The Anti-markup Rule What Changes to This Billing Regulation Mean to Your Practice

The Medicare program imposes certain billing provisions applicable to purchased diagnostic tests. The original purpose of these provisions was to reduce the incentive for overutilization by not allowing physicians or other providers to bill Medicare for more than what they paid a third party from whom they purchased the service.

In 2007, the Centers for Medicare & Medicaid Services (CMS) proposed to expand the scope of the Medicare billing rule titled “Purchased Diagnostic Tests,” which is now more often referred to as the ‘anti-markup rule.’

Prior to the proposed change, the anti-markup rule prohibited physicians and others from marking up only the technical component (TC) of the purchased service. CMS proposed to expand this prohibition to include the professional component (PC) of purchased diagnostic services as well as to TC and PC services outright purchased or not performed in the “office of the billing physician or other supplier.”

This rule was intended to go into effect on Jan. 1, 2008, but in response to the volume and nature of comments received after publication of the final rule on Nov. 27, 2007, CMS issued a limited delay in implementation (except for anatomic pathology diagnostic testing services furnished in a “centralized building”) until Jan. 1, 2009.

CMS has since proposed additional changes to the anti-markup rule in the proposed 2009 physician fee schedule, which in some respects makes it easier to apply the rule.

The current revised proposed rule states that the anti-markup provisions would apply in all cases where the TC or the PC of a diagnostic testing service is performed or supervised by a physician who does not share a practice with the billing physician or other supplier. The revised proposed rule also applies to the TC and PC of diagnostic services purchased outright, but since it becomes inherent in the revised language, its reference is specifically omitted.

If the anti-markup provisions apply, the payment to the billing physician or other supplier (less the applicable deductibles and co-insurance paid by or on behalf of the beneficiary) for the TC and/or PC of the diagnostic test may not exceed the lowest of the following amounts:

• The performing supplier’s net charge to the billing physician or other supplier;
• The billing physician or other supplier’s actual charge; or
• The fee schedule amount for the test that would be allowed if the performing supplier billed directly.

CMS proposes two alternative approaches to determining whether the performing or supervising physician “shares a practice” with the billing physician or other supplier. Arrangements should be analyzed first under Alternative 1. Thus, where the performing physician (that is, the physician who supervises the TC or performs the PC, or both) performs substantially all (at least 75{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5}) of his or her professional services for the billing physician or other supplier, none of the services furnished by the physician on behalf of the billing physician or other supplier will be subject to the anti-markup payment limitation. If this requirement is met, there is no need to go to Alternative 2.

If the performing physician does not meet the “substantially all” services requirement of Alternative 1, an analysis under the Alternative 2 requirements may be applied on a test-by-test basis to determine whether the anti-markup payment limitation applies. Under the Alternative 2 “site-of-service” approach, only TCs conducted and supervised in, and PCs performed in, the “office of the billing physician or other supplier” by an employee or independent contract physician will avoid application of the anti-markup payment limitation.

Both the “substantially all professional services” and “site-of-service” tests are measures of whether a performing or supervising physician shares a practice with the billing physician or other supplier. In regard to the “substantially all” test, it refers to “at least 75{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5}” and is the same measure as is used in the self-referral (Stark) rules.

The final rule provides that the “substantially all” requirement is satisfied if the billing physician or other supplier has a reasonable belief at the time it submits a claim that:

• The performing physician has furnished substantially all of his or professional services through the billing physician or other supplier for the period of 12 months prior to and including the month in which the service was performed; or
• The performing physician is expected to furnish substantially all of his or her professional services through the billing physician or other supplier during the following 12 months (including the month the service is performed).

The “office of the billing physician or other supplier” is defined as medical office space where the physician or other supplier regularly furnishes patient care. For a physician or other supplier that is a physician organization, the office is space in which the physician organization provides substantially the full range of patient care services that it generally provides.

A physician or other supplier may have more than one “office of the billing physician or other supplier,” and the “office of the billing physician or other supplier” is defined as space in which the ordering physician or other ordering supplier regularly furnishes care (and, with respect to physician organizations, is the space in which the ordering physician performs substantially the full range of patient care services that the ordering physician provides generally).

The revised proposed rule also adds to Alternative 2 the requirement, with respect to the TC, that the physician supervising the TC be an owner, employee, or independent contractor of the billing physician or other supplier, and, with respect to the PC, that the physician performing the PC be an employee or independent contractor of the billing physician or other supplier. This is done in order to simplify the rules and to avoid having a separate basis for imposing an anti-markup payment limitation for TCs supervised and PCs performed by outside suppliers.

Practicality may dictate that, if a group practice does not meet Alternative 1, it will not bother trying to meet the criteria of Alternative 2, as this will need to be done on every individual test. The risk of non-compliance may not be worth the potential markup difference.

These revisions will become effective on Jan. 1, 2009, unless further delayed.

James B. Calnan, CPA, is partner-in-charge of the Health Care Services Division of Meyers Brothers Kalicka, P.C., Certified Public Accountants and Business Consultants, in Holyoke; (413) 536-8510