Trends in Imaging Arrangements

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Prior to 2007, medical practices that developed and used imaging facilities on an exclusive, full-time basis were not overly scrutinized by payors or regulators. In addition, physician practice arrangements that were properly structured to allow the practice to use the imaging facility on a part-time basis (such as block leasing) were also quite common. In fact, CMS had, on at least two occasions, suggested that shared imaging facilities were permissible. In 2001, concerning phase I of the Stark II law, CMS stated that the in-office exception protected shared imaging facilities if the physicians sharing that facility routinely provided their full range of services in the same building. About phase II, CMS wrote in 2004 that a shared imaging facility could be used if it satisfied the requirements for the in-office ancillary services exception in its supervision, location, and billing. New Regulations 2007 saw increased regulatory scrutiny of financial arrangements with referring physicians, in part because health-care spending returned to prominence as a political issue. Particular attention was paid to physicians' ownership of surgical hospitals and to the participation of physicians in arrangements to provide pathology and imaging services. Phase III of the Stark law was published, but had little impact on shared imaging. The final CMS Physician Fee Schedule, however, prohibited IDTF sharing and contained an anti-markup rule. This measure took effect on January 1, 2008, and its implications for imaging arrangements are profound. The IDTF sharing prohibition (which does not apply to hospital-based and mobile IDTFs) permits nonclinical space and staff to be shared. It forbids an IDTF to share a practice location with another Medicare provider, to lease or sublease its operations or its practice location to another Medicare provider, or to share diagnostic equipment used in the initial diagnostic test with another Medicare provider. Under the anti-markup rule, if the physician practice purchases a test or interpretation from a so-called outside supplier, or the test or interpretation is performed at a site other than the office of the billing practice, then the practice's reimbursement is limited to one of three levels, whichever is lowest. They are the Medicare fee schedule amount, the actual charge paid by the practice to the outside supplier for the service, or the outside supplier's actual charge minus any payment by the outside supplier to the practice for the use of the practice's space or equipment. There are three important points with respect to the anti-markup rule. First, it applies to both the technical and professional components of a diagnostic test. An outside supplier is defined as a person other than an employee of the billing practice or other than someone who furnished the service as part of a permitted Medicare reassignment. Second, the anti-markup rule provides that the diagnostic test must be performed in the office of the billing practice even if the test is not purchased from an outside supplier, and the full range of the practice's usual services must be available in this office. CMS, however, delayed the implementation of this same-suite location requirement until January 1, 2009, which should allow many existing arrangements to continue for the time being. Third, the anti-markup rule is a reimbursement limitation and not a change to the Stark law, although it could affect how an arrangement is being structured for purposes of avoiding its reimbursement limitation. These 2007 regulatory changes clearly have major repercussions on medical imaging arrangements, which have usually been structured to comply with the Stark law's exception for in-office ancillary services. This permitted imaging services to be performed in a centralized building in a space used exclusively by the billing practice (which was not required to furnish professional services there) or in a space located in the same building where the billing practice operated an office at least part of the time. As a result, many medical imaging arrangements must be restructured if the billing practices are to qualify for CMS payments other than the anti-markup rate (the Medicare Fee Schedule amount or the actual charge paid). This is producing innovative forms for some of the new arrangements, and causing virtually all parties to existing arrangements to consider whether any changes are required. Below is a discussion of four commonly occurring scenarios. Restructuring Options The first scenario is that of the supergroup with an off-site imaging facility. It has been quite common for midsize to large physician practices that have substantial scan volumes to operate imaging facilities for their own exclusive, full-time use. These arrangements meet part of the anti-markup rule in that practices own the equipment and employ the technologists themselves, but the facilities' off-site locations mean that they fail the new rule's same-suite location test. The second scenario also involves the supergroup type of facility, but this one is located in the same building as the practice. Historically, this arrangement has been seen frequently, particularly because the siting requirements of imaging equipment have often meant that it occupied the lowest floor of a building that had physicians' offices on the higher floors. Because the same-building Stark test did not require exclusive use, block leasing, expense sharing, and many other imaging arrangements used this model. The new same-suite location test is also failed by this kind of facility. Since the implementation of the same-suite location standard has been delayed, the first and second scenarios can continue in existence for now. Many practices, however, are still considering restructuring options in anticipation of potential rulemaking in the near future. Based on the anti-markup rule’s same-suite location standard, such restructuring could come in the form of two options. A practice could begin to operate full- or part-time satellite offices within the suite that contains the imaging equipment or consider selling its imaging division to a third party. Sale of the imaging division can be a traditional asset sale of equipment, supplies, and other items needed to operate the facility. It could also be that traditional asset sale plus a leaseback under an ancillary management arrangement. For example, the practice could set up a new entity that owns all assets used in the imaging division. A purchaser (imaging company) then acquires an interest in the new entity, and the new entity provides the practice with management of its imaging division. To the extent that a leaseback arrangement is involved, parties should be sure to address the anti-kickback law, Stark law, and other regulatory issues that could be implicated by such a leaseback arrangement. The third scenario involves practices using ancillary-only management. An imaging company provides equipment, along with administrative and other nonclinical services, while the practice provides imaging space and performs or otherwise arranges for the performance of billing/collections activities. Under this arrangement, one critical factor is whether the management company or billing practice employs the technologist. If the management company employs the technologist, then the anti-markup rule probably applies. Under such a scenario, the practice would have to accept the anti-markup payment level and consider pursuing the arrangement only to the extent it still makes commercially reasonable sense (that is, commercial payor contracts allow for a profit margin). If, however, the practice employs the technologist, then it is possible that the anti-markup rule would not apply. There are also a number of other health care regulatory reasons that it is preferable for the technologist to be an employee and, thus, many ancillary-only management arrangements are being modified, pursuant to which the technologist is a part-time employee of the billing practice. The fourth scenario is the block leasing model, in which an IDTF, hospital, or radiology group leases its facility/equipment/services to a group practice that provides imaging as part of its operations. Most block leases involve imaging facilities located in the same building as the physician practice, but not in the same suite. If the block lease involves an IDTF, there is the additional challenge of the IDTF now being subject to the 2008 prohibition of shared space and equipment. Some IDTFs are actually operating in the same manner as radiology groups and are considering whether to convert under the Medicare program into radiology groups (which is not subject to the sharing prohibition). Many unanswered questions remain in the wake of the 2008 regulatory changes. For example, arrangements that are now subject to the anti-markup rule and have not been restructured do not always involve an easily identifiable charge. This exposes the parties to a risk of false-claims accusations (that is, charges that the claim did not disclose the appropriate charge from the outside supplier). To mitigate such exposure, parties participating in such an arrangements should first consider whether the exposure is significant enough that the practice may choose to give up medical imaging revenue entirely. Second, the practice may consider restructuring the imaging arrangement so that services are provided within the practice suite by technologists who are employees. Third, the practice may change the method of payment to an easily identifiable net charge. Fourth, in what appears to be a common response so far, it may decide to use whatever reasonable net charge methodology the parties deem appropriate, knowing that there is risk that such methodology could be challenged in the future.