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Learn the rules, and you’ll get the reimbursement you’re entitled to.

Fam Pract Manag. 2003;10(6):14-18

With the diffusion and lowered costs of diagnostic technologies, diagnostic testing is an increasingly important clinical and financial adjunct to family practice. As it is for so many of the services physicians deliver today, billing for diagnostic testing is the source of much confusion. This article discusses how to get paid by Medicare for diagnostic testing without risking charges of fraud and abuse.


In the 2003 Medicare Fee Schedule, the regulators stated their position that diagnostic testing is not a physician service but rather a separate Medicare benefit subject to its own rules, even when performed in a physician practice.1 Diagnostic testing performed by ancillary personnel (e.g., technicians, nurses and medical assistants) must meet a separate set of physician supervision requirements.2 (Most other services rendered by clinical staff in physician offices must meet the criteria for “incident to” billing. See “The Ins and Outs of ‘Incident-To’ Reimbursement,” FPM, November/December 2001, page 23.) One of the following levels of supervision must be met for a diagnostic testing service to be reimbursable, even if it’s billed “incident to” a physician. The CPT code will specify the level of supervision that the service requires:

  • General supervision, which does not require a physician on the premises but only general physician quality control;

  • Direct supervision, which requires a physician in the group (not necessarily the attending or ordering physician) on the premises in the office suite;

  • Personal supervision, which requires a physician in the room with the patient when the service is being provided. The physician need not be the attending or ordering physician.

Midlevel providers (MLPs) who obtain their own provider numbers may be reimbursed by Medicare (or the group employing them may be) for any diagnostic testing they perform that is within the scope of their licensure under state law as long as a physician would be reimbursed by Medicare if he or she performed the same service. The supervision requirements outlined above must still be met. MLPs may perform diagnostic tests, but they may not supervise others performing them.


It is permissible for a physician practice to own or lease the diagnostic testing equipment its physicians and MLPs use, although lease payments should reflect fair market value as established in arms-length relationships. To determine fair market value for a lease, check with commercial leasing companies to find out what they charge. If the equipment is mobile, it should be located within the office suite where the physician or group is providing its other services.

The issues surrounding the use of testing equipment owned by other physician groups are more complicated. Although the basic Medicare rules may not be problematic, Stark may be the real issue. If the tests being performed are “designated health services,” as defined by Stark, then a family physician who leases equipment on a part-time basis off-premises must provide at that location substantial non-Stark services that reflect the basic scope of services in his or her primary office. (To learn whether a diagnostic service is a designated health service, consult the list at For example, a family physician seeking to use ultrasound equipment leased part time at another location must have an office on the premises where he or she actually sees and consults with patients and performs the full range of services he or she provides at the primary office. Because the rules define “on the premises” as within the same postal address, the arrangement can work if the equipment is in a separate suite in the same building where the primary office is located and the relevant supervision requirements are met.

Per-procedure, per-use or per-click lease arrangements are, surprisingly, legitimate under Stark as long as the physicians billing for the service do not receive any profit distribution that reflects the volume of diagnostic services they order but neither perform nor interpret. However, a separate anti-kickback statute that applies to all federal health care programs requires that the aggregate compensation of any lease be stated in advance and not reflect the volume of services ordered. Obviously, per-click lease arrangements do not meet this standard. Fixed-rate rent (e.g., $500 a month) does not raise the concerns a per-click lease does.

Purchased services

The basic Medicare reimbursement rules impose strict requirements on who may bill for a service performed by another. These rules are referred to as the “reassignment rules” because the clinician who accepts assignment of the claim reassigns it to another entity. They also implicate diagnostic testing arrangements.

The 2002 Medicare Fee Schedule liberalized the “incident to” rules, so it is no longer necessary that ancillary personnel who are involved in the testing be W-2 employees or even leased employees. The group may bill for services provided by independent-contractor MLPs who reassign their right to payment to the physician group, but only for the services they provide on the group’s premises. The group may not bill for services these clinicians provide off-site at a hospital, at an ambulatory surgery center or even on a house call.

A family practice group may bill for the technical component on tests it performs for its own patients and permit an outside consultant to bill for the professional component. In such cases, the family practice group should append modifier -TC to the CPT code to indicate that it performed the technical component only. The consultant should append modifier -26 to the CPT code to indicate that he or she performed the professional component only, unless there are separate CPT codes for the technical and professional components only (e.g., 93005, “Electrocardiogram …; tracing only, without interpretation and report,” and 93010, “Electrocardiogram …; interpretation and report only).

However, the group may not bill globally for a service if it has purchased the professional component/interpretation from an outside consultant who reads the study off-site. A specific Medicare reassignment rule prohibits this type of arrangement.3 The family practice group may only bill globally for services that involve an outside consultant if that physician reassigns his or her right to payment to the group (becomes a member of the group for these purposes) and performs the interpretations at the office of the family physicians.

You should also be aware of a relevant provision in the Social Security Act that prohibits a physician from marking up a purchased technical component.4 Previously, the technical component was not considered purchased if the service was provided under the direct supervision of the physician, which was restricted to mean that the physician was in the office suite and the ancillary personnel were the physician’s or the practice’s W-2 employees. Because this relationship is no longer required to meet direct supervision requirements, now the waters are far murkier, particularly if the physician obtains the use of equipment and a technician from an outside vendor and pays the vendor per study. In such an arrangement, the likelihood that the technical component was purchased is far greater, and the family physician can bill only the actual acquisition cost of the technical component or the fee schedule amount, whichever is less. A violation of this rule is subject to a $2,000 civil money penalty for each improper claim. Therefore, it is far better to have direct control (direct lease or purchase) of diagnostic equipment and engage your own technicians directly than to obtain them from outside vendors.


To submit claims to Medicare for diagnostic services that qualify as Stark-designated health services, the services must meet the “in-office ancillary services” exception (which requires meeting the supervision, equipment lease and location requirements noted above). The group submitting the claim must also meet the Stark definition of a group, that is, it must be a group of two or more physicians legally organized as a group (a corporation, partnership, LLC, etc.) and meet several other unified business test standards. The physicians’ compensation may reflect either a share of the overall profits of the group or a measure of their own productivity that includes services incident to their own.

The final Stark rules on this point do allow sharing profits across locations (different offices get different payments) or across specialty-specific “pods,” as long as the pods include at least five physicians and none of them realizes a direct benefit for the volume of diagnostic services they order. In addition, a physician who interprets or orders a test may receive compensation based on a formula that credits the physician dollar for dollar for reimbursement derived from the technical components of these services, since they are incident to his or her treatment of the patient.5 This fact is still not well understood by physicians.

The supervision requirements for diagnostic testing, not the incident-to rules, apply when diagnostic testing is billed incident to a physician’s service. In some circumstances, even if no physician was in the office suite when the diagnostic testing was provided, it may be considered incident to the physician who interpreted the test. However, keep in mind that if an MLP performs the test and bills it using his or her own provider identification number, by definition the service is not incident to a physician but rather is a service of the MLP, although paid to the physician group.

Proceed with caution

Diagnostic testing is an important part of family practice. Medicare controls how it must be provided, obtained and billed to avoid false claims liability, Stark violations and breach of the reassignment rules. You should carefully review your organization, employment and compensation arrangements to avoid pitfalls in this confusing arena.

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