The New Anti-Markup Rule For Diagnostic Tests

The New Anti-Markup Rule For Diagnostic Tests

By Wayne Kinkade

On November 18, 2008, the Centers for Medicare and Medicaid Services (“CMS”) published its final 2009 physician fee schedule. The new fee schedule also finalized regulations regarding the “Anti-Markup Rule” related to billing for diagnostic tests. The new Anti-Markup Rule went into effect on January 1, 2009. In short, the Anti-Markup Rule prohibits a physician who bills for diagnostic tests from “marking up” the charge to Medicare if the tests were performed or supervised by a physician who does not “share” a practice with the billing physician. As a result, physicians must carefully evaluate CMS’ definition of a “shared practice” to determine the application of the new rules.


Historically, Medicare limited payments to physicians for purchased diagnostic tests where the physician purchased the technical component (“TC”) from an outside supplier. This “purchased diagnostic test rule” limited the purchasing physician’s charge to Medicare to the actual acquisition cost. This rule did not apply to clinical laboratory tests. CMS also placed limitations on physician purchases of the professional component (“PC”) of such tests under the “purchased interpretation rule.”


As of January 1, 2009, there are two alternatives to establishing sufficient “practice sharing” for billing the TC or PC of a diagnostic test without anti-markup restrictions. With respect to a TC or PC of a diagnostic testing service, the performing physician is considered to share a practice with the billing physician (or other supplier) if either the “substantially all” test or the “site of service” test is met, as described below. Under either test, the TC and the PC must be analyzed separately.


The Anti-Markup Rule does not apply when the performing physician provides “substantially all” of his or her professional services through the billing physician (or other provider). “Substantially all” means that the performing physician performs at least 75% of his or her professional services for the billing physician. This rule is focused solely on the relationship between the billing physician and the physician performing the test (location is not relevant here). Performing physicians must have either (a) met the substantially all test within the previous 12 months; or (b) must expect (in good faith) to meet the test within the subsequent 12 months.


If the substantially all test cannot be met, the physician’s services may still meet the site of service test. This test is met if the TC is conducted and supervised, or the PC is performed, in the office of the billing physician or other supplier. Under this test, the “office of the billing physician or other supplier” is interpreted to mean any space in which the billing physician regularly furnishes patient care services. This may include medical space where the billing physician furnishes diagnostic tests so long as the space is in the same building. For a physician organization, this space is where the ordering physician provides substantially the full range of patient care services that the ordering physician provides generally.

Under the site of service test, the Anti-Markup Rule does not apply if both (a) the performing physician is an owner, employee or independent contractor of the billing physician; and (b) the TC or PC is performed in the same office as the billing physician. Note that here the focus is purely on location and the performing physician does not need to meet the 75% test. Under the site of service test, the performance of the TC means both supervising and conducting the TC.


If the Anti-Markup Rule applies, the payment to the billing physician (less deductibles and coinsurance paid) for the TC or PC of the diagnostic test may not exceed the lowest of the following amounts: (a) the performing supplier’s net charge to the billing physician; (b) the billing physician or other supplier’s actual charge; or (c) the fee schedule amount for the test had the performing supplier billed directly.


If the Anti-Markup Rule applies and a physician bills more than permitted to Medicare, civil monetary penalties may be imposed and the billing physician can be excluded from the Medicare program entirely. In addition, the claim could be considered a “false claim” which could result in liability under the civil False Claims Act or criminal liability under the Criminal False Claims Act. Given these penalties, all physicians should carefully review their diagnostic imaging arrangements for compliance with this new Anti-Markup Rule.

Please do not hesitate to contact us for further discussion of these new rules.