|
By Jane Wood
10/09/07
Non-Pathology Specialty Practices—Options For Pathologists
Increasing numbers of non-pathology specialists such as urologists, gastroenterologists,
dermatologists and ob-gyns are seeking to increase their revenues and share
in the profits generated by their pathology referrals. Many pathology practices,
either out of choice or necessity, are deciding to work with these non-pathology
specialists, rather than alienate their referral sources. This chapter outlines
the most common strategies in the marketplace today, and discusses the significant
compliance issues involved with these strategies. It also discusses steps that
pathologists can take to limit the ability of these non-pathology specialists
to pursue these arrangements.
None of these strategies are completely risk-free
from a compliance or a business standpoint, and every arrangement in which
a referring practice profits from its pathology referrals implicates federal
and state laws. However, pathology practices may wish to consider these options
when analyzing their specific situations with their legal counsel. It is critical
for pathology practices to consult their legal counsel prior to embarking upon
one of these arrangements to determine the effect of applicable federal and
state laws upon the proposed arrangements.
I. Professional Pathology Services
by Non-Pathology Practices
Many smaller non-pathology practices are
seeking to employ or contract with a pathologist or pathology practice for
the provision of the professional interpretation services. In this arrangement,
the professional pathology component will be performed and billed by the non-pathology
practice (typically, a urology or gastroenterology practice), and the technical
pathology component will be performed and billed by an independent, off-site
pathology laboratory.
A. Stark Law Compliance
The Stark law prohibits referrals
of certain designated health services by physicians to entities with which
they or an immediate family member have a financial relationship, unless there
is an exception. In this context, the most valuable exception is the in-office
ancillary services exception, which is available only to organizations that
satisfy all of the requirements of the Stark law definition of “group
practice.” The group practice
definition includes the elements of a single, integrated practice, and generally
would exclude a loose affiliation among physicians who maintain separate medical
practices.
The Stark in-office ancillary services exception requires that the
pathology provider be an employee or an owner of the referring practice under
an arrangement that complies with the Stark exception for employment arrangements
or an independent contractor under a compensation arrangement that meets the
Stark law exception for personal services arrangements or fair market value
compensation. In the independent contractor scenario, there must be a written
agreement that specifies the covered services, and payment to the pathology
provider must reflect fair market value and may not be determined in a manner
that reflects the volume or value of referrals or other business generated
between the parties. At the time of preparation of this outline, the government
has indicated that it may modify the Stark language in a manner that would
preclude or further restrict the use of independent contractor physicians under
the in office ancillary services exception.
Another significant component of the in-office ancillary
services exception is that the pathology services must be rendered either in
the same building in which the referring physician or another physician who
is a member of the group furnishes services unrelated to the furnishing of
designated health services, or in a centralized building which is utilized
exclusively by the group practice. The Stark law provides several examples
that comply with the same building requirement, but, essentially, the pathology
provider must perform the professional interpretations on-site at the referring
practice, or in an off-site location that is leased exclusively by and used
exclusively by the referring practice, on a 24/7 basis. No shared facility
or space is permitted.
B. Medicare and Medicaid Anti-Kickback Law
The Medicare and
Medicaid anti-kickback law, which prohibits the payment or receipt of any remuneration
in exchange for a referral for services covered by Medicare or Medicaid, must
also be considered. There are a number of safe harbors under this statute that
provide guidance. Unlike the Stark law, which requires strict compliance, an
arrangement which falls outside an anti-kickback safe harbor is not an automatic
violation, but is reviewed based on facts and circumstances.
If the referring practice employs the pathology provider, amounts
paid by an employer to a bona fide employee for employment in the provision
of Medicare/Medicaid reimbursable services are safe-harbored. If the referring
practice engages the pathology provider as an independent contractor, there
is a safe harbor that addresses personal services contracts. There must be
a written agreement, for specified services, for a term of not less than
one year, with aggregate compensation set in advance, consistent with fair
market value, and without regard to volume or value of referrals or other
business generated. Accordingly, it is important to structure the arrangement
between the referring practice and the pathology provider so that it reflects
fair market value. This is of particular concern because these arrangements
often involve the provision of services by the pathology provider to the
referring practice at a discount from prevailing third-party payor rates,
and the billing by the referring practice to third-party payors at prevailing
rates. Fair market value analysis requires assessment of factors such as
reduced billing and other overhead expenses of the pathology provider as
well as time spent at the referring urology or gastroenterology practice.
Likewise, the arrangement between the referring practice and the laboratory
requires careful scrutiny. The provision of goods and services by the pathology
provider, such as software, equipment, reporting, reimbursement assistance
and the like, must reflect fair market value as well as the other elements
of the anti-kickback safe harbor for personal services contracts.
The Office
of Inspector General (OIG) warned in a December 2004 advisory opinion that,
even if the relationship between a referring practice, such as a urology or
gastroenterology practice, and the pathology provider is protected by a safe
harbor, the safe harbor protection does not extend to the profit recognized
by the referring practice from the pathologist’s professional services.
In addition, this type of arrangement was specifically targeted for review
by the OIG in its 2005, 2006, and 2007 Work Plans.
C. Malpractice Issues
There may also be additional malpractice
insurance expense as the referring non-pathology practice expands the scope
of its practice to include pathology. As the provider of professional pathology
services, the non-pathology practice will also bear the related liability.
The existing malpractice insurance of the pathologist generally will not extend
to the non-pathology practice, so it will need to ensure that it is covered
for the professional pathology malpractice risk. This may entail the purchase
of additional insurance by the non-pathology practice.
D. Payor Issues
It is important to structure the arrangement
between the referring non-pathology practice and the pathology provider so
that it complies with Medicare reassignment rules. Medicare prohibits physicians
from assigning Medicare benefits to anyone but the physician who rendered the
services. There are a number of exceptions, most notably that an employed physician
may assign benefits to its employer and an independent contractor physician
may assign benefits to a medical group for services provided on the group’s
premises as long as there is a contractual arrangement allowing the group to
bill and collect for the physician’s
services (although there are exceptions, the government may modify the reassignment
exception for independent contractors in 2007 to further restrict the ability
of the referring practices to enter into these types of arrangements). Accordingly,
each pathology provider for whom the referring practice is billing must render
services on-site at the referring practice’s office and must be individually
enrolled and credentialed as a member of the referring practice. It is important
to note that the Medicare program will hold the individual pathologist jointly
and severally liable, with the referring practice, for any erroneous billings
submitted by the referring practice for the physician’s professional
pathology services.
Commercial payors may have completely different guidelines
for the provision of pathology services by the referring non-pathology practice.
Some payors limit the scope of a practice’s credentials to a specific
specialty area, or require a separate credentialing process in order to add
a service such as pathology. There may also be laboratory carve-outs or preferred
provider arrangements in place that prevent the group from rendering pathology
services to its patients. Increasingly, commercial payors are expressing concerns
regarding over-utilization of pathology services by referring practices that
profit from the pathology services, and these payors are looking at ways to
restrict payment and curb overutilization. It is important to assess payor
requirements prior to implementing a pathology program to be sure that the
services will be reimbursed.
E. Audit Risks
The potential for overutilization of pathology
services when a urology, gastroenterology, dermatology, or ob-gyn practice
profits from its referrals can send up multiple “red
flags” that could invite an audit from a government or commercial payor.
First, billing utilization patterns that exceed the established norm can trigger
an audit, and result in an overpayment demand from the payor. It is important
to remember that the Medicare program specifically holds the pathology provider
jointly and severally liable, on an individual basis, with the referring practice,
for any assessed overpayments. Commercials payors could adopt the same policy.
Furthermore, if the payor believes billing fraud is involved, the payors could
include the pathology provider in its charges.
Another audit “red flag” involves
improper billing of purchased technical component pathology services. If the
non-pathology practice purchases technical component services from another
laboratory, and the services are for Medicare patients, the purchasing practice
must abide by the Medicare purchased service regulations and cannot mark up
the cost of the purchased technical component services. Many Medicaid programs
and some commercial payors have comparable requirements. If the referring practice
bills globally, and not in compliance with such purchased service requirements,
the billing violation could trigger an audit.
II. Establishment of “In-House” Histology
Laboratory
In the technical component laboratory scenario, the referring
non-pathology practice establishes its own anatomic pathology laboratory for
the processing of specimens. The pathologist provides the professional anatomic
pathology services for specimens that are processed in the referring practice’s
laboratory.
A. Financial Expenditures
Obviously, there are significant
financial expenditures involved in the establishment and operation of a histology
laboratory. Not only must the referring practices (typically a urology or gastroenterology
practice) make space available for the laboratory, but it also must invest
in equipment, personnel, and supplies. In order to provide quality services,
the urology or gastroenterology practice must continue to invest in new equipment
and in education and training for laboratory staff. The failure to do so not
only can have an adverse impact upon patient care, but also can increase the
referring practice’s malpractice
risk from the histology services that it provides.
B. Licensure and Certification
The referring practice must
ensure that its histology laboratory is in full compliance with all applicable
federal and state license and certification requirements, including but not
limited to CLIA certification, state laboratory licenses, etc. This requires
not only time and effort, but also financial expenditures. The failure to maintain
proper licenses and certifications places the referring practice at risk for
administrative penalties, the disallowance of payment for the pathology services,
and increased malpractice liability.
C. Malpractice
Liability
Malpractice liability is a significant issue involved in
the establishment of a histology laboratory. Because the referring practice
will be the actual provider of the technical component pathology services,
it will have full legal liability for the services. In the event of a malpractice
action, the referring practice will be held to the standard of care of a hospital
or pathology laboratory, which is a high standard of care.
Furthermore, the individual physicians in the
referring practice who are responsible for the supervision of the pathology
services will bear legal liability for their supervisory services. In a malpractice
action, the plaintiff’s
legal counsel may argue that the applicable liability standard is the quality
of supervision provided by a board-certified pathologist, and any supervising
the urologists, gastroenterologist, dermatologists, or ob-gyn must be prepared
to fulfill this standard of care.
The referring practice also should confirm
that its malpractice insurance covers not only the provision of the pathology
services, but also the supervision of the laboratory personnel. This could
entail additional insurance premiums and/or an endorsement or supplement to
the policy.
D. Fraud and Abuse Compliance
In order to refer specimens
of its Medicare and Medicaid patients to its own anatomic laboratory, the referring
non-pathology practice must comply fully with the in-office ancillary service
exception of the Stark law. An important requirement of this exception is that
the revenues from the referring practice’s
technical component services cannot be allocated among the referring practice
physicians based upon referral volume.
If the referring practice wishes to establish
its laboratory in an off-site location and comply with the in-office ancillary
services exception, the urology or gastroenterology practice must lease or
own the office space on a continuous (24/7) and exclusive basis. No shared
laboratory location is permissible. Also, the applicable Stark law exception
requires that the technical component services be provided by or under the
supervision of one of the referring practice’s
physicians, or an independent contractor of the referring practice. In light
of both the location and the supervision requirements of the Stark law prohibition,
the most reasonable location for the laboratory is in the practice’s
offices (i.e., where the practice’s physicians see patients). If the
practice has more than one office location, it is acceptable for the laboratory
to be housed in one of the office locations.
It is permissible for the referring
non-pathology practice to contract with the pathology provider to provide consulting
services with respect to the establishment and management of the ongoing operations
of the referring practice’s
laboratory, provided that (a) the consulting and management arrangements comply
with the Stark law exception for personal service contracts or the Stark law
exception for fair market value compensation, (b) the arrangements comply with
the safe harbor under the Medicare and Medicaid anti-kickback law for personal
services contracts, and (c) the referring practice remains responsible for
its supervision obligations under the in office ancillary service exception.
It also is possible for the referring practice to contract with the pathology
provider as an independent contractor to provide the required supervision of
the performance of the technical component services by the referring practice’s
technical personnel. Both Stark law exceptions and the anti-kickback safe harbor
require that the compensation paid to the pathology provider for the consulting
and management services, as well as the supervision services, reflect fair
market value, and the compensation paid to the pathology provider cannot vary
based upon the value or volume of referrals between the parties
E. Payor Issues
If the referring non-pathology practice’s
operations comply with the Stark law in-office ancillary services exception,
then the practice can submit claims for its technical component of anatomic
pathology services to the Medicare and Medicaid programs as well as non-government
payors (assuming the payors do not require designated laboratories to provide
these services). The practice also should confirm that its major payors will
reimburse the practice for the pathology services. Increasingly, payors are
refusing to reimburse for diagnostic services provided by a referring physician
practice. Instead, such payors will only reimburse for diagnostic services
provided by a hospital or an independent freestanding diagnostic provider.
Many national payors contract exclusively with selected laboratories for all
pathology services.
Even if the referring
practice’s major payors currently reimburse for
pathology services provided in its histology laboratory, the referring practice
should be prepared for a change in the payors’ policies, and the potential
loss of the practice’s investment in the histology laboratory.
Another
payor issue that should not be overlooked is the increased billing risk for
submitting claims for pathology services, particularly with respect to claims
submitted to the Medicare and Medicaid programs. Most non-pathology practices
(and their billing agents) do not have experience in billing for pathology
services. Errors in claims submission for these services could increase the
overpayment exposure of the referring practice.
III. Off-Site “Condo” Laboratory
The off-site “condo” laboratory
scenario is one in which the referring non-pathology practice provides technical
and professional component anatomic pathology services at a location that is
separate from its physician offices. This scenario has been widely promoted
by consultants, who explain that an off-site anatomic pathology laboratory
can be set up, often in a small unit in a “strip mall” location.
The concept is that several off-site laboratory operations will be established
in the strip mall, each in its own unit. While each laboratory operation will
have its own physical space and equipment, the same technical personnel and
pathologists will be employed or contracted, on a part time basis, by each
of the laboratories. The technical personnel and pathologists will move between
units to provide their services for each of the laboratories.
If the referring practice wishes to bill for the
technical and professional component services for all payors (including the
Medicare and Medicaid programs), it must establish a technical processing laboratory
and employ or contract with one or more pathologists, all as previously described.
All of the issues discussed previously are applicable to the off-site location
scenario.
A. Stark Law Compliance
In particular, the referring practice
must be careful to comply fully with the Stark law exception for in-office
services. This exception requires the pathology services to be provided in
the same building in which the referring practice’s physicians provide
services to patients or in a centralized building that is leased or owned by
the referring practice and utilized exclusively by the practice on a continuous
(24/7) basis. No shared laboratory arrangement is permissible. This is the
reason that the “condo” or “strip
mall” model requires that each laboratory operation have its own physical
unit.
The government has also indicated that it is considering further restrictions
to the Stark law that would limit the ability of referring practices to operate “condo” laboratories,
including minimum square footage requirements, restrictions on shared equipment,
and geographic limitations.
In day-to-day operations, it is possible that compliance
with the Stark law in-office ancillary services criteria could slip, particularly
if the off-site laboratory is in a “strip mall” arrangement that
is susceptible to prohibited shared utilization by other off-site laboratory
operations. It is conceivable that, for convenience’s sake, a technician
or a pathologist may decide to carry slides from several laboratories to a
central location for processing or interpretation. Such an action would be
in violation of the in-office ancillary service exception. In a December 2004
advisory opinion (discussed below), the OIG notes that the actual operation
of the laboratory is critical to Stark law compliance.
B. Medicare and Medicaid
Anti-kickback Law
The off-site laboratory arrangement also raises issues
under the Medicare and Medicaid anti-kickback law. On Dec. 10, 2004, the OIG
issued Advisory Opinion No. 04-17, which examines a condo laboratory arrangement.
Under the arrangement considered by the OIG, a pathology company proposed entering
into a series of contracts with physician groups specializing in urology, gastroenterology,
or dermatology, pursuant to which each physician group practice would establish
its own pathology laboratory in an off-site location.
The OIG concluded that
it was “unable to exclude the possibility that
the parties’ contractual relationship is designed to permit the [pathology
company] to do indirectly what it cannot do directly; that is, pay the physician
groups a share of the profits from their laboratory referrals. In other words,
the [pathology company] may be offering the physician groups impermissible
remuneration by giving them the opportunity to obtain the difference between
the reimbursement received by the physician groups from the federal health
care programs and the fees paid by the physician groups to the [pathology company]
(i.e., the profit from pathology services ordered by the physician groups).”
In light of the substantial criminal and civil penalties that can be imposed
for a violation of the Medicare and Medicaid anti-kickback law, the guidance
provided in Advisory Opinion 04-17 should be considered carefully by the referring
practice.
C. Out-of-State Issues
If the off-site laboratory is in another
state, then the referring practice must ensure that it complies with all of
the legal requirements of its home state as well as the state in which the
laboratory is located. The employed/contracted pathologists should hold medical
licenses in both states. In addition, the practice should confirm that its
malpractice insurance covers services provided out of state.
The referring practice
also should confirm that its payor agreements will cover the provision of the
out-of-state services.
IV. Discounted Account Billing
The practice known as “account
billing” and “client billing” involves
the purchase of private payor pathology services by referring physicians at
a discount. The purchasing physicians then mark up the price of the purchased
pathology services and re-bill the private payors. in those states in which
discounted account billing is still permissible, this type of arrangement may
offer another alternative to urologists, gastroenterologists, dermatologists,
and ob-gyns who wish to share in the pathology revenue stream. It is important
to note that many states restrict or prohibit account billing arrangements,
however
A. Medicare and Medicaid Anti-kickback Law
The Medicare and
Medicaid anti-kickback law prohibits the payment, receipt, offering, or solicitation
of remuneration in exchange for the referral of services or items covered by
the Medicare or Medicaid programs. Because a referring practice that contracts
with a pathology provider is a source of Medicare and Medicaid referrals to
the pathology provider, the Medicare and Medicaid anti-kickback law must be
considered when negotiating the compensation arrangement between the practice
and the pathology provider.
As a general matter, if the prices
paid by the referring practice for the pathology services are less than fair
market value, an allegation could be made that the practice has received
a kickback from the pathology provider (in the form of below-market prices)
in exchange for the practice’s continued referrals
to the pathology provider. Therefore, it is critical that pathology providers
charge, and referring physicians pay, reasonable amounts for the pathology
services. It is significant that fair market pricing is an important theme
throughout the OIG’s model compliance guidance for both physician practices
and pathology providers.
OIG Advisory Opinion 99-13 provides insight into the
parameters for discounted billing for pathology services. This advisory opinion
explains that pathology providers and the physicians who purchase pathology
services risk violating the Medicare and Medicaid anti-kickback law if they
have deeply discounted pricing arrangements. The OIG wrote that suspect discounts
include, but are not limited to, discounted prices that are below the pathology
provider’s
cost. In determining whether a discount is below cost, the OIG explained that
it will consider the total of all costs (including labor, overhead, equipment,
etc.) divided by the total number of tests.
B. The Stark Law
The Stark law also is implicated by discounted
account billing. The Stark law prohibits a physician from making a referral
for certain designated health services, including pathology services, which
are covered by the Medicare or Medicaid programs if the physician has a financial
relationship with the provider of the services. Some government officials have
raised concerns regarding discounted account billing to referring physicians,
and have expressed the opinion that excessive discounts to physicians could
violate the Stark law. However, to date, there have not been any public investigations
or prosecutions of account billing arrangements based upon a violation of the
Stark law.
C. Fee Splitting
Prohibition
Most state medical practice acts also prohibit fee splitting,
which involves the division of professional fees in exchange for a referral.
However, state medical boards have declined to take disciplinary action against
physicians who engage in fee splitting through discounted account billing arrangements.
D.
State Prohibitions
Several states have statutory restrictions on account
billing and/or markup, although some of the prohibitions relate only to clinical
laboratory or cytology services. These prohibitions include the following:
Direct Billing: Arizona,
Rev. Stat. 32-3210; California, Bus. & Prof. Code
Sec. 655.6 (cytology); Iowa, Iowa Code Sec. 147.105; Louisiana, Rev. Stat.
Sec. 1742; Massachusetts, Mass. Gen. Laws Sec. 118G (29); Montana, Montana
Code Sec. 37-2; Nevada, Rev. Stat. Sec. 652.195 (cytology); New Jersey,
Stat. Sec. 45:9-42.41A; New York, Pub. Health Law Sec. 586; Rhode Island,
Gen. Laws Sec. 23-16.2-5.1; South Carolina, South Carolina Code Sec. 44-132-10-40.
Anti-Markup: California, Bus. & Prof. Code Sec. 655.5; Florida, Admin.
Code, Rule 59A-7.037; Michigan, Comp. Laws Ann. Sec. 445.161; Oregon, Rev.
Stat. Sec. 676.310.
Disclosure (markup allowed so long as physicians disclose the price they paid
for the testing to patients and non-federal third-party payors); Arizona, Rev.
Stat. Sec. 36-472; Connecticut, Gen. Stat. Ann. Sec. 1769; Louisiana, Rev.
Stat. Ann. Sec. 37:1741; Maine, Rev. Stat. Ann. Sec. 2033; Maryland, Health
Occ. Code Ann. Sec. 14-404; North Carolina, Gen. Stat. 90-681; Pennsylvania,
Admin. Code Sec. 5.48; Tennessee, Tenn. Code. Ann. Sec. 63-6-214(b)(22); Texas, Health & Safety
Code Sec. 161.061; Vermont, 26 Vt. Stat. Ann. Sec. 1354.
V. Lobbying Strategies
A. Discussions with Payors
Some pathologists have had success
in limiting the ability of non-pathology practices to profit from their pathology
services by educating payors about the potential for over-utilization and mis-utilization
of services when the referring physicians have a profit motive. The key in
these education efforts is to emphasize the potential dangers to patients resulting
from inappropriate utilization of services, possibly unnecessary biopsies and
other procedures that generate pathology specimens, and potentially lower quality
pathology providers, as well as the increased costs to the payor as a result
of more pathology services and underlying biopsies.
A few large private payor plans
have implemented new payment policies to deny payment for any technical or
professional pathology services unless the pathology services are provided
by a pre-approved pathology provider. These private payors have declined
to “approve” urology or gastroenterology practices
for reimbursement of pathology services. Similarly, some payors have added
language to their participating provider agreements to prohibit the provider
from re-billing for purchased pathology services.
B. Discussions with Malpractice
Insurers
It may also be beneficial to engage malpractice insurers
in the same type of education efforts. If the insurers understand the additional
risk that the non-pathology practices assume when they embark upon providing
pathology services (or simply billing for purchased pathology services),
including the danger of the non-pathology practice “cutting quality
corners” to
increase profits and performing medically unnecessary biopsies to generate
more revenues. The insurers have the ability to decline insurance coverage
for these risks.
C. Legislative Lobbying
Many state pathology societies have
lobbied successfully for state laws that prohibit or restrict discounted account
billing. These state statutes (described in the preceding section) typically
will not affect “in house” pathology
services provided by non-pathology practices, but these statutes directly affect
the ability of these practices to simply purchase and mark up the price of
pathology services.
|
