December 2008
Feature Story

Anne Paxton

If there were such a thing as a “situation room” where analysts mulled the prospects for pathology practices over the next few years, the mood might well be gloomy. With the national economy in crisis mode and the perennial threats to physician reimbursement showing no signs of abating, can pathologists protect their profitability?

Linda Liston, CPC, director of managed care services with McKesson Revenue Management Solutions, and Rick Cooper, an attorney with the multistate law firm McDonald Hopkins, headquartered in Cleveland, say yes: Pathologists can maintain a healthy profit picture and even boost their earnings.

In a presentation at the CAP ’08 meeting in September, “Top Hidden Sources of Increased Pathology Revenues,” Cooper and Liston cited some of the major threats to pathology practices’ bottom lines and detailed how pathologists can increase their revenues by reducing expenses, minimizing risk, finding new revenue sources, and diversifying into new areas.

It’s well known that as costs have risen, payments have plummeted. Hospitals are reducing Part A reimbursement to pathologists, and Medicare Part B reimbursement for the most common CPT code for anatomic pathologists, 88305, has fallen from an average of $41.20 in 2006 to $31.08 in 2008, Liston noted.

One way pathologists can cope with this trend is by data mining: measuring and monitoring claims activity through programs like McKesson’s reimbursement tracking module for clinical laboratories and physician practices, she said. This program provides the ability to monitor reimbursement by CPT code based on carrier contracts and lost revenue due to untimely filing. Liston also noted that the monitoring of credit balances and bad-debt percentages, as well as base metrics such as days in accounts receivable and the percentage of bills more than 120 days old, is extremely important. These data can be used to increase cash flow, reduce accounts receivable days, and plan future information technology improvements.

In addition, the company’s services help pathologists participate in Medicare’s Physician Quality Reporting Initiative, which offers physicians who report requested quality-measure data an incentive payment for 2008 of up to 1.5 percent of total allowed charges.

“Once pathologists collect the data needed to understand their potential profitability, the path is laid for financial improvement,” Liston said. Professional fees should be reviewed annually, she said, and the terms of hospital service agreements should not restrict a physician’s ability to adjust those fees reasonably. Recognized methods for evaluating and establishing fees include reviewing the Medicare physician fee schedule database, using the RBRVS with an appropriate conversion factor, and reviewing and comparing fees against commercial databases such as Captiva.

Currently the “magic RCE number” (reasonable compensation equivalent) set by the Centers for Medicare and Medicaid Services is $218,000 per clinical pathologist FTE, but other data sources support higher payments. In reviewing hospital contracts, she recommended using fully completed pathologist time sheets and Medicare utilization data to provide a basis for increased Part A stipends. “You’re entitled to this revenue,” she emphasized. “So don’t be afraid to ask.”

Since billing for the professional component of clinical pathology is on the increase nationally, Liston said, “you should definitely review your hospital contract to make sure it doesn’t restrict your ability to bill for these services.”

After negotiated managed care contracts that contain flat rates for clinical pathology codes are implemented, she said, “we’re seeing anywhere from a 25 to 36 percent reimbursement rate nationally.” Some carriers will allow a flat reimbursement rate per code, she noted, “and that’s direct reimbursement back to you that you didn’t have before. As far as billing for these services, we have yet to have a client begin billing CPPC that hasn’t been very pleasantly surprised.”

Cooper of McDonald Hopkins noted that if pathologists are getting Part A payment, it’s important that the payment cover only those patient categories for which they are not engaged in PC billing. “You don’t want to expose yourself to arguments by payers or by the government that you are somehow double-dipping,” he said.

Liston recommends that pathologists negotiate into their contracts a carve-out for anatomic pathology. “Too many times carriers are going to want to bring down the AP rates to compensate for clinical pathology payments. You don’t want that.” To protect overall reimbursement, it’s crucial that each anatomic pathology code that is billed be correctly documented, she said, so coding audits should be consistent to ensure that documentation is appropriate.

Medicare’s “Magic 20” are the billable clinical pathology codes allowed by most carriers when a 26 modifier is used, and they can be billed without billing for clinical pathology professional component services, Liston said. The requirements are that standing orders meet the criteria for an interpretation request, a written report is supplied, medical judgment is exercised, and the initial test falls outside the normal range. “If you haven’t been billing for these,” she said,”you need to consider doing it.”

Another source of potential billings is point-of-care testing. These tests are billable if POC services are rolled up under the core laboratory. If the hospital system does not capture POC services, consider installing new software.

Outreach lab services is a potential new market for many practices, Cooper pointed out. “We’re seeing more and more pathology groups working with hospitals to bring outreach services into their core lab. This creates a new business relationship with the hospital that can benefit the overall relationship.”

Says Liston, “We’ve seen physicians who have established a lease type of arrangement that allows them to submit a global bill to the carriers, and many hospitals see it as a win-win.”

Outreach programs can pay “absolutely huge dividends,” Cooper said. They are not only an extremely valuable resource in building sales but “they are also becoming very hot properties for merger and acquisition deals.”

Setting up an independent or reference lab is another way pathologists can take their practices to the next level, he noted. The first step is to evaluate the marketplace, then determine whether you should strike out on your own or set up a joint venture with a hospital. “But if you’re not already doing this,” Cooper said, “don’t presume it’s more complicated or more costly to set up than it really is. You may be fighting a lot of battles regarding reimbursement of traditional pathology services, when in fact a new diverse revenue source is staring you right in the face.”

Practice mergers or even simple affiliations with other practices are often a valuable option to consider. “If you grow and expand, creating allies out of historical competitors, it gives you several things,” he said. “It enhances your cross-coverage and scheduling, promotes recruiting and retention, leverages medical specialization, creates greater geographic and service diversification, permits you to hire management personnel that a smaller group couldn’t support, and, subject to antitrust considerations, strengthens your negotiating position with carriers. And it makes both carriers and clinicians take a better look at you.”

With a larger geographic footprint, some merged practices have also acquired the ability to staff smaller hospitals, providing them with greater diversity in revenues, Cooper added.

Is there an optimal size for a pathology group? In his view, the importance of size and the ideal size depend on the specific marketplace. “Generally, with a bigger group, you have a more solid foundation and more opportunity for business diversity. I can’t say you’re always better off with a specific size.” The largest group McKesson has worked with is a 52-pathologist practice in the Pacific Northwest, created by four groups that joined forces.

“Bringing them together gave them the underpinnings to create an independent lab,” Liston said, noting that such a lab can become a practice’s most valuable asset.

Avoiding unscheduled hits to income, however, can be just as critical to a practice as acquiring new revenues. Ensuring the practice is capable of recovering after disasters such as hurricanes Katrina and Ike is a matter of advance planning, Liston said. “You need a plan in place to make sure the practice can come back up immediately and go forward as quickly as possible. When you look at your service grid, for example, make sure you have a disaster recovery plan that allows you to come up within a totally different grid.”

Business interruption insurance, which covers the costs and losses associated with interruption in the ability to do business due to a power loss, fire, or natural disaster, is relatively inexpensive and can often be added as a rider to traditional liability policies, Cooper said. “And in many cases, this financial bridge can mean the difference between a business surviving and a business going under.”

In summary, Liston and Cooper said, by making improvements in bill­ing and contracting, tapping potential new markets, taking practices to the next level, and ensuring continued operations, pathology practices can not only weather economic storms but also make solid gains in profitability.