Since 2001 the Centers for Medicare & Medicaid Services (CMS) has revised the rule regarding “incident to” billing1 to clarify its complex requirements. However, the regulation is still misunderstood by many providers. As a result, many physicians and their non-physician practitioners may continue to bill “incident to” services incorrectly, and the costs could be a tough pill to swallow. The federal government recovered more than $1.8 billion under the False Claims Act and its qui tam provisions in 2016 alone.2 Violations of “incident to” billing protocols resulted in high profile settlements, including one for $700,0003 and another for $4.4 million.4 This article will discuss the requirements and advantages to billing services as “incident to.” It will address the confusion regarding “incident to” billing and the potential sources for the confusion. It will also discuss the potential ramifications and the legal strategies that can be developed to defend against allegations of improper billing.
I. “Incident to” Requirements
Section 1861(s)(2)(A) of the Social Security Act establishes the benefit category for “incident to” services.5 “Incident to” services are furnished incident to physician professional services, usually in the physician’s office.6 The services are commonly provided by non-physician practitioners such as physician assistants or nurse practitioners, but billed as if the services were provided by the physician.7 Some services, like flu shots, labs, EKGs, and X-rays have their own statutory benefit categories and are not considered “incident to” services.8 In order to bill “incident to,” the service must be a part of the normal course of treatment for that patient, and the physician must remain actively involved in the course of treatment.9
“Incident to” services can only be billed for established patients and may not be billed if the patient is being seen for the first time. However, if an established patient is treated for a new problem different from the reason for the patient’s initial visit, the service may not be billed as “incident to” and must be billed under the national provider identification number (NPI) for the non-physician practitioner providing the service. If the patient’s treating physician is not in the office during the visit, but another physician is on site, the “incident to” service provided by a non-physician practitioner must be billed under the NPI of the supervising physician who is onsite. As a result, the physician treating the patient and the supervising physician may not always be the same. If no physician is on site, the service must be billed under the NPI of the practitioner providing the service.10
Despite its complex requirements, there are advantages to billing “incident to.” It allows non-physician practitioners to submit claims under the physician’s NPI. As a result, the practice receives reimbursement for the service provided by the non-physician practitioner at 100 percent of the Medicare Physician Fee Schedule. Claims submitted under the non-physician practitioner’s NPI are only reimbursed at 85 percent of the fee schedule. In addition, non-physician practitioners that are licensed employees, leased employees, or independent contractors of the practice can bill “incident to” so long as they are supervised by a physician and not otherwise excluded from a federally funded healthcare program. This allows the practice to increase the number of patients for which it can receive the higher reimbursement rate.
II. Supervision Requirement
The confusion regarding “incident to” billing usually relates to the level of supervision that must be provided. Services must be furnished “under the direct supervision of the physician.”11 Direct supervision means the physician “must be present in the office suite and immediately available to furnish assistance and direction throughout the performance of the procedure. It does not mean that the physician must be present in the room when the procedure is performed.”12 The rule has not always been so clear. Confusion still reigns regarding the supervision requirement even with the most recent clarification. It is not without reason.
The direct supervision requirement was added to the regulation in 2002. Prior to the change, the regulation read, in relevant part: “Medicare Part B pays for services and supplies incident to a physician's professional services… if the services or supplies are of the type that are commonly furnished in a physician’s office or clinic….”13
In 2002, the regulation was expanded to read, in relevant part:
Medicare Part B pays for services and supplies incident to the service of a physician or other practitioner…Services and supplies must be furnished under the direct supervision of the physician (or other practitioner). The physician (or other practitioner) directly supervising the auxiliary personnel need not be the same physician (or other practitioner) upon whose professional service the incident to service is based.14
After more than a decade, the regulation was revised again in 2015, providing:
In general, services and supplies must be furnished under the direct supervision of the physician (or other practitioner)… The physician (or other practitioner) supervising the auxiliary personnel need not be the same physician (or other practitioner) upon whose professional service the incident to service is based.15
Despite CMS’s attempts to clarify the regulation, confusion regarding the supervision requirement was still present.16 It is possible that practices billed “incident to” claims improperly for more than ten years between rule changes.
In the most recent attempt to clarify the requirements of billing services as “incident to,” CMS revised the regulation in 2016, providing:
In general, services and supplies must be furnished under the direct supervision of the physician (or other practitioner)… The physician (or other practitioner) supervising the auxiliary personnel need not be the same physician (or other practitioner) who is treating the patient more broadly. However, only the supervising physician (or other practitioner) may bill Medicare for incident to services.17
As a result, only the supervising physician who is on site may bill for the “incident to” service for that particular date of service.
III. Defending “Incident To” Claims
Many practices may bill “incident to” claims improperly. Some improperly billed claims are the result of billing under the NPI of the patient’s treating physician rather than the supervising physician. Other issues include billing “incident to” for new patients, or billing “incident to” for established patients with new problems. In addition, some providers misinterpret the supervision requirement to mean that they must review 15 percent of their non-physician practitioner’s charts.
The result of improperly billed “incident to” claims is an overpayment that must be reported and refunded in accordance with the 60-day report and refund rule.18 Improperly billed claims could also subject the practice to an audit, or result in liability under the False Claims Act, including its harsh fines and penalties. Attorneys with clients facing overpayment audits or other potential government action must understand the rule’s precise requirements and develop strong legal arguments to defend against potential liability. The timing of the review can also play an important role in the defense strategy.
Moreover, there are two recent issues pertaining to incident to defenses of which counsel should be aware.
One issue is whether CMS can apply the 2016 rule retroactively to practices that were billing incorrectly under the treating physician and not the supervising physician, but have since corrected their billing. The United States Supreme Court has held that agencies cannot adopt retroactive rules without explicit congressional approval.19 The Administrative Procedure Act arguably supports a similar presumption.20
Despite the presumption against retroactive application of rules, courts have not applied the principle consistently. For example, in Combs v. Commissioner of Social Security, the Sixth Circuit held that the Social Security Administration could remove obesity from a list of presumptive disabilities and apply the change to an application filed three years earlier.21 However, in National Mining Association v. Department of Labor, the D.C. Circuit held that the Department of Labor could not apply new rules affecting Black Lung Benefits Act claims filed before the new rules were adopted.22
Section 553 of the Administrative Procedure Act includes exemptions to the notice and comment requirement for interpretive rules. Specifically, exemptions are included for “interpretive rules, general statements of policy, and rules of agency organization, procedure, or practice.”23 Interpretive rules allow agencies “to explain ambiguous terms in legislative enactments without having to undertake cumbersome proceedings.”24 Legislative (or substantive) rules on the other hand, “create rights, impose obligations, or effect a change in existing law pursuant to authority delegated by Congress.”25
The 2016 rule for “incident to” billing appears to interpret the prior 2002 regulation. It doesn’t necessarily change existing law. In fact, CMS has argued that the law has been the same since 2002 when direct supervision was first added.26 Whether the “incident to” rule change falls within the retroactivity exemption is untested. Challenges to agency interpretive rules have mostly failed under the principles outlined in Chevron.27 However, there may be an argument that the rule changes substantive rights by, for example, resulting in overpayments from improper billing practices. In addition, the rule went through notice and comment, the procedure for substantive rules. Accordingly, there may be an argument that the rule should not be applied retroactively to practices that were billing “incident to” claims improperly prior to the rule change.
A second issue is whether submitting improperly billed “incident to” claims may be considered false claims under the False Claims Act. In the past, submitting improperly billed “incident to” claims could conceivably be seen as a false claim. The 2016 United States Supreme Court ruling in Universal Health Servs., Inc. v. United States ex rel. Escobar may have put that in doubt by applying a materiality standard. In Escobar, the plaintiffs (and government interveners) alleged that submitted claims for services performed by unlicensed staffers were false and fraudulent under the False Claims Act. The Supreme Court held that “a misrepresentation about compliance with a statutory, regulatory, or contractual requirement must be material to the Government’s payment decision in order to be actionable under the [Act].”28 The Court also noted that the “materiality standard is demanding,” and “[the Act] is not an all-purpose antifraud statute, or a vehicle for punishing garden-variety breaches of contract or regulatory violations.”29
The question with regard to “incident to” billing is whether the improperly submitted claims are material to the government’s payment decisions, and thus false claims, or a technical error resulting in a 15 percent overpayment and refund. In a case issued after Escobar, the Sixth Circuit noted in United States ex rel. Hobbs v. Medquest Assocs., Inc. that the False Claims Act “is not a vehicle to police technical compliance with complex federal regulations….”30 Hobbs involved the use of supervisory physicians by a diagnostic testing company who were not approved by the local Medicare carrier. As in Escobar, the government alleged that the company implicitly certified compliance with the supervising-physician requirements when it submitted the claims for reimbursement.31 The Court held that where “violations [of the Medicare statute] would not naturally tend to influence CMS’s decision to pay on the claims, the bluntness of the False Claim Act’s hefty fines and penalties makes them an inappropriate tool for ensuring compliance with technical  requirements….”32 In another case issued after Escobar, United States ex rel. Prather v. Brookdale Senior Living Communities, the concurring opinion outlines the argument for technical noncompliance as opposed to materiality, stating that “even if [the plaintiff] is deemed to have adequately alleged a falsity, it is merely technical noncompliance and not a truly fraudulent scheme.”33
Although the argument has not been fully litigated, attorneys defending against “incident to” overpayments can argue that the improperly submitted “incident to” claims are technical noncompliance, and not material to the government’s payment decisions. Accordingly, the claims would not fall under the purview of the False Claims Act and its qui tam provisions. More important, the provider or practice would not be subject to the harsh fines and penalties that the False Claims Act carries.34
When billed correctly, “incident to” services allow practices to service patients with non-physician practitioners while receiving the benefits as if the services were provided by the physician. When billed incorrectly, the result could be a large overpayment with additional fines and penalties. It is important that attorneys representing clients with “incident to” violations understand the complexities of the regulation. The rule changes and discrepancies have caused confusion among providers with regard to “incident to” billing. Attorneys defending against governmental audits and potential false claims violations should utilize every argument in their defense.
Luke P. Ihnen is an Associate with London & Amburn, P.C. in Knoxville, Tennessee. He represents physicians, physician groups, and other allied professionals in regulatory and compliance matters, including government audits, appeals for denied claims, Medicare appeals, HIPAA compliance, and navigation of complex healthcare statutes and regulations. He is also active in the firm’s medical malpractice defense group. He received his B.S. and M.S. from Florida State University, and his J.D. from The University of Tennessee College of Law. He may be reached at email@example.com.
See 42 C.F.R. § 410.26.
Annual Report for Fiscal Year 2016, Health Care Fraud and Abuse Control Program, p. 64 (January 2017), https://oig.hhs.gov/publications/docs/hcfac/FY2016-hcfac.pdf.
Doctors and Medical Facilities in Lehigh Valley Pay $690,441 to Resolve Healthcare Fraud Allegations, United States Department of Justice News (Aug. 17, 2016), https://www.justice.gov/usao-edpa/pr/doctors-and-medical-facilities-lehigh-valley-pay-690441-resolve-healthcare-fraud.
United States Settles False Claims Act Allegations Against Orthopedic Surgery Practice for $4,488,000, United States Department of Justice News (Dec. 7, 2016), https://www.justice.gov/usao-mdfl/pr/united-states-settles-false-claims-act-allegations-against-orthopedic-surgery-practice.
See 42 U.S.C. § 1395x(s)(2)(A). See also 42 C.F.R. § 410.26.
“Incident to” Services, MLN Matters Number: SE0441, Centers for Medicare & Medicaid Services (Aug. 23, 2016) available at https://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNMattersArticles/downloads/se0441.pdf. See 42 U.S.C. § 1395x(s)(2)(A); 42 C.F.R. § 410.26.
Id. See 42 C.F.R. § 410.74(b); 42 C.F.R. § 410.75(d). Non-physician practitioners can also include clinical nurse specialists, nurse midwives, or clinical psychologists. See 42 C.F.R. § 410.76(d); 42 C.F.R. § 410.77(c); 42 C.F.R. § 410.71(a)(2).
"Incident to” Services, MLN Matters Number: SE0441, Centers for Medicare & Medicaid Services (Aug. 23, 2016) available at https://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNMattersArticles/downloads/se0441.pdf.
See generally id. See also Understanding Medicare Part B Incident To Billing: A Fact Sheet, 39 J. Wound Ostomy Continence Nurs., 2S, S17-S20 (2012) available at http://journals.lww.com/jwocnonline/Fulltext/2012/03001/Understanding_Medicare_Part_B
42 C.F.R. § 410.26(b)(5) (emphasis added).
42 C.F.R. § 410.32(b)(3)(ii) (emphasis added).
42 C.F.R. § 410.26(a) (2001) (emphasis added).
42 C.F.R. § 410.26(b)(5) (2002) (emphasis added).
42 C.F.R. § 410.26(b)(5) (2015) (emphasis added).
CMS Transmittal 148 (April 28, 2004) and CMS Transmittal 3083 (Oct. 2, 2014), intended to clarify the rules for “incident to,” are arguably just as confusing.
42 C.F.R. § 410.26(b)(5) (2016) (emphasis added).
See 81 Fed. Reg. 7653 (Feb. 12, 2016).
See Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208 (1988).
See 5 U.S.C. §§ 551 (4), (6). See also Bowen, 488 U.S. at 217 (Scalia, J., concurring) (“[T]here is really no alternative except the obvious meaning, that a rule is a statement that has legal consequences only for the future.”)
459 F.3d 640, 648-49 (6th Cir. 2006).
292 F.3d 849, 867 (D.C. Cir. 2002).
5 U.S.C. §§ 553(b)(A)-(B). See Perez v. Mortgage Bankers Ass’n, 135 S.Ct. 1199, 1206 (2015).
Am. Hosp. Ass’n. v. Bowen, 834 F.2d 1037, 1045 (D.C. Cir. 1987).
Hemp Indus. Ass’n v. DEA, 333 F.3d 1082, 1087 (9th Cir. 2003).
See 80 Fed. Reg. 71067 (Nov. 16, 2015) (“As stated in the CY 2002 PFS final rule… the Medicare billing number of the ordering physician or other practitioner should not be used if that person did not directly supervise the auxiliary personnel.”).
467 U.S. 337, 844 (1984). See Perez, 135 S.Ct. at 1206 (“Because an agency is not required to use notice-and-comment procedures to issue an initial interpretive rule, it is also not required to use those procedures when it amends or repeals that interpretive rule.”).
Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S.Ct. 1989, 2002 (2016) (emphasis added).
Id. at 2003 (emphasis added).
United States ex rel. Hobbs v. Medquest Assocs., Inc., 711 F.3d 707, 717 (6th Cir. 2013) (emphasis added).
Hobbs, 711 F.3d at 715.
Id. at 717 (emphasis added) (quotes and citations omitted). See also Prather, 838 F.3d at 781 (“At the end of the day, this case is about late signatures, not false claims.”).
838 F.3d 750, 781 (6th Cir. 2016) (McKeague, J., concurring in part and dissenting in part) (emphasis added). See also United States ex rel. Schiff v. Marder, __ F. Supp. 3d __ (S.D. Fl. 2016) (citing Hobbs).
This argument would not hold up if the provider was intentionally billing “incident to” claims incorrectly.