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Health Law Update 2009: How the New Anti-Markup Rule Attempts to Make Things Simpler

Another year, another modification in a physician’s ability to bill and collect. As explained in last year’s news article, the government is attempting to limit ancillary income of physicians. With anti-referral and antikickback laws well established in prohibiting certain physician joint ventures, the new modified Anti-Markup Rule continues to add extra layers in confirming if a physician’s ancillary transaction will be profitable.

Introduction Section 1842(n)(1) of the Social Security Act prohibits a markup on the technical component of certain diagnostic tests if the test was not personally performed or supervised by the billing physician or another physician whom the billing physician “shares a practice with.” Over the past few years there have been changes made to the Anti-Markup Rule in an attempt to prevent the potential overutilization of the technical and professional componentsof diagnostic tests. The latest amendments are an attempt to address the potential overutilization while reducing the complexity associated with prior proposed rules.

Prior Version

In November 2007, Centers for Medicare and Medicaid Services (“CMS”) proposed a new Anti-Markup Rule aimed to be more restrictive. In general, the rule applied when a physician or other supplier billed for the technical or professional component of a diagnostic test that was ordered by the physician or other supplier (or related party),and the test was either 1) purchased from an outside supplier, or 2) performed at a site other than “offices of the billing physician or supplier.” As initially worded, the proposed rule was headed for a collision course with the federal anti-referral law (a.k.a. “Stark II”). Parties could be in compliance with Stark II but still unable to bill and collect federal payors without being in compliance with the Anti-Markup Rule.

Immediately CMS received feedback regarding concerns about the proposed rule. As a result, CMS delayed the effective date of the new rule until January 1, 2009.

New Version

In November 2008, CMS amended the Anti-Markup Rule to attempt to simplify its application and interpretation. The new rule basically has two alternative methods that, if met, will result in the Anti-Markup Rule not applying. Each alternative is independent of the other, meaning that each must be separately evaluated under the circumstances.

First, where the performing physician provides “substantially all” of his or her professional services for the billing physician or other supplier, the Anti-Markup Rule will not apply. The performing physician is one who supervises the technical component or performs the professional component. To meet the “substantially all” test, the physician must provide at least 75% of professional services for the billing physician or supplier.

Second, where the performing physician supervises or performs in the “same office building” as the billing physician, the performing physician is deemed to share a practice with the billing physician or other supplier, and the Anti-Markup Rule will not apply. The “same office building” is the same definition used under Stark II.

An arrangement must meet only one of the two alternatives. If an arrangement fails to meet either alternative, the Anti-Markup Rule will apply. If the Rule applies, payment to the billing physician or supplier for the technical or professional component must be the lowest of: 1) the performing supplier’s Net Charge to the billing physician or supplier; 2) the billing physician’s or supplier’s actual charge; or 3) the fee schedule amount for the test allowed if the performing supplier billed Medicare directly.

It is important to note that the amended Anti-Markup Rule is effective January 1, 2009, and there are no extensions or delays on its application. Beginning in 2009, arrangements must meet one of the two alternatives in order for the Anti-Markup Rule not to apply.

Independent Diagnostic Testing Facility

In July 2008, CMS proposed to require physicians and nonphysician practitioner (“NPP”) organizations furnishing diagnostic testing services to enroll as Independent Diagnostic Testing Facilities (“IDTF”) for each practice location furnishing these services. The concern was that certain physician entities could avoid the IDTF standards, resulting in beneficiaries receiving an inferior quality of care contemplated by the standards.

In November 2008, CMS delayed adopting the proposed requirement, citing the enactment of Section 135 of the Medicare Improvements for Patients and Providers Act of 2008 (“MIPPA”). Section 135 of MIPPA imposes upon the Secretary the task of establishing an accreditation process by January 1, 2012, for entities furnishing advanced diagnostic testing procedures. CMS does not indicate whether physicians or NPPs will have to follow the accreditation process. CMS will continue reviewing public comments and evaluating the situation in order to determine if their proposed requirement is necessary.


The Anti-Markup Rule is a billing and collection rule. Failing to satisfy either of the two alternatives will implicate the False Claims Act if the physician bills in violation of the new rules. This rule increases
exponentially the multiple regulations a physician must consider before entering into any business venture. Therefore, it is important that physicians and suppliers that work with diagnostic tests should examine their business arrangements to confirm that they meet one of the two alternatives.

By: Michael S. Byrd and Bradford E. Adatto

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