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MEDPAC Report on In-Office Ancillary Services

The Medicare Payment Advisory Council (MEDPAC) recently delivered its 2010 report to Congress. The report entitled “Report to the Congress: Aligning Incentives in Medicare,” addressed the in-office ancillary services (IOAS) exception to the Stark Law, which allows physicians to provide most DHS services to patients in their own offices under certain conditions.

In recent years, many physicians have expanded their practices to provide diagnostic imaging, clinical laboratory testing, physical therapy, and radiation therapy. The IOAS exception has enabled physicians to make rapid diagnoses and initiate treatment during a patient’s office visit. This has helped improve care coordination, encourage patients to comply with their physicians treatment recommendations and enhance patients’ convenience.

Due to the rapid growth of ancillary services, MEDPAC would like to restrict the IOAS exception by developing payment systems that reward providers for constraining volume growth while improving the quality of care. While the MEDPAC explores several options, they note that these are not recommendations, and therefore, there is currently no plan for these policies to be implemented in the near future.

MEDPAC’s first proposal is to limit the types of services or physician groups covered by the IOAS exception. Their first proposal is to exclude outpatient therapy and radiation from the exception. Outpatient therapy and radiation are the primary therapeutic services covered by the exception. Because these forms of therapy generally involve multiple sessions and are rarely initiated on the same day as an office visit, MEDPAC would like these services to be eliminated under the IOAS exception. This has raised concerns that excluding the outpatient treatment of therapy and radiation would greatly inconvenience patients by forcing them to receive care at hospitals. Furthermore, another issue raised is how the exclusion of these services would affect clinically integrated groups that care for a wide variety of cancers using a range of modalities, including radiation therapy.

Another strategy to constrain the types of services offered is to limit the exception to physician practices that are clinically integrated. The overall goal would be to balance the risks of higher volume associated with self-referral with the potential benefits of clinically integrated practices. A key issue would be to define clinical integration” in a way that can be measured. MEDPAC believes a possible solution would be to require that each physician in the group provide a substantial share of his or her services, around 90 percent, to the group. Currently, the IOAS exception requires a physician of a group to provide at least 75 percent.

The last MEDPAC proposal to limit the services offered would be to exclude diagnostic tests that are not usually provided during an office visit from the exception. The MEDPAC argument behind this proposal is that certain tests are rarely used by physicians to make a diagnosis at the time of the patient’s office visit. An issue with this proposal would be defining which diagnostic tests should be covered under the IOAS exception and which tests would be labeled less relevant. These decisions would involve setting an arbitrary threshold, which would exclude tests without weighing in the type of condition, patient, severity and other factors that would be important in deciding which tests are necessary.

MEDPAC would also like to limit the IOAS exception through various payment proposals that would diminish incentives to increase the volume of ancillary services. The first approach is to reduce payment rates for diagnostic tests performed by self-referring physicians. This policy could help Medicare reduce payment rates for diagnostic tests performed by self-referring physicians to offset additional Medicare spending related to self-referral, while continuing to allow physicians to provide these services in their offices. While this proposal will provide some benefits, it also creates new issues that would need to be addressed. For instance, should this policy apply to all diagnostic tests covered by the IOAS exception or only certain tests and how should the size of the payment reductions that would be applied to self-referred diagnostic tests be determined?

Another approach to reducing payments is to improve payment accuracy and combining discrete services into larger units of payment. MEDPEC has recommended that the CMS review fee schedule’s relative values for accuracy, in order to prevent any mispricing on discrete services. Additionally, they would like to create stricter pricing structures on specific types of service. For instance, MEDPAC proposes Medicare increase the equipment use rate assumption for expensive diagnostic equipment from 24 to 45 hours per week. The purpose of such a policy is to reduce practice expense payments for costly imaging services and increase such payments for other physician services.

MEDPAC would also like to combine multiple services often furnished together during the same office visit into a single payment rate. One approach to combine services is through packaging, where all the services provided during one encounter with a provider are combined into a single payment rather than each discrete service receiving a separate payment. MEDPAC is also proposing bundling services, where all the services furnished during multiple encounters are combined into one single payment. While both packaging and bundling are be discussed separately, both policies are not mutually exclusive and could build off one another.

Additionally, MEDPAC proposes creating a requirement for certain self-referring physicians to participate in a prior authorization program for advanced diagnostic imaging. This approach would focus on certain self-referring physicians who order more advanced imaging services than their peers to need authorization first. This policy would involve two steps. First, CMS would indentify self-referring physicians who are outliers in their use of advanced imaging. Second Medicare would require those physicians identified to participate in a prior authorization program, where CMS or a contractor would review their requests and decide whether they are clinically appropriate before they are provided. While MEDPAC see’s many benefits in this approach, they also recognize many problems, including high administrative costs of establishing and managing a prior authorization program, the burden on providers who are required to submit requests for prior approval and additional waiting time for patients to receive the imaging.

MEDCAP’s long-term approach to address self-referral is to develop payment systems that reward providers for constraining volume growth. Although, they admit that some of policies that would create new payment models and delivery systems would take several years, some of the policies described above would serve as interim approaches to address the growth in ancillary services in physician offices. Furthermore, MEDCAP believes these policies should be considered both individually and in combination. While these provisions have not gone into effect, physicians should stay attentive to any future changes to in-office ancillary services.

For more information on this topic, feel free to call Carey F. Kalmowitz, Esq. or Adrienne Dresevic Esq. of The Health Law Partners at (248) 996-8510 or (212) 734-0128.

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