In the Proposed Rules, the link for which was provided in the August 29, 2006 MedLaw Blog post, CMS announced proposed changes to the reassignment exceptions for purposes of Medicare billing and to the definition of “centralized building” for purposes of the ancillary services exception of Stark II.


CMS is basically proposing to treat purchased technical components of diagnostic tests and the purchased professional component (i.e., interpretations) of tests similarly. Section 1861 (s)(3) of the Social Security Act already prohibits the purchase and mark-up of diagnostic tests, i.e., the technical component. CMS is concerned that the reassignment changes enacted by § 952 of the Medicare Modernization Act of 2004 (MMA), which amends Social Security Act § 1842 (b)(6)(A)(i) to allow Prescription Drug, Improvement, and "where the service was provided under a contractual arrangement between such physician or other person and entity" would be misunderstood to allow the purchase of the professional component of a test for less than the Medicare Fee Schedule and an resulting mark-up through the reassignment provisions. Prior to MMA, reassignment was basically allowed only among employers/employees and when services were performed on the premises of designated healthcare facilities (i.e., hospitals and physician directed clinics). CMS commented that the reassignment rules were basically intended to accommodate hospital emergency department staffing companies that employed physicians on a contract basis.

By permitting reassignment for “contractual arrangements”, CMS is concerned that this reassignment exception can be used in conjunction with the “physician services” exception for purposes of the Stark Act to justify arrangements in which physicians are enrolled in multiple assignment accounts under contractual arrangements to provide services on a basis that would permit the mark-up of those services by the billing physician group. CMS stated that its concerns in this area are best illustrated by the “pod laboratory” concept, the legality of which was questioned in Advisory Opinions 04-18 and 04-17, in which an entity would lease space in a medical building, sub-divide the space into separate areas or cubicles for different physician groups, and enroll the pathologists in the assignment accounts of each of the physician groups in order to allow those physician groups to bill directly for those services. 

In order to restrict or prevent these arrangements, CMS is proposing two amendments and is considering a third, as follows:

1.         CMS is proposing that the amount billed to Medicare by the billing entity may not exceed the lowest of the following amounts:

a.         The physician or other supplier’s net charge to the billing physician or medical group,

b.         The billing physician’s or medical group’s actual charge, or

c.         the fee schedule amount for the service that would be allowed if the physician or other supplier billed directly.

2.         CMS is proposing that, in order to bill for the technical component, the billing entity would be required to perform the interpretation.

3.         CMS is considering further amendments that would impose conditions on when a physician or medical group may bill for reassigned professional components of diagnostic tests such as requiring that the test must be ordered by a physician that is financially independent of the person or entity performing the test and also of the physician or medical group performing the interpretation, requiring that the physician or medical performing the interpretation does not actually see the patient, and requiring the physician or medical group billing for the interpretation to have performed the technical component of the test.

Frankly, these requirements existing would not appear to restrict enrollment in multiple assignment accounts any more than group practice requirements. Perhaps, that is why the amendment of these “centralized building” definition is key to these provisions.


The pod concept concerns CMS because it theoretically allows the establishment of multiple centralized buildings at a single location for the performance of ancillary services in situations where none of the individual spaces is actually independently capable of performing the professional services. Therefore, CMS is proposing to revise the definition of “centralized building” to add the following language:

“A centralized building does not include space that is owned or leased by a group practice if that space is less than 350 square feet. This limitation does not apply to space owned or rented in a building where no more than three group practices own or lease space in the ‘same building’ (as defined in this section) and share the same ‘physician in the group practice’ (as defined in this section). A centralized building does not include space owned or leased by a group practice if equipment needed to perform substantially all (at least 90% of the designated health services furnished in that space in any given calendar year) is not permanently located in that space. That is, equipment needed to perform more than 10% of the designated health services furnished in that space in a calendar year cannot be temporarily moved into that space from another space in the ‘same building’ or from outside ‘the same building’."

The purpose of this amendment is obviously to make it impossible to establish centralized buildings for multiple physician practices, but to still recognize the fact that many physicians legitimately practice in relatively small physical facilities for purposes of providing ancillary services.