The Medicare Anti-Markup provisions for diagnostic tests, which will be effective as of January 1, 2008, are intended to prevent physicians or other medical suppliers from purchasing either the professional component (PC) or technical component (TC) of any diagnostic test (excluding clinical laboratory tests subject to separate restrictions) and profiting or marking up the acquisition cost by billing globally in accordance with the fee schedule.

The mechanism for this new restriction on diagnostic test markups is 42 CFR § 414.50 which provides that:

1.         a physician or supplier who orders and bills for the professional component or technical component or bills globally for a diagnostic test;

2.         and purchases either the professional or technical component from a third party or the test is performed at a site other than the office of the billing physician or supplier;

3.         may bill for no greater than the lowest of the following:

            a.         the performing supplier’s net charge to the billing physician or supplier,  

            b.         the billing physician or supplier’s actual charge, or

c.         the fee schedule amount for the test that would have been allowed if the performing supplier billed directly.

Although the regulations restrict billing to the net charge, they do not define net charge. The comments make it clear that this an accounting issue and impose the responsibility and liability (for false claims) on the billing physician or supplier.

A third party or outside supplier is any individual that is not a W-2 employee of the physician/supplier or not satisfying the reassignment provisions of Section 42 CFR § 424.80.

Although it might be possible to include third parties in a structure which would avoid being characterized as an outside supplier, the test must still be performed in the medical office of the physician or supplier. For a solo individual, that means that the test must be performed in the office in which the individual practices. For an entity, the test must be performed in a location where the entity regularly provides the full range of medical services typically provided by the entity.

This provision clearly eliminates the use of a centralized office dedicated to the provision of individual Designated Health Services pursuant to the Stark ancillary services exception, because that centralized office will no longer qualify as an office at which the full range of services are typically provided unless the centralized office includes both the regular medical services and the designated health services or diagnostic tests. Please note that the definition of diagnostic tests for purposes of this exception is not limited to the Stark designated health services exception.

While the language may require some parsing in order to understand what is prohibited, the anti-markup provisions clearly do not apply in the following situations:

1.        The anti-markup provisions do not apply to any test ordered by a physician or supplier if that   test is performed by the physician or supplier in that physician or supplier’s office.

2.         The anti-markup provisions do not apply to any test ordered by a third party physician or supplier when that test is performed by another physician or supplier, even if the performing physician or supplier actually purchases components of the tests from another third party.

The test is clearly intended to prevent physicians/suppliers from ordering tests, billing globally for those tests, but purchasing components of the tests from other suppliers for less than the aggregate fee schedule reimbursement.

In the regulations, the CMS commentary provides seven examples of how the new rules will be applied. The text of those seven examples is included below in the link marked “Examples.” Also included below is the text of the actual regulations, i.e., 42 CFR § 414.50, which will become effective as of January 1, 2008. That link is entitled “Regulations.”

Click here for examples.

 Click here for regulations.