CEO SUMMARY: Laboratory compliance continues to evolve. In response to changes it sees in the lab marketplace, Laboratory Corporation of America instituted a fundamental change in its policy toward billing back physicians who fail to provide documentation necessary for the lab to successfully bill Medicare. It no longer “bills-back” client-physicians for “unbillable” tests.
DURING THE PAST YEAR, executives at Laboratory Corporation of America reviewed the company’s national policy on physician bill-backs and instituted revisions.
LabCorp’s long-standing policy was established in 1997, after Medicare implemented medical necessity documentation requirements for laboratory tests. If Medicare rejected payment in cases where the referring physician failed to provide either appropriate documentation, diagnosis codes to support the medical necessity of the ordered laboratory tests, or valid ABNs, LabCorp’s policy has been to “bill-back” physician-clients with a penalty charge.
Revamped Policy In Place
Based on its evaluation of the current situation, LabCorp revamped this policy. Starting last fall, LabCorp began distributing a letter to physician clients that includes the following language: “I am pleased to inform you that LabCorp is revising its policy with respect to Medicare medical necessity denials. We have listened to your concerns regarding the bill-back policy and, effective November 1, 2002, we have decided to stop billing our clients for claims denied by Medicare due to inadequate documentation of medical necessity.”
“Essentially, LabCorp changed its bill-back policies to reflect the changed nature of today’s clinical market- place,” said Bradford T. Smith, Executive Vice President at LabCorp. “As we analyzed all the factors, we realized there was no longer the need for a universal policy of billing back physicians. We believe this mirrors a growing laboratory industry consensus on bill-backs.
“First, overall physician compliance with Medicare medical necessity requirements is much better today than seven years ago,” noted Smith. “Within our client base, there is a high rate of overall compliance in providing us the information needed to appropriately bill Medicare.
“Second, in recent years, local medical associations in several states adopted positions opposing the practice of a laboratory billing back a physician if Medicare denied the lab’s claim for payment based on lack of medical necessity documentation. Some medical associations have claimed this practice is illegal. In particular, medical associations in Texas, Florida, and Delaware have been vocal on this issue,” he noted.
“In some cases, the positions taken by these medical associations were not in compliance with Medicare requirements. As appropriate, LabCorp responded with accurate information. But the action of these medical associations reflects an important fact: their physician-members consider bill-backs by laboratories to be an issue which needs attention.
“Third, we became aware that many laboratories had already recognized these realities,” he added. “They had already adopted a bill-back policy which is similar to our revised policy.
“We learned about this first-hand during our acquisition discussions with laboratories,” stated Smith. “As LabCorp bought clinical laboratory companies in recent years, we’ve had to review their compliance policies and implement our standards. Another source of knowledge is our review of laboratories offered to us for sale. Having looked at so many laboratories, we could see that our bill-back policy was out of step with the marketplace.”
“…the action of these medical associations reflects an important fact: their physician- members consider billing back by laboratories to be an issue which needs attention.”
Smith emphasized that LabCorp’s switch in policy was carefully reviewed to insure that it is in compliance with applicable Medicare laws and regulations. “For those physicians who maintain high compliance, the revised policy allows LabCorp to reflect that experience,” Smith added.
“Overall, about 8% of the Medicare patient test requisitions submitted to LabCorp lack at least some of the documentation required by medical necessity regulations,” he said. “This is a very low rate of initial non- compliance, particularly when com- pared to the years immediately following the implementation of Medicare medical necessity requirements.”
The revisions to LabCorp’s national policy on billing back physician-clients did not go unnoticed by competing laboratories. In some instances, competing laboratories see LabCorp’s change in policy as a more liberal interpretation of Medicare compliance requirements.
These concerns trigger a dynamic which THE DARK REPORT calls the “compliance conundrum.” Simply put, labs with conservative, strict compliance policies believe they are at a disadvantage at retaining physician-clients and winning new accounts when compared to other laboratories in their city which may be operating with more liberal, looser compliance policies. (See TDR, March 24, 2003.)
Because many Medicare laws and regulations lack clarity and precision, providers, including clinical laboratories, are left to make their own decisions about what actions are compliant. Moreover, labs still struggle to achieve 100% physician cooperation in providing the information needed to properly bill Medicare for laboratory tests. Lacking unambiguous guidance from Medicare regulators, the spectrum of compliance approaches adopted by different laboratories does create competitive advantage in certain situations.
LabCorp’s decision to revisit its original policy on billing back physician clients for Medicare tests which lack the necessary documentation is an example of how the marketplace changes. LabCorp’s decision to change may be a sign that it is time for other laboratories to re-assess their own compliance policy on this issue.