Maintaining a Steady Aim at a Moving Target
An overview of recent regulatory changes affecting diagnostic imaging Although the Bush administration may ultimately be viewed by history as the zenith of the conservative philosophy of less regulation, such laissez-faire treatment has not extended to the diagnostic imaging segment of the health care industry. Since the passage of the DRA, CMS has issued a barrage of proposed and final regulations affecting suppliers of diagnostic imaging services. As if a new wave of proposed and final regulations every six months were not bad enough, CMS has unduly complicated the process through a series of sweeping regulatory changes, false starts, and alternative approaches, while ignoring or reversing many of its own long-standing positions. A neutral observer of this process could easily reach two conclusions: First, CMS desperately wants to reign in the utilization of diagnostic imaging services so as to manage its spending on such services better; second, CMS lacks a comprehensive strategy to achieve its goal. In fact, at times, it seems that CMS is just throwing regulatory restrictions against the wall to see what will stick. Unfortunately, CMS’ approach is creating havoc in the diagnostic imaging segment of the health care industry. The uncertainty resulting from such an approach has made strategic planning, capital equipment budgeting, access to capital, and evaluation of strategic opportunities extremely difficult for most diagnostic imaging suppliers. CMS’ approach has also resulted in considerable confusion among diagnostic imaging suppliers as to their current regulatory obligations and what, exactly, they can and cannot do with respect to their imaging operations. Given the current enforcement environment generally (and with respect to diagnostic imaging suppliers specifically), such confusion needlessly exposes diagnostic imaging suppliers to considerable risks, including false-claims exposure, loss of Medicare billing privileges, and inappropriate referral relationships. Recent Regulatory Changes In the final Medicare Physician Fee Schedule (MPFS) update for fiscal year (FY) 2008 and phase III of the final Stark regulations, CMS made the following regulatory changes affecting diagnostic imaging suppliers, which are currently in effect. New IDTF Supplier Standards.—In the FY 2008 update, CMS continued to expand the supplier standards applicable to IDTFs. The following new standards, which went into effect on January 1, 2008, most directly affect diagnostic imaging suppliers. IDTFs Are Now Prohibited From Sharing Space or Equipment and From Subleasing Operations.—Most IDTFs are now prohibited from sharing space, sharing diagnostic-testing equipment, or subleasing their operations to another person or entity enrolled in the Medicare program. CMS, however, recognizes two exceptions to this general prohibition; they are for mobile IDTFs and for IDTFs that are colocated within a hospital. Further, for those IDTFs that shared space with another Medicare-enrolled entity or individual as of the date of the final FY 2008 update, CMS delayed—until January 1, 2009—the effective date of the prohibition on space sharing. CMS, however, made it clear that such a delay did not have an impact on the effective date of the prohibitions on sharing diagnostic-testing equipment and subleasing operations. The impact of these regulatory changes is that IDTFs, unlike physician practices furnishing imaging services, can no longer enter into block-lease arrangements to share equipment and overhead expenses. Effective Date of Initial Enrollment.—The effective date of initial IDTF enrollment is now the later of either the filing date of the 855B (so long as the 855B is subsequently approved by the contractor) or the date that the IDTF commences furnishing services at its practice location. CMS takes the position that so long as the applicant responds in a timely manner to requests for additional information, the application will relate back to the date of the original submission; however, if the 855B is rejected or denied, the filing date would be the date that the applicant submits a new 855B (assuming that the new 855B is complete at the time of filing). This approach can be a problem because Medicare contractors more readily reject 855B applications today than in the past. Clarification of Existing IDTF Supplier Standards.—In the FY 2008 update, CMS also continued to refine the supplier standards applicable to IDTFs. Many of the clarifications were helpful to diagnostic imaging suppliers, and they finally took into consideration certain practical realities. The following regulatory clarifications to the IDTF supplier standards are most significant and are currently in effect. Liability Insurance.—CMS clarified that failure to maintain comprehensive liability insurance, as required by the supplier standards, will result in revocation of the IDTF’s billing privileges, retroactive to the date of such a coverage lapse; that the IDTF must furnish CMS with the contact information regarding coverage for the issuing insurance agent and underwriter; and that such coverage must be in the amount of both $300,000 per location and $300,000 per incident. Reporting Obligations.—CMS limited the 30-day reporting obligation to changes in ownership, changes of location, changes in general supervision, and changes in adverse legal events reported to CMS. All other IDTF changes of enrollment information must be reported within 90 days, in accordance with CMS’ general change-of-information reporting obligation. Nonetheless, in our experience, many Medicare carriers will not pay for new diagnostic tests until after such diagnostic tests have been added to the enrollment file through a change-of-information filing. Beneficiary Complaints.—CMS clarified the appropriate beneficiary-complaint process by restricting such a process to written complaints, by clarifying the information that must be obtained by the IDTF, and by requiring that such records be maintained at the physical site of the IDTF (or the home office, for mobile IDTFs). Supervising Physicians.—CMS clarified that the restriction that supervising physicians can only provide supervision to three IDTFs only applies to furnishing general supervision, and it removed the language regarding supervising physicians being responsible for the overall operation and administration of the IDTF. CMS also clarified that its concern is with concurrent supervision, so a mobile IDTF that visits multiple locations would be treated as a single IDTF; however, if the entity has multiple mobile units operating, each unit would be treated as a separate IDTF site for purposes of the restriction on furnishing general-supervision services. New Stand-in-the-shoes Concept.—In phase III, CMS adopted a new stand-in-the-shoes approach to analyzing certain indirect relationships between physicians and entities furnishing designated health services. Specifically, the regulations required referring physicians—whether owners, employees, or independent contractors—to stand in the shoes of physician organizations, which serve as an intervening organization between the referring physician and the entity furnishing designated health services. As a result, the relationship between the referring physician and the entity furnishing designated health services must comply with the more demanding direct exceptions to the Stark law’s prohibition on self-referrals (such as the personal-services or equipment-rental exceptions) rather than with the indirect-compensation exception. For purposes of the stand-in-the-shoes analysis, a physician organization is generally defined as a physician, including a professional corporation of which the physician is the sole owner, a physician practice, or a group practice. The stand-in-the-shoes concept went into effect on December 4, 2007, for new contractual relationships; however, CMS delayed the effective date during the original term or current renewal term of any arrangement that satisfied the indirect-compensation exception as of September 5, 2007. At the end of such an original term or the renewal term, the stand-in-the-shoes provision would then apply to future contractual relationships. CMS subsequently delayed the effective date until December 4, 2008, for compensation arrangements between an academic medical center component and a faculty practice plan, as well as between an entity furnishing designated health services and an affiliated group practice within the same integrated health delivery system that is exempt from taxation under section 501(c)(3) of the Internal Revenue Code. In the recently published final FY 2009 Inpatient Prospective Payment System (IPPS) update, CMS tweaked the stand-in-the-shoes provisions somewhat. It is most significant that these changes, which went into effect on October 1, 2008, only apply the stand-in-the-shoes concept to physician owners or investors, allow nonowner physicians and physician owners with only titular ownership (that is, no right to receive distributions) to choose to stand in the shoes of their physician organizations. The changes do not apply the stand-in-the-shoes concept to an arrangement that satisfies the exception to the Stark law for academic medical centers. Scheduled Regulatory Changes In the final MPFS update for FY 2009, CMS took the following steps. More Flexible Approach to the Purchased-diagnostics Rule.—In the FY 2009 update, CMS adopts a more flexible approach to the purchased-diagnostics rule (which is scheduled to go into effect on January 1, 2009) than the approach finalized by CMS in the FY 2008 update. CMS adopts a two-alternative approach to determining whether the physician performing the professional component or technical component of a diagnostic test shares a practice with the billing physician or supplier that is sufficient to avoid the anti-markup provision of the purchased-diagnostics rule. Specifically, the physician performing the professional component or technical component (the performing physician) will be deemed to share a practice with the billing physician or other supplier (the billing entity) and, therefore, will not be subject to the anti-markup provision if, first, the performing physician furnishes substantially all (at least 75%) of his or her professional services through the billing entity; or, second, if the performing physician is an owner, employee, or independent contractor of the billing entity and the technical component or professional component is performed in the office of the billing entity. Further, CMS expands its definition of the office of the billing entity to include “any medical office space, regardless of number of locations, in which the ordering physician or other ordering supplier regularly furnishes patient care, and includes space where the billing physician or other supplier furnishes diagnostic testing, if the space is located in the same building (as defined in §411.351) in which the ordering physician or other supplier regularly furnishes patient care,” as finalized by the FY 2009 update. This approach offers greater flexibility in structuring relationships so as to avoid application of the anti-markup provision. For instance, given the proper structure, two physician groups could block lease imaging equipment in the same building where they furnish the full range of patient-care services without implicating the anti-markup provision of the purchased-diagnostics rule. The revised final rule, however, will make it difficult for physician practices that have set up diagnostic services in a centralized building (under the Stark law’s in-office ancillary-services exception) to avoid implication of the anti-markup provision where the physician performing the professional component or technical component does not furnish substantially all of his or her professional services through the practice. Diagnostic imaging suppliers should understand that the purchased-diagnostics rule only applies to the extent that the billing physician or supplier also orders the diagnostic test. For instance, if an imaging center receives an order for a diagnostic test from an unrelated physician, and the imaging center furnishes the technical component but contracts with a radiologist to read the professional component, neither the technical component nor the professional component would be subject to the purchased-diagnostics rule (because the imaging center did not order the diagnostic test). In the event that the anti-markup provision applies, the payment to the billing physician or other supplier for the technical component or professional component (as applicable) would be the lowest of:
  • the performing physician or supplier’s net charge to the billing physician or supplier (without regard to any charge that is intended to reflect the cost of the equipment or space leased to the performing physician or supplier by or through the billing physician or supplier);
  • the performing physician or other supplier’s actual charge; or
  • the fee-schedule amount for the diagnostic test that would be allowed if the performing supplier directly billed for the test.
Per-click Arrangements Are Generally Prohibited.—Effective October 1, 2009, the rental of office space, the rental of equipment, fair market value, and indirect compensation exceptions to the Stark law will prohibit per-unit or per-click compensation arrangements in situations where such charges reflect services furnished to patients referred by the lessor. CMS has also indicated that it will treat on-demand rental arrangements as being per-click arrangements subject to the prohibition. The change will not, however, prohibit block-lease arrangements, so long as the block of time is not set artificially low so as to be, in effect, a per-click arrangement. It should be noted that the per-click prohibition would not generally affect radiologists since, under the so-called consultation exception, radiologists typically do not make referrals under the Stark law. Likewise, the per-click prohibition has not been extended to personal-service or employment arrangements. Under-arrangement Transactions Are Subject to Stark Law.—Effective October 1, 2009, CMS expands the definition of an entity furnishing designated health services to include the person or entity that performs the designated health service. As a result, under-arrangement service providers will generally be subject to the Stark law, and physician ownership of such service providers will have to comply with an applicable exception to the Stark law for physician owners to continue to make referrals to such service providers. For instance, cardiologist owners of a hospital–cardiologist joint venture to furnish 64-slice CT angiography (CTA) to the hospital, under arrangement, would be prohibited from referring patients to the hospital for CTA services unless their ownership interests could be structured to fit within an ownership-interest exception to the Stark law (which, except for rural arrangements, will generally be unavailable). Here again, radiologist ownership in such joint ventures will generally be allowed, since radiologists typically do not make referrals under the Stark law. In commenting on the regulations (73 Federal Register 48434, 48726 [2008]), CMS explicitly stated, “We do not consider an entity that leases or sells space or equipment used for the performance of the service, or furnishes supplies that are not separately billable but used in the performance of the medical service, or that provides management, billing services, or personnel to the entity, to perform [designated health services].” Unfortunately, to date, CMS has refused to give meaningful guidance as to when such arrangements cross the line and result in the performance of designated health services. Percentage-based Rental Arrange-ments Are Prohibited.—Effective October 1, 2009, CMS will prohibit the use of percentage-based compensation arrangements under the rental of office space, rental of equipment, indirect compensation, and fair market value compensation exceptions when the percentage is tied to revenue raised, earned, billed, collected, or otherwise attributable to the services performed or the business generated in the office space or with the equipment. CMS, however, refrained from extending the percentage-based compensation prohibitions to other nonprofessional service arrangements (for example, management and billing arrangements). New IDTF Standard Requires Medicare Enrollment for Both Mobile and Fixed-site IDTFs.—Effective January 1, 2009, CMS will require all mobile entities furnishing diagnostic imaging services to Medicare beneficiaries to enroll in the Medicare program. The requirement is an attempt by CMS to ensure that mobile imaging suppliers meet the IDTF supplier standards, as set forth at 42 CFR §410.33(g), and that the owners of such suppliers are otherwise eligible to participate in the Medicare program. New IDTF Standard Requires Mobile IDTFs to Perform Direct Billing.—Effective January 1, 2009, mobile IDTFs will have to bill directly for diagnostic services that they furnish to Medicare beneficiaries. In the final FY 2009 update, CMS provides an exception to this general requirement for services furnished by a mobile IDTF to a hospital under arrangement. Effect of Revocation of an IDTF’s Billing Privileges.—An IDTF that has had its Medicare billing privileges revoked must, as of January 1, 2009, submit all outstanding claims for services furnished prior to revocation within 60 calendar days of the effective date of revocation. The 60-day period represents a significant reduction from Medicare’s prior timely claim-submission regulations, which allowed such claims to be submitted for up to 27 months after the effective date of the revocation. Abandoned, Postponed, or Future Changes In the final FY 2009 update, the following previous proposals were abandoned, postponed, or held in reserve for future implementation. CMS Will Not Require Physician Practices to Enroll as IDTFs.—In the final FY 2009 update, CMS abandons, for the time being, its proposal that physician practices furnishing diagnostic-testing services must enroll as IDTFs. Relying upon the enactment of section 135 of the Medicare Improvements for Patients and Providers Act of 2008, which requires the DHHS secretary to establish an accreditation process for those entities furnishing advanced diagnostic-testing procedures (including MRI, CT, and nuclear medicine), CMS indicates that it will continue to monitor the issue and, if necessary, will finalize the requirement in the future. CMS Makes No Changes to the In-office Ancillary Services Exception.—Although CMS has repeatedly expressed its concern that the in-office ancillary services exception is being used as a loophole to allow physicians to capture unrelated ancillary revenue streams, CMS has not adopted any significant changes to the in-office ancillary services exception. The changes to the purchased-diagnostics rule, however, will severely limit the usefulness of the exception for certain ancillary services housed in a centralized location. Further, CMS continues to monitor the use of the exception and stands ready to modify the exception as necessary to address any perceived concerns about program abuse. IDTFs and Other Entities Furnishing Designated Health Services Will Not Be Required to Stand in the Shoes of Related Entities.—In the FY 2008 update, CMS had indicated that it was considering whether, and under what circumstances, it would be appropriate to have the entity furnishing designated health services stand in the shoes of another entity. CMS went on to propose that it might be appropriate for such an entity to stand in the shoes of any entities that it owns or controls. In the proposed FY 2009 IPPS update, CMS seemed to say that such treatment might be appropriate to deem the entity furnishing designated health services to be standing in the shoes of any organization in which it has 100% ownership interest. CMS, however, has decided not to move forward on this proposal. CMS Continues to Allow Percentage-based Compensation Arrangements in Independent-contractor and Employment Relationships.—In the FY 2008 update, CMS had proposed revising the definition of set in advance for purposes of the Stark law’s compensation exceptions, so that percentage-based compensation arrangements could only be used for compensation directly resulting from a physician’s personally performed services. Although CMS has subsequently limited the use of percentage compensation arrangements for the space rental, equipment rental, fair market value, and indirect compensation exceptions, this proposed change was never implemented. CMS, however, has indicated that it continues to have concerns about percentage-based compensation arrangements and may further restrict their use in the future. Impact on IDTFs Diagnostic imaging suppliers enrolled in the Medicare program as IDTFs would appear to be disproportionately affected by CMS’ recent regulatory changes. In particular, the prohibition on sharing space/equipment or subleasing operations results in IDTFs being unable to share the cost of expensive diagnostic equipment with other potential users of such equipment in the community. This puts IDTFs at a competitive disadvantage, compared with hospital outpatient imaging providers and physician practices, both of which can share expensive diagnostic equipment if such arrangements are properly structured. Such an outcome results in perverse policy incentives because, in effect, CMS is creating an incentive for diagnostic imaging suppliers not to enroll in Medicare as IDTFs, which results in imaging services being furnished in a less regulated environment. Impact on Physician Practices Several of the regulatory changes discussed here will require physician practices furnishing diagnostic imaging services to reevaluate their contractual relationships. Overall, however, the changes do not appear to be too draconian. For instance, most physician practices will be able to amend existing percentage-based and per-click lease arrangements to a comparable flat-fee lease arrangement. To the extent that a physician (or his or her practice) furnishes services, under arrangement, to a hospital, it will be necessary to determine whether the physician will be making referrals to the under-arrangement service provider and, if so, whether the physician’s ownership interest can be structured to comply with an exception to the Stark law. If the arrangements are appropriately structured, physician practices will be able to continue to enter block-lease arrangements that comply with the Stark law while avoiding application of the anti-markup provision of the purchased-diagnostics rule. The Future The silver lining, if any, of the onslaught of regulatory changes affecting diagnostic imaging suppliers is that CMS seems to have developed a better understanding of the diagnostic imaging segment of the health care industry—and appears, finally, to be taking a more practical approach to regulation, recognizing that there are legitimate suppliers of diagnostic imaging services. Further, in several recent speeches, CMS officials have indicated that they are unlikely to make a number of material changes to the Stark regulations in the short term. Instead, we should expect CMS to continue to tinker with the scope and application of changes. At the very least, this should give the industry some stability, so that diagnostic imaging suppliers can concentrate on operations, instead of on responding to proposed regulatory changes. Thomas E. Bartrum, JD is a shareholder in the Nashville, Tenn, office of Baker Donelson Bearman Caldwell & Berkowitz, PC, where he focuses his practice exclusively on federal health care regulatory issues affecting health care providers;