CEO SUMMARY: During negotiations to extend the payroll tax cut in February, Congressional negotiators agreed to end the technical component (TC) grandfather provision for more than 1,000 rural hospitals. Seeking to save $50 million annually, Congress said anatomic pathologists would no longer be able to bill Medicare for the TC services on surgical specimens. Pathologists now need to negotiate with these rural hospitals over the fee for TC services once the new law becomes effective on July 1, 2012.
ONE LITTLE-KNOWN PROVISION tucked away in the payroll tax cut extension passed by Congress last February is creating disruption at as many as 1,000 rural hospitals and the anatomic pathology laboratories that provide services to these hospitals.
Congress used that bill to not only extend the payroll tax cut, but to implement a 10-month fix to avoid cutting physicians’ Medicare reimbursement by 27.4%, as required by the sustainable growth rate (SGR) formula. However, one source of the money Congress used to fix the SGR problem was to eliminate what is commonly called the pathology “TC grandfather provision.”
After June 30, independent labs that provide AP services to hospitals covered under the TC grandfather, including rural hospitals, will no longer be able to bill Medicare directly for payment for the technical component (TC) of certain surgical pathology services performed on behalf of Medicare Part A patients. It means that, effective July 1, 2012, pathologists must bill the hospitals for those TC services.
After this law was passed in February, Alan Mertz, President of the American Clinical Laboratory Association (ACLA) observed, “This TC provision is bad overall because labs will have trouble collecting from hospitals after June 30.”
Since passage of this bill, pathologists have been forced to consider the direct impact the elimination of the TC grandfather clause will have on both their pathology laboratory and those hospitals for which it is contracted to provide technical component services for Medicare Part A patients.
Hospitals Need TC Services
“It will be a complete change for our pathology group and for the hospitals that we serve because it will require that we bill the hospitals for the technical component,” stated R. Bruce Williams, M.D., FACP, a pathologist and partner in a 30-member group in Shreveport, Louisiana.
Since February, pathologists in Williams’ group have been explaining the issue to administrators at the 29 hospitals in northern Louisiana that operate under the TC grandfather clause and that are served by their practice. The pathology group provides AP services to 50 hospitals in the state, and 29 of these hospitals are affected by the changes in the TC grandfather provision.
“Some hospitals have agreed to pay Williams’ group for the TC services but some cannot afford it,” he said. If a hospital can’t pay for the TC services, Williams said his group will not be able to continue to provide TC services at that location.
“We would have to walk away because of the legal aspects of the issue,” Williams explained. “We can’t do the work for free and we do not want either the hospital or our group to be cited for inducement.
“Giving the work away for free or providing TC services at less than fair market rates could be interpreted as an inducement to get other work under applicable federal and state laws,” observed Williams. “Therefore, if we can’t agree on a fair-market price, our group would have to walk away.
“Over the past few weeks, we talked with these hospitals and many are part of larger chains,” he added. “Therefore, they are sending this information to their home offices. We expect they will have their lawyers advise them on the best ways to proceed.
“So far, reaction from hospital administrators has varied,” Williams said. “Those who understand the problem are ready to negotiate. With them, we explain that we’ve been reimbursed at Medicare rates and we want to provide a little discount so that we can get about 95% of the Medicare rate.”
Williams estimated that more than 1,000 rural hospitals could be affected. Williams also expressed concern that if a hospital cannot support a medical laboratory, affected patients could be forced to travel longer distances to receive medical care than necessary at present.
New Clause in Contracts
“Several years ago when Congress consid- ered eliminating the TC grandfather clause, we added a new clause to our hospital contracts as they renewed,” he said. “The contracts say that we would bill TC services at 90% to 95% of the Medicare rate if Congress eliminated the grandfather clause. We haven’t changed all of our contracts, but many of them have this language.
“Now, despite having that language in a number of contracts, some hospitals think they can’t pay it,” he said. “Others want to negotiate a lower rate because they can’t afford to pay for TC services at the Medicare rate.
“And some hospitals are not even aware of this problem—in part because they might have a new administrator,” Williams added. “However, most hospitals are familiar with this issue because, at the end of every year, there has been uncertainty about whether the TC grandfather provision would be extended or not.
Help with Lobbying Efforts
“Similarly, over these same years, the College of American Pathologists (CAP) has lobbied Congress on this issue and we recruited some rural hospitals to lobby on this issue as well,” he explained. Williams has represented CAP on this issue when lobbying Congress.
Tricia Hughey, the CEO of UniPath, LLC, in Denver, Colorado, has also started negotiations with the hospitals served by UniPath. UniPath provides AP services to 15 hospitals in Colorado, and three are small rural facilities that will be affected by the elimination of the TC grandfather provision.
“Another issue is that each of these three facilities is a critical access hospital, and thus gets additional money from Medicare for TC services,” observed Hughey. “This is a complex issue and troubling in several ways.
“Because it involves a lot of billing complexity. it is not a simple problem,” she noted. “Labs will need to send the professional component (PC) bills one way— meaning to Medicare—and TC bills will go another way—meaning to the hospitals. That’s something we’ve done in the past, but every time you establish a new billing procedure, you can expect problems, especially in the beginning.
Preparing for Negotiations
“Since only three of our hospitals are affected by this, it’s not a high-volume issue for UniPath,” she added. “And it doesn’t necessarily involve a high volume service because surgery in small hospitals is typically not a main service line. Plus, surgeries that create AP specimens are maybe about 50% of the total.
“My first step was to send explanatory letters and I have a new agreement written for each facility,” Hughey said. “We are meeting with these administrators now to assist them with their change of protocol.
“Because of inducement and anti- kickback rules, we recognize that TC services cannot be given away for free” she explained. “Because our negotiations are not complete, we are uncertain of the true financial impact this will have on our pathology group and the hospitals where we provide TC services.”
End of TC Grandfather Rule Comes on July 1
WHEN THE EXISTING TC GRANDFATHER RULE expires on June 30, 2012, pathology laboratories currently providing technical component services covered by this rule need to be prepared to deal with several important issues, advised Peter M. Kazon, an attorney at Alston Bird in Washington, DC.
“Even though the rule applies only to anatomic pathology (AP) services and only to specimens from hospital patients (meaning inpatients or outpatients—but not outreach patients), it could be a big deal for some pathology laboratories and for some hospitals,” stated Kazon, who has extensive experience representing lab associations and laboratories.
“Certain hospitals, called covered hospitals, had a special exemption for technical component (TC) services when those services have been supplied by outside, independent AP labs,” he continued. “That exemption allowed the labs to bill Medicare for TC and professional component (PC) services provided to patients at covered hospitals. Now, effective July 1, 2012, those labs must bill the TC back to the hospital and the PC gets billed to Medicare.
“Independent AP labs will likely face considerable pressure from hospitals when they negotiate on a price for the TC service,” he said. “For an inpatient, the TC is included in the DRG payment from Medicare. That means the hospital doesn’t get anything additional for inpatient services. The hospital can bill for TC services furnished to outpatients, but that service is paid under the Outpatient Prospective Payment System, which pays the hospital far less than an independent lab is paid for the same service.”
“Therefore, when the hospital and the lab negotiate, it will be important for the laboratory to understand how the hospital is being paid,” Kazon said. “The hospital will obviously not want to pay more than it believes it is receiving from Medicare for those same services.”
“When negotiating, labs and hospitals need to consider another important point,” he warned. “There will be a lot of pressure on labs either to give these TC services away for free or offer them at significant discounts.
“There is a potential for a fraud and abuse issue,” Kazon noted. “If labs give away the TC services for free or at below market value, this could possibly violate anti-kickback rules. Therefore, a lab needs to charge a fair market rate for these TC services and that rate will be determined when the two sides negotiate.”