 
HEALTHCARE: PROPOSED MEDICARE BILLING CHANGES FOR PURCHASED DIAGNOSTIC TESTS
Medicare has proposed changes in its regulations governing billing for purchased diagnostic tests, commonly referred to as the “purchased test rule” and the “purchased interpretation rule,” that would extend the application of these rules to certain contractual arrangements. At this point, these changes are only proposed and it is unknown when or if, they will be adopted. Medicare’s intent is twofold: (1) to control the proliferation of so-called “pod labs”; and (2) to prevent physicians from profiting from the “spread” between the fee they can bill Medicare and the actual cost to physicians of purchased tests under contractual arrangements they have entered into with providers who furnish the technical and/or professional components of diagnostic tests. Under regulations that went into effect as part of the Medicare Prescription Drug, Improvement and Modernization Act of 2003, Medicare adopted an exception to its prohibition on reassignment to permit reassignment by an independent contractor physician to a provider with whom the physician is under contract, regardless of where the services were furnished. If adopted, the proposed changes would essentially render the contractual reassignment exception useless for arrangements involving diagnostic tests.
Under the current rule governing purchased diagnostic tests, a provider who purchases the technical component of a diagnostic test is permitted to bill for the technical component provided that: (1) the purchaser provides the professional component; and (2) the purchaser does not “mark up” the amount billed for the test. Note that a diagnostic test is viewed by Medicare as being purchased when a test is performed by supplier personnel, even if the test is provided in the billing physician’s office. Under this “purchased test rule,” the fee billed to Medicare equals the lower of: (1) the cost (net any discount) charged by the supplier to the billing provider; or (2) the performing supplier’s reasonable charge. The billing physician must supply Medicare with the name of the supplier and the amount charged the billing physician by the supplier. The penalty for knowingly violating this rule is imposition of civil monetary penalties and exclusion from Medicare for five years.
Under the purchased interpretation rule now in effect, the purchaser must furnish the technical component. When an interpretation is furnished at a location other than the site of the ordering physician, the entity that actually performs the test may bill for the interpretation provided that:
The entity that performs the test is independent of the physician/group that ordered the test;
The entity is independent of the physician/group that interprets the test;
The physician/group that interprets the test does not see the patient; and The billing entity either accepts assignment for both components of the test or does not – it’s all or nothing.
For example, a physician orders a test and sends the patient to an imaging center to have the test performed. The center furnishes the test and then sends the test to an outside radiologist for interpretation. The center may bill for the purchased interpretation. However, while the ordering physician may bill for the purchase of the test, the physician may not bill for its interpretation. If, however, the ordering physician had furnished the interpretation, the physician could bill Medicare for the interpretation as well as for the purchased test.
Under the proposed changes, Medicare would amend the reassignment regulations to apply the purchased diagnostic test and test interpretation rules to reassignments made under contractual arrangements. This would significantly impact many arrangements that providers currently enter: “shared facility” arrangements for diagnostic services; “pod lab” arrangements; and most arrangements in which physicians enter into contracts with other providers who furnish the technical and/or professional components of diagnostic tests, and then profit from the spread between the actual costs of the test and the global fee the physicians are able to collect from Medicare. If the proposed changes are adopted, they would render the contractual reassignment exception essentially useless for arrangements involving diagnostic tests.
Until Medicare makes a final decision regarding these proposed changes, the most reasonable step would be to ensure that technicians and other leased personnel performing and interpreting diagnostic tests enter into employment agreements with the medical groups billing Medicare for these tests.
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