Medicare Mark-up Prohibitions

Coding Compass

New rules for purchased diagnostic tests.

By Charles I. Artz, Esq. and Michael D. Miscoe, JD, CPC, CHCC

Medicare providers have long reported comprehensive diagnostic services when either the service’s technical or professional component was “purchased” from an outside provider or entity. An issue has arisen, however, regarding the circumstances in which this is permissible and the fee that Medicare may be charged for the purchased test component. The Centers for Medicare & Medicaid Services (CMS) recently published new rules for purchased diagnostic services.

The purchased diagnostic services rules frequently are implicated in situations involving radiology services. Consider the following hypothetical situation: An imaging center in one state performs the technical component of services on site. The images are interpreted by a physician who is physically located in another state (but had a license to practice medicine in the state where the imaging center was located). The interpreting physician was not an employee, but rather an independent contractor for the imaging facility and was paid for the interpretation. The question is: Can the imaging center bill Medicare for the global service at its usual, customary, and reasonable fee?

If the circumstances were reversed and the technical component was purchased, can the service be billed globally and if so, can the usual fee be charged?

Published Rule Changes

On Nov. 27, 2007, CMS published an expanded diagnostic test mark-up prohibition (MUP) rule, Final Rule, 72 FR 66221, which is applicable to both the technical and professional components of diagnostic tests. The original regulation was slated to go into effect Jan. 1. Although a few days later, on Jan. 3, CMS published a Notice, 73 FR 404, delaying certain provisions of the MUP until Jan. 1, 2009.

The MUP, as revised pursuant to 42 C.F.R. §414.50, contained the following elements:

The new MUP rules apply to both the technical and professional components of diagnostic tests.

If a physician or supplier (or related party) bills for the technical component (modifier TC Technical component or professional component (modifier 26 Professional component) of a diagnostic test ordered by the physician or supplier and the diagnostic test is either purchased from an outside supplier or performed at a site other than the office of the billing physician or supplier, the payment (less any applicable deductible and coinsurance) for either component cannot exceed the lowest of the net charge, actual charge, or applicable fee schedule amount for the performing provider (i.e. the provider who “sells” one part of the test).

The phrase “office of the billing physician” is defined as: (1) the medical office space where the physician or supplier regularly furnishes patient care; or (2) in the case of a group practice, the space in which the physician organization provides substantially the full range of patient care services generally provided by the physician organization.

There were some substantial changes that effectively eliminated POD lab arrangements; however, this component of the MUP rule is not addressed here.

As is evident, the rule becomes applicable when the professional or technical component is either purchased or is performed at a site other than the billing entity office. This “same office” rule component has caused considerable concern. While CMS is accepting comments and proposals about how to create a clearer “office of the billing physician” definition, physicians should not expect this issue to go away. CMS conceded it was concerned its definition of “office of the billing physician” in the MUP rule, 73 FR at 405, “may not be entirely clear and could have unintended consequences,” although it did not identify what “unintended consequences” it was specifically concerned about. To permit further study, CMS delayed the revised MUP’s applicability until Jan. 1, 2009, with two exceptions.

Exceptions to the Rule

The first exception applies to anatomic pathology diagnostic testing services furnished in space that: (a) is utilized by a physician group practice as a “centralized building” under the Stark II regulations; and (b) does not qualify as a “same building” under the Stark II rules. For this kind of testing, the MUP went into effect Jan. 1, 2008, and will remain in effect. CMS stated that anatomic pathology diagnostic testing arrangements precipitated the revised MUP rules and remain its “core concern.”

The second exception applies to purchased technical components of diagnostic tests. CMS has not delayed the MUP with respect to the technical component of any purchased diagnostic test given that “[t]he anti-markup prohibition with respect to the technical component of purchased diagnostic tests is longstanding and was incorporated into the expanded and revised provision of §414.50. (Id.) Accordingly, the MUP applies now with respect to the technical component of any purchased diagnostic test.

Same Office Test

The MUP creates a “same office” test to determine when the MUP restrictions apply. To satisfy the “same office” test, the professional or technical component of service must be performed at a location where substantially all of the practice’s medical services are provided. Where either the technical component (currently) or the professional component (effective Jan. 1, 2009) occurs in a location other than one that meets the “same office” requirements, then the price for that component cannot be marked up beyond what the practice paid for that component of service (i.e., lowest of actual charges, net charges, or fee schedule amount).

Implementation of the MUP rule creates confusion where one or both components of a diagnostic test were performed in the “same building,” but not in the same office space. For example, a practice with an imaging component could have an MRI on an office building’s first floor and the physicians’ offices on the same building’s second floor. While this arrangement satisfies the “same building test” under the Stark II regulations, it violates the “same office test” under the MUP and triggers the rule’s fee limitations.

As noted, for interpretations of tests performed offsite pursuant to a contract, professional component billing of such tests without the restrictions related to price mark-up remains permissible at least until Jan. 1, 2009. When the MUP is fully implemented, however, these arrangements may have to be restructured or eliminated. At a minimum, the entity performing the service’s technical component and purchasing the service’s professional component will not be permitted to mark up the price for the professional component if billing for the global service, as it may be safer to fragment the billing and have the entity performing the professional component bill the service themselves using modifier 26.

Employment Status Irrelevant

CMS did not adopt the full employee rule as it had proposed. Had this provision been adopted, the MUP restrictions would not have applied where a full-time employee performed the service. The failure to implement this provision allows performance by a full-time employee, part-time employee, or independent contractor. While employment status is irrelevant for determining applicability of the MUP rule, the provision elimination is significant since it makes the location where the service’s professional or technical component is performed the key issue. If the service’s professional or technical component is not performed in the “same office” where substantially all of the practice’s medical services are provided, the practice billing the service cannot mark it up beyond what the practice paid for it (i.e., lowest of actual charges, net charges, or fee schedule amount).

Coding Implications

If the service’s professional and technical component is performed at the physician’s office site consistent with the regulations, the MUP does not apply, and the practice may bill the full global fee. Where the MUP applies, the coding and fee implications are significant and a number or possible scenarios emerge.

Generally, the billing entity must identify that a purchased test was performed, as well as the price paid for the service, in Box 20 of the CMS 1500 claim form. The billing entity may not charge Medicare any more than the amount paid.

Where the technical component is either purchased or performed at a location not satisfying the “same office” requirement, the entity performing the test can simply report the service directly and append modifier TC to reflect only the service’s technical portion. Alternatively, the physician providing the service’s professional component could report the global fee (no modifier) provided that the physician alters his or her fee to reflect the purchased amount of the service’s technical component.

For services after Jan. 1, 2009, where the professional component is either purchased or performed at a location not satisfying the “same office” requirement, the entity can simply report the service directly and append modifier 26 to reflect only the service’s professional portion. Alternatively, the physician providing the service’s technical component could report the global fee (no modifier) provided the physician alters his or her fee to reflect the purchased amount of the service’s professional component.

In either case, the purchase of a test’s component and the price paid for the service will be identified in block 20 of the CMS-1500 form. When this is the case, the billing entity is assumed to have performed the other service’s component and the global service is billed (i.e., without a modifier). Because of the potential difficulty associated with correctly determining the fee paid, it may be safer to have the entity performing the purchased service’s component bill that component directly to the carrier with the appropriate modifier. The physician would then bill directly as well, but only for the component of service that the physician performed.

It should be noted that not all diagnostic studies have professional and technical components. As an example, consider a range of motion study (CPT® code 95851 Range of motion measurements and report (separate procedure); each extremity (excluding hand) or each trunk section (spine) or a physical performance test (CPT® code 97750 Physical performance test or measurement (eg, musculoskeletal, functional capacity), with written report, each 15 minutes). When these tests, which are purely technical and have no professional/technical split, are purchased and performed externally, the MUP applies and the fact that the test was purchased and the amount paid for the test must be identified in block 20. Because of this possibility, be certain to check the Medicare Physician Fee Schedule (MPFS) to determine if the service at issue has a professional/technical split.

The Time Has Come

Returning to the hypotheticals above, in the case where the test’s purchased component is the professional component, there currently is no issue given the delay in the related provisions implementation of the MUP rule. Nonetheless, this scenario will fall within the new provisions when implemented on Jan. 1, 2009. For the case where the service’s technical component was purchased, the mark-up prohibitions apply now.

Compliance with the MUP is imperative. Physicians involved with purchasing diagnostic or lab services should evaluate their exposure under the MUP now. False Claims Act (FCA) and Civil Money Penalties (CMP) case law is clear in establishing that knowing noncompliance with a regulation establishing a condition of reimbursement creates either FCA or CMP liability. A “knowing” violation occurs if there is actual knowledge, deliberate ignorance, or reckless disregard of the applicable billing rules. FCA/CMP sanctions can be enormous, including a fine of up to $11,000 for each improperly submitted claim, triple damages, and exclusion from federal health care programs. Physicians are advised to scrutinize their billing carefully when any portion of a diagnostic service is either purchased or performed externally. For those purchasing only the service’s professional component, preparation should be initiated immediately to ensure compliance, since these arrangements will fall within the rule’s scope in a few short months.

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