October 2010

CAP TODAY shared the following letter with Jane Pine Wood, whose Executive War College presentation on technical component/professional component arrangements and in-office labs was published in the August issue (“Ins and outs, plus doubts, about TC/PC setups,” page 74). She opted not to respond.

I read with interest Jane Pine Wood’s comments in the August issue of CAP TODAY and have these comments to offer:

• Rather than five or six specialty physicians necessary to make an in-house lab feasible, experience has demonstrated that only three to four such physicians are needed. This may explain some of the increased activity experienced.
• Capital investment for an in-house lab, without automated immunohistochemistry staining capability, is $150,000 or less, and the U.S. government is offering a tax credit of one-third that amount for most specialty physician groups. In a four-physician group, the net investment is $25,000 each physician, not a particularly large, burdensome expense. Besides, 100 percent of that investment can be financed at the attractive low interest rates available today.
• There is easily enough work in groups of 12 urologists or 16 gastroenterologists to hire a full-time pathologist. With specialty groups consolidating at an ever increasing rate to reduce costs and add ancillary services and revenues, this migration to in-sourcing anatomic pathology is not about to slow down in the near future.
• TC/PC is a bad decision for any specialty group based on the economics. The best such a group can earn with TC/PC is 20 percent of the available monies. The approximate $100 global fee is divided into a $60 technical fee, which goes to an outside reference lab (possibly pathologist-owned), and a $40 professional fee, which is generally evenly split between the pathologist and the specialty group.
• Implying the “urology group pays the pathologist a pittance” might be better stated as “the pathologist accepts a pittance from the urology group.” Pathologists are under no obligation to work for, nor are they being “forced to accept,” a pittance. Doing so is solely the individual pathologist’s decision. In my own business, we turn down more opportunities than we accept based on the fees prospects are willing to pay us.
• What is fair value? I suggest it is whatever a seller is willing to accept in trade for his or her services. If a pathologist is willing to take $10 per interpretation, that is fair value to that specific pathologist. For another pathologist fair value might be $40. Also consider that a pathologist who is employed by a specialty commercial lab is doing so for far less than the salary equivalent of $40 per interpretation. I suspect in those situations the pathologist is earning the salary equivalent of $10 to $15 per interpretation. Example: At 24,000 “reads” per year (average at specialty commercial GI laboratories) and $10 per read, the compensation package for the pathologist is $240,000. At $15 per read, the compensation package jumps to $360,000 per year.
• The number of tissue specimens (cores) to be taken in a prostate biopsy procedure is clearly specified as 12. Pathologists are encouraged to review the National Comprehensive Cancer Network’s (NCCN) protocol on “Early Detection of Prostate Cancer.” This 30-plus-page document is used by most urology groups. Doing fewer than 12 cores without a specific medical reason is doing less than the standard of care. Doing more than 12 cores without a specific reason is an invitation for a visit by the Office of Inspector General. And it doesn’t matter whether the urology group has a lab or doesn’t have a lab—12 is the standard of care, not two, four, or 16 cores.
• “Abuses” and “profits” are terms tossed about whenever the subject of TC/PC and in-sourcing are mentioned. I sense “abused” is related to how pathologists feel about TC/PC and in-house labs more than it is related to how pathologists feel about payers. When it comes to profits, whenever tissue specimens are processed and interpreted, someone is profiting. Neither the TC/PC nor the in-sourced labs receive any preferential treatment in terms of fees relative to commercial or pathologist-owned labs. Profits simply depend on how efficiently the labs operate.
• What should be understood is the business of medicine is changing. Many medical procedures have escaped the high-cost arena of hospitals and, for the most part, hospital-based pathologists have not followed the flow of specimens outside the hospital. Hence a host of specialty pathology labs sprung up in recent years to fill the void and now TC/PC and in-sourced labs are the next stage of market evolution, sopping up large specimen volumes from all sources.
• I concur with Jane Pine Wood that there is no short time fix to reverse the current course.

Joe Plandowski
Lakewood Consulting Group
Lake Forest, Ill.