Mark-ups on Diagnostic/Lab Services
Q: Is a physician permitted to “mark up” his or her cost for diagnostic and lab services when the physician “purchases” the services from an outside supplier?
Both federal and state law contains specific limitations on the amounts a physician may mark up (i.e., add a profit margin to) his or her cost for diagnostic tests. For patients who are covered under federally funded health plans (Medicare, Medicaid, Tricare, etc.), the anti-markup payment limitation will apply if the performing physician does not “share a practice” with the billing physician who ordered the test.
If the federal anti-markup payment limitation applies, the billing physician will be paid for the technical component or professional component of the diagnostic test (less any applicable deductibles or coinsurance) the lowest of:
1) the performing physician’s net charge to the billing physician;
2) the billing physician’s actual charge; or,
3) the Medicare Physician Fee Schedule amount for the test that would be allowed if the performing physician had billed directly.
A parallel provision is found in the Illinois Medical Patient Rights Act, which prohibits marking up lab fees for “anatomic pathology services” for all patients not covered under a federal plan. However, this section has little or no applicability to chiropractic physicians because anatomic pathology relates to the processing, examination, and diagnosis of surgical specimens by a physician pathologist.
Nonetheless, the Medical Practice Act prohibits “gross and willful and continued overcharging” for professional services, which includes billing for services not rendered. The Act and Rules, as well as chiropractic codes of ethics, prohibit unethical, unprofessional conduct, which could include the marking up of a diagnostic or lab charge. Therefore, the ICS recommends that chiropractic physicians follow Medicare guidelines, even for non-Medicare patients, as a matter of ethics and standard of care.
Note that this recommendation applies when the physician merely orders a test and does not perform any additional functions related to the test. However, physicians are permitted to charge a specimen acquisition or processing charge for any patient if:
(1) the charge is limited to actual costs incurred for specimen collection and transportation; and
(2) the charge is separately coded or denoted as a service distinct from the performance of the anatomic pathology service, according to the American Medical Association CPT® Manual.