Management of Pathology Practices
January 2010
Underpayment of Pathology Technical Component
By Mick Raich, Vachette Pathology
In many cases, hospitals allow
pathology groups to purchase the technical component (TC) of the histology lab
at a fair market price. The pathology
group then bills a global charge to insurance carriers and pays the hospital
the agreed-upon rate for each technical charge.
This process allows the pathology practice to garner more revenue, and
to help the hospital understand the direct revenue available from this
technical work. This can be done for all
carriers except government payers, unless the purchasing lab is grandfathered
in under certain CMS rules.
In most cases, if a hospital bills
out the technical component, they will be paid under a DRG or under an APC
payment structure. The hospital can only
bill the technical component directly if they have an independent lab with a
separate tax identification number. By
outsourcing the technical component to the pathology practice, they may be able
to lower their overall Part A costs, and at the same time get a solid
understanding of the actual revenue generated from the technical side of their
histology lab.
We are often asked to determine a
fair and equitable rate between the hospital and the pathology group for the
technical component. Below is a case study reviewing this problem.
Review of Technical Component Payback
Thank you for allowing Vachette
Pathology to review the business relationship between
In this case, the payback for the
purchased technical component is considerably below the nation trend. For example, the compensation of $18.75 for
an 88305-TC is well below the industry standard, and may leave both parties at
risk for investigation. It would be hard
to justify this rate as either the true cost for this service or a fair market
price for a hospital owned histology lab.
Suggestions:
1. The compensation for these services should be derived
from a rational process. For example,
this compensation is often built on the standard Medicare fee schedule minus
the cost for performing the service, i.e. courier and billing cost. It is common that the pathology practice pays
around 75% or 80% of the current Medicare technical component payment rate for
the state. It can easily be assumed that
the cost for courier, supplies, billing, etc, can cover the missing 20%-25%. Another proposed example is building the
compensation on the current OPPS fee schedule.
2. Many hospitals pay their pathology groups a
flat fee for oversight of all their screening pap smears. The compensation of $8.00 that
3. Although there are no distinct national
benchmarks for in-hospital histology costs, based on our work in the private
lab industry, the cost of $27.00 to $32.00 for an 88305-TC is very competitive,
even in the independent laboratory market place; therefore this is an excellent
cost for a hospital-owned histology lab.
The costs for cytology work are somewhat inflated as this area usually
requires higher priced employees and this is usually directly transferable to
the cost of these services. It is not
unusual for this area to be a loss leader.
Overview:
Overall the compensation for the
technical component is below the industry standard, and the compensation for
screening pap smears is well above the industry standard. The good news is that
neither party should suffer from any change in this arrangement.
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. One benefit of this
rule is that the pathology group purchasing the work from the hospital may now
charge the complete Medicare TC rate to Medicare. Under the old rules they could only charge
the amount that they were paying and they were not allowed to profit off from
this work.
This
means that under the old rules, the pathology practice was only allowed to bill
$18.75 for an 88305-TC to Medicare for a TC case. Now they can bill their full charge and
collect any difference between what they get paid and what they pay the
hospital.
There
has been no change for commercial carriers.
Overall the pathology practice can charge their full price and keep any
margin above what they are paying to the hospital.
Summary:
It is
our recommendation that
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: mraich@vachettepathology.com
or call 866-407-0763.