In-House Versus Off-Site: Different Concerns

How much compliance risk do you want? Each of three options has a downside

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CEO SUMMARY: Three methods are available to specialist physician groups to capture anatomic pathology revenues generated by their patient population. Two methods have been around a long time. The pathology condo lab method is a new ploy. Of the three, one is generally accepted and more easily meets state and federal compliance requirements. But the other two methods come with greater compliance risk.

THERE ARE THREE BASIC WAYS for specialist physicians to capture some or all of the revenues from anatomic pathology services performed on behalf of their patients.

Two are long-standing methods. The first is to establish an in-house pathology laboratory and bring a pathologist into the group practice, either as an employee or as a physician partner. The second is to negotiate discounted fees on both technical services and professional pathology services provided to a specialist group’s patients.

The newest method is to invest in an off-site pathology condominium laboratory. (See this article.) As a new development in the lab services marketplace, this method comes with considerable controversy and will be examined in great detail in the stories to follow. The thrust of this story is to address method one and method two so as to provide context for why method three is controversial.

Across the pathology profession, there is general agreement that whenever a specialist group practice decides to bring anatomic pathology (AP) services in-house, it has the ability to do this if it complies with existing laws. However, over-utilization of the in-house AP services by some or all of the specialists in the group creates compliance risks.

Dermatologists Were First

Dermatologists were probably the first specialists to see value in having a dermatopathologist working within the group practice. During the past decade, there are numerous examples of large dermatology groups which brought dermatopathologist services totally in-house.

The second method, to negotiate discounted billing arrangements with a local pathology group or national pathology lab company, has been less common in past years. These agreements can be structured in a variety of ways.

Discounted Path Services

One approach is to have the pathology provider provide both the technical services and the professional pathology services. The specialist group does the global billing and pays the pathology group a negotiated, discount rate for the services it provided. Another approach is for the specialist group to build its own pathology laboratory and bill for technical services, but have the pathology group provide professional services at a discounted rate.

Expect lots of public discussion in coming months on the subject of discounted billing arrangements and whether or not they violate various legal and regulatory prohibitions.

Requests by physicians to have path- ology groups provide services at a dis- counted rate is becoming a hot issue in the pathology profession. The UroCor indictments that included charges based on deeply-discounted pricing offered to client physicians will affect this debate. Expect lots of public discussion in coming months on the subject of discounted billing arrangements and whether or not they violate various legal and regulatory prohibitions.

Similarly, the arrival of pathology condominium lab complexes triggers issues involving state, federal, and private payer guidelines, prohibitions, and fraud and abuse statutes. For many valid reasons, the debate over pathology condo labs will be heated, intense, and highly-emotional for all parties.

Back to the point of this story, which is to identify the three basic methods currently used by specialist groups to capture revenues from anatomic pathology services provided on behalf of their patients.

Three key points must be stressed. First, in most instances, a specialist group which builds its own pathology laboratory in-house and maintains a full-time pathologist within the group’s roster of physicians is probably the most accepted method. There are legal and professional precedents which support this arrangement, so long as the appropriate statutes and guidelines on physician self-referral, inducement, and Medicare Fraud and Abuse are diligently obeyed.

Second, discounted billing arrangements are an established fact in the healthcare marketplace. However, these situations are more likely to expose either or both the specialist group and the pathology group providing the services to potential violations of state and federal healthcare prohibitions.

Third, the swift inroads made by promoters of the pathology condominium lab scheme have introduced a new business option to specialist groups that seek to capture anatomic pathology revenues generated by their patients. Whether or not a condo lab arrangement fully meets both the form and the intent of federal and state laws has yet to be determined.

Big Risk For The Reward

However, even the actions of the pathology condominium laboratory complex organizers to “hide” their businesses indicate they know how closely their scheme skirts the boundary between acceptable and unacceptable compliance behavior. If government healthcare regulators decide in the negative, some specialist physician groups may pay a high price for their attempt to use anatomic pathology as a source of additional revenue.


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