CEO SUMMARY: PhyTest, Inc., created a unique business model upon its founding in 1998. It primarily specializes in handling laboratory test billing and collection services to office-based physicians. It also provides evaluation, consulting, and implementation services to help physicians in client-bill states establish discounted billing relationships with reference laboratories. To avoid Stark Law issues on physician self-referral, these arrangements do not involve laboratory testing done for patients covered by Medicare or other federal health programs.
BASED IN ATLANTA, GEORGIA, PhyTest, Inc. is a physician service organization that is uniquely focused on helping office-based physicians manage several aspects of laboratory testing services provided to the patients of its client physicians.
The company was founded in 1998 and provides services to physicians practicing in the states of Georgia, North Carolina, Texas, Tennessee, and Ohio. “We provide specialized billing and collection services to physician practices, limited to diagnostic tests for non-government program patients,” stated PhyTest CEO Wade McKenzie. “Lab testing requires expertise and resources that are different than those required for other aspects of physician practice billing. It is difficult for each physician practice to maintain a sufficient level of in-house expertise in this area, so we provide that skill and experience.”
PhyTest works with physicians in states that allow discounted client billing for laboratory test services. “Our clients are physician practices,” noted McKenzie. “We have a sophisticated understanding about all aspects of laboratory testing. PhyTest can thus generate increased efficiencies in billing and collections for lab test services. Further, we support their in-house test cost management and we assist in their negotiations of lab test prices with reference laboratories.”
Serving Office-Based Doctors
PhyTest has thus cleverly developed a market niche in helping physicians in client-bill states establish contracts with reference laboratories that allow them to capture revenue from the laboratory tests generated by its patient referrals. Federal health programs, including Medicare and Medicaid, are not covered by these relationships.
PhyTest helps interested physicians evaluate their existing arrangements for laboratory testing to determine which strategies could maximize service and revenue. “Our clients experience differing benefits from our services, depending on whether they previously were performing these functions in-house, or on how efficient they were when they performed these services in-house,” explained McKenzie. “The net revenue to the physician group is all of the revenue it gets for the tests it provides to its patients and for which it bills.
“Depending on the size and type of medical practice, and average revenue per test, the revenue per physician for lab tests can vary widely,” he said. “Of course, from their revenues the physicians have to pay their practice overhead, which includes paying for the tests and for our services.”
For new clients, PhyTest evaluates the physician group’s current situation and helps to implement the new business plan for laboratory testing. PhyTest then provides billing and collection services as an ongoing service, being paid a standard percentage of the lab testing revenues collected. PhyTest does not charge a fee for the initial evaluation unless the analysis is exceptionally difficult or extensive.
PhyTest often works with its physician group clients to establish discounted lab test billing accounts with reference laboratories. Although physician group contracts are kept separate from each other and are not linked in any way, PhyTest believes that its familiarity with the laboratories and its systems for facilitating billing can result in favorable discounts from the interested reference laboratory providers for its physician group clients.
Each Group Bills Uniquely
PhyTest has each physician group establish a corporate limited liability corporation (LLC), acquire a provider number, and establish its own bank account. Each LLC will individually bill private payers and patients for laboratory testing services and will deposit the resulting reimbursement payments into its own corporate account. As noted earlier, PhyTest then provides the billing and collection services for each participating physician group.
PhyTest is careful to avoid the federal Stark Laws and anti-kickback laws governing physician self-referral. That is one reason these reference laboratory relationships exclude testing done for patients covered by federal health programs, including Medicare. It has a legal opinion from the law firm of King & Spalding in Atlanta, Georgia, which describes how the contractual relationship between the participating physicians and their reference laboratories complies with an exception in the Stark Laws that addresses physician self referral issues involving lab tests.
McKenzie discussed this point. “There is no potential problem, as long as test pricing is not used to pay for Medicare test referrals,” he stated. “Our clients just negotiate the best price [from a referral laboratory] they can get, often with our assistance, but they never bring Medicare referrals into the discussion or the contracts, and they always remain free to send tests for Medicare patients and for any other patients to any lab they choose—except, of course, where certain managed care contracts require testing for non-Medicare patients to be performed by a specific laboratory.”
There is an interesting perspective on Stark Law and anti-kickback law compliance which is different for PhyTest’s client physicians than for laboratories. Most laboratories and physician groups are familiar with OIG (Office of the Inspector General) Opinion 99-13 and similar published comments on Stark Law compliance. One factor a laboratory must evaluate is the relationship of a discounted price it offers a physician to the laboratory’s cost to perform that test.
Issue of Lab’s Cost Vs. Price
If a laboratory offered a physician pricing for non-Medicare lab tests that is below the laboratory’s cost to provide the test with an intent to induce the physician to refer Medicare patient tests—and the laboratory roceeds to bill that physician’s Medicare referrals at the full Part B reimbursement, then the laboratory could be guilty of inducement. That is because it intentionally offered below-cost pricing as a way to gain access to the physician’s Medicare referrals.
The issue of the lab’s cost is not germane to PhyTest’s client physicians. So long as the physicians are simply accepting pricing bids from reference laboratories for non-Medicare tests (and do not know the laboratories’ costs for those tests) and do not include anything about access to Medicare patient tests in the negotiation or contract, they can argue that, no matter how aggressive the discounts, they have negotiated prices based on market competition among one or more bidding laboratories.
Market Pricing For Tests
McKenzie agreed on this point, stating “regarding costs, Advisory Opinion 99-13 was requested by pathologists running a lab, so they were able to disclose facts to the OIG about their costs. Our physician groups never know what the [bidding] lab’s costs are. The negotiations are between unrelated parties at arms’ length, in a very competitive marketplace. In our experi- ence, the market cost for tests can vary widely depending on a number of factors including the level of complexity, degree of automation and efficiency of the lab. So the rates that result are definitely fair market value. This may be why the Stark Law exception for purchases of lab services by physicians is so simple and unqualified.”
There are apparently a number of commercial laboratory companies that are comfortable with this reading of the Stark Law. PhyTest indicates that multiple laboratory companies are participating in these types of agreements. “We frequently assist our physician group clients with their contracting for tests,” McKenzie said. “At present, our clients use over a dozen different labo- ratories, including all of the major national labs and a number of regional, local, and hospital-based labs. On the other hand, we do not have any laboratories as clients of our company, nor do we have any partnerships, joint ventures, etc., with laboratories.”
Billing & Collecting For Labs
With its expertise in laboratory billing and collections, PhyTest is actively looking for laboratories that might be interested in outsourcing those services. “PhyTest has been in discussions with a few local and regional labs to help them with their billing and collections processes,” commented McKenzie. “Although we do not currently have any labs as clients, we would welcome the opportunity to work with them in that capacity.”
The 10-year track record of growth at PhyTest, Inc., demonstrates that office- based physicians continue to have an ongoing interest in generating revenue from their laboratory test referrals. The discussion presented above deals with Stark Law and anti-kickback law compliance. But there are other interesting compliance aspects to the business model PhyTest has developed. PhyTest and its client physicians also must comply with other federal and state laws., including those governing direct billing, anti-markup, disclosure rules, fee-splitting, and antitrust.
Office-Based Physicians Use PhyTest to Enhance Lab Services
PHYTEST, INC., IS A FOR-PROFIT CORPORATION formed on May 18, 1998, and headquartered in Atlanta, Georgia. The Chief Executive Officer is Wade McKenzie. The Chief Financial Officer is David Crane. The Sales Director is Jeff White.
On the company’s Web site (at www.phytest.com), PhyTest says, “We provide physicians with efficient execution of all financial, administrative, and non-clinical aspects of their laboratory services including:
- Complete laboratory service revenue cycle management
- Third-party payer reimbursement monitoring
- Physician staff training
- Laboratory invoice reconciliation
- Analysis of utilization and cost management.
The company is a member of the Medical Group Management Association (MGMA) and Healthcare Billing and Management Association (HBMA).