Purchaser Or Provider?
A Review Of A Current Compliance Issue For Physicians
by Jennifer A. McDaniel, Fulbright & Jaworski L.L.P.

I.   Introduction.

Healthcare suppliers and their attorneys must have at least a general understanding of the legal restrictions governing physician self-referrals and billing rules. Armed with this knowledge, physician clients and other healthcare suppliers don't often propose business structures that conflict with the federal restriction on physician self-referrals, i.e., the Stark Law , and similar state restrictions. Physicians continue, however, to look for alternative business structures that provide an opportunity to increase revenue. For example, an increasingly common strategy is to seek to capture reimbursement for the technical component of diagnostic tests. Private healthcare service companies and equipment leasing companies interested in securing expanded revenue streams are actively exploring opportunities to partner with physicians and other healthcare suppliers by creating arrangements that are intended to allow physicians to capture a portion of this technical service revenue.   In our experience, physicians have been increasingly approached to “lease scans,” or enter into “time-share” arrangements with diagnostic facilities as a way to boost their revenue.

Some physicians turn their attention to services that are not currently considered “designated health services” under the Stark Law (“DHS”), believing that investing in or contracting with companies offering such services involves less regulatory risk, are less complex and offer greater flexibility for structuring the relationship. For example, cardiac scanning companies offer opportunities for physicians to lease cardiac catheterization labs on a “part-time” or “time-share” basis. Options are proposed for physicians to own or lease PET scanners and other diagnostic equipment. Facility and equipment leases may or may not include the lease of technicians and other service personnel who actually perform the services. Neither cardiac catheterizations nor PET services are currently considered DHS if the services are not delivered as part of a hospital service. Similarly companies conducting EEG monitoring or operating sleep centers provide many services that are not currently identified as DHS under the Stark Law. As a result, physicians who utilize sleep study suppliers may consider expanding their practice to include such services or may believe there is an opportunity to contract for these services and capture reimbursement for the technical component of the tests. Despite the potential absence of Stark Law concerns and constraints, unless carefully structured, these proposed arrangements may nonetheless be contrary to Medicare regulations and may implicate the broad prohibitions of the federal Anti-Kickback Statute as well as other federal and state civil and criminal statutes.

II.  Prohibition on the Mark-Up of Purchased Diagnostic Tests.

While there are many legitimate contracting and investment opportunities that exist for physicians with third party healthcare supplier and equipment leasing companies, Medicare rules governing the prohibition on reassignment and the marking up of purchased diagnostic tests must be considered in these cases carefully. These rules place constraints on the ability of physicians to contract with companies providing diagnostic tests and to bill Medicare directly for these services. These rules are an important and often disregarded consideration when structuring relationships with diagnostic testing services providers. Similar to “contractual” or “sham” joint ventures addressed by the OIG in its Special Advisory Bulletin on Contractual Joint Ventures (April 23, 2003) and Advisory Opinion 04-17 (Issued December 10, 2004), attempting to create a joint venture or similar arrangement that is in reality a contractual relationship for purchasing diagnostic tests, in an attempt to allow the physician to receive greater reimbursement as a part of the facility providing the “technical component” of the service, presents a great risk of being found an inappropriate and potentially illegal arrangement.

Provisions governing who may receive payment for services and the related prohibition on marking up “purchased diagnostic tests” are both included in the Social Security Act (the “Act”).   As a general rule, payment for Medicare services may only be paid to the individual beneficiary or to the physician or other person who provided the service. The prohibition on billing purchased diagnostic tests provides that if a physician’s claim includes a charge for a diagnostic test (such as diagnostic x-ray tests, diagnostic lab tests, other than clinical diagnostic laboratory tests, which are reimbursed in accordance with a separate set of rules or other diagnostic tests), and the bill or payment does not indicate that the individual physician or other physician with whom the physician shares a practice personally performed or supervised the performance of the test, the physician must identify the supplier that performed the test and indicate the amount the supplier charged the physician (net of any discounts). The Act provides that the reimbursement amount equals the lower of the billing physician’s fee schedule amount or the price he or she paid for the service. If the supplier is not identified or the amount charged by the supplier is not indicated on the claim, the claim will be denied.

The Centers for Medicare and Medicaid Services (“CMS”) has further elaborated on this restriction in the Medicare Claims Processing Manual, which includes several key points:

• No special charge or payment constraints are imposed on tests performed by a physician or a technician under the physician’s supervision. The physician may bill under the normal fee schedule rules.
• The physician supervision requirement is not met for physician billing when a test is performed by supplier personnel, regardless of whether the test is performed at the physician’s office or at another location.
• A physician or physician group is permitted to submit a claim for the technical component of a diagnostic test which the physician or group purchases from another physician group or supplier that is enrolled in the Medicare program, but the physician or group performing the billing function must perform the interpretation. No formal reassignment is necessary.
• The physician or physician group may not mark-up the charge for a purchased test from the purchase price and must accept, as payment in full, the reimbursement amount that is the lowest of: the fee schedule amount if the supplier had billed directly, the physician’s actual charge or the supplier’s net charge to the physician or group, even if assignment is not accepted.

The intent of this rule is to bar arrangements designed to provide physicians or physician groups with a portion of the reimbursement of the technical component of a diagnostic test, unless the physician or physician group actually supervises or personally performs the service – meaning, the physician or group makes the necessary capital and human resource investments to legitimize the service as part of the scope of the physician or group’s practice; adding “value” to the service in essence.

CMS has identified certain arrangements between physicians and outside suppliers as “ questionable business arrangements,”   stating that, “attempts may be made by the medical diagnostic community to adjust or establish arrangements which continue to allow physicians to profit from other’s work or by creating the appearance that the physician has performed or supervised his/her technicians who are employed, contracted or leased.…The bona fides of such arrangements may be suspect and could be an attempt to circumvent the prohibition against the mark-up on purchased diagnostic tests.”   The lowest of the supervision requirement standards for diagnostic tests, “general supervision” requires performance of procedures under a physician’s overall direction, although the presence of the physician during the test is not required. Further, the training of the non-physician personnel who actually perform the diagnostic procedure and the maintenance of the necessary equipment and supplies are the continuing responsibility of the physician. Turn-key lease arrangements or the performance of services off-site primarily by personnel leased from a supplier with supplier-owned equipment do not necessarily satisfy the general supervision requirement nor the bona fides of a true physician-as-supplier arrangement. The concerns centering on the legitimacy of lease and other contractual arrangements which influenced the design of the Stark Law and the related exceptions (for example, the in-office ancillary services exception) are equally as relevant in arrangements involving non-DHS as they are for arrangements involving DHS and are reflected in the law and rules governing purchased diagnostic tests.

Physicians and physician groups that repeatedly bill Medicare beneficiaries in violation of the rules, can be excluded from participation in federal healthcare programs and/or be subject to civil monetary penalties. In addition, CMS counsels Medicare carrier personnel that if they doubt that a particular arrangement is a valid relationship where the physician is performing or supervising the services, the matter should be investigated and referred to the Department of Health and Human Services, Office of Inspector General (“OIG”). Billing in violation of the applicable regulations (for example, by erroneously indicating that a physician performed or supervised the diagnostic test when that is not really the case) or maintaining arrangements in violation of the rule may be the basis for other fraud and abuse actions under the federal False Claims Act or the Anti-Kickback Statute. As cautioned by CMS, “Illegal remuneration for referrals can be found even when the ordering physician performs some service for the remuneration.” Further, if the physician or group fails to participate as required by contractual terms or state law in rendering the service, the non-federal healthcare payor claims may constitute insurance fraud or a deceptive trade practice under state regulation or be in breach of a payor contract.

III.  Conclusion.

The message for physician clients and companies marketing diagnostic services relationships to physicians and physician groups is not as negative as it sounds. These ancillary service companies may provide legitimate and profitable investment opportunities to physicians when the rules are followed. Further, physicians may maintain medical director or similar relationships with supplier independent diagnostic testing facilities ("IDTFs"), if those services are necessary and the arrangement is appropriately structured to meet other regulatory criteria. Practitioners must understand that ownership in the enterprise or contracting with a supplier does not necessarily authorize the practitioner to bill directly for services provided by the enterprise. Clearly there are many instances in which physicians or physician groups personally perform or supervise their own personnel in the provision of diagnostic tests and are justified in billing for the tests. Arrangements involving outside organizations or suppliers should be carefully considered and structured, however, to confirm compliance with Medicare rules and billing of payor claims requirements.

	42 U.S.C § 1395nn.
	The Executive Director of Medicare Payment Advisory Commission (“MedPac”) recently presented MedPac’s recommendations to a Congressional subcommittee on ways to improve the delivery of imaging services for Medicare beneficiaries. MedPac indicated that there are concerns about potential overuse of imaging services and stated that the growth in imaging services could be driven by a number of factors, including among others, (1) that technological innovation has made it more feasible to provide imaging procedures in physician offices and (2) physicians’ interest in supplementing their professional fees with revenues from ancillary services. Medicare Payment Advisory Commission. Testimony: MedPac Recommendations on Imaging Services (March 17, 2005).
	MedPac’s recent recommendations on imaging services included a recommendation to set national standards for providers who bill Medicare for performing or interpreting diagnostic imaging studies, as well as a recommendation for strengthening the rules that restrict physician investment in imaging centers by, among other measures, including nuclear medicine and PET procedures as DHS under the Stark Law. See Id.
	42 U.S.C. § 1320a -7b(b). State physician non-self-referral laws may also apply more broadly than the federal Stark Law.
	42 U.S.C. § 1395u(b)(6); 42 U.S.C. § 1395(n). See also 42 C.F.R. § 424.80 and 42 C.F.R. § 414.50
	See 42 U.S.C. § 1395u(b)(6). See also, Centers for Medicare and Medicaid Services , Medicare Claims Processing Manual (Pub. 100-4) Ch. 1 § 30.2.
	Re-emphasizing the point, Section 30.2.9 of the Claims Processing Manual, governing exceptions to assignment of a provider’s right to payment for purchased diagnostic tests, instructs Medicare Carriers to treat a claim as unprocessable when a global bill is received and there is information on the claim that indicates the test was purchased.
	See Medicare Claims Processing Manual, Ch. 13 § 20.2.4. See also 42 C.F.R. § 414.50.
	In certain instances the Medicare Part B payment can also be made directly to a person or entity that provides diagnostic tests for professional interpretations purchased by the diagnostic test supplier.
	Medicare Claims Processing Manual, Ch. 13 § 20.2.4.2-D.
	Id.
	42 C.F.R. § 410.32. See also, the Medicare Benefit Policy Manual, Ch. 15 § 80.
	42 U.S.C. § 1395u(n) (2) and Medicare Claims Processing Manual, Ch.13 § 20.2.4-C. (3).
	Medicare Claims Processing Manual, Ch. 13 § 20.2.4.2-D.
	Id. This correlates to the “one purpose” rule of the Greber case, 760 F.2d 68 (3 rd. Cir. 1985), cert. denied, 474 U.S. 988 (1985), the Bay State Ambulance case, 874 F.2d 20 (1 st. Cir. 1989) and their progeny. Potential violation of the Anti-Kickback Statute are of a particular concern where an ordering physician reassigns his or her payment to a supplier who then bills for the test.
	Care must also be used in validating a company’s claim that it is only providing non-DHS services or does not see Medicare or Medicaid patients. In many instances, the primary service is not DHS but other services the supplier may offer are governed by the Stark Law. If that is the case, the arrangement must be structured in compliance with a Stark Law exception in order for investing physicians or physicians with a compensation arrangement to refer to the company. Additionally, if the company has a separate business relationship with the physician that does provide services to federal or state healthcare program beneficiaries, the “non-Medicare” business opportunity may be seen as an inducement to refer patients to the Medicare provider.