CEO SUMMARY: Last month, the South Carolina Board of Medical Examiners advised all physicians in the state that certain arrangements for technical component/professional component (TC/PC) services between referring physicians and pathologists may be in violation of state law. These actions came in response to a letter from the South Carolina Society of Pathologists. The letter explained the TC/PC arrangements and asked whether they violate state law, constitute illegal fee splitting, compromise patient care, and are unethical.
ACROSS THE NATION, the proliferation of TC/PC arrangements in anatomic pathology as a competitive market strategy has been viewed unfavorably by many pathologists.
Now comes news that the South Carolina Board of Medical Examiners has looked into TC/PC arrangements and believes that this business arrangement “raises serious legal and ethical concerns for its licensees.” To alert physicians to its findings, on June 24 the Board of Medical Examiners sent a memo to all permanently-licensed physicians in South Carolina, writing that “…the arrangements in question may constitute misconduct under the state’s medical practices act.”
This is a rare instance of a regulatory body recognizing the potential of some TC/PC business arrangements to be in violation of the law. Events yet to unfold in South Carolina may provide pathologists in other states with useful strategies on how to rein in the most abusive forms of TC/PC business arrangements that occur within their own state.
TC/PC describes a specimen referral arrangement where the TC (technical component) and the PC (professional component) for each case are split apart and billed separately by the laboratory and the referring physician or medical group.
Over the past six years, certain national laboratory companies have used PC/TC arrangements as a way to win new business. The pathology company will perform the TC and bill for that service. The pathology lab company then sends the finished slides back to the referring physician group.
These physicians may have engaged a pathologist to read the cases at a discounted rate. This allows the physicians to directly bill the insurer for the professional component. They profit from the difference in the amount paid by the health insurer that exceeds the discounted fee the medical group paid the pathologist for reading the case. These TC/PC arrangements have become quite common, particularly among urology and gastroenterology groups.
Many in the pathology profession contend that most TC/PC arrangements are a way for national pathology companies to allow physicians to generate a profit from referring their patients’ specimens. Existing laws at the federal and state level do not provide clear and objective guidance as to how various forms of TC/PC arrangements may violate anti-kickback laws or prohibitions against physician inducement.
However, that is not the case in South Carolina. In 2005, the South Carolina legislature enacted House Bill 3891, which added Section 44 132 10 to Section 44 132-50 of the South Carolina Code. This new language defines which providers can direct bill for anatomic pathology services. This legislation generally prohibits a physician from directly billing for a professional pathology service for which that referring physician did not personally render nor supervise. (See sidebar on page 5.)
Advice And Warning
The South Carolina Board of Medical Examiners issued its advice and warning about TC/PC arrangements in response to a letter it received that was written on behalf of the South Carolina Society of Pathologists.
This letter, dated May 13, 2010, was written by attorneys Jane Pine Wood and Steven M. Harris of McDonald Hopkins, the law firm based in Cleveland, Ohio. Because pathologists in South Carolina were being asked to participate in TC/PC arrangements, this letter requested guidance from the Medical Board of Examiners as to whether the participation of pathologists in these arrangements would be permissible.
The South Carolina Medical Board of Examiners provided a rather fast answer. In a letter dated June 9, Sheridan H. Spoon, the board’s Assistant General Counsel, wrote that “Based upon the facts outlined in your letter and the supplemental information presented to the Board at its meeting on May 19, 2010, it is the position of the Board of Medical Examiners that the [TC/PC] arrangement described raises serious legal and ethical concerns for its licensees.”
Memo Sent To All Physicians
The Medical Board of Examiners then sent the following memo to all licensees on June 24:
S.C. Medical Board considers anatomic pathology services arrangements.
At its May 2010 meeting, the SC Board of Medical Examiners considered the legal and ethical issues related to certain anatomic pathology services arrangements. The board concluded that the arrangements in question may constitute misconduct under the medical practice act. While it has not received a complaint and has not investigated any specific arrangement, based on the facts outlined in the presentation made at the May meeting, these relationships raise serious legal and ethical concerns. Accordingly, the board cannot advise that they are permissible under the medical practice act at this time.
The Medical Board of Examiners was precise in how it stated its findings. But it did seem to open the door for further investigation on the legality of certain TC/PC business arrangements. In its June 9 letter to Wood and Harris, Spoon wrote that “The Board cannot advise that the practice arrangement described is permissible under the South Carolina Medical Practice Act, or other state and federal laws. Accordingly, the Board would caution its licensees that such arrangements may constitute misconduct; while acknowledging that to date, the Board has not received or investigated a complaint concerning the arrangement described and would conduct an independent investigation based upon the specific facts presented by such a complaint. To start said process would require that an initial complaint be submitted to the Board administrator, Mr. Bruce Duke.”
The second issue centered around fee-splitting arrangements in which the referring physicians get 70% of the professional component and the pathologist gets 30%.
Given the fact that pathologists in South Carolina have been pro-active on the issue of how anatomic pathology services are to be billed, there is a high probability that some individual or entity might file such a complaint to the Medical Board of Examiners in coming months. That would give it the opportunity to investigate a specific example of a TC/PC business arrangement in the state.
In making a presentation to the Board of Medical Examiners on May 19, attorneys Wood and Harris addressed three specific issues. First is the legality of TC/PC arrangements, particularly if the pathologist is an independent contractor and not an employee of the referring physician.
The second issue centered around fee-splitting arrangements in which the referring physicians, for example, get 70% of the professional component and the pathologist gets 30%. The third involved patient care issues related to whether the pathologists in these TC/PC arrangements have been credentialed—as is true of pathologists who practice in South Carolina’s hospitals.
Events are unfolding quickly in the Palmetto State. From receipt of the South Carolina Pathology Society letter requesting a review of TC/PC business arrangements dated May 13, it took just four weeks for the Board of Medical Examiners to conduct a public meeting on the topic, then issue a memo of advice to all licensees in the state. It remains to be seen whether the Board of Medical Examiners would move just as expeditiously to review any future complaints of specific TC/PC business arrangements that might be filed.
One immediate consequence of the Board’s advisory memo could be to discourage physician groups currently considering such a TC/PC business arrangement to delay or cancel it. That would be a favorable outcome for pathologists in South Carolina.
For the wider pathology profession, these developments in South Carolina offer a useful lesson. The most effective way to curtail abusive laboratory market- ing practices—both in anatomic pathology and clinical laboratory testing—is likely to be at the state level. The language in South Carolina’s statutes is much more precise on the TC/PC issue than any federal legislation or regulatory guidance.
There is a widely-held opinion across the pathology profession that many common marketing practices, including TC/PC , violate federal anti-kickback laws. But the absence of effective regulatory enforcement at the federal level has created a situation where laboratories and pathology groups with conservative compliance policies find themselves continuously losing business to labs willing to aggressively push compliance.
That is what makes the recent events in South Carolina significant. The rare combination of a well-written law with teeth, and regulators willing to diligently enforce compliance with the law, might just curb the more abusive aspects of some TC/PC arrangements.
South Carolina Has a State Law that Defines How Physicians May Bill for Pathology Services
PATHOLOGISTS IN SOUTH CAROLINA showed foresight when, in 2005, they encouraged the passage of revisions to state statutes. These revisions provided objective definitions for specific situations when a referring physician might be permitted to directly bill for an anatomic pathology professional service.
In their May 13 letter to the South Carolina Board of Medical Examiners on behalf of the South Carolina Society of Pathologists, attorneys Jane Pine Wood and Steven M. Harris described the relevant sections of the South Carolina legal code that would apply in TC/PC arrangements. The points were presented as follows:
Legal Analysis of Arrangements
The South Carolina legislature enacted House Bill 3891 in 2005, which added Section 44-132-I0 to Section 44-132-50 to the South Carolina Code. Section 44-132-10 et. seq. establishes procedures and requirements for the direct submission of claims for anatomic pathology services by the pathology providers performing these services. Section 44-123-10 of the South Carolina Code provides that: “Except as provided for in Section 44-132-20, no person licensed to practice in this state as a physician, surgeon, or osteopath, a dentist or dental surgeon, a nurse practitioner, or a physician assistant shall charge, bill, or otherwise solicit payment for outpatient anatomic pathology services unless the services were rendered personally by the licensed practitioner or under the licensed practitioner’s supervision.”
Section 44-132-20 explains that: “A person who is licensed to practice medicine in this state or the professional legal entity of which the person is a share-holder, partner, employee, or owner, may submit a bill for outpatient anatomic pathology services only to: (1) the patient directly; (2) the responsible insurer or other third party payer; (3) the hospital, public health clinic, or non-profit health clinic; or (4) the referring laboratory or the primary laboratory.”
As explained above, the referring practices in the TC/PC arrangements submit the bills for professional pathology services which the referring physicians neither personally render nor supervise. Such arrangements would be in violation of these provisions of the South Carolina Code.
This conclusion appears consistent with the analysis set forth in a September 26, 2006, letter from Assistant Deputy Attorney General Robert D. Cook to Representative Hagood, which explains that “Section 44-132-10 clearly prohibits a licensed practitioner who does not personally perform or supervise the perform- ance of anatomic pathology services from billing a patient for those services. We [the Office of the Attorney General] do not believe the licensed practitioner who does not perform or supervise the performance of anatomic pathology services may bill a patient for the performance of such services by a laboratory.”
Furthermore, Section 44-132-20 explains that: “A person who is licensed to practice medicine in this state or the professional legal entity of which the person is a shareholder, partner, employee, or owner, may submit a bill for outpatient anatomic pathology services…” If the pathologist is hired as an independent contractor of the referring practices, rather than an employee, then the submission of any claim for the pathoIogist’s services clearly violates Section 44-132-20.”