Urology Revenue Loss Drives AP Lab Condos

Medicare reductions for urology services took effect on January 1 of this year

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CEO SUMMARY: Urologists are motivated to operate anatomic pathology laboratory condominiums as a way to replace lost income after Medicare imposed a major reimbursement cut for a key urology procedure. Capturing revenue from ancillary services is a hot topic within the urology profession. Here are details about this exploding trend and why there is interest in anatomic pathology services.

NO WONDER UROLOGISTS are greatly interested in capturing revenues from ancillary clinical services, including anatomic pathology.

Starting last January 1, 2005, a reduction in Medicare reimbursement for an important urology procedure took effect. It reduced effective reimbursement to urologists by 69%.

On that date, the Centers for Medicare and Medicaid Services (CMS) implemented a new reimbursement formula for Medicare Part B administration of hormonal therapy for men with advanced prostate cancer. According to an example published in Urology Times in December 2004, “a [urology] practice treating 48 prostate cancer patients receiving hormonal therapy would see gross revenue decline from approximately $132,000 in 2004 to $41,000 in 2005, based on CMS’s projected reimbursement rates issued July 26, 2004.”

This represents a substantial reduction in the annual earnings of individual urologists. Pathologists and their practice administrators should understand how this situation is motivating urologists to proactively, if not aggressively, seek to replace this lost income by establishing ancillary services within their medical group.

Ancillary Revenue Sources

Not surprisingly, there has been plenty of discussion within the urology profession on different approaches urology groups can use to replace these lost revenues. Both clinical laboratory testing and anatomic pathology services are often mentioned.

Urology Times published such a story in its December 2004 issue, titled “New Ventures May Help Make Up For Lost Reimbursement.” Both clinical laboratory and anatomic pathology were discussed as sources of ancillary revenue for urology groups. Other sources of ancillary service revenues addressed in the story were CT scans, bone densitometry studies, and clinical trials.

The Urology Times article was based on a presentation made earlier in 2004 by Richard Rutherford at the American Urology Association’s (AUA) Western section annual meeting. Rutherford is Director of Practice Management for the AUA.

Rutherford discussed how urology groups could profit from establishing clinical laboratory testing and anatomic pathology services in their practice. For example, Rutherford observed that office-based laboratory testing can be a profitable source of revenue for those urology offices which already order such tests.

Urology Group’s PSA Lab

He offered this example. A three-urologist group orders 150 PSA tests monthly. In-office PSA testing would produce $19,656 in profit for the year. He based this on a Medicare reimbursement rate of $25.70 per test and included depreciation of the lab instrument, cost of test kits, and the cost of monthly “calibration test kits.”

Rutherford also mentioned that PSA testing requires compliance with CLIA regulations, since it is classified as a moderately complex test. For that reason, some urology groups would need to obtain a different level of CLIA certification before offering PSA tests.

Rutherford also commented about the profit potential of anatomic pathology. “The biopsy is the most common specimen collected in urology after urine,” he observed. “There is no reason why you can’t reap some of the revenue from this in-house. You can make this profitable if you can work out a deal with a pathologist.”

He observed that the urology group would have to sub-contract with pathologists to share the revenue for evaluating prostate and bladder tumor specimens. Rutherford further recommended that such ventures “require a careful feasibility study of the community to avoid turf disputes with pathologists.”

Rutherford also provided basic reimbursement data. He stated that Medicare reimburses $97.03 per core for gross examination and microscopy and immunohistochemistry performed would add an additional $85.74. Rutherford further added that Medicare reimbursement was comparable for bladder biopsies.

As a point of interest for pathologists, during his presentation, Rutherford offered an example of an in-office CT scan arrangement, at three studies per day, paying for itself in a year and generating $163,000 over five years. For bone densitometry studies of prostate cancer patients taking hormonal therapy, Rutherford noted that up-front costs were about $120,000 for the equipment and software, but that Medicare only authorized a baseline scan and a follow-up scan after two years of hormonal therapy. Because of this fact, Rutherford felt in-house CT scanning by urologists would prove to be a dicey financial proposition.

Interest in Ancillary Services

For anatomic pathologists, the Urology Times article provides a peek into developments affecting the urology profession. For example, the fact that the Director of Practice Management for the American Urology Association is doing presentations on the profit potential of such ancillary service lines as laboratory testing and anatomic pathology means that such ventures are getting attention at the highest levels.

Anatomic pathology groups should not overlook or ignore this situation. THE DARK REPORT believes the urology profession is the spearpoint of a wider trend—that of specialist physicians developing ventures with pathologists to access both sub-specialty pathology expertise and a piece of the anatomic pathology revenue pie.

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