Pathology “Condo Labs” Are New Business Ploy

Pathologist doc-in-a-box schemes proliferating, their threat to pathology is still unrecognized

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CEO SUMMARY: We call ‘em pathology condominium laboratories. Other names are “pod labs” and “salon labs.” Whatever name is used, this new scheme by specialist physicians to capture pathology revenues may be the most significant threat to the anatomic pathology profession since the imposition of hospital DRGs more than 20 years ago. Here’s our exclusive analysis of this exploding trend.

EVER HEARD of a “pathology condominium laboratory complex?” This is the new business scheme that’s causing excitement among specialist physicians, particularly urologists and gastroenterologists.

Essentially, the pathology condominium laboratory is a facility owned by a specialist physician group which is located off site from any of the group’s clinical facilities. In some cases, it is located out of state!

The business scheme is simple, but the execution is complex, due to the need to stay just inside various Medicare regulations and laws governing ancillary services, self-referrals, inducements, kickbacks, and other similar prohibitions. As a result, the pathology condominium laboratory complex is different from anything seen in healthcare to date.

The companies developing pathology condo lab complexes approach specialist physician groups to solicit their interest. Let’s use urologists as the example. The pitch is straightforward. “If your urology group decides to provide its own anatomic pathology services, here’s what we will do for you. We will build you a laboratory in our condo complex. It will be fully equipped.

“Because your urology group may not generate enough specimens to keep a histotechnologist and pathologist busy full time,” goes the pitch, “we will arrange for a histotech and pathologist to do your work part-time, on an as-needed basis. You will pay for the technical labor and pathology professional services in proportion to the specimens these individuals handle.

Group Submits Lab Claims

“As general managers of the pathology lab condo complex, we will supervise your laboratory’s operation, maintain its license, and advise you on its ongoing needs. Your urology group will submit claims on the pathology procedures, collect the reimbursement, and directly pay the lab labor and pathologist,” concludes the pitch.

To make this feasible, the pathology condo lab operator finds a building with, say 5,000 square feet. It divides the building into 10 equal rooms for individual laboratories (leaving space for reception, administration, and support services). Each laboratory space is owned by a specific urology group, in the same fashion as a residential con- dominium complex. During the day, the histotechs and pathologists walk down the hall from laboratory to laboratory to process and diagnose each urology group-owner’s anatomic pathology specimens.

Hot Idea For Urologists & GIs

The lure of bringing anatomic pathology in-house is powerful. During the past 18 months, as many as 60 specialist physician groups decided to invest in developing their own pathology laboratory condominium, located in a building developed and managed by the lab condo complex general partner.

To date, pathology condo lab complexes are known to be operating or under development in only two states: Florida and Texas. However, this has not prevented specialist groups in other states from acquiring their own pathology condo lab. The business organizers of the pathology condo lab business scheme are recruiting groups across a wide area of the United States.

AP Work Done Out-Of-State

In one example, pathologists in Central Texas tell THE DARK REPORT that one large urology group in San Antonio was sending its anatomic pathology work to a pathology condo laboratory it owned and operated in Florida. During the term of this arrangement, because there was not a Texas-licensed pathologist available to do this work, it was believed that a Florida pathologist was reading the slides, but a Texas urologist was signing out the case to fulfill legal requirements. Since that date, a pathology condominium laboratory complex was built and is now operational in San Antonio, Texas.

In Kansas City, Missouri, Kansas City Urology Care, PA (16 urologists) and Mid-America Gastro- Intestinal Consultants (11 gastroenterologists) have purchased pathology condominium laboratories. In each case, their laboratory is located in Florida. In Myrtle Beach, South Carolina, Grand Strand Urology (six gastroenterologists) owns a pathology condo lab located in Florida.

These examples demonstrate that the pathology condo lab problem is not limited to just Florida and Texas. Specialist groups from several other states have bought into this contrivance and are willing to send their AP specimens across state lines to be processed and diagnosed.

Compliance Surprise Ahead?

Unquestionably, this business scheme carries considerable risk to the urology, gastroenterology, and dermatology groups which decide to own a pathology condo laboratory. Unlike the pathology profession, these specialist physicians do not have extensive and first-hand experience with the range of compliance and regulatory issues familiar to all pathologists and clinical laboratory administrators.

It is impossible to operate a laboratory without full knowledge that Medicare officials and OIG investigators are well-versed about issues such as inducement, self-referral, and ancillary service prohibitions involving lab testing. If specialist physicians have overlooked or underestimated this situation, it may come back to bite them in extremely painful ways.

This is the first public disclosure of the pathology condo lab complex tactic. It demonstrates how fast this business opportunity is attracting specialist group investments from many states.

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