Management of Pathology Practices

November 2004

To Bill or Not to Bill, That is The Question

By Bernie Ness, B J Ness Consulting Group, LLC

It was inevitable. With malpractice costs soaring and reimbursements shrinking, clinicians were looking for a new revenue source and they have found it, anatomic pathology. Direct billing at wholesale rates to clinicians is now in vogue and is being heavily promoted by many laboratories. The marketing pitch is that the clinical group can now take the margin that the pathology laboratory used to enjoy. Dermatologists have been doing this for decades as many of them read their own cases (“cut once and bill twice”).

I have read with interest the outrage by pathologists about this “new” practice. The funny thing is that I am senior enough to remember when this was standard in the industry in most markets. My first sales call, in 1974 for a pathology laboratory in Chicago, to an OB/GYN, resulted in being asked how much for pap smears and biopsies billed to the clinician. Thirty years later the clock has been turned back as urologists and GI’s nationwide look for new revenue streams for their practices.

I have heard from practice managers that as many as five (5) different laboratories have called on them to pitch the “wholesale to retail” sales approach. This did not even include Quest and LabCorp either. These were all anatomic pathology specialty laboratories with national sales representation. These practice managers concluded that there must be a lot of money to be made if five laboratories were out seeking business this direct billing way.

This direct billing scenario (“wholesale to retail” ) is under intense scrutiny in most states and the Office of Inspector General (OIG) is also looking closely at the practice. Recent federal indictments of former UroCor top executives for Medicare fraud and abuse in this area will prove the death knell of this billing practice. UroCor would offer certain high volume clinical tests to urologists for below their cost in return for the prostate biopsies. Medicare severely frowns on anyone getting lower priced laboratory work than they do, especially a single physician.

Besides the legal brouhaha, there are practical issues as well. Many managed care organizations will not reimburse clinicians at the same rates as they do pathologists. A recent example I saw involved a urology group in the Midwest. They were sold the idea they could make tons of money by the pathology laboratory by doing the “wholesale to retail” billing scheme. The laboratory promptly billed the urology group for their discounted global services at $75 per biopsy. The carrier, a BC/BS affiliate, reimbursed at $43 per biopsy. The urology group lost over $40 per biopsy and decided not to continue with direct billing for good reasons. Other managed care plans I am aware of will not reimburse clinicians for pathology work at all.

There are several different scenarios being presented to clinicians. The first one is to direct bill (“wholesale to retail” ) for the global fee at a discounted rate. Since Medicare reimburses approximately $90 per biopsy, the laboratories involved in this practice really should not be offering direct billing fees below $72 per biopsy (Medicare fee less 20% for reduced billing and collection expenses). I personally know of direct billing fees much lower than $72 per biopsy. Competition will continue to drive down these offered prices. Any clinician and pathologist running this scheme are at risk of a Medicare audit. This scheme involves the highest financial and legal risks. The clinical practice cannot bill Medicare but can still run afoul of the guidelines on pricing.

The second scheme promoted is to charge only for the technical component to the clinician. The clinician then has to find a pathologist to read the cases for their group. I first ran across this scenario about 5 years ago in Nashville with a urology practice management group. They were in the process of setting up this arrangement with the local hospital pathology laboratory and a young resident from the medical school. I know of at least one current situation, on the East Coast , where a pathologist at a local hospital is taking his/her microscope over to the GI group practice in the adjoining medical building to read their cases. Keeping in mind that Medicare reimburses approximately $50 for the technical component for an CPT 88305, if the laboratory bills them less than that figure they again run the risk of a Medicare audit if the fee is less than $40 per biopsy. They also cannot bill for Medicare patients, which comprise 50% (or more) of most large GI and urology practices. Most pathologists I have spoken to are not real interested in this scenario, however, they may be forced into these arrangements. Keeping half a loaf bread is better than losing the whole loaf!

The third scheme is to hire your own pathologist and set up your own pathology laboratory in the GI or urology clinic. I was personally involved with a very large Midwest urology group that decided they would do this. They have had an operational pathology laboratory for the past year or so. It generates an estimated several million dollars per year for the urology group. They hired a local pathologist who lost his/her position due to an acquisition. They now bill for all financial classes of patients legally for all their anatomic pathology referrals. Very few GI or urology practices will be large enough to produce legitimate referrals in sufficient volume to allow for a full time pathology laboratory on premises.

Pathologists are at risk of losing their large volume GI and urology groups to these marketing arrangements. This economic phenomenon will not disappear. There are forces at work to try and kill it (i.e. pathology lobbies) and forces at work to keep it alive (GI and urology lobbies). There is just too much money on the table for this issue to ride off quietly into the sunset as most pathologists hope it will. Pathologists will need to develop strategies to survive to this market adaptation no matter how short lived or long lived it may be. If you maintain the relationship with these groups throughout this phenomenon and the laws should change back to pathologist only billing you will maintain the clients. Once you lose them, they are gone.

Bernie Ness is the President and CEO of B. J. Ness Consulting Group, whose goal is to provide the finest in innovative and cost effective solutions to management, sales, and marketing problems in the medical laboratory industry. You can contact him at bjness@buckeye-express.com, toll free at 800-280-3785, website www.bjnessconsulting.com.