Technical/Professional Billing Split Is A Threat to Pathology

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EACH SECOND YEAR, when we publish our bi-annual trends in anatomic pathology, we get feedback from our clients and regular readers.

This year, a particularly insightful letter was received. The writer wants to add another trend to our list of 11. He puts forth his arguments in the letter we reproduce below:

Letter To The Editor

Dear Editor,

Your recent issue about current trends in anatomic pathology was read with great interest. Once again, you’ve done another fine job! My disappointment is that most pathologists are not likely to act upon anything you point out to them.

I’d like to nominate another important trend in anatomic pathology that should be added to your list. In those states that outlaw discounted client billing, and in cases where a medical practice of physician specialists is not large enough to build their own pathology laboratory, the TC/PC billing (technical component/professional component) phenomenon is taking place—big time!

I was just on the East Coast. In New York and New Jersey, states which both outlaw client billing arrangements, every specialist group that I visited was doing TC/PC to capture revenues from pathology procedures performed on their patients.

The business model of PC/TC began decades ago in the dermatology specialty. That’s when dermatologists began sending their specimens out for processing, then had the slides returned for diagnosis by physicians within their group. Now the urologists and gastroenterologists are doing it. Urology and GI groups send their biopsies and cytology specimens to a laboratory for processing. I believe US LABS may have been first to present this business option to specialty physicians in Maryland in recent years. It seems to have then been introduced in other regions.

In this arrangement, the laboratory bills for the technical component. The slides are sent back and the specialty group hires a local pathologist to read the cases, bills for the professional component and keeps the difference as its profit. These groups have legal opinions that view such arrangements as falling within the in-office laboratory exception of the Stark Laws.

A three-physician urology group can net$100,000peryeardoingthis.The capital investment is small ($7,000 for a microscope) and that’s about all they require to support this business.

I understand that DIANON Systems is also doing this maneuver. Could this be due to cross-fertilization of sales tactics at both US LABS and DIANON Systems, now that they are owned by the same company?

For the pathology profession, the TC/PC split billing trend has devastating implications. This is moving west across the United States at a rapid clip. I know of urology and GI groups being offered PC/TC arrangements in the Midwest. It appears to be perfectly legal and won’t go away.

I’m hearing that certain pathology laboratories already feel the financial pain. Pathology labs specializing in serving urologists, like Bostwick Laboratories and Oppenheimer Urologic Reference Laboratory, either can’t do TC/PC or won’t do it. They are losing urology clients and specimen volumes are flat or declining.

In addition to this TC/PC trend, pathologists are probably unaware of what’s unfolding in the Quest/LabCorp world. One of these lab companies hired 125 pathologists in 2005 and is on pace to hire another 125 during 2006. It is now building a sales force to feed specimens into these pathologists.

For my money, this is going to be a head-on confrontation with local pathology groups. This could really mess up the waters for them. Local pathologists are likely to lose the outsourced pathology cases they currently get in their area and they will now have to compete head-to- head with the 800-pound gorilla.

These are my arguments why the trend of TC/PC billing arrangements belongs on your list. I invite you to print this letter, because I think pathologists need to understand what a serious threat TC/PC split billing is to the entire profession. If you do print my letter, please withhold my name, for professional reasons.

I’m curious as to your thoughts on this subject. Are you hearing about this from many pathologists? Has TC/PC billing popped up in southern or in western states yet?

Yours truly,
Name withheld, per request.

Editor’s Response

You raise several important and well-articulated points in your letter. THE DARK REPORT did not include TC/PC split billing as a trend because of the difficulty in ascertaining how widespread the practice has become.

Further, we have been watching to see if any compliance risk emerges from this practice; more specifically, how will federal healthcare regulators view this business arrangement as it becomes more common? After all, if the compliance risk is minimal and the economic return worthwhile, specialty physicians will have a powerful economic incentive to establish and maintain TC/PC arrangements for their case referrals.

To help us better evaluate how widespread TC/PC split billing arrangements have become in today’s marketplace, we invite local pathology groups to contact us and explain how this business arrangement has gained momentum in their community. A short email to labletter@aol.com is a good way to communicate this information.

It would also help us if local pathology groups sent along samples of sales materials and documentation handed to specialty physicians by labs offering TC/PC billing arrangements. There are several variants of this business arrangement and some do, very clearly, violate compliance guidelines.

THE DARK REPORT concurs that the TC/PC split billing arrangement is a threat to community hospital- based pathology groups. It is another reminder that local pathology group practices should be developing strategies to protect and expand their access to referring physicians in their service areas.

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