United States: CMS Releases Final 2008 Medicare Physician Fee Schedule

New Rules Significantly Impact Imaging Services, but Per Click and Under Arrangements Deals Are Still Legal for Now

On Nov. 1, 2007, the Centers for Medicare and Medicaid Services (CMS) released the final 2008 Medicare Physician Fee Schedule (MPFS). The MPFS makes a number of significant revisions to the Independent Diagnostic Testing Facility (IDTF) regulations and performance standards. These final rules are the latest in a recent string of regulatory changes directed at imaging services, and signal CMS's continuing focus on imaging quality and standards.

Equally important is what CMS chose not to include in the final MPFS. While the proposed MPFS included a number of dramatic revisions to the Stark Law that would have resulted in many current per click leases and under arrangements transactions becoming illegal, CMS decided not to finalize those Stark revisions at this time. Instead CMS will continue to review the hundreds of comments it received to the proposed Stark revisions, and will release the final Stark revisions in a later "Phase IV" Stark regulation.

New anti-markup rules may signal an end to many current physician shared imaging arrangements. Many physicians have arrangements in which several different physician groups are located in the same building and share the use of imaging equipment and the services of a reading radiologist located in the building. This type of arrangement currently fits within the Stark in-office ancillary services exception because the imaging equipment is located in the same building where the physicians have their office practices. CMS's expansion of the Medicare anti-markup rule, however, could end many of these arrangements by eliminating the profit margin for the billing group. Previously, the Medicare anti-markup rule prohibited a physician from marking up the technical component of certain diagnostic tests purchased from or reassigned by outside suppliers. CMS has revised and expanded the anti-markup rule to apply also to the professional component of diagnostic tests, as well as technical services that are not performed in the office of the billing physician.

Under the final rule, if a physician or other supplier bills for either the technical or professional component of a Medicare-reimbursed diagnostic test ordered by that physician/supplier (or by a party related by common ownership or control), the anti-markup rule will apply if the service was purchased from an outside supplier or performed in space other than the office of the billing physician/supplier.

The anti-markup rule limits the amount billed by the physician/supplier to the lower of:

• The performing supplier's net charge to the billing physician/supplier

• The billing physician/supplier's actual charge

• The test fee schedule amount if the performing supplier billed directly

There are a number of important aspects to the final rule. If the billing physician/supplier does not order the test, for example, the anti-markup rule does not apply. Accordingly, an IDTF that provides imaging services primarily at the request of outside physicians will not be affected by the anti-markup provisions.

The "office of the billing physician or other supplier" is the medical office space where the physician or other supplier regularly provides patient care. For a physician group, the office of the billing physician is space in which the physician group provides substantially the full range of its patient care services. Accordingly, just because the space meets the definition of "centralized building" under the Stark Law's in-office ancillary services exception, the space does not necessarily qualify as the office of the billing physician for the anti-markup provision. One unanswered question is whether the space that houses the imaging equipment in a shared imaging arrangement could ever qualify as the "office" of the various physician groups that practice in the same building. The anti-markup rule does not explicitly require that the "office of the billing supplier/physician" be space that is used exclusively by the physician group. CMS, however, will likely take the position that shared imaging space cannot qualify as part of the office of the billing physician, since the preamble to the MPFS specifically states that anti-markup rules apply to diagnostic tests performed through block lease arrangements. Applying the rule to block lease arrangements would lead one to believe that CMS would not consider shared imaging space as part of the billing physician's office space.

Under the final rule, unlike the proposed rule, the employment status of the person performing the technical component or the professional component does not matter.

Under the final rule, a fixed-base IDTF, other than a hospital-based or mobile IDTF, cannot share a practice location with another Medicare-enrolled individual or organization. It also cannot share equipment or lease or sublease its operations or practice location to another individual or organization. Significantly, CMS does not include in the final rule a prohibition against sharing staff that was found in the proposed rule. Also, the rule does not prohibit the sharing of nonclinical space or equipment.

CMS's stated intent is to prohibit arrangements in which a physician group practice leases an imaging facility's equipment and space on either a block time or per click basis, refers group patients for imaging services, bills commercial third party payers, and as a result profits from the difference between the payers' payment rates and the lease fees the group practice pays to the imaging facility. Additionally, CMS takes the position that the rules prohibit IDTFs from sharing common practice locations or equipment with a physician practice or radiology group. This prohibition effectively eliminates dual enrollments in which a supplier enrolls in Medicare as both an IDTF and a physician group in order to bill for procedures not covered by Medicare in the IDTF setting.

CMS is delaying implementation of the space-sharing provisions for current shared-space IDTFs for one year to allow time for affected IDTFs to make new space and other arrangements to comply with the final rule. Also, dually enrolled practice locations will need to choose whether to be an IDTF or physician group since they will no longer be able to be both.

The new rule requires that an IDTF must have a comprehensive liability insurance policy carried by a non-relative owned company in the amount of at least $300,000 that covers both the IDTF's place of business and all customers and employees. CMS backed off the requirement to name the Medicare administrative contractor as a certificate holder. The IDTF supplier must, however, provide the Medicare contractor with the contact information for the issuing insurance agent and the underwriter, and must promptly notify the Medicare administrative contractor of any policy changes or cancellation. Failure to have such a policy in place is a ground of revocation of Medicare billing privileges retroactive to the date of lapse.

The final rule now states that each supervising physician is limited to providing general supervision to no more than three IDTF sites (fixed or mobile). The new rule resolves an ambiguity in the proposed rule by clarifying that the limitation applies to general supervision, not direct or personal supervision.

The final rule also deletes the requirement that the supervising physician is responsible for the overall operation and administration of the IDTF, including the employment of personnel who are competent to perform test procedures and record and report test results. This deleted provision caused confusion by appearing to make the IDTF supervising physician responsible for more than just clinical aspects of the IDTF.

In years past, IDTFs have been able to receive retroactive enrollment dates to bill for services that were rendered prior to submitting a Medicare enrollment application. Under the final rule, the enrollment effective date will be the later of (1) the date of receipt of a signed Medicare enrollment application that was subsequently approved by the Medicare contractor or (2) the date an IDTF first started rendering services at its new practice location. This means that an IDTF must submit its Medicare enrollment application prior to providing services because it will be denied payment until it does so. If the Medicare contractor rejects or denies an enrollment application, the new date of filing would be the date of receipt of the new application that the Medicare contractor subsequently approves, not the date of the original application that was rejected. Given the significant processing backlogs and inconsistent treatment of applications by Medicare administrative contractors, there could be extended periods of time between submitting an application and knowing whether it has been rejected. CMS believes that public rollout in 2008 of PECOS Web, a web-based system through which suppliers will be able to complete enrollment applications online, will eliminate much of the current processing delays.

The final rule keeps the current requirement that changes in ownership, changes of location, changes in general supervision and adverse legal actions be reported within 30 calendar days, but all other information changes must be reported within 90 calendar days. CMS plans to update the CMS-855B Medicare Enrollment Application to clarify what and when events must be reported, since the instructions to the current form are inconsistent with the regulations. CMS believes most of such changes will be able to be made online after the rollout of PECOS Web.

CMS is reducing the scope of the documentation requirements it had proposed regarding beneficiaries' questions and responding to their complaints. The IDTF must maintain documentation on only written clinical complaints, rather than all questions and complaints. The final rule requires that an IDTF answer, document and maintain documentation of written clinical complaints at the physical site of the IDTF, including:

• The name, address, telephone number and health insurance claim number of the beneficiary

• The date the complaint was received received, the name of the person receiving the complaint and a summary of actions taken to resolve the complaint

• If an investigation was not conducted, the name of the person making the decision and the reason for the decision

These rules, except where specifically delayed, will be effective Jan. 1, 2008, and will have a significant impact on the operations of IDTFs. Physicians and other providers that currently have per-click lease arrangements or "under arrangement" joint ventures in which a physician-owned company provides imaging or other services to a hospital by contract must wait until the release of the upcoming Stark Phase IV regulations to learn their fate. CMS has given no timeline for release of the Phase IV regulations, but promised that Phase IV will address, among other issues: malpractice subsidies, per-click lease payments, set-in-advance and percentage-based compensation arrangements, stand-in-the-shoes provisions, and services furnished "under arrangements." Also left unanswered for now is exactly how Phase IV will address these issues, and whether any types of services might be grandfathered or exceptions made for certain types of services furnished under arrangement that arguably pose less of a risk of abuse, such as cyberknife or lithotripsy services. There is also no indication from CMS of whether it will provide an unwind period for existing joint ventures to dissolve or sell their assets. Prudent providers should begin preparing exit strategies now, as what is certain is that Phase IV will alter the landscape for many currently popular joint ventures. The final 2008 Medicare Physician Fee Schedule can be found on the CMS web site at this link.

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