Tough tactics for practice management woes

September 2007
Feature Story

Anne Paxton

Perform services, send out bills, collect the money. If only pathology practice management could be boiled down to a formula like that. Instead, practices today often feel they need brilliant business acumen to grapple with complex billing and management issues—especially in an era of contracting reimbursement.

"We've seen as much revenue as we're going to see in the world when it comes to medicine, period, and when it comes to pathology specifically," says Michael Ferrie, president and CEO of pathology billing company Physician Data Management LLC and anatomic pathology software firm PathSync, both of St. Louis, Mo. "On a per-test-code basis, practices are not going to get more money without changing contracting arrangements, that is, terminating contracts. Those days of increasing reimbursement are gone."

But whether they manage their own business affairs or turn to outside management firms, say experts in the field, practices can take numerous measures to stem losses and stay well in the black.

And a lot of the remedies are right in front of their noses.

"What we're seeing in pathology is a decreasing revenue trend over the last five to seven years," says Mick Raich, owner of Vachette Pathology, a pathology practice management firm that was launched in 2002. "With fee schedules for pathology being cut, and Medicare driving down the professional component for the 88305 CPT code, you've got the classic 'jaws' effect where revenue is going down but the number of cases is going up."

Raich's company, in Palmyra, Mich., takes a two-part approach to pathology practices. "I tell them: You've taken a pay cut the last five years in a row and you want to turn it around. First, we will go in to audit your billing to make sure it's being done correctly, and second, we will do what we can to help managed care companies pay more money."

In remote pockets of the country—say, in western Nebraska or Wyoming, or extreme southern Mississippi—there are still areas without many managed care plans, he says. "But 10 years ago there were a lot more of those pockets. Now the guy that had no managed care plans 10 years ago has two or three, and the guy that had two or three now has seven or 10."

"With all of these payers accepting Medicare fee schedules as their benchmark, when Medicare gives everyone a nine percent pay cut, the group loses money on the Medicare and on the commercial side if they don't renegotiate." The result, in some cases: "There are practices that can't recruit people because they don't make enough money," he says.

It doesn't take outright billing-company fraud for groups to lose hundreds of thousands of dollars, Raich finds. Among the causes of lost revenue: too-generous payment for billing services. "Some groups are paying more than they should. It's not unusual to see groups paying nine or 10 percent when the going rate is around seven."

"We just recovered $937,000 with one of our groups because of charges being miscoded or not sent to the payer," Raich reports. A common problem is the payer agreeing to pay a certain rate under a contract, but then reneging-and usually not in an obvious way. "If you look at how managed care determines what it's going to pay, very few have a set factor. It's RVU times a conversion factor times a GPCI [geographic practice cost index]; then it might fluctuate three to five percent. It's a huge game, and you're constantly moving your feet trying to see what they'll do next."

With the billing industry in the midst of a merger wave, including McKesson's acquisition of the hospital financial company Per Se, and Med3000's purchase of Pathology Service Associates LLC, groups that do their own billing may not necessarily be on the wrong track, he adds. "Usually groups pay more this way than they would if billing were outsourced. But if you can do your own billing for nine percent and outsourcing would be seven percent, that's a good trade. The difference is your cost for autonomy."

However, "we still have some groups doing their own billing and paying 25 percent for it. They have five employees for a two-man pathology group; they're still using paper instead of electronics. Some of them just don't want to change. They say, 'These people are family to me; they've been with me for 20 years.'"

Frequently he acquires new clients because the leaders in a high percentage of practices are rotating out. "We had probably six or seven groups sign this year where the leader retired and the new people called us to conduct an audit and help them figure out what's going on."

Should they insource or outsource billing? Should their next hire be a hematopathologist or not? If they bring an HPV test in house, will it be profitable? Those are examples of questions they often need a consultant to answer, Raich says.

Though a lot of pathologists hope to steer clear of arguments and avoid raising red flags—and that makes him attractive as a "hired gun"—pathologists are not much different from any other specialty, he believes. "There are some very aggressive entrepreneurs out there and some very passive partners. Eighty percent of the people sit right in the middle."

But what many pathologists don't know are the payment possibilities under Part B. "It amazes me that a number of groups don't bill for clinical pathology at all. In Illinois, for example, Blue Cross as well as Medicaid pay $4.50 per test for professional component, but still many groups don't bill. They'll say: 'I get paid for clinical pathology through Part A.' But I'll read the contract over and it won't say anything about it at all. That's money going down the drain."

There are 17 clinical codes pathologists can bill through Part B—including blood bank, electrophoresis, and other procedures—but a majority of pathology groups don't bill for them because they think they're paid under their Part A contract with the hospital. Says Raich, "We turn this on, and the next thing you know they are making $6,000 or $8,000 a month more." At one time that may not have seemed like a lot of money, but most practices can no longer afford to be casual about four-figure losses. "I have a feeling it's going to be a very busy year for me next year," Raich predicts.

Getting good value from your billing company is a key factor in maximizing a practice's net income. But traditional practice management companies rely on basic ratios and weekly reporting to manage operations, says Mark S. Daniels, founder and president of San Diego-based Audit Quality Inc., which performs quality performance audits for hospital pathology groups.

"If you are looking at variation at that level, your eye is completely off the ball. You're missing the forest for the trees." Trying to improve quality based on such measures is like playing "whack-a-mole," he contends. His approach, borrowed from manufacturing concepts in the automobile industry, is to look at outcomes and measure backward.

The process Audit Quality follows includes an integrated audit of a practice's coding, billing, and contracts. When pathologists come to him, Daniels says, they frequently recognize they might not have the right controls to prevent embezzlement, or they may not be getting the right type of information. "Sometimes they have lost a partner who's taken a lot of business away, or they've seen a decline in income that their billing company claims is due to 'a change in your payer mix.'"

But the practice's billing company may be coasting on personality rather than performance, he points out. "It's the case where the lady or guy is extremely cordial, remembers everything, knows when your kids were born, and so on. The doctors have an emotional investment in the billing company. But if the billing company's performance is subpar so consistently, the practice can easily be losing three to five percent of its income every month."

If claims and revenues are relatively stable, the losses may not be noticeable. "It's like being a patient on a gurney who doesn't feel any pain from donating blood until you die; you can't see you're slowly bleeding to death."

Typical causes might include claims not getting paid because the billing company did not bill in time, or didn't appeal denials early enough, or used incorrect codes, he says. On the physicians' end, the usual problem is undercoding.

But payers are responsible for some of the worst shortchanging. An IPA that he audited in California had internal guidelines whereby a certain percentage of all claims were rejected. "Basically they were cheating physicians out of a couple million dollars a year. And management knew, and I knew they knew because I gave them my report, and they never called me back."

The IPA's technique was simple: "They would just put the claim in a drawer and not pay it. Then when they got towards the end, payments got later and later" until they declared bankruptcy and left the practices holding the bag. That's where pathology groups have to be careful, he warns. "You really have to keep on top of payments to decide early on whether to cancel or not renew a contract."

It's important to remember that pathologists are different from anesthesiologists, Daniels points out. "They have a lot of small dollar claims of $45 or $50, where an anesthesiologist or interventional radiologist claim could be thousands of dollars, and it's less likely that claims like that will not be processed."

"But the danger in pathology is if you miss one small claim, you're missing a pattern, and generally you're going to miss hundreds. That's where you really have to pay attention to how the process is functioning in terms of outputs."

In particular, pathologists may not realize their billing company has only one or two pathology group clients and is not at all effective in billing for the professional component of clinical pathology. "Physicians can lose a lot of money because they don't know what they don't know," he says.

"On the other hand, some pathologists make a conscious decision not to bill for PC/CP. For instance, the hospital may pay such a large amount in terms of compensation for Part A that physicians don't want to risk losing that, so they just say they're not even going to bother. They may also be concerned about what their colleagues, the referring physicians, might think when patients start getting billed for clinical pathology."

Whether or not they rely solely on anatomic pathology for income, Daniels says, "pathologists need to understand and have a high confidence level in the billing company's ability to provide them with information that helps them manage their business."

"Most reporting is sort of overwhelming to a group if it has too much data. The physicians simply don't have time to go through that in a meaningful way. So pathologists need to ask: Is the reporting I'm getting okay, and is it adding a benefit in improving my ability to understand my business?"

Contrary to conventional wisdom, says Harry E. Pukay-Martin, MBA, CPA, the practices that have the best numbers are the ones that do billing themselves. But that means less than it might appear, because "probably the ones with the worst numbers are inside operations as well."

The internal billing system for physician specialists at Ohio State University, Columbus, has been successful, says Pukay-Martin, who is general manager and chief financial officer of the 45-member pathology services group. "We had been using a billing service for years, but all the specialists at Ohio State came together and bought our own IDX billing system. Our goal is to be one of the top 10 billing pathology groups in the country, and a number of times, I believe, we've succeeded in being that."

He cites two factors in measuring that success. "First, the days in accounts receivable. Second, and most important, is the net collection rate. If your days in A/R are over 50 or 60, you're probably not doing well or you're in a very disadvantaged market."

"Your net collection rate, an overall indicator of how efficient and effective your billing processes are operating, should be in the nineties. Like the costs of billing, this is a statistic to monitor since it represents ongoing streams of revenues coming into the practice."

Pukay-Martin has seen several shifts in payment emphasis over the years. Before prospective payment to hospitals came along in 1983, "at least in faculty practice, because you could make so much money on the clinical pathology side, anatomic pathology was less emphasized."

Then DRGs came in. "Many of us didn't realize it at the time, but this caused a paradigm shift in pathology to an extremely heavy reliance on reimbursement from anatomic pathology."

What's happening now is another shift, he says. "We're moving toward the merger of anatomic and clinical pathology with the emergence of molecular diagnostics. This shift will be further enhanced with the renewed interest in and emphasis on the component billing of clinical pathology services."

That pathologists have small bills means they need to be more automated and efficient in their processing, Pukay-Martin agrees. But equally important is the need to maintain unrelenting pressure on payers to pay. "There are a number of groups that haven't really professionalized either the billing service or the oversight of the billing service. They'll use the local person they knew at church or the spouse of one of the pathologists, for example.

"And the problem with that is unless you have somebody doing the work who is specialized and expert in it, who makes sure all the charges are captured, the cash is booked appropriately, rejections are handled right away, and claims aren't going unpaid for erroneous or unjustified reasons, then you're not going to do as well as you would otherwise."

"OSU Pathology Services participates in almost every health plan around," he says, largely because they have an extensive outreach program and don't want to inconvenience their customers. "There are some hospital-based pathology groups that don't have major outreach, and since they've got a captive market, they aren't participating providers in many managed care plans."

He considers the exclusive contracts that Aetna and UnitedHealthcare have signed with the large national laboratories a potentially serious threat. "But there are a number of ways to respond. If the group doesn't have any really strong outreach effort they could simply not participate, or set fees to cover the higher costs of doing pathology in an inpatient or ER setting."

"What happens in that case is you're getting all the high-cost specimens that take pathologists the longest time to do, and the large laboratories are getting the easy specimens that have the highest profit margin. In order to survive, pathologists can sign up with the national lab and do the work for them, "or another route would be for the pathologists to simply say, 'Fine, you have to pay what it costs us to take care of your inpatients.'"

As a large multispecialty group with about 650 physicians, OSU is able to gain leverage with payers by presenting a unified front.

"Almost every day a payer will come up with another way not to pay you. And in my mind, their job is to collect premiums and pay providers either slowly or never. And that's what they do quite well. There's always another wrinkle about why they shouldn't pay you and you'll go into cycles: One payer will send you a bunch of rejections, you start pounding on them to get paid, the issue gets resolved, and that payer is quiet for a while. Meantime, another payer or set of payers will present you with another set of rejections and life continues."

Pathologists can respond to the pressures from payers through their testing and through their business structures. "If you're moving along the paradigm that we're seeing with molecular and additional studies in genomics—tests that can give us another, better view of the disease state of patients—these things are helping offset cuts in rates on current pathology work."

At the same time, Pukay-Martin says, because pathology is automating some processes for the first time, the equipment is more expensive, "so your base has to be larger so you can make the capital investments to keep up." This pressure is going to prompt groups to consolidate, he adds.

Physicians faced a threat last winter when the Centers for Medicare and Medicaid Services launched its "medically unbelievable edits" initiative, Pukay-Martin notes. That plan, which was partially pulled back based on concerns voiced by the medical community, would have set limits on the number of units of service that can be billed per patient per day, including limits on many pathology and laboratory CPT codes.

"A lot of specialty groups were alarmed, but if it had been pushed through, it would have had an especially severe impact on pathology." It would have been disastrous because pathologists have units of service that are larger than one, he explains. "We may have a case that consists of many different specimens—say five GI biopsies from the same colonoscopy procedure—and each one requires individual examination and pathologic diagnosis."

Pathology practices need to focus on systems to make their processes as efficient as possible, says Ferrie.

His pathology software company PathSync, formed in 2006, is developing an anatomic pathology data-management system that integrates a laboratory information product called Lab Manager and a billing product called Billing Manager.

"One of the pet peeves of people has been that they have to have two separate systems, because nobody on the laboratory side has invented a system that does the billing piece well, and nobody on the billing side would ever think to do laboratory information," he says. PathSync's goal is to offer a seamless solution for pathology practices.

"What we're putting in place are safeguards, places in the system that will warn you either something should have happened and didn't, or something didn't happen on time, and to prevent mixups in the process." They're focused, too, on efficiency—taking manual, time-intensive steps out of the lab to save time and expense.

For example, "Say you have a biopsy and for whatever reason a particular block gets separated from the rest of the blocks. The system lets you visually see cases in progress, and a case out of standard will show up in red to capture people's attention," Ferrie says.

On the billing side, he believes pathologists need to wage a three-pronged war to get reimbursement. First, pursue payment claim by claim through phone calls, inquiries, appeals, or whatever it takes. "If you're not fighting at the margin to get payment, you're leaving money out there that belongs to you. It's easy for pathologists to get lost in the system. You've got to call on those claims and beat on those payers, and you can't take no for an answer."

His advice when a payer does say no: "You hang up the phone and call back to get somebody else until you get the right answer."

Second, when trends become clear, go to the payer from a policy perspective and say "Look, something is wrong here."

"Unfortunately, it happens with great regularity that you'll call the payer and they had no idea somebody switched something. A whole bunch of claims start getting denied and nobody knows why that happened. Sometimes it's a system error, sometimes a process error, and sometimes a change in policy that went into effect and nobody was ever told."

Third, monitor contracts carefully. "Too often money is left on the table because the pathologists don't want to fight too hard and sort of upset the proverbial apple cart," Ferrie says. "Either, one, they don't negotiate a lot harder to get what should be coming to them, or, two, they stay in contracts they need to figure out a way to get out of."

A little-acknowledged factor in pathology billing today is what's happening in coinsurance and deductibles, Ferrie believes. "More people in this country have significantly more coinsurance and deductibles than three years ago, and the dollar amounts of both are going up at alarming rates." His clients have had a few patients recently with $10,000 deductibles—essentially coverage only for catastrophic care.

"It used to be these dollars were paid by the insurance company, but now an alarming amount of these dollars are in the patients' hands to pay, and they often don't have the ability to pay."

A great deal of diligence and reliable monitoring systems are necessary to cope with the intricacies and pitfalls of practice management, OSU's Pukay-Martin says. For those in charge of the business end of pathology, "It's a never-ending process and an always-changing environment. And if you think you want to do the same thing every day, then you're not in the right business."

Related Links

• Bringing the hospital into the equation
• For billing, 'one price doesn't fit all'