Apparently concerned that healthcare providers (and their counsel) did not have sufficient reading material for the long holiday weekend - the Centers for Medicare & Medicaid Services (CMS) posted over 2000 pages of proposed rules to its website in the days preceding the July 4 holiday: 

  • On June 30, 2008, CMS posted a display copy of its proposed Medicare Physician Fee Schedule for CY 2009 (hereinafter referred to as the "MPFS proposed rule"). The MPFS proposed rule was subsequently published in the July 7, 2008, Federal Register. The deadline for submitting comments to CMS on the MPFS proposed rule is August 28, 2008. 
  • On July 3, 2008, CMS posted a display copy of its proposed changes to the Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) Payment System and CY 2009 payment rates (hereinafter referred to as the "OPPS/ASC proposed rule"). The OPPS/ASC proposed rule is slated for publication in the July 18, 2008, Federal Register. The deadline for submitting comments to CMS on the OPPS/ASC proposed rule is September 2, 2008.

The revised policies and payment rates contained in the proposed rules generally become effective on January 1, 2009. Highlights from the proposed rules are summarized below.


Physician Fee Schedule

After the 2008 MPFS final rule was published, the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA) was enacted to provide physicians with a 0.5 percent update to the Physician Fee Schedule (PFS) conversion factor for the first half of 2008. Absent congressional efforts to stem the physician payment cut that was scheduled to take effect after the CMS-imposed claims hold ends on July 15, 2008, the PFS conversion factor would have been reduced by approximately 10.6 percent. However, on July 9, 2008, the Senate joined the House in approving a bill (H.R. 6331) that will delay the 10.6 percent physician payment cut for an additional 18 months. CMS has proposed an additional 5.4 percent reduction update to the PFS conversion factor for CY 2009; however, because of the recent congressional action it is unclear how the update will be affected.

According to the MPFS proposed rule, CMS is also reviewing potentially misvalued physician services to correct inequities. Areas under examination include (1) updating the practice expense factor for high-cost supplies on a more regular basis; and (2) requesting the AMA's relative value update committees to assist in reviewing the fastest growing procedure codes, the Harvard-valued codes and practice expense inputs.


The OPPS/ASC proposed rule provides for a 3.2 percent increase for hospital outpatient department and ASC payment rates. However, in order to receive the full increase, providers must have reported data on five emergency department and two perioperative surgical care quality measures in 2008. Providers not reporting on the quality measures will only see a one percent increase. The reduction, however, doesn't apply to certain pass-through costs. This is the first time that hospital outpatient reimbursement has been linked to quality measures.

CMS proposes to require the reporting of four additional medical imaging quality measures for providers to receive a full reimbursement update in CY 2010. Contrary to the measures used under the PFS, these measures have not been endorsed by the National Quality Foundation nor adopted by the Hospital Quality Alliance. CMS is seeking comment on 18 additional quality measures in the OPPS relating to cancer care, emergency department throughput, screening for fall risk, and management of certain clinical conditions such as depression, stroke and rehabilitation, osteoporosis, asthma and community-acquired pneumonia.

Self Referral and Anti-Markup

Proposed New Stark Exception for Gainsharing

CMS has proposed a new exception to the Stark Law that would permit hospital payments to physicians participating in quality improvement and shared cost savings programs, the latter commonly known as gainsharing programs. Recognizing the value in promoting quality improvement and aligning hospital and physician objectives with respect to cost savings, CMS nonetheless noted concerns regarding the potential for abuse with such incentive payments, and deliberately crafted a very narrow exception.

CMS states that the criteria set forth in the proposed exception are focused on three aspects considered critical to counter abuse (1) transparency (e.g., the payments must relate to specific performance measures that are verifiable, supported by credible medical evidence and individually tracked); (2) quality controls to prevent reductions in utilization that lead to reduction in quality (e.g., an independent medical review must be conducted prior to the start of the program and annually to ascertain the program's impact on quality); and (3) safeguards against payments for referrals (e.g., a minimum of five physicians must participate in the program and payments must be distributed on a per capita basis). Specific requirements are set forth with respect to the structure of the incentive payment and shared saving program, payments to participating physicians, and the arrangement between the practices. The exception only applies to remuneration in the form of cash and only to payments made by hospitals. The duration of arrangements is limited to three years.

Application of the Anti-Markup Rule

The anti-markup provision applies to the technical components (TC) and professional components (PC) of diagnostic tests that are either (1) purchased from an "outside supplier;" or (2) performed outside of the billing physician's or other supplier's office. The "anti-markup rule," 42 C.F.R. § 414.50, provides that if a physician bills for a diagnostic test performed by an outside supplier, payment to the physician is limited to the lesser of the supplier's net charge to the physician, the physician's actual charge, or the fee schedule amount for the test.

CMS is proposing two alternative approaches for revising the anti-markup provision. Under the first alternative, the anti-markup provision would apply whenever the TC or PC of a diagnostic test is either (1) purchased from an outside supplier; or (2) performed or supervised by a physician who does not "share" a practice with the billing physician or physician organization. Under this proposal, a physician who is employed by or contracts with a physician will be deemed to share a practice with the employing/contracting physician. However, a physician employed by or under contract with more than one billing physician or physician organization would not be deemed to share any practice. CMS, however, is considering some exceptions to the multiple employer portion of the MPFS proposed rule. Interestingly, CMS provided no proposed regulatory language for this alternative.

Under CMS's second proposal, the agency would maintain its current "site-ofservice" approach to determine whether a physician will be deemed to "share a practice'' with the billing physician or other supplier. Under this approach, the antimarkup provision will apply to non-purchased tests that are performed outside the "office" of the billing physician or other supplier," regardless of where the physician supervision occurs. However, if the physician supervision takes place outside of the physician's office, the anti-markup rule will apply regardless of where the TC is performed. To protect testing under certain hub and spoke arrangements, under the second alternative, CMS proposes an exception for diagnostic tests ordered by physicians in a physician organization that does not have any owners who have the right to receive profit distributions. The exception would not apply to tests purchased from an outside supplier, however.

In addition, CMS proposes to clarify that the "office of the billing physician or other supplier" includes space that is located in the same building in which the billing physician or other supplier regularly furnishes substantially the full range of patient care services. However, CMS also proposes adding flexibility to the definition of "substantially the full range of services" required to be offered at an office location.

Finally, CMS proposes to define more clearly when a test supplier is deemed to be an outside supplier. Currently, an outside supplier is defined as a person who is not an employee of the billing physician or supplier who does not furnish a test or interpretation under a reassignment. In the MPFS proposed rule, CMS proposes that the TC of a diagnostic test will not be deemed purchased from an outside supplier if the TC is both conducted and supervised within the billing physician's or supplier's office, and the supervising physician is an employee or independent contractor of the billing physician or other supplier.

CMS also offered two alternative proposals for refining the definition of outside supplier, albeit without proposed regulatory language. In the first alternative, CMS proposes that if the TC is conducted by a technician who is not an employee of the billing supplier, the TC is considered to be purchased from an outside supplier, regardless of where the technician conducts the TC and notwithstanding the employment status of the supervising physician. Under the second alternative, CMS proposes that, where the TC is conducted by a non-employee of the billing physician or other supplier and outside the office of the billing physician or other supplier, the TC, nevertheless, will not be a purchased test if the supervising physician is an employee or independent contractor of the billing physician or other supplier and performs the supervision in the office of the billing physician or other supplier. However, even if this second alternative is adopted, the TC would still be subject to the anti-markup provision under CMS's proposal if the TC is performed or supervised outside the office of the billing physician or other supplier.

In addition, CMS is seeking comments regarding how to define the "net charge" for a purchased test and whether the revisions should be delayed beyond January 1, 2009.

Laboratory/Pathology Reimbursement

Laboratory Fee Schedule

Outpatient clinical laboratory services are paid at the lesser of (1) the amount billed; (2) the local fee for a geographic area; or (3) a national limit established under the clinical laboratory fee schedule (CLFS). The national limits are set based on the median for all local fee schedule amounts. From 2004 through 2008, the national limits are frozen. As a result, for 2009, the CLFS should be updated by the percentage increase in the Consumer Price Index for All Urban Consumers (CPIU). While the MPFS proposed rule provides notice of the impending update, it does not establish the rate, as the CPI-U data is not yet available. Given the significant reductions in laboratory test costs in the marketplace from 2004 through the present, we believe it is unlikely that Congress will allow CMS to update the CLFS by the change in the CPI-U.

Prostate Saturation Biopsies

CMS proposes to change how it pays for pathologist services associated with prostate saturation biopsies. Currently, each biopsy sample reviewed is separately billable. CMS proposes to pay based on the aggregate number of specimens examined, as the agency believes that paying individually for each core sample submitted is a gross overpayment for this service.


CMS considered adding diabetes self-management training, critical care services and subsequent hospital care as new telehealth services. After its review, however, CMS proposes to add only follow-up inpatient consultations as a new telehealth service. Subsequent inpatient hospital care is not included in this proposal. The beneficiaries must be located at a qualifying originating site, which generally means either a rural health professional shortage area or a county that is not included in a Metropolitan Statistical Area (MSA).

In calculating the reimbursement for telehealth services, CMS proposes to rebase the utilization rate for telehealth equipment from 100 percent (e.g., used all day, every day) to 50 percent, in determining the practice expense component for telehealth CPT codes. This change is consistent with CMS's standard equipment utilization rate.

Geographic Practice Areas

Geographic practice areas were established at the inception of the Medicare program in 1966 by local carriers based on their knowledge of area physician charging patterns and economic conditions. There are currently 210 localities, including 22 "statewide" localities. Physicians in a geographic area receive the same payment amount for a given service.

While the geographic practice area localities have changed little since 1966, CMS is currently studying the continuing validity of the localities. To that end, the agency is soliciting comments on how CMS might change the geographic practice area localities to be more representative of current markets. The three options currently under consideration include (1) use of MSA data from the Office of Management and Budget; (2) separating high cost counties from existing localities; and (3) separating MSAs from statewide localities. This is an area that the nearly 980,000 providers paid under the physician fee schedule should watch closely as it may significantly impact their reimbursement.

HPSA Bonus Payments

CMS proposes to amend the Health Professional Shortage Area (HPSA) bonus payment regulation to increase the number of physicians who can receive the ten percent HPSA bonus payment automatically, in lieu of using a modifier to receive the bonus payment. The MPFS proposed rule also provides notice that the five percent incentive payment to physicians furnishing services in physician scarcity areas under Section 1833(u) of the Social Security Act was discontinued July 1, 2008.

Drug Reimbursement

Computer-Generated Fax Prescriptions

In the CY 2008 MPFS final rule, CMS eliminated the computer-generated fax prescription exemption to the e-prescribing rules as of January 1, 2009, except in the case of network failures. However, based upon comments received after the CY 2008 MPFS rule, CMS proposes to continue allowing providers and suppliers to use computer-generated fax prescriptions for refills when the prescriber is incapable of receiving electronic transmissions using the National Council for Prescription Drug Programs SCRIPT standard.

CAP Drugs

Two primary changes to the competitive acquisition program (CAP) have been proposed by CMS. The first proposal would allow practitioners who can legally prescribe drugs, other than physicians, to obtain Part B drugs under the CAP program, if those services and the associated drugs are covered when furnished "incident to" a physician's service. The second proposal would allow physicians and practitioners to transport CAP drugs between multiple office locations, if they enter into an agreement with their CAP vendor and abide by certain requirements to prevent drug spoilage. CMS also proposes to amend the dispute resolution process under the CAP program to clarify when suspensions are effective.

Intravenous Immune Globulin

CMS proposes eliminating reimbursement for pre-administration services related to intravenous immune globulin as the agency believes that the market for the drug has stabilized.

Dialysis Drugs

For ESRD facilities, CMS proposes to change the growth update to the drug addon adjustment to consider both the increase and decrease in the price of ESRD drugs over the last several years. To more accurately measure the change, CMS proposes to switch the update adjustment index from the Producer Price Index to the Average Sales Price (ASP) for the top 11 ESRD drugs. When the cost decline in the ESRD drugs was coupled by CMS with its estimated increase in per treatment drug utilization, the net change was minimal. As a result, CMS is proposing no update to the per treatment drug-add on amount from 2008.

OPPS Drug Payment

The OPPS/ASC proposed rule would reduce drug reimbursement from ASP plus five percent to ASP plus four percent. CMS also proposes to modify the cost report format to account for the agency's intent to include drug acquisition and overhead costs in this rate in future years. Two new cost centers are proposed: one for reporting drugs with high pharmacy overhead and one for reporting drugs with low pharmacy overhead.

Imaging Reimbursement

Multiple Procedure Reimbursement Reductions

CMS proposes adding several imaging procedures to the list of procedures that receive reduced reimbursement when performed with other imaging procedures, known as the multiple procedure payment reduction. CMS indicates that the agency plans to broaden the multiple procedure payment reduction policy to other non-imaging areas by examining non-surgical CPT codes that are often billed together in an effort to identify possible inequities in PFS payment. Likewise, under the OPPS/ASC proposed rule, CMS proposes to reduce payment for multiple procedures by establishing five imaging composite ambulatory payment classifications (APC) that will provide a single payment for multiple single modality imaging procedures provided in a single session.

IDTF Standards Applied to Physician Offices

A fundamental change being proposed by CMS would require physicians and nonphysician practitioners providing in-office diagnostic testing services (excluding diagnostic mammography) to enroll as independent diagnostic testing facilities (IDTFs) and to meet most of the IDTF quality and performance standards. The proposed change would be effective January 1, 2009 for newly enrolling suppliers and September 30, 2009 for current suppliers. CMS is seeking comments concerning whether these standards should apply to all diagnostic services or to a subset of services (e.g., excluding frequently provided services by physicians such as EKGs).

Mobile Provider Standards

CMS proposes to require entities that provide mobile diagnostic services to enroll in Medicare, comply with the IDTF standards and bill directly for their services, regardless of the location where the services were provided.

PQRI Reporting

Changes also have been proposed for the voluntary Physician Quality Reporting Initiative (PQRI) that allows physicians and other eligible professionals to report on quality measures related to their clinical practice. Despite the financial incentives, only 16 percent of eligible professionals attempted to participate in the PQRI program in 2007. Financial incentives also were provided in 2008, and CMS anticipates that participation for this year will be higher.

CMS proposes to use up to 175 quality measures for 2009; 56 more measures than in 2008. The measures include several changes from the 2008 measures. The quality measures are derived from the current 2008 PQRI measures, new measures endorsed by the National Quality Forum (NQF); new measures adopted by the AQA Alliance (AQA); and additional new measures, contingent upon NQF endorsement or AQA adoption. CMS also is proposing to increase the number of conditions covered under the current group of measures to nine -- adding coronary artery disease, HIV/AIDS, coronary artery bypass surgery, rheumatoid arthritis, care during surgery, and back pain to the group.

Additionally, CMS proposes to allow reporting for either all of CY 2009 or only the second half of 2009. CMS also proposes accepting PQRI data via clinical registrybased reporting, claims-based reporting and compatible electronic health records software.

Finally, CMS has reiterated its intention to provide professionals who have submitted PQRI data with confidential feedback from the PQRI data. The first feedback reports are expected to be available sometime this month.

Physician Enrollment

CMS proposes to change the effective date physicians and non-physician practitioners are deemed to be enrolled in the Medicare program. The proposed enrollment date options include either (1) the date a practitioner's application is approved by the Medicare administrative contractor (e.g., a carrier); or (2) the later of (a) the date the application is submitted in approvable form to the Medicare administrative contractor; or (b) the date the practitioner began rendering services at an additional location. Currently, the enrollment date can be retroactive up to 27 months.

Additionally, CMS proposes to prohibit a physician, non-physician practitioner or any five percent or more owner from enrolling as a new provider or supplier while it has an existing over-payment or has a Medicare payment suspension in effect at the time of enrollment. This change is designed to prevent practitioners from obtaining additional billing privileges which may permit them to circumvent a Medicare revocation, payment suspension, overpayment recovery, or medical review process. Unfortunately, this provision may cast a wider net than intended and force practitioners to capitulate to CMS demands, when they might not otherwise, in order to carry on and grow their businesses.

Enrollment Data Changes

Currently, providers and suppliers (other than DME and IDTF suppliers who generally have only 30 days to submit information on enrollment data changes) must provide CMS with information regarding a change of ownership within 30 days and other enrollment information within 90 days. CMS proposes to require physicians, non-physician practitioners, organizations and individual practitioners to notify the agency of any adverse legal action (e.g., felonies, license suspensions, exclusions, debarments, etc.) or change of location within 30 days. Practitioners that fail to timely notify CMS of an adverse legal action would be prohibited from billing for any services provided on or after the date of the adverse legal action, rather than on the date CMS takes action upon the notification. However, this remedy is of somewhat limited value as CMS also proposes to make a revocation based on an adverse legal action generally effective on the date of such action.

A similar remedy is proposed for a provider's failure to notify CMS of a change in location. For physicians, non-physician practitioners, organizations and individual practitioners, CMS also would (1) prohibit them from receiving any additional reimbursement that may result from the location change prior to the notification; and (2) have the right to revoke their billing privileges for not less than one year. CMS also proposes to revoke a provider's or supplier's enrollment and billing privileges effective as of the date CMS determines that such enrolled location is no longer operational. Consequently, providers and suppliers will need to develop processes to assure that changes to enrollment information are properly and timely communicated to their Medicare administrative contractor.

Document Retention

The MPFS proposed rule adds a new requirement for providers and suppliers to retain ordering and referring documentation for a ten year period from the date of each applicable service. Failure to maintain such documentation could result in the revocation of a provider's or supplier's billing privileges and exclusion from the Medicare program.

Post-Revocation Billing

CMS also proposes that providers and suppliers with suspended billing privileges must submit all of their claims within 30 days of the revocation, rather than within the current 27-month period.

Delinquent Tax Collection Actions

Following on the heels of a recent GAO study indicating that six percent of Medicare providers had delinquent payroll and other agreed-to federal tax debts totaling over $2 billion, CMS proposes to extend its implementation of the Federal Payment Levy Process (FPLP) to permit the agency to recover past due taxes from payments made to providers and suppliers reimbursed under Part A and Part B. CMS also is considering -- for the future -- the development of a procedure to revoke the billing privileges of providers and suppliers with delinquent tax obligations who do not bill Medicare directly (e.g., physicians who bill through reassignment). Interestingly, CMS is soliciting comments on whether the agency should take action against provider and supplier organizations under the FPLP when an owner (presumably a five percent or more owner) owes delinquent taxes.

Specific Provider Issues

Comprehensive Outpatient Rehabilitation Facility (CORF)/Rehabilitation Agency Changes

CMS proposes several changes applicable to CORFs: (1) CMS updated the qualifications for respiratory therapists providing services in CORFs and has applied these changes to home health agencies and other outpatient providers; (2) CORF medical directors would be required to provide medical supervision on the CORF's non-physician staff; (3) CMS proposes clarifying changes to emphasize the limited coverage for social and psychological services provided by CORFs; (4) CMS also clarifies that a CORF may provide physical therapy, occupational therapy, and speech-language pathology services at a patient's home, as the patient's home would be considered alternate premises for the CORF; (5) CMS proposes to define an extension location of a rehabilitation agency to reflect current practice and to permit the regulation of activities at the extension location; and (6) CMS proposes to remove the requirement that a CORF have physicians on call to furnish necessary emergency medical care, only requiring CORFs to establish procedures to be followed in the event of an emergency. CMS also proposes to eliminate the requirement that rehabilitation agencies provide social or vocational adjustment services, as those services are outside the scope of their practice.

Therapy Caps

A combined per beneficiary cap exists for outpatient physical therapy and speechlanguage pathology services, and a similar separate cap exists for outpatient occupational therapy services. An exception process that ameliorated the effect of these caps expired June 30, 2008.

Sleep Testing

CMS proposes to prohibit a supplier from receiving payment for a CPAP device, if that supplier, or its affiliate, is directly or indirectly the provider of the sleep test used to diagnose a beneficiary with obstructive sleep apnea.

Beneficiary Signature Requirements -- Ambulance and Other Providers and Suppliers

CMS proposes to exempt ambulance service providers from the requirement that a beneficiary sign a Medicare claim or claim authorization form in cases where a beneficiary is transported by a non-emergency ambulance transport and is unable to sign the claim when the service is rendered. However, in so doing, CMS also proposes adding language to 42 C.F.R. § 424.36(b) to clarify that no provider or supplier may utilize any of the beneficiary signature exceptions unless they have first made reasonable efforts to obtain the person's signature.

Type B Emergency Department Services

Four new APCs are being proposed for services provided in Type B emergency departments. The rate will fall between the amount paid for clinic visits and the amount paid for visits to Type A emergency departments. Intensive level care, however, will be paid on the same basis as services provided in Type A emergency departments.

Partial Hospitalization Programs

The OPPS/ASC proposed rule would reduce payments for partial hospitalization services from $203 per day to $140 per day for the provision of three services and $174 per day for the provision of four or more services. CMS will no longer pay for partial hospitalization days with less than three services.

Hospital Outpatient Outlier Payments

Hospital outpatient outlier payments are made on a service-by-service basis when the provider's costs exceed a fixed dollar threshold and a percentage of the APC threshold. For 2009, CMS proposes to retain the same percentage of the APC threshold - 1.75 times the APC payment. However, the fixed dollar threshold will increase from $1,575 to $1,800. This change was made to ensure that estimated CY 2009 aggregate outlier payments would equal 1.0 percent of estimated aggregate total payments under the OPPS.

Hospital Hold Harmless Payments

For services provided on or after January 1, 2009, rural hospitals that are not sole community hospitals, having 100 or fewer beds, will no longer be eligible for hold harmless transitional outpatient payments, in accordance with the Deficit Reduction Act of 2005.

Ambulatory Surgery Centers

CMS proposes adding nine new surgical procedures to the list of ASC-covered procedures and five new surgical procedures to the list of office-based surgical setting covered procedures. The office-based procedures, however, are subject to payment at the lesser of the office practice expense payment to the physician or the standard ASC rate. CMS also proposes to update the list of device-intensive procedures and covered ancillary services, consistent with CMS's OPPS update.

Solicitation of Comments

CMS is seeking comments to aid in its consideration of future changes to the MPFS in the following areas: (1) whether to require direct physician contact with a patient in connection with the physician's certification and recertification of home health agency plans of care; (2) whether the current compensation of physicians for organ retrieval services is appropriate; and (3) how and when CMS might extend its recently enacted policy of not paying for certain hospital-acquired conditions to other types of providers. CMS also is soliciting comments in the OPPS/ASC proposed rule on whether the agency should cease paying for hospitalacquired conditions.