Thoughts for the New Year (2012)

January 2012
Management Home Page 

By Mick Raich, President, Vachette Pathology

There are several issues on the table for 2012:

• The pay cut for the 88305-TC
• The SGR 27.4% pay cut across the board
• RAC (Recovery Audit Contractor) Audits
• ACO's (Accountable care organizations)

Let's take a look at how these will affect us:

The pay cut for the 88305-TC is most likely going to take place. Payment for this CPT code has been increased steadily since 1996. There has also been a tremendous increase in the volume of this code by non-pathology groups. With these biopsy volumes spinning out of control, everyone is calling for a halt. The best way to do this is lower the payment, which in turn will decrease motivation. Let’s play this out a bit. If payment for this CPT code is lowered, many non-pathology groups will see their margins wither and die: this work may then return to hospitals and independent labs. Whether or not they can make a margin doing this work becomes their problem. The good news is that many hospital based pathologists will find their workload increasing.

How this affects independent labs may be the most interesting question. Many labs are running at a tidy profit now, even with non-automated systems. It could be argued that now is the time for these labs to increase their automation and process while they are flush with cash. Perhaps they should take a page from the Nucor Steel handbook and upgrade their systems and machinery during a down-turn to be better prepared for the upswing in business. This will lead to higher margins when the market changes and the work volume is strong.

The SGR reduction of 27.4% is most likely not going to happen. If it does, it would be the end of medical payment modalities as we know it. Consider this: 95% of all managed care contracts are tied to Medicare rates. If this is dropped 27.4%, then all your payments drop 27.4%. Is this fair? No, because the insurance plans are not government run entities that have fixed tax-based budgets. They are going to experience a huge windfall if this happens. My advice is to buy healthcare insurance stocks if this takes place because their margin is going to go through the roof.

As for medical practices, they will need to find a way to say goodbye to managed care contracts. If a 27.4% pay cut is approved, then my advice to all my practices is to terminate your contracts ASAP.

What is more likely to happen is a slow, steady bleeding out of the payment rates. It should be noted that without an aggressive renegotiation of managed care contracts, most groups are going to suffer a 5% loss of income per year over the next five years, based on a 2% cut on Medicare and an average of 3% cost of living increase. Many practices are currently working through their end-of-year numbers and seeing this effect take place compared to last year.

RAC audits are becoming more and more a reality. These incentive based audits are becoming the norm. Few pathology groups have experienced a RAC audit; it is very likely that many more will see these in 2012. There is simply too much money to be found with overutilization and errant billing. As RAC audits become more automated, they will start looking at smaller and smaller claims: this means the average $200 pathology claim will become a target.

ACO’s are here to stay. With the current push of cost containment and utilization control, it makes sense to throw the old capitation model on the table for one more try. ACO’s are just capitation with a new name and address. It is yet to be seen whether or not this is going to fly, or if we are just recycling a bad product with a new name. The bottom line: know your margin for each type of case. Pathologists need to be strong businessmen, understanding their true costs and profit margins.

In summary, 2012 will be like every other year. There will be change and those that respond well to the change will survive and thrive: those that fail to change will be replaced by more competitive and stronger businesses.

Mick Raich is the President / CEO of Vachette Pathology, the nation's leading pathology consulting and management firm. He can be reached at 866-407-0763 or at