CLIENT ALERT, November 2007

CMS Issues Final Medicare Physician Fee Schedule Rule for CY 2008
On November 1, 2007, CMS issued its final Medicare Physician Fee Schedule ("MPFS") rule in pre-publication form on its website. According to CMS, the final rule will be published in the Federal Register on November 27, 2007, and will become effective January 1, 2008.

(1) Deferral of Stark-Related Proposals
The final rule's publication was a much-heralded event, given CMS's recent proposal of potentially significant revisions to the physician self-referral law, 42 U.S.C. § 1395nn ("Stark law"), in its proposed MPFS rule. See 72 Fed. Reg. 38122 (Jul. 12, 2007).

CMS did not adopt its Stark-related proposals in the final CY 2008 MPFS rule, perhaps in recognition of the fact that providers are busy enough digesting Phase III of the Stark rules published on September 5, 2007. CMS observed, though, that it now has sufficient information, including public comments, to eventually publish a final rule that would address the following:

• Burden of proof;
  
  
• Obstetrical malpractice insurance subsidies;
  
  
• Unit-of-service (per-click) payments in lease arrangements;
  
  
• The period of disallowance for noncompliant financial relationships;
  
  
• Ownership or investment interests in retirement plans;
  
  
• "Set in advance" and percentage-based compensation arrangements;
  
  
• "Stand in the shoes" provisions;
  
  
• Alternative criteria for satisfying certain exceptions; and
  
  
• Services furnished "under arrangements."
  

In addition, CMS stated that it would address any revisions to the Stark law in-office ancillary services exception through a future proposed rulemaking with comment period, because CMS did not make a specific proposal regarding that exception in the MFPS proposed rule.

(2) CMS Finalizes Anti-Markup Rule
The final MPFS did adopt the anti-markup provisions for diagnostic tests outlined in the July 12th proposed rulemaking. In sum, the anti-markup rule applies where: (i) the technical or professional component of a diagnostic test is purchased, or (ii) the technical or professional component of the test is performed in a location other than the office of the billing supplier.ⁱ

If one of the above circumstances applies, payment to the billing physician or other supplier is limited to the lowest of: (i) the performing supplier's net charge to the billing physician or supplier; (ii) the billing physician's or other supplier's actual charge; or (iii) the fee schedule amount for the test that would be allowed if the performing supplier billed directly. See 42 C.F.R. § 414.50(a).

CMS provided seven examples of the application of the anti-markup rule to illustrate how the payment limitation may arise in a variety of common arrangements:

• Example 1: A urology group practice contracts with a leasing company that supplies a technician and a pathologist to perform testing on prostate samples. The technician performs the tissue sampling and the pathologist reads the slides. All work is done outside of the office of the billing group practice, in space that is rented exclusively "24/7" by the group practice (thus meeting the definition of a "centralized building" at § 411.351) for the sole purpose of providing pathology services for the group's patients. Because the centralized building does not qualify as "the office of the billing physician or other supplier," the anti-markup provisions apply to both the TC and the PC.
  
  
• Example 2: Same as Example 1, except that the TC and PC are performed by the group practice's employee technician and a pathologist who is an independent contractor of the group practice. Here, the anti-markup provisions again apply to both the TC and the PC because the work was not done in the "office of the billing physician or other supplier" (that is, the office of the group practice). It does not matter that the technician is an employee and the pathologist is an independent contractor because the work was not performed in the office of the billing group practice.
  
  
• Example 3: A physician in a group practice orders a diagnostic test and a technician who is a part-time employee of the group performs the test in the group's office. A physician who is an independent contractor of the group performs the PC in the group's office and reassigns his or her right to payment to the group. The anti-markup provisions do not apply to the group's billing of the TC or the PC.
  
  
• Example 4: Same as Example 3, except that the independent contractor physician performs the PC in his or her home and reassigns his or her right to payment to the group. The group's billing of the TC is not subject to the anti-markup provision, but the group's billing of the PC is subject to the anti-markup provision because the work was not performed in the office of the billing supplier.
  
  
• Example 5: A group practice purchases both a diagnostic test and its interpretation from a laboratory and bills the TC and PC to Medicare. The anti-markup provisions apply to both the TC and the PC. Because the TC and the PC were purchased, the location(s) at which the TC and the PC were performed does not matter.
  
  
• Example 6: A group practice orders a diagnostic test from an independent laboratory. The laboratory performs the test and contracts with a physician to perform the PC. The laboratory bills Medicare for both the TC and the PC. The laboratory is not subject to the anti-markup provision for the PC, because the laboratory did not order the test.
  
  
• Example 7: Same as Example 6, except that a physician orders a diagnostic test from an independent diagnostic testing facility (IDTF). The IDTF bills Medicare for both the TC and the PC of the test. The anti-markup provisions do not apply because the IDTF did not order the test.
  
  

(3) Revisions to IDTF Rules
CMS also revised its rules relating to independent diagnostic testing facilities ("IDTFs"). In brief:

• IDTFs, other than hospital-based or mobile units, cannot share practice locations with, lease space or operations to, or share equipment with other Medicare-enrolled suppliers or providers.
  
  
• Supervising physicians cannot supervise more than three sites, including mobile units, where concurrent operations are capable of performing tests.
  
  
• IDTFs must report changes in 855B enrollment information within 30-90 days of the change.
  
  
• IDTFs must have a comprehensive liability insurance policy that meets certain requirements, such as issuance by a nonrelative-owned company and coverage of at least $300,000 per incident.
  
  
• IDTFs must maintain records of beneficiaries' written clinical complaints at their physical site.
  
  

To view the full text of CMS's pre-publication final rule, please see: www.cms.hhs.gov/PhysicianFeeSched/downloads/CMS-1385-FC.pdf.

If you have any questions regarding this Client Alert, please contact David Robbins, Anne Redman or Renee Howard at 206-622-5511.

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ⁱCMS defines the "office of the billing physician or other supplier" as "the medical space where the physician or other supplier regularly furnishes patient care." For physician organizations, the term means "space in which the physician organization provides substantially the full range of patient care services that the physician organization provides generally." 42 C.F.R. § 414.50(a)(2)(iii). Thus, space which might otherwise be considered part of a group practice's "centralized building" (because, for example, it is leased exclusively for the group "24/7") may not be considered the "office of the billing supplier" for purposes of the new anti-markup rule.