On January 26, 2007, the Centers for Medicare and Medicaid Services (CMS) issued guidance that could have a significant impact on independent diagnostic testing facilities (IDTFs) and those physician practices, hospitals and other providers doing business with them. Specifically, CMS issued a transmittal amending the Medicare Program Integrity Manual to incorporate prohibitions that may put at risk block-leasing and other shared imaging arrangements that IDTFs routinely enter into with physician practices and other providers. While a delay is possible, these changes are scheduled to be implemented on February 26, 2007.

This latest transmittal is another shot at a beleaguered imaging industry still trying to cope with reimbursement cuts under the Deficit Reduction Act, the recently imposed multiple procedure discount as well as the reforms recently implemented by CMS on January 1, 2007 that heighten certification standards and affect physician supervision of IDTFs.

The CMS transmittal issued on January 26, 2007, elaborates on CMS’s interpretation of these certification and supervision requirements, but also establishes heightened expectations that were not clear from the prior regulatory changes. Most significantly, the transmittal states that IDTF sites may not share space with another active Medicare supplier or share equipment with any other IDTF or supplier. Notably, a physician practice that is also enrolled as a Medicare-certified IDTF is exempt from the space-sharing prohibition.

This change, if implemented, appears to hinder certain sharing arrangements routinely entered into by IDTFs. For example, in a block-leasing arrangement, an IDTF will rent to a physician practice in the same building the space, equipment and services of the IDTF for certain days and times needed to support the physician practice’s capability to offer its patients medical imaging services. This allows practitioners to provide diagnostic imaging services to their patients on an in-office basis in a patient-convenient setting. Accordingly, a limitation on the ability of IDTFs to share space or equipment with other suppliers could potentially alter the landscape under which many of these deals are currently structured.

If the space-sharing prohibition is interpreted consistently with other Medicare rules prohibiting concurrent use of a Medicare-certified facility (e.g., in an ambulatory surgical center, or ASC, setting), then block lease and other sharing arrangements, where a participant’s use can be easily distinguished from another’s use, may not be materially affected. In the ASC context, CMS has explicitly acknowledged that a lease of the ASC facility to another Medicare supplier does not constitute improper concurrent use by another Medicare supplier as long as the two suppliers do not use the facility at the same time.

Assuming participants to a block-lease arrangement are respecting the allocated time periods for each supplier, then it arguably does not involve two suppliers using the IDTF facility at the same time. If that is the case, then the Medicare transmittal potentially does not have a detrimental effect on true block-leasing arrangements. Shared facility lease arrangements, per-scan lease arrangements or other similar models, on the other hand, may require some restructuring in order to comply with this latest space-sharing prohibition.

Assuming the effective date is not delayed, IDTFs that engage in shared arrangements after February 26, 2007, risk potential exposure. Although these rules, on the surface, are about IDTF enrollment, “IDTF” is also a Medicare condition of coverage and, thus, a site may face some recoupment or even false claims exposure for not complying with the standards, as well as a risk of losing its Medicare provider number.

Those already engaged in shared imaging arrangements should have them reviewed, while those contemplating entering into these types of arrangements will need to structure them in a manner that complies with the new regulations and CMS guidance. Of course, any of these models also need to take into consideration federal physician self-referral proscriptions (i.e., the Stark law), the federal anti-kickback statute, and other applicable federal and state health care laws before implementation.