Management of Pathology Practices

May 2009

Management Home Page


How the New Anti-Markup Rules May Change Your Practice

By Michelle Miller and Mick Raich


Given the current business environment for laboratory and pathology practices, it is imperative that they be aware of any changes that may affect their revenue streams.


The new Medicare anti-markup rules present some unique opportunities for laboratories and pathology practice to increase their revenue and at the same time recoup some lost specimen volume.


In the past, if a laboratory or pathology group wanted to bill Medicare work out of a hospital, they would set up the negotiated rate(s) for purchase of the technical component (TC) with their hospital.  The pathologist had to itemize the bill, splitting out the professional component (PC) and the technical component.


The TC amount that was billed to Medicare on the CMS 1500 form had to match the TC negotiated rate that would be paid to the hospital by the pathologists. Medicare was trying to prevent physicians from profiting on TC purchases by billing them to Medicare at a higher rate than they paid the hospital.  The group could only bill their direct cost for this service and no mark up was allowed.


On October 30, 2008, the Centers for Medicare and Medicaid Services (CMS) released the new 2009 Medicare Physician Fee Schedule final rule that included revisions to the Medicare anti-markup restriction. The rule that took effect on January 1, 2009, was intended to stop the abuse of marking up diagnostic tests billed by the ordering physician or other Part B supplier.


Through the defining language, it does not stop the problem completely but it does limit the opportunities. This same defining language has opened the door for the hospital based pathologist who split bill the PC and TC for purchased services. Now the rule allows them to bill Medicare globally for these services. Medicare has reviewed this set up and has identified that a pathologist does not usually order their own testing, except for special stains, and therefore this does not fall into the spectrum of concern that Medicare has with the relationship between an ordering physician and a rendering physician being one in the same.


What this means for the pathologist is that the practice may simply bill Medicare one global fee for the work performed, thus allowing access to the Medicare global allowable rate.  Keep in mind that under the old program, the pathologist had to disclose the exact fee paid on the TC.


The 2009 changes allow for the pathologist to recover some of these costs by permitting the group access to the global Medicare allowable versus only the actual fee paid for the TC.


For example:  a laboratory or pathology group has a business relationship where they processes 8,000 specimens per year from a hospital, with about 2,000 (25%) of the specimens being Medicare specimens. Consider this example on the CPT code 88305-TC.


Old Process:

Amount the Group Currently is Billing for TC work to Medicare:             $47.00

Amount Paid by Medicare:                                                                          $47.00

Amount they have to pay back for TC to the Hospital:                              $47.00

Profit per CPT:                                                                                                       0


New Process:

Amount the Group Can Bill for the TC work to Medicare:                        $100.00

Amount Paid by Medicare:                                                                            $66.71

Amount they have to pay back for TC to the hospital:                                 $47.00

Profit per CPT:                                                                                                $19.71


This means that the group will collect an additional $19.71 per specimen billed to Medicare. On the above example of 2000 cases, this equals a revenue increase of $39,422 over the course of the year.


In a recent interview with Lisa Quirk, Senior Vice President for Pathology, Eastern Division, McKesson, Lisa noted:  “we are already moving some of our clients forward with this change and we anticipate increased collections for them and a simplified billing process for us and for our client’s patients.”  The other direct effect of this new rule is that it may help laboratory and pathology practices that lost specimens to Pod Lab arrangements recoup some of these losses.  Rick Oliver, Director of Compliance for Pathology, McKesson, noted that the key to this change may also have an “impact on the Pod Labs as under the new rules the performing pathologist must be considered a member of the billing physician’s group. To meet this requirement the pathologist would need to pass either the substantial all exception test or the site of service (same building) exception test.”


Rick noted that “in order for a Pod Lab to bill for pathology services the performing pathologist must perform 75% of their total work for the Pod Lab or must actually be on site in the office of the billing physician.”


Finally Rick noted that “this may have a substantial impact on the use of telepathology by Pod Labs where the ordering physician and billing physician is one in the same.  If the substantially all test cannot be met, it is unlikely that the same building test would be either, since the pathologist would need to be on site in the billing physician’s office.”


This change may lead to some Pod Labs losing work due to their inability to follow these new rules.


It is always good business to be aware of your market.  Change is always going to take place and the groups that are aware of these changes and are willing to make adjustments will survive longer in the marketplace.


In summary the change from the new anti-mark up rules are two fold.  First this is a direct revenue increase for practices that are currently billing under the purchase service rules for these types of cases.


The secondary impact may be a decrease in the amount of specimens moving through Pod Lab arrangements.


Mick Raich is the President and CEO of Vachette Pathology.  Vachette Pathology provides practice management and consulting services to over 50 pathology groups nationwide.  Contact: or call 866-407-0763.