WSJ Slams Client Bill For Lab Test Services

Reporter scrutinizes client bill arrangements for lab services in GI, dermatology, and urology

CEO SUMMARY: In a front-page story last Friday, the Wall Street Journal published an investigative story on the topic of client billing for laboratory testing and anatomic pathology services. It’s a “must-read” story for all pathologists and lab managers. For years, the lab industry has recognized how client-billing arrangements can encourage a variety of abuses and illegal practices.

QUITE POSSIBLY THE COMPLIANCE RISK WAS JUST RAISED for physicians participating in client bill arrangements and/or in-house diagnostic/lab testing services.

On Friday, September 30, 2005, the Wall Street Journal (WSJ) published a front-page story titled “Lucrative Operation–How Some Doctors Turn a $90 Profit From a $17 [Lab] Test.” The reporter analyzed lab testing arrangements between pathologists and referring dermatologists, gastroenterologists, and urologists.

The story contained detailed examples of how such arrangements can generate considerable profit to the referring physician—while at the same time giving that same physician an economic incentive to order unnecessary tests because of the profit they generate. THE DARK REPORT recommends that lab executives and pathologists obtain a copy of this story and study it carefully.

In recent months, the Wall Street Journal has investigated different ways that office-based physicians can profit from ancillary services. On May 2, 2005, it published a story on in-practice radiology arrangements. The themes were two. These arrangements were driving up payer costs because office-based physicians performed more radiology procedures on their patients. Second, legitimate questions have been raised about the quality of radiology services provided by office-based physicians, most of whom have never trained specifically in radiology and related medical procedures.

WSJ Alerted By Pathologists

It was the publication of this story on potential abusive practices in radiology that led the Wall Street Journal to laboratory testing. Several pathologists called the reporter and alerted him to similar situations involving clinical laboratory testing and anatomic pathology services. Over the course of the summer, this reporter has dug deeply into this subject.

THE DARK REPORT considers it significant that the September 30 story concentrates on client billing arrangements and builds its case primarily from dermatology and dermatopathology arrangements. Because of the high-volume nature of skin biopsy analysis, this is the subspecialty within pathology that has most frequently used client-billing arrangements to attract new dermatology accounts.

Client Billing In Dermpath

The WSJ story provides such an example involving Laboratory Corporation of America. The WSJ story describes how LabCorp offered a Tennessee dermatologist a $30 client-bill price for a skin biopsy in 2004, a procedure reimbursed at $109 per biopsy by Blue Cross/Blue Shield of Tennessee. This would generate a profit of 265% for each biopsy case submitted by the dermatologist to the insurer. In another instance, where “a Nashville doctor group was charged only $17 for a biopsy analysis,” a LabCorp spokesman had characterized that price level as an “outlier.”

The WSJ notes that LabCorp estimates that 10% of its $3 billion in annual revenues comes from client-bill types of arrangements. Quest Diagnostics Incorporated told the WSJ that approximately 6% to 7% of its $5.1 billion in annual revenues are from client-bill accounts.

Pathology Laboratories

Pathologist-owned laboratories were also scrutinized in the story. National Dermatopathology Laboratory of Lake Balboa, California was mentioned as offering client-bill arrangements with physicians in other states. Lakewood Pathology Associates of Lakewood, New Jersey, was identified as having done a presentation at the American Urological Association meeting in San Antonio, Texas last summer, promoting a “revenue share model” that would allow referring urologists to generate up to $35,000 annually.

THE DARK REPORT believes publication of this story by the Wall Street Journal is significant for several reasons. First, the Wall Street Journal played a major role during the 1980s in exposing poor quality and fraud in certain laboratories around the country. The resulting publicity stimulated Congress to pass legislative reform, including the Clinical Laboratory Improvement Act of 1988 (CLIA). This series of stories has the potential to turn up the heat on Congress and government health regulators to address the abuses in client-bill and physician self-referral arrangements involving laboratory testing and other diagnostic services.

Changing Standards?

Second, the simple fact that the WSJ is pursuing this topic in a series of unfolding stories can be interpreted as a sign that the ethical standards expected of physicians by the American public are rising. Even if many of these client-bill arrangements meet the letter of today’s law, it is likely that growing numbers of consumers find them abusive. This is a subject of concern to consumers, which is precisely why the WSJ is publishing stories on this topic.

Third, there is a slim chance that the publication of these stories, now and in the near future, will stimulate federal healthcare investigators to actively pursue and prosecute physicians and laboratories considered to have violated the law. However, such enforcement activity is usually too little and too late.

Fourth, at a minimum, laboratories and pathology groups should conduct a rigorous legal review before entering into any type of arrangement which has even the appearance of linking financial reward to physician referrals. The risks from such arrangements are increasing, not decreasing.

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