College of American Pathologists
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  An appealing decision in Fla. PC payment case


CAP Today




August 2008
Feature Story

Anne Paxton

In April, Florida pathologists notched a decisive victory in their nine-year battle to retain payment for the professional component of clinical pathology services. Upholding a 2007 trial court judgment following a jury’s award of $1.5 million in damages, the state’s Third District Court of Appeal unanimously agreed that Health Options Inc. must pay Palmetto Pathology Services for its billed professional component services.

“It’s wonderful news for the pathologists of Florida because it means they will get paid by Florida HMOs for their professional component services,” says Jack Bierig, a partner with the Chicago law firm Sidley Austin LLP. The case hinges on a Florida statute, so there are no direct implications for other states, he adds. “But symbolically it’s a very good development for pathologists across the country.”

Palmetto is one of 11 pathology groups that had filed suit against Health Options (HOI), the Blue Cross Blue Shield of Florida’s health maintenance organization. Collectively, those cases, which were consolidated by the Circuit Court for Miami-Dade County and should also be covered by this ruling, represent $25 million in damages owed to Florida pathologists. The CAP, the American Medical Association, and the Florida Medical Association submitted amicus briefs in support of Palmetto.

The cases stem from Health Options’ 1999 decision to halt pay­ment for the professional component. “For years and years, Health Options had been paying Palmetto Pathology as well as every other hospital-based provider in the state, all of my clients, for the professional component of clinical pathology,” explains Steven R. Weinstein, a partner with K&L Gates in Miami and outside corporate counsel for Palmetto. “And HOI, to save $4.1 million per year, unilaterally made the decision in 1999 to stop paying those claims. The stated rationale for that policy change was they were already paying the hospital for these services, and they were not direct hands-on services rendered to subscribers.”

Health Options also made this contention in its appeal, and the Third District Court rejected it. “‘Physician care,’ as that term is defined by Florida law, is the ‘care, provided or supervised by physicians... and shall include consultant and referral services by a physician,’” the court said. “The record here demonstrates that the disputed services include supervisory duties, consultations, and referrals by the physician pathologists.”

The damage sum­mary that Palmetto submitted in the case was also in dispute in the appeal. But, Weinstein says, “Health Options had declined all the claims, so all the information was in their system, and they couldn’t claim to be surprised about it.”

“In their appellate papers they raised several other arguments, including evidentiary issues such as what evidence the jury was entitled to hear, and allegedly prejudicial comments made by Palmetto’s attorney. They raised a whole spectrum of evidentiary issues, but the decision turned on whether HOI was required by Florida law to pay Palmetto for the subject services.”

Immediately after the appeal court ruling, Health Options filed a motion for rehearing, a motion for rehearing en banc, and a motion asking the court to certify that there is a conflict with a previous ruling and to certify that the matter is of great public importance. “All three motions were denied on June 20, and on July 7 a mandate was issued allowing the plaintiffs to go recover their money,” Weinstein says.

Health Options’ remaining legal avenue was to file a petition for review with the Florida Supreme Court, and it did so in late July. “They have a right to ask that Court to review this decision,” Bierig says, “but in order to get the Florida Supreme Court to take the case, they’re going to have to show there’s a conflict between this decision and that of another appellate court in Florida.” That earlier case would be Central States v. Florida Society of Pathologists, which is the only decision that has not been favorable to pathologists on the billing issue. However, the Florida Supreme Court takes only a fraction of the cases on appeal, and Bierig is hopeful that it would not regard the Central States decision as in conflict with the Third District Court of Appeal ruling in this case.

Alternatively, Health Options could try to get the Florida statute legislatively amended in light of this decision. “I would assume the Florida Society of Pathologists and individual pathology groups, as well as the College, would strongly oppose any such effort,” Bierig says.

Weinstein says the appeal to the Florida Supreme Court would take about two to four months before a ruling, but he agrees an appeal would be unlikely to succeed. “If the Florida Supreme Court does not accept jurisdiction, the case will finally be over after more than four years. Health Options will be unable to seek further relief.”

“What’s interesting in this case,” Weinstein adds, “is the Third District Court of Appeal doesn’t even mention the earlier Central States ruling, not with standing that it was argued ad nauseam by Health Options. The judges correctly did not see it as relevant.”

Only the payments themselves, plus interest, were at issue, he says. “There are really no additional damages under the law in Florida and in most states. There’s no basis to recover attorneys’ fees unless there’s a contractual basis or statutory basis.” Weinstein, who handles a lot of litigation for participating pro­viders, says “the nature of this dispute was different.

“These were pathologists who did not have a contract with Health Options, so these were essentially common law claims predicated on the HMO Act.” For all participating providers for an HMO, or for an indemnity plan, reimbursement is delineated in the contract, he says.

If the state Supreme Court turns down an appeal, Health Options will have to pay Palmetto the $1.5 million plus 12 percent interest calculated over four years, says Palmetto’s attorney Ervin Gonzalez, a partner at Colson Hicks Eidson in Coral Gables. “They’ve also agreed to be responsible for the other cases, so there would be another trial only if we could not agree on the amount of payment.”

Another case involving professional component billing in Illinois (Martis v. Pekin Hospital) is about to reach the appellate stage, Bierig says. The case was decided in favor of the pathology group in March 2007. (See “Of Clouds and Silver Linings,” CAP TODAY, May 2007.) However, for technical reasons, the judgment in favor of the pathologists could not be appealed by the plaintiff until now. At this point, the appeal has gone forward, and briefing is scheduled to be completed in December of this year.

Bierig, who is representing the pathologists in the Martis case, says its outcome will govern only the state of Illinois. “But I think this is another very important case that pathologists around the country should be supporting.”

Jane Pine Wood, a lawyer with McDonald Hopkins in Dennis, Mass., who has been active in professional component cases, applauds the Palmetto ruling but warns that other threats to payment persist. “It’s difficult to say the ruling has any precedential value outside of Florida. However, there is very, very good language within the opinion, describing the medical necessity of these services and the risk patients would be under if you didn’t have pathologists providing the services.”

“That can be helpful because some of these payers are saying, ‘Oh these are just administrative, automated services—they aren’t medical services. Pathologists really aren’t doing anything and why should they be paid?’” The opinion makes very clear that the pathologists are providing valuable medical services that are critical to patient care, she says. Though the ruling is not binding on payers in other states, pathologists can point to the ruling to justify their position.

However, even within the state of Florida, Wood is encountering a separate issue for her clients who are in-network providers with certain payers. “The practical problem I’m running into now is even though this is the law of the land in Florida and payers such as Blue Cross Blue Shield and United Healthcare should be paying for these services for their HMO plans, those payers are saying: ‘When you, Dr. Pathologist, sign a participating provider agreement with us, you are agreeing to accept zero payment for your professional component of clinical pathology services.’”

“These payers are taking the position that the participating provider agreements supersede this ruling. The payers might agree to pay more for anatomic pathology services, but they are demanding that the pathologists accept zero payment for clinical pathology—take it or leave it.”

She considers this to be playing with fire from a legal standpoint. “It would be interesting to see what a court would say if that were challenged. The payer’s argument is there is nothing in the Palmetto ruling telling parties they don’t have the freedom to agree to different arrangements contractually.”

The payers’ claim that pathologists have “voluntarily” agreed to waive payment is weak, she explains, “because if there is a contract and BCBS says take it or leave it, you’re not ‘voluntarily’ agreeing to anything with an 800-pound gorilla on the other side. So it is not over yet.”

The professional component of clinical pathology is the only medical service not paid directly to physicians today by Medicare, other than noncovered services such as cosmetic surgery, Wood says. “In 1983 Medicare rolled payment for this service into the hospital DRG payment. It’s the only medical service that is.” Many payers, either intentionally or unintentionally, misunderstand and think that Medicare “doesn’t pay,” she adds, but that’s not true.

The courts have consistently upheld pathologists’ right to bill for these services with only one loss of sorts, the Florida Central States case, she notes. “And even that case held that pathologists could, under certain circumstances, bill for their professional component of clinical pathology services.” But new challenges continually spring up. “There are three pending cases involving Anthem BCBS in Virginia, which paid for professional component for many years, and one day said, ‘We made a mistake.’ It’s suing three different pathology groups to recoup dollars it had paid for many years.” The parties in the case are now in the discovery process.

Anthem is making this claim even though the pathologists billed the 26 modifier on the clinical laboratory code, exactly in accordance with the explanation of benefits, and the payments they received showed they were being paid for the professional component, says Wood, who is serving as an outside counsel in the case. “Their reason is: ‘Oh, we had a system glitch—we didn’t mean to pay it.’”

Pathology groups can be at a significant disadvantage in such cases. “It becomes very difficult. We had one client where Anthem went back to recoup the payments, but they were not high enough to fight a legal battle. It killed the doctor to pay, but without a strong state pathology society supporting the litigation, I had to say honestly from a financial standpoint he might spend more fighting the issue than paying back Anthem.”

Given that so many payers brush aside the professional component and the argument that these are medical services, Wood points out, “The Palmetto court’s clear statement that these are critically important medical services is very helpful. That’s a part of the decision, and we haven’t had that kind of clear discussion before.”

In fact, professional component billing has survived because of cases like Palmetto, Bierig believes. “Pathologists have fared very well on this issue in the courts. Indeed, I would go so far as to say that without these judicial decisions we wouldn’t have PC billing—it would be a thing of the past.” It all goes back, he notes, to the victory the CAP won in 1980 in the Arkansas Society of Pathologists case. Another crucial case is the 1995 decision of the United States Court of Appeals in Chicago in Central States v. Pathology Laboratory of Arkansas—“another case strongly supported by the College,” Bierig says.

These cases underscore that professional component billing is a legitimate way to bill for the services of directing a clinical laboratory for the benefit of patients, he says. But pathologists will still need to stay vigilant to protect their rights.

“They have to make very sure that their contract with the hospital does not undercut their ability to be paid for PC services by third-party payers, and that they’re really providing all the services that justify PC billing,” he says.

Anne Paxton is a writer in Seattle