On November 28, 2011 CMS published in the Federal Register its final rule for the calendar year (CY) 2012 Medicare Physician Fee Schedule (“2012 MFPS”).1 In addition to the policy changes and topics discussed below, this final rule covers a variety of technical physician reimbursement rules (e.g., calculations of malpractice RVUs and geographic practice cost indices). As is typical for the MPFS annual updates, the 2012 MPFS is hefty, occupying more than 450 pages of the Federal Register.

Sustainable Growth Rate. The 2012 MPFS implements a steep reduction in payment of 27.4% based on the Sustainable Growth Rate (SGR) established under the Balanced Budget Act of 1997. Congress has stepped in to provide temporary relief from the SGR reductions every year since 2003. In a press release, CMS indicates its hope that Congress will once again step in to avert the payment rate cut and implement a permanent solution to the SGR rate problem.2 Until such time as Congress acts, CMS is forced to implement the law as it stands, which means implementing the 27.4% rate reduction for physician services. However, CMS has told providers that it will hold payments on claims for the first ten (10) business days of 2012 in order to give lawmakers more time to fix the problem.

Expanding Multiple Procedure Payment Reduction to the Professional Component (PC) of Imaging Procedures. CMS has had a longstanding multiple procedure payment reduction (MPPR) policy of reducing payment by 50 percent for the second and subsequent surgical procedures and nuclear medicine diagnostic procedures furnished to the same patient by the same physician on the same day. In recent years, this policy has been extended to advanced diagnostic imaging and therapy services. In 2006, CMS extended the MPPR policy to the technical component (TC) of advanced diagnostic imaging procedures (i.e., computed tomography (CT), computed tomographic angiography (CTA), magnetic resonance imagining (MRI), magnetic resonance angiography (MRA) and ultrasound) performed on contiguous areas of the body in a single session (although the policy is no longer limited to contiguous areas of the body). Under current MPPR policy, the TC of the highest paid procedure is paid in full, and the TC of each additional procedure furnished to the same patient in the same session is reduced by 50 percent.3 Despite most commenters opposing the idea, the 2012 MPFS finalizes CMS’ proposal to apply the MPPR policy to the professional component (PC) of advanced diagnostic imaging procedures. However, the payment reduction for second and subsequent PCs has been finalized as 25% rather than the originally proposed reduction of 50%.4

Payment for TC of Pathology Services for Inpatients. After continual legislative delays, effective January 1, 2012, an independent laboratory will no longer be able to bill the TC of pathology services for Medicare beneficiaries who are inpatients or outpatients of a covered hospital. CMS had finalized this rule in 2000, but it had been continually overruled by subsequent legislation until now. In this final rule, CMS takes the position that the TC of pathology services is already included in the inpatient prospective payment system (IPPS) payment to the hospital and, as a result, CMS had been paying double for these services when an independent laboratory had also billed for the TC.5 Interestingly, despite acknowledging that there is no duplicate payment in the context of hospital outpatients,6 CMS nonetheless extends its new pathology TC rule to both hospital inpatients and outpatients.

Extension of 3-Day Payment Window to Physician Practices. Certain services provided to a Medicare beneficiary in the 3-days prior to an inpatient admission into a hospital are paid as part of the inpatient stay under the Inpatient Prospective Payment System (IPPS).7 This means that the hospital, or an entity that is wholly owned or wholly operated by the hospital, must include on the claim for a Medicare beneficiary’s inpatient stay the technical portion of any outpatient diagnostic and non-diagnostic services related to the admission. Similarly, the wholly owned or wholly operated entity that performed the pre-admission diagnostic or non-diagnostic service may not receive payment for the technical portion of those services. This is commonly known as the 3-day payment window policy. In 2010, pursuant to the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010,8 the 3-day payment window policy was broadened to apply not only to non-diagnostic services that had the same exact diagnosis code as the inpatient admission, but also to any non-diagnostic services that are “clinically related” to the inpatient admission.

In this final CY MPFS, CMS restates its expectation, without much definition, that hospitals and their wholly owned and wholly operated entities ascertain, and document, whether non-diagnostic services provided in the 3-day payment window are clinically related to the subsequent inpatient admission given the context of the patient’s unique circumstances. In addition, CMS creates a new modifier (PD) for wholly owned or wholly operated entities to signal pre-admission diagnostic or admission-related non-diagnostic services that are subject to the 3-day window. The new modifier will serve to signal the Medicare administrative contractor to provide payment only for the PC for CPT/HCPCS codes with a PC/TC split and to pay services without a PC/TC split at the facility rate when they are provided in the 3-day (or, in the case of non-IPPS hospitals, 1-day) payment window.9 Although the new modifier will be available for use January 1, 2012, CMS has delayed implementation until July 1, 2012 in order to allow hospitals and their wholly owned and operated entities to coordinate and develop compliant billing systems.

Signature Requirement for Clinical Diagnostic Laboratory Tests. In the CY 2011 MPFS final rule, CMS had finalized a policy that required clinical laboratories to secure a physician or non-physician practitioner signature on all laboratory requisition forms. After significant response, and realization of the burden this policy would place on clinical laboratories, CMS had delayed implementation of the policy. In this final rule, CMS formally retracts this policy and reinstates the prior policy that the signature of the physician or non-physician practitioner is not required on a requisition for a clinical diagnostic laboratory test provided to a Medicare beneficiary to be paid under the Clinical Laboratory Fee Schedule.

Inclusion of Health Risk Assessment As Part of Annual Wellness Visit. In section 4103 of the Patient Protection and Affordable Care Act,10 Congress expanded Medicare Part B benefits to include an annual wellness visit providing personalized prevention plan services.11 In the 2012 MPFS, CMS, with slight modifications, finalizes its proposal to require a “health risk assessment” (“HRA”) as part of each annual wellness visit based on its belief that HRAs will increase efficiency of the visit (e.g., providing the healthcare professional information that can serve as the basis for a personalized prevention plan).12 To incorporate HRAs into the visit, CMS finalizes its proposal to (a) specify that the annual wellness visit consider the results of an HRA; (b) add the review (and administration, if needed) of an HRA as an element of each annual wellness visit; and (c) specify that establishment of a written screening schedule for the individual, such as a checklist, consider the HRA.

Physician Quality Reporting System. CMS provides a substantial amount of information related to its various quality initiatives, including, among other things (i) program changes, enrollment logistics, and incentives and criteria for satisfactory reporting under the physician quality reporting system;13 (ii) eligibility, reporting and incentives and criteria for satisfactory reporting under the eRx incentive program;14 (iii) modifications, including a pilot program, for reporting under the Medicare EHR incentive program; and (iv) the next phase of the Physician Compare Website to move toward the goal of publicly reporting physician performance information.15

Physician Self-Referral: Annual Update to List of CPT/HCPCS Codes. CMS maintains and updates a list of CPT and HCPCS codes that identifies all of the items and services included within the following categories of designated health services (“DHS”): (i) Clinical laboratory services; (ii) Physical Therapy (“PT”), Occupational Therapy (“OT”), Outpatient Speech Language Pathology Services; (iii) Radiology and Certain Other Imaging Services; and(v) Radiation Therapy Services and Supplies. In addition, CMS identifies the items and services that may qualify for (a) the dialysis-related drugs furnished in or by an ESRD facility exception and (b) the preventative screening tests, immunizations or vaccines exception. A summary of the changes is as follows:




Clinical Laboratory Services

0279T Ctc test
0280T Ctc test w/I & r


PT, OT, & Outpatient Speech Services

G0451 Development test interpt & rep)

96110 Developmental test lim)

Radiology and Certain Other Imaging Services

74174 Comput. tomographic angiography
78226 Hepatobiliary system imaging
78227 Hepatobil syst image w/drug
78582 Lung ventilat & perfus imaging
78579 Lung ventilation imaging
78597 Lung perfusion differential
78598 Lung perf&ventilat diferentl
93998 Nonivas vasc dx study proc
A9584 Iodine I-123 ioflupane 

77079 Ct bone density peripheral
77083 Radiographic absorptiometry
78220 Liver function study
78223 Hepatobiliary imaging
78584 Lung V/Q image single breath
78585 Lung V/Q imaging
78586 Aerosol lung image single
78587 Aerosol lung image multiple
78588 Perfusion lung image
78591 Vent image 1 breath 1 proj
78593 Vent image 1 proj gas
78594 Vent image mult proj gas
78596 Lung differential function
93875 Extracranial study

Radiation Therapy Services & Supplies



Drugs used by Dialysis patients



Preventative Screening Tests, Immunizations and Vaccines

90654 Flu vaccine no preserve, ID


*Information from the above chart was compiled from Table 82 and Table 83 as found in 76 Fed. Reg. 73026, 73439-73440 (Nov. 28, 2011).

Limited Expansion of Medicare Telehealth Services. Since 2010, CMS has received requests to expand telehealth services covered by Medicare in a rural setting (i.e., the beneficiary is located in an approved originating site located within a rural “health professional shortage area” or a county outside a “metropolitan statistical area”) to include smoking cessation, critical care, domiciliary or rest home evaluation and management, genetic counseling, online evaluation and management, data collection and audiology services. In the 2012 MPFS, CMS expands telehealth services only to smoking cessation services. In addition, CMS finalizes revisions to its criteria used to review requests for additions to Medicare telehealth services to include an assessment of whether the use of a telecommunications system to deliver the service produces demonstrated clinical benefit to the patient and whether the service is accurately described by the corresponding code when delivered via telehealth.

If you have any questions about this issue of Health Law Alert, please contact any of the attorneys in our Healthcare Practice Group.

1 See 76 Fed. Reg. 73026-73474 (Nov. 28, 2011).
2 CMS Medicare News Release. CMS Announces policy, payment rate changes for the Physician Fee Schedule in 2012. (Nov. 1, 2011).
3 76 Fed. Reg. at 73071-73072.
4 76 Fed. Reg. at 73077.
5 76 Fed. Reg. at 73279.
6 Id. .
7 Note that for non-IPPS hospitals and units, the pre-admission window is 1-day instead of 3-days. The hospital and hospital units excluded from IPPS and affected by this policy are psychiatric hospitals and units, inpatient rehabilitation hospitals and units, long-term care hospitals, children’s hospitals, and cancer hospitals. 76 Fed. Reg. at 73280
8 Pub. L. 111-192 (Jun. 25, 2010).
9 76 Fed. Reg. at 73286.
10 Pub. L. No. 111-148, § 4103 (Mar. 23, 2010).
11 76 Fed. Reg. at 73305.
12 76 Fed. Reg. at 73308-73312. See also 42 C.F.R. § 410.15
13 76 Fed. Reg. at 73314-73416.
14 76 Fed. Reg. at 73422-73425.
15 76 Fed. Reg. at 73417-73422.