2008 Physician Fee Schedule Strikes At Pod And Condo Labs

The dust has settled, temporarily, on the Centers for Medicare and Medicaid Services' ("CMS") latest attempt to calibrate its approach to arrangements to share diagnostic testing equipment. The result is that it will be much more difficult to operate a pod or condo laboratory profitably, and generally more difficult to share diagnostic equipment.

From the adoption of the Stark Law in 1992, CMS (and before it, Congress in adopting the 1992 law and the 1995 expansion) has struggled with the tension between permitting an imaging or laboratory service to be rendered to a patient conveniently at the time and in the space where the patient otherwise receives care, and prohibiting the over-utilization attendant to allowing such referrals. This tension is particularly acute in the context of multispecialty groups where there are significant competing interests to the prohibition on the rendition of ancillary diagnostic serves on a profitable basis.

In its most recent attempt to address these tensions, CMS has focused its attention on pod laboratory and imaging operations that effectively capture referrals from referring group practices by contracting out pieces of their operation so that they are part of the referring group for purposes of the Stark Law. As reported in our October 2007 Client Alert (available here:

http://www.proskauer.com/news_publications/client_alerts/content/2007_10_03), CMS proposed a host of regulatory changes to the Stark Law in the proposed 2008 Physician Fee Schedule ("PFS").

In finalizing the 2008 PFS, CMS adopted none of the proposed changes to the Stark Law. Although many cheer this quiet in the generally unrelenting regulatory assault on such pod arrangements, CMS did adopt a broad expansion to the anti-mark up provision for diagnostic tests which, although not a change in the Stark Law rules and regulations, may have as great an impact. (It should be noted that the proposed Stark changes, dramatic as they may be, are still under consideration.)

Expansion of the Anti-Markup Rule

Significantly, based on an aggressive reading of a Medicare Act provision that gives CMS the right to regulate billing for certain tests, effective January 1, 2008, CMS prohibits a physician or physician group from profiting on diagnostic tests that they, or any other supplier, or any other party related by common ownership or control orders if the test is performed at a site other than the "office of the billing physician or other supplier."...

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