Update on Pod Labs and Other Contractual Joint Ventures (CJVs) Donna J. Meyer Staff, Professional Affairs Committee

We Will Discuss Overview of CMS rulemaking on pod labs Distinguishing pod labs from other CJVs History of CAP activities against CJVs Summary of current CMS regulations What does the CMS rule stand to change CAP’s recommendations and strategies

CMS Rulemaking on Pod Labs In the 2007 Physician Payment Fee Schedule Rule, CMS proposed changes to the Medicare Reassignment Rule and the Physician Self Referral/Stark Regulations to address concern over the recent growth of pod labs

CMS Rulemaking on Pod Labs “[W]e are concerned about the existence of certain arrangements that are not within the intended purpose of our physician self-referral rules, which allow physician group practices to bill for services furnished by a contractor physician in a “centralized building.” We are concerned that allowing physician group practices or other suppliers to purchase or otherwise contract for the provision of diagnostic tests and then to realize a profit when billing Medicare may lead to patient and program abuse in the form of overutilization of services and result in higher costs to the Medicare program.”

CAP Comments to CMS Rule “We applaud CMS for recognizing “pod” laboratories as one type of questionable billing arrangement that is susceptible to this abuse and needs to be prevented. And while the CAP supports efforts to end pod labs, we also encourage CMS to adopt safeguards to prevent other prevalent abusive arrangements involving diagnostic testing services. Specifically, certain specialty physician groups are being marketed a variety of laboratory models that are designed to take advantage of the Medicare reassignment rule and the in-office ancillary services exception to the physician self-referral law.”

Introduction of the Pod Lab With scrutiny of mark-ups and client billing, physicians looked for a new way to bill Wall Street Journal, 9/30/05 “Getting Around Medicare… [S]ome companies have figured out a way to let doctors bill Medicare for off-site lab work. It involves doctor groups creating a "condo" or "pod" lab.”

What is a Pod Lab? Turnkey operation Remote location from physician office Usually built in groups of 5 since Medicare allows 1 pathologist to oversee 5 labs Space rented, equipment leased (or purchased), technical employees leased Pathologist is an independent contractor and rotates among the multiple labs

Typical POD Lab Set-Up

New CJV Models Continue to Emerge GI Pathology Partners Lakewood Pathology PathOptions Physicians RightPath PhyTest TwinCrest Group

Other CJV Models Physician groups developing in-house AP labs in the same office or building as the practice Group rents space and buys or leases equipment Technologists are employees of group practice Pathologists may be independent contractor, part time or full time employee, or partner in group practice

Typical In-House AP Lab Set-up

All Models Share a Profit Motivation to Increase Practice Revenues

All Models Assert Compliance Under Federal Stark Law Stark Law prohibits under Medicare physician referrals to an entity with which the physician (or an immediate family member) has a financial relationship, unless an exception applies Physicians have a financial relationship in a lab if their group practice owns the lab or bills for the lab services

In-Office Ancillary Services Exception to the Stark Law Covers physician services/PC personally performed by the referring physician or another physician in the same group practice Also covers the TC of the lab service if performed or supervised by a physician in the group practice, which can include an Independent Contractor to the group

In-Office Ancillary Services Exception to the Stark Law Group practice must also comply with Medicare billing rules/Medicare Reassignment Rule Medicare Reassignment Rule allows physician to bill for services furnished by another physician or supplier under certain circumstances, which includes employment, purchases of testing services, and under contractual arrangements

In-Office Ancillary Services Exception to the Stark Law Must satisfy the definition of a group practice and the services must be performed in group practice facilities that satisfy all building requirements These requirements permit both on and off- site facilities so long as there is exclusive ownership or occupancy of the space by the group

History Stark II regulations published 2004 CAP alerts Congress to Pod Labs Sen. Grassley requests OIG to study these arrangements OIG Advisory Opinion on pod labs concludes “the proposed arrangement could potentially generate prohibited remuneration under the anti- kickback statute”

History OIG Work Plans call for additional study on physician pathology billing practices Results not released to public but rumors are that they did not prove “overutilization” 2006 CMS asks for OIG to do more investigation prior to releasing their study

History 2006 CAP continues to work with CMS to identify potentially abusive practices and recommends regulatory changes CMS issues preliminary rule to address pod labs CMS delays publication of final rule stating it “remains committed to addressing arrangements that may encourage over- utilization of diagnostic services”

History Florida Medical Business Journal talks to unidentified CMS official and implies OIG found evidence of overutilization Report expected to be released prior to CMS Rule “A report issued by the Office of the Inspector General (OIG) of the Department of Health and Human Services suggests [Dr. Rey] may be right. All three of the urology groups the OIG inspected performed more biopsies after investing in Uropath condo labs. ‘ The group practices tell you it’s a trend of urology in general,’ the CMS official said, ‘that everyone’s ordering more tests now.’ ”

Today CMS says it intends to issue proposed changes in 2008 Physician Fee Schedule Rule CMS will issue changes as a proposed rule, with a second opportunity for public review and comment prior to issuing a final rule A CMS official indicated that the agency decided to publish the rule in proposed format because it will include “significant changes” to what was proposed last year

How Does CMS Rule Affect Pod Labs and Other CJVs? CMS proposes changes to: Medicare Reassignment Rule – Who can bill and for how much? In-Office Ancillary Services Exception to Stark Law – When can a physician have a financial interest in their self- referrals?

Proposed Changes to Medicare Reassignment Rule CMS plans to stop mark-up of PC from Independent Contractor (IC) arrangements CAP agrees but cautions not to prevent legitimate IC arrangements between pathologists and pathology groups CAP also urges CMS to stop sham part-time employment arrangements

Proposed Changes to In-Office Ancillary Services Exception CMS plans to add building, equipment, and personnel requirements that focus on the physical attributes of pod labs CAP agrees and asks for similar restrictions to extend to in-house labs CAP also proposes 25-mile limit for physician office labs

Proposed Changes to In-Office Ancillary Services Exception CAP also asks for additional changes that focus on the fundamental issue of physician groups profiting from self-referrals for AP services that are performed by another physician and arrangements that treat pathology services as a commodity

Proposed Changes to In-Office Ancillary Services Exception CAP proposes additional changes to: Limit no more than 2 physician group practices sharing a pathologist as part-time members of their groups Prohibit profit-sharing by non-pathologists in revenues from AP services unless it is a legitimate multi-specialty group practice

Proposed Changes to In-Office Ancillary Services Exception CAP proposes additional changes to: Exclude AP from the in-office ancillary services exception to prohibit physician group practices from having a financial interest in their self-referrals of AP services

CAP Strategies Continue to work with CMS on Medicare payment policy and self-referral regulations Perform analysis on Medicare and private data to support claims of overutilization Continue to work with Congress for a legislative remedy through amendments to the Stark Law Dialogue with health plans on the potential abuses to effectuate policy change

Need for Coordinated Effort There are potential downsides from inconsistent messages and unproven claims of overutilization that need to be avoided: Limitation on individual component billing Reduced charges on multiple same code charges Reduction of payment for TC and/or PC of pathology services

Need for Coordinated Effort Overall message should focus on: Promotion of independent clinical decision- making Clinical decisions based on quality not cost and/or profit potential Prohibition on financial conflicts of interest by self-referring clinicians Elimination of profit motivation to avoid potential abuses