July 2012
Feature Story

Jane Pine Wood

Congress voted on Feb. 17 to discontinue direct Medicare payments for the technical component of pathology services provided to inpatients and outpatients for grandfathered hospitals, effective July 1. Since 1999, independent labs that provided services to grandfathered hospitals could bill separately for the TC. Those pathology practices that wish to provide TC services to a hospital’s patients now must negotiate hospital reimbursement for those services. What follows is an edited transcript of the advice that attorney Jane Pine Wood, of McDonald Hopkins LLC, Dennis, Mass., provided in her presentation in May at The Dark Report’s Executive War College.

I’m running into a fair number of misconceptions or misunderstandings about the TC grandfather. What would have been covered? What was really never covered but people acted as if it were covered? What do you need to address with your hospital? The TC grandfather provision is only for the technical component of anatomic pathology services for Medicare fee-for-service patients. Many people are not aware that Medicare Advantage plans have never been protected or covered under the grandfather exception, though many laboratories that have billed Medicare for services for grandfathered hospitals have gone ahead and billed the Medicare Advantage plans—and the plans have paid it.

However, we have clients for whom the Medicare Advantage plans upon audit have come back and said, ‘The grandfather exception doesn’t apply to us. It applies only to fee-for-service Medicare.’ So I expect now that the grandfather has been discontinued there’s more sensitivity to this. More of the Medicare Advantage plans may be paying attention to services you may be billing. So unless your contract with the Medicare Advantage plan says you can bill the plan, you should bill the hospital for those Medicare Advantage plan inpatients and outpatients. That’s another category in addition to your Medicare fee-for-service that you want to discuss with the hospital.

Medicaid plans are a mixed bag. I have not looked at the programs of all 50 states but I’ve looked at more than half of them, and of those I looked at, the vast majority for inpatient require that the laboratory bill the hospital for inpatient work. Outpatient is much more of a mixed bag, and more than half of the Medicaid programs I’ve looked at will permit the independent lab to continue to bill the Medicaid program for outpatient services. So for Medicaid I advise that you check your state regulations and see what would be required.

The Missouri Medicaid program recently took the position with one laboratory that it never recognized the grandfather, and the laboratory might owe back the TC payments billed by the laboratory to the Medicaid program. This is an example of how the grandfather never applied to Medicaid programs unless a program chose to recognize it.

Without the grandfather exception you’ll have to bill the hospitals for the inpatient as well as the outpatient Medicare technical component of anatomic pathology services. Quite a few people think it covers only inpatient but not outpatient. Out-patient is covered too. Who’s a Medicare outpatient? Here we’re looking at patients where the hospital is billing a place of service 22. Where this gets to be important is many hospitals have purchased physician practices. Some hospitals continue to operate those physician practices as a Part B provider. A physician practice is place of service 11. But many hospitals had converted those practices into a provider-based clinic so that the hospital is billing both the facility fee as well as a physician fee on that work. There is nothing on the sign outside of that practice’s building that would let you as a laboratory know that the physician practice has been converted into an outpatient clinic, but they may be billed to a place of service 22.

When you’re having the discussion with your hospital about what you have to bill it for, it’s going to be important to say, ‘Please tell us everything you are billing with place of service 21 or 22 or emergency room department. We have to know all of these physician practices or other outpatient clinics so those can be captured as well.’ And that can be important because usually the hospital isn’t even thinking about that aspect of the work.

The next big question that comes up is what the hospital should pay you for the work. If I look at my clients who have provided services for non-grandfathered hospitals—and there are many labs that have provided the TC of anatomic pathology for non-grandfathered hospitals—I see a variety of payment rates. Some clients are paid in excess of the Medicare physician fee schedule. Some are being paid at less than the Medicare Ambulatory Payment Classification [APC] fee schedule (55–60 percent of the Medicare physician fee schedule). It’s important to consider from the hospital standpoint if you’re going to be negotiating for payment, ‘What is the hospital going to recognize on this work’?

For inpatients, the hospital isn’t going to be paid any more than the hospital is paid today for the DRG. In your discussions with the hos-pitals, when they say, ‘We’re not going to get any extra money for this inpatient technical component work,’ you can say, ‘You’re right. No extra payment. You’ve just been paid all these other years under the full DRG without having to bear the expense of the technical component.’ It is incor-porated into the DRG and these grandfathered hospitals have had a great advantage over their competitors in the past and now it’s a level playing field. It’s an important message to get across to them.

On the outpatient side for Medicare patients the hospital can bill an APC code under the Outpatient Prospective Payment System basis. The problem is the APC rates are about 55 to 60 percent of the Medicare physician fee schedule rates. So a savvy hospital is going to look at this and say, ‘The equivalent APC code to an 88305 is 55 percent of the Medicare physician fee schedule. Why should we pay you more than that?’ To be honest, it’s a difficult discussion to have and difficult to rationalize why you should be paid more. One might argue that you incur substantial costs in providing services and it would be illegal under the fraud and abuse laws to sell the TC services to the hospital at less than cost. DRG payments and APC payments to hospitals always have winners and losers. This might be one where the hospital is a little more on the losing side, but it will make it up elsewhere. Still, it is a difficult discussion to have with the hospital.

In some respects, the payment discussions are easier if you also have private payers to throw into the mix. Increasing numbers of private payers are taking the position: We follow Medicare with our payment for technical component, and we consider the technical component for the inpatients. Let’s take Blue Cross of Florida. Its standard position is the technical component for inpatients is paid to the hospital, and though Blue Cross of Florida has recognized a grandfathered exemption for the grandfathered hospitals, Blue Cross of Florida has also said, ‘When the grandfather goes away, we’re going to consider this exception to go away in our Blue Cross contracts.’

Now, if I’m talking to a hospital I might say, ‘Blue Cross is paying you at rates that are higher.’ Or ‘Let’s look at this. We might have room here to have a blended rate on the technical component services.’ Most of my clients are paid based on a percentage of the Medicare physician fee schedule or APC fee schedule.

But there are other ways to negotiate your pricing. A fair number of our clients price on a per block basis. We have clients who price on a cost plus basis, but this means opening up your books to the hospital in terms of what your costs are. It takes a unique relationship for a laboratory to be willing to open up its books to the hospital in that respect. But that’s another way of looking at the pricing.

If a hospital comes back and says it doesn’t want to pay you that, that it wants to pay you at 10 percent of the fee schedule amount for this work because you’re getting all that hospital pathology professional component work, then we begin to get into compliance issues because the pricing for the technical component work has to stand alone.

If the hospital is trying to tie pricing for your technical component work to granting you the contract to do the professional pathology services, that starts to implicate the Medicare and Medicaid anti-kickback law. You can’t give them below-market pricing in exchange for other referrals. So that would be a point to make in talks with the hospital: This pricing on the TC has to stand on its own merits and cannot be tied into the value of the professional work.

At the same time, from your standpoint, when you’re evaluating what you can accept on the technical component side, it’s difficult not to take into account the value of the professional work. You obviously don’t want to sacrifice or forfeit that professional component work if you’ve lost everything. Again, I would suggest from your own side, from a compliance standpoint, make sure you have arguments for your TC pricing to be able to stand on its own accord.

Many clients are finding that the hospitals are expressing skepticism. ‘Is this real? Are you making it up? What do you mean we have to do this?’ The CAP has a good discussion of the discontinued TC grandfather and what it means. [Find it at www.cap.org/apps/docs/advocacy/tc_alternatives.pdf.] Several of my clients just send that link to the hospital because they can say, ‘You don’t have to listen to me, you don’t have to listen to our lawyer. Here is a relatively independent—granted it’s a pathology society—fairly objective analysis of the situation.’

It can be difficult to get the hospital to sign a contract. The hospital may say, ‘We may buy from you this test or that test, but we want to keep our options open.’ Practically, it may depend upon whether you’re talking about esoteric and specialized testing, for which I think it’s going to be much more difficult to pin the hospital down to a written agreement, versus bread and butter TC. If you’re talking about your basic histology 88305, the hospital is going to want the assurance of a written contract for that. If your hospital says, ‘We can give you a contract that’s one year. We can terminate it on 30-, 60-days’ notice,’ I think that’s where you can legitimately say, ‘We’ve invested in this lab. This is our bread and butter. If we don’t have assurance from you that we’re going to have ongoing work, we can’t make investments in keeping up our lab.’

Here’s a common hospital neg-otiating tactic. The hospital will say, ‘We don’t really like the pricing you’re offering. Maybe we’ll just insource all this work and bring it in-house.’ I suggest before you go into the neg-otiations with the hospital, you prepare a mockup of what it would cost the hospital to bring histology in-house. Because it’s a lot pricier than most hospitals expect when you start looking at everything that would be involved. So come prepared with numbers. If the hospital says, ‘Well, you know what? This is just too expensive. We’ll insource it,’ you can say, ‘We ran a few numbers. Here’s what it would cost.’

You’re going to want those num-bers to back up your position, ideally to show that what you’re able to provide the service for would be about the same as or even slightly less than the hospital would be able to do in-house. And sometimes there is quite a bit of benefit having you do the work if the hospital has unionized staff and higher labor cost.

Some groups may be considering forfeiting payment from the TC to preserve a longstanding hospital relationship. They may feel they were not making money from the work anyway and want to help out a small rural hospital. From a compliance standpoint, I would like to see some payment made, even if very low, because with minimal payment, you get into the gray area of what is fair market value. Fifteen different experts, 45 different answers. But if the payment is zero, it’s zero and there’s no question that there is a compliance issue in that situation. We have to remember that the Medicare program pays the hospital through the DRG for that technical component. It does look bad if you’re not billing the hospital or Medicare for it. You never know today who might be a whistleblower, whether it’s a competing laboratory, someone within that hospital, someone within the lab, who may say, ‘This group is providing free services for the hospital, and I don’t think it’s right.’ That’s a risk no one wants to take.

The place of service issue is still in flux. This Medicare ‘clarification’—they might call it such—was issued regarding place of service billing for technical component services. It grew out of a lot of Recovery Audit Contractor audits. The guidance that would have been effective April 1 has been delayed until Oct. 1. And I suspect we will see modifications to it before it becomes effective Oct. 1. But if I take what Medicare has written in that memorandum today and if I look at Oct. 1, what does it mean for a place of service for billing? It means that for a globally billed service for a non-hospital patient, you look at where the TC was performed. The language says you look at where the patient had the face-to-face TC. This guidance applies to all diagnostic services. Pathology just happens to be one of them. For every other diagnostic service a patient goes somewhere to have something done. Pathology is the only area where on the TC side the patient doesn’t have a face-to-face. Several of the societies and other observers have pointed this out to the Centers for Medicare and Medicaid Services and it may lead to modified language.

Where is the face-to-face with an independent lab? Is it where the TC was done? If so, then you would use your 81. To me, the biggest concern is for hospital-based pathologists who purchase the TC from their hospitals for the non-hospital patient work—they will buy the TC from the hospital to bill for the outreach dermatology, for example—that TC was done in a hospital lab. That’s place of service 22. If a pathology group bills a global service with a place of service 22, we know that Medicare is going to deny the TC part of that because it will look like a hospital outpatient, after the grandfather goes away, that can only be billed to the hospital. So under the current wording of this place of service memorandum, I don’t see any way a pathology practice can purchase the TC from the hospital and bill for TC for its Medicare patients. But, again, I know that’s one of the areas for which the CMS has been asked for clarification.

If you are an independent laboratory and you receive a specimen, how do you know whether it is from an inpatient or an outpatient or from a physician’s office or surgery center? And the answer is today you likely have no clear information. Unfortunately, the burden is now on the independent labs to make sure their referral sources report where the patient is coming from. You’re going to have to push and have your sales reps go out there and say, ‘We really need to know. If nothing else, we have to know if it is a hospital inpatient/outpatient 21, 22.’ Maybe it means a redesign of some of your requisition forms so it’s a mandatory box someone has to check.

The problem is someone is going to default and put 22 for everything or someone may check boxes that aren’t applicable just to get the requisition in, but at least you have something if you’re ever audited or you’re facing a RAC denial or some kind of recoupment. You would be able to say you base it on the requisition you got from the client and it’s the best information you had. I think it’s going to be difficult to train some of these referral sources to provide that information.

I think we’ll see a lot of hospitals or the pathology departments at those hospitals, particularly where the pathologists are proactive or been given the responsibility, monitor the cost of reference lab work. And for those in the room who are the reference laboratories providing those services I think you will see some pretty tough price negotiations that you never had before because all of those costs will be looked at much more closely, because those pathology lab budgets for many of the hospitals are going to skyrocket.