CMS Adopts Final Rules Having an Impact on Providers of Diagnostic Tests

On October 30, 2008, the Centers for Medicare & Medicaid Services ("CMS") released an advance copy of the final 2009 Medicare Physician Fee Schedule (the "Final Rule"), which addresses, among other things, the manner in which providers can bill Medicare for diagnostic tests and interpretations. The Final Rule is scheduled for publication in the Federal Register on November 19, 2008, and will become effective on January 1, 2009. This article summarizes several of the more important new rules that may have an impact on providers of diagnostic tests.

Medicare Anti-Markup Rules

Prior to November 1, 2007, CMS 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. In the 2008 Medicare Physician Fee Schedule final rule, CMS expanded the rule by applying an anti-markup payment limitation to both the technical and professional component of diagnostic tests that were either purchased from an outside supplier or performed outside of the "office of the billing physician or other supplier." After receiving many public comments criticizing and questioning many aspects of the new rule, CMS issued a notice delaying the implementation of anti-markup payment limitation until January 1, 2009. In the proposed 2009 Medicare Physician Fee Schedule (the "Proposed Rule"), CMS proposed two alternative approaches to determine whether a physician performing a diagnostic test "shares a practice" with the billing physician or other supplier and would therefore not be subject to the anti-markup rule. In the Final Rule, CMS has chosen to adopt both alternatives with some modifications. Under the first approach, CMS has determined that if the physician supervising the technical component or performing the professional component of a diagnostic test performs substantially all (i.e., at least 75%) of his or her professional services for the billing physician or supplier, the physician will be deemed to "share a practice" with the billing physician or supplier and the anti-markup rule does not apply. The "substantially all" requirement will be satisfied if the billing physician or supplier has a reasonable belief at the time the claims are submitted that (i) the performing physician has furnished substantially all of his or her professional services through the billing physician or supplier for the period of 12 months prior to and including the month in which the services was performed, or (ii) the performing physician is expected to perform substantially all of his or her professional services through the billing physician or supplier during the following twelve months. Under the second approach, the anti-markup rule will not apply if the performing physician is an owner, employee or independent contractor of the billing physician or supplier and the services are performed in the office of the billing physician or supplier. The Final Rule defines the "office of the billing physician or supplier" to mean any medical office space, regardless of the number of locations, in which the ordering physician or other ordering supplier regularly furnishes patient care, and includes space where the billing physician or supplier furnishes diagnostic testing if the space is located in the same building where the ordering physician or supplier regularly furnishes patient care. If a diagnostic test is subject to the anti-markup rule, then the payment to the billing physician will be the lesser of: (i) The performing supplier's net charge to the billing physician; (ii) the billing physician's actual charge; or (iii) the fee schedule amount for the test that would be allowed if the performing supplier billed directly. The "net charge" must be determined without regard to any charge that is intended to reflect the cost of equipment or space leased to the performing supplier by or through the billing physician.

Practitioner Enrollment Requirements

In the Proposed Rule, CMS proposed to require that all physician and non-physician practitioner offices that furnish diagnostic testing services enroll in Medicare as independent diagnostic testing facilities ("IDTFs") and comply with the majority of Medicare's IDTF performance standards. With the enactment of Section 135 of the Medicare Improvement for Patients and Providers Act of 2008 ("MIPAA"), CMS has elected to defer the implementation of this proposal. Section 135 of MIPAA requires the Secretary of the Department of Health and Human Services to establish an accreditation process for non-hospital entities furnishing advanced diagnostic testing procedures which include MRI, CT and other diagnostic procedures (but specifically excluding x-ray, ultrasound and fluoroscopy) by January 1, 2012.

Mobile Entity Billing Requirements

The Final Rule also includes a new requirement that any entity furnishing mobile diagnostic testing services to Medicare beneficiaries must independently enroll in Medicare as an IDTF and directly bill Medicare for the services it furnishes, regardless of the location where the services are performed. CMS clarified in the preamble discussion to the Final Rule that this new enrollment and billing requirement applies to any and all entities that furnish diagnostic testing services, including companies that are not currently enrolled and have instead been leasing equipment and technicians to physician offices and permitting the physician offices to bill for the technical component of the testing. This interpretation of the new rule may prohibit block leases of equipment with a technician to a physician practice. Judd A. Hardwood is an associate at Balch & Bingham, LLP in the Birmingham office and is a member of the Healthcare Practice Group.