CMS Issues Final Rule Delaying Implementation of Anti-Markup Rules With Limited Exceptions

Faced with a January 1, 2008 effective date for the new anti-markup provisions under the Stark physician self-referral rules, which, if implemented, could have led to significant "unintended consequences," the Centers for Medicare & Medicaid Services (CMS) issued a final rule on December 28, 2007, delaying applicability of most of the anti-markup provisions originally promulgated on November 27, 2007. While this new rule came as good news to physician practices providing diagnostic tests "in-house," certain exceptions to the delayed implementation date (i.e., certain types of lab services, performed by physicians in certain locations, which are excluded from the deferral and thus will be subject to the anti-markup rules as of January 1, 2008) may be seen as "bad news" for physicians who will be subject to the anti-markup rules but will now have to wait until CMS provides further guidance on certain aspects of those rules.

By way of background, CMS included in the 2008 Physician Fee Schedule certain provisions limiting the ability of physicians to charge Medicare for the technical and professional components of diagnostic tests that were ordered by the physician (or other supplier) and either purchased from an outside supplier or performed at a site other than the office of the billing physician or supplier. As originally published in the Federal Register (72 FR 66222), the "office of a billing physician or other supplier", in the context of a physician organization, was deemed to be space in which the physician organization provided substantially the full range of patient care services that the physician organization provided generally. Practically, this interpretation meant that physician organizations utilizing a "centralized building" for the performance of diagnostic tests, as authorized under the in-office ancillary services exception to Stark, would not be allowed to bill for the overhead costs incurred or otherwise mark up the bills for those services to Medicare, since the physician organization did not provide the full range of its services at that centralized location.

The announcement of the adoption of the anti-markup rules created a stir among physicians and other suppliers, as the rules were something less than crystal clear, most notably in terms of identifying the "office of the billing physician or other supplier." In early December, 2007, CMS acknowledged this uncertainty and promised to provide further guidance, prior to the end of the year. This promise came to fruition in the form of a new final rule, announced on December 28, 2007 and published in the Federal Register on January 3, 2008, delaying the effective date of the anti-markup provisions until January 1, 2009, thereby allowing CMS to "issue clarifying guidance as to what constitutes the office of the billing physician or other supplier" under the anti-markup rules.

At the same time, CMS excluded certain types of diagnostic tests performed at certain locations from the deferral, thereby effectively applying the anti-markup rule to those services. Specifically, CMS noted that:

"Because anatomic pathology diagnostic testing arrangements precipitated [CMS'] proposal for revision of the anti-markup provisions and remain [CMS'] core concern, [CMS is] not delaying the date of applicability with respect to anatomic pathology diagnostic testing services furnished in space that: (i) is utilized by a physician group practice as a "centralized building" (as defined at §411.351 of this chapter) for purposes of complying with the physician self-referral rule; and (ii) does not qualify as a "same building" under §411.355(b)(2)(i) of this chapter."

The in-office ancillary services exception allows physicians to provide services either in a "centralized building" that serves all of its locations, or in the "same building" as one of its locations providing the full range of services provided by that physician organization. From a practical perspective, CMS has opted to apply the new anti-markup rules to physicians providing anatomic pathology diagnostic testing in a "centralized building" that is not the "same building" where those physicians provide other services. Thus, this exception hits multi-office physician practices which provide anatomic pathology diagnostic testing services in a location satisfying the "centralized building" provisions of the in-office ancillary services exception to Stark, but not as a "centralized building" that is the "same building" under that exception (i.e., where the physicians provide the full range of services).

Stay tuned for further information on this issue, as CMS considers how best to provide further guidance on the definition of "office of the billing physician or other supplier" under the anti-markup rules.