Accountable Care Organizations

An accountable care organization (ACO) is a group of doctors, hospitals and health care providers who work together to provide higher-quality coordinated care to their patients, while helping to slow health care cost growth. It is characterized by a payment and care delivery model that seeks to tie provider reimbursements to quality metrics and reductions in the total cost of care for an assigned population of patients.

The ACO may use a range of payment models capitation, fee-for-service or bundled payments, etc.). The ACO is accountable to the patients and the third-party payer for the quality, appropriateness and efficiency of the health care provided. According to the Centers for Medicare and Medicaid Services (CMS), an ACO is "an organization of health care providers that agrees to be accountable for the quality, cost, and overall care of Medicare beneficiaries who are enrolled in the traditional fee-for-service program who are assigned to it."

The success of the ACO model in fostering clinical excellence while simultaneously controlling costs depends on its ability to "incentivize hospitals, physicians, post-acute care facilities, and other providers involved to form linkages and facilitate coordination of care delivery, according to A National Strategy to put Accountable Care into Practice. Health Affairs by Dr. Mark McClellan, former administrator of the Centers for Medicare & Medicaid Services (CMS) and former commissioner of the U.S. Food and Drug Administration (FDA). By increasing care coordination, ACOs can help reduce unnecessary medical care and improve health outcomes, leading to a decrease in utilization of acute care services.

Healthcare quality delivered by an ACO is defined by CMS via five domains. They are "patient/caregiver experience, care coordination, patient safety, preventative health, and at-risk population/frail elderly health."

An ACO's patient population will primarily consist of Medicare beneficiaries. In larger and more integrated ACOs, the patient population may also include those who are homeless and uninsured. Patients may play a role in the healthcare they receive from their ACOs by participating in their ACO's decision-making processes.

Anatomic Pathology

Anatomic pathology is a medical specialty that is concerned with the diagnosis of disease based on the macroscopic, microscopic, biochemical, immunologic and molecular examination of organs and tissues. It is one of two branches of pathology, the other being clinical pathology, the diagnosis of disease through the laboratory analysis of bodily fluids and/or tissues. Often, pathologists practice both anatomical and clinical pathology, a combination known as general pathology.

Anatomic pathology relates to the processing, examination, and diagnosis of surgical specimens by a physician trained in pathological diagnosis. Clinical pathology is the division that processes the test requests more familiar to the general public, such as blood cell counts, coagulation studies, urinalysis, blood glucose level determinations and throat cultures. Its subsections include chemistry, hematology, microbiology, immunology, urinalysis and blood bank.

Anatomical pathology is itself divided in subspecialties, the main ones being surgical pathology (breast, gynecological, endocrine, gastrointestinal, GU, soft tissue, head and neck, dermatopathology), neuropathology, hematopathology, cytopathology, histopathology, pulmonary pathology, renal pathology and forensic pathology.

Anatomic pathology is one of the two primary certifications offered by the American Board of Pathology (the other is clinical pathology) and one of three primary certifications offered by the American Osteopathic Board of Pathology. To be certified in anatomic pathology, the trainee must complete four years of medical school followed by three years of residency training. Many U.S. pathologists are certified in both anatomic pathology and clinical pathology, which requires a total of four years of residency. After completing residency, many pathologists enroll in further years of fellowship training to gain expertise in a subspecialty.

Anatomic pathologists usually work in hospitals, investigating the effects of disease on the human body via autopsies and microscopic examination of tissues, cells, and other specimens. Medical laboratory directors are responsible for the sophisticated laboratory tests on samples of tissues or fluids and the quality and accuracy of the tests. The practice of pathology is most often conducted in community hospitals or in academic medical centers, where patient care, diagnostic services, and research go hand in hand.

Anti-kickback Statute

The federal Anti-Kickback Statute is one of the medical legal issues that clinical laboratories wrestle with on a regular basis. It is a criminal statute that prohibits the exchange (or offer to exchange), of anything of value, in an effort to induce or reward the referral of any item or service payable by the federal healthcare programs (such as drugs, supplies, or healthcare services for Medicare or Medicaid patients).

It was enacted by Congress in 1972 as part of the Social Security Act Amendments.

Remuneration includes anything of value and can take many forms besides cash, such as free rent, expensive hotel stays and meals, and excessive compensation for medical directorships or consultancies. One common form of inducement offered by medical laboratories are above-market rent or lease payments to physicians for space in their offices. Other forms of remuneration that may be a violation of the ant-kickback statue are paying physicians for processing specimens, paying physicians to participate in clinical studies and trials, and paying physicians consulting fees where little or no work of value is provided by the physicians to the labs.

The statute covers the payers of kickbacks -- those who offer or pay remuneration – as well as the recipients of kickbacks – those who solicit or receive remuneration. Each party's intent is a key element of their liability under the Anti-Kickback Statute.

Some larger clinical laboratories have been known to waive patients’ fees in exchange for lab test referral. This creates a legal dilemma for smaller, competing labs: If they don’t match the offer, then could lose volume to this aggressive sales technique. But if they do match the offer, they could face investigations from federal and state regulatory agencies under the Anti-Kickback Statute, not to mention running afoul of health plan requirements not to waive fees.

Criminal penalties and administrative sanctions for violating the statute include fines, jail terms, and exclusion from participation in the federal healthcare programs.

There are anti-kickback law safe harbors that protect certain payment and business practices that could otherwise implicate the statute from criminal and civil prosecution. To be protected by a safe harbor, an arrangement must fit squarely in the safe harbor and satisfy all of its requirements. Some safe harbors address personal services and rental agreements, investments in ambulatory surgical centers, and payments to bona fide employees.

The federal Office of the Inspector General notes that kickbacks in health care can lead to:

  • Overutilization
  • Increased program costs
  • Corruption of medical decision-making
  • Patient steering
  • Unfair competition

The kickback prohibition applies to all sources of referrals, even patients. For example, where the Medicare and Medicaid programs require patients to pay copays for services, doctors are generally required to collect that money from patients. Routinely waiving these copays could fall under the Anti-Kickback Statute, and doctors may not advertise that they will forgive copayments.

However, physicians are free to waive a copayment if they make an individual determination that the patient cannot afford to pay or if their reasonable collection efforts fail.

The government does not need to prove patient harm or financial loss to the programs to show that a physician violated the statute. A physician can be guilty of violating the statute even if the physician actually rendered the service and the service was medically necessary.

Arup Laboratories

ARUP Laboratories is a nonprofit national clinical and anatomic pathology reference laboratory, and an enterprise of the University of Utah and its Department of Pathology. Based in Salt Lake City, UT, it was founded in 1984. Currently its Chief Executive Officer is Edgar Braendle, MD, PhD.

With more than 3,000 employees, ARUP Lab offers in excess of 3,000 tests and test combinations, ranging from routine screening tests to highly esoteric molecular and genetic assays.

Rather than competing with its clients for physician office business, ARUP Lab supports clients’ existing test menus by offering highly complex and unique lab tests, with accompanying consultative support, to enhance their abilities to provide laboratory services.

ARUP offers diagnostic laboratory testing services to thousands of clients, including academic hospitals, children’s hospitals, multihospital groups, major commercial laboratories, group purchasing organizations, military and government facilities, and major clinics, in all 50 states. It is the reference lab of choice for more than 50 percent of the nation’s university medical centers, pediatric hospitals, and teaching hospitals.

ARUP's clients include more than half of the nation's university teaching hospitals and children's hospitals, as well as regional hospital networks, multihospital groups, major commercial laboratories, group purchasing organizations, military and government facilities, and major clinics.

ARUP Lab is home to more than 60 individual labs specializing in all aspects of clinical and anatomic pathology. The test menu encompasses more than 3,000 tests, including highly specialized and esoteric tests. Comprehensive testing is offered in the areas of pathology, allergy and immunology, chemistry, cytogenetics, endocrinology, fetal risk assessment, genetics, hematology, hepatitis and HIV, infectious diseases, neurology, oncology, genetics, molecular oncology, anatomic pathology, pediatrics, and pain management, among others.

ARUP Lab performs 99 percent of all testing onsite in one central location, operating 24 hours per day, 7 days a week, and processing an average of 45,000–50,000 specimens of blood, body fluid, and tissue biopsies per day.

ARUP is a CLIA-certified diagnostic lab with more than 25 years of experience successfully supporting clinical trials. ARUP has more than 90 medical experts available for client consultation. These professionals hold faculty appointments at the University of Utah School of Medicine; many participate in care teams at the Huntsman Cancer Hospital and Primary Children’s Hospital.


ASCP stands for American Society of Clinical Pathologists. It is a professional association based in Chicago, Illinois encompassing 130,000 pathologists and laboratory professionals.

Founded in 1922, the ASCP provides programs in education, certification and advocacy on behalf of patients, pathologists and lab professionals. In addition, the ASCP publishes numerous textbooks, newsletters and other manuals, and publishes two industry journals: American Journal of Clinical Pathology, the leading clinically oriented peer-reviewed pathology and laboratory medicine research journal, and Labmedicine, a monthly periodical dedicated to providing the entire laboratory community with continuing education, career development and information about emerging technologies. ASCP also publishes Critical Values, a quarterly news magazine.

ASCP provides pathologists, medical affiliates, medical students and laboratory professionals with educational resources and professional development tools including continuing medical education, ASCP certification, networking opportunities, and representation in Washington about issues related to pathology professionals such as increasing laboratory standards, improving healthcare and reaching patients in need.

The ASCP Board of Certification (BOC), with accreditation from the American National Standards Institute, is the oldest and largest certification agency for pathologists and laboratory professionals. The BOC has certified more than 450,000 people since it was founded in 1928 and represents the gold standard for certification of pathologists’ assistants and laboratory professionals.

ASCP supports ongoing learning needs while also helping professionals meet institutional, licensure and MOC or CMP requirements. ASCP is accredited with Commendation by the Accreditation Council for Continuing Medical Education (CME) to provide CME for physicians and continuing medical laboratory education (CMLE) for lab professionals.

Educational programs include online self-studies and assessments, live teleconferences and webcasts and workshops and conferences.

ASCP also offers a variety of activities and tools designed to help pathologists meet Part II and Part IV Maintenance of Certification (MOC) requirements from the American Board of Pathology, and help laboratory professionals meet Certification Maintenance Program (CMP) requirements. In addition to providing tools to obtain CE credits, ASCP’s new online member portal, is available to help professionals navigate the MOC or CMP process.

ASCP Certification

ASCP certification is the recognition by the American Society for Clinical Pathology Board of Certification that an individual has met certain established requirements for laboratory professionals. The ASCP Board of Certification is an independent certification agency that develops relevant standards and procedures to assure the competence of medical laboratory personnel.

The ASCP BOC acknowledges the importance of impartiality in conducting certification and qualification activities. It manages conflict of interest and ensures objectivity by representative membership on its Board of Governors from other associations and societies.

Certifications and qualification are offered in a number of disciplines and technical areas. Individuals who sit for either a certification are required to meet certain academic and clinical requirements, and achieve a predetermined acceptable performance or competence level. Certification examinations are of fixed-length and time, are criterion referenced and use computer adaptive testing.

The disciplines and technical areas covered by ASCP certification include:

  • Technician certifications of histotechnician and phlebotomy, donor phlebotomy and medical laboratory technician
  • Technologist certifications of medical laboratory scientist, cytotechnologist, histotechnologist, and technologist in blood banking, chemistry, cytogenetics, hematology, microbiology and molecular biology
  • Specialist certification in blood banking, chemistry, cytotechnology, hematology, and microbiology, and pathologist assistant
  • Diplomate in laboratory management

ASCP certification is time-limited for three years. To remain valid, practitioners must demonstrate their competence by completion of documented educational activities.

ASCP certification is accepted by all U.S. states and territories and the cities of Abu Dhabi and Dubai for licensure purposes, provided the individual meets all other licensure requirements.

The BOC offers certification study guides, content outlines, and suggested reading lists as resources for taking each certification examination. Online practice tests are also available as a study aid for many of the BOC examinations.

ASCP's 2013 Wage Survey of U.S. Clinical Laboratories found that certified laboratory professionals earn more than their non-certified counterparts.


Bundled Payment

Bundled payment, also known as episode-based payment, episode payment, episode-of-care payment, case rate, evidence-based case rate, global bundled payment, global payment, package pricing, or packaged pricing, is defined as the reimbursement of health care providers (such as hospitals and physicians) “on the basis of expected costs for clinically-defined episodes of care.” It has been described as “a middle ground” between fee-for-service reimbursement (in which providers are paid for each service rendered to a patient) and capitation (in which providers are paid a “lump sum” per patient regardless of how many services the patient receives).

Advocates of bundled payments note that unlike fee-for-service, bundled payment discourages unnecessary care, encourages coordination across providers, and potentially improves quality. Unlike capitation, bundled payment does not penalize providers for caring for sicker patients. Bundling payment provides additional advantages to providers and patients alike, through removing inefficiency and redundancy from patient-care protocols; e.g. duplicate testing, delivering unnecessary care, and failing to adequately provide postoperative care.

This method of payment is also said to provide transparency for consumers by fixing pricing and publishing cost and outcomes data. Patients would be able to choose a provider based on a comparison of real data, not word of mouth. Bundled payments may also encourage economies of scale – especially if providers agree to use a single product or type of medical supply – as hospitals or integrated health systems can often negotiate better prices if they purchase supplies in bulk.

On the other hand, the scientific evidence in support of it has been described as “scant.” It does not discourage unnecessary episodes of care; for example, physicians might hospitalize some patients unnecessarily.

Providers may seek to maximize profit by avoiding patients for whom reimbursement may be inadequate (e.g., patients who do not take their drugs as prescribed), by overstating the severity of an illness, by giving the lowest level of service possible, by not diagnosing complications of a treatment before the end date of the bundled payment, or by delaying post-hospital care until after the end date of the bundled payment.

Meanwhile, early evidence indicates that Medicare’s bundled-payment pilot, the Bundled Payment Care Initiative, has helped participating providers improve the quality of care while better managing healthcare costs. Should more detailed findings confirm these outcomes, Medicare could decide to expand the range of clinical services it wants covered by a bundled-payment arrangement.



Capitation is a payment arrangement for health care service providers. It pays a physician or group of physicians a set amount for each enrolled person assigned to them, per period of time, whether or not that person seeks care. These providers generally are contracted with a type of health maintenance organization (HMO) known as an independent practice association (IPA), which enlists the providers to care for HMO-enrolled patients. State-run Medicaid contracts are also being converted to capitation.

The amount of remuneration is based on the average expected health care utilization of that patient, with greater payment for patients with significant medical history. Rates are also affected by age, race, sex, type of employment, and geographical location, as these factors typically influence the cost of providing care.

There are several different types of capitation, ranging from relatively modest per member per month (pmpm) case management payments to primary care physicians, to pmpm payments covering all professional services, to pmpm payments covering the total risk for all services: professional, facility, pharmaceutical, clinical laboratory, durable medical equipments, etc. There are innumerable variations on these basic capitation types, depending on the particular services the parties decide to "carve out" and handle on either a fee-for-service basis or by delegation to a separate benefit management company.

Under capitation, physicians are given incentive to consider the cost of treatment. Pure capitation pays a set fee per patient, regardless of their degree of infirmity, and gives physicians an incentive to avoid the most costly patients. Providers who work under these plans focus on preventive health care, as there is greater financial reward in prevention of illness than in treatment of the ill. Such plans avert providers from the use of expensive treatment options.

Follow the 2014 lead of Oregon’s Medicaid reforms involving a capitation payment model, other states are also forming accountable care organizations that use the capitation model. For clinical laboratories and pathology groups, the expansion of enrollment in Medicaid creates opportunities for labs to provide more testing.

On the other hand, it still remains to be seen if capitated and bundled payments associated with these innovative Medicaid programs further erode the finances of the clinical laboratories and anatomic pathology groups that provide services to the Medicaid beneficiaries enrolled in these programs.

CLIA Certification

CLIA certification is the requirement under the Clinical Laboratory Improvement Amendments of 1988 that all entities that perform even one test, including waived tests, on ... "materials derived from the human body for the purpose of providing information for the diagnosis, prevention or treatment of any disease or impairment of, or the assessment of the health of, human beings" meet certain Federal requirements. If an entity performs tests for these purposes, it is considered under CLIA to be a laboratory and must register with the CLIA program.

The CLIA certification application collects information about a medical laboratory's operation, which is necessary to determine the type of certificate to be issued and the fees to be assessed.

All types of CLIA certifications are effective for two years, and the different types of certificates are:

  • Certificate of Waiver – Issued to a laboratory that performs only CLIA waived tests
  • Certificate for Provider Performed Microscopy (PPM) procedures – Issued to a laboratory in which a physician, midlevel practitioner or dentist performs specific microscopy procedures during the course of a patient’s visit. A limited list of microscopy procedures is included under this certificate type and these are categorized as moderate complexity.
  • Certificate of Registration – Issued to a laboratory to allow the laboratory to conduct nonwaived (moderate and/or high complexity) testing until the laboratory is surveyed (inspected) to determine its compliance with the CLIA regulations. Only laboratories applying for a certificate of compliance or a certificate of accreditation will receive a certificate of registration.
  • Certificate of Compliance – Issued to a laboratory after an inspection by the state Department of Health that finds the laboratory to be in compliance with all applicable CLIA requirements
  • Certificate of Accreditation – Issued to a laboratory on the basis of the laboratory’s accreditation by an accreditation organization approved by CMS. This type of certificate is issued to a laboratory that performs nonwaived (moderate and/or high complexity) testing.

There are six CMS-approved accreditation or organizations:

  • AABB
  • American Osteopathic Association
  • American Society of Histocompatibility and Immunogenetics
  • COLA
  • College of American Pathologists (CAP)
  • Joint Commission on Accreditation of Healthcare Organizations

Laboratories that apply for accreditation by one of the CMS-approved accreditation organizations must also apply to CMS for a COA at the same time. Laboratories must apply for the highest-level CLIA certification that covers the tests they perform.
Any laboratory located in a state that has a CMS-approved laboratory program is exempt from CLIA certification. Currently, there are two states with approved programs: Washington and New York (partial exemption).

If CMS or the State Agency receives a complaint against a laboratory, the laboratory may receive an unannounced on site survey, even though it only perform waived tests or PPM procedures.

The following exceptions to CLIA certification apply regardless of a laboratory’s location:

  • Any laboratory that only performs testing for forensic purposes
  • Research laboratories that test human specimens but do not report patient-specific results for the diagnosis, prevention or treatment of any disease or impairment of, or the assessment of the health of, individual patients
  • Laboratories certified by the Substance Abuse and Mental Health Services Administration (SAMHSA), in which drug testing is performed that meets SAMHSA guidelines and regulations. However, a CLIA certification is needed for all other testing conducted by a SAMHSA-certified laboratory.
Clia Waived Tests

As defined by the Clinical Laboratory Improvement Amendments of 1988 (CLIA), waived tests are categorized as “simple laboratory examinations and procedures that have an insignificant risk of an erroneous result”. The Food and Drug Administration (FDA) determines the criteria for tests being simple with a low risk of error and approves manufacturer’s applications for test system waiver.

Tests waived by CLIA also:

  • Pose no reasonable risk of harm to the patient if the test is performed incorrectly
  • Are cleared by the FDA for home use
  • Are considered non-technical requiring little or no difficulty

If a lab is conducting only waived testing, it must have a valid Certificate of Waiver (COW) from CLIA and the lab will not be routinely inspected for laboratory compliance. However, COW labs may be randomly inspected as part of a compliance investigation to ensure that they are only performing waived testing.

Although CLIA waived tests must be simple and have a low risk for erroneous results, this does not mean waived tests are completely error-proof. Errors can occur anywhere in the testing process, particularly when the manufacturer's instructions are not followed and when testing personnel are not familiar with all aspects of the test system.

Some waived tests have potential for serious health impacts if performed incorrectly. For example, results from waived tests can be used to adjust medication dosages, such as prothrombin time testing in patients undergoing anticoagulant therapy and glucose monitoring in diabetics. In addition, erroneous results from diagnostic tests, such as those for human immunodeficiency virus (HIV) antibody, can have unintended consequences. To decrease the risk of erroneous results, the test needs to be performed correctly, by trained personnel and in an environment where good laboratory practices are followed.

Many waived tests are not done according to designed protocols, with more than 50% of such tests reportedly done incorrectly, and result in medical errors, some with fatal consequences.

The lengthy list of CLIA waived tests can be found here.

Clinical Lab Tech Salary

“Clinical lab technician” is a generic term for various positions including medical technologists (MT), clinical laboratory scientist (CLS) (four-year degrees) and medical laboratory technologist (MLT) (two-year degree.)

The Bureau of Labor Statistics reports that the median clinical lab tech salary was $37,970 in 2013. The best-paid 10 percent in the profession made approximately $58,910, while the bottom 10 percent made approximately $25,210.

The American Society of Clinical Pathology’s annual 2013 wage study reports that the staff level MT/MLS/CLS national average is $56,430 per year and $77,113 per year at the supervisory level.

Medical Laboratory Observer’s 2015 salary survey notes that most survey participants (60%) hold a bachelor’s degree, and these laboratorians earn an average of $77,977. Thirty percent hold post-graduate degrees, and their average income is the $83,534.

Other sources report that medical laboratory technicians typically earn an average salary of $35,000 to $65,000 per year. Laboratory Corporation of America, one of the two largest national labs, reports salaries between $35,000 and $52,000, while Memorial Sloan Kettering Cancer Center in the New York City area reports salaries between $66,000 and $77,000.

Clinical lab tech salaries for women are generally less than for men in this field.

Top-paying metropolitan areas for this occupation include Oakland, California; Norwich, Connecticut; and San Francisco.

Clinical lab tech salaries vary depending on a number of factors including industry, company size, location, years of experience and level of education.

Clinical laboratory technicians are responsible for tasks including examining body fluids and cells and matching blood for transfusions. The job requires the use of sophisticated laboratory equipment, such as microscopes and cell counters. With continued advancements in technology, lab work has become more analytical, so laboratory personnel should have excellent judgment skills. More complex procedures are reserved for clinical lab or medical technologists, who must possess a bachelor’s degree. Technicians, who must hold at least an associate degree, often work under the supervision of technologists.

Continual new advances in human genetic testing, biomarkers and PCR (polymerase chain reaction) technology are creating more challenges and job opportunities for clinical laboratory science professionals. It is a fast-growing field, and there will be great demand for clinical laboratory professionals in the future.

With steady population growth and the development of new lab tests, the job market for clinical laboratory technicians is expected to remain strong. The Bureau of Labor Statistics projects clinical laboratory technician employment growth of 29.7 percent between 2012 and 2022, adding 47,900 more professionals to the 325,800 jobs currently in this field.

Clinical Laboratory

A clinical laboratory is a laboratory where tests are done on clinical specimens in order to get information about the health of a patient as pertaining to the diagnosis, treatment, and prevention of disease.

Laboratory medicine is generally divided into two sections, each of which being subdivided into multiple units. These two sections are:

  • Anatomic pathology: Units included here are histopathology, cytopathology, and electron microscopy. Other disciplines pertaining to this section include anatomy, physiology, histology, pathology, and pathophysiology.
  • Clinical pathology, which includes:
    • Clinical Microbiology: This encompasses five different sciences. These include bacteriology, virology, parasitology, immunology, and mycology.
    • Clinical Chemistry: Units under this section include instrumental analysis of blood components, enzymology, toxicology and endocrinology.
    • Hematology: This section consists of automated and manual analysis of blood cells.
    • Genetics is also studied along with a subspecialty known as cytogenetics.
    • Reproductive biology: Semen analysis, Sperm bank and assisted reproductive technology.

Credibility of medical laboratories is paramount to the health and safety of the patients relying on the testing services provided by these labs. The international standard in use today for the accreditation of medical laboratories is ISO 15189.

Accreditation is done by the Joint Commission, College of American Pathologists, AAB (American Association of Bioanalysts), and other state and federal agencies. CLIA 88, the Clinical Laboratory Improvement Amendments, also dictate testing and personnel.

In addition, many clinical laboratories have adopted quality management programs such as Six Sigma and Lean quality to improve clinical quality, reduce turnaround time, cut costs, and boost productivity. Lean and Six Sigma are both process improvement methodologies. At a very basic level, Lean is about speed and efficiency, while Six Sigma is about precision and accuracy, leading to data-driven decisions. Lean and Six Sigma methods are finding numerous applications in anatomic pathology laboratories and pathology group practices.

Clinical Laboratory Fee Schedule

Outpatient clinical laboratory services are paid based on the Medicare Part B Clinical Laboratory Fee Schedule (CLFS) in accordance with Section 1833(h) of the Social Security Act. Payment is the lesser of the amount billed, the local fee for a geographic area, or a national limit. In accordance with the statute, the national limits are set at a percent of the median of all local fee schedule amounts for each laboratory test code. Each year, fees are updated for inflation based on the percentage change in the Consumer Price Index. However, legislation by Congress can modify the update to the fees.

Co-payments and deductibles do not apply to services paid under the Medicare clinical laboratory fee schedule.

Each year, new laboratory test codes are added to the clinical laboratory fee schedule and corresponding fees are developed in response to a public comment process. Also, for a cervical or vaginal smear test (Pap smear), the fee cannot be less than a national minimum payment amount, initially established at $14.60 and updated each year for inflation.

Critical access hospitals are paid for outpatient laboratory services on a reasonable cost basis, instead of by the fee schedule. Hospitals with fewer than 50 beds in qualified rural areas—those with population densities in the lowest quartile of all rural areas—are paid based on a reasonable cost basis for outpatient clinical laboratory tests for cost reporting periods between July 2004 and July 2006.

The Protecting Access to Medicare Act of 2014 (PAMA) that became law on April 1, 2014, required labs to report such data and the test volumes associated with that data, beginning on Jan. 1, 2016.

On Jan. 1, 2017, CMS will use the market data to set prices for the Part B Clinical Laboratory Fee Schedule. As currently written, PAMA specifies that CMS cannot cut the price of a specific lab test by more than 10% in each of 2017, 2018, and 2019, nor by more than 15% in each of 2020, 2021, and 2022. There is no limit on price reductions outlined in the law for years following 2022.

Clinical Laboratory Improvement Amendments Of 1988 (CLIA)

The Centers for Medicare & Medicaid Services (CMS) regulates all laboratory testing (except research) performed on humans in the U.S. through the Clinical Laboratory Improvement Amendments (CLIA). These regulations include federal standards applicable to all U.S. facilities or sites that test human specimens for health assessment or to diagnose, prevent, or treat disease.

In total, CLIA covers approximately 251,000 laboratory entities. The Division of Laboratory Services, within the Survey and Certification Group, under the Center for Clinical Standards and Quality (CCSQ) has the responsibility for implementing the CLIA Program.

The objective of the CLIA program is to ensure quality laboratory testing. All clinical laboratories must be properly certified to receive Medicare or Medicaid payments.

CLIA regulations require clinical laboratories to be certificated by their state as well as the Center for Medicare and Medicaid Services (CMS) before they can accept human samples for diagnostic testing. Laboratories can obtain multiple types of CLIA certificates, based on the kinds of diagnostic tests they conduct.

Three federal agencies are responsible for CLIA: The Food and Drug Administration (FDA), Center for Medicaid Services (CMS) and the Center for Disease Control (CDC). Each agency has a unique role in assuring quality laboratory testing.


  • Categorizes tests based on complexity
  • Reviews requests for Waiver by Application
  • Develops rules/guidance for CLIA complexity categorization


  • Issues laboratory certificates
  • Collects user fees
  • Conducts inspections and enforces regulatory compliance
  • Approves private accreditation organizations for performing inspections, and approves state exemptions
  • Monitors laboratory performance on Proficiency Testing (PT) and approves PT programs
  • Publishes CLIA rules and regulations


  • Provides analysis, research, and technical assistance
  • Develops technical standards and laboratory practice guidelines, including standards and guidelines for cytology
  • Conducts laboratory quality improvement studies
  • Monitors proficiency testing practices
  • Develops and distributes professional information and educational resources
  • Manages the Clinical Laboratory Improvement Advisory Committee (CLIAC)
Clinical Pathologist

Clinical pathologists work in hospital labs and pathology groups to practice as consultant physicians, developing and applying knowledge of tissue and laboratory analyses to assist in the diagnosis and treatment of individual patients. As scientists, they use the tools of laboratory science in clinical studies, disease models, and other experimental systems, to advance the understanding and treatment of disease.

Clinical pathologists in a pathology group administer a number of visual and microscopic tests and an especially large variety of tests of the biophysical properties of tissue samples involving automated analyzers and cultures. Sometimes the general term "laboratory medicine specialist" is used to refer to those working in clinical pathology, including medical doctors, PhDs and doctors of pharmacology.

According to the world’s largest professional membership organization for clinical pathologists and laboratory professionals, the American Society for Clinical Pathology (ASCP), “Pathologists are problem-solvers, fascinated by the process of disease and eager to unlock medical mysteries, like AIDS and diabetes, using the tools of laboratory medicine and its sophisticated instruments and methods. Pathologists make it possible to apply scientific advances to improve the accuracy and efficiency of medical diagnosis and treatment."

Becoming a pathologist entails one of the lengthiest education and training tracks of all physicians. Requirements include four years of undergraduate study, plus four years of medical school, plus a minimum of four to five years of post-graduate training in pathology residency.

The American Board of Pathology certifies clinical pathologists, and recognizes the following secondary specialties of clinical pathology:

  • Chemical pathology, also called clinical chemistry
  • Hematopathology
  • Blood banking / transfusion medicine
  • Clinical microbiology
  • Cytogenetics
  • Molecular genetics pathology

Clinical pathologists work in close collaboration with clinical scientists (clinical biochemists, clinical microbiologists, etc.), medical technologists (MTs), clinical laboratory scientists (CLS), hospital administrators, and referring physicians to ensure the accuracy and optimal utilization of laboratory testing.

Clinical pathology is one of the two major divisions of pathology, the other being anatomic pathology. Often, pathologists practice both anatomical and clinical pathology, a combination sometimes known as general pathology.

According to the ASCP, “there are approximately 12,000 board certified pathologists in the U.S. who practice their specialty in community, university, and government hospitals and clinics, in independent laboratories, or in private offices, clinics, and other health care facilities.”

Clinical Pathology

Clinical pathology is a medical specialty that is concerned with the diagnosis of disease based on the laboratory analysis of bodily fluids, such as blood, urine, and tissue homogenates or extracts using the tools of chemistry, microbiology, hematology and molecular pathology. This specialty requires a medical residency.

Clinical pathologists often direct all of the special divisions of the laboratory, which may include the blood bank, clinical chemistry and biology, toxicology, hematology, immunology and serology, and microbiology. Clinical pathology also involves maintenance of laboratory information systems, research, and quality control.

According to the American Association of Medical Colleges, “The practice of pathology is most often conducted in community hospitals or in academic medical centers, where patient care, diagnostic services, and research go hand in hand. Creation of new knowledge is the lifeblood of pathology and many academic pathologists devote significant time in their career to research.”

The world’s largest professional membership organization for clinical pathologists and laboratory professionals, the American Society for Clinical Pathology (ASCP), says, “Pathologists are problem-solvers, fascinated by the process of disease and eager to unlock medical mysteries, like AIDS and diabetes, using the tools of laboratory medicine and its sophisticated instruments and methods. Pathologists make it possible to apply scientific advances to improve the accuracy and efficiency of medical diagnosis and treatment."

Becoming a pathologist entails one of the lengthiest education and training tracks of all physicians. Requirements include four years of undergraduate study, plus four years of medical school, plus a minimum of four to five years of post-graduate training in pathology residency. The annual salary for clinical pathologists ranges from $183,000 to $360,000.

The American Board of Pathology certifies clinical pathologists, and recognizes the following secondary specialties of clinical pathology:

  • Chemical pathology, also called clinical chemistry
  • Hematopathology
  • Blood banking / transfusion medicine
  • Clinical microbiology
  • Cytogenetics
  • Molecular genetics pathology

Tools of clinical pathology include macroscopic examination, microscopes, microscopical examination, analyzers, centrifuges and cultures.

The ASCP has more than 100,000 members worldwide, and “provides excellence in education, certification and advocacy on behalf of patients, pathologists and laboratory professionals across the globe.”

Companion Diagnostics

A companion diagnostic device can be an in vitro diagnostic device or an imaging tool that provides information that is essential for the safe and effective use of a corresponding therapeutic product. The use of an IVD companion diagnostic device with a particular therapeutic product is stipulated in the instructions for use in the labeling of both the diagnostic device and the corresponding therapeutic product, as well as in the labeling of any generic equivalents and biosimilar equivalents of the therapeutic product.

Because the companion diagnostic test is designed to be paired with a specific drug, the development of both products requires close collaboration between experts in both the Food and Drug Administration (FDA)'s device center, which evaluates the test to determine whether it may be cleared or approved, and FDA’s drug center, which evaluates the drug to determine whether it may be approved.

The process works best when development of the test begins before the drug enters clinical trials, increasing the likelihood that the participants in the trials are the patients most likely to benefit from the treatment.

Companion diagnostics can provide information such as the following:

  • Test results that identify a population in which the therapeutic product will achieve greater (or little) effectiveness
  • Test results that identify a patient population that should not receive a particular therapeutic product due to the possibility for therapy-related serious adverse events
  • Test results that identify the characteristics of a disease, condition, or disorder to specifically determine what type of treatment is appropriate
  • Test results that are the basis for selecting a safe and efficacious therapeutic dose.

Development of companion diagnostics has been supported by regulatory agencies, such as the FDA. The biopharmaceutical industry has also embraced the co-development of companion diagnostics, with companies either partnering on their development or pursuing in-house programs.

Genetic Engineering & Biotechnology News notes that a frequently cited example of a successful personalized therapeutic and companion diagnostic pair is Genentech’s antibody-based drug, Herceptin® (trastuzumab), which treats patients with cancers that overexpress the HER2 receptor (such as breast cancer), and the companion diagnostic test, HercepTest. The diagnostic test was developed to select patients that will benefit from treatment with Herceptin, a blockbuster drug.

CPT® Codes

The Current Procedural Terminology (CPT)® code set is a medical code set maintained by the American Medical Association through the CPT Editorial Panel. The CPT (copyright protected by the AMA) describes medical, surgical, and diagnostic services and is designed to communicate uniform information about medical services and procedures among physicians, coders, patients, accreditation organizations, and payers for administrative, financial, and analytical purposes.

CPT codes are a critical part of the laboratory billing process. They are similar to ICD-9 and ICD-10 coding, except that it identifies the services rendered rather than the diagnosis on the claim. CPT is currently identified by the Centers for Medicare and Medicaid Services (CMS) as Level 1 of the Healthcare Common Procedure Coding System (HCPCS).

The AMA’s CPT Editorial Panel engages in an ongoing process improvement effort that frequently includes re-examination of the CPT Category I and Category III criteria.

CPT Category I codes are the codes most used in clinical lab and pathology group billing. They are the five-digit numeric codes included in the main body of CPT. These codes represent procedures that are consistent with contemporary medical practice and are widely performed. Codes assigned to this category have met certain criteria including:

  • Procedure or service approved by the Food and Drug Administration (FDA)
  • Procedure or service commonly performed by health care professionals nationwide
  • Procedure or service’s clinical efficacy is proven and documented

The use of the code is mandated by almost all health insurance payment and information systems, including the Centers for Medicare and Medicaid Services (CMS) and HIPAA, and the data for the code sets appears in the Federal Register.

After a clinical laboratory service is provided, diagnosis and procedure codes such as CPT codes are assigned to assist the insurance company in determining coverage and medical necessity of the services. Once the procedure and diagnosis codes are determined, the lab bill enters the laboratory collections/revenue cycle management phase.


Diagnostic Technology

Diagnostic technology involves tests, assays and equipment that allow clinical labs to diagnose diseases. New diagnostic technologies are currently transforming both infectious disease testing and cancer testing. Rapid molecular tests, for example, make it possible for medical labs to deliver an accurate answer back to a referring physician in just hours—compared to the several days that are required for most long-standing microbiology test procedures.

Even more disruptive technologies include digital pathology and MALDI-TOF mass spectrometry. Digital pathology is an image-based information environment that is enabled by computer technology to allow for the management of information generated from a digital slide. Digital pathology is enabled in part by virtual microscopy, which is the practice of converting glass slides into digital slides that can be viewed, managed, and analyzed on a computer monitor. With the advent of Whole-Slide Imaging, the field of digital pathology has exploded and is currently regarded as one of the most promising avenues of diagnostic medicine in order to achieve even better, faster and cheaper diagnosis, prognosis and prediction of cancer and other important diseases.

MALDI-TOF (matrix assisted laser desorption ionization-time of flight) mass spectrometry allows clinical laboratories to identify small aerobic gram-positive bacilli more accurately, faster, and in a more cost-effective manner than ever. It enables the analysis of biomolecules (biopolymers such as DNA, proteins, peptides and sugars) and large organic molecules (such as polymers, dendrimers and other macromolecules), which tend to be fragile and fragment when ionized by more conventional ionization methods.

Even as pathologists are working to develop more sensitive and accurate diagnostic tests for cancer, similar efforts are underway in radiology and imaging. In fact, one research team has developed a self-assembling nanoparticle that can adhere to cancer cells, thus making them visible in MRI scans and possibly eliminate the need for invasive tissue biopsies.

Researchers have developed a self-assembling nanoparticle that targets cancer cells and makes them visible on magnetic resonance imaging (MRI) scans. The new nanoparticle improves MRI scanning efficacy by “specifically seeking out receptors that are found in cancerous cells,” according to researchers. Were this development to become a reality, it has the potential to alter anatomic pathology’s role in diagnosing cancer.

Diagnostic Tests

A diagnostic test is any kind of medical test performed to aid in the diagnosis or detection of disease. For example, such a test may be used to confirm that a person is free from disease, or to fully diagnose a disease, including to sub-classify it regarding severity and susceptibility to treatment. Diagnostic tests help physicians make clinical decisions for patient care.

Some diagnostic tests are parts of a physical examination that require only simple tools in the hands of a skilled practitioner, and can be performed in an office environment. Some other tests require elaborate equipment used by medical technologists in clinical laboratories, or the use of a sterile operating theater environment.

Some tests require samples of tissue or body fluids to be sent off to a pathology lab for further analysis. Some simple chemical tests, such as urine pH, can be measured directly in the doctor's office.

The validity of such test results produced in each laboratory is entirely dependent on the measures employed before, during, and after each assay. Consistency in the production of good results requires an overall program that includes quality assurance, quality control, and quality assessment.

Diagnostic tests can be classified into three categories: invasive, minimally invasive and non-invasive.

Every test that shows an association between test results and the target disease is potentially useful. If it is not on its own thought to be useful, then a combination of it with other test results and/or data can potentially lead to a post-test probability that is thought to be high enough to rule the diagnosis in or low enough to rule the diagnosis out.

Companion diagnostics have also been developed to preselect patients for specific treatments based on their own biology, where such targeted therapy may hold promise in personalized treatment of diseases such as cancer.

Growing acceptance of companion diagnostics is a trend with the potential to greatly increase the value that clinical pathology laboratory testing delivers to physicians, patients, and payers. It has become increasingly common for pharmaceutical companies to make agreements with in vitro diagnostics (IVD) manufacturers to develop a companion diagnostic test specifically for a therapeutic drug under development by that pharmaceutical company.

As most pathologists and clinical managers know, use of a companion diagnostic test is expected to add precision to the physician’s decision to prescribe therapeutic drugs.

Disruptive Innovation Examples

A disruptive innovation is one that shakes up an entire market or industry. In the clinical laboratory industry, there are many disruptive innovation examples.

The most prominent disruptive innovation example recently has been Theranos, the testing company which claimed to have two proprietary technological advances that will allow testing without using traditional needlestick methods and will deliver tests at a fraction of the normal cost.

At the same time, Theranos’ partnership with Walgreen’s and Safeway supermarkets, offering clinical lab testing to their health services, also appeared poised to disrupt the status quo in the industry. However, a major exposé in the Wall Street Journal in October 2015 revealed not only that FDA had not approved Theranos’ technology, but also that many tests Theranos was performing were done with traditional technology, and even that some test results were badly inaccurate.

Theranos also claims it can use capillary blood rather than venous blood for certain tests, and researchers are working on discovering whether this is feasible, because the collection process would be simpler and cheaper for labs, and easier for consumers.

In addition to Theranos working in this space, Tasso Inc., is a start-up company in Seattle that uses a microfluidic blood-draw device called the HemoLink that it hopes can replace venipuncture.

Tasso President Ben Moga described the technology and the company's plans to seek FDA approval for HemoLink. Developed by researchers at the University of Wisconsin-Madison, the blood-collection device is about the size of a golf ball.

To collect capillary blood, the HemoLink device is simply placed on a patient's upper arm and left on the arm for two minutes. In that time, the device uses a lance and then draws blood from capillaries beneath the skin via a slight vacuum. Tasso's proprietary open microfluidic network next transports the blood into an attached collection tube. Then the patient or physician can mail the tube to a medical laboratory for analysis.

Another disruptive innovation example is gene sequencing, which has the potential to give labs new value in the evolving world of personalized medicine and driving the growth of new business models for labs. Gene sequencing is becoming so routine and inexpensive that genomic pathology will become a major part of disease diagnosis and management, disease prevention, risk mitigation and health maintenance.


Electronic Health Record (EHR)

An electronic health record (EHR) is a digital version of a patient’s paper chart. EHRs are real-time, patient-centered digital medical records that make information available instantly and securely to authorized users. While an EHR does contain the medical and treatment histories of patients, an EHR system is built to go beyond standard clinical data collected in a provider’s office and can be inclusive of a broader view of a patient’s care.

EHRs can:

Contain a patient’s medical history, diagnoses, medications, treatment plans, immunization dates, allergies, radiology images, and laboratory and test results

Allow access to evidence-based tools that providers can use to make decisions about a patient’s care

Automate and streamline provider workflow

One of the key features of an EHR is that health information can be created and managed by authorized providers in a digital format capable of being shared with other providers across more than one health care organization. EHRs are built to share information with other health care providers and organizations – such as clinical laboratories, specialists, medical imaging centers, pharmacies, emergency facilities, and school and workplace clinics – so they contain information from all clinicians involved in a patient’s care.

According to, “A greater and more seamless flow of information within a digital health care infrastructure, created by electronic health records (EHRs), encompasses and leverages digital progress and can transform the way care is delivered and compensated. With EHRs, information is available whenever and wherever it is needed.

“EHRs give providers reliable access to a patient's complete health information. This comprehensive picture can help providers diagnose patients' problems sooner.”

EHRs can reduce errors, improve patient safety, and support better patient outcomes because they don't just contain or transmit information; they "compute" it, for example, cross-referencing prescribed medications, alerting physicians to patient allergies and so on.

The Health Information Technology for Economic and Clinical Health (HITECH) Act, a component of the American Recovery and Reinvestment Act of 2009, represents the nation’s first substantial commitment of federal resources to support the widespread adoption of EHRs. This legislation includes incentives to encourage use of EHRs and other health information technology, based on a concept called “Meaningful Use.”

Meaningful Use requires the use of an EHR as well as a demonstration that it is used to meet objective and measurable requirements. It also includes the standardization of data formats, a requirement that patients are able to easily access and download their digital medical records and images for their own use, expansion of the scope of quality metrics tracking to include specialists and to reflect outcomes, as well as care coordination.

Additional criteria will focus on the sustainability of the program through improvements in quality, safety and efficiency that improve health outcomes.

Elizabeth Holmes

Elizabeth Holmes is an American entrepreneur, the CEO of Theranos, a blood test company, which she founded in 2003 at age 19 while she was a chemical engineering major at Stanford University. The company was originally based on her invention and patent for a way to run 30 common clinical laboratory tests on blood obtained via a fingerstick, using microfluidics or "lab-on-a-chip" technology - a much faster and cheaper method than traditional lab testing techniques.

By 2014, the company offered 200 tests, was licensed to operate in every state in the US, and was valued at nearly $10 billion.

Theranos entered into a partnership with drugstore chain Walgreens to build thousands of Wellness Centers (beginning with California and Arizona) offering a full menu of blood tests directly to consumers at a charge that is generally one-quarter to one-tenth of what others charge.

However, an in-depth investigative report by The Wall Street Journal in October 2015 revealed aspects of Theranos that the secretive company has kept from public view. Based on interviews with several employees and others with knowledge of events at Theranos, the WSJ disclosed that Theranos runs only a handful of tests using its proprietary technology, among many issues raised by the newspaper. Theranos is no longer the darling of the media but the subject of numerous investigations by both journalists and federal and state agencies. In July 2016, CMS applied the most stringent sanctions it could to Theranos for problems it reported at Theranos' Newark, CA lab, including a two-year prohibition on Holmes owning any CLIA-certified lab.

As of 2014, Holmes had 18 US patents and 66 non-US patents in her name and is listed as a co-inventor on over a hundred patent applications. She was the youngest self-made female billionaire on the 2014 Forbes 400 list, with an estimated net worth of $4.6 billion. After CMS, the FDA, the Department of Justice and Securities and Exchange Commission launched investigations of Theranis in early 2016, Forbes updated that figure to $0.

Holmes says she has set her sights on more than simply dominating the blood-testing market; she wants to create a whole new market called "consumer health technology" that will see consumers more engaged in their health care.

Holmes reportedly works seven days a week, spends all her waking time in her office and doesn’t own a TV set.

Esoteric Testing

Esoteric testing allows the analysis of rare substances or molecules that are not performed in a routine clinical lab. Many large commercial lab companies outsource complex tests to reference and esoteric testing labs. However, as technology continues to expand laboratory testing, tests that are considered esoteric today may become routine in just a few years. This is often the result of work performed by dedicated research and development scientists.

These tests are ordered when a physician requires additional detailed information, outside routine lab testing, to complete a diagnosis, establish a prognosis or choose and monitor a therapeutic regimen. Esoteric testing generally requires sophisticated instruments and materials as well as specialized personnel to perform and analyze results. The tests are typically outsourced to independent, specialized clinical reference laboratories because it is not cost effective for hospitals and physician office laboratories to perform the tests in-house.

These tests are ordered less frequently than routine tests and are generally priced higher than the routine tests. Esoteric testing is typically related to the medical fields such as endocrinology, genetics, immunology, microbiology, molecular diagnostics, oncology, serology and toxicology. Molecular diagnostics is the fastest growing segment of esoteric clinical testing.

The American Chemical Society publishes the Directory of Rare Analyses (DORA) which catalogues rarely ordered clinical tests and provides details on the labs performing them.

The challenges for labs performing such tests include not only finding qualified medical technologists, but also paying them the higher salaries they command because of the scarcity of their skill sets. In addition, materials used in these tests can also be costly, particularly because they are not usually purchased in large enough quantities to qualify for economies of scale.

Labs that perform these tests have capabilities including:

• Allergy
• Complex anatomic pathology with board-certified pathologist
• Bone markers
• Genetic analysis
• HLA testing
• Functional assays of the immune system
• Toxicology

In the U.S., labs that perform these tests range from ARUP Laboratories, Mayo Medical Laboratories, Quest Diagnostics Incorporated, and Laboratory Corporation of America to a growing number of specialty esoteric testing laboratories that offer proprietary esoteric assays. Examples of such specialty testing lab companies include Myriad Genetics, Genomic Health, and Foundation Medicine.



Fee-for-service has long been the primary payment model for clinical laboratories and pathology groups. Fee-for-service (FFS) is a payment model in which services are paid for as itemized in the provider’s invoice. It gives an incentive for physicians to provide more treatments because payment is dependent on the quantity of care, rather than quality of care. Similarly, patients are incentivized to welcome any medical service that might not be necessary. Insurance companies shield themselves against ruin by setting cover limits for every beneficiary.

FFS raises costs, discourages the efficiencies of integrated care, and a variety of reform efforts have been attempted, recommended, or initiated to reduce its influence (such as moving towards bundled payments and capitation).

Medicare Parts A (hospital insurance) and B (optional insurance that covers physician, outpatient hospital, home health, laboratory tests, durable medical equipment, designated therapy, outpatient prescription drugs, and other services not covered by Part A) are FFS programs. Medicare processes over one billion FFS claims per year.

As part of the ongoing drive to cut healthcare costs, this model is gradually being phased out by payers and healthcare organizations in favor of value-based payment models, such as pay-for-performance programs and accountable care organizations that are intended to cap costs and spread financial risk among providers, while encouraging coordination of care, disease prevention and better management of chronic conditions. This is seen as a threat to the survival of clinical labs, which expect to see far fewer tests ordered by healthcare providers.

The Clinical Laboratory Management Association is working to help labs navigate these changes. “As fee-for-service reimbursement gives way to bundled reimbursement and per-member-per-month payment, labs will only be successful if they add value to physicians by helping them diagnose disease earlier and more accurately,” says CLMA President Paul Epner.

CLMA has named this program “Increasing Clinical Effectiveness,” or ICE. THE DARK REPORT is one of CLMA’s partners in this effort.

“Our hope is that ICE is a catalyst that helps lab administrators, pathologists, and medical laboratory scientists broaden the focus of their laboratory beyond operational efficiency to include measurable impact on positive patient outcomes,” says Epner.

Food And Drug Administration (FDA)

The Food and Drug Administration (FDA or USFDA) is a federal agency of the United States Department of Health and Human Services, one of the United States federal executive departments. The FDA is responsible for protecting and promoting public health through the regulation and supervision of food safety, tobacco products, dietary supplements, prescription and over-the-counter pharmaceutical drugs (medications), vaccines, biopharmaceuticals, blood transfusions, medical devices, electromagnetic radiation emitting devices (ERED), cosmetics, animal foods & feed and veterinary products.

In June 1906, President Theodore Roosevelt signed into law the Food and Drug Act. The Act prohibited, under penalty of seizure of goods, the interstate transport of food that had been "adulterated."

The responsibility for examining food and drugs for such "adulteration" or "misbranding" was given to the USDA Bureau of Chemistry. In 1927, the Bureau of Chemistry's regulatory powers were reorganized under a new USDA body, the Food, Drug, and Insecticide organization. This name was shortened to the Food and Drug Administration (FDA) three years later.

The FDA was empowered by the United States Congress to enforce the Federal Food, Drug, and Cosmetic Act, which serves as the primary focus for the Agency; the FDA also enforces other laws, notably Section 361 of the Public Health Service Act and associated regulations, many of which are not directly related to food or drugs.

The FDA is most popularly known for its work in regulating the development of new drugs. Its powers related to clinical laboratories include the Clinical Laboratory Improvement Amendments (CLIA) that regulate laboratory testing and require clinical laboratories to be certificated by their state as well as the Center for Medicare and Medicaid Services (CMS) before they can accept human samples for diagnostic testing. Laboratories can obtain multiple types of CLIA certificates, based on the kinds of diagnostic tests they conduct.

The agency also has the authority to issue pre-market clearance of laboratory-developed tests (LDTs) for in vitro diagnostic instrument systems and IVD test kits that a laboratory wishes to sell to other labs. More recently, FDA has decided to launch the regulation of all LDTs, including pre-market review for higher-risk LDTs.


Health Information Technology

The trend in healthcare and in clinical diagnostics is toward adoption of health information technology (HIT). The Health Information Technology for Economic and Clinical Health Act (HITECH) of 2009, the Affordable Care Act (ACA), and other government regulations were all designed with components that provide incentives for doctors, hospitals, laboratories, and other healthcare providers to adopt the use of electronic medical records (EMR), electronic health records (EHR), laboratory information management systems (LIMS), and other forms of HIT.

There appear to be three major trends in HIT when it comes generally to medical data and specifically to laboratory test data. They are direct patient access, web access and mobile device access.

Another factor in the adoption of HIT is “meaningful use” (MU) guidelines. When incentives were established to get healthcare providers to adopt HIT, part of the definition involved that they adopt "meaningful use" (MU) of HIT. Meaningful Use has several different stages with varying standards adopters have to meet in order to receive the financial incentives or to avoid any penalties. Stage 1 of MU has numerous steps to it, but of significance in terms of adoption trends is the requirement for eligible professionals to “provide more than 10% of all unique patients with timely electronic access to their health information.”

Access must be through a secure channel that encrypts and protects the content. Furthermore, the patient’s information must be available within four business days for EPs and within 36 hours of discharge in hospital settings. Fifty percent of patients must have access with 5% actually viewing, downloading or transmitting to meet the Stage 2 measure.

The demand for HIT has put laboratories on the front lines in adopting laboratory information management systems that can connect with electronic health records either directly or through portals. Although this can place a financial strain on small- to medium-sized laboratories, a number of companies are offering low- cost, customizable modular systems or Web-based services that can expand their current LIMS capabilities into new areas, including to patient portals.

The technical requirements of these modules or web-based portals or services are compliance with CLIA, HIPAA, and HL7 standards, provisions to ensure the privacy and security of personal health information, and the ability to be viewed by a variety of browsers and devices, including mobile applications.


A histology definition states that histology is a branch of anatomy that deals with the minute structure of animal and plant tissues as discernible with the microscope. It is also called microscopic anatomy, as opposed to gross anatomy, which involves structures that can be observed with the naked eye.

Histological studies are often carried out by examining a thin slice (called a "section") of tissue under a light microscope or an electron microscope on a prepared slide. In order to distinguish different biological structures more easily and accurately, histological stains are often used to add colors to or enhance the colors of certain types of biological structures differently from other types of structures.

Histopathology, the microscopic study of diseased tissue, is an important tool in anatomical pathology, since accurate diagnosis of cancer and other diseases usually requires histopathological examination of samples. Trained physicians, frequently licensed clinical pathologists, are the personnel who perform histopathological examination and provide diagnostic information based on their observations. The trained personnel who prepare histological specimens for examination are histotechnicians, histology technicians (HT), histology technologists (HTL), medical scientists, medical laboratory technicians or biomedical scientists. Their field of study is called histotechnology.

Staining is employed because biological tissue has little inherent contrast in either the light or electron microscope. Hematoxylin and eosin (H&E stain) is the most commonly used light microscopical stain in histology and histopathology. Hematoxylin, a basic dye, stains nuclei blue due to an affinity to nucleic acids in the cell nucleus; eosin, an acidic dye, stains the cytoplasm pink. Uranyl acetate and lead citrate are commonly used to impart contrast to tissue in the electron microscope.

There are many other staining techniques that have been used to selectively stain cells and cellular components.

The word "histology" is derived from two Greek words, histo="tissue" and logos="study."


Healthcare Common Procedure Coding System (HCPCS) codes are a set of health care procedure codes. Standardized code sets are necessary for Medicare and other health insurance providers to provide healthcare claims that are managed consistently and in an orderly manner. HCPCS was established in 1978 as a way to standardize identification of medical services, supplies and equipment.

HCPCS codes were developed to simplify medical billing. Standardized coding is necessary to ensure that claims processing proceeds in an organized and uniform way. HCPCS codes are used by both public and private health plans. Originally, use of the HCPCS codes was voluntary, but after Congress passed the Health Insurance Portability and Accountability Act (HIPAA) in 1996, requiring that the Center for Medicaid and Medicare Services (CMS) adopt standards for coding systems for reporting and billing health care transactions, CMS established HPCPS as the coding system that entities covered by HIPAA are to use.

Level 1 HCPCS codes are numeric and are based on the American Medical Association's Current Procedural Terminology (CPT).

Level 2 codes are alphanumeric and primarily include non-physician services and supplies not covered by Level I codes. This coding system is also used as an official code set for outpatient hospital care, chemotherapy drugs, Medicaid, and other services.

A medical coder, as part of the laboratory billing process, works to abstract and assign the appropriate coding on medical claims. In order to accomplish this, the coder checks a variety of sources within the patient’s medical record (i.e. the transcription of the doctor’s notes, ordered laboratory tests, requested imaging studies and other sources) to verify the work that was done. Then the coder must assign CPT® codes, ICD-9 codes and HCPCS codes to both report the procedures that were performed and to provide the medical biller with the information necessary to process a claim for reimbursement by the appropriate insurance agency.


ICD Codes

The International Classification of Diseases (ICD) set code is the international standard diagnostic tool for epidemiology, health management and clinical purposes. ICD codes are maintained by the World Health Organization, the directing and coordinating authority for health within the United Nations System.

The most current version is ICD-10, which replaced ICD-9 on Oct. 15, 2015.

ICD-10 was originally issued in 1992 by the WHO. It has been adopted by most developed nations. Thus, the United States is one of the last developed nations to adopt ICD-10.

ICD-11 is scheduled to be released during 2018. A beta version of ICD-11 has been available online since 2012. Countries around the world that have used ICD-10 for more than two decades are expected to move expeditiously to adopt ICD-11.

The ICD is designed as a health care classification system, providing a system of diagnostic codes for classifying diseases, including nuanced classifications of a wide variety of signs, symptoms, abnormal findings, complaints, social circumstances, and external causes of injury or disease.

ICD codes are used by clinical laboratories for billing purposes, and by physicians, nurses, other providers, researchers, health information managers and coders, health information technology workers, policy-makers, insurers and patient organizations to classify diseases and other health problems recorded on many types of health and vital records, including death certificates and health records.

In addition to enabling the storage and retrieval of diagnostic information for clinical, epidemiological and quality purposes, these records also provide the basis for the compilation of national mortality and morbidity statistics by WHO Member States. Finally, ICD is used for reimbursement and resource allocation decision-making by countries.

Clinical laboratories and pathology groups have a big stake in successful transition to ICD-10. Medicare Part B claims for medical laboratory tests must be submitted with an appropriate ICD code provided by the physicians who ordered the lab tests. Lab test claims without an appropriate ICD code will not be reimbursed by the Medicare program.

In Vitro Diagnostics

In vitro diagnostics (IVDs) are diagnostic tests that that can detect diseases, conditions, or infections. In vitro diagnostics test a sample of tissue or bodily fluids, as opposed to testing inside the body, such as:

  • Microbiological culture, which determines the presence or absence of microbes in a sample from the body, usually targeted at detecting pathogenic bacteria
  • Genetic testing
  • Blood glucose
  • Liver function tests
  • Calcium

Electrolytes in the blood, such as sodium, potassium, creatinine and urea

In vitro tests can be classified according to the location of the sample being tested, including blood and urine tests.

Some tests are used health professional settings such as clinical laboratories, and other tests are for consumers to use at home. The expression "in vitro" comes from Latin, literally meaning “within the glass.” The name reflects the fact that historically such tests were conducted in glass vessels, such as test tubes.

Unlike other forms of medical technology, IVDs never interact directly with the human body. Their value stems from the information they provide. This sets IVDs apart from medical devices and pharmaceuticals, and is part of what makes them unique among health technologies.

In the U.S., in vitro diagnostics products are medical devices as defined in section 210(h) of the Federal Food, Drug, and Cosmetic Act, and may also be biological products subject to section 351 of the Public Health Service Act. Like other medical devices, IVDs are subject to premarket and postmarket controls. IVDs are also subject to the Clinical Laboratory Improvement Amendments (CLIA ’88) of 1988.

The IVD industry is growing steadily due to a number factors, such as increased demand for infectious disease testing as new pathogen strains develop each year, such as in seasonal influenza and H1N1, and increased incidences of hospital-acquired infections. Other factors include aging demographics common to all developed nations and the accompanying increased incidence of chronic disease across all age cohorts of the population; advances in DNA sequencing; and growing demand from emerging markets, which are only now becoming able to pay for diagnostic devices.

ISO 15189

ISO 15189 (Medical laboratories — Particular requirements for quality and competence) specifies the quality management system requirements particular to medical laboratories. The standard was developed by the International Organisation for Standardizations's Technical Committee 212 (ISO/TC 212).

ISO 15189 focuses on the continuum of care directly connected with improved patient safety, risk mitigation and operational efficiency.

The International Organization for Standardization has released three versions of the standard. The first two were released in 2003 and 2007. In 2012, the organization released a revised and updated version of the standard, ISO 15189: 2012 (Medical laboratories – Requirements for quality and competence). The standard is often referred to without the version, simply as “ISO 15189.”

ISO/TC 212 assigned ISO 15189 to a working group to prepare the standard based on the details of ISO/IEC 17025:1999 General requirements for the competence of testing and calibration laboratories. This working group included provision of advice to users of the laboratory service, the collection of patient samples, the interpretation of test results, acceptable turnaround times, how testing is to be provided in a medical emergency and the lab's role in the education and training of health care staff.

While the standard is based on ISO/IEC 17025 and ISO 9001, it is a unique document that takes into consideration the specific requirements of the medical environment and the importance of the clinical laboratory to patient care.

ISO 15189 can be used by medical laboratories in developing their quality management systems and assessing their own competence. It can also be used for confirming or recognizing the competence of medical laboratories by laboratory customers, regulating authorities and accreditation bodies.

Software solutions designed specifically for medical laboratories can aid in achieving ISO 15189 accreditation. In particular, document control software can help by improving turnaround time (TAT) for document reviews, increasing efficiency of staff and improving overall quality.

ISO 15189 is one of the fastest growing international quality standards in the world. Twenty-three countries around the world adopted the standard within a year of publication, and by 2013, the standard was adopted by medical laboratories in over 60 countries.

ISO 15189 Accreditation

ISO 15189 accreditation is the gateway to the effective use of the quality management system (QMS) that is an integral part of all ISO standards. These standards range from the basic ISO 9001 to ISO 15189–Medical Laboratories and ISO 17025–Competence of Testing and Calibration Laboratories.

ISO 15189 specifies the quality management system requirements particular to medical laboratories. ISO 15189 is one of the fastest growing international quality standards in the world.

Clinical laboratories and pathology groups experience many benefits by achieving ISO 15189 accreditation. Use of quality management systems by innovative clinical laboratories and pathology groups enables them to drive impressive gains in quality, customer satisfaction, and financial performance. This is a key development at a time when medical laboratory budgets are shrinking and more cuts in lab test prices are expected.

As explained by MedLab, ISO 15189 accreditation also reduces risks, encourages the sharing of best practices and stimulates innovation. For payers and healthcare providers, accreditation is a tool that provides assurance that clinical lab services are safe, reliable and good value for patients. It also provides a mechanism for measuring quality improvements and supporting consistency.

For patients, accreditation gives confidence that the services they receive are competent and safe, which can be a significant selling point for a medical laboratory.

One of the main benefits of ISO 15189 accreditation is that it is globally recognized. A series of Mulitlateral Mutual Recognition Arrangements within the International Laboratory Accreditation Cooperation (ILAC) means that laboratories accredited to ISO 15189 will have their certificates and test reports accepted in over 80 different economies across the world, representing 95% of global GDP.

The accreditation to ISO 15189 is in addition to CLIA ‘88 accreditation and does not replace it.

Anyone can self‐declare competence in offering ISO 15189 accreditations. However, organizations such as the American Association of Laboratory Accreditation (A2LA), the College of American Pathologists (CAP) are among the leading accreditors for ISO 15189 in the U.S.

Accreditation is also done by the Joint Commission, College of American Pathologists, AAB (American Association of Bioanalysts), and other state and federal agencies.

A2LA offers accreditation to clinical testing laboratories in 34 specialties and subspecialties. A2LA is also the only accreditor in the United States that is recognized internationally.

The CAP says it is the largest and most experienced accreditor in the world in the specialty of medical laboratory accreditation, leading and enhancing laboratory accreditation for more than 50 years. Pathologists from CAP have been instrumental in crafting the ISO 15189 standard.


Laboratory Benefit Management Program

The laboratory benefit management program is a controversial program created by UnitedHealthcare in 2014, which “is designed to help improve quality of care and manage appropriate utilization for outpatient laboratory services,” according to UHC.

The pilot launch was for laboratory services ordered by Florida network providers for fully insured UnitedHealthcare Commercial members in Florida, excluding Neighborhood Health Partnership.

All outpatient laboratory services for members who are part of the Laboratory Benefit Management Program are subject to new requirements including advance notification and new medical policies.

Beacon Laboratory Benefit Solutions, Inc. (BeaconLBS®), which specializes in laboratory services management, administers the Laboratory Benefit Management Program for UHC.

Under the program, physicians serving UHC’s commercial patients in Florida must notify UHC when ordering any of 80 clinical laboratory tests. Pre-authorization is also required for certain tests.

The program has generated widespread resistance from Florida physicians, who protest that it will cause unnecessary delays for patient treatment, and undue burdens for doctors ordering tests. In addition to problems with lab test pre-notification algorithms within the BeaconLBS system, other problems cited by physicians include the exclusion of all but 13 Florida labs from the BeaconLBS “laboratory of choice network.”

Physicians claimed that this disrupts longstanding clinical relationships between physicians and their preferred labs. It also means that patients who have been served for years by their physicians’ preferred labs must now visit one of the 13 labs in the BeaconLBS network.

Pathologists are particularly concerned that BeaconLBS requires them to get a second review when ordering certain tests and to ensure that subspecialist pathologists who review tests have specific certifications, according to the College of American Pathologists. After CAP asked UHC to reconsider these two requirements, UHC left these requirements in place.

UHC is Florida’s second largest health insurer with approximately a 14% share of the market.

Laboratory Developed Test (LDT)

Laboratory developed test (LDT) is a term used to refer to a certain class of in vitro diagnostics (IVDs). They are clinical laboratory tests used to diagnose disease, and as such, pathologists and clinical laboratory scientists have long used LDTs to solve clinical diagnostic problems and as a way to use new technologies to address unmet clinical challenges. As a result, these medical laboratory tests are critically important to the growth of personalized medicine.

“LDTs are in vitro assays that clinical laboratories develop as testing services according to their own procedures. These tests are often created in response to unmet clinical needs, and are commonly used for early and precise diagnosing, monitoring, and guiding patient treatment,” according to the American Clinical Laboratory Association (ACLA)

The ACLA defines LDTs as laboratory services as opposed to products, and they are not distributed, nor delivered or placed into market. “They are proprietary procedures for performing a diagnostic test using reagents and laboratory equipment… essentially know-how…” writes the ACLA.

“LDTs are also used to diagnose and assess diseases and disorders for which no FDA-authorized test kit currently exists, such as rare diseases, or those with small patient populations,” ACLA says. “Indeed, in some cases, LDTs represent the standard of care. The ability of laboratories to develop custom diagnostic tests has been critical to the growth of personalized medicine and to keep pace with the changing face of disease.”

A large number of medical laboratory tests that have been in use for decades and are run daily in labs throughout the country. These LDTs have broad clinical acceptance.

LDTs are subject to increased scrutiny from the Food and Drug Adminstration, which has historically allowed them to enter the market without prior FDA approval, and to cost-cutting concerns among payers. In a report to Congress in 2014, the Medicare Payment Advisory Commission (MedPAC) showed that the costs of clinical lab tests for Medicare patients rose by 9.1% in 2012. It also showed that spending on clinical laboratory testing rose by 5.6% annually, on average, from 2003 through 2012.

FDA says that due to advances in technology and business models, LDTs have evolved and proliferated significantly since the FDA first obtained comprehensive authority to regulate all in vitro diagnostics as devices in 1976. Some LDTs are now more complex, have a nation-wide reach and present higher risks, such as detection of risk for breast cancer and Alzheimer’s disease, which are similar to those of other IVDs that have undergone premarket review.

To help health care providers and patients better rely on the thousands of laboratory tests that are used every day, on July 31, 2014 the FDA notified Congress of the Agency’s intent to issue a draft oversight framework for LDTs based on risk to patients rather than whether they were made by a conventional manufacturer or a single laboratory. This draft oversight framework includes pre-market review for higher-risk LDTs, like those used to guide treatment decisions, including the many companion diagnostics that have entered the market as LDTs. In addition, under the draft framework, the FDA would continue to exercise enforcement discretion for low-risk LDTs and LDTs for rare diseases, among others. The framework would be phased in over many years.

Laboratory Information Management System (LIMS)

A laboratory information management system (LIMS) is a computer program or information management system designed to handle the workflow and data tracking of laboratory information. Although there are subtle differences within the industry, the term LIMS is often used interchangeably with laboratory information system (LIS). For many years the clinical diagnostic lab—and healthcare in general— depended upon paper orders and requisitions and results reporting.

In February 2014 the Department of Health and Human Services (HHS) issued an amendment to the Clinical Laboratory Improvement Amendments of 1988 (CLIA) known as the “Final Rule” that significantly increases patient access and empowerment. The Final Rule gives patients (or their authorized representative) the right to access test reports directly from a laboratory without first receiving authorization from a healthcare provider. It does not require laboratories to interpret test results, just to provide them.

Moreover, the Final Rule eliminates an exception under HIPAA that exempted CLIA-certified or CLIA-exempt laboratories from providing individuals access to their own health information.

Under the Final Rule, patients can still receive test reports from their doctors if they choose, but now they have the option to obtain results from the laboratory. Surveys indicate that the vast majority of patients want that access. The burden of providing it and providing it in a way that is meaningful and reliable, is on the shoulders of the healthcare industry and the clinical laboratories.

A modern LIMS has numerous components, including computerized provider order entry (CPOE), rules-making ability, barcoding, direct interfaces with laboratory instrumentation and the LIMS, EMR, EHRs, patient portals, and potential for adding rich content and patient-oriented data interpretation.

With over a quarter-million different laboratories, numerous different lab types, and the multiple complicated connections a LIMS needs to make between physicians, hospitals, clinics, insurers, and patients, connectivity and standardization is not a simple matter.

The federal government in general, and specifically through legislation such as the Patient Protection and Affordable Care Act (ACA) and the Health Information Technology for Economic and Clinical Health (HITECH) Act of 2009, have provided incentives and penalties for all healthcare providers, including laboratories, to adopt electronic health information technology (HIT) that is interoperable and accessible.

Laboratory Quality Management System

A quality management system (QMS), as required by ISO 15189:2012, is a compilation of organizational documents that establishes the policies and procedures needed to direct and control an organization with regard to quality. It relates to general management activities, the provision and management of resources, the pre‐examination, examination and post‐examination processes and evaluation and continual improvement.

A QMS captures the requirements of an organization and structurally provides a roadmap that explains who, what, when, where and how sustainable and repeatable outcomes will be achieved.

A quality management system consists of policies, procedures, SOPs and records, all of which provide proof of goals, assign responsibility, describe how those responsibilities are be performed and provide evidence of past accounts or occurrences of compliance.

It is a system by which an organization aims to reduce and eventually eliminate nonconformance to specifications, standards, and customer expectations in the most cost effective and efficient manner.

Use of quality management systems by innovative clinical laboratories and pathology groups enables them to drive impressive gains in quality, customer satisfaction, and financial performance. This is a key development at a time when medical laboratory budgets are shrinking and more cuts in lab test prices are expected.

On all fronts of laboratory medicine, requirements are becoming more stringent. Each year, labs find themselves held to higher standards for compliance with both Clinical Laboratory Improvement Act (CLIA) requirements and Medicare accreditation guidelines. This situation will become further complicated as clinical labs face the need to also meet the requirements of accountable care organizations (ACOs) and similar models of integrated clinical care. Early adopters are responding to these marketplace dynamics by making strategic use of a QMS to boost the performance of their clinical laboratory organizations. As they do, they often gain a competitive advantage.

Lean Production Methods

Lean production, often simply "Lean," is a systematic method for the elimination of waste within a manufacturing process. Lean also takes into account waste created through overburden and waste created through unevenness in workloads. Working from the perspective of the client who consumes a product or service, "value" is any action or process that a customer would be willing to pay for.

Essentially, Lean is centered on making obvious what adds value by reducing everything else. Lean manufacturing is a management philosophy derived mostly from the Toyota Production System (TPS) and identified as "lean" only in the 1990s.

TPS is renowned for its focus on reduction of the original Toyota seven wastes to improve overall customer value, but there are varying perspectives on how this is best achieved. The steady growth of Toyota from a small company to the world's largest automaker focused attention on how it has achieved this success.

Along with Six Sigma, Lean has become popular with clinical laboratories and pathology groups as a way to streamline laboratory processes, cut costs, boost productivity, and increase quality during a time when labs are increasingly pressured by downward price trends for lab tests. At the same time, labs are able to increase value offered to “customers,” that is, physicians, patients, and payers.

Instead of reducing waste from manufacturing, in the laboratory space the waste to be reduced stem from the cost and time of labor, overhead, and low customer satisfaction.

Clinical labs often focus Lean projects primarily to the flow of specimens through the laboratory, although others have applied Lean to administrative work flow.

The goals of Lean production systems differ depending on who is describing them. While some maintain an internal focus, e.g. to increase profit for the organization, others claim that improvements should be done for the sake of the customer.

Some commonly mentioned goals applicable to labs are:

  • Improve quality: To stay competitive in today's marketplace, a company must understand its customers' wants and needs and design processes to meet their expectations and requirements
  • Eliminate waste: Waste is any activity that consumes time, resources, or space but does not add any value to the product or service
  • Reduce time: Reducing the time it takes to finish an activity from start to finish is one of the most effective ways to eliminate waste and lower costs.

Lean is often combined with Six Sigma management techniques to produce a methodology that relies on a collaborative team effort to improve performance by systematically removing waste (Lean) as well as defects, overproduction, waiting, non-utilized talent, transportation, inventory, motion and extra-processing (Six Sigma).


Meaningful Use

When the federal government signed into law the Health Information Technology for Economic and Clinical Health (“HITECH”) Act as part of ARRA, which was, in part, designed to create incentives for the use of health information technology, it based many of the incentives on “Meaningful Use.”

The requirements are intended to progress through three different stages over several years.

Stage 1, Meaningful Use: Sets a baseline for electronic data capture and medical information sharing. Requires the use of an electronic health record (EHR) as well as a demonstration that it is used to meet objective and measurable requirements. There are 15 required core objectives and a menu of other objectives, several of which must be met in order to meet the thresholds of quality measurements in order to receive the financial incentives referenced in the regulations promulgated by the HITECH Act. For the most part these were implemented in 2011 through 2013.

Stage 2, Meaningful Use: Stage 2 focuses on “increasing the electronic capture of health information in a structured format, as well as increasing the exchange of clinically relevant information between providers of care at care transitions.”

Stage 2 set forth three broad requirements. First was the standardization of data formats, which is intended to simplify how healthcare information is captured and shared across disparate IT systems, i.e., improved interoperability.

Second, it required that patients are able to easily access and download their digital medical records and images for their own use.

Third, it expanded the scope of quality metrics tracking to include specialists and to reflect outcomes, as well as care coordination.

As part of Stage 2, healthcare entities must satisfy a lengthy list of measure criteria.

Stage 3, Meaningful Use: Stage 3 requirements were released in 2015. These criteria focus on the sustainability of the program through improvements in quality, safety and efficiency that improve health outcomes, and include:

  • 8 objectives for eligible professionals, eligible hospitals, and CAHs: In Stage 3, more than 60 percent of the proposed measures require interoperability, up from 33 percent in Stage 2
  • Public health reporting with flexible options for measure selection
  • Meaningful Use clinical quality measures reporting aligned with the CMS quality reporting programs
  • Finalize the use of application program interfaces (APIs) that enable the development of new functionalities to build bridges across systems and provide increased data access. This will help patients have unprecedented access to their own health records, empowering individuals to make key health decisions.
Medical Imaging

Medical imaging is the technique and process of creating visual representations of the interior of a body for clinical analysis and medical intervention. It seeks to reveal internal structures hidden by the skin and bones, as well as to diagnose and treat disease. It also establishes a database of normal anatomy and physiology to make it possible to identify abnormalities. Although imaging of removed organs and tissues can be performed for medical reasons, such procedures are usually considered part of pathology instead of medical imaging.

As a discipline and in its widest sense, it is part of biological imaging and incorporates radiology which uses the imaging technologies of X-ray radiography, magnetic resonance imaging, medical ultrasonography or ultrasound, endoscopy, elastography, tactile imaging, thermography, medical photography and nuclear medicine functional imaging techniques as positron emission tomography.

The type of imaging used depends on symptoms and the part of the body being examined. They include:

  • X-rays
  • CT scans
  • Nuclear medicine scans
  • MRI scans
  • Ultrasound

In the clinical context, “invisible light” imaging is generally equated to radiology or “clinical imaging,” and the medical practitioner responsible for interpreting (and sometimes acquiring) the images is a radiologist. “Visible light” imaging involves digital video or still pictures that can be seen without special equipment. Dermatology and wound care are two modalities that use visible light imagery.

Diagnostic radiography designates the technical aspects of medical imaging and in particular the acquisition of medical images. The radiographer or radiologic technologist is usually responsible for acquiring medical images of diagnostic quality, although some radiological interventions are performed by radiologists. While radiology is an evaluation of anatomy, nuclear medicine provides functional assessment.

According to the New England Journal of Medicine, medical imaging is one of the top development in diagnostic technology that “changed the face of clinical medicine” during the last millennium. Today, imaging and radiation therapy are cornerstones of quality care.

Medical imaging can be performed in hospitals or in independent community clinical laboratories or medical imaging centers.

Medical Laboratory

A medical laboratory or clinical laboratory is a laboratory where tests are done on clinical specimens in order to get information about the health of a patient as pertaining to the diagnosis, treatment, and prevention of disease.

Laboratory medicine is generally divided into two sections, each of which being subdivided into multiple units. These two sections are anatomic pathology and clinical pathology.

Distribution of clinical laboratories in health institutions varies greatly from one place to another.

The staff of medical laboratories may include:

  • Pathologist
  • Clinical biochemist
  • Pathologist's assistant (PA)
  • Medical laboratory scientist (MT, MLS or CLS)
  • Medical laboratory technician (MLT)
  • Medical laboratory assistant (MLA)
  • Phlebotomist (PBT)

In many countries, there are two main types of labs that process the majority of medical specimens. Hospital laboratories are attached to a hospital, and perform tests on patients. Private (or community) laboratories receive samples from general practitioners, insurance companies, clinical research sites and other health clinics for analysis.

These can also be called reference laboratories where more unusual and obscure tests are performed. These include Mayo Medical Laboratories, ARUP Laboratories, Quest Diagnostics and LabCorp. For extremely specialized tests, samples may go to a research laboratory. Many samples are sent between different labs for uncommon tests. It is more cost effective if a particular laboratory specializes in a rare test, receiving specimens (and money) from other labs, while sending away tests it cannot perform.

Laboratories today are held together by a system of software programs and computers that exchange data about patients, test requests, and test results known as a laboratory information system or LIS. The LIS is interfaced with the hospital information system.

This system enables hospitals and labs to order the correct test requests for each patient, keep track of individual patient or specimen histories, and help guarantee a better quality of results as well as printing hard copies of the results for patient charts and doctors to check.

Credibility of medical laboratories is paramount to the health and safety of the patients relying on the testing services provided by these labs. The international standard in use today for the accreditation of medical laboratories is ISO 15189. In the United States, under the Clinical Laboratory Improvement Amendments of 1988 (CLIA), accreditation of medical laboratories is done by the Joint Commission, College of American Pathologists, AAB (American Association of Bioanalysts), and other state and federal agencies. CLIA 88 or the Clinical Laboratory Improvement Amendments also dictate testing and personnel.

Medical Technologist

A medical laboratory scientist (MLS) (also referred to as a medical technologist, a clinical scientist, or clinical laboratory technologist) is a healthcare professional who performs chemical, hematological, immunologic, microscopic, and bacteriological diagnostic analyses on body fluids such as blood, urine, sputum, stool, cerebrospinal fluid (CSF), peritoneal fluid, pericardial fluid, and synovial fluid, as well as other specimens. Medical laboratory scientists work in clinical laboratories as well as hospitals, physician’s offices, reference labs, biotechnology labs and non-clinical industrial labs.

In the United States, a medical laboratory scientist (MLS), medical technologist (MT) or clinical laboratory scientist (CLS, California only) typically earns a bachelor’s degree in clinical laboratory science, biomedical science, medical technology or in a life / biological science (biology, biochemistry, microbiology, etc.), in which case certification from an accredited training program is also required. Medical technologists who are certified and in good standing by a number of certification bodies, including the National Medical Laboratory Science Council or the American Society for Clinical Pathology (ASCP) are entitled to use the credential “MLS” after their names.

Subspecialties also requiring a four-year degree include cytotechnologists, who study cells and cellular anomalies, and histotechnologists, who work on the detection of tissue abnormalities and the treatment for the diseases causing the abnormalities.

In addition, there are also medical laboratory technicians (MLTs) who earn two-year degrees plus certification.

In the United States, the Clinical Laboratory Improvement Amendments (CLIA ’88) define the level of qualification required to perform tests of various complexity. Clinical laboratory scientists, medical technologists and medical laboratory scientists are the highest level of qualification, and are generally qualified to perform the most complex clinical testing including HLA testing (also known as tissue typing) and blood type reference testing.

Most medical technologists are generalists, skilled in all areas of the clinical laboratory. However some are specialists, qualified by unique undergraduate education or additional training to perform more complex analyses than usual within a specific field. Specialties include clinical biochemistry, hematology, coagulation, microbiology, bacteriology, toxicology, virology, parasitology, mycology, immunology, immunohematology (blood bank), histopathology, histocompatibility, cytopathology, genetics, cytogenetics, electron microscopy, and IVF labs.

Medical technologists with such a specialty may use additional credentials, such as “SBB” (Specialist in Blood Banking) from the American Association of Blood Banks, or “SH” (Specialist in Hematology) from the ASCP.

In the United States, Medical Laboratory Scientists can be certified and employed in infection control. These professionals monitor and report infectious disease findings to help limit iatrogenic and nosocomial infections. They may also educate other healthcare workers about such problems and ways to minimize them.

Medicare Part B

Medicare Part B medical insurance helps pay for some services and products not covered by Part A (hospital insurance) for Americans aged 65 and older who have worked and paid into the system. It also provides health insurance to younger people with disabilities.

Part B coverage begins once a patient meets his or her deductible ($147 in 2013), then typically Medicare covers 80% of approved services, while the remaining 20% is paid by the patient, either directly or indirectly by private Medigap insurance.

For clinical labs and pathology groups, Part B covers laboratory and diagnostic tests. Laboratory tests include certain blood tests, urinalysis, tests on tissue specimens, and some screening tests. They must be provided by a laboratory that meets Medicare requirements.

Complex rules are used to manage the benefit, and advisories are periodically issued which describe coverage criteria. On the national level these advisories are issued by CMS, and are known as National Coverage Determinations (NCD). Local Coverage Determinations (LCD) apply within the multi-state area managed by a specific regional Medicare Part B contractor, and Local Medical Review Policies (LMRP) were superseded by LCDs in 2003.

Medicare Part B payments make up about 15% of the revenue of the two biggest national lab companies. By contrast, it is common for community labs to have between 30% and 65% of their revenue come from Medicare Part B payments.

Part B coverage can also be provided by private insurers through Medicare Advantage Plans. Enrollment in private Medicare Advantage plans has more than doubled since 2006, according to the New York Times. As these plans gain popularity, clinical labs and pathology groups continue to find themselves without access to patients they once served. Medicare beneficiaries now enrolled in Advantage plans comprise nearly one-third of all Medicare beneficiaries.

Generally speaking, growth in Medicare Advantage enrollment favors the national labs, with private insurers providing them exclusive network contracts. This means less market access to these patients by community labs.



A nanotainer is the proprietary name for a tiny vial, less than half an inch tall, intended to hold a few drops of blood as part of the self-described “disruptive” blood testing technology invented by Theranos.

Theranos claimed that its proprietary technology allows it to run as many as 200 blood tests on just a couple of drops of blood, drawn via finger prick instead of a needle, that are contained in the Nanotainer.

However, when the federal Food and Drug Administration conducted unannounced inspections of Theranos facilities in August and September 2015, it reported that the nanotainer is a Class II Medical Device, for which manufacturers must use special labels, meet performance standards, and conduct post-market surveillance. FDA noted that Theranos was using the device without its clearance or approval.

Theranos argued that the nanotainer is a Class I device, for which there are no regulatory requirements However, the FDA documented a number of complaints from its inspections, including that a the Nanotainer had a design evaluation that didn't ensure the device "conforms to defined user needs and intended uses." Additionally, the nanotainer "was not validated under actual or simulated use conditions," and the risk analysis for the device hasn't been adequately documented. FDA also said there were inadequate procedures for logging customer complaints, and that complaints that Theranos' technology didn't work weren't reviewed or investigated.

Theranos had become involved in legal proceedings in 2014 following objections filed to Theranos’ trademark application by Becton Dickinson, which holds a trademark for the name “Microtainer.”

Theranos responded by filing papers asking that the U.S. District Court for the Northern District of California rule that “nanotainer” does not infringe the “microtainer” trademark used by Becton Dickinson. The parties arbitrated and settled their dispute on Sept. 28, 2015 with apparently no money changing hands.

However, in October 2015, Theranos founder Elizabeth Holmes announced that the company was no longer using the nanotainer except for one FDA-cleared test, HSV-1, for which it earned FDA clearance in July. For more than 240 other blood tests, she said, Theranos was performing traditional venipunctures with test tubes and standard analysis technology.

As of late 2015, Theranos had released no data or peer-reviewed studies to prove its claims for the nanotainer or its blood analysis technology. After becoming the target of a major expose by the Wall Street Journal,, CMS sanctions and numerous lawsuits in 2016, the company announced that it was leaving the clinical lab business to focus on device development instead.


Pathology Group

A pathology group is an organization of clinical pathologists working on the diagnosis of disease based on laboratory analysis of bodily fluids such as blood and urine, as well as tissues, using the tools of chemistry, clinical microbiology, hematology and molecular pathology. Clinical pathologists work in close collaboration with medical technologists, hospital administrations, and referring physicians.

The business model of a pathology group has traditionally been as a private group practice, including solo practitioner, medical group partnership, professional corporation (PC), limited liability company (LLC), and similar professional business organizations. It is common for pathology groups to have contracts with one or more hospitals to provide anatomic pathology professional services and clinical pathology professional services.

Pathology itself is a significant component of the causal study of disease and a major field in modern medicine and diagnosis. The term pathology may be used broadly to refer to the study of disease in general, incorporating a wide range of bioscience research fields and medical practices, or more narrowly to describe work within the contemporary medical field of "general pathology," which includes a number of distinct but inter-related medical specialties which diagnose disease mostly through the analysis of tissue, cell, and body fluid samples.

Pathologists in hospital labs and pathology groups practice as consultant physicians, developing and applying knowledge of tissue and laboratory analyses to assist in the diagnosis and treatment of individual patients. As scientists, they use the tools of laboratory science in clinical studies, disease models, and other experimental systems, to advance the understanding and treatment of disease.

Clinical pathologists in a pathology group administer a number of visual and microscopic tests and an especially large variety of tests of the biophysical properties of tissue samples involving automated analyzers and cultures. Sometimes the general term "laboratory medicine specialist" is used to refer to those working in clinical pathology, including medical doctors, PhDs and doctors of pharmacology.

Immunopathology, the study of an organism's immune response to infection, is sometimes considered to fall within the domain of clinical pathology.

Becoming a pathologist entails one of the lengthiest education and training tracks of all physicians. Requirements include four years of undergraduate study, plus four years of medical school, plus a minimum of four to five years of post-graduate training in pathology residency.

Personalized Medicine

Personalized medicine or PM is a medical model that proposes the customization of healthcare, with medical decisions, practices, and/or products being tailored to the individual patient. In this model, diagnostic testing is often employed for selecting appropriate and optimal therapies based on the context of a patient’s genetic content or other molecular or cellular analysis.

The use of genetic information has played a major role in certain aspects of PM. and the term was first coined in the context of genetics, though it has since broadened to encompass all sorts of personalization measures.

Personalized medicine is not limited to pharmaceutical therapy. Advances in computational power and medical imaging are paving the way for personalized medical treatments that consider a patient’s genetic, anatomical and physiological characteristics.

Several terms, including “precision medicine,” “targeted medicine” and “pharmacogenomics” are sometimes used interchangeably with “personalized medicine.”

According to the FDA, the term is often described as providing ‘the right patient with the right drug at the right dose at the right time.’ More broadly, PM may be thought of as the tailoring of medical treatment to the individual characteristics, needs, and preferences of a patient during all stages of care, including prevention, diagnosis, treatment, and follow-up.

Advances in genetic and molecular knowledge about different diseases are widely expected to generate more opportunities for PM products and services. Clinical laboratories and pathology groups are continually developing new capabilities in molecular diagnostics, such as the analysis of DNA, RNA, and the human proteome.

Reimbursement policies will have to be redefined to fit the changes that PM will bring to the healthcare system. Some of the factors that will be considered are the level of efficacy of various genetic tests in the general population, cost-effectiveness relative to benefits, how to deal with payment systems for extremely rare conditions, and how to redefine the insurance concept of “shared risk” to incorporate the effect of the newer concept of “individual risk factors.”

Pharmacogenetic Testing Reimbursement

Pharmacogenetic testing reimbursement for Medicare patients has recently become a sore subject in the clinical laboratory industry, with the decision of the nation’s Medicare Administrative Contractors (MACs) to discontinue payment for such testing as of June 22, 2015. A lack of definitive results from such testing is generally stated as the reason for this decision.

Noridian, the last MAC to end pharmacogenetic testing reimbursement, said in its June 22, 2015 Local Coverage Determination (LCD) that it would end genetic testing to assess patients taking some medications and that for other medications, it would await definitive utility for such testing. In the LCD, Noridian said it ended payment for all genetic testing associated with all medications related to CYP2C9 (CPT 81227) and VKORC1 (CPT 81355). For genetic testing for medications related to CYP2C19 (CPT 81225) and CYP2D6 (CPT 81226), Noridian ended payment until definitive clinical utility is established. Testing for response to medications related to CYP2C19 and CYP2D6 would be limited for patients with certain indications, Noridian said.

These tests, in addition to being strong revenue enhancers for labs, are also considered by the many in the medical community to be critical to healthcare. Pharmacogenetics is the study of inherited genetic differences in drug metabolic pathways that can affect individual responses to drugs, both in terms of therapeutic effect as well as adverse effects. The use of pharmacogenetic testing is viewed by many as an outstanding opportunity to improve prescribing safety and efficacy.

Driving this trend are the 2.2 million people who suffer severe adverse drug reactions per year. ADRs are the third leading cause of death in the U.S., and prescribed drugs causing severe reactions or death are the cost leader for malpractice payouts.

These events are responsible for 5-7% of hospital admissions in the US and Europe, lead to the withdrawal of 4% of new medicines, and cost society an amount equal to the costs of drug treatment, according to a report published in 2005 by Magnus Ingelman-Sundberg and Cristina Rodriguez-Antona.

Kristine Ashcraft, Chief Operating Officer of Genelex, a pharmacogenomic testing company in Seattle, WA, notes, “As many as 19 million Americans could be affected by this decision. That’s because about 75% of Americans have genetic variations affecting their response to medications. These medications are commonly prescribed drugs for patients with cardiovascular disease, pain, depression, anxiety, and cancer. When you consider that 4% of Medicare spending is for hospitalizations caused by adverse drug reactions, taking away coverage for tools that can help combat this problem is short-sighted.”

“This [pharmacogenetic testing reimbursement] decision is designed to save money at the expense of patient care,” said John Logan Black, III, M.D., Co-Director, Personalized Genomics Laboratory and Vice Chair for Business Development in the Department of Laboratory Medicine and Pathology at Mayo Clinic in Rochester, MN. “It comes down to dollars and cents and not really what patients need,” he explained. “Medicare officials are trying to control costs by saying they haven’t seen enough benefit from these tests.

There are exceptions to the MACs’ reimbursement decision, however. Assurex Health produces three tests, for behavioral health conditions, ADHD and chronic pain medications, which are eligible for reimbursement under certain conditions sfrom Medicare and, in some states, from Medicaid.


Pharmacogenomics is the study of how genes affect a person’s response to drugs. This relatively new field combines pharmacology (the science of drugs) and genomics (the study of genes and their functions) to develop effective, safe medications and doses that will be tailored to a person’s genetic makeup. Medical professionals and administrators hope this will save lives while also enhancing the practice of personalized medicine, in which drugs and drug combinations are optimized for each individual's unique genetic makeup.

Many drugs that are currently available are “one size fits all,” but they don’t work the same way for everyone. Whether used to explain a patient’s response or lack thereof to a treatment, or act as a predictive tool, personalized medicine hopes to achieve better treatment outcomes, greater efficacy, minimization of the occurrence of drug toxicities and adverse drug reactions (ADRs). Adverse drug reactions are a significant cause of hospitalizations and deaths in the United States.

With the knowledge gained from the Human Genome Project, researchers are learning how inherited differences in genes affect the body’s response to medications. These genetic differences will be used to predict whether a medication will be effective for a particular person and to help prevent adverse drug reactions.

The field of pharmacogenomics is still in its infancy. Its use is currently quite limited, but new approaches are under study in clinical trials. In the future, pharmacogenomics will allow the development of tailored drugs to treat a wide range of health problems, including cardiovascular disease, Alzheimer disease, cancer, HIV/AIDS, and asthma.

The term pharmacogenomics is often used interchangeably with pharmacogenetics. Although both terms relate to drug response based on genetic influences, pharmacogenetics focuses on single drug-gene interactions, while pharmacogenomics encompasses a more genome-wide association approach, incorporating genomics and epigenetics while dealing with the effects of multiple genes on drug response.

Protecting Access To Medicare Act (PAMA)

On April 1, 2014, President Barack Obama signed H.R. 4302: Protecting Access to Medicare Act (PAMA) of 2014. The law’s primary purpose was to extend the Sustainable Growth Rate (SGR) formula for 12 months.

Along with the SGR extension, PAMA addressed a grab bag of Medicare-related issues.

Under PAMA, many clinical laboratory organizations will see a substantial decline over the coming years in the prices paid to them for the highest-volume lab tests reimbursed under Medicare Part B. The law specifies that the federal Centers for Medicare & Medicaid Services (CMS) can begin enacting those price cuts in 2017.

Six aspects of PAMA specifically apply to clinical laboratories:

  • Setting prices with market data: Certain labs are required, as of Jan. 1, 2016, to report private-payer payment rates and volumes for their tests.
  • New category – Advanced diagnostics tests (ADTs): For certain tests developed and performed by single laboratories, the initial payment rate for ADTs will be set at the “actual list charge.” If the charge exceeds private-payer rates by more than 130%, CMS can recoup the overpayment.
  • Setting prices for new tests and expert advisory panel: To ensure transparent and reliable decisions about pay rates and coverage, CMS will assemble a panel of outside advisors, including clinicians and other technical experts. Also, CMS must follow either the crosswalk or gapfill process to determine the initial payment rates and explain, in a transparent manner, how the calculations were made.
  • Changes in how Medicare handles lab test codes: For new lab tests, CMS will use temporary HCPCS codes to enable payment prior to a permanent HCPCS or CPT code.
  • Coverage requirements and decisions: In support of fair and open coverage decisions for a lab test when a local coverage determination is needed, MACs must now follow a defined development and appeals process.
  • Oversight of the process to create coverage guidelines and set lab test prices: Two levels of oversight are written into the law: one by the U.S. Government Accountability Office (GAO), the other by the Office of Inspector General (OIG) of Department of Health and Human Services (DHHS).


Six Sigma

Six Sigma, like Lean, is used to improve the quality and efficiency of operational processes. During the past decade, these process improvement techniques increasingly have been applied outside of the manufacturing sector, for example, in healthcare.

While Lean focuses on identifying ways to streamline processes and reduce waste, Six Sigma aims predominantly to make processes, such as those used in clinical laboratories and pathology group labs, more uniform and precise through the application of statistical methods.

Along with Lean, this process improvement technique has become popular with labs as a way to streamline laboratory processes, reduce costs, increase productivity, and improve quality in a time when labs are increasingly pressured by downward price trends for lab tests. At the same time, labs are able to increase value offered to “customers,” that is, patients.

The principles of a Six Sigma-based system were originally developed by Bill Smith of Motorola in 1986 as a way of eliminating defects in manufacturing, where a defect is understood to be a product or process that fails to meet customers’ expectations and requirements. The name refers to a quality level defined as the near-perfect defect rate of 3.4 defects per million opportunities. As a process improvement strategy, it gained much attention through its association with General Electric and its former CEO Jack Welsh.

Six Sigma also involves the training and certification of designated process specialists (called black belts, green belts, or other similar titles) within organizations to help guide Six Sigma improvement efforts. Other distinctive features include the expectation that process quality improvements be translated into financial metrics to assess value and the active involvement of top management in all initiatives.

Six Sigma is often combined with Lean management techniques to produce a methodology that relies on a collaborative team effort to improve performance by systematically removing waste (Lean) as well as defects, overproduction, waiting, non-utilized talent, transportation, inventory, motion and extra-processing (Six Sigma).

Stark Law

The Stark Law prohibits a doctor from referring Medicare or Medicaid patients for designated health services to an entity with which the physician (or immediate family member) has a financial relationship, unless an exception applies. It also prohibits the designated health services entity, such as clinical laboratories and pathology groups, from submitting claims to Medicare for those services resulting from a prohibited referral

A financial relationship under the Stark Law is considered to include ownership, investment interest, and compensation arrangements.

The term “referral” is defined more broadly than merely recommending a vendor of services to a patient. Instead, the term “referral” means, for Medicare Part B services, “the request by a physician for the item or service” and, for all other services, “the request or establishment of a plan of care by a physician which includes the provision of the designated health service.”

These services includes clinical laboratory services as well as the following: physical therapy services; occupational therapy services; radiology, including magnetic resonance imaging, computerized axial tomography scans, and ultrasound services; radiation-therapy services and supplies; and inpatient and outpatient hospital services, among others.

The Stark Law, like similar regulations such as the Anti-Kickback Statute, contains several exceptions. They include physician services, in-office ancillary services, ownership in publicly traded securities and mutual funds, rental of office space and equipment, bona fide employment relationship, etc.

In recent years, and in certain states, physicians are being solicited to join a managed service organization (MSO). These are often organized as an LLC. Physicians are given stock in the MSO and are expected to refer their patients for the services offered by the MSO, which often includes laboratory testing. As a ploy to avoid Stark and Antikickback violations, the organizers of these MSOs will tell the physicians owning shares to not refer patients involved in a federal health program, such as Medicare, Medicaid, and TriCare.

The law is named for U.S. Rep. Pete Stark (D-CA) who sponsored the initial bill.

Multiple federal entities oversee enforcement of the law. These include the Department of Justice, Center for Medicare and Medicaid Services, and the Department of Health and Human Services. In recent years, enforcement of the law has become increasingly aggressive, largely as a result of the Patient Protection and Affordable Care Act and its amendments to the False Claims Act.

2014 saw some of the largest Stark Law violation settlements to date. On June 9, 2015, the Office of Inspector General issued a fraud alert targeting physician compensation arrangements with hospitals and health systems.

Penalties for violating the Stark Law include: denial of payment for the DHS provided; refund of payments received by physicians and facilities for amounts collected; payment of civil penalties of up to $15,000 for each service that a person “knows or should know” was provided in violation of the Stark Law, and three times the amount of improper payment the entity received from the Medicare program; exclusion from the Medicare program and/or state healthcare programs including Medicaid; and payment of civil penalties for attempting to circumvent the Stark Law of up to $100,000 for each circumvention scheme.



Theranos was a blood analysis company founded by entrepreneur Elizabeth Holmes. The name is a combination of therapy and diagnosis. Holmes founded the company in 2003, dropping out of Stanford University as a sophomore to do so.

The company announced that it would leave the clinical laboratory business in 2016, after becoming the target of a major expose by the Wall Street Journal, CMS sanctions and numerous lawsuits. Its new stated business model is as a developer of medical devices.

Theranos claims it can perform hundreds of laboratory tests using a finger stick collection and a micro-specimen vial instead of a needle and several vacutainers of blood, and return results in four hours for about half of the Medicare Part B lab test fees. This is exponentially less painful, faster and cheaper than conventional blood testing performed by clinical laboratories.

However, an in-depth investigative report by The Wall Street Journal in October 2015 revealed aspects of Theranos that the secretive company has kept from public view. Based on interviews with several employees and others with knowledge of events at Theranos, the WSJ disclosed that Theranos runs only a handful of tests using its proprietary technology, among many issues raised by the newspaper. Theranos quickly lost its role as the darling of the media.

As of mind-2016, Theranos was under investigation by CMS, the Department of Justice and the Securities and Exchange Commission, and facing the most severe penalties that CMS can impose.

Theranos first opened specimen collection centers in two Walgreens stores located in Palo Alto, CA. The specimens collected at these sites were transported to Theranos’ CLIA lab facility, also located in Palo Alto. It apparently later closed one of the collection centers.


Value-based Reimbursement

Value-based reimbursement is the payment model for medical services that is gradually replacing the traditional fee-for-service model for payers and healthcare organizations. The goal is to cut rising healthcare costs by switching from a model based on quantity to value-based reimbursement, which is based on quality.

Value-based reimbursement is considered a way to cap costs and spread financial risk among providers, while encouraging coordination of care, disease prevention and better management of chronic conditions. This is seen as a threat to the survival of clinical labs, which expect to see far fewer tests ordered by healthcare providers.

In partnership with THE DARK REPORT, the Clinical Laboratory Management Association is working to help labs navigate these revenue-threatening changes. “As fee-for-service reimbursement gives way to bundled reimbursement and per-member-per-month payment, labs will only be successful if they add value to physicians by helping them diagnose disease earlier and more accurately,” says CLMA President Paul Epner.

Medicare, the largest payer in the U.S., has recently been ordered by the Department of Health and Human Services to link 30 percent of fee-for-service payments to quality or value through alternative payment models, such as accountable care organizations (ACOs) or bundled payment arrangements by the end of 2016, and tying 50 percent of payments to these models by the end of 2018.

An ACO, for example is a group of doctors, hospitals and health care providers who work together to provide higher-quality coordinated care to their patients, while helping to slow health care cost growth. In addition to this, through the widespread use of health information technology, the health care data needed to track these efforts is now available.

HHS also set a goal of tying 85 percent of all traditional Medicare payments to quality or value by 2016 and 90 percent by 2018 through programs such as the Hospital Value Based Purchasing and the Hospital Readmissions Reduction Programs. This is the first time in the history of the Medicare program that HHS has set explicit goals for alternative payment models and value-based payments.

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