Just as imaging center operators thought they had a handle on the inhospitable reimbursment and regulatory environment for 2007, the Centers for Medicare and Medicaid Services (CMS) issued a last-minute transmittal on January 26 that added significant changes to the 14 new compliance standards independent diagnostic testing facilities (IDTFs) must meet in order to bill Medicare.

The changes, made to the Medicare Program Integrity Manual used by local Medicare carriers to enroll and administer the Medicare program for IDTFs, erects new roadblocks for new or newly purchased IDTFs seeking to image the Medicare population. The scope, extent, and timing of the transmittal took many experts in the imaging field by surprise.

The single-most onerous aspect of the new standards pertains to the instructions to carriers on when an IDTF may begin billing for Medicare patients. Previously, newly enrolled IDTFs could collect retroactively for all Medicare patients imaged from the time their application was received by the local Medicare carrier. Beginning February 26, IDTFs cannot begin billing Medicare until their applications have been approved by the contractor.

New Section 4.19.1.C of Chapter 10 of the Manual reads as follows: "The contractor shall establish the effective billing date of IDTF CMS-855B applications received on or after the implementation date of this instruction as the date the contractor approved the application."

Multi-site operators also must contend with the new challenges of limiting physician oversight to three sites, as well as the requirement for one enrollment per practice location, which requires IDTFs to separately submit a new CMS-855B application for each site it operates.

The financial impact on operators of new imaging centers, particularly multi-site operators in an expansion mode, is predicted to be great. "It means a significant cash flow problem because it commonly takes a minimum of a month to receive a Medicare number and in some parts of the country, it may be taking two and three months or longer," says W. Kenneth Davis Jr, JD,an attorney and partner with Katten Muchin Rosenman LLP, Chicago, Ill. "And as of January 1, the carriers have had these 14 new standards to review, so the speculation has been that the initial application process may take even longer."

Another of the revisions to the standards for IDTFs applying to become Medicare suppliers requires applicants to attach the credentials or licenses of non-physician employees, such as technologists, to the initial application. Yet another new requirement, Section 4.19.4.A of the Manual, states: "If a specific license/certificate is required for non-physician personnel, a supplier cannot contract with an individual or other entity to provide these services.  The owner of the supplier, or a full-time W-2 employee, must have this license."

"The way the application process works is you have to be fully operational and staffed, and fully compliant with all of the 14 standards before you can apply," notes Davis. "That means you have to incur a lot of costs, you are burning through capital, and you can't bill Medicare."

These costs will need to be incorporated into IDTF pro formas moving forward, notes Davis. Another concern for many is that private payors will follow the lead of Medicare and insist that IDTFs have a Medicare number before they can bill privately. States with large Medicare populations, like Arizona and Florida, will present particular challenges to IDTF operators seeking new locations.

In what may be an effort to block leasing arrangements, standard number three prohibits IDTFs from sharing space and equipment with other Medicare suppliers (which includes physicians and IDTFs, but does not include hospitals and other suppliers named "providers" by Medicare). "Most people are concluding that this provision may have the affect of barring/prohibiting IDTFs from entering into lease deals," reports Davis. That will depend on how CMS defines sharing, he explains. "In the typical lease deal, whether a block lease or a per click deal, when the leasee is using the equipment and space, they are using it exclusively, and that tracks language in the Stark and anti-kickback regulations. But if you ask CMS, they may say,"No you are sharing it.' In any event, lease deals often involve the sharing of common space, as allowed under the Stark exceptions and anti-kickback safe harbors."

The changes were not in the proposed rule published in the Federal Register last summer, nor were they contained in the Final Physician Fee Schedule for 2007." A lot of people are asking whether CMS may have gone a bridge too far by putting these in the Program Integrity Manual instead of the regulations," says Davis. "CMS may have gone farther than it has the authority to do. It may have effectively issued regulations without going through the federal rule-making process. Someone may challenge it."