New Changes to the Medicare Anti-Markup Rule Effective January 1, 2009

January 2009Newsletters Staying Well within the Law

Additional changes to the Medicare anti-markup rule have been made by The Centers for Medicare and Medicaid Services (CMS) in the 2009 final Medicare Physician Fee Schedule, which was published in the Federal Register on November 19, 2008.

The Rule’s Recent History

The Medicare anti-markup rule can be found at 42 C.F.R. § 414.50. Historically the rule imposed a limitation upon the amount that could be billed by a physician or group for the technical component (TC) of diagnostic tests (excluding clinical diagnostic tests performed by clinical laboratories) purchased from an outside supplier.

The application of the rule was extended by CMS to the professional component (PC) of diagnostic tests in the 2008 Medicare Physician Fee Schedule.

The Current Rule

The newly revised anti-markup rule applies if a physician or other supplier bills Medicare for the technical or professional component of a diagnostic test that was ordered by the physician or other supplier (or ordered by a party related to such physician or other supplier through common ownership or control), and the diagnostic test is performed by a physician who does not “share a practice” with the billing physician or other supplier. The anti-markup rule restricts payment to the billing physician or other supplier (less the applicable deductibles and coinsurance paid by or on behalf of the beneficiary) for the TC or PC of the diagnostic test to the lowest of the following amounts:

  1. the performing supplier’s net charge to the billing physician or other supplier
  2. the billing physician or other supplier’s actual charge
  3. the fee schedule amount that would be allowed if the performing supplier billed Medicare directly

CMS has now adopted a two-step approach for determining whether the performing physician “shares a practice” with the billing physician or other supplier. CMS indicated in the final 2009 Medicare Physician Fee Schedule that arrangements should first be analyzed under Alternative 1, which looks at whether the performing physician performs “substantially all” of his professional services on behalf of the billing physician or other supplier. If the performing physician fails to satisfy the requirements of Alternative 1, the arrangement should then be analyzed under Alternative 2, which adopts a “site-of-service” approach to determine whether or not the anti-markup rule will apply.

Alternative 1 – the “Substantially All” Test

The anti-markup rule will not apply in the event that the performing physician performs “substantially all” of his or her professional services through the billing physician or other supplier. “Substantially all” is defined by CMS as meaning at least 75 percent. The “substantially all” test will be met if the billing physician/supplier has a reasonable belief at the time of submitting a claim that:

  1. the performing physician has furnished substantially all of his or her professional services through the billing physician or other supplier for the 12-month period leading up to and including the month in which the service was performed

    OR
  2. the performing physician will furnish substantially all of his or her professional services through the billing physician or other supplier during the following 12-month period (including the month in which the service is performed)

Alternative 2 – the “Site-of-Service” Test

Under Alternative 2, the anti-markup rule will not apply if the following conditions are met:

  1. the physician supervising the TC or performing the PC of a diagnostic test is an owner, employee or independent contractor of the billing physician or other supplier
  2. the TC is conducted and supervised, or the PC is performed, in the “office of the billing physician or other supplier”

The “office of the billing physician or other supplier” is defined by CMS as space in which the ordering physician or supplier regularly furnishes care. With respect to physician organizations, the term is defined as the space where the ordering physician performs substantially the full range of patient care services that the ordering physician provides generally. CMS clarified that a physician or supplier can have more than one “office of the billing physician or other supplier,” and that diagnostic testing performed in the “same building” (as such term is defined at 42 C.F.R. § 411.351 for purposes of the Stark in-office ancillary services exception) in which the “office of the billing physician or other supplier” is located will not be subject to the anti-markup limitation.

Other Issues not Finalized with Respect to the Anti-Markup Rule

CMS declined to finalize a definition of “outside supplier” in the 2009 final Medicare Physician Fee Schedule, and instead deleted any references to “purchased interpretations” in the final anti-markup rule, noting that it would not be necessary, and would be unduly complex, to use purchased interpretations as a separate basis for applying the rule. CMS also decided not to revise the controversial definition of “net charge,” and it is not clear whether CMS intends to do so in future rulemaking. CMS also declined to provide an exception to the rule for tests ordered by a physician in a physician organization that has no physician owners with the right to receive profit distributions.

CMS also had solicited comments on whether in lieu of or in addition to the anti-markup rule, CMS should prohibit reassignment in certain circumstances and require the physician performing the PC or supervising the TC to bill Medicare directly. CMS indicated in the 2009 final Medicare Physician Fee Schedule that it will not require such direct billing at this time. However, this topic may be revisited by CMS in future rulemaking. CMS also did not make any changes to the Stark in-office ancillary services exception, but noted that it may do so in the future.

The final Medicare anti-markup rule goes into effect on January 1, 2009.

For more information about this topic, contact Victoria Heller Johnson at 610.458.4980 or [email protected].