Ancillary services: adding revenue lines to a medical practice

What are ancillary services in healthcare?

Florida’s Medicaid managed care contract defines the term: “Diagnostic tests, laboratory tests, therapy services, radiology services, and pharmaceuticals ordered by primary care physicians or specialists” (AHCA, Attachment II, p. 250). Medicare’s self-referral rules don’t define it; they regulate ten categories of designated health services (DHS): clinical laboratory; physical, occupational and speech therapy; radiology and imaging; radiation therapy; durable medical equipment (DME); parenteral and enteral nutrition; prosthetics and orthotics; home health; outpatient drugs; hospital services. Only those Medicare pays for count; the first four are the codes on CMS’s annual CPT/HCPCS code list.

What are ancillary services in a hospital?

Medicare’s cost-reporting manual defines them for hospitals and skilled nursing facilities (SNFs):

“Ancillary services in a hospital or SNF include laboratory, radiology, drugs, delivery room (including maternity labor room), operating room (including postanesthesia and postoperative recovery rooms), and therapy services (physical, speech, occupational).”

What is an ancillary provider, and is physical therapy an ancillary service?

Neither the contract nor the manual defines an “ancillary provider”. The self-referral rule’s nearest term is “entity”: whoever performed a service billed as DHS or presented the Medicare claim for it (42 CFR 411.351). Physical therapy is ancillary in both: each lists therapy services, and both self-referral laws name physical therapy a DHS.

How does Stark’s in-office ancillary services exception work?

Stark, the federal self-referral law, bars a physician from referring Medicare patients for DHS to an entity with which the physician or an immediate family member has a financial relationship, unless an exception applies (CMS). The in-office exception asks for three things (42 CFR 411.355(b)):

1. Who furnishes it. The referring physician, a physician in the same group practice (one meeting 42 CFR 411.352), or someone the referring or another group physician supervises, under supervision that meets Medicare’s rules for that service.
2. Where. The same building (one U.S. Postal Service street address, never a van or trailer) that passes one of the tests below, or a group’s centralized building, owned or leased full time (24/7) for at least 6 months and used exclusively.
3. Who bills. The performing or supervising physician; the group under its billing number; an entity wholly owned by either; or an outside billing company acting as their agent (42 CFR 424.80(b)(5)).

Source: 42 CFR 411.355(b)(2)(i). The physician hours must include some services unrelated to DHS.

MRI, CT and PET also need a written notice at the referral that the scan can be done elsewhere, listing at least 5 other suppliers within 25 miles with name, address and telephone number. With fewer than 5, list all; with none, no list (42 CFR 411.355(b)(7)).

What is an ancillary diagnostic service, and what does each one require in Florida?

Sources: 42 CFR 411.351, 411.355(b); s. 456.053(3), F.S. “None found”: no requirement in the sources read.

• CLIA. One certificate per testing location (42 CFR 493.35). Fees per 2 years (CMS, effective Jan 27, 2024): waiver $248, provider-performed microscopy $297, compliance or accreditation $223 to $11,801; AHCA’s own page still lists $180 and $240. Apply on Form CMS-116.
• MRI. A licensed clinic doing MRI needs CMS-approved accreditation within 1 year after licensure, plus one 6-month extension for good cause (s. 400.9935(7)(a)). Since January 1, 2012, Medicare pays the technical component of MRI, CT and nuclear medicine only to accredited suppliers (42 U.S.C. 1395m(e)(1)).
• DME. Besides DME infusion pumps, the exception covers only canes, crutches, walkers, folding manual wheelchairs and blood glucose monitors (with limits), furnished in the same building as part of that visit’s treatment by a practice meeting every DMEPOS supplier standard (42 CFR 411.355(b)(4); 424.57(c)). Florida licenses anyone who “holds itself out to the public as providing home medical equipment and services or accepts physician orders”; practitioners who use such equipment but “do not sell or rent” it to patients are exempt. The fee is up to $300 per 2 years, plus an inspection fee up to $400 and liability coverage of at least $250,000 per claim (ss. 400.93, 400.931). Your attorney decides whether your DME line needs the license.

What does ancillary services mean under Florida’s self-referral law?

Florida’s Patient Self-Referral Act (s. 456.053) lists five DHS: clinical laboratory, physical therapy, comprehensive rehabilitative services, radiation therapy and diagnostic imaging. It reaches every payer: a health care provider may not refer a patient for DHS “to an entity in which the health care provider is an investor or has an investment interest” ((5)(a)), and no claim for a service on a prohibited referral may go to any payor ((5)(c)). For any other item or service, (5)(b) bars that referral unless the investment meets its listed conditions.

The in-office carve-out sits in the definition of “referral”: DHS “prescribed or provided solely for such referring health care provider’s or group practice’s own patients,” performed by or under the supervision of that provider or group, is not one ((3)(n)3.f.). A practice that also takes outside imaging referrals may take no more than 15 percent of its imaging patients that way and must meet subsection (4), which includes physician-held equity, billing both components and an annual report and sworn attestation to AHCA. That subsection also bars some practice management contracts (see the MSO guide).

Where Florida allows a referral to an entity the provider invests in, the patient first gets a written disclosure listing “at least two alternative sources,” and a copy is posted “in a conspicuous public place” (s. 456.052).

What is ancillary revenue, and what do federal reviews find?

Ancillary revenue is what these lines bring in. In an MGMA poll on October 25, 2022 (472 responses), 28% of medical groups had added an ancillary service in the past year, most often imaging, behavioral health and lab tests. GAO estimated that in 2010 providers who self-referred made about 400,000 more advanced imaging referrals than they would have otherwise, costing Medicare about $109 million (GAO-12-966). FY 2025 Medicare error rates for these lines:

What you can do today

1. List every ancillary line with its CPT/HCPCS codes and check each against the 2026 CMS code list.
2. For each building, log weekly office hours and physician hours against the 35/30 and 8/6 tests.
3. Match each location’s CLIA certificate to its test menu.
4. Add the MRI, CT and PET notice, with at least 5 suppliers, to your referral workflow.
5. Register each X-ray machine and diary the October 28 renewal.
6. Before any investment, lease or contract with an ancillary provider, see your healthcare attorney.

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