January 2009
Feature Story

Anne Paxton

There were a few new twists in the arguments, but in the most recent challenge to professional component billing, pathologists once again emerged victorious as an Illinois trial court upheld the validity and fairness of the practice.

In the case, Neighborhood Clinics, L.L.C. v. Pathology CHP S.C., et al., the Circuit Court of Cook County ruled Nov. 3 that it is not unfair for pathologists to bill for the professional component of clinical pathology services.

The ruling is the latest in a string of big wins for pathology on the professional component issue, says Jack Bierig, a partner with Sidley Austin LLP in Chicago and coauthor of an amicus brief submitted in this case by the CAP and the AMA. “It’s only a trial court decision in Chicago. So, unlike a federal court ruling or appellate decision, it has no binding precedential value. But it’s a very good result in the ongoing battle over professional component billing.”

Richard P. Darke, one of the attorneys for the defendant pathologists and an associate with the Chicago firm of Duane Morris, calls it a fairly decisive ruling with important implications. “I know that Neighborhood Clinics had contracts with numerous HMOs and health plans, such as Blue Cross Blue Shield, Humana, and others.”

“While they [Neighborhood Clinics] weren’t a large opponent themselves, they were trying to organize a class action against professional component billing,” which they claimed unfairly cost them hundreds of thousands of dollars. “They brought a host of claims and made every argument they possibly could, and the judge just denied them at every turn.”

Bierig points to passages in the ruling that give particularly strong support for professional component billing for clinical pathology services (PC-CP). One of those passages reads: “The evidence is overwhelming that patients and not just the hospitals benefit from the pathologists’ quality control services billed under the PC-CP which insure the accuracy and reliability of the laboratory result needed for their diagnosis and treatment. ... It is not unfair that patients pay for pathologists’ quality control services in assuring that the pathology lab established by the hospital is run properly.”

“That’s huge,” Bierig says. “That’s great language that any pathologist in any state should be able to use.” The court also agreed with the pathologists that it is not unfair to spread the cost of professional services across all patient bills. “That’s an argument that we’ve been making for almost 30 years. It’s nice to have additional judicial support for the point,” Bierig says.

Neighborhood Clinics maintains capitation agreements with several HMOs, under which it agrees to provide medical care to the HMO patients at a flat fee per patient. When Neighborhood Clinics cannot find a particular health care service at its two Chicago facilities (Resurrection Health Care Centers and Michael Reese Medical Center), it is obligated to pay third-party professionals, such as the defendant pa­thologists in this case. The defendants, two pathology groups, are the exclusive providers of clinical pathology to the hospitals.

Neighborhood Clinics’ central argument was that the pathologists violated the Illinois Consumer Fraud and Deceptive Business Practices Act by charging all patients a fee for professional component service, and were “unjustly enriched” by these charges. The plaintiffs argued that it was deceptive to attach a specific date to a professional component charge when some of the services that support that charge—for example, choice of the equipment-reagent combination, setting of parameters for when the technologist should consult the pathologist—were not performed on that date.

“I’ve never seen that argument before,” Bierig says. “And the court didn’t buy it. The court basically said it doesn’t matter if the equipment was selected on some previous day or the quality control was done on some previous date; there’s nothing wrong with designating as the date of service the date on which the test was run. It’s not an ‘unfair practice’ to give as the date of the charge the date on which the patient received the benefit of the professional component service.”

Why have so many professional component cases cropped up in Illinois? “There are only a certain number of states in which PC-CP is used, and Illinois is one of them,” Bierig says. “I couldn’t say there’s more controversy in Illinois, but it does seem to be the jurisdiction in which PC-CP billing seems to be approved explicitly by the courts. There’s a body of law here that has developed very favorably for professional component billing.”

Bierig estimates that about 20 states have PC-CP. They include states like Florida, Texas, Arkansas, California, Illinois, and Ohio. For historically complicated reasons, “PC-CP is not done in New England. If you go back to the 1950s or 1960s, in New England, the hospitals would say, ‘We’ll just pay you the value of your services,’ whereas in some places like Texas and Florida they would say, ‘You ought to bill the patient and not charge us.’ So the prevalence of professional component billing in a particular state is, in some measure, a function of the attitude historically taken in that state by the pathologists on the one hand and the hospitals on the other.”

The issue of charging each patient an average cost rather than a patient-specific cost for professional component services is a perennial one in court challenges of PC-CP billing, Bierig says. A percentage of laboratory tests involve informal consultations with a patient’s physician. “That could mean actually looking at a particular specimen if the technologist or the clinician has a specific question. It’s one thing that goes into the whole mix of what the professional component fee covers.”

“So the plaintiffs would say, ‘Look, if you are really looking at Mr. X or Ms. Y’s specimen because a clinician asks you a question, then it’s okay to charge. But don’t charge for other people when you really didn’t look at their specimens.’” The counterargument of pathologists is that “with this mechanism, we spread the cost of our time among all the patients who get the benefit of our oversight of lab testing.”

Professional component billing is actually a very fair cost-spreading device, and it reduces transactional costs, Bierig notes, because it doesn’t require pathologists to keep records showing which of all the specimens they actually looked at. “In terms of paperwork, billing everybody an average charge reduces transaction costs.”

Another important feature of the Neighborhood Clinics case is that the court approves of the use of modifier 26 to indicate that they are charging for the professional component of the clinical pathology service, Bierig says. “The use of that modifier has been somewhat controversial. Some payers and some plaintiffs say that it is misleading. But the court in this case says that the practice is perfectly acceptable.”

Notably, the court declined to follow the only detrimental ruling for pathologists, that of the Central States v. Florida Society of Pathologists case. “Basically the court says we’re not going to follow that Florida case, that it’s ‘minimally relevant,’ because the court there relied on the absence of a contract, not whether it’s unfair to charge all patients for informal consultations regarding some.”

Since 1980, when Bierig argued the first professional component billing case in Little Rock, Ark., the prevailing winds have shifted in pathologists’ favor on the professional component billing issue, he says. “It used to be very controversial. People would say the pathologist was billing for a specimen he or she may not really have ever seen, and they would say that’s not proper. That’s a battle that pathologists have been waging for a long, long time.”

“What we’re seeing here,” he adds, “is a war that could come out either way, and the final resolution still remains to be seen. But the way it’s shaking out, with a couple of exceptions, the courts have been friends of the pathologist. They are basically understanding and accepting the argument that the pathologist is performing services in the lab that are designed for and valuable to the patient—and that therefore the patient or insurer needs to pay.”

One more Illinois case is pending: Martis v. Pekin Memorial Hospital. “That’s now going up to state appellate court. It hasn’t been finally resolved, and the appellate court will not be in any way bound by this case,” Bierig says. “But it’s nice that another Illinois court has said these things, and we hope it will have a good influence on the decision in the Martis case.”

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