2008 CMS Anti-Markup Rule

and Effect on Pod Labs

David N. Henkes, MD, FCAPChair, Professional Affairs Committee

We Will Discuss

• Difference between pod labs and other types of contractual joint ventures (CJVs)

• History of CAP activities against CJVs

• Overview of Anti-Markup Rule

• Overview of CAP’s recommendations and strategies

• Examples from CMS and your questions

Acronyms

AP Anatomic Pathology

CJV Contractual Joint Venture

CMS Centers for Medicare & Medicaid Services

OIG Office of the Inspector General

PC Professional Component

TC Technical Component

Growth of Pod Labs

“Getting Around Medicare…[S]ome companies have figured out a way to let doctors bill Medicare for off-site lab work. It involves doctor groups creating a "condo" or "pod" lab.”

David Armstrong,Wall Street Journal, 9/30/05

What is a Pod Lab?

• Turnkey operation located off-site from the physician office

• Usually built in groups of 5 since Medicare allows 1 pathologist to oversee 5 labs

• Technical employees leased from operator

• Pathologist is an independent contractor and rotates among the multiple labs

• Ex., Uropath

New CJV Models Continue to Emerge

Other CJV Models

• Physician groups developing in-house AP labs in the same office or building as the practice

• Technologists are employees of group practice

• Pathologists may be independent contractor, part time or full time employee, or partner in the practice

• Ex., TwinCrest Group & GI Pathology Partners

All Models Share a Profit Motivation to Increase Practice Revenues

History

• 3-26-04 Stark II regulations published

• 2004 CAP alerts Congress to pod labs

• 6-10-04 Sen. Grassley requests OIG to study these arrangements

• 12-10-04 OIG Advisory Opinion 04-17 on pod labs concludes “the proposed arrangement could potentially generate prohibited remuneration under the anti-kickback statute”

History

• 2006 CAP alerts CMS to continued abuses

• 8-8-06 CMS issues proposed rule

• 10-16-06 CAP meets with CMS and proposes change to Stark regulations

• 11-1-06 CMS delays publication of final rule stating it “remains committed to addressing arrangements that may encourage over-utilization of diagnostic services”

History

• 6-28-07 OIG publishes audit results for 3 Uropath labs; findings inconclusive

• 7-12-07 CMS issues proposed rule and solicits comments on CAP proposal

• 8-30-07 CAP stresses need to amend Stark to stop abuses by pod labs and in-office labs

• 11-1-07 CMS issues final rule with anti-markup provision and pledges to publish separate rule on Stark regulations

CMS Anti-Markup Rule

• Applies to both the TC and PC ordered by the billing physician and performed by another physician outside of the “office” of the billing physician

• The anti-markup does not apply if the billing physician is not the ordering physician

• The anti-markup applies if the test is ordered by the billing physician or a physician related by common ownership or control (e.g., group practice members)

CMS Anti-Markup Rule

• The crux is the site of the service

• It does not matter if the service is performed by a physician who is an independent contractor, a partner, or an employee

• Caution: If you are an independent contractor and you reassign payment to another physician or group, you remain jointly and severally liable for overpayments made by Medicare for the billed physician services

CMS Anti-Markup Rule

• For individual billing physicians the “office” is space where the physician regularly furnishes patient care

• For group practices the “office” is space where the group provides substantially the full range of services

• CMS has declined further definition of the “office” at this time but will clarify in FAQs to be posted on their website

CMS Anti-Markup Rule

• The anti-markup limits payment to the lesser of (1) Net Charge, (2) Actual Charge, or (3) Medicare Fee Schedule

• The Net Charge is the amount paid to the supplier of the service exclusive of overhead

• Overhead includes costs of space, equipment, billing and collection, and other administrative overhead

CMS Anti-Markup Rule

• Billing physician cannot recoup overhead

•CMS: “If billing [physicians] were able to recoup overhead incurred for TCs and PCs that are performed at sites other than their offices, the effectiveness of the anti-markup provisions would be undermined, because there would be an incentive to overutilize to recover the overhead incurred for purchasing or leasing space.”

CMS Anti-Markup Rule

• The Net Charge cannot take into account the cost of equipment or space that is leased to the performing physician by the billing physician

• Ex., If the fee schedule for the PC is $100 and the performing physician rents space from the billing physician for $50 per test and charges the billing physician $100 per test, CMS says that the net charge for the PC is $50

CMS Anti-Markup Rule

• Ex., if a physician or technician is paid an aggregate monthly or annual fee, the net charge may be the aggregate compensation paid divided by the number of tests performed

• The responsibility/liability of determining the net charge is with the billing physician

• Net charge can be calculated in any reasonable manner, CMS will issue clarification in FAQs on their website

CMS Anti-Markup Rule

• CMS suggests that billing physicians that incur difficulty in calculating a net charge should restructure their arrangements or let the supplier bill for their own services

• CMS states that “[physicians] that do not wish to incur the cost of billing without being able to mark up the TC or PC, should structure arrangements so that the anti-markup provisions do not apply”

CAP Recommendations

• CAP asks CMS to make additional changes that focus on the fundamental issue of physician groups profiting from self-referrals for AP services for the group’s patients, regardless of the location

• CAP asks for amendment to Stark regulations to stop all abusive CJVs, including in-office AP labs

CAP Proposed Amendment

• Exclude AP from the in-office ancillary services exception in the Stark regulations

• This would prohibit physician groups from having a financial interest in their self-referrals of AP services, regardless of the site of the service

• Physician groups could continue to offer the service but could not profit from it

CAP Strategies

• Continue to work with CMS on amendment to Stark regulations

• Continue to work with Congress for a legislative remedy to the Stark Law

• Dialogue with health plans on the potential abuses to effectuate change in the private sector

Examples from CMS on the Anti-Markup Rule

and Your Questions

Donna J. Meyer, JDAssist. Director, Professional Affairs

Example #1 from CMS

• Facts: A urology group contracts with a leasing company that supplies a technician and a pathologist to perform testing on prostate samples. All work is done at a space that the urology group rents exclusively for the sole purpose of providing pathology services for the group’s patients.

• Outcome: Anti-markup provisions apply to both the TC and the PC, even though the space qualifies as a “centralized building” under the Stark Law.

Example #2 from CMS

• Facts: Same as Example 1, except that the TC is performed by a technician that is an employee of the group practice and the PC is performed by a pathologist who is an independent contractor of the group practice.

• Outcome: The anti-markup provisions again apply to both the TC and the PC. It does not matter that the technician is an employee and the pathologist is an independent contractor because the work was not performed in the office of the billing group practice.

Example #3 from CMS

• Facts: A physician in a group practice orders a diagnostic test and a technician who is a part-time employee of the group performs the test in the group’s office. A physician who is an independent contractor of the group performs the PC in the group’s office.

• Outcome: The anti-markup provisions do not apply to the group’s billing of the TC or the PC because they are performed in the office of the billing physician.

Example #4 from CMS

• Facts: Same as Example 3, except that the independent contractor physician performs the PC in his or her home and reassigns the right to payment for the service to the group.

• Outcome: The group’s billing of the TC is not subject to the anti-markup provision but the group’s billing of the PC is subject to the anti-markup provision because the work was not performed in the office of the billing physician.

Example #5 from CMS

• Facts: A group practice orders a diagnostic test from an independent laboratory. The lab performs the test and contracts with a physician to perform the PC. The lab bills Medicare for both the TC and PC .

• Outcome: The lab is not subject to the anti-markup provisions because the lab did not order the test. It does not matter where the physician performs the PC.