Auctions for Technical Component Services?

| July 10, 2013

Dr. Tom Wheeler from the Baylor College of Medicine (Houston) blogs over at Lab Line by the Doctor’s Doctor on Medscape (registration required). He has insightful pieces that speak to the practice and economics of laboratory medicine.  This latest post I think was news too good not to share and ponder in its entirety here for non-Medscape users.  Apparently, in the latest twist of getting paid what you think something is worth from your laboratory through the traditional payor systems and perhaps in light of recent cuts by CMS for these services, some laboratories, instead of billing the third party payers, have begun marketing their services to pathology groups directly that purchase those services to pay for histology services.  

A brief review — every laboratory test and other healthcare expenditures have a technical component (TC) and a professional component (PC). The technical component is just that – the technical cost of producing a slide, running a laboratory test or producing a radiology film or study.  The equipment, reagents, instrumentation costs and support are considered TC and technical costs and services and charges.  The PC is what is charged for by the practioner, in this case, a pathologist, or in the other examples, a radiologist interpreting a CT study or a cardiologist reading a stress echo.  There will be charges from the laboratory, radiology or cardiology department for the TC and and a bill from the pathologist, radiologist or cardiologist for his/her services to read the test(s) you had performed.  Sometimes a single, or global, charge incorporates both the TC and PC.

What Dr. Wheeler has come across recently is laboratories not actually considering billing insurance for the TC for payment/reimbursement while the pathologist bills for the PC for what he/she did using what is between their ears to make a diagnosis, in a split TC/PC example, but rather charge pathology groups for their services.  And not at the CMS “fair market rate” of under $40 per biopsy but rather upwards of $80 assuming the pathology group is willing to pay more than it would normally collect had it produced the slide and billed a global rate for the TC and PC if I understand this correctly.  

Labs will offer their services, in turn, to who will pay the most or what the market will bear and perhaps the groups will bill global taking this into consideration but how will this be perceived by payers and patients?  CMS says the TC reimbursement for a biopsy is $33.70 (after some significant cuts beginning of this year) while a lab will claim the service is worth 80 or 90 bucks, multiples of CMS rates. 

To say, as Dr. Wheeler writes that attorneys who have opined on the matter claim this is “questionable” and potentially “an illegal inducement” seems like an understatement and how do labs justify 3 times the cost as the reimbursement?  Are the labs marketing this going to claim, like Walmart, a “price rollback” to before January 1, 2013? And how can groups avoid perhaps not getting into an auction on who will pay for these TC services will laboratory providers that sell these services?  And what happens when they do not pay what labs think is “fair” or “reasonable and customary”?

Does this help smaller labs who can provide TC services and sell them with a high margin or larger laboratories that would be perhaps more competitive in this space?

These were clearly not the questions being asked last November 1 when the TC cuts were announced or January 1 when the cuts went into effect.

And if you thought this is interesting, many suspect, as do I, that special histochemical stains and immunohistochemistry are next to be cut and be put on perhaps a more reasonable reimbursement schedule in the eyes of CMS, largely independent of the Accountable Care Act.  

What does this new potential business model do to this balance of lab services and service providers?

Courtesy of Lab Line by the Doctor’s Doctor on Medscape – 


“A new twist has emerged in the physician-owned anatomic pathology laboratory market.  Perhaps it was sparked by the 52% reduction by CMS for the technical component  (TC) of the 88305 (most common biopsy CPT code) at the first of the year.  The TC reimbursement went from $69.78 to $33.70 on January 1st.  Old news, right?  Wrong.

From what I understand (and have witnessed at least once) a new model is emerging for these laboratories – instead of billing the TC (either isolated or part of a global charge) directly to the government or third party payers, these laboratories have begun marketing their TC to the pathology group that will pay the most for it.  In some cases this has been reported to be in the $80-$90 range.  The attorneys that I have seen opine on this say at best this practice is questionable and at worst an illegal inducement to do business.  In theory one could not pay for the TC above fair market value in order not to be considered an inducement.  But what is fair market value in this case?  Is it what CMS was paying in 2012 or 2013?  Is it based on what the market dictates, after all it is fair market value?  Is the market price based upon the cost to do the service or what the market will bear?  I suspect my lawyer friends would say the former.  One way to know for sure is to write the Office of Inspector General (OIG) concerning a hypothetical or real life situation and ask for an advisory opinion.  Some have done this for their own planned business practice or (more commonly) to assess the legality of the activities of other labs that seem to be inappropriate/illegal.”

About the author:

Thomas Wheeler, MD
Dr. Wheeler is board certified in anatomic pathology, clinical pathology, and cytopathology and has served 30 years in academia. He received his medical degree from Baylor College of Medicine in Houston, Texas, where he completed his residency in anatomic and clinical pathology and was Chief Resident in Pathology. Dr. Wheeler serves on the faculty at Baylor in the Departments of Pathology & Immunology and Urology; he is the Harlan J. Spjut Professor of Pathology and is Chair of the Department of Pathology & Immunology.

Category: Advocacy, Anatomic Pathology, Business, Clinical Laboratories, Clinical Pathology, Government, Laboratory Management & Operations, Pathology News

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