August 2010
Feature Story

Karen Lusky

In the laboratory arena, lab-to-lab referrals are instances in which a hospital or independent lab sends testing to an outside lab and then either bills the patient’s payer itself or has the reference lab bill for it. Having the receiving laboratory bill can make fiscal sense for referring labs that want to stem the red ink from unprofitable send-out tests. But labs engaged in what’s often referred to as third-party billing have to mind their compliance P’s and Q’s.

It’s up to the commercial payers as to whether they allow third-party billing, says attorney Jane Pine Wood, “which means you have as many rules as payers.” Also keep in mind “the overlay of state law,” adds Wood, of McDonald Hopkins LLC, Dennis, Mass. For example, state law may prohibit an out-of-network laboratory from billing an HMO patient.

Even though “it’s prevalent in the industry for the commercial lab to agree not to charge [patients] the out-of-network rate, no one can say that’s 100 percent compliant,” Wood says. Medicare has warned, for example, against blanket waivers. And some states, such as Ohio, impose restrictions on advertising such waivers in advance of services, she points out.

Lab-to-lab referrals are permitted under Medicare, but the rules are complicated.

For starters, under Medicare, different rules apply depending on whether the patient is a hospital patient or a non-hospital patient, says attorney Peter Kazon, of Alston & Bird, Washington, DC. If the patient is a hospital inpatient or outpatient, then the hospital has to bill for any clinical laboratory testing furnished to that patient. The reference laboratory in that case cannot bill for that testing. (Slightly different rules apply for anatomic, rather than clinical, testing.)

For testing that arises from a physician visit—that is, non-hospital testing—the referring lab (independent or hospital) can refer work to an outside laboratory and have that laboratory bill for the work it performs, Kazon says. The referring laboratory can also bill for that work even though it didn’t perform the work, but only if it does 70 percent of its work on site. That means the lab “will have to add up all of the tests for which it receives requests—Medicare and non-Medicare—and then calculate whether it refers out more than 30 percent of that testing,” Kazon says.

There’s another potential complication with this 70-30 rule: “When calculating [testing volume] for the 70–30 rule,” he says, “Medicare has never said whether a hospital lab looks just at the outreach testing or whether it includes all of the testing requests the hospital receives, including requests for inpatients and outpatients. It seems reasonable just to look at outreach testing, but it is not absolutely clear.”

Reference labs can bill Medicare directly for a non-patient test referred to them by another laboratory. “Medicare would in that case,” Wood says, “permit the performing lab to bill Medicare for a non-hospital patient, for both clinical laboratory and anatomic pathology technical component services.”

Under the Medicare date-of-service and bundling rules, however, hospitals must bill Medicare directly for clinical laboratory testing performed on a hospital inpatient or outpatient specimen ordered within 14 days of the patient’s discharge. But the performing lab could bill Medicare Part B for a hospital outpatient or inpatient if the clinical laboratory test is covered under Part B and ordered 14 days after the patient’s discharge, Wood says.

However, she adds, “Unless a hospital is grandfathered, the laboratory must bill a hospital for anatomic pathology technical component services for Medicare inpatients and outpatients.”

Could physicians simply wait to order testing so that the outside lab could bill Part B directly for the clinical laboratory test? Wood says there are ordering clinicians or hospital systems that keep an eye on the 14-day post-discharge window to delay ordering tests.

“If the test is legitimately not needed until that time, that’s one thing,” Wood says. “But you don’t want a situation where a hospital is advising its medical staff to deliberately wait to order something.” That suggests gaming the system. “You don’t want to take actions deliberately to circumvent Medicare billing rules,” she says.

As for third-party billing under Medicaid, Kazon says each state usually is different, though most require the lab that did the testing to bill Medicaid for it. And often Medicaid won’t pay an out-of-state lab for the work, Kazon cautions. “Medicaid is often tremendously complex and often has irrational requirements at work. So you have to know your state Medicaid requirements.”

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