Management of Pathology Practices
CMS Continues to Tinker with Anti-Markup Rule
POD Labs and In-Office Histology Labs in the Cross-Hairs
By John Outlaw, PSA, LLC
The Centers for Medicare and Medicaid Services (CMS) recently finalized its latest changes to the Anti-Markup Rule. These changes are designed to address its continuing concerns about the growth of certain abusive arrangements that permit referring physicians to profit on their own pathology referrals - thereby increasing utilization and costs to the Medicare program – while protecting other types of arrangements which, in its view, can demonstrate a “proper nexus” between the billing physician and the individual(s) who actually conduct or supervise the diagnostic tests. The new changes eliminate the notion of “purchased” tests which had previously been the backbone of its anti-markup efforts, and focus instead on the relationship between the billing physician or group and the physician who performed the test and location where it was performed – specifically, whether the ordering/billing and performing physicians can be said to “share a practice”.
Background: The Evolution of the Anti-Markup Rule
Prior to 2008, Medicare’s “Purchased Diagnostic Test” rule permitted a physician or group to purchase the technical component of a diagnostic test from another physician or supplier and bill for it subject to a purchase price limitation, provided that the billing physician or group performed the interpretation. The Purchased Diagnostic Test rule did not apply to professional component services, which could be purchased and billed without any requirement to identify the performing physician and was not subject to any purchase price limitation. Over time, many physician practices were successful in taking advantage of loopholes in the in-office ancillary exception to the Stark law’s prohibition on self-referral by leasing space in remote “POD labs”, which allowed them to make the claim that the technical component services were not “purchased” and therefore not subject to the restrictions of the Purchased Diagnostic Test rule.
In publishing the initial version of the Anti-Markup Rule as implemented in January 2008, CMS clarified that the anti-markup restrictions applied only when the ordering physician also billed for purchased tests (effectively exempting pathologists from the new rule, since, except for special stains, they do not generally order the tests); extended the purchase price limitation to professional component services as well as technical component services; and added a new “site of service” requirement that imposed a purchase price limitation on services provided at a site other than the “office of the billing physician” (which was more narrowly defined as the “same building” where the physician regularly treated patients), even if those services were not “purchased”. Because of the breadth of the impact of this change, CMS later announced that the effective date would be delayed for all except anatomic pathology testing, which CMS identified as its “core concern” in light of the previously identified utilization trends associated with the POD labs.
The 2009 Changes to the Anti-Markup Rule
As noted above, with its publication of the January 2009 revisions to the Anti-Markup Rule, CMS expressed an interest in ensuring that, if a test is going to be billed as though it was performed by the billing physician, a “proper nexus” should exist between the billing physician and the individual(s) who actually conduct or supervise the test. In order to achieve that, CMS decided to drop the old “purchased test” criterion - the definition of which it believed had become unwieldy, and which CMS indicated it thought was unnecessary in light of the new changes - in favor of a new approach designed to determine whether the physician who performs diagnostic tests “shares a practice” with the billing physician.
Under the new rule, the anti-markup payment restrictions will apply if a physician or other supplier who orders a diagnostic test also bills for the test and either the technical component (TC) or professional component (PC) of the test is performed by a physician who does not “share a practice” with the billing physician or other supplier. To that end, CMS has designed two alternative means of assessing the extent to which the physicians can be said to “share a practice” – the first focusing on who performs the test (the “substantially all” test), and the second on where the test is being performed (the “site-of-service” test). Physicians providing billing for diagnostic testing services will not be subject to the payment limitations of the Anti-Markup Rule if either of the two alternatives detailed below apply.
Alternative 1: The “Substantially All” Test
Under this test, CMS has indicated that the performing physician (the physician who supervises the TC or performs the PC) may be said to “share a practice” with the billing physician if he/she performs “substantially all” of his/her professional services for the billing physician or supplier. For the purpose of applying this test, CMS has defined “substantially all” to require that the performing physician provides at least 75% of his services for the billing physician or supplier, and the 75% must be calculated based upon a 12 month period that includes the month during which the service is provided. The 12 month period can be applied retrospectively (the preceding 12 months) or prospectively (the following 12 months).
Alternative 2: The “Site-of-Service” Test
If the “substantially all” test is not met, then the ordering/billing physician may avoid the anti-markup payment limitation by satisfying the “site-of-service” test. Under this approach, the performing physician may be said to “share a practice” with the billing physician if the TC is conducted and supervised and the PC is performed in the “office of the billing physician or other supplier”. For the purpose of applying this test, the “office of the billing physician or other suppler” is defined as any medical office space (regardless of the number of locations), in which the ordering physician regularly furnishes patient care, and includes space where the billing physician or other supplier furnishes diagnostic testing, as long as it is in the “same building” in which the ordering physician regularly furnishes patient care. The “same building” is further defined as the space in which the ordering physician performs “substantially all” of the patient care services that the ordering physician provides generally.
Payment Limitations of the Anti-Markup Rule
When the Anti-Markup Rule is invoked as a result of the failure of a diagnostic test to satisfy either of the alternatives defined above, the rule limits payment to the billing physician to the lesser of:
1. the performing physician’s “net charge” to the billing physician;
2. the billing physician’s actual charge; or the fee schedule amount that would have been allowed had the performing physician billed Medicare directly.
It is important to note that while CMS does not proscribe any particular methodology or formula for calculating the “net charge”, it has defined the “net charge” generally as the amount that represents the cost of the physician time in supervising the TC or performing the PC of a diagnostic test. Further, CMS specifically prohibits the billing physician or other supplier from including any direct or indirect overhead expenses (supplies, equipment, space, staff, etc.) in the “net charge” calculation, explaining that doing so would undermine the very purpose of the payment limitation.
Impact of the Anti-Markup Rule on Pathologists
For the average pathologist, the single most important impact of the new Anti-Markup Rule is that it rarely applies to the services for which they typically bill – but that is more significant than one might think! Under the old Purchased Diagnostic Test rule, any time a pathologist purchased the TC from a hospital, the payment limitations kicked in – which meant that although the pathologist could bill for the TC, it had to be separately identified as a purchased test, and Medicare’s payment was generally limited to the amount the pathologist paid the hospital for the test. However, the new Anti-Markup Rule eliminates reference to “purchased” services altogether, and more important still, it is written so that it applies only when the ordering physician also bills for a diagnostic test. With the noted exception of special stains, pathologists rarely if ever order the tests they perform; and even in the case of the special stains, assuming that the TC is being supervised by one of the pathologists who provide at least 75% of their services to the pathology practice, the “substantially all” test is satisfied and the Anti-Markup Rule would not be invoked. What that means is that pathologists may now bill Medicare globally for services which previously had to be split-billed and subject to a purchase price limitation on payment for the purchased TC.
Impact of the Anti-Markup Rule on Other Specialty Physicians
CMS has long expressed its concern with over utilization and the related financial burden on the Medicare program associated with the ability for physicians who order diagnostic tests to profit from their own referrals – particularly in the POD lab structure – and the recent changes are clearly designed to eliminate the use of POD labs and other off-site laboratory arrangements which are otherwise permitted under Stark’s in-office ancillary exception. However, although CMS has indicated that it will continue to monitor the (ab)use of the in-office ancillary exception and will consider proposing changes to the application of the Stark Law in the future, as a practical matter many of the most common “in-office” arrangements being used today by specialty physician practices who bill for the diagnostic tests that they order will continue to prosper with only minor, if any, restructuring, including large physician groups operating in a “hub-and-spoke” model as well as block leasing arrangements where several physician practices share the use of a laboratory located in the same building in which they all maintain offices where they perform the full range of their physician practices. Here are a few examples of how the Anti-Markup Rule will apply in some common arrangements:
ARRANGEMENT 1: A specialty physician purchases slides from an outside laboratory and reads his own slides. The specialty physician can bill the PC at full charge for slides he reads and can also bill Medicare separately for the TC, but the TC will be subject to the payment limitations of the Anti-Markup Rule.
ARRANGEMENT 2: A specialty physician employs a pathologist to read slides that the specialty physician purchases from an outside laboratory. The TC can be billed subject to the payment limitations of the Anti-Markup Rule. The specialty physician can bill Medicare at full charge for the PC if: a) the pathologist performs at least 75% of his services for the specialty physician (Alternative 1); or B) the pathologist reads the slides in the office of the specialty physician (Alterative 2). If neither scenario is true, the payment limitations of the Anti-Markup Rule apply to the PC as well as the TC.
ARRANGEMENT 3: A specialty physician builds a histology lab on-site and sends the slides to a pathologist to read off-site. The specialty physician can bill Medicare globally (both the TC and the PC) IF the pathologist performs at least 75% of his services for the specialty physician (Alternative 1). If the pathologist does not provide at least 75% of his services to the specialty physician, then the specialty physician must bill for both components separately – at full charge for the TC and with the payment limitations of the Anti-Markup Rule for the PC.
ARRANGEMENT 4: Two or more specialty physician practices with separate offices but within the same building lease a laboratory, also within the same building, where a pathologist is contracted to read the slides. All of the specialty physician practices can bill Medicare globally under Alternative 2.
ARRANGEMENT 5: A large specialty physician practice has 5 different offices (A, B, C, D and E). They have a histology lab in Office A, where a pathologist is contracted to read slides. Under this arrangement, the diagnostic tests ordered by the physicians who work in Office A can be billed to Medicare globally. The TC services associated with the tests ordered by physicians who practice in Offices B, C, D and E can be billed at full charge under Alternative 1 (assuming that the TC is supervised by a physician who satisfies the 75% test); however, the PC services associated with tests ordered by the physicians who see patients only at Office B, C, D and E would be subject to the payment limitations of the Anti-markup Rule.
In this scenario, the specialty physician practice has two potential options for restructuring which would permit the PC service to be satisfied under Alternative 2 so that they could then bill globally for the test ordered by physicians in Offices B, C, D and E :
1. Set aside space in each of these offices with a microscope and contract with a pathologist to read slides in each office (Note: a CLIA certificate would be required for each office where slides are being read); or
2. Establish a rotation under which the physicians who see patients only in Offices B, C, D and E respectively would come to Office A (where the lab is) on a “regular” basis to treat patients.
The Penalty for Non-Compliance
If the details of any particular arrangement invoke the Anti-Markup Rule and the physician or other supplier bills more than the “net charge” to Medicare, the billing physician is subject to civil monetary penalties (CMP), exclusion from the Medicare program, and may also be subject criminal charges under the False Claims Act.
John Outlaw is Chief Compliance Office for PSA, LLC-A MED3OOO Company. PSA provides billing, marketing, and business solutions to pathologists and clinical laboratories nationwide. For more information on PSA please visit www.PSAPath.com.