Incident-to Rules Eased

March 15, 2002
Pamela Moore, PhD

Incident-to rules now make it easier to use contractors instead of employees

New changes to an old rule could allow your practice to make a little more money and improve patient satisfaction. But, as always, you need to be aware of the potential pitfalls.

Last November, the Centers for Medicare and Medicaid Services (CMS) instituted new rules regarding "incident-to" billing, designed to give healthcare providers greater flexibility to provide revenue-enhancing ancillary services. But the changes may add a layer of administrative oversight when it comes to physician supervision of such services.

Incident-to billing allows midlevel providers, such as nurse practitioners, to bill at 100 percent of Medicare's physician fee schedule instead of at their usual, lower rate -- if specific requirements are met. According to the old rules, for a service to be covered as incident-to, it had to be delivered by an employee of the physician or practice, who was required to file a W-2 form. There were some arrangements for leased employees, as well, but they were so cumbersome that few practices used them, according to Diane Lee, a partner in the law firm of Davis Wright Tremaine in San Francisco.

"Leased employees had to meet IRS [Internal Revenue Service] rules for common-law employees," she says. "There are about 20 standards to meet and, essentially, it means they are an employee."

Under the new rules, these employment restrictions are lifted. The provider can work on a consulting or per diem basis, for example, and still bill incident-to.

"This rule allows a nurse who is employed on a contract basis, say through a management service organization, or even another practice, to provide services incident-to," says Bruce Johnson, an expert in practice management law and regulation with the law firm of Faegre & Benson in Denver.

Add ancillaries

The new regulation opens opportunities for practices to offer ancillary services such as mammography, ultrasound, or lithotripsy  highly reimbursed -- procedures that boost revenue and patient satisfaction. Practices no longer need to hire a full-time midlevel provider to offer such services and be fully reimbursed.

The change is especially relevant for practices interested in renting, say, ultrasound equipment and a technician to run it once a week, notes Lee. Usually, a leasing company brings in equipment on a pre-determined, part-time schedule and bills the practice. Then the practice bills Medicare at an incident-to level, recouping its costs and making a small profit. In the past, practices had a hard time meeting the incident-to requirement of W-2 employment, making it harder to reach profitability. Now, practices can lease technicians directly from the same company from which they lease equipment and bill their services incident-to, Lee says.

"It frees people up to try different business arrangements," says Marion McCartney, director of professional services for the American College of Nurse-Midwives, who sees this as an opportunity for midwives and other clinical staff. "It's just a win."

There are, of course, a few catches. "This changes the incident-to rules but it doesn't change other rules. They still have to be complied with," Johnson warns.

For example, there are requirements for supervision of diagnostic tests that must be met regardless of whether they will be billed incident-to. All these requirements are spelled out in a memorandum from CMS available online. The memo defines six levels of physician supervision and illustrates which apply to specific diagnostic test codes.

To hire or not?

More troublesome are the diagnosis-purchasing rules detailed in Medicare's Carrier Manual. According to Lee, the rules say a physician "can bill for a diagnostic service he purchases, but can't mark them up. It suggests that if the machine and employee are leased, you can't charge more than you paid." That may pose a problem for practices planning to lease equipment and employees, and then recoup the full cost (and more) by billing Medicare.

Old incident-to rules did allow the markup if the midlevel was an employee. The new incident-to law, then, "eviscerates the [purchasing] rule -- but the rule is still in the Carrier's Manual. [CMS] has so many regulations, when they add a new one, they don't even notice the contradictions," Lee complains. The incident-to changes have the effect of law, which should supersede a mere comment in a manual, she adds: "People will be able to take advantage of the ambiguity."


That doesn't mean everyone will want to, of course. Donald Owry, administrator for Greenville Medical Center, a 21-physician, multispecialty group in Greenville, Pa., expects his practice to keep hiring midlevels as employees only, thinking it allows for better oversight and control. "It just seems easier," Owry says.

Kathleen Bailey, administrator of Atlanta OB/GYN Associates in Alpharetta, Ga., agrees. "What I usually see in urban areas ... is that if a physician is going to work with a midlevel provider, they'll hire them" because there will likely be enough demand to support a full-time provider.

New physician regs

Another shift in CMS incident-to regulations may be even more advantageous to practices. Now, supervising physicians don't need to be employees or partners, either. That makes it easier to have a specialist work in a practice once a week or twice a month, as demand requires.

For example, a rheumatologist might join a multispecialty group outside his community one day a week, Johnson says. "He could use office space, plus the personnel of the group. Before this rule, the rheumatologist couldn't use [that practice's] nurses. He would have to bring his own or use a complicated lease agreement" if he expected to bill their services incident-to.

Interested physicians need to be aware of a clarification by CMS in the comments section of its incident-to rule. Practices must bill incident-to services under the name of the supervising physician - not necessarily under the name of the physician who established the course of treatment. This, too, provides greater flexibility.

Imagine, for example, a physician who typically sets a course of treatment and then turns over follow-up visits to a clinical staff member. If that physician goes on vacation or is rounding at the hospital when a patient comes in for a follow-up, his clinical staff still can bill incident-to -- but not under his name.

While the comment "makes the law looser, it also adds some administrative burden," Lee points out. Now groups have to be dead clear about who is serving as the supervising physician. For instance, it would be difficult to explain to an auditor how a service was billed incident-to a physician who was clearly in the operating room when the service was rendered, Lee cautions. Practices also might have to devise a way to track productivity credit internally for that follow-up visit.

While the changes aren't perfect, says Lee, they do represent "a good motion forward" for a long-standing rule.

Pamela L. Moore, senior editor, practice management, for Physicians Practice, can be reached at pmoore@physicianspractice.com.

This article originally appeared in the March/April 2002 issue of Physicians Practice.