Letter to Editor on EMR Donations, Deeply-Discounted Client Prices

Dear Editor:

Because THE DARK REPORT is willing to tackle tough issues regarding the business end of the pathology profession, I am writing to call attention to a serious situation. What follows is presented as mostly factual and minimally perceptive. While I have no fear of transparency regarding our lab organization, I prefer anonymity to ensure there are no reprisals to our lab’s clients because of what I am about to reveal.

First, an introduction to our laboratory enterprise. It is a private pathology practice. It has managed to survive because: 1) of the service mix we provide to the community we serve; 2) how we provide it; 3) the frugality of our operation; and, last but not least, 4) the quality and value of the service we provide to referring physicians. Best of all, we deliver this improved quality at a decreased cost!

As a small pathology laboratory, we survive only by providing a niche product, by maintaining a high level of quality, and by delivering top service. But that is only true if the Goliath-sized pathology companies play a fair game.

Compliance Policies

The modest size of our business operation means we must never take a chance of being on the wrong side of federal and state compliance laws (despite the widespread recognition that too many of the larger lab companies will push compliance to capture new customers).

That brings us to the purpose of my letter. Going back several years, my colleagues and I have confirmed on multiple occasions that certain commercial lab companies are willing to stretch the intent of compliance rules to either snag a big new client or keep a competitor from winning an existing customer.

In our experience, it is pathology companies funded by venture capital which most frequently bend compliance rules. What is most frustrating is that they act like they have no fear of any government enforcement action. If they were to be caught, they consider the risk like a driver stopped and ticketed for speeding: while it hurts to pay the fine, the pain is less than the gain.

Inducements To Physicians

But the continued practice of offering client physicians a range of inducements—many types of such inducements that common sense would recognize as crossing the compliance line—has an insidious effect: these large pathology companies kill the small entrepreneurial pathology groups. Government regulators seem to always be tolerant of the big lab corporations and invariably react after the fact. Let me cite some real life examples.

A physician client with a large volume of biopsies distributed his specimens for a long time between a local hospital, Lab X (large commercial lab) and our pathology group. He indicated that he was giving us all his case referrals with the exception of biopsies from hospital employees (which went to that hospital’s lab) and biopsies from managed care patients for which Lab X was the exclusive contract laboratory.

Suddenly, our referral volume from this physician plummeted. We visited him. He told us that Lab X was paying a large amount of money for his EMR and asked if our pathology laboratory could pitch in $25,000.

Next, he told us that Lab X had told him that such “lab donations” to fund his EMR system are allowed by federal regulations. Lab X had given his office an official document explaining this. We obtained a copy of this document from his staff.

It was on Lab X letterhead but lacked any signature. This letter explained the CMS EMR Safe Harbor policy. Having not heard of this before, I indicated that I don’t believe this is possible and—even if it is—we couldn’t possibly afford to contribute $25,000 to his practice for an EMR. The volume of specimen referrals from this physician dropped off quite rapidly!

EMR Donations To Doctors

Another client physician in a different specialty, asked me one day if it was OK for labs to pay for EMRs. When questioned, this doctor indicated that it came from the same Lab X mentioned earlier. This time, I explained the Safe Harbor rules and he still uses us exclusively.

We belong to a state organization, whose leader brought the subject of EMR donations up to the CEO of Lab X. The president acknowledged that one of his lab’s subsidiaries was venturing into providing EMRs but that it is not company policy!

Another long-time client of our pathology lab disclosed to us that the management company of his endoscopy center would be getting Lab Y to pay 85% of the cost of his EMR. For that reason, this physician would be sending some biopsies to Lab Y. At the same, the staff in this doctor’s office openly volunteered that Lab Y provided poor service and cumbersome processes in shipping. They indicated that Lab Y would be used by other clients of this management company.

We continue to show this client our lab’s service and our electronic interface capabilities with the hope of retaining this business. But we realize that it is only matter of time before our lab will lose all the specimen referrals to Lab Y. I am told Lab Y paid a considerable amount of money to the EMR company for programming, and this EMR company then sells its software at a deep discount to the physician accounts of Lab Y!

Another example comes from a different specialty. We have a long-time client who now only uses for us for specific cases. He shifted the bulk of his specimen referrals to the hospital and Lab Z because they paid for the EMR he uses in his practice. His staff gave us this information.

The above incidents occurred during the past 24 months. Recently, a prospective client asked if we would do discounted client billing on his specimens. This physician shared with us the CPT codes and the prices offered by Lab X; the same lab company mentioned earlier! The prices were well below Medicare and below what we offer clients like Planned Parenthood!

This prospective client indicated that he would switch to our lab if we could come close to these low prices because of the poor service provided by Lab X. We indicated that the CPT codes were incorrect for the services he wanted. He has not yet gotten back to us. Stay tuned!

Another long-term client suddenly stopped using us. His staff indicated that he was sending his specimens to Lab X because of the deeply discounted prices offered as part of a client billing arrangement. As it turned out, Lab X’s service was so poor, this physician switched back to our laboratory within couple of months.

No Compliance Enforcement

Mr. Editor, our government has never voluntarily been for the small guys. I reported my anger over this situation to the Centers for Medicare and Medicaid Services (CMS) through our carrier. The medical director had lunch with me and said that there is nothing our lab can do in response to these situations.

Do you have advice on how to cope with these situations? How can these investor-funded pathology companies can spend tens of thousands of dollars to provide EMR systems to hundreds of their clients and still earn enough margin to stay in business? Why do clear examples of certain labs stretching Medicare compliance laws fail to get attention and enforcement action from Medicare officials?

These issues strike to the ability of smaller pathology laboratories to survive. We provide important services to the community and employ close to 40 people. Thank you in advance. Respectfully,

Anonymous Pathologist

Editor’s Note: On the pages which follow, attorney Jane Pine Wood of McDonald Hopkins speaks to the issues described by this pathologist.


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