 2008.
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Health Care Alert
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