College of American Pathologists
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  Green light for class arbitration on PC payment


CAP Today




July 2008
Feature Story

Anne Paxton

“Claim system enhancement” may sound like a benign, worthwhile initiative for a health insurer to undertake. But for clinical pathologists, it’s been the gift wrapping on a lump of coal from United Healthcare. One of the largest insurers in the U.S., United Healthcare reversed decades of practice four years ago by halting payment for the professional component of clinical pathology services.

Now pathologists in several states have mobilized to fight back, and they are making significant headway. In February about 51 Illinois pathology groups received the go-ahead from a panel of the American Arbitration Association to proceed with a class arbitration against United. Their object: recouping tens of millions of dollars in reimbursement that the company has withheld.

The letters from United Healthcare started arriving in July 2004, saying that the company had been paying for the professional component of clinical pathology by mistake and would do so no longer, says Richard R. Anderson, MD, president of Associated Pathology Consultants, Naperville, Ill. Under its “claim-system enhancements” for “Pass-through or Duplicative Laboratory Services Performed in a Facility Place of Service (POS) Setting,” United said, the professional component would no longer be a covered service.

“There were a number of pathologists or their practice managers who contacted United Healthcare themselves to find out what the issue was,” says Dr. Anderson, who serves as a state issues advisor for the College. “We tried through the Illinois Society of Pathologists to speak with UHC and find a way to rectify this problem. We were unsuccessful, and that’s when we made the decision to get legal counsel involved.”

They chose Duane Morris LLP, a Philadelphia-based firm of 700 law­yers with extensive experience in health care litigation and class arbitration, Dr. Anderson says.

“Our firm learned of this from pathology groups who received the letter from United Healthcare and passed it on, wanting to know if United had a legal right to unilaterally stop payment,” says Gregory A. Brodek, a Duane Morris partner who is representing Illinois pathologists as well as groups that have filed similar cases against United Healthcare in Texas and Tennessee. “By the end of 2004, it was very apparent United had no interest in retreating from the position they had set out, and the only course was for pathology groups to file suit.” Duane Morris notified United in April 2005 that it would dispute the claim system enhancement.

“This was not a typical class-action suit, because there was some action required to become a member,” Dr. Anderson explains. The arbitration panel’s decision contained several options, and each potential class member had to consider them and select the right one. “Option one was for pathologists who had a contract and had contacted UHC. They were automatically a member of the class. If they didn’t know if they had contacted UHC directly or didn’t feel they had significant proof, they had to declare option two, which allowed UHC a period of 60 days to negotiate with the group—that is, until July 12. A third set of pathology groups, as part of their service agreement with their hospitals, was prevented from participating in the class-action–based lawsuit. Those individuals had to opt out of the class.”

The claimants in the class arbitration, now officially titled Associated Pathology Consultants, S.C., v. United Healthcare of Illinois, Inc., are pathologists and participating providers with United who have agreed to accept reimbursement from the company for services rendered to its enrollees at a contracted rate lower than actual charges billed. They charge that United’s unilateral cessation of reimbursement for clinical pathology services violates the physician agreements entered into with United, constitutes unreasonable and vexatious conduct, and is a breach of the Prompt Pay Statute under Illinois law and of the covenant of good faith and fair dealing.

The professional component of clinical pathology services was established, first and foremost, to ensure that there would be appropriate care of patients and that the services pathologists provide in consultation and in directing the lab, as they are mandated to do by Medicare and the Joint Commission and state licensure, are reimbursed, Dr. Anderson says.

The CAP’s position is clear that the professional component is a covered service and is medically necessary. “As practicing pathologists,” Dr. Anderson says, “we strongly feel we provide a significant diagnostic service that truly has an impact on the quality of health care in the U.S., and many of us spend the majority of our clinical time engaged in duties associated with the professional component of clinical pathology. We feel United Healthcare’s unilateral decision has the potential to drastically affect the delivery of current-day lab services, and certainly the quality of lab services, and that is the basis of our class-action arbitration.”

What the groups are seeking, he continues, is payment of lost reimbursement back to the July 2004 decision and ongoing recognition of and payment for the professional component of clinical pathology services.

There have been slight variations in when United’s professional component policy was announced in a state, but the policy is national and the company is adhering to it without exception, Brodek says.

How does United defend its policy? “Typically their position has been either they paid for the services previously in error, they did not intend for them to be paid, or, conversely, what they’re doing is similar to what Medicare is doing. They say ‘Medicare is the national standard; therefore we’re justified in taking our position.’”

That’s an apples-and-oranges comparison, Brodek says. “This isn’t a government program. The contracts between the pathologists and United set out each party’s respective rights and obligations, which is completely differ­ent than the Medicare regulatory system,” under which a portion of the payment is passed through to pathologists.

The Medicare argument is based on a misconception, Dr. Anderson agrees. When prospective payment for hospitals was developed, the professional component for clinical laboratory services was included in the calculation. “So to say that they don’t pay is fundamentally wrong,” he says.

“It is significant that Medicare has always recognized the professional component of clinical pathology services and paid separately for the services reflected in professional component charges prior to TEFRA [Tax Equity and Fiscal Responsibility Act] in 1983. Since then, payment for professional component services has been included in Medicare’s prospective payments to hospitals via DRGs and APCs. Hospitals are required by federal law to pay a portion of these amounts to pathologists for professional component services.” There is quite a bit of case law that backs up the validity of professional component billing, he adds.

One major advantage of professional component billing, Dr. Anderson says, is that it spreads the costs across all patients—and in the process avoids the need to specify which test required which services, thereby yielding administrative savings and reducing overall health care costs.

In fact, in many states Blue Cross Blue Shield and Anthem continue to pay for these services, Brodek says. “It’s unfortunate that we have one lead renegade company out there that’s taken the position it doesn’t have to comply with its contractual obligations.”

In some cases, pathology groups have just rolled over and accepted United’s edict, Brodek says. “That’s been a typical response. United is not as big as Blue Cross Blue Shield, but it’s No. 2, and in a lot of states groups look at it and say we can’t afford to be out” as participating providers, so they feel forced to go along. “It’s unusual when a group takes the position that enough is enough and says, regardless of the size of United Healthcare, we fundamentally believe this is wrong.”

However, pathologists are not alone in facing a denial of reimbursement. Brodek says he has on his desk now another six to eight new issues in the areas of emergency medicine, radiology, and anesthesiology that he’s been asked to look at for similar reasons. “It’s the same game, just different players. The game is: What unilateral changes can we, the payers, get away with that will result in our being able to increase our profits and pay out less money to providers?”

Class action can remedy some of the power imbalance that lets insurers call most of the reimbursement shots, he points out. “Historically, the problem has been that unlike hospitals where the claims are sufficiently large to pursue them, on the physician end that’s not the case.”

“In the mid ’90s, a lot of the payers believed the arbitration process to be preferable to submitting everything to a court, but they largely thought it would be individual groups participating,” Brodek says. “I don’t think a whole lot of thought was given to the ramifications of class arbitration probably until the last four years or so.”

In the most recent round of contracts coming out, there is an attempt to insert a provision prohibiting class arbitration, Brodek says. Whether such a restriction would be legally enforceable is debatable. “The question really becomes: Can an individual or physician group or anybody give away a prospective right without due consideration in a contract of adhesion?”

Brodek says arbitration can still provide an effective means for resolving matters. “As with anything else, a lot depends on the quality of arbitrators, and just as with judges, some of them are viewed more highly than others. We’ve been fortunate to have a very good panel in all the cases we’re in. They view it as a significant matter for pathologists and take it seriously.”

In Illinois, Brodek explains, there are potentially 51 groups that would compose the class; the final number was to have been determined as CAP TODAY went to press, in mid-July. “After the final class is certified, we will proceed with the merits portion of the arbitration. Although slow, the process is proceeding forward as we have hoped,” he says.

What should pathologists do when faced with actions like United’s? “Those groups that are larger and have more market share and ability to negotiate should take the time and attention to make sure key provisions in their contract protect them against unilateral type activity such as this going forward,” Brodek says. “For smaller groups, it becomes much more problematic, and their remedy may indeed be just in joining forces with other similarly situated groups to try to enforce their contract rights.”

From the profession’s standpoint, the stakes are high. “Pathology has a vital role in the provision of quality laboratory services,” Dr. Anderson says, “and the continued threat of lost reimbursement puts the future quality of those services in question.”

Anne Paxton is a writer in Seattle.