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On November 1, 2007, the Centers for Medicare and Medicaid Services ("CMS") released a new anti-markup rule as part of the 2008 Medicare Physician Fee Schedule. The anti-mark-up rule is found at 42 C.F.R. §414.50. Under the new rules, effective January 1, 2008, if a physician or other supplier (or related party) orders a diagnostic test that is either: (i) purchased from an "outside supplier" (regardless of the location where performed), or (ii) performed at a location other than the physician's or supplier's office (regardless how or by whom performed), the physician or other supplier is limited to billing the lowest of: (i) the "net charge" paid for the test; (ii) the physician's or other supplier's actual charge; or (iii) the Medicare Fee Schedule amount. According to CMS, the recently adopted rule eliminates the ability of an ordering physician to profit from Medicare billings for technical and/or professional component services that the physician either purchases under contract or obtains via reassignment from another supplier.

Who is Covered by the Anti-Markup Rule? The rule applies to physicians (including radiologists and pathologists) and other suppliers billing for tests under Medicare Part B. The anti-markup rule does not apply if the billing physician did not order the test. It also does not apply to hospitals and other providers billing for services under Medicare Part A or as hospital services; however, it does apply to hospital-affiliated outpatient clinics that bill for outpatient diagnostic tests.

What Tests and Components are Covered? The rule applies to the billing of any diagnostic test payable by Medicare, including but not limited to those covered as "designated health services" under Stark. Tests such as allergy tests, echocardiography, hearing tests, heart catherizations, pulmonary tests, sleep studies, PET scans, etc., that were not previously regulated may be affected by the new anti-markup rule. The rule reaches both the technical component and the professional component of a covered test. The rule does not apply to diagnostic laboratory tests, which have special billing rules.

Definition of "Outside Supplier." "Outside supplier" is defined as someone who is not an employee of the billing physician or other supplier and who does not furnish the test or interpretation to the billing physician or other supplier under a reassignment that meets the requirements of 42 C.F.R. §424.80. In other words, for example, a part-time employee who reassigns his/her right to payment to the billing physician will not be deemed an "outside supplier."

The Location Requirements (Where is the Test Performed?). The final rule uses "site of services" as the key factor in determining whether an ordering physician or supplier may markup a test. CMS revised the rule to now state that if the professional or technical component of a test is "performed at a site other than the office of the billing physician or other supplier" it will be subject to the anti-markup prohibition. 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. Thus, physician groups that provide diagnostic services at "centralized locations" outside their offices and not used to provide substantially the full range of patient care services will no longer be able to markup those tests.

The Identity of the Referring Physician or Supplier and Billing Physician or Supplier. A key factor in the application of the anti-markup rule is whether the provider is the referring physician or supplier and the billing physician or supplier. The final rule clarifies that a physician or group practice does not violate the Stark physician self-referral prohibition when that physician or practice "bills Medicare for the technical or professional component of a diagnostic test for which the anti-markup provision is applicable in accordance with 42 C.F.R. 414.50 and section 30.2.9 of the CMS Internet-Only Manual, publication 100-04, Claims Processing Manual, Chapter 1 (general billing requirements)." As a result, if an independent contractor radiologist performs reading services off-site from the referring physician's practice, the referring physician will now be able to bill for the professional component services without violating the Stark Law. However, any claims submitted to the Medicare program for the independent contractor radiologist's services provided will now be subject to the anti-markup prohibition. Thus, although the referring physician may bill for the off-site services, the physician cannot profit from those service with respect to Medicare patients. Should the referring physician contract with a local radiologist to read studies for Medicare patients on-site at the office of the referring physician, those services may be reassigned to the referring physician and billed by the referring physician without application of the anti-markup requirement. Because the Stark self-referral prohibition is applicable to the arrangement, the independent contractor radiologist must have a direct contractual arrangement with the referring physician pursuant to the new Stark II, Phase III regulations.

Block Lease Arrangements. The anti-markup rule does not explicitly require that the "office of the billing physician or other supplier" be space that is used exclusively by the physician group. Whether space being leased to a physician group will constitute an office of the physician group (and satisfy the requirement that the test be performed in the "office of the billing physician or other supplier") will depend on the configuration of the space, the types of services offered by the physician group in the block lease space and the proximity of the space in relation to other offices of the group practice.

What is the Outside Supplier's Net Charge? The billing physician or supplier is the party obligated to identify the test supplier and the net charge for the test. When the anti-markup rule applies, the physician or supplier may not bill more than the performing supplier's "net charge." The rule states that "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 or other supplier." Thus, for example, if the test is deemed a purchased test, the billing physician or supplier cannot add to the charge any of the billing physician's or other supplier's overhead costs for any space, equipment, supplies, insurance, administration, etc. provided by the billing physician or other supplier to the performing supplier.

Practical Implications of the New Anti-Markup Rule

The chart provided below is useful to assist physicians and diagnostic testing facilities in determining the applicability of the anti-markup rule to the technical and professional components of diagnostic tests:

Billing Supplier Ordered Test and Purchased Component	Rule Applies to Component	Rule Applies to Component
Billing Supplier Ordered Test and Took Reassignment of Right to Bill for Component	Rule Does Not Apply to Component	Rule Applies to Component
Billing Supplier Ordered Test and Component Performed by Employee of Billing Supplier	Rule Does Not Apply to Component	Rule Applies to Component
Clinical Diagnostic Lab Tests, Which Have Special Billing Rules	Rule Does Not Apply to Component	Rule Does Not Apply to Component

Examples of Common Arrangements Adversely Impacted. Examples of diagnostic testing arrangements that will be adversely impacted include:

• A multispecialty group's operation of a centralized diagnostic service facility. While centralized DHS facilities are still allowed by the Stark law, unless the group also furnishes "substantially the full range of services furnished by the group" in the centralized facility, the anti-markup rule will apply to prohibit any payment beyond the "net charge" of the professional and technical components furnished in the facility
• A group practice's use of a mobile MRI or PET/CT that is owned and operated exclusively by the group to provide technical component services to the group's patients. The anti-markup rule will apply because the mobile facility is not located in the group's offices. (The group may be able to enroll the mobile facility as an IDTF that is wholly owned by the group practice and billed under the name and provider number of the IDTF – thus avoiding the rule's application to the technical component of tests performed in the mobile facility.)
• A medical group's operation of a "shared" in-office diagnostic facility in the practice's offices through which the same space, equipment and personnel are used to furnish services to patients of the medical group and a separately enrolled IDTF (because changes in the IDTF billing rules prohibit an IDTF from sharing space with another entity)

Examples of Common Arrangements Not Impacted. Examples of diagnostic imaging arrangements that are not adversely impacted by the new anti-markup rule include the following:

• A physician group's furnishing of and billing for diagnostic services in an office in which all or most of the group's physicians practice medicine
• Provision of the technical component of diagnostic services by a physician-owned, joint venture IDTF located in a rural area
• Professional interpretations of diagnostic studies billed by physicians who perform the interpretations in their own office

Off-Site Interpretations of Diagnostic Tests. In conjunction with changes to the anti-markup rule, CMS made other changes to the Stark regulations to permit groups to bill for the professional component of interpretations performed outside of the group's premises where the billing group complies with the anti-markup provisions. This change will eliminate the need for radiologists to be physically present in the offices of groups billing for services on a global basis, thereby permitting radiology groups to perform professional interpretations at remote office locations via the use of a PACS, but only if the anti-markup rule is complied with.

Conclusion

The new anti-markup rules present a number of legal and practical challenges for physicians and diagnostic testing organizations. Our firm has assisted numerous providers with compliance issues regarding statutory and regulatory requirements for diagnostic testing. We can assist you in interpreting the application of the new anti-markup rule to your organization and in developing policies and procedures to comply with the rule. If you require our assistance or have any questions please contact Michael Dowell at mdowell@tocounsel.com or the lawyer in the firm who generally handles your health care legal matters.