Diagnostic Imaging Arrangements

The attorneys of The Health Law Partners, P.C. represent various diagnostic imaging providers, such as Independent Diagnostic Testing Facilities ("IDTFs"), mobile leasing entities, radiology group practices and multi-specialty group practices, in all aspects of healthcare law.

Adrienne Dresevic, Esq. and Carey Kalmowitz, Esq. regularly assist clients with billing and compliance matters; Stark and Anti-Markup analysis; Anti-Kickback Statute analysis; corporate formation and structural issues; Recovery Audit Contractor ("RAC"), Medicare and other third party payor audits; Certificate of Need ("CON") and other healthcare legal matters.

Medicare Anti-Markup Rule

Diagnostic imaging providers must be aware of the Medicare Anti-Markup Rule ("AMR"), which became effective January 1, 2009. Pursuant to the AMR, the following principles apply to determine whether a diagnostic imaging arrangement is subject to the anti-markup payment limitation:

1. Alternative 1- "Substantially All Test." Arrangements should be analyzed first under Alternative 1 as follows: where the performing physician (i.e., the physician who supervises the TC or performs the PC, or both) performs substantially all (at least 75 percent) of his or her professional services for the billing physician or other supplier, the services will not be subject the anti-markup rule payment limitations. If the performing physician does not meet the "substantially all" services requirement under Alternative 1, an analysis under Alternative 2 (below) may be applied.


2. Alternative 2- "Site of Service Test." Under Alternative 2, only TCs conducted and supervised in, and PCs performed in, the "office of the billing physician" (which is expanded to include testing performed in the "same building" under Stark) by an employee or independent contractor physician will avoid application of the anti-markup payment limitation.

Of particular significance for those physicians providing imaging services in reliance on Alternative 2, the TC must be both conducted and supervised in the "office of the billing physician or other supplier" ("the Same Office Requirement"). While the Stark Law generally applies the Medicare coverage and payment regulations governing supervision of tests ("Medicare Coverage Requirements"), providers seeking to rely on Alternative 2 must meet the Same Office Requirement, whether or not this new supervision requirement is more stringent than the Medicare Coverage Requirements.

Arrangements that fall within the ambit of the anti-markup provisions are subject to restrictive payment limitations. That is, under the anti-markup provisions, payment to the billing entity will be limited to the lowest of: (1) the performing physician's or other supplier's net charge to the billing entity; (2) the billing entity's actual charge; or (3) the fee schedule amount for the test that would be allowed if the performing physician or supplier billed directly.

Of significant importance is that the net charge amount must be determined without reference to any charge that is intended to reflect the cost of equipment or space leased to the performing supplier by or through the billing physician or other supplier, notwithstanding that these are bona fide expenses incurred in connection with the service. Under the net charge approach, the billing physician, or other supplier is limited to recovering costs for the salary and benefits it paid to the performing supplier of the TC or PC (i.e., the supervising physician or performing physician).

Below are two examples of the final anti-markup provisions and their application to common imaging services arrangements:

1. Group Practice Independent Radiologist Arrangement. A physician in a multi-specialty group practice orders an x-ray and the part-time employed technician performs the x-ray in the group's office. The ordering physician works exclusively for the multi-specialty group and supervises the test in the group's office. A radiologist who is an independent contractor with the multi-specialty group practice performs the PC of the test in the group's office and reassigns his right to payment to the group. The independent contractor radiologist provides professional services to several groups and hospitals in the area. He performs approximately 20 percent of his professional services for the multi-specialty group practice. In this example, the anti-markup rule does not apply to the group's billing of the TC because the supervising physician (i.e., the performing physician) "shares a practice" with the billing group insofar as he performs at least 75 percent of his professional services for the group. With respect to the PC of the test, the independent contractor (i.e., the performing physician) does not perform substantially all of his professional services to the group (he performs approximately 20 percent). Thus, an analysis under Alternative 2 applies. Under the "site of service" test, the anti-markup rule does not apply because the performing radiologist provided the interpretation on-site in the group's office. If, however, the independent contractor physician were to have performed the PC off-site, the anti-markup payment limitations would apply to the group's billing of the PC of the test.


2. IDTF Arrangement. A physician orders a diagnostic test from an IDTF. The IDTF bills globally for the test (TC and PC). The anti-markup rule does not apply because the IDTF did not order the test; rather, it was ordered by an outside physician.

Federal Stark Law

Section 1877 of the Social Security Act ("Stark" or the "Stark Law") is a broad statutory prohibition that bans physician referrals of Medicare beneficiaries to entities with which, they or members of their immediate family, have a financial relationship for certain services itemized in the statute, referred to as "designated health services" ("DHS"). DHS include, among others, inpatient and outpatient hospital services, and radiology and certain other imaging services. The Stark regulations define radiology and certain other imaging services by reference to a list of CPT/HCPCS codes. The list of codes identifying these services includes both the professional and technical component of any diagnostic test or procedure using x-rays, ultrasound, computerized axial tomography, magnetic resource imaging, nuclear medicine, or other imaging services. The list, however, does not include invasive radiology procedures such as certain x-ray fluoroscopy, or ultrasound procedures that require insertion of a needle, catheter, tube, or probe and are integral to the performance of non- radiological medical procedures during the non-radiological procedure or immediately following such procedure. Accordingly, because invasive radiology services are not considered DHS, joint ventures where participants include physicians who refer for these types of invasive imaging services do not fall directly within the ambit of Stark.

In addition to invasive imaging services, there is also a provision within the Stark Law that effectively operates as an exception for certain referrals by diagnostic radiologists. Specifically, a referral by a radiologist for diagnostic radiology services pursuant to a consultation requested by another physician is not considered a referral under the Stark law, so long as the referring radiologist (or a radiologist in the same group practice) supervises or furnishes the service. This so-called "radiologist exception" permits certain joint venture arrangements that involve ownership by diagnostic radiologists, as opposed to other referring physician specialists.

The in-office ancillary services ("IOAS") exception has arguably been the single most important exception to the Stark Law for physicians, in a variety of different specialties (e.g., cardiologists and internists), that furnish imaging services within their practices to their patients. Without this exception, a substantial number of common in-office imaging services arrangements would not be possible. The IOAS exception is designed to protect the in-office provision of certain DHS, including diagnostic imaging services. The IOAS exception comprises a supervision, location, and billing requirement. Shared imaging facilities customarily rely upon this exception, as CMS has recognized that shared facilities can meet this exception, provided that each participating physician practice satisfies the requirements of the IOAS exception.

Additionally, the physician services exception under Stark enables group practices to make referrals within their practices for physician services that are DHS (e.g., the professional interpretation of an imaging service). For example, this exception is applicable to professional interpretations ordered by a group practice physician and subsequently furnished by an independent contractor radiologist. For purposes of this exception, however, independent contractors must provide the services in the group practice's facilities. Otherwise, a violation of Stark can be established. That is, under Stark, in order for a group practice to bill Medicare for the professional component of imaging services provided by an independent contractor radiologist, the interpretation must be furnished on-site in the group practice's facilities. The provision of off-site interpretations by an independent contractor radiologist is not permitted under Stark, if the group practice intends to bill Medicare for that component of the service.

The Stark Law contains a number of other exceptions applicable to the provision of various imaging services arrangements, which protect ownership and compensation relationships between referring physicians (or their immediate family members) and DHS entities, including hospitals, physician practices, and other imaging services providers.

Major Stark Changes Finalized

In 2007, CMS published the third phase (and, according to the prevailing thinking in the industry, the final phase) of the Stark regulations ("Phase III"). Despite the publication of Phase III, however, CMS has continued to identify issues for further study, potential change, and future rulemakings. On August 19, 2008, CMS published yet another installment of final Stark rules in its 2009 Final Hospital Inpatient Prospective Payment Systems Rule ("Final Rule"). The Final Rule contains several significant modifications to the Stark regulations, some of which will require physicians, hospitals, and other imaging providers to unwind or restructure their arrangements. Several of the new Stark regulations included in the Final Rule are not effective until October 1, 2009, in order to give parties time to unwind or restructure arrangements which are covered by the changes, but other provisions went into effect on October 1, 2008. Some of the significant changes are set forth below.

Services Provided "Under Arrangements"- Referring Physician Owners - It's Time to Unwind

Under current Stark Law, only those entities to which CMS makes payment for the DHS are considered to be furnishing DHS. Prior to the changes contained in the Final Rule, Stark generally permitted physicians to invest in entities which provided services "under arrangements" to hospitals because the physician did not have an ownership interest in the hospital (i.e., the entity furnishing DHS). In recent years, for example, "under arrangements" joint ventures between hospitals and referring physicians have been used to furnish imaging and cardiac catheterization services to hospitals. The Final Rule significantly expands the definition of "entity" to include entities that perform services that are, in turn, billed as DHS by another entity. As a practical matter, this change means that referring physicians likely will not be able to have an ownership or investment interest in "under arrangements" imaging and other service providers.

It is expected that there are a substantial number of existing "under arrangements" transactions involving physician-owned entities (including imaging services providers) that will have to be unwound or restructured before the October 1, 2009 effective date. For example, in the case of an imaging center joint venture between a hospital and referring physician investors that involves an "under arrangements" contract with the hospital pursuant to which the joint venture entity performs imaging services that are billed under the hospital's name and billing number, the referring physicians who have an investment interest in the imaging center joint venture will most likely need to unwind or restructure the venture before October 1, 2009.

Radiologists, however, may be able to benefit significantly from the Final Rule's impact on many current "under arrangements" providers. As discussed above, the Stark Law excludes from the definition of "referral" certain requests by radiologists (e.g., "radiologist referral exception"), which means that radiologists, in many circumstances, may continue to own an entity that performs services "under arrangements."

The Demise of Percentage-Based Compensation for Space and Equipment Leases

The Final Rule amends the current Stark exceptions for rental of office space, rental of equipment, fair market value compensation arrangements, and indirect compensation arrangements to prohibit the use of compensation formulae for space and equipment leases based upon a percentage of the revenue raised, earned, billed, collected, or otherwise attributable to the services performed or business generated in the office space lease or to the services performed on or business generated by the use of leased equipment.

Effectively, by implementing these changes, CMS precludes most percentage-based arrangements for the lease of space or equipment (direct or indirect) between DHS entities and referring physicians. Current percentage-based leasing arrangements for office space or equipment that violate these new rules will need to be restructured prior to October 1, 2009, the effective date.

"Per-Click" Leasing Arrangements Prohibited - For Now, Block Time Leases Survive

Although unit-of-service ("per-click") payments were generally permitted under the Stark Law, due to concerns that this type of compensation methodology was inherently susceptible to abuse, earlier CMS introduced a proposal which prohibited the use of per-click payments involving space and/or equipment leases in those situations where a physician (or entity owned by a physician) leases space and/or equipment to another entity and the physician subsequently refers patients to that other entity for services. For example, this would prohibit a cardiologist from leasing a CT scanner to a hospital on a per-click basis if that cardiologist refers patients to the hospital for CT services. While the original proposal only restricted "per-click" payments when the physician was a lessor, CMS also solicited comments on whether it should prohibit per-click payments in situations in which the physician is the lessee and a DHS entity is the lessor.

Under the Final Rule, CMS prohibits the use of "per-click" payment methodologies for leasing arrangements under the space and equipment lease exceptions, fair market value exception, and the exception for indirect compensation arrangements to the extent that these charges reflect services provided to patients referred between the parties. Notably, the "per-click" prohibition applies whether the lessor is the referring physician or an entity in which the referring physician has an ownership interest. The Final Rule is also broader than the original proposal and applies if the lessor is a DHS entity that refers patients to a physician or physician organization lessee.

CMS notes that it is not prohibiting per-click compensation arrangements involving non-physician-owned lessors to the extent that such lessors are not referring patients for DHS, nor are they prohibiting per-click payments to physician lessors for services rendered to patients who were not referred to the lessee by the physician lessors.

The final per-click prohibitions are effective for lease payments made on or after October 1, 2009.

IDTF Performance Regulations

On November 19, 2008, CMS published the 2009 Medicare Physician Fee Schedule (the "Final Rule"), which contained IDTF mobile entity enrollment and direct billing requirements. The Final Rule's IDTF mobile entity provisions became effective January 1, 2009.

In the Final Rule, CMS finalized its earlier proposal to require mobile entities to enroll and bill Medicare directly for the technical component ("TC") services that they provide to Medicare beneficiaries. According to the Final Rule's preamble commentary, the implementation of the rule would prohibit many common arrangements in which mobile entities lease diagnostic testing equipment and technicians to physicians who conduct and bill for such tests in their offices. Specifically, a commenter urged CMS to exclude from the definition of entities furnishing mobile diagnostic testing services those entities that lease equipment and provide technicians who conduct the tests in the office of the physician or physician organization, and furnish testing under the supervision of a physician who shares an office with the billing physician or physician organization. In response, CMS stated:

We disagree with the commenter. We maintain that a mobile entity providing diagnostic testing services must enroll for any diagnostic imaging services that it furnishes to a Medicare beneficiary, regardless of whether the service is furnished in a mobile or fixed base location so that CMS knows which entity is providing these diagnostic testing services.

CMS Publishes New FAQ Guidance - Changing Its Earlier Position on Mobile Entity Direct Billing

On December 16, 2008, approximately two weeks before the Final Rule's effective date, CMS published a frequently asked question ("FAQ") on its website which, in effect, represented a fundamental reformulation of its earlier position on the IDTF requirements under the Final Rule. Specifically, CMS posed the following FAQ:

Question:

My company leases/contracts diagnostic testing equipment and/or non-physician personnel described in 42 CFR 410.33 to an enrolled Medicare provider/supplier (e.g., medical group practice). Do I need to enroll as an Independent Diagnostic Testing Facility (IDTF)?

Response:

Companies that lease or contract with a Medicare enrolled provider or supplier to provide: a) diagnostic testing equipment; b) non-physician personnel described in 42 CFR 410.33 (c); or c) diagnostic testing equipment and non-physician personnel described in 42 CFR 410.33 (c) are not required to enroll as an IDTF. Medicare continues to evaluate arrangements where both diagnostic testing equipment and non-physician personnel are contracted to a Medicare enrolled provider or supplier and where the Medicare enrolled provider or supplier is billing for the diagnostic service.

The FAQ reflects that CMS will distinguish between a mobile leasing company that provides the equipment and/or non-physician personnel (i.e., which is not required to enroll as an IDTF and bill directly), from a mobile entity that, in addition to the equipment and the technicians, also provides the physician supervision component of the service (i.e., which, if present, require the entity to enroll as an IDTF and bill directly).

Publications

"CMS Issues Guidance In Case Of EHR Incentive Audit", by Adrienne Dresevic, Esq., Carey, Kalmowitz, Esq., and Phil Toutant, Esq., AHRA Link, May 2013.

"ICD-10: CMS Updates Implementation Tools", by Adrienne Dresevic, Esq. and Carey F. Kalmowitz, Esq., AHRA Link, April 2013.

"Changes To The Breach Notification Rule", by Adrienne Dresevic, Esq. and Clinton Mikel, Esq., AHRA Link, March 2013.

"New HIPAA Rules Issued: A Primer for Radiology Providers", by Adrienne Dresevic, Esq. and Clinton Mikel, Esq., AHRA Link, February 2013.

"OIG Advisory Opinion Provides Guidance on EHR Connectivity Arrangements", by Adrienne Dresevic, Esq. and Carey F. Kalmowitz, Esq., AHRA Link, January 2013.

"Medicare Releases the Final 2013 Physician Fee Schedule", by Adrienne Dresevic, Esq. and Carey F. Kalmowitz, Esq., AHRA Link, December, 2012.

"Heightened Scrutiny of Self-Referring Physician Imaging Practices", by Adrienne Dresevic, Esq., Clinton Mikel, Esq., and Carey F. Kalmowitz, Esq. AHRA Link, November 2012.

"OIG Reaffirms Aproval of Free Pre-Authorization Services Arrangement by Radiology Group", by Adrienne Dresevic, Esq. and Carey F. Kalmowitz, Esq., AHRA Link, October 2012.

"CMS Issues 2013 Proposed Physician Fee Schedule", by Adrienne Dresevic, Esq. and Carey F. Kalmowitz, Esq., AHRA Link, August 2012.

"PPACA Survives: Impact on Imaging", by Adrienne Dresevic, Esq., Carey F. Kalmowitz, Esq., and Stephanie P. Ottenwess, Esq., AHRA Link, July 2012.

"CMS Issues Final Rules To Cut Regulations For Hospitals and Healthcare Providers", by Adrienne Dresevic, Esq., Carey F. Kalmowitz, Esq., and Stephanie P. Ottenwess, Esq., AHRA Link, June 2012.

“CMS Issues Final Rule on Enrollment, Ordering and Referring, and Documentation Requirements”, by Adrienne Dresevic, Esq., Carey F. Kalmowitz, Esq., and Stephanie P. Ottenwess, Esq., AHRA Link, May 2012.

Speaking Engagements

Diagnostic Imaging Arrangements Questions?

For inquiries pertaining Diagnostic Imaging Arrangements, please contact Adrienne Dresevic, Esq. or Carey F. Kalmowitz, Esq. at (248) 996-8510 or (212) 734-0128.

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