Is Block Leasing in Trouble?

July 22, 2008

The general concept over the past several years has been that block leasing presents less regulatory risk than per-click leasing. In essence, under a per-click lease, a party buys an image or test and resells it to a payor or patient. This type of arrangement is clearly subject to the anti-markup rules.

CMS continues to express concern about the growth of imaging costs to the Medicare program. The agency has taken three actions over the past eighteen months that may impact the imaging sector and its future ability to continue block leasing. CMS has: 1) commented that block leasing arrangements are also subject to the anti-markup rule; 2) articulated new situations in which the anti-markup rule for purchased diagnostic tests will apply; and 3) proposed new registration requirements for independent diagnostic testing facilities. This article briefly discusses these three issues.

1) CMS Comments on Block Leasing. CMS, in the 2008 Medicare Physician Fee Schedule, commented that the anti-markup rules apply to diagnostic tests performed through block leasing arrangements. CMS stated as follows:

Comment: One commenter questioned whether the anti-markup provisions would apply to diagnostic tests performed through block lease arrangements. This commenter (and another commenter) also stated that it would be difficult to calculate the per-test charge on tests performed in block lease arrangements.

Response: The anti-markup rules do apply to diagnostic tests performed through block lease arrangements, and the burden is on the billing entity to determine how to calculate its net charge per test.

One must recognize that there are different types of block leases. For example, there are block leases where providers have blocks but really pay per-click. The answer here is simple. The test would be subject to the anti-markup rule.

There are also block leases where a provider solely leases equipment to a tenant who provides diagnostic imaging services. The answer here should also be simple. As long as a provider truly provides the diagnostic imaging services and also satisfies a Stark exception, a provider can provide the services and profit from them without experiencing a purchased diagnostics problem. Such a provider, in essence, owns and operates the equipment and provides services through its own employees.

The third issue is the most challenging. This is a situation where a practice rents blocks of time, but the blocks not only include real estate and equipment, but also include technicians, employees and other supplies. Here, there appears to be greater concern by CMS that providers are really buying the complete package of testing, rather than utilizing space and staff to provide the services themselves. The permissibility of this situation requires additional interpretation and also may depend on further proposed CMS regulations discussed below.

2) CMS Proposes Amendments to the Anti-Markup Rule. CMS has proposed two alternative approaches for revising the anti-markup rule. Under each proposal a purchased diagnostic is subject to the anti-markup rule. Under the first approach, a diagnostic test would be subject to the anti-markup rule if it is performed outside the office of the billing physician. CMS has recently proposed expanding the definition of “office of the billing physician” to utilize the Stark Act’s “same building” definition. Accordingly, under this analysis, if all of the other requirements of the Stark Act are met, it appears that the anti-markup rule would not apply if diagnostic services are performed in the building where an ordering physician provides substantially the full range of services that he or she generally provides, and the services are not a purchased diagnostic.

The second proposed rule is significantly different. This proposal focuses on who is actually performing the services instead of the site of service. Under this proposal, a party would be subject to the anti-markup rule if it either does not directly perform or supervise the diagnostic test. To avoid arrangements where multiple practices utilize the same radiologists or the same technician to provide services, a practice would be required to employ or contract with a physician on an exclusive, full-time or part-time basis. Under this approach it may be possible to use block leases as long as a group directly provides and supervises the services.

3) CMS Proposes a New Registration Requirement for IDTFs. CMS has also proposed certain registration requirements that would significantly discourage the sharing of space and diagnostic imaging equipment among various Medicare-certified entities. Significantly, CMS recently proposed requiring any physician practice location that provides imaging services to register as an IDTF. This proposal, if finalized, would serve to prevent block leasing between imaging facilities since IDTFs are no longer permitted to share space or equipment with another Medicare-certified entity under recently enacted IDTF performance standards.

The general anti-markup rule for purchased diagnostics remains in place. These proposals and other rules provide greater clarity regarding how CMS may determine whether a diagnostic test is purchased or truly provided by a practice. Further, if certain of these rules are finalized, they would further change the nature of what services can and cannot be provided through block leasing.

The ability of a provider to enter into a block lease to provide diagnostic imaging may, in large part, depend upon the extent to which the practice, in addition to meeting a Stark Act exception, can argue that it really is the provider of diagnostic imaging services, and that it is not just buying the services and reselling them for a profit.

We expect CMS to release further guidance addressing these issues over the next six to twelve months. We also intend to speak further with CMS about these matters.

Helping our clients navigate the regulatory landscape is one of the services provided by the McGuireWoods Health Care Practice.


Is Block Leasing in Trouble

July 21, 2008