CMS Issues the Final Anti-Markup Rule for Physician Diagnostics Tests

November 29, 2008

Since January 2008 when the Centers for Medicare and Medicaid Services (CMS) pulled back its proposed amendments to the anti-markup rule (“AMR”) governing the technical component and professional component of diagnostic tests performed by physicians, the industry has been poised waiting for the final anti-markup rule to be issued.  In early November, 2008, the final AMR was released by CMS as part of the 2009 Medicare physician fee schedule updates.  This final rule, which becomes effective on January 1, 2009, has broad implications for physician practice arrangements.

When the AMR applies, a billing physician may only bill Medicare the lowest of:

1. the performing physician’s net charge to the billing physician;

2. the billing physician’s actual charge for the test; or

3. the Medicare fee schedule amount.

In essence, under the AMR a billing physician may not profit by marking up to Medicare the costs of diagnostic tests it provides under certain circumstances.

The new AMR imposes a payment limitation on certain diagnostic tests, including both the technical component and the professional component, unless the physician performing or supervising the test “shares a practice” with the physician practice that bills for the test.  CMS states that the restrictions contained in the AMR are essential to ensure that, if the diagnostic test is to be billed as one which was performed by the billing physician, the billing physician must exercise “sufficient control and a proper nexus to the individuals conducting and supervising the test.”

CMS promulgated two alternative tests for determining whether the performing physician sufficiently “shares a practice” with the billing physician.  If either of the two alternative tests are met, the AMR will not apply.

Under Alternative 1, the physician who performs[1] the diagnostic test will be deemed to “share a practice” with the billing physician where the physician performs “substantially all” (i.e., at least 75%) of his or her professional services for the billing physician.  CMS believes that the 75% test satisfies concerns expressed in response to the proposed rule about its impact on locum tenens arrangements and call arrangements by eliminating a previously proposed requirement of total exclusivity.  Under Alternative 1, the AMR payment limitation will not apply if a service is provided or supervised by a physician who “shares a practice” with the billing physician by virtue of working almost exclusively (i.e., 75%) with that provider.  Where the performing physician can not meet the 75% test, an analysis on a test-by-test approach under Alternative 2 is necessary.

Under Alternative 2 (which CMS refers to as the “Site of Service approach”), the AMR will not apply to

  • the technical component when it is both conducted and supervised in the office of the billing physician, and the physician supervising the test is an owner, employee or independent contractor of the billing physician; and
  • the professional component when it is performed in the office of the billing physician and the physician performing the professional service is an employee or independent contractor of the billing physician.

For purposes of the AMR, CMS has given additional latitude in defining what constitutes the “office of the billing physician,” which will include diagnostic testing performed in the “same building” in which the office of the billing physician is located.  This AMR “same building” test is drawn from the in-office ancillary service exception of the Stark regulations.

CMS recognizes that the two alternatives may have implications for many part-time pathology and radiology professional services arrangements.  In the preamble to the regulations, CMS states that if a practice does not have sufficient volume to support a radiologist or pathologist to can satisfy the 75% “substantially all” test of Alternative 1, the practice can still avoid the AMR payment limitations if it meets the Site of Service requirements of Alternative 2 on a case-by-case basis.  If neither test can be satisfied, CMS states that the “part-time [performing] physician can bill Medicare directly.”

CMS also addressed block leasing arrangements where several physician practices share use of equipment located on one floor of a building in which they all maintain the offices where they perform the full range of their physician services.  CMS notes that the AMR payment limitations will not apply to diagnostic testing services that are performed in the same building as the space in which the ordering physician regularly furnishes patient care.  CMS states in the regulation preamble:  “We are permitting shared space arrangements for diagnostic testing services that occur in the same building because we believe that such arrangements can promote efficiency without raising the same concerns for overutilization or other abuse as arrangements that involve centralized buildings for diagnostic testing.”

Even arrangements that have been structured to satisfy the Stark law may be subject to the AMR payment limitations.  In particular, the AMR payment limitations may apply to arrangements that may currently meet the requirements of the Stark in-office ancillary services exception, such as off-site pathology professional services arrangements and radiology reading arrangements.

[1] For purposes of the AMR, the “performing physician” is the physician who supervises the technical component or performs the professional component, or both

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