2009 Physician Fee Schedule Rule Addresses Anti-Markup, Stark, IDTF, and Other Issues

07 November 2008 Publication
Authors: Maria E. Gonzalez Knavel Lawrence W. Vernaglia Judith A. Waltz

Legal News Alert: Health Care

On October 30, 2008, the Centers for Medicare & Medicaid Services (CMS) put on display a copy of its 2009 Final Physician Fee Schedule Rule for Calendar Year 2009 (Final Rule), which is scheduled for publication in the Federal Register on November 19, 2008. In addition to adjustments in the amounts to be paid under it, the Final Rule addresses significant Medicare payment policy changes in a number of areas. These include, but are not limited to, the Anti-Markup rule applicable to diagnostic tests; independent diagnostic testing facilities (IDTF); the Stark Law; the enrollment rules applicable to physicians and non-physician practitioners; end-stage renal disease (ESRD) payment policies; incentives for electronic prescribing; the calculation of physician practice expense; and the beneficiary signature rule for ambulance services. The following summarizes some of the most significant parts of the Final Rule.

The Anti-Markup Rule for Diagnostic Tests
Perhaps the most closely watched regulatory change resolved in the Final Rule relates to the so-called Anti-Markup rule applicable to certain diagnostic tests. Historically, Medicare has limited payments to physicians and other suppliers for “purchased diagnostic tests” (other than clinical laboratory tests) if the physician purchased the technical component (TC) from an outside vendor. This was known as the “purchased diagnostic test rule” and limited the amount the purchasing physician could charge Medicare for such tests to the physician’s acquisition cost. In addition, the agency placed limitations on when a physician or other supplier could purchase the professional interpretation of such tests (PC) under the "purchased interpretation rule."              

In the 2008 Physician Fee Schedule Final Rule (2008 Rule), CMS amended these rules to impose revised Anti-Markup restrictions on both the TC and the PC of purchased tests or interpretations, and placed new challenging limitations on which TCs and PCs could be billed to Medicare at the full-fee schedule amounts, without reduction to the “net charge” to the physician. CMS then postponed the effective date of these changes until January 1, 2009 and indicated it would consider changes.

In the 2009 Final Rule, CMS made changes that moved away from the concern regarding whether a test was “purchased” from an “outside supplier” entirely. Instead, CMS is offering two alternatives for complying with the new Anti-Markup rule that focus on the underlying principle that there is no anti-markup prohibition if the performing or supervising physician “shares a practice” with the ordering physician.

Under the new Anti-Markup rule, CMS permits two alternative approaches to demonstrate practice sharing, thereby permitting a physician or other supplier to bill Medicare for the TC or PC of a diagnostic test without the limitations of the Anti-Markup restrictions. The Anti-Markup restrictions will not apply if physician/supplier can meet either of the following two alternatives:

  • Alternative 1: The “substantially all” test. The physician supervising the TC or performing the PC performs “substantially all” (at least 75 percent) of his or her professional services for the billing physician or other supplier.


  • Alternative 2: The “site of service” test. The TC or PC is performed by an employee or independent contractor physician in the same building where the office of the billing (ordering) physician or other supplier is located.

Alternative 1, the substantially all test, permits the supervising or interpreting physician to engage in some part-time outside work without sacrificing the ability to perform off-site services for his or her main physician group. The 75-percent standard may be inconvenient for some arrangements, but does track the Stark regulation’s “group practice” definition. If a physician cannot meet the 75-percent substantially all test, the physician’s services may still meet Alternative 2, the site of service test. CMS also clarified that locum tenens physicians may substitute for a physician who meets Alternative 1 and provide services to the permanent physician’s group without triggering the Anti-Markup restrictions.

Alternative 2, the site of service test, permits billing without Anti-Markup restrictions if the TC or PC is conducted and supervised or performed in the “same building” in which the “office of the billing physician or other supplier” is located. Moreover, the ordering physician may have multiple offices, thus permitting compliance if the TC or PC is furnished in any of those offices, so long as the ordering physician regularly furnishes patient care in that location.

If neither alternative can be met, then the billing physician or other supplier must bill Medicare the lowest of:

  1. The performing supplier’s net charge to the billing physician or other supplier
  2. The billing physician or other supplier’s actual charge
  3. The Medicare fee schedule amount

Despite industry objections, CMS refused to modify its definition of the net charge limitation as originally set forth in the 2009 Physician Fee Schedule Proposed Rule (Proposed Rule). In the case of the purchase of a test or interpretation for a fixed fee, the net charge is easy to calculate. Greater challenges arise in those cases where the TC or PC is performed by a component of the group practice or compensation is otherwise based on the actual costs of the performing physician. In these latter cases, the net charge is likely limited to the salary and benefits paid — and other overhead costs for the space or the equipment may not be included.

The revised Anti-Markup rule will go into effect on January 1, 2009.

Physician Self-Referral (Stark Law)
CMS has decided to delay finalizing its incentive payment and shared saving programs exception to the Stark Law as proposed in the Proposed Rule. CMS concluded it had not received sufficient information or agreement through the public comment process to allow it to finalize the exception. CMS is reopening the public comment process for an additional 90 days following publication of the Final Rule in the Federal Register. In doing so, CMS hopes to obtain public comments providing specific details and practical examples enabling CMS to craft one or more exceptions to the Stark Law that will encourage the development of beneficial programs and ensure transparency, accountability, quality of care, and the prevention of disguised payments for referrals.

Additionally, CMS revised the definition of designated health services (DHS) in 42 C.F.R.§ 411.351 of the Stark regulations by adding the word “outpatient” before the phrase “speech-language pathology services” in order to conform with Section 143 of The Medicare Improvements for Patients and Providers Act of 2008 (MIPPA). MIPPA had previously amended the Stark Law to specify that, effective July 1, 2009, “outpatient speech-language pathology services” are DHS. CMS also has added a definition of outpatient speech-language pathology services to 42 C.F.R. § 411.351, and made conforming changes to the definition of “physical therapy, occupational therapy, and speech-language pathology services.”

In an effort to ensure uniform application of its IDTF performance standards, CMS had previously proposed that “physician organizations” that perform diagnostic testing services (other than mammography) be required to enroll as IDTFs (with an exemption for such organizations from certain of the IDTF performance requirements). However, CMS has decided to defer any such new requirement for future consideration. CMS noted that MIPPA will require accreditation of entities performing certain advance diagnostic testing procedures, with an implementation date of no later than January 1, 2012.

Mobile Diagnostic Testing
The Final Rule requires all entities that provide mobile diagnostic testing services to enroll in Medicare as IDTFs, and further requires such entities to bill Medicare directly for their diagnostic tests, except when the tests are furnished to hospitals under arrangement. This requirement will become effective on January 1, 2009. In its commentary, CMS strongly implies that the direct billing requirement will prohibit physicians from billing for diagnostic tests performed using equipment and technicians leased from a mobile entity, even when the tests are performed in the physicians’ offices. Instead, the mobile entity will be required to enroll and bill Medicare directly.

Exemption From E-Prescribing Standards for Computer-Generated Facsimile Transmissions
A significant number of prescribers and dispensers currently use computer-generated fax technology to transmit prescriptions and communicate regarding refill requests. Computer-generated faxes are considered more efficient and less prone to error than paper prescriptions. However, there are still risks of error because the recipient must manually enter the information from the fax into its electronic systems.

Because computer-generated faxes are not compliant with the National Council for Prescription Drug Programs (NCPDP) SCRIPT standards for electronic prescribing, CMS previously enacted a regulatory exemption from compliance with the NCPDP SCRIPT standards in order to permit prescribers and dispensers to utilize computer-generated faxes to transmit prescriptions for Part D-covered drugs prescribed for Part D-eligible individuals.

In the 2008 Final Rule, CMS eliminated the exemption effective January 1, 2009. This action was taken in order to encourage greater adoption and use by prescribers and dispensers of electronic prescribing systems compliant with the NCPDP SCRIPT standards.

CMS received a number of industry comments that such elimination of the exemption permitting use of computer-generated faxes to transmit prescriptions would result in substantial business disruptions and cause significant reversion back to paper prescriptions, which is contrary to CMS’ desire to increase electronic prescribing. As a result of these comments, CMS in the Final Rule reverses course on its planned January 1, 2009 elimination of the exemption and instead reinstates the original exemption. Consequently, prescribers and dispensers may continue to use computer-generated faxing to prescribe Part D-covered drugs for Part D-eligible individuals.

It should be noted that this reversal by CMS will be short-lived, as the ability of prescribers and dispensers to use computer-generated faxes to transmit prescriptions will instead now be eliminated effective January 1, 2012 (with the exception of permitted use in instances of transient/temporary network transmission failures that prevent electronic prescribing). This January 1, 2012 effective date for elimination of the exemption should allow prescribers and dispensers adequate time to implement fully NCPDP SCRIPT-compliant electronic prescribing systems.

Electronic Prescribing Incentive Program
The Final Rule includes provisions implementing the incentive program mandated by MIPPA for eligible professionals who are “successful electronic prescribers.” Effective for calendar year 2009, successful electronic prescribers are eligible for an annual incentive payment equal to two percent of all of such prescribers’ estimated Part B allowed charges for the year. The incentive percentage will be phased out over several years, ultimately culminating in 2014 in a two percent reduction in reimbursement for Part B claims submitted by eligible professionals who are not successful electronic prescribers (subject to certain exceptions).

For 2009, in order to be considered a successful electronic prescriber, a prescriber must meet certain requirements with respect to their Part B claims submissions. These include:

  • The prescriber must report the required data elements of the electronic prescribing quality measures(s) on at least 50 percent of the applicable Part B encounters where such reporting is permitted based on the procedure code reported (it should be noted that in future years, the Secretary of Health and Human Services may instead elect to substitute a different standard based on a prescriber’s electronic prescribing of a sufficient number of Part D prescriptions).
  • Total estimated Part B allowed professional charges for which a prescriber is required to report electronic prescribing data elements must represent at least 10 percent of the total Part B allowed charges of such prescriber for the same one-year period (this ensures that incentive payments are directed to prescribers who have a greater number of patient encounters likely to result in an opportunity to e-prescribe).
  • The prescriber must have and regularly use a “qualified” electronic prescribing system. A qualified system must have the functionality specified in Physician Quality Reporting Initiative (PQRI) Measure 125 (which generally includes: (1) ability to generate a complete active medication list, (2) ability to select medication, print prescription, electronically transmit prescriptions, and provide user warning alerts such as for interactions, (3) provide information on lower-cost alternatives, and (4) provide formulary information, patient eligibility, and authorization requirements.) Additionally, a qualified system must transmit the information described above and contemplated by PQRI Measure 125 in compliance with the Part D e-prescribing standards in effect at the time of transmission.

Determination of prescribers who are successful electronic prescribers for 2009 will occur at the individual professional level, based upon national provider identifier (NPI) number, and payment will be made to the practice represented by the tax identification number associated with a professional’s NPI number.

It also should be noted that in 2010, CMS will post on its Web site, as required by MIPPA, the names of those prescribers who were successful electronic prescribers during 2009 and received incentive payments.

Services Furnished by ESRD Facilities
The Final Rule also addresses the changes for ESRD facilities mandated by MIPAA, which are effective January 1, 2009. MIPAA requires an update of one percent to the ESRD composite rate for calendar year 2009, and removes the payment differential for hospital-based facilities. The 2009 drug add-on adjustment to the composite rate remains the same in dollar amount, but reflects a decreased percentage from the Proposed Rule because of the adjusted composite rate (required to maintain constant total drug add-on dollars). Significant revisions are being made to the methodology for calculating the growth update to the drug add-on adjustment, which are discussed in detail in the Proposed Rule.

In addition, CMS received 48 comments relating to the application of preventable hospital-acquired condition (HAC) payment provisions for inpatient prospective payment systems (IPPS) hospitals in settings other than IPPS hospitals, including ESRD facilities. As identified by CMS, these other settings might include, but are not limited to, hospital outpatient departments, ambulatory surgical centers, skilled nursing facilities, home health agencies, ESRD facilities, and physician practices. CMS also indicates that it is considering using the Medicare Secondary Payer provisions to achieve a comparable result by requiring a provider that failed to prevent the occurrence of a preventable condition to pay for all or part of the necessary follow-up care in a second setting. CMS acknowledges that to expand the HAC payment policy to other settings might, in some cases, require new statutory authority. No new policy has yet been proposed, and CMS has promised to work with stakeholders and to follow notice and comment rulemaking procedures as it moves forward on these issues.

Payment Level Changes
Health care practitioners covered by the Fee Schedule will receive on average a 1.1 percent increase in payments in 2009. If MIPPA had not been enacted, the 2009 update would have meant a reduction in reimbursement of approximately 15.1 percent.

Practice Expenses and Relative Value Units
CMS, as part of its reimbursement to physician practices, includes calculations to reimburse a portion of what are categorized as practice expenses. CMS is required to develop a methodology for determining practice expense (PE) relevant value units (RVUs) for each physician service for which reimbursement will occur. PE RVUs are amounts utilized by CMS in calculating physician reimbursement, based upon physician and practitioner expenses such as rent, personnel, and wages. CMS utilizes the American Medical Association’s (AMA) Socioeconomic Monitoring System (SMS) survey data for specialties to develop the PE per hour for each specialty. The AMA’s data provides six categories of PE costs that can be included in reimbursement: clinical payroll expenses, administrative payroll expenses, office expenses, medical material and supply expenses, medical equipment expenses, and all other expenses which include expenses for legal services, accounting and office management, professional association memberships, and any professional expenses not previously mentioned. These costs are identified by codes.

For 2009, the AMA made recommendations for 23 new codes to be included in the PE database. CMS has agreed with these recommendations and adopted all 23 codes. Most notably, CMS has indicated that it included reimbursement for quality assurance (QA) activities for four immunization codes. CMS states that the inclusion of the QA time in these cases will allow the practices to comply with state and federal regulatory guidelines. In addition to immunization QA, the 23 codes include revisions to the formula for estimating the costs per minute for equipment time and use as well as several revisions to address provision of care in interventional radiology, oral and maxillofacial surgery, neurology, orthopedic surgery, and podiatry. There were additional changes that include PE for supply and equipment items related to certain equipment utilized in cardiology practices.

Medicare Telehealth Services
As physicians utilize modern technology more in the provision of medical care, telephonic interaction with patients becomes more prevalent. Medicare currently pays for a limited range of telehealth services. CMS previously identified three areas to be included possibly as part of telehealth reimbursement: diabetes self-management training (DSMT), critical care services, and follow-up inpatient telehealth consultations. In the Final Rule, CMS declined to add DSMT and critical care services as allowable telehealth services, citing insufficient evidence to support their addition. However, CMS intends to follow through with the creation of a series of Healthcare Common Procedure Coding System (HCPCS) codes for follow-up inpatient consultation telehealth services.

Specific Coding Issues Related to Physician Fee Schedule
Each year, CMS reviews procedure coding to streamline and control costs where appropriate. For 2009, one of the coding areas addressed by CMS in the Final Rule pertains to multiple procedure payment reductions for certain diagnostic imaging procedures. Effective January 2006, when two or more procedures on a list established by CMS are provided to the same patient in a single session, the technical component of the highest priced procedures is paid at 100 percent and the technical component of subsequent procedures is paid at 75 percent. For 2009, CMS will add 10 codes to its list of procedures that are subject to this rule. These codes are in the areas of cardiac MRIs, breast and chest examinations, and certain brain, neck, and head scans.

Physician and Non-Physician Practitioner Enrollment
The Final Rule modifies certain provisions regarding physician and non-physician practitioner (collectively, practitioner) enrollment. These include, but are not limited to, provisions addressing the effective date of enrollment and requirements for reporting certain changes affecting a practitioner’s enrollment status.

In some cases, under current law, newly enrolled practitioners may submit claims for services that were furnished up to 27 months prior to the date they received Medicare billing privileges. CMS expressed concern that even though these practitioners meet Medicare program requirements on the date of enrollment, they may not have met those requirements prior to the date of enrollment. Therefore, permitting retroactive reimbursement prior to the date of enrollment may be inappropriate in some cases.

To address this issue, the Final Rule changes the application enrollment regulation to establish, as the effective date of billing for practitioners, the later of: 1. the date of filing of an enrollment application that is subsequently approved by a Medicare contractor; or 2. the date the practitioner first started furnishing services at the practice location covered by the application. Practitioners would, however, be permitted to bill retrospectively for services up to 30 days prior to their effective date of billing, provided they meet all program requirements, when circumstances preclude enrollment in advance of providing services to Medicare beneficiaries.

The Final Rule also tightens up reporting requirements for practitioners who are the subject of a final adverse action (e.g., a felony, license suspension, or exclusion) or who change their practice locations. Existing regulations require practitioners, with certain exceptions, to report changes in the information furnished on their enrollment application to CMS within 90 days. CMS expressed concern that this permits a practitioner who has been the subject of an adverse action, or who changes practice locations to a site that may have lower reimbursement, to delay reporting this circumstance for up to 90 days.

To address these problems, the Final Rule includes a change that requires an amendment to the practitioner’s enrollment application within 30 days of a final adverse action, as defined. Further, a practitioner will be required to report a change of practice location within 30 days of such change. Failure to do so will result in an overpayment based on the date of the final adverse action or the change of location. The foregoing rules will apply to practitioner organizations as well as practitioners.

Changes to Ambulance Beneficiary Signature Requirements
In order to submit a claim for Medicare payment, a provider or supplier must obtain the signature of the beneficiary or an authorized representative, subject to certain exceptions (the beneficiary signature rule). In the 2008 Final Rule, CMS revised the beneficiary signature rule as applied to ambulance providers and suppliers (providers) to permit a provider to submit a claim for an emergency transport, without a signature of either the beneficiary or a representative, in the event the provider has obtained the following documentation:

  • A contemporaneous statement from an ambulance crew member stating that the patient was mentally or physically unable to sign at the time of transport and that no legally authorized person was available or willing to do so.
  • Documentation of the date and time of the transport and the name and location of the facility that received the patient.
  • Documentation from the receiving facility confirming the name of the patient and the date and time the patient was received by that facility. The documentation needed to meet this last requirement can be in the form of either a signed statement from a facility representative received at the time of transport or a secondary form of verification received from the receiving facility at a later date.

As enacted in the 2008 Final Rule, the foregoing provision applied only to emergency ambulance services and did not apply to non-emergency transports. Further, that rule made it more difficult for Part B ambulance suppliers to file a claim for a non-emergency transport because it restrictively interpreted the existing signature regulation as precluding a supplier from submitting a claim for a non-emergency transport under any circumstance without either the signature of the beneficiary or an authorized representative.

In response to concerns expressed by the ambulance industry, the Final Rule revises the beneficiary signature rule to permit the use of the exception described above for non-emergency and well as emergency transports. Therefore, in the event that a supplier is unable to obtain the signature of either a beneficiary or an authorized beneficiary representative, it may nevertheless submit the claim if it obtains the documentation described above. As noted above, that documentation includes either a signed statement from a receiving facility representative obtained at the time of transport or a secondary form of verification, which can be obtained after the transport, documenting receipt of the patient by the facility.

As a result of this change, hospitals and skilled nursing facilities that receive non-emergency patients transported by ambulance can expect ambulance suppliers to request either signatures from a facility representative at the time of transport, or secondary forms of verification that they received the patient after transport.


As noted above, the Final Rule is scheduled for publication on November 19, 2008. CMS will accept comments on some parts of the Final Rule until January 18, 2009. The comment period for the proposed Stark Law exception for incentive payment and shared savings programs will remain open until February 17, 2009. If you have questions regarding the Final Rule, please do not hesitate to contact us.

Legal News Alert is part of our ongoing commitment to providing up-to-minute information about pressing concerns or industry issues affecting our health care clients and colleagues. If you have any questions about this alert or would like to discuss this topic further, please contact your Foley attorney or any of the following individuals:

Lawrence C. Conn
Century City, California

Maria E. Gonzalez Knavel
Milwaukee, Wisconsin

Michael Scarano
San Diego/Del Mar, California

Robert E. Slavkin
Orlando, Florida

Lawrence W. Vernaglia
Boston, Massachusetts

Judith A. Waltz
San Francisco, California

Brandon O. Young
Milwaukee, Wisconsin









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