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Delayed Effective Date For Many Anti-Markup Provisions

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Alan G. Gilchrist & Johanna M. Novak
Foster Swift Health Care Law Report
January 2008

In July 2007, the Centers for Medicare and Medicaid Services ("CMS") issued proposed changes to the 2008 Medicare Fee Schedule. After receiving over 1100 written comments regarding the proposed changes, CMS declined to finalize most of the proposals, given their complexity. However, CMS did move forward and finalize proposed changes regarding anti-markup provisions for diagnostic tests. These changes were to be made effective as of January 1, 2008.

But in a surprising move, on December 28, 2007, CMS delayed the effective date of many of the new anti-markup provisions until January 1, 2009. Two provisions remained in place and are detailed below. With respect to the delayed provisions, CMS acknowledged receiving many "informal" complaints from industry stakeholders who alleged that the new anti-markup provisions were unclear and that patient access could be significantly disrupted due to the inability of physician groups to render services in a cost-effective manner if all of the provisions became effective as scheduled. Based on these complaints, CMS became concerned that definitions in the new rules were, in fact, unclear and that confusion could lead to unintended consequences. CMS now plans to issue clarifying guidance in 2008 to prepare physicians for the delayed effective date.

Two Remaining Provisions

As stated above, two anti-markup provisions were not delayed. First, CMS did not delay the applicability of the revised anti-markup rule regarding the technical component of any purchased diagnostic test.

In addition, the anti-markup rules will continue to apply to any anatomic pathology diagnostic testing services furnished in a space that: (i) is utilized by a physician group practice as a "centralized building" (42 C.F.R. § 411.351) for purposes of complying with the self-referral rules; and (ii) does not qualify as the "same building" under 42 C.F.R. § 411.355(b)(2)(i).

Delayed Provisions

The confusion over the delayed anti-markup provisions stems from the new definition that CMS created for the "office of the billing physician." CMS defined the office of the billing physician as the "medical office space where the physician or other supplier regularly furnishes patient care." 42 C.F.R. § 414.50(a)(2)(iii).

With regard to a physician organization, the office of the billing physician "is space in which the physician organization provides substantially the full range of patient care services that the physician organization provides generally." 42 C.F.R. § 414.50(a)(2)(iii). However, this new definition fails to consider the definition of the "same building" under the Stark in-office ancillary services exception.

What this means for physicians is that the precise language of these delayed provisions applies the anti-markup rules to tests performed in the same building, but not in the same office space. For example, an orthopedic practice that structured their practice to provide MRI testing in compliance with the in-office ancillary services exception utilizing the "same building" criteria, may have located the MRI machine on the first floor of the office building but retained their actual office practice on the third floor of the same building. If the new definition is not modified or clarified in the next 12 months, any MRI tests in this example will be subject to the anti-markup provisions because the MRI is not located within the actual office suite where the physician practice provides substantially a full range of services.

Physicians impacted by this new rule should work with experienced health care counsel to get their practices into compliance by the January 1, 2009 deadline.