On November 1, 2007, CMS posted to its Internet website the display copy of the 2008 Physician Fee Schedule final rule ("Final Rule") finalizing the July 12, 2007 proposed Physician Fee Schedule rule. Generally, the Final Rule changes will take effect on January 1, 2008. However, transition periods are provided for some of the new requirements.

The Final Rule includes a significant reduction in physician compensation, which may be ameliorated by Congress before year-end. The Final Rule also makes a number of significant revisions to the requirements applicable to Independent Diagnostic Testing Facilities ("IDTFs") and limits the ability of physicians to mark up purchased diagnostic tests.

Equally important, CMS chose not to include the dramatic revisions to the Stark Law that had been included in the proposed Physician Fee Schedule rule which would have resulted in many current arrangements becoming ineligible for an exception. See our discussion of these proposed revisions in the July 6, 2007 issue of the Health Law Update. However, CMS indicated that it will continue to review the hundreds of comments it received to the proposed Stark revisions and release the final Stark revisions in a subsequent "Phase IV" Stark regulation.

Highlights from the Final Rule, which is scheduled for publication in the November 27th Federal Register, include the following:

Physician Fee Reduction and Adjustments

The Final Rule includes a 10.1 percent across-the-board cut in reimbursement rates through a reduction to the RVU conversion factor for physician-related services. This reduction was implemented to comply with Medicare's sustainable growth rate formula that requires a payment factor reduction whenever actual Medicare physician services expenses exceed a targeted amount. Unless Congress passes legislation before year-end to negate or offset this reimbursement cut, the reduced reimbursement will take effect on January 1, 2008. The final RVU conversion factor for 2008 after all adjustments is $34.0682.

In addition to the overall physician rate reduction, physician fees were adjusted to account for practice and expense changes, and RVU and geographic rate adjustments. Consequently, the overall impact on physicians will vary based upon RVUs billed and practice location. For example, CMS adopted the recommendations of the American Medical Association's Relative Value Update Committee to increase payments for work involved in providing anesthesia services by 32 percent. Similarly, CMS implemented the American College of Radiology's request for a methodology change in radiology practice expense. This change, which was intended to reflect the expenses incurred by small high cost practices that primarily furnish professional services, resulted in a practice expense increase from $174 to $204 per hour. Other physician groups, however, have seen cuts in addition to the 10 percent overall reduction. For example, pathologists will face an additional 2 percent reduction due, in part, to changes to the methodology for estimating practice expenses.

CMS also made minor geographic payment adjustments. Notably, after evaluating several options for revising the physician payment localities in California, CMS decided not to make any adjustments in the Final Rule. California payment localities will be addressed by CMS in a future rulemaking.

Quality Reporting

Physicians reporting quality measures to CMS in 2008 will receive a bonus payment that is presently estimated to be between 1.5 and 2.0 percent. The exact amount of the bonus is based on the number of physicians participating in the $1.35 billion Physician Assistance and Quality Initiative fund. The Final Rule includes 119 quality measures for 2008, including: (1) seven new non-physician quality measures, (2) two new structural quality measures, and (3) two new podiatric quality measures. Under CMS will also begin testing registry-based submission of quality data and consider whether to accept quality data from electronic health records.

Anti-Markup Expansion For Diagnostic Tests

Current Medicare regulations prohibit the markup of the technical component of diagnostic tests performed by an outside supplier if they are billed to Medicare by a different entity or individual. (Clinical laboratory tests are not subject to the anti-markup provision because billing for these tests, when performed by an outside supplier, is generally prohibited.) The professional component (i.e., interpretation) of diagnostic tests is not currently subject to the anti-markup provision, although certain Medicare rules govern reassignment of a performing physician's right to bill. The Final Rule significantly expands the anti-markup provision.

As of January 1, 2008, the anti-markup provision will apply to both the technical and professional components of diagnostic tests ordered by a billing physician that are purchased or performed someplace other than the "office" of the billing physician or group. CMS defines "office" as the space where the physician regularly furnishes patient care, or for groups, the space where the group provides substantially the full range of patient care services. Thus, while services furnished off-site might comply with the Stark Law provisions, which govern whether billing is permitted and allows groups to furnish diagnostic tests off-site in centralized buildings under certain circumstances, the services will now be paid by Medicare subject to the payment limit imposed by the anti-markup provision – i.e., the billing physician or entity may only claim an amount for the service that is equal to or less than the net charge for the service.

It is important to remember that under the Final Rule the anti-markup provisions are applicable to tests performed in the same building as a physician's office if the services are not provided in the same office space as the physician's practice. Thus, tests provided in a different part of the same building than that in which a physician provides other medical services (e.g., a radiology facility on a different floor of the same building) are subject to the anti-markup rule.

The Final Rule includes examples of situations where the expanded anti-markup provision would be applicable. In one example, a urology group employs a technician and contracts with a pathologist to perform testing on prostate samples in a lab located outside the group office in a building meeting the definition of a centralized building in the Stark Law. The group could potentially bill the Medicare program for the service without violating the Stark Law, but the technical and professional components are subject to the anti-markup provision, prohibiting the group from making a profit from the service, because the service is furnished outside the group's office. Similarly, if a physician or group contracts with a pathologist or radiologist to perform interpretations on diagnostic tests performed in the office of the physician or group, the interpretation (i.e., professional component) will be subject to the anti-markup provision unless the pathologist or radiologist performs the service in the group's office. Physicians should examine arrangements for diagnostic testing to determine application of the expanded provision and explore unwind strategies, if necessary.

Finally, in interpretative comments CMS indicated that physicians would not be able to include the cost of equipment and/or space utilized in testing as a part of the net charge for tests subject to the anti-markup rule. CMS believes that the addition of these charges would present an opportunity for abuse. Consequently, without reimbursement for the equipment and related space, physicians may not be able to economically provide services subject to the anti-markup provisions.

Independent Diagnostic Testing Facilities

Shared IDTF Locations and Equipment – The Final Rule prohibits IDTFs from sharing a practice location with another Medicare-enrolled entity or person and from leasing or subleasing its operations or practice location to another Medicare-enrolled entity or person. Mobile and hospital-based IDTFs, however, are excepted from this provision. An IDTF also may not share diagnostic equipment that is used in an initial diagnostic test with another Medicare-enrolled entity or person. This rule has the effect of precluding an IDTF in most cases from safe-harbored block leasing arrangements with physician offices. CMS refused to include any exceptions from the sharing rule for radiologists.

The space-sharing restrictions apply to new IDTF sites as of Jan. 1, 2008. However, existing IDTFs that are currently enrolled and are sharing a practice location with another Medicare individual or organization have been provided a one-year transition period to become compliant. Joint ownership of an IDTF by radiologists or radiology groups will not constitute "sharing" for purposes of the new prohibition. However, Stark Law limitations remain applicable to such arrangements.

CMS stated that it specifically intended to prevent physicians from entering into block leases or per-click arrangements with an IDTF for the use of such facilities by the physician for the physician's patients. Moreover, while a clinic and an IDTF can share certain common space, CMS stated that a clinic and an IDTF cannot occupy or be co-located within the same space for both clinic and IDTF purposes. However, IDTFs located within a hospital may share practice space and equipment.

IDTFs are not prohibited from sharing staff, as had been proposed by CMS in the proposed 2008 Physician Fee Schedule rule. The provision is also inapplicable where an IDTF leases its facility on a full-time exclusive basis to another person or entity.

Finally, the Final Rule precludes the use of hotels and motels as a site for the provision of IDTF services. This provision may significantly affect the providers of certain sleep studies.

Complaint Process –The Final Rule amends 42 C.F.R. § 410.33(g)(8) to require an IDTF to maintain certain complaint resolution documentation.

Physician Supervision – IDTF standards are changed to allow a physician to only supervise up to three IDTF sites, including fixed and mobile sites. This limit applies only to general supervision.

The Final Rule also eliminates the controversial requirement that the supervising physician be responsible for the overall operation and administration of an IDTF.

CMS Reporting – The Final Rule modifies the obligation of ITDFs to timely report certain changes in their enrollment information. IDTFs are now permitted to report some less significant information changes within 90 days, rather than 30 days. IDTFs must also report changes in their liability insurance to their Medicare Contractor. 

Insurance – IDTFs must have liability coverage of $300,000 per incident per location. However, the policy is no longer required to list equipment serial numbers.

Enrollment Date – CMS added a new standard to establish an initial enrollment date for IDTFs which will preclude retroactive billing for new IDTFs.

Beneficiary Signature on Claim Forms

CMS amended 42 C.F.R. § 424.36 (b)(5) to limit when a provider may sign a claim form on behalf of a beneficiary. Historically, providers have signed claim forms if a beneficiary was physically or mentally incapable of signing the claim. Under the Final Rule, providers may sign a claim on behalf of a beneficiary only if the beneficiary is physically or mentally incapable of signing the claim and none of the following are available to sign the claim at any time; not just at the time the services are provided: (1) the beneficiary's legal guardian, (2) a relative or other person who receives social security or other governmental benefits on the beneficiary's behalf, (3) a relative or other person who arranges for the beneficiary's treatment or exercises other responsibility for his or her affairs, or (4) a representative of an agency or institution that did not furnish the services for which payment is claimed but furnished other care, services, or assistance to the beneficiary. CMS expects providers, in advance of submitting a claim, to make reasonable efforts, over a reasonable period of time, to have the beneficiary, or one of the foregoing persons, sign the claim form.

CMS indicated that the rule allowing providers to sign a claim form was intended to apply only to providers and not to suppliers. However, the Final Rule amends 42 C.F.R. § 424.36 to allow ambulance providers and suppliers to sign claims in the case of emergency transports only if certain documentation and employee attestation requirements are satisfied.

Therapy Services

Therapy Caps – The outpatient therapy caps for 2008 are $1,810 per beneficiary for physical therapy and speech language pathology services and $1,810 per beneficiary for occupational therapy services. The caps, however, do not apply to hospital outpatient therapy services.

The therapy cap exceptions process, however, will not be available for services provided after January 1, 2008 in accordance with the Medicare Improvements and Extension Act of 2006.

Therapist Qualifications – The Final Rule requires persons furnishing physical, occupational therapy and speech language therapy services to meet licensing, registration, or certification requirements in the state in which they practice and complete an approved educational program for their specialty. It also provides for a two-year transition period to satisfy the personnel qualifications.

CMS has indicated that it will implement, over time, consistent therapist training requirements across most Part A and Part B care settings.

Therapy Plan of Care Recertification – Historically, therapy treatment plans had to be recertified at least every 30 days. The Final Rule allows for recertification at intervals appropriate for the patient at up to 90-day intervals. Recertification of a therapy treatment plan must be evidenced by a practitioner's signature in the medical record.

Clinical Laboratory Changes

New Test Payments – The Final Rule implements an improved process for determining the reimbursement rate for new clinical laboratory tests.

Independent Lab TC Charges for Hospital Inpatient Pathology – The Final Rule amends 42 C.F.R. § 415.130(d) to provide that, after December 31, 2007, an independent clinical lab may not bill a carrier for the technical component of physician pathology services provided to hospital inpatients.

Off-Label Use of Drugs in Anti-Cancer Chemotherapeutic Regimes

A new section (42 C.F.R. § 414.930) has been added to describe the compendias to be used and the process to revise the list of compendias for off-label uses of drugs for anti-cancer chemotherapeutic regimes.

Comprehensive Drug Acquisition Program

A process was also added for verifying that drugs ordered by a physician under the Medicare Comprehensive Acquisition Program for Part B drugs were actually administered to a Medicare beneficiary.

CMS has extended the initial period during which a physician can request termination of the physician's CAP contract from 30 days to 60 days to allow the physician time to determine whether the CAP program meets his or her practice's needs. CMS also extended time for CAP claim submission from 14 to 30 days.

Prescription Faxes Medicare does not require physicians and suppliers to use electronic prescribing. But, if they use e-prescribing, they are required to comply with specific standards. To encourage e-prescribing, the Final Rule prohibits the use of computer-generated faxes of prescriptions after January 2009, except in instances of temporary/transient transmission failure and communication problems that preclude use of the NCPDP SCRIPT standard e-prescriptions.

Comprehensive Outpatient Rehabilitation Facilities (CORFs)

Payment Methodology – The Final Rule adds a new subpart to 42 C.F.R. part 414 to reflect the prior change in payment methodology for CORFs from a reasonable cost basis to 80 percent of the lesser of (a) actual charges or (b) a fee schedule amount.

Covered Service Clarification – The Final Rule clarifies that covered CORF services must relate directly to the rehabilitation of a sick, disabled or injured patient, as stated in the patient's plan of treatment, with the exception of certain vaccinations which are covered. In addition, changes and clarifications were made to the scope of practice for nurses, respiratory therapists and other ancillary providers in CORFs.