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