CMS Proposes Stricter Rules For Diagnostic Medical Test Billing By Physicians Making 'Self-Referrals'

Main Category: Primary Care / General Practice
Also Included In: Medicare / Medicaid / SCHIP
Article Date: 25 Oct 2006 - 2:00 PDT

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CMS is considering tightening rules that allow physician groups to bill Medicare for referrals for medical tests and scans performed in their own offices or by third parties under contract with their groups, the Wall Street Journal reports. The agency has expressed concern that the rules allow doctors to inappropriately profit from the practice. The rules affect a practice called "self-referral," in which a physician has a financial interest in ordering certain tests for patients. The new rules would prohibit providers from billing Medicare at a higher rate for medical tests and scans -- such as MRIs, CT scans and skin biopsies -- than it costs the provider to conduct the test or what the provider pays another party to perform the test. Current Medicare rules prohibit providers from making referrals to scanning centers and labs in which they have a financial interest, but under a provision called the "in-office ancillary services" exception, physicians in group practices are allowed to refer patients for tests performed in the group's offices or in a separate facility that is leased by the group for the purpose of performing tests. According to the Journal, in some cases the separate facilities are established and operated by a separate company rather than the practice itself. Acting CMS Administrator Leslie Norwalk said some providers are exploiting the in-office exception by profiting from the difference between the amount the group pays for conducting the tests and the higher rate it bills Medicare. Medicare expenditures for medical imaging have increased an average of 20% annually since 1999, with spending reaching $7 billion in 2005.

New Rules
The new rules, which were proposed in August and could take effect as soon as November, would allow the in-office exception but would place restrictions on some of the financial arrangements, the Journal reports. For example, a physician group that paid a part-time radiologist to interpret scans performed on an in-office MRI machine would be prohibited from billing Medicare for the radiologist's work. In such cases, the radiologist would have to bill Medicare for each scan, which would help "keep doctor groups from making money on any difference between what they pay the radiologist and the sum they collect from Medicare for that work," according to the Journal. In addition, the rules would increase regulation of so-called "condo" or "pod" labs. Under such arrangements, labs for several physician groups are located in small offices in one building, and the physician groups typically pay a fee to the lab company to cover rent and the wages of the lab technicians. Pathologists who work at such labs charge a flat fee for each test, while the doctor groups bill insurers for the tests, often at a markup from what they paid, CMS said. In one strategy aimed at reducing pod-lab arrangements, the new Medicare rules would state that buildings must be a minimum of 350 square feet to legally operate under the "centralized building" provision of the in-office exemption. Most pod labs are significantly smaller than 350 square feet, the Journal reports.

Comments
CMS has received more than 2,300 comments on the proposed rules since they were announced in August. According to the Journal, some of the comments caution that the proposed rules "go too far" and could make it harder for physicians to offer testing services. Andrew Whitman, vice president of medical products at the National Electrical Manufacturers Association -- which represents medical imaging equipment manufacturers -- said, "This is too broad," adding, "Medicare needs to be more concise. If there are specific concerns, those should be addressed." Companies that operate pod labs say the offices they use as lab qualify as centralized building and therefore are legal under the in-office exemption. Greg Cardenas, an attorney for pod-lab operator Uropath, said Medicare is "unfairly making pod labs the poster boy" for self-referral abuse and has no proof that physician groups are using the arrangements to increase profits by ordering unnecessary tests. He added, "Just because something looks like a pig doesn't mean it is a pig." Norwalk said, "There are times when self-referral is appropriate and times when this has been abused," adding that the proposed rules target "areas where we were given pause at what we were seeing" (Armstrong, Wall Street Journal, 10/23).

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