Healthcare attorneys Andrew B. Wachler and Adrienne Dresevic investigated proposed changes in Stark and Medicare laws as they affect computed tomography (CT) services. What follows is their executive summary as well as a full analysis of the issues.
Proposed Changes in Stark and Medicare Laws
Continue to Protect Point-of-Care CT,
and Target Loopholes for “Pod” Kickback Deals
Andrew B. Wachler, Esq. Adrienne Dresevic, Esq.
Wachler & Associates, P.C. www.wachler.com (248) 544-0888
Executive Summary
Current Medicare Reassignment rules and Federal Stark regulations allow the following:
- Physicians who perform and read CT scans in their office can bill globally for both the technical and professional portions of the scans;
- Physicians who perform CT scans in their office and use an off-site independent contractor radiologist (such as a teleradiology service), can bill only for the technical portion of the scans, with the teleradiologist billing directly for the professional portion of the scans; and
- Physicians who perform CT scans in their office and use an independent contractor radiologist to read the scans in the physician’s office can bill globally for both the technical and professional portions of the scans.
The proposed changes to these laws will continue to allow options 1 and 2, but disallow option 3. If these proposed changes are adopted, physician practices that bill for the technical component of the CT scans would either need to (1) perform the professional interpretations directly through employed physicians or (2) permit an independent radiologist to perform and bill separately for the professional component of the service.
These proposed changes are not yet adopted and may be modified before adoption. In November of 2006, CMS declined to adopt the proposals, instead opting to study the issues further. It is unknown when we can expect final rules from CMS on these issues and to what extent the proposed changes will remain intact in the final regulations.
Full Analysis
On August 22, 2006, the Centers for Medicare and Medicaid Services (CMS) published proposed rules updating the 2007 Medicare Physician Fee Schedule. Among the proposals were changes to the Medicare reassignment rules and Federal Stark regulations. The proposals were prompted by CMS’ concern for certain arrangements that are not within the intended purpose of the Federal Stark law.
Specifically, CMS points to “pod” or “condo” laboratories, which typically involve pathology arrangements in which an entity leases space in a medical building and then subdivides the space into separate cubicles. Physician practices then sublease the separate cubicles and contract with a technologist who performs the technical component of the service. In such arrangements, it is common practice for the group to contract with a pathologist for performance of the professional component of the service and supervision services. The physician practice then bills Medicare for the entire service at a marked up rate.
It is these types of contractual arrangements that CMS is seeking to target, not legitimate physician practices that provide diagnostic testing services within their offices, or those that perform and bill for the technical portion of diagnostic services and use an off-site independent radiologist to perform and bill for the professional portion of diagnostic services.
Current Medicare Reassignment Rules
Generally speaking, Section 1842 (b) (6) of the Social Security Act prohibits Medicare from making payment to anyone other than the Medicare beneficiary or physician or other person who performed the service for the beneficiary. However, the Act also contains exceptions to this general rule, which are known as the reassignment exceptions. For example, the reassignment exceptions permit Medicare to make payment to the employer of a physician who provided the service, such as a group practice or hospital, to which the physician has reassigned his right to payment. The proposed changes to the 2007 Medicare Physician Fee Schedule seeks to clarify provisions of the Medicare reassignment rule.
Prior to the adoption of the Medicare Prescription Drug Improvement and Modernization Act of 2003 (MMA), a physician or other supplier was permitted to reassign his right to bill and receive payment under a contractual relationship other than an employment relationship only if the services for which payment was made were performed on the premises of the contracting facility. The MMA removed this restriction, and currently, a physician may reassign his right to bill and receive payment under a contractual relationship even if the services are performed off-site from the entity billing for the services.
Following the removal of this restriction, CMS has witnessed an increase in “pod” or “condo” laboratories and other similar contractual arrangements. CMS believes that these types of arrangements are subject to fraud, waste, and abuse, including but not limited to generation of medically unnecessary tests, kickbacks, fee-splitting, and may result in referrals that would be otherwise prohibited under the Federal Stark law.
Proposed Amendments to the Medicare Reassignment Rules
Incorporation of Purchased Testing Rule
Within this framework, in an attempt to protect Medicare from this potential for fraud and abuse, CMS proposed to amend the reassignment rule as follows:
- If the technical component of a diagnostic test is billed by a physician or medical group under a reassignment involving a contractual arrangement with a physician or other supplier who performs the service, the amount billed to Medicare may not exceed the physician or other supplier’s net charge to the billing physician or medical group; the billing physician’s or medical group’s actual charge; and the fee schedule amount for the service that would be allowed if the physician or other supplier billed directly. In other words, the physician may not mark-up the charge for the test.
- The billing entity must perform the interpretation.
In a nutshell, if finalized, this proposal will prohibit physician practices involved in contractual arrangements similar to the pod laboratories discussed above from marking up the technical component of diagnostic services for Medicare billing. The reassignment rule proposal will not impact legitimate physician practices that furnish the technical component of diagnostic services within their offices utilizing their employees. Likewise, the proposal will not impact those practices that also perform the professional portion of the services within their office using employed physicians. Practices utilizing these structures will continue to be able to perform and bill for both the technical and professional component of the CT services.
Incorporation of Purchased Interpretation Rule
Additionally, CMS is considering further amendments to the independent contractor reassignment rule. The following proposal will only be applicable to physician practices that bill for the professional component of CT scans and use independent contractors to provide such services. This amendment will not apply to physician practices that do not bill for the professional component of the services or to physician practices that provide the professional component of the service directly through employed physicians. The proposal is as follows: A physician or medical group could bill for a reassigned interpretation of a diagnostic test only when all of the following conditions are met:
- A physician that orders the test must be financially independent from the person or entity performing the test and also from the physician or medical group performing the interpretation must order the test.
- The physician or medical group performing the interpretation must not see the patient.
- The physician or medical group billing for the interpretation must have performed the technical component of the test.
If adopted, this proposal would be problematic for non-radiology physician practices that desire to contract for professional interpretation services and bill for these services on a global basis. This proposal would not impact physician practices that utilize employed physicians for the provision of the professional component of the service. In effect, under this proposal, physician practices that bill for the technical component of CT scans and other diagnostic testing services would either need to (1) perform the professional interpretations directly through an employed physician or (2) permit the independent contractor physician to perform the interpretations and bill separately for those professional services under the independent contractor’s own number. Physician practices should be aware, however, that current Stark law requires that an independent contractor physician perform the professional component of the test on site at the group’s facilities if the group is billing globally for the services.
Current Federal Stark Law
The Federal Stark self-referral ban prohibits physician referrals of Medicare beneficiaries for designated health services (including CT scans) to entities to which they or members of their immediate family have a financial relationship, and it prohibits the entity from billing Medicare for those referred services, unless an exception applies.
The in-office ancillary services exception has been arguably the single most important exception to the Stark law. This exception is designed to protect the in-office provision of certain designated health services, including radiology services, which are genuinely ancillary to the medical services provided by the physician’s practice. The in-office ancillary services exception exempts services personally provided by the referring physician; a physician who is a member of the same group practice as the referring physician; an individual supervised by the referring physician; or an individual supervised by another physician in the same group practice. In addition, the exception contains a billing and location requirement.
Under the in-office ancillary services exception, the services must be furnished to patients in the “same building” where the referring physicians provide their regular medical services, or in the alternative, group practices can provide the services in a “centralized building.” The location rules are designed to give physicians and group practices an important opportunity to provide bona-fide in-office ancillary services to their patients. A centralized building is all or part of a building that is owned or leased on a full-time basis by a group practice that is used exclusively by a group practice. For solo practitioners or group practices that do not have a centralized building location, the services can be provided in a location that meets (1) of (3) alternative “same building” tests. These tests are all designed to describe buildings where the physicians regularly practice medicine and see patients.
Proposed Amendment to the Federal Stark Law
As an additional measure designed to end the proliferation of pod laboratories and other similar contractual arrangements, CMS is proposing to revise the in-office ancillary services exception to the Federal Stark law by changing the definition of a “centralized building” so that the “pods” or “condos” described above will not qualify for protection. CMS is proposing to add a requirement to the definition of “centralized building” that in order for the space to qualify as a “centralized building” the space must be at least 350 square feet. CMS is also proposing that the space must, on a permanent basis, contain the necessary equipment to perform substantially all (at least 90%) of the designated health services, including CT scans, that will be performed in the space in any given calendar year. The equipment cannot be temporarily moved into the space from another space. CMS is also considering an additional requirement that in order to qualify as a “centralized building”, the group practice must staff the space with a non-physician employee or independent contractor that performs services exclusively for the group practice in that space no less than 35 hours per week.
The proposed changes to the Federal Stark law’s “centralized building” definition will not impact legitimate physician practices that provide CT and other diagnostic services through their offices. A physician practice can continue to satisfy the in-office ancillary services location requirement by qualifying for (1) of (3) alternative “same building” tests. The same building tests are all designed to provide protection to physicians that have offices in the building that are normally open to their patients a requisite number of hours per week. All (3) tests also require that the physician regularly practices medicine and furnishes physician services (some of which are unrelated to the furnishing of the CT scans or other testing services) for a minimum number of hours per week in that office. A group practice can also continue to meet the location requirement if the services are provided in a true “centralized building”.
2007 Medicare Final Physician Fee Schedule
In November of 2006, CMS published on its website the 2007 final fee schedule. In the final regulations, CMS declined to issue final regulations regarding the proposals made to the Medicare reassignment regulations and the Stark “centralized building” requirements. Instead, CMS stated that it was studying the issues further. CMS states that it remains committed to addressing revenue-driven arrangements that may be facilitating over utilization of diagnostic services, but CMS did not wish to unduly impact legitimate group practice arrangements that enable Medicare beneficiaries to have the convenience of receiving medical services at one location.
Of particular note was that the CMS was interested in receiving comments on whether the proposals, in whole or in part, should apply only to pathology services and whether radiology services should be excepted from any of the proposals. It is unknown when we can expect final rules from CMS on this issue and to what extent the proposed changes will remain intact in the final regulations. Although CMS states that it plans on issuing final regulations in the near future, based on past CMS action it could take months or longer until final regulations become effective.
Physicians providing CT and other diagnostic testing services through their offices should be mindful that many States have “mini” Stark and/or other self-referral laws which could be applicable to their practice structure. This article is intended to briefly address only the proposed amendments to the Medicare reassignment rules and Federal Stark law and does not address other Federal laws, State laws, or other third party payor policies.
This article does not constitute legal advice and should be used for informational purposes only. Andrew Wachler is the founding partner and Adrienne Dresevic is an associate with the healthcare law firm of Wachler & Associates, P.C. The firm represents physicians, ambulatory surgery centers and other healthcare entities and providers with respect to their healthcare legal needs. Mr. Wachler and Ms. Dresevic can be reached at (248) 544-0888 or at awachler@wachler.com or adresevic@wachler.com.
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