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.