Physicians Beware: In-Office Ancillaries May Soon Be Prohibited

In a prior blog, I discussed President Obama’s 2014 budget and its proposed impact on how physicians deliver in-office healthcare services. To refresh your memory, the 2014 budget proposed to eliminate the ability of physicians to provide radiation therapy, non-radiation therapy, or advanced imaging services under the Stark Law "In-Office Ancillary Service" (IOAS) exception. This exception currently allows physicians to provide these and other ancillary services to their Medicare or Medicaid patients by providing and billing for such services in accordance with IOAS exception requirements.

Proving that IOAS isn’t only a target of the executive branch, on August 1, 2013 Congress proposed the Promoting Integrity in Medicare Act of 2013. If passed, the bill will significantly revise the current IOAS exception, affecting the many physicians who today rely on IOAS exception to provide ancillary services to patients, as well as those physicians contemplating offering such services in the future.

The bill proposes to amend the IOAS exception to exclude the following from the definition of “ancillary services” and therefore make them unavailable to be used under the IOAS exception: pathology services; radiation therapy services and supplies; advanced imaging services (CT, MRI and PET); and physical therapy services. Additionally, the bill directs CMS to subject all referrals for these services to increased scrutiny in an effort to identify overutilization and referrals in violation of Stark. Such “increased scrutiny” tactics “may include prepayment reviews, claims audits, focused medical reviews [and/or] computer algorithms designed to identify payment or billing anomalies.” Referrals for these services in violation of Stark will be subject to increased civil monetary penalties in excess of those currently attributed to Stark violations.

Although it may seem like the impetus for this bill is to single out physicians for punishment, the bill’s sponsors indicate the legislation is essential to combat medically unnecessary overuse of ancillary services. They point to statistics showing that the number of in-office referrals for MRI and CT services for Medicare patients increased dramatically over the past few years; at about two times the rate of referrals for similar services outside the referring physician’s office. Similar statistical differences between in-office and outside-office referrals exist for pathology services.

While healthcare attorneys, policy analysts, and providers can argue for days about the accuracy of these statistics and how to best address non-medically-indicated overutilization, the fact remains that physicians should prepare for restrictions on IOAS referrals.

How can your practice prepare now for such legislation?

1. Determine whether Stark actually applies to your practice based on the services you offer and whether federal patients are referred for such services.
2. Review all current lease and/or financing arrangements related to equipment and/or supplies used in conducting ancillary services. You should pay particular attention to how these agreements can be terminated without-cause or if a change in law or regulation provides you with a for-cause reason to terminate. 
3. If you are thinking about expanding in-office services, taking a wait-and-see approach may be your best option. If you must move forward now, make certain your agreements contain termination options, without penalty, in the event of a change in the law.
4. Evaluate relationships with existing personnel who provide ancillary services in your office. Can these employees provide additional services in your office not subject to the proposed IOAS exclusions? Does your practice maintain enough volume of non-Medicare ancillary services to retain such staff? In the event regulatory changes necessitate a reduction in staff, physicians should review all existing contracts to determine termination requirements, severance obligations, etc. Make certain all future employment agreements allow termination for-cause in the event a change in the law affects the type of services for which the employee was hired to perform.

The proposed IOAS restrictions couldn’t come at a more uncertain time in healthcare. With increased pressure to become a hospital-based provider, changing compensation methods, and decreased reimbursement, these proposals represent another “squeeze” on the independent healthcare practitioner. Like other recently proposed laws impacting healthcare, this one-size approach to curbing unnecessary ancillary referrals will likely hurt patients who benefit from quality and convenient care, and providers who offer superior and medically necessary ancillary services.