Pathology Part A Comp Under Attack by Both Hospitals and Insurers

Goal is to Reduce or Eliminate Payments to Paths

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CEO SUMMARY: In steadily-growing numbers, hospitals and insurers are taking active steps to reduce or eliminate compensation for clinical pathology professional services, also commonly referred to as “Part A” services. Unfortunately, many pathology groups fail to anticipate this situation until it’s almost too late. In this DARK REPORT exclusive, attorney Richard S. Cooper identifies methods and strategies that local pathology group practices can use to mount an effective and successful response to the unjustified demands of hospitals, health systems, and insurers.

Second in a series

IT’S BEEN A TROUBLESOME TREND in the pathology profession for almost 15 years and efforts by hospitals and insurers to further reduce compensation for clinical pathology professional services have again intensified.

Bluntly said, growing numbers of hospitals and insurers are taking active steps to reduce, and even eliminate, compensation they pay for clinical pathology professional services (commonly called “Part A” services in reference to how Medicare defined
hospital-based physician services under its DRG reimbursement scheme).

“The attack is double-sided,” stated attorney Richard S. Cooper, a partner with McDonald, Hopkins, Burke & Haber. He has first-hand experience in Part A legal issues because his Cleveland-based law firm serves more than 100 pathology clients nationally.

“First, growing numbers of hospitals are not paying for Part A pathology services,” he continued. “Second, in situations where pathologists are direct-billing for professional component clinical pathology services, growing numbers of payers are
not only refusing to pay it, but more significantly, are instructing their insureds not to pay for it either.

“Of course, most pathologists are aware of several court cases in recent years where it was ruled that: 1) clinical pathology professional services were legitimate services, 2) pathologists were entitled to be paid for them, and 3) if the payer is not going to pay for them, the patient should pay for these services and the payer should not interfere with those payments by patients,” explained Cooper.

“In the clinical laboratory, pathologists provide services at two levels,” he noted. “First, they supervise the direct process of all testing. Second, they provide the medical expertise required to organize and deliver appropriate laboratory services. We’ve identified at least 21 distinct responsibilities provided by pathologists as part of their professional component services.”

Effective Legal Strategies

Cooper pointed out that pathologists have several legal strategies to effectively counter the “no-pay” stance of growing numbers of hospitals and insurers. However, to use these legal strategies effectively, pathologists must take a proactive position on this issue.

In fact, THE DARK REPORT observes that the hospital and insurance industries’ current challenge to clinical pathology professional services comes because the collective pathology profession has been generally reactive on this issue during the past decade. At the local level, many individual pathology group practices have not prepared for the day when their hospital or local insurer starts challenging the value of clinical pathology Part A services with the goal of reducing or eliminating compensation related to such services.

Attacks On Compensation

This is particularly true in negotiations between hospitals and their pathology groups. In situations where the pathology group has not educated the hospital administrators about the details and full scope of responsibilities involved in operating the clinical laboratory, it is increasingly common to see reimbursement for these services cut or eliminated.

On the other hand, Cooper says that, where hospital administrators understand the full range of activities and legal risks that are part of directing their clinical laboratory, they are much more likely to compensate the pathology group on an equitable basis.

“To maintain fair compensation for these services, the best strategy is to educate the administrators,” Cooper said. “This involves several steps. For example, it is important for hospital administrators to know and understand the opinions expressed by Medicare officials and the OIG on the issue of payment to hospital-based physicians for Part A services. Next, hospital administrators must also fully understand the depth and detail of the responsibilities executed by the pathology group as they provide medical direction for the clinical laboratory.

“I would suggest pathologists and their legal advisors look at the hospital model compliance plan,” advised Cooper. “It states that the hospital could be in violation of fraud and abuse laws if it were to pay no reimbursement or token reimbursement for pathologists for Part A services in return for the opportunity to perform and bill for Part B services.

Hospitals Seeking To Reduce Part A $s

THERE WAS A DAY WHEN VIRTUALLY EVERY hospital paid pathologists for clinical pathology professional services. However, that situation began to change during the 1990s.

“Prior to 1990, there was a very small number of hospitals that paid absolutely nothing to pathologists for Part A pathology services,” observed Richard S. Cooper, Attorney and partner with McDonald, Hopkins, Burke & Haber of Cleveland, Ohio. “Today that number is increasing, although it remains small.

“The more significant trend involves hospitals which want to reduce Part A payments to pathologists,” continued Cooper. “This results in a situation where pathologists receive inadequate amounts of compensation for the clinical pathology professional services they provide.

“Each year we see more hospitals take active steps to further reduce the amount of compensation paid to their pathology group practices for clinical pathology professional services,” he said. “That is why it is important for every pathology group to anticipate this happening with their hospital or health system, and prepare, in advance, methods for defending the value of their services.”

OIG Issued Advisory

“The Office of the Investigator General (OIG) issued an advisory on January 31, 1991 on this same point,” continued Cooper. “The OIG cautions against arrangements with hospital-based physicians that compensate physicians at less than fair market value. This advisory specifically references no or token Part A compensation as a potential violation of Medicare fraud and abuse statutes.

“It is important to also remind administrators that the hospital is receiving compensation for Medicare Part A services,” added Cooper. “When DRGs were implemented, it shifted the clinical pathology professional component from Part B to Part A. So the hospitals are receiving money for these services which should be passed to the pathologists.”

Educating hospital administrators about compliance issues involving Part A compensation arrangements is only part of the strategy. These administrators must also understand the full spectrum of Part A services delivered to the hospital by its pathology group. That requires the pathology group to do several things.

“First, every pathology group should take a proactive position on Part A compensation,” recommended Cooper. “This requires pathologists to prepare, in advance, for the negotiations they know will be inevitable.

“Next, they should identify and document all the tasks they perform within the hospital,” he added. “This includes meetings, legal risks they assume when signing off on various lab activities, and activities that involve supporting the clinicians.

Successful Negotiations

“Keep in mind that the daily activities of a pathologist are different than other hospital-based physicians, such as radiologists,” noted Cooper. “To be successful in these negotiations, your hospital administrator must understand what those responsibilities are and why they are different from those of other hospital-based physicians.

“As this step is completed, the next smart move is to survey what payment arrangements exist between other hospitals and pathology groups in the city and state,” Cooper stated. “This information has great value in validating the pathologist’s position and gives them confidence during negotiations that they are asking for reasonable compensation.

“In certain environments, I’ve seen another strategy work in favor of the pathologists,” he observed. “In regions where managed care is important, pathologists should show the hospital how their professional services help to improve quality and control unnecessary costs. As healthcare becomes more data-driven, it places pathologists in an ever-stronger position to contribute more to the hospital’s clinical effectiveness.”

Build Relationships

One piece of powerful advice that Cooper offers centers upon the timeless value of the “schmooze factor.” “Much of what happens in every hospital is based on relationships,” noted Cooper. “It’s been our experience that those pathology groups which had regular meetings and communications with hospital administrators, both professionally and socially, start from a much stronger position in these types of negotiations. These pathologists have made rapport and the human factor work in their favor.”

Cooper characterizes these types of relationship-building activities as “preventive maintenance.” He also recognizes that hospital administrators have their own responses to the points made by pathologists.

“The most common rebuttals are probably statements like ‘We don’t pay any other doctor for these activities, why should we pay you’ or ‘The hospital has declining revenues and increasing costs and we expect the pathologists to share the impact of these trends,” Cooper said. “Certainly these are not strong arguments and can be answered through the educational steps discussed earlier.”

What If A Hospital Expands

When negotiating Part A agreements, Cooper recommends that pathologists anticipate future expansion of the hospital or health system. “Whenever a hospital expands or adds new clinics and facilities, this creates additional work for the pathologists,” explained Cooper. “For that reason, it is good to include some kind of mechanism in the contract so that the amount paid for clinical pathology professional services grows as the volume of work increases.”

Insurance plans share the same motive as hospitals to trim back or eliminate reimbursement for clinical pathology professional services. “In our legal practice, we see a growing number of payers simply refusing to pay for these services,” Cooper stated. “This includes payers who have historically made these payments, but then stop without any alteration of their contract language.

“I think that, under the language of the payers’ own contracts, there is often a good argument that they are legally obligated to pay pathologists for these services,” commented Cooper. “Effectively, this means the insurers are taking the position that these are services which should not be reimbursed.

“But since there is generally no financial adjustment in the premiums,” he explained, “these insurers are putting their beneficiaries in the position where they will now get bills directly from the pathologists, but have received no premium offset from the insurer to reflect this change in benefits.”

Interfering With Patients

These actions by payers are often accompanied by an active effort to dissuade patients from making payments directly to pathologists for clinical pathology professional services. “I know many pathologists have seen examples of an insurer telling patients not to pay these bills,” said Cooper.

“This is unacceptable,” he noted, “because there are federal and state court cases which have found these services to be legitimate and have ruled that pathologists have the right to be paid for them. Payers can certainly choose not to cover these services, but they cannot interfere with the physician’s ability to bill and be paid for such services.”

Cooper notes that pathologists have an effective solution to this problem. “These insurers are using the same tired arguments over and over,” he declared. “For example, payers may say that Medicare and Medicaid does not pay for them, when in fact both do.”

These payer arguments can be countered because they are factually inaccurate. “In our legal practice, it is not uncommon for a local pathology group to have more than one payer in their region begin to withhold reimbursement for these services,” recalled Cooper. “We assist them in developing a ‘self-help’ response program with specific steps directed toward the payer and toward the individual patient.

Few Court Cases Filed

“Most of these situations are resolved without court action on the part of pathologists,” added Cooper. “First of all, most patients, once they understand the issues, do want physicians to be paid for services that were rendered. So patients are generally cooperative in these matters.

“Second, federal case law on the subject of pathology professional services support the pathologist’s position,” explained Cooper. “Effectively used by pathologists, these arguments cause most payers to back down on this issue.”

Cooper also noted that hospitals may prevent pathologists from billing payers and patients for these services if the hospital contract with the pathology group has a clause requiring it to agree to enter into managed care con- tracts. “This creates a problem if the payer doesn’t want to pay for professional component services, yet the pathology group, because of its hospital contract, is obligated to accept that payer’s contract. Obviously we advise our pathology group clients to refuse such clauses in their hospital contracts,” said Cooper.

Attack On Compensation

In recent years, THE DARK REPORT has heard from a growing number of pathologists that compensation for clinical pathology services has come under intense attack in their city or region. It is a disturbing trend, because it financially undermines the important services required to produce high quality laboratory testing.

In recent years, the growing number of “attacks” by hospitals, health systems, and payers on reimbursement for these services have popped up in different geographical areas at different times. This fact has made it difficult for the pathology profession to craft and implement a nationwide response strategy.

Until this occurs, the best defense of adequate reimbursement for clinical pathology professional services will come from the local pathology group practice. The tools of a successful defense have been presented here and local pathology groups should prepare themselves for these battles.


There’s one factor that’s common to almost all successful negotiations between pathology groups and hospital administrators involving clinical pathology professional services. It is good documentation of all tasks and responsibilities handled by the pathology group practice in maintaining high quality laboratory services.

“The following list of 21 services is an excellent starting point for every pathology group that serves one or more hospitals,” stated Richard S. Cooper, Attorney and partner with McDonald, Hopkins, Burke & Haber of Cleveland, Ohio. “Of course, in individual hospitals, some pathology groups perform services which go beyond this list. That is why it is important for pathology groups to conduct regular studies of the things on which they spend time.”

1. The consideration of appropriate test methodology, instrumentation, reagents (agents used in laboratory testing, standards, and controls).
2. The establishment of test reference values and levels of precision, accuracy, specificity, and sensitivity.
3. The direction of laboratory technical personnel and advice to such personnel concerning testing.
4. Assurance that tests, examinations and procedures are properly performed, recorded, and reported.
5. Interactions with members of the hospital’s medical staff regarding issues of laboratory operations, quality, and test availability.
6. The design of test protocols and the establishment of parameters for the performance of tests.
7. Recommendations regarding appropriate follow-up diagnostics tests when appropriate.
8. The direction, performance and evaluation of quality assurance and quality control procedures.
9. The evaluation of clinical laboratory data and the establishment of a process for review of test results prior to the issuance of patient reports.
10. The determination of the effects of medication on tests.
11. The determination of the effects of other analytes on test results.
12. The effects of other disease states on test results.
13. The establishment of turnaround times.
14. The criteria for urgent applications.
15. The prioritization of testing and testing sequences.
16. The application and response of values which require immediate medical consideration.
17. The determination of formats for reporting.
18. The establishment of referral criteria for review by pathologists and subsequent examination.
19. The determination of the type of data collection and storage criteria that will be used for particular tests.
20. The prevention of overuse and improper application of tests.
21. The assurance that the hospital laboratory complies with state licensure laws, certain accreditation standards, and certain federal certification standards.


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