On November 27, 2007, the Centers for Medicare and Medicaid Services ("CMS") published the final 2008 Physician Fee Schedule ("2008 Fee Schedule"). Under the 2008 Fee Schedule, which is effective on January 1, 2008, CMS included an anti-markup provision ("Anti-Markup Provision") that applies to both the professional and technical components of diagnostic tests ordered and billed by a physician or physician group. The Anti-Markup Provision, in essence, prohibits physicians and physician groups that bill Medicare from profiting on ("marking up") the difference between the amount the physician or person actually performing the test charges and the amount the physician or physician group ordering and billing for the test charges if either: (i) the professional and/or technical component of the diagnostic test is purchased or (ii) the professional and/or technical component of the diagnostic test is not performed in the physician's or physician group's office where the full range of physician services is generally provided, such as in a centralized building or hospital.

In addition to affecting group practices that offer services in a centralized building, the Anti-Markup Provision also has implications for all faculty practice plans that provide professional services in a hospital where the faculty practice plan does not maintain an office that provides the full range of physician services generally provided to the faculty practice plan's patients. Physicians who are members of a faculty practice plan normally refer patients to their affiliated hospital for diagnostic testing, the professional component of which is rendered by other physicians who are members of the same faculty practice plan. To date, CMS has taken the position that because radiology and pathology services are rendered primarily (if not exclusively) in the affiliated hospital where the faculty practice plan may not have an office that provides the full range of patient care services by faculty practice plan physicians, the Anti-Markup Provision applies to those professional services. Accordingly, CMS currently believes that, under the 2008 Fee Schedule, the faculty practice plan would be required to bill Medicare the lowest of: (i) the performing radiologist's or pathologist's "net charge" to the faculty practice plan for performing the professional service, (ii) the performing radiologist's or pathologist's "actual charge" for performing the professional service, or (iii) the Medicare fee schedule amount for the professional service. From a statutory perspective, CMS' position on this issue is somewhat tenuous, and we have learned that CMS is re-visiting this issue, with the possibility of concluding that the Anti-Markup Provision does not apply to radiology and pathology services rendered in an affiliated hospital.

What does this mean for a faculty practice plan? It means that if CMS does not reverse its course, the faculty practice plan may want to determine what the radiologist's or pathologist's (or other physician's) actual charge is (e.g., based on the salary and benefits paid to the physician performing the test), and then determine whether that charge is more or less than the Medicare fee schedule amount for the professional service. Under the new rule, overhead charges are expressly excluded from the calculation. Obviously, this presents a potential financial problem if the actual or net charge is less than the Medicare fee schedule amount.

CMS is accepting comments on the 2008 Fee Schedule up to December 31, 2007, although as indicated above, the new rule is effective on January 1, 2008.

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For more information, please contact Donald R. Auten, Nanette O'Donnell, one of the other members of the Health Law Practice Group, or the attorney in the firm with whom you are regularly in contact.

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