Changes in the Anatomic Pathology Billing World

November 2012
Management Home Page

By Mick Raich, President, Vachette Pathology

There are some major changes taking place in the anatomic billing world. Here are some ideas and concepts that may make this change more palatable.

First what does the 88305-TC rate cut mean for hospital-based pathology groups? This change will not affect most hospital-based groups. In fact there is some good news for these groups as the professional (26 modifier) side of the business will see a slight increase. These groups will have an opportunity in the future that may include starting their own labs. It is realistically feasible that many hospital outreach labs are going to struggle to make money with these changes. Outreach labs are usually not as efficient as true independent labs as they are tied to the hospital cost structures and billing processes. In the future these labs may bleed revenue and it may be feasible for the outreach lab to be purchased and controlled by a separate entity. It is likely that aggressive pathologists that are within the current system will get the first option to buy these labs.

Many pathology practices provide hospital-based work and they own their own lab. In some cases they have purchased service agreements with these hospitals. If a group buys the slide prep work from the hospital and bills this globally, then the group's revenue for this work will decrease. Therefore they will have to approach the hospital about paying less for this service since the revenue per unit is decreasing. On a larger scale this means that in time all the profit margin out of the technical side is eroded. Who will want to perform this TC work? How will they do this at a margin? If the hospital histology lab is inefficient then most likely they will be losing money on this venture. This means only those histology labs that are most efficient and cost effective will survive.

What does this change mean to hospitals that own histology labs? As noted above only the histology labs that are most efficient and effective will stay in business. We are already developing a business model that will allow these hospital labs to off load this work to regional labs that will then perform the work at lower rate. The bottom line is that the hospital can outsource this work to a regional lab at a rate that is lower than they can do this work themselves. It only makes sense to have this take place.

The managed care arena for both independent labs and outreach labs is going to change. It is my thought that many independent labs are going to be reaching out and renegotiating their contracts. It can easily be argued that a CMS cut is based on taxes and the national revenue stream. You can also argue that the commercial payers are not driven by the same variables. This means that if these payers follow the CMS cuts, this new pricing falls directly to their bottom line. This could be a very bad change for many labs. Some labs will work hard and renegotiate their contacts and survive and some labs won't. Many payers may use this as a fulcrum to force out labs or force pricing to the lowest possible point. A race to the lowest tier pricing may take place but it could be argued that the national players such as Quest and Labcorp may leave the AP market as this is no longer feasible for their shareholders. If this happens then the payers will be scrambling to get labs back into network.

It can easily be argued that this is the end of the non-pathologist owned lab. Many people think this change was caused by the drastic overcharging and over utilization of the non-pathology labs in the market. In the end this may eliminate their business model but this change will also cause excessive collateral damage.

This will change the billing world. Since this decrease will only hit independent labs and outreach labs this may be the catalyst that drives these providers to change their billing relationships.

Self-billing for independent labs is the norm; many labs have strong quality billing staff that performs billing well. The decrease in the revenue stream will cause many labs to look at this internal process and review the costs associated with these services. This means that these labs would most likely save money by outsourcing their billing services.

Consider an independent lab that does their own billing at a cost of 8% of collections. This cut will cause them to look at this number and wonder if they can do this cheaper.

From a billing point of view only strong automated billing firms are going to be able to survive in this market. They are going to be able to make a margin despite the changes in revenue. It may be the perfect time to look at outsourcing your billing and review these costs internally.

In summary, this change will shuffle the deck across the board. Some labs will fail, some outreach labs will change hands and the national anatomic pathology market may face deeper cuts. In the end someone has to perform histology services but the question will be at what cost and who can make a margin under the new payment guidelines.

Vachette provides revenue audits, business strategy and billing oversight and management for hospitals, laboratories and pathology groups across the nation. If you have any questions please contact Mick Raich directly at his office: 517-486-4262, via cell at 866-407-0763, via e-mail at or visit