CMS Issues 2009 Proposed Physician Fee Schedule Rule: Proposed Changes Would Impact Anti-Markup Rule, Add New Stark Law Exception

On June 30, 2008, the Centers for Medicare & Medicaid Services ("CMS") released the Proposed Physician Fee Schedule ("PPFS") rule for Fiscal Year 2009. As in previous years, the 2009 PPFS includes significant proposed changes to Medicare payment policies, including proposed changes to the purchased diagnostic test, or anti-markup, rule and a new Stark Law exception.

The PPFS proposes changes that would clarify the anti-markup rule codified at 42 C.F.R. §414.50 by conforming certain aspects of the rule to the Stark Law, 42 U.S.C. §1395nn. Specifically, the PPFS proposes to revise the definition of "office of the billing physician" to include diagnostic services furnished in the same building as the billing physician's office, even if services are furnished on different floors (provided that applicable supervision requirements are met). The PPFS also proposes to:

• clarify that the key factor in applying the anti-markup rule is physician supervision, not the technician's employment relationship with the billing physician or supplier;
• exempt diagnostic services furnished by certain multi-specialty practices where only some of the ordering physicians work; and
• exempt certain non-compliant relationships in situations where a physician organization does not have any owners with a right to receive profit distributions.

The PPFS rule also proposes a new exception to the Stark Law for certain gainsharing, pay-for-performance, and other incentive payment and shared savings programs offered by hospitals. The proposed exception would require that such programs:

• be independently reviewed before implementation and on an annual basis thereafter to ascertain the program's impact on the quality of patient care services provided by the hospital;
• be limited to physicians on the hospital's medical staff at the commencement of the program, in order to prevent inducements to attract physicians from competitors;
• not base eligibility for participation in the program on the volume or value of referrals generated by the participating physicians;
• distribute payment on a per capita basis;
• be limited in duration to not less than 1 year and not more than 3 years; and
• cap the physicians' share of cost savings at 50%.

Other features of the PPFS rule's proposals include:

• annual updates to the relative value units used to calculate physician payment under Medicare Part B;
• changes to the methodology for calculating Average Sales Price of certain Part B covered drugs;
• changes to the physician, non-physician practitioner, and independent diagnostic testing facility enrollment requirements; and
• changes to the Physician Quality Reporting Initiative reporting requirements.

The PPFS will be officially published in the Federal Register on July 7, 2008.