Management of Pathology Practices

February 2007

Management Home Page


Pricing for Pathology Billing (part 1 of 2)

By Mick Raich


There are significant changes coming in pathology that will adversely impact your bottom line.  Once again, Medicare is cutting reimbursements, which will also affect your contract rates that are tied to Medicare.  In addition, malpractice insurance and health care premiums are increasing at least 15% every year.  Perhaps it is time to start looking at your expenses.  In most hospital based pathology practices, the cost for billing is the largest single line item expense.  This article will examine pricing for pathology billing.


Before we get started, I want to add a thought on doing your own billing.  Many groups have their own billing staff, systems and processes.  A good rule of thumb for internal billing is that the cost of collection should not be more than two percent of the cost of outside billing.  This two percent differential is the price of autonomy and can be justified.  However, if you are paying more then this, then your internal operations are too costly.  Often, we audit self billing operations and find costs of 15% or more of the amount collected.  Unfortunately, these excessive costs are often associated with suboptimal results and reporting.


The typical pathology billing contract has all the necessary legal language.  You may want to have it reviewed by your corporate attorney.  Here, we will focus on the various terms that affect pricing.


Start-up Costs:  All billing companies have high start-up costs to establish service.  Some billing companies actually charge a set up fee.  Some charge a flat fee or hourly rate for setting up each interface.  However, for the majority of contracts based on a percentage of collection, these costs are built into the rate, and it is unusual to pay separately for them.


Interfaces: These are critical components of the front end billing and ongoing process success.  You must have accurate and timely interfaces that gather correct data in a timely manner.  Furthermore, there must be effective maintenance on these interfaces to prevent duplicate billing, missed charge opportunities and other untoward events.  Typically, most billing companies do not charge to build and maintain the interfaces, but you should ask.


Credentialing: Does the contract charge extra for these services?  If so, do they charge per physician or per carrier?  Is it a one time fee or a yearly fee?  Credentialing is difficult but necessary, and most contracts include these services within their standard rates.


Postage: Many contracts charge extra for postage.  Remember that billers are a big user of the mail service and they usually have discounts in place for this.  Are they charging you a mark up on this service?  Our experience is that nationwide, there is a 50/50 split on this charge - some include postage and others bill for it.  If you are being charged, you should carefully examine the costs.


Auditing: Some billing services actually charge extra if you audit their services.  It is best to audit your billing services and practices at least once a year.  If you have to pay your billing company extra for this you are being overcharged.  


Marketing: There are some billing services that offer marketing as part of their contract.  Know what this means.  They may offer to help you try to “build” you practice and gain market share.  This attempt may be very effective for independent labs but is usually not effective for hospital based groups, without substantial time and effort from all parties involved.  The cost for this may be prohibitive.


Managed Care Contracting: I have seen several billing contracts where the billers offer to assist you with managed care contracting and negotiations.  Unfortunately, this typically is outside the biller’s expertise, and the pricing on this may not be reasonable.


Collection Services: There are several areas of interest in the collection arena.  First, some billers charge you separately for the cost of the collection agency.  This is simply wrong.  You should pay either the billing company’s fee or the collection agency’s fee - not both.  Next, some billers outsource all of your self pay accounts to the collection agency. This can create a real public relations nightmare.  Finally, some billers “require” you to use a collection agency that they have a hidden business relationship with.  This is something that should not be overlooked.  Our auditing efforts have found situations like this and recouped tens of thousands of dollars.


Compliance:  Several years ago compliance was the big issue in the billing world.  It seems like this was overkill.  Several billing companies offer compliance plans for your practice when they do your billing.  Usually they charge a small amount for this.  The advantage of these plans is that the pathology group has something to show if they are ever audited.  The disadvantages are that the pathology group is already paying for this service and the billing company is usually auditing itself.


Mick Raich is the President of Vachette Pathology, a national pathology practice management firm.  He is a member of the American Pathology Foundation and the Pathology Management Assembly.  He can be reached at 866-407-0763 or via e-mail at