Anatomic Pathology Profession Faces Challenges, Opportunities

After 10 years of significant change, groups must prepare for new clinical, financial models

CEO SUMMARY: For 10 years, three primary trends have reshaped the anatomic pathology profession. They are declining reimbursement, competition from physicians establishing in-office pathology labs, and a host of new government laws and regulations. More changes are coming, predicts one business expert in pathology. Those changes involve new Medicare payment models, along with opportunities for pathologists to contribute more value by helping to reduce cost, add revenue, and improve patient care.

MOST PATHOLOGIST BUSINESS LEADERS and pathology group practice administrators agree that the past 10 years have been tough on the profession. Like other healthcare providers, anatomic pathologists have struggled as reimbursement shrank, competition increased from in-office laboratories, and the government introduced new regulations.

One expert in the business side of anatomic pathology said that this past decade is prologue to the future. However, he added the caveat that—despite the coming end to fee-for-service as the dominant form of payment to pathologists and other physicians—those pathology groups that learn how to add value to their basic diagnostic services have a bright future.

“To understand what is coming in the future, it is necessary to recognize how these three trends have changed the pathology profession over the past decade,” commented Al Sirmon, CPA, Co-Founder and former President of Pathology Service Associates, better known as PSAPath (now part of McKesson Business Performance Services), in Florence, S.C. “The first source of major change over the past 10 years has been cost control by both private payers and the Medicare program.

“There are many examples of how anatomic pathologists have lost revenue,” he noted. “There are two significant sources of lost pathologist revenue. One came in July 2012 when CMS changed how it paid for the technical component involved in preparing and reviewing slides, often called the ‘grandfather TC clause.’ (See TDR, April 23, 2012.)

Grandfather TC rule

“With that rule change, pathologists could no longer bill Medicare for the technical component for their hospital’s Medicare inpatients or outpatients,” explained Sirmon. “Instead, pathologists had to bill the hospitals to get paid for the TC on those cases. But many hospitals—including small rural facilities—had cash flow problems and were slow to pay. Pathologists lost a lot of money as a result of that change.

“Just six months later, in January 2013, Medicare cut payment for CPT code 88305,”  Sirmon explained. “For nearly all pathology practices, that code is the most frequently used. When Medicare said it would change how it paid for 88305 TC, most observers believed it would result in a cut of 10% to 20% in revenue, but in fact it was a cut of 50%! With that one change, many anatomic pathologists took a tremendous hit, especially independent pathology labs.

“The second trend confronting anatomic pathologists over the past 10 years is increased competition, particularly as a result of the growth of in-office labs by specialists such as urologists, gastroenterologists, and dermatologists,” stated Sirmon. “Physicians in those three specialties wanted to boost revenue, just as all physicians are doing. But a substantial number of dermatologists, gastroenterologists and urologists decided to build their own in-office pathology labs. That sharply reduced the volume of case referrals coming from these subspecialists to their local pathology groups.

More regulation of Labs

“The third major trend involves more regulation,” he continued. “Anatomic pathologists could argue that their environment became particularly challenging following the implementation of several major regulations during the past 10 years.

“One big change was the move from Form 4010 to Form 5010 to comply with new rules under the Health Insurance Portability and Accountability Act (HIPAA),” said Sirmon. “This was followed by the requirement for pathologists to use thousands of new codes when Medicare, Medicaid, and other payers switched from ICD-9 to ICD-10.

“Next, it is easy to forget that we are already in the sixth year of the federal Meaningful Use program,” he continued. “Physicians and pathologists had to comply with new rules for installing electronic medical record systems. A different regulation required pathologists to ensure that each referring practice had a National Provider Identification (NPI) number in order for Medicare to approve payment.

“In addition to having to meet these new regulations, since 2006, pathologists also were busy complying with new payment-incentive rules under Medicare’s Physician Quality Reporting System,” stated Sirmon. “That was just for starters.

New reporting rules

“In 2017, pathologists and all healthcare providers may face new rules under the Medicare Access and CHIP Reauthorization Act (MACRA),” Sirmon added. “The government’s goal is to have the Medicare program pay more to physicians who succeed in improving patient outcomes, while paying less to physicians who don’t participate in the MACRA quality reporting program.

“Another aspect of MACRA will bring more changes to pathologists as CMS replaces the sustainable growth rate (SGR) formula with new value-based payment under MACRA,” said Sirmon. “This constant change in regulations has added much cost in both time and money just to get paid for the work pathologists do. In my view, these new regulations have the potential to have greater financial impact on pathologists than any of the new regulations we’ve seen introduced in the past decade!”

Two Business Strategies

For these reasons, Sirmon recommends that all pathology groups should develop business strategies on two fronts. “First, every pathology group should be studying the final rule on physician incentive and disincentive payments that are part of MACRA and the Merit-Based Incentive Payment System (MIPS) that will be effective on January 1, 2017,” he advised. “Medicare will pay a larger incentive each year to those physicians who report quality measures and show improvements in patient care. But the opposite is equally true. Physicians, including pathologists, who don’t report quality measures or who don’t improve patient outcomes will see a larger percentage debited from their Medicare payments for the entire year.

“The second strategy every pathology group needs is even more important,” continued Sirmon. “Pathologists have an opportunity to lead the transition from volume- to value-based billing in the lab because of the power of the resource that the clinical laboratory and the anatomic pathology lab represent.

enriched Diagnostic Services

“Every pathology group that seizes these opportunities and enriches their diagnostic services in ways that add value to physicians, ACOs, payers, and their hospitals will be rewarded with payments that reflect that added value,” he said. “To implement these strategies may require pathology groups to restructure their businesses.

“In the past decade, all of these changes made it more difficult for many private pathology practices to remain in business,” he explained. “Their options were to sell to a national lab company, a larger practice, or to go out of business.

“But private pathology practices have advantages that the larger labs don’t have,” added Sirmon. “For example, it’s much easier for smaller practices to respond quickly to changes in the marketplace. And when they respond, they can demonstrate how nimble they can be in serving their client physicians or hospitals.”

Contact Al Sirmon at 843-319-0605 or

Attention pathologists!

Big changes in how Medicare pays physicians commence on January 1, 2017. Join us on August 25 for a webinar about MACRA, MIPs, and new Medicare incentives and penalties for physician services! Information and registration at:

New Consulting Company Ready to Serve Pathologists

IT WAS A SHORT SEMI-RETIREMENT FOR AL SIRMON, CPA, the former President of PSAPath, part of McKesson Business Performance Services. He became a part-time consultant in 2014. Then last month, he announced the formation of Pathology Practice Advisors, in Pawley’s Island, S.C.

“Having been with PSA since its founding 25 years ago, it was time for a change,” stated Sirmon. “The one thing that I most enjoyed was providing strategic consulting services and advice on best practices for pathology groups. Offering boutique consulting services to pathologists is a way for me to serve the profession while gaining more personal time at this stage of my life.”

Joining Sirmon in the new business is Chappy Manning, RN, CPC, who has worked with Sirmon since 2003, first at PSAPath and most recently at McKesson Business Performance Services. Manning has extensive experience in the full range of issues involving compliance, coding, and billing for pathology services.

“Our emphasis will be on offering consulting services on best practices, including revenue cycle management, cash flow, and billing operations,” noted Sirmon. “In this new role, our goal at PPA is to help independent pathology groups monitor their current reimbursement, manage their costs, and identify specific areas where they can add value by cutting costs and boosting revenue.

“In addition, we will advise pathologists and help them analyze their group’s business options,” he said. “This includes assisting them with managed care contracting issues as well as reviewing potential merger and acquisition possibilities. Many pathology groups have baby boomers retiring or about to retire. This creates the need for strategic planning, particularly because the remaining partners in the group practice want to main- tain financial stability while delivering more value to their clients.”


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