Part II: Path Condo Labs As A Threat to Pathology

In-house anatomic pathology laboratories enable specialist physicians to profit from AP

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SPECIALIST PHYSICIAN GROUPS are taking active steps to capture anatomic pathology (AP) revenues that result from specimens generated by their groups’ patients.

Yet the anatomic pathology profession is only now awakening to this threat. To educate and alert pathologists and their group practice administrators to this trend, we are devoting this entire issue to the subject of how specialist physicians use various in- house AP laboratory arrangements to capture AP revenues.

It is Part II of our coverage. Part I included information: 1) that defined this trend; 2) described the new phenomenon of “anatomic pathology laboratory condominium complexes”; 3)presented the pros and cons facing specialist physician groups when they opt for an in-house AP laboratory within their existing clinic facilities versus an offsite pathology lab condominium arrangement; and 4) recent economic changes that now motivate greater numbers of urologists and gastroenterologists (GI) to take active steps to capture the AP revenues generated by their patients. (See TDR, July 19, 2004.)

In Part II, we offer exclusive intelligence for our clients and regular readers. We lift the veil of secrecy from the most troubling aspect of the trend by specialist physicians to bring AP revenues in-house: AP laboratory condominium complexes. You will learn who created this convoluted scheme, why it’s attracted the investment dollars of many urology and GI groups, and how it was developed.

THE DARK REPORT will show you the actual financial spreadsheets and projections one AP lab condo promoter uses in marketing the concept. This analysis is balanced by a more accurate assessment of the financial opportunity when a specialist group does build its own AP laboratory.

We also have a family tree that shows how the AP lab condo scheme is branching out. Still a nascent phenomenon, AP lab condo complexes are mushrooming in the states of Florida and Texas. But we don’t stop there! You will see photos of one such condo lab complex, along with what THE DARK REPORT learned during its surprise visit to this particular site.

First Public Revelations

Much of what you will read has, until publication of this issue of THE DARK REPORT, been unknown—even to some of the urology and gastroenterology groups which bought an AP laboratory condominium. We want you to understand all dimensions of this trend. It’s knowledge you need so your pathology group practice can craft an offensive strategy to inform and educate your group’s specialist physician clients before they approach your pathology practice with proposals to capture AP service revenue for themselves.

The legal and compliance issues triggered by an in-house AP laboratory are significant. In this article, you will read what Chief Legal Officer Brad Smith of Laboratory Corporation of America has to say about the compliance concerns surrounding both the general concept of in-house AP labs and the unique case of the AP laboratory condominium. LabCorp and Smith have first-hand knowledge of how the federal healthcare compliance and enforcement functions operate. He is convinced that most specialty physicians greatly under-estimate the compliance risk attached to their anatomic pathology ancillary service venture.

OIG and Senator Grassley

Early evidence that Smith’s convictions may be on target are the public statements of the Office of the Investigator General (OIG) and Senator Charles Grassley (D-Iowa). Both the OIG and Senator Grassley have already publically declared that they are aware of the heightened interest by specialist groups to create in-house AP laboratories. Senator Grassley is calling for an OIG investigation and report. (See this article.)

Over-utilization and medically unnecessary testing are just two of the compliance concerns linked to specialist groups building an in-house AP laboratory. Those concerns are warranted, since some AP lab condo promoters give urologists financial projections that base in-house AP lab revenues on 100% utilization of 12-core prostate biopsies.

In this issue, THE DARK REPORT will blow the lid off that scheme. In this article, we present data from a national AP billing service. You will read about the actual data on cores-per-prostate specimen currently ordered by physicians practicing in 21 states, and representing as much as 3% of all prostate biopsies performed nationally each year. Make your own guess at what the 12-core prostate biopsy rate is for this population, then check your answer with our story.

Finally, to provide visual context to the AP lab condominium complex scheme, an agent of THE DARK REPORT visited one such site in San Antonio, Texas. You will learn about that visit here and see pictures of this AP lab condo complex.

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