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DSM Legal

What is incident-to/pass through billing/self-referral? 

Incident-to – “Incident to” services are defined as those services that are furnished to physician professional services in the physicians office or in the patient’s home.  “In-office” can encompass the actual office, a separate office suite or within an institution.  These services are billed as Part B services to your carrier as if you personally provided them, and are paid under the physician fee schedule. To qualify services must be part of the patients normal course of treatment, during which a physician personally performed an initial service and remains actively involved in the course of treatment.  The physician need not be physically present in the patient’s treatment room when services are provided, but you must provide direct supervision (be present to in the office suite to render assistance if needed). (CMS Medicare Learning Network MLN Matters Number: SE0441) 

Pass-through billing- Pass-through billing occurs when the ordering provider requests and bills for a service, but the service is not performed by the ordering provider.

The following scenarios are not classified as pass-through billing:

  • The service of the performing provider is performed at the place of service of the ordering provider and is billed by the ordering provider, or
  • The service is provided by an employee of a physician & other professional provider (physician assistant, surgical assistant, advance practice nurse, clinical nurse specialist, certified nurse midwife and registered first assistant) under the direct supervision of the ordering provider and the service is billed by the ordering provider.

The Medicare program considers diagnostic tests to have both a technical (the test itself) and a professional (the interpretation) component and has different rules about billing for each. Medicare generally does not permit a physician to “mark up” the technical component of a diagnostic test that a physician purchases from another party.

The Medicare Claims Processing Manual specifically states that the purchased diagnostic test rules apply only to the “technical component of physician pathology services furnished on or after January 1, 1994, … and not to the physicians’ service associated with the test.”

In other words, the general Medicare prohibition against marking up purchased diagnostic tests does not apply to billing for professional interpretations of tests; rather, it prohibits the marking up of the technical component of the test itself. Thus, a primary care physician must bill Medicare the lesser of either what the physician paid for the test or the Medicare fee schedule amount for the test.

In order for a physician to bill Medicare for a purchased interpretation, the primary care physician must have personally performed or supervised the technical portion of the diagnostic service. This means that if a physician leases technicians and equipment but supervises the work of the technicians, the physician may charge for the test and disregard the purchased diagnostic test limitation. (Medicare Claims Processing Manual Chapter 13 § 20.2.4)

Physician Self-Referral “Stark Law”- Section 1877 of the Social Security Act (42 USC 1395nn)

  • Prohibits a physician from making referrals for certain designated health services (DHS) payable to Medicare to an entity with which he or she (or an immediate family member) has a financial relationship (ownership, investment or compensation), unless an exception applies.
  • Prohibits the entity from presenting or causing to be presented claims to Medicare (or billing another individual, entity, or third party payer) for those referred services.
  • Establishes a number of specific exceptions and grants the Secretary the authority to create regulatory exceptions for financial relationships that do not pose a risk of program or patient abuse.

Is your service a DHS for the purpose of Stark Law?The following items or services are DHS:

  • Clinical laboratory services.
  • Physical therapy services.
  • Occupational therapy services.
  • Outpatient speech-language pathology services.
  • Radiology and certain other imaging services.
  • Radiation therapy services and supplies.
  • Durable medical equipment and supplies.
  • Parenteral and enteral nutrients, equipment, and supplies.
  • Prosthetics, orthotics, and prosthetic devices and supplies.
  • Home health services.
  • Outpatient prescription drugs.
  • Inpatient and outpatient hospital services. 

Is this payment structure considered a kickback? 

The Medicare Anti-Kickback Statute makes it a felony for anyone to offer, give, accept, or solicit anything of value if one purpose of the transaction is to encourage referrals of any patient insured by a federal health care program.

Most groups bill Medicare for both the professional and technical components of tests. Some might interpret this to mean that the Medicare Anti-Kickback Statute is inapplicable. That conclusion, however, is mistaken. Consider the situation in which a primary care group orders tests from a pulmonology group. Although the pulmonology group may directly bill for services to Medicare patients, it might allow the primary care group to bill private insurers for pulmonology services to all other patients. The primary care group’s ability to bill private insurers could be characterized as a financial incentive for that primary care group to refer Medicare cases to that pulmonology group. The key question is whether the amount of the “mark-up” by the primary care group is reasonable in light of the work it has done.

When the primary care group bills the insurer for pulmonology services, it is absorbing a cost that would otherwise fall on the pulmonology group. Billing and collection can be costly. It is entirely reasonable for the primary care group to receive compensation for this work.

In Advisory Opinion 98-8, the OIG considered whether it was appropriate for a durable medical equipment (DME) supplier to discount its fee to “cash and carry” customers because it enabled them to forego the costs associated with billing Medicare and having to comply with its rules. Although the OIG could not comment on the actual cost calculations, it agreed that it was reasonable for the DME supplier to have different prices based on the cost of providing the services. The OIG opinion stated, “[w]e agree that additional costs incurred by [the DME company] that are solely attributable to complying with Medicare requirements may constitute ‘good cause’ for charging Medicare substantially in excess of [the DME company’s] usual charge for identical items.” The OIG suggested that as long as the seller’s profit margin was unchanged, a discount was reasonable.

Although Opinion 98-8 focused on a DME company, its logic is applicable to other types of billing. Following the line of reasoning in the opinion, it may be appropriate and reasonable for a pulmonologist to charge a billing physician a lower, discounted price for an interpretation than the pulmonologist would charge Medicare or a third-party payer for the same interpretation because when charging the billing physician, the pulmonologist does not need to account for the costs associated with billing, collection, and compliance with payer rules.

Similarly, it may be reasonable and appropriate for a billing physician to charge a third-party payer more than the billing physician paid for a purchased pulmonology interpretation to reflect the costs associated with billing compliance.

Under the anti-kickback statute, the intent of the parties is the main focus, and the government considers whether or not the parties considered the discount to be related to the flow of referrals between them. If the pulmonology group lowers its price for the interpretations billed to physicians such that profit is being shifted to the referring physician, there is a very real risk for both parties under the anti-kickback statute. The government will likely argue that this added profit creates an incentive for the physician to refer the Medicare and Medicaid work to the pulmonology group. On the other hand, if the difference in price is justified by the pulmonology group’s cost savings or by work performed by the primary care group, then there is little risk to either the pulmonology group or the purchasing physician. However, it should be noted that while a fair market value payment suggests that referrals are not a factor in pricing, a fair market value alone does not determine the outcome of an anti-kickback analysis. If there is intent to pay for referrals, the government may seek penalties under the Medicare Anti-Kickback Statute.