Anti-Markup Rule

Anti-Markup Rule

Anti-Markup Rule Limits Physician Billing for Purchased Diagnostic Tests

In 2009, the Centers for Medicaid & Medicaid Services ("CMS") limited a Medicare Providers' rights to bill for purchased diagnostic tests, by promulgating the Anti-Markup Rule. The government's purpose behind the Anti-Markup Rule is to limit the amount a physician or entity may bill for diagnostic tests including (with some exceptions) x-rays, laboratory tests and other diagnostic tests provided or supervised by a third-party physician or supplier.

The Anti-Markup Rule is intended to limit the profitability for physicians and suppliers of diagnostic tests billed to Medicare, but purchased from other physicians or suppliers who lack a sufficient nexus with the physician or supplier. Where substantial Testing Physician and Billing Practice integration exists, the Billing Practice may bill for the diagnostic test without the limitation imposed by the Anti-Markup Rule.

The Anti-Markup Rule limits the amount that may be reimbursed to the physician that performs either the professional component or supervises the technical component of a diagnostic test ("Testing Physician") that does not "share a practice" with the physician or other supplier that bills for the test under Medicare Part B (“Billing Practice”).

The Rule requires that the amount billed for the diagnostic test may not exceed the lowest of: (1) the Testing Physician's net charge to the Billing Practice (determined without regard to his overhead or other costs); (2) the Billing Practice's actual charge to Medicare, or (3) the amount payable pursuant to the fee schedule, as if the Testing Physician has billed Medicare in the ordinary course of his practice.

Impact of the Revised Anti-Markup Rule

These restrictions on testing arrangements are intended to reduce diagnostic test over-utilization by disincentivizing arrangements between physicians and entities that have no real connection other than the referral of diagnostic tests, while exempting professional relationships that are substantively justified. The alternate paradigms permitted by the "substantially all" and the "site of service" approaches allow generally workable latitude in structuring testing arrangements.

Medicare providers need to carefully review their diagnostic testing arrangements to be certain they meet one of the exemptions provided by the Final Rule. The Anti-Markup Rule will still inform a large number of diagnostic testing arrangements, such as radiologists, neurologists and cardiologists who provide part-time services to a variety of physician organizations or physician groups that operate at multiple locations but have a single diagnostic testing location. One must restructure their practice testing paradigms to fall within the "substantially all" or "site of service" approaches if their practice does not fall within one of the exemptions.

The “Substantially All” and the “Site of Service Approaches

There are two alternatives utilized to determine whether the Testing Physician "shares a practice" with the Billing Practice. One is the "substantially all services" approach and the other is the "site of service" approach.

The "substantially all" approach contemplates that physicians may need to provide services to more than one Billing Practice through part-time, on-call, locum tenens or other non-exclusive relationships. Alternatively, the "site of service" approach has a dual benefit. First, it can be applied to arrangements on a case-by-case basis. Second, a physician or supplier may be deemed to have one or more permissible "offices of the Billing Practice" assuming they provide their full range of patient services at each office location.

The "substantially all" approach should be used first to analyze all diagnostic testing arrangements. Using this approach services performed by the Testing Physician are exempt from the Anti-Markup Rule if the Testing Physician performs at least 75% of his or her professional services for the Billing Practice. The “substantially all” approach is satisfied by a Testing Physician if the Billing Practice can demonstrate that either (i) the Testing Physician furnished substantially all of his or her professional services through the Billing Practice during the year immediately preceding the month when the service was performed; or (ii) the Testing Physician can demonstrate a reasonable expectation that he or she will furnish substantially all of his or her professional services through the Billing Practice in the following 12 months, from the time the Billing Practice submits a claim for a service performed by the Testing Physician.

If the providers cannot satisfy the "substantially all" test, the testing arrangement should be evaluated under the "site of service" approach. In this instance, the technical and professional components performed in the office of the Billing Practice are exempt from the Anti-Markup Rule if:

  1. The Testing Physician is an owner, employee or independent contractor of the Billing Practice (limited to the technical component), and

  2. The tests must be performed in the office of the Billing Practice. The "Office of the Billing Practice" standard under the "site of service" approach is considered the space in which the ordering physician performs substantially the full range of patient services that he typically provides. If the Billing Practice is a group practice, "the office of the Billing Practice" is deemed the space where the practice substantially provides the full range of patient care services that the group provides generally.

While the "site of service" approach is evaluated on a case-by-case basis, and theoretically offers more flexibility, one must restructure their practice testing paradigms to fall within the "substantially all" or "site of service" approaches.

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