College of American Pathologists
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  PC billing decision dishes victory—with a side of caveats


CAP Today




December 2009
Feature Story

Anne Paxton

For pathologists, there is much to celebrate in the recent decision by an appellate court in Illinois regarding the lawfulness of professional component billing. In the case, Richard Martis v. Pekin Memorial Hospital, et al., a patient challenged professional component billing on numerous grounds. Significantly, on Oct. 20, the appellate court affirmed a trial court’s dismissal of the case.

It’s the first ruling on the issue by an Illinois appellate court, and it accords with the conclusions of most courts, which have upheld professional component billing. Nevertheless, one take-home message could be borrowed from a tried-and-true rule of the road: When it comes to PC billing, pathologists have the right of way but should proceed with caution.

“From a pathologist’s point of view, the court ruled in our favor and that’s good news,” says former CAP governor Richard J. Hausner, MD, of Houston. “Nonetheless, it is regrettable that the plaintiff, Richard Martis, is a patient. Somehow he didn’t understand the valuable role of clinical pathologists in the hospital laboratory and selected a lawsuit for his remedy.”

Dr. Hausner notes the Martis case differs from a recent case in Florida about professional component billing, Palmetto Pathology Services v. Health Options. “In that case, the pathology group was the plaintiff, taking action against the unfair and unlawful actions of an insurance company. In Martis, the pathologists found themselves as a co-defendant alongside the hospital, which was also sued. So Mr. Martis was the complaining party, complaining about the entire system, not just the pathologist.”

Martis’ suit against Pekin (Ill.) Memorial Hospital, Data Management Inc., and Peoria-Tazewell Pathology Group concerned an October 2004 bill for laboratory tests: one from the hospital for $609 and one from the pathology group for $73.30.

Though Martis had accepted and initialed a form authorizing treatment, which advised that there might be a separate bill for the professional services of a pathologist, he contended in his lawsuit that the charges by the pathology group amounted to illegal double billing, and he requested relief against the defendants “on behalf of himself and others similarly situated.” Had he succeeded, the court would have determined whether the case would go forward as a class action. If the class were certified, the defendant pathology group would have faced the possibility of having to pay back all the fees it had collected for professional component services for many years.

The trial court dismissed the complaint, holding that professional component billing is not actionable. Now, an appellate court has agreed: Martis entered ­into a contract with the hospital, in which the pathology group was specifically mentioned. He was provided with a reasonable explanation of the pathology charges. And the charges were not deceptive or unfair.

Martis petitioned Nov. 25 for review of the appellate court’s decision by the Illinois Supreme Court. Whether the Illinois Supreme Court will hear the case will not be known until early next year.

Jack R. Bierig, of the Chicago law firm Sidley Austin LLP, represented the defendant pathology group in the trial court and in the appellate court. He sees the ruling as a victory for pathologists, though not a resounding victory.

“First of all, it’s a 2-to-1 decision, with a written dissent. The existence of a dissent always gives some pause,” Bierig says. “Second, it basically relies on the contract that the patient signed when admitted to the hospital agreeing to pay for the services of the pathologist.”

“The decision would have been far stronger,” Bierig says, “if it had said the pathologist is providing a service to the patient whether or not he or she actually looks at a particular patient specimen. That would have been a home run—but the court didn’t say that.”

“For this court, the fact that the patient put his initials on this agreement to pay the pathologists, and the fact that the bill had a very explicit statement of what the professional component bill was for, were the decisive factors.”

Bierig summarizes three key messages that the ruling sends to pathologists who want to bill for the professional component: First, have an agreement by the patient to pay for PC services. Second, make full and fair disclosure of what a bill for PC services involves. And third, make sure the contract with the hospital and the pathologist makes clear that the pathologist is providing services to patients, not to the hospital, and that any payment the pathologist receives from the hospital is not for services to private-pay patients for clinical pathology.

The case also provides pathologists with a window on the broader legal landscape for PC billing, he believes. “There are a lot of theories that can and will be advanced against PC billing, and not only against the pathologist who engages in it but potentially against the billing company. Indeed, the billing company was a defendant here as well.”

Four different legal theories were advanced in this appeal, Bierig says. “One was that this was a violation of the state Medical Practice Act on the theory that it involved a splitting of fees with a nonphysician—namely, the hospital. Two, a consumer fraud claim, charging that the pathologists were billing for a service that they didn’t perform for the patient. Three, an ‘unjust enrichment’ claim—that the pathologists were unjustly enriched because they didn’t really do anything for this specific patient and yet were charging and double billing. In other words, they got payment once from the hospital and yet again from the patient. Four, that this violated the Medical Patient Rights Act, which in Illinois requires a physician to give an explanation to the patient of the services for which the patient is being billed.”

Each of these theories took the court a fair amount of time to address, Bierig says. And this was not a slam-dunk case for the pathologists. “Throughout the oral argument, which went far longer than scheduled, the dissenting judge kept insisting on the idea that this was part of hospitals’ overhead and the pathologist gets paid by the hospital. Payment by the hospital for the professional component of clinical pathology services happens to be the Medicare model. So winning these cases is not necessarily a foregone conclusion,” he emphasizes.

All of which underscores the importance of having the contract with the patient, the necessary disclosure, and the proper provisions in the contract with the hospital. “You’d better have all those things in place,” Bierig cautions. But one more thing: “A pathologist who engages in PC billing needs to know that that practice could be challenged in court.”

Since the Martis case was a class-action suit, it was not only the one $73 charge that was at stake. At risk were all the professional component charges the pathology group had made within the statute of limitations. “You’re talking about hundreds of thousands of dollars, if not millions of dollars.” Since there are already a number of challenges to PC billing pending, a loss in the Martis case might have given a green light to others, Bierig points out.

For that reason, “This is a very important victory,” he says. “First of all, it’s extremely important for Illinois pathologists, because it’s the first appellate decision on PC billing by an Illinois state court. And it’s also of great significance to any pathologist who’s doing PC billing in any state, because these courts cite cases from other jurisdictions.”

There are additional reasons to view the Martis decision in a positive light, Dr. Hausner says. “We hope that, from this case, patients and the courts will come to a better understanding of the role of the pathologist in the clinical laboratory and the fact that a professional fee for the pathologist is consistent with appropriate medical practice.”

Anne Paxton is a writer in Seattle.