August 2010
Feature Story

Technical component/professional component arrangements between pathologists and physician groups are probably here to stay for at least the next couple of years, lawyer Jane Pine Wood, of McDonald Hopkins LLC, told her audience in April at the Executive War College. “The bar is much higher for a referring physician group to in-source and profit from its pathology referrals, but it’s not impossible,” she said. She has many “discouraged” pathology clients, saying, “There are pathologists all around the country who are in the same position.” For now, she foresees no legislation that will put an end to in-sourcing arrangements.

However, in an e-mail last month, she described as “encouraging” the June report of the Medicare Payment Advisory Commission that brings under scrutiny the practices of physicians who are using the in-office ancillary service exception to the Stark ban on self-referrals. “MedPAC has made some very strong recommendations to curtail the loophole in the Stark law that permits these arrangements,” she wrote to CAP TODAY.

Here, in part two of her War College presentation (see the July issue for part one, on EMR software donations), she lays out what pathologists can do to try to dissuade physician groups that make such proposals, what pathologists must know to be protected, what it takes for physician groups to be compliant, and why pathologists should talk to the payers in their states.

Jane Pine Wood Esq.

I have had more calls from my clients in the past several months about the technical component/ professional component and in-house lab arrangements than I’ve had in a while. The activity seemed to have waned, and I think it’s picking up now as more and more physicians are feeling the crunch of reimbursement rates, as well as hearing more about these arrangements. I’ll talk about the TC/PC arrangements first because those are, in my practice at least, becoming much more prevalent than a gastroenterology or a urology group putting in an in-house lab, because to put in a lab, there needs to be a certain volume of specimens. Typically, it’s going to take a practice of at least five or six physicians to make an in-house lab feasible, and they still have to come up with the capital investment for their in-house lab. A TC/PC arrangement, by contrast, is pretty inexpensive to set up, and it’s something that would be available for a one-, two-, or three-person practice. Most of these groups are thinking they’re going to make a lot more money from it than they are. They have a real lack of knowledge of how pathology services are being paid.

A TC/PC arrangement is one in which an outside laboratory, or it might even be your laboratory, does the technical component. And for sake of the example, the technical component is billed directly by the laboratory to the payer. In fact, that’s how these arrangements began: One particular laboratory said, ‘We will do the technical components. We’ll bill the payer. No money passes between you, the GI group, or the urology group, and us the lab. It’s very clean. Just hire your local pathologist to come and do the interpretations on your behalf. You’re providing a physician service like any other physician service.’ Not quite that easy, but great from the laboratory’s standpoint because the laboratory got the technical component free and clear and billed the payers.

With the laboratory billing for the TC, that leaves the professional component. Here a couple of laws come into play—primarily the Stark law and the Medicare anti-markup rule, though there are state direct billing laws and others, too. The urology group, for example, has a pathologist come into its offices to do the interpretations on its behalf. The urology group pays the pathologist a pittance, and the urology group bills for all the services to all payers, including Medicare. Account billing, where someone buys the service and rebills the payers, ­isn’t always attractive for urologists, in states where it exists, because they can’t do that with Medicare work. What makes the TC/PC arrangement attractive to them is they can now bill that Medicare professional component.

If you’re confronted with one of these offers and you want to try to stop it, the first av­e­nue of attack is to explain to the ur­ol­o­gist how much mon­ey is paid for the professional component. It may be that you’re in a payer base that is paying a tremendous amount; if so, that won’t help. But in many parts of the country, the urologists are going to be shocked to realize how little mo­ney, out of the 88305, is actually paid for the professional component. For most physicians, the bulk of what they get paid is for their professional services. Or if they’re familiar with radiology, they’re familiar with a TC/PC split that is not as unattractive as the one for pathology services. So a lot of these groups are under a misimpression of how much money they’re going to make from your professional component services.

You may find that simply educating them and running pro formas for them may be enough to dissuade them. But I’m hearing from some of these groups that, even if they can generate a couple extra thousand dollars a year, they’ll still want to do it.

For the urology group to comply with the Stark law, the pathologist has to be an employee or independent contractor. The reports have to be issued in the name of the urology group. That pathologist is not considered a member of his or her pathology practice when doing the work. From a Stark law perspective, if this urology group wants to bill Medicare, the urology group is consider­ed the provider of the service. And it is now a multispe­cialty group, and you, the pathologist, are simply another member of the practice.

That means that if a malpractice claim is filed, not only would the interpreting pathologist be named, but also the urology group, because the urology group submitted the claim. The urology group’s name is on the report. From a Stark compliance standpoint, it has to be considered a service of the urology group.

Malpractice coverage is one of my concerns. If you’re performing interpretations in one of these ar­rangements, confirm with your insurer that you have coverage. Mag Mutual in Florida has told a couple of my pathology clients that if they have a pathology group policy, and one or two of the group’s pathologists are part of one of these TC/PC arrangements, even with the understanding that the pathology group wants the pathologist to do it, to retain the work, Mag Mutual will not cover the pathologist under the pathology group policy. They’re demanding that the urology group cover the pathologist.

The urology or GI group also has exposure because the typical malpractice policy says the group is protected, or is covered, for the acts or omissions of the physicians listed on exhibit A. If your name is not on exhibit A of the urology group’s policy, the urology group may find, if it is sued, that it has no coverage. Its insurer is not going to step in and defend it. This is an area where I find there could well be a gap, and I therefore encourage both sides to make sure there are no gaps in malpractice coverage.

In virtually all of these situations, the urology or GI group, when it checked with its insurer, has had to purchase additional insurance to cover the pathologist.

Now, let’s say that one pathologist, particularly with vacations and other things, is not going to be able to take care of a group. You may have a pathology practice that says it will rotate three or four of its pathologists through the urology practice to do the work. That’s going to mean three or four pathologists on the malpractice policy. It may mean separate contracts with those three or four pathologists. Alternatively, it is permissible to have a contract between the pathology group and the urology group, but the Stark law still requires that the individual pathologists sign their agreement to the terms. So even if it’s a group-to-group independent contractor agreement, the individual pathologists have to acknowledge in writing that they accept it.

If you are an interpreting pathologist, if your pathology practice files a claim and misbills the Medicare program, typically the government will go after your group first. But Medicare has the ability to go after the individual physician whose national provider identifier, or NPI, is listed on the claim.

If the urology group is billing for your professional services, you have to reassign your right to bill to the group. An 855R form has to be completed—that’s the Medicare reassignment form—in order for the group to bill for your services. With that 855R form, you are telling the Medicare program: ‘I agree to be jointly responsible, with the group, for its billing of my services.’ That means Medicare could theoretically come after you personally if the urology group bills inappropriately. So it’s important to ask yourself, Is this a group I trust to do billing appropriately? I certainly advise putting language in the contract explaining that you have a right to audit billings. You should have an indemnification provision so that if anyone in the government or any private payer came after you because of the group’s billing errors, the group has to indemnify you, basically pay you back, make you whole, for whatever that might cost you. That is a nice additional protection to have. But it’s still not absolute protection against the hassles of payer scrutiny, particularly if abusive billing really was going on.

I suggest you think carefully about the group, and particularly the group’s office manager. Abusive arrangements aren’t always promoted or thought of by the physicians in the practice. Many times it’s the office administrator in the practice who’s promoting it to increase revenues within the practice. And that person could be more ag­gressive with the coding.

In some contracts where my clients have had concerns about whether, for example, 88305s might become 88307s, or that an excessive number of stains might get billed, some of which perhaps were not done but got tacked on automatically, we’ve put language in the contract that says the group will code according to what you wrote down. That way, you’re controlling the coding for the group’s billing. You might want to keep that in mind if you have concerns about the arrangement.

Another complication can arise in a group that has multiple locations. Let’s say it’s a urology group with three locations. The Medicare anti-markup rules were revised a couple of years ago, and the revisions did a lot to put a dent in pod labs. They made these off-site pathology locations much more difficult. They didn’t kill them completely; there are still loopholes. But this becomes relevant when you’re talking about TC/PC arrangements.

If you have a urology group with three locations, and the urologists want you to do the professional interpretations on their behalf, Medicare says they cannot bill Medicare more than they pay you for the 88305 interpretation unless one of two tests is met. One is that you work 75 percent time for them. There are very few of these arrangements where the group is going to have a pathologist work 75 percent time, so let’s assume that one is off the table. The second test is you have to perform the interpretations in a location where each of the referring physicians provides substantially the full range of his or her services to patients. What if it’s a urology group with three locations? Each of those urologists will have to rotate periodically through the office where the pathologist goes on Tuesdays to perform the interpretations, or the pathologist is going to have to go to each of those three sites to perform interpretations, generating only from the urologists at those sites. But, remember, each reading location also needs a CLIA certificate. So in addition to the hassle of having to triage specimens and go to three different locations, the urology group will have to go to the expense and hassle of getting three different CLIA certificates. I have seen a couple of these TC/PC arrangements die because the practice could not meet this requirement. So this is important to keep in mind because it might preserve your status quo.

What gets very confusing in this area is that we do have these two different laws, the Medicare anti-markup and Stark laws. Stark law will permit you to perform the interpretations either in any office of the group where they see patients or in one centralized location. No physician from the group has to be there providing patient services. If it’s a GI group, and it has an off-site endoscopy center, and you want to do your work there, it’s fine under the Stark law.

The anti-markup law is a bit different. It says you have to do the services in a location where each physician performs substantially the full range of his or her services. It raises a big question with endoscopy centers because a lot of these GI groups say, ‘We all do endoscopies at the endoscopy center, so we’ll just have the pathologist work there.’ Is an endoscopy center a location where gastroenterologists perform substantially the full range of their services? They obviously do a substantial part of their services there, but they’re not doing the full range. On the other hand, if you perform the interpretations in their main office, they’re not doing endoscopies there, so that’s not the full range. Most attorneys feel most comfortable if the pathology interpretations are done in an office where patients come not just for their endoscopies but also for the physician office visit, because then a much broader range of services is being provided in that location. When the physician group has a technical component lab, how do the multiple locations affect the technical component? You have to go through the same analysis, with the determining factor being whether the supervising physician meets the 75 percent test or the on-site test described previously.

What can the physicians pay the pathologist for the interpretation? Can they pay the pathologist a pittance? I would argue that there are serious Stark and anti-kickback ramifications if the pathologist is paid less than fair market value.

Having said that, I can tell you what I am seeing that pathologists are being offered, or forced to accept, for an interpretation under a TC/PC arrangement. Most commonly it’s $25 to $30, but it ranges from $12 to $40. Dermatology is on the lower end, but I’m seeing a lot more of that pricing move down even to the $15 to $20 per interpretation range. That’s too low—I don’t think that’s compliant. In fact, some of the TC laboratories that are promoting this are then saying to the urologists, as part of the proposal: ‘Pay the pathologist $15 for the interpretation; that’s the going rate.’ So the urologists are coming into it with the assumption that that’s what they’re going to pay you.

It becomes more complex with the in-house lab. What if the urology group wants to have an in-house lab as well? That is, they want everything. This same Medicare anti-markup rule applies to the TC lab. And what that rule says, basically, is that the ordering physicians, the urologists, even if it’s their own laboratory, cannot bill Medicare more than their cost of producing the service unless the physician who supervises the TC—because now we’re talking about the supervising physician, not the interpreting pathologist—meets one of the two tests: work 75 percent for the group, or supervise the technical component on site in a location where each of the referring physicians sees patients.

Here’s the game that’s being played, and this is the big loophole. CMS thought this requirement would kill pod labs altogether and kill most in-house labs because you need a pathologist to supervise services, and none of these groups is going to want to hire a pathologist 75 percent time. Or none of them is going to hire a pathologist to sit and twiddle his or her thumbs while the technical slide processing is being done. So there’s no way they’re going to have this because the anti-markup will restrict their profit.

That’s what the lawyers at CMS logically believed to be the case. The problem is the interpretation of CMS on the CLIA side is that a CLIA certificate is not required for slide processing only. Even though almost every slide processing lab is going to have a CLIA certificate, it’s still not required for the slide processing. So the big loophole, which it took about a day for attorneys for gastroenterologists and urologists to work out, after the regulations came out, was: We’ll do slide processing only, and we’ll name one of the urologists or gastroenterologists who works full-time for the group to be the supervising physician.

The supervising physician in this context of legal wordplay does not mean the pathologist laboratory director on the CLIA certificate. You can still have a pathologist as the director on the CLIA certificate. This is simply a legal fiction of calling someone a supervising physician and putting it on paper in some minutes somewhere, so that you can say you have a physician who works 75 percent time for the group supervising the slide processing, which means it could be in an off-site lab. It could be in a pod lab. It could be anywhere as long as that person is named as the supervising physician. Unfortunately, the way the regulation is written, it says supervision is whatever Medicare requires supervision to be. Guess what? Medicare doesn’t have defined supervision requirements for slide processing. So it’s totally open-ended.

What if the group is large enough to hire a full-time pathologist? Does that take care of the issue? It does, because even though CMS does not require a CLIA certificate for slide processing, a CLIA certificate and pathologist supervision are required for urine cytologies, for immunohistochemistry. The urologist or gastroenterologist is not qualified to supervise high-complexity testing under Medicare regulations, so a full-time (or at least 75 percent time) pathologist as the supervising physician would permit the group to perform the high-complexity testing in an off-site location.

Assuming the group is not large enough to have a pathologist be employed 75 percent time, the group probably does not want to have a pathologist twiddling his or her thumbs while the immunohistochemistry stains are being done, which is what would be required. This may be an opportunity for you to at least say, if they’re going to set up an in-house lab, ‘We still keep that work that requires the CLIA pathologist supervision.’ That’s work that you could argue you should be able to still keep and do and for which you bill payers directly. They don’t have any share of that.

Some of the larger dermatology practices are hiring their dermatopathologists, who are working 75 percent time, as part of the group. Some of the larger urology and GI groups are doing the same.

I am getting a lot of calls from pathologists who are coming out of urology or GI specialized training who are being courted by these urology and GI groups to come in-house to work. These positions can be attractive, particularly if someone is not interested in working five days a week. Thus, be aware that it’s not just the semi-retired pathologist who’s getting these jobs, or the pathologist who’s been fired from everyone in the community because he does poor work. These groups are becoming much more sophisticated, and they’re actively recruiting from the training programs.

What is the future for these TC/PC arrangements and in-house labs? I’d like to say that I see legislation that’s going to put a hold on them, but I don’t see anything anytime soon. The bar is much higher for a referring physician group to in-source and profit from its pathology referrals, but it’s not impossible. To kill the arrangements now, we will probably need an amendment or change to the Stark law. And that takes an act of Congress. From a legal standpoint, CMS has probably gone as far as it can to put a hold on the in-sourcing of pathology. At this point, the operations that are ongoing are within legal parameters of the Stark law. And I just don’t see that we’re going to be looking at any legislation to close this up anytime soon. [See the introduction on page 74 for her comment on the MedPAC report.]

Many of my clients are going to have to play ball now because if they don’t, someone else will. They’ll have to lay off their GI pathologist because they won’t have enough work for him or her. ‘Help us do this in a compliant manner’ is what I hear.

One avenue to pursue, and this is probably the most viable one, is talking and building relationships with your local, private payers—your Blue Cross plans, your United Healthcares—because they are the ones who have control over a lot of these arrangements. A Blue Cross plan in a particular state can decide tomorrow it’s not going to pay a urology or GI group for any anatomic pathology codes. We all know private payers have the ability to make arbitrary payment decisions over­night. They can make these payment decisions with respect to these in-sourcing arrangements. And many pathologists have approached their payers, and in some states we have seen movements by these private payers to restrict payment for these services.

Blue Cross of Florida and Blue Cross of Massachusetts are two examples. Blue Cross of Connecticut has been very selective in its contracting. In those states, the urology and GI groups have found that these in-sourcing arrangements are not as lucrative as they thought they would be because the payers are paying less than the physicians thought they would, or the payers refuse to pay them for the services, and they’re now out of network and being reimbursed at a much lower rate.

Thus, you may want to have discussions, and maybe it’s easiest to do it more anonymously through your state pathology societies. Talk to the payers, particularly the Blue Cross plans in your state or United Healthcare, about the abuses. It’s an easy sell to payers once they understand the physicians are profiting from their referrals. And it’s not just profiting from the pathology: That GI physician is perhaps taking more specimens. We know that happens in urology. Just look at what’s happened with prostate biopsies going from two to four to 16 and higher. How many perforations might you have that you wouldn’t have had otherwise if the gastroenterologists were not as aggressive in doing the endoscopies because now they had the additional incentive of the pathology dollars? There are a lot of additional costs that can flow—not just the additional pathology services, but the underlying procedures. And payers certainly have the ability to selectively contract and to tell specialty groups they won’t pay for certain codes.

You see a lot on the edges of the TC/PC arrangement and the in-house lab. The groups that want an in-house lab but don’t want to make the investment in the laboratory concern me. They’re saying to you, the pathology provider, ‘You pay for our lab, you take all the risk. It’s going to be our lab, but any losses fall on you, and we take the profits.’ Those are not likely to be in complete compliance with all laws, but that’s where a lot of the newest, most aggressive development can be seen.

You start to see it with groups saying, ‘Why don’t you do most of the processing in your lab and we’ll get a CLIA certificate and say we did it. We’ll do a tiny bit here, but you do most of it in your pathology lab.’ They want to save costs on their own, but they want to bill for everything. That is probably not compliant, but that’s where we’re seeing the aggressiveness.

We see layering, too. In some of the states where you can still do client billing, you’ll see a small, three-person GI group say, ‘We’ll do a TC/PC arrangement. We’ll hire the pathologist. He’ll come to our offices. We’ll bill for his work. We’ll pay him $15, and we’ll buy from the laboratory the private payer technical component, mark that up, and rebill it.’ So they’re basically getting a good part of the revenue. The only thing they’re losing at that point is the Medicare technical component.

Related Links

• Payers, CMS looking at gain-sharing, capitation models