College of American Pathologists
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  In Florida case, court makes PC billing stick






August 2007
Feature Story

Anne Paxton

When the Florida health maintenance organization Health Options announced in 1999 that it would stop paying pathologists for the professional component of clinical laboratory services, the HMO called the policy reversal simply a “business decision.” It privately estimated the move would save it $4.1 million a year.

But it’s proving to be a costly decision for Health Options and its parent, Blue Cross and Blue Shield of Florida. In the case Palmetto Pathology Services v. Health Options, a Miami-Dade County circuit court ordered April 20 that the HMO pay Palmetto, one of 11 pathology groups that has filed suit, damages of $1.5 million.

Citing Florida’s “clear and unambiguous statutory and regulatory framework,” the court agreed with Palmetto Pathology Services that the HMO was legally obligated to pay pathology groups for the professional component of the clinical pathology services they provided.

The judgment followed a five-day trial before a jury, says Michael A. Abels, MD, a pathologist with the plaintiff, Palmetto Pathology Services. “Judge Thomas Wilson basically evaluated all the evidence, evaluated the law as it appears in the statutes, and decided that as a matter of law, the verdict was in our favor.”

“The judge then left it to the jury to determine the amount of damages, and the jury awarded Palmetto 100 percent of what we claimed was owed.” That amount included $1,132,219 for the professional component of clinical pathology from March 1, 2001 through Dec. 31, 2006, plus interest totaling $414,260.

And more such awards are likely to come. Ervin A. Gonzalez, a partner at Colson Hicks Eidson in Coral Gables, is representing Palmetto and 11 other pathology groups in their suits against Health Options. All of those cases have been consolidated before the same judge, and Gonzalez is confident those groups will prevail also. Collectively, the pathologists are suing Health Options for $25 million in damages.

While Health Options and Blue Cross and Blue Shield of Florida have filed a notice of appeal with the Florida Third District Court of Appeal, pathologists are optimistic that the Palmetto decision will resolve any lingering doubts or legal debate that the professional component of clinical pathology is a valuable and necessary medical service that is properly billed by pathologists and should be paid by insurance companies and HMOs.

“There’s been an ongoing controversy in many areas as to whether pathologists should be able to bill for the professional component for clinical laboratory services,” says Jack R. Bierig, a partner with the Chicago law firm Sidley Austin LLP.

“Some insurance companies have said the answer is no, and they have various theories,” he says. “One theory is that there is no service for the patient at all; another is that there is a service but it’s paid for by the insurance company through the hospital, and the pathologist should look to the hospital rather than the insurer. For backup, the insurer always quotes the Medicare model,” under which pathologists are paid through Medicare Part A DRG payments to hospitals.

That’s a legacy of Medicare reform decisions made 25 years ago. Clinical pathology is the only physician medical service that the Medicare program pays the hospital for through Part A DRGs, says Jane Pine Wood, an attorney with McDonald Hopkins, Dennis, Mass.

“Until 1983, Medicare paid pathologists directly for these services, but since 1983 Medicare Part A has actually paid hospitals for them under DRGs, for a lot of reasons that are ancient history,” Wood says.

“What happens is because it’s not in the Medicare Part B fee schedule to be paid, a lot of payers say, ‘Oh, we don’t have to pay for the professional component services, so we’re not going to pay for the services.’ Well, that’s not quite accurate. Medicare does pay for the services—Medicare just pays the hospital for these services.”

“Then the more savvy payers will say, ‘Well that must be what we do, too.’ The fallacy of that is the payers are suddenly saying that their payment is to cover professional component services, but they haven’t changed how much they pay the hospital.”

Nevertheless, in private insurance, it is well established that billing for the professional component of clinical pathology services is professionally and ethically appropriate. “In most cases where this has been litigated,” Bierig says, “the courts have said there is a service the pathologist is providing for the patient.”

“Even though the pathologist is not necessarily looking at a particular specimen,” he adds, “the pathologist is performing all sorts of tasks to make sure that the results of each test are timely reported and clinically reliable. So the courts have said to the insurance companies: Either you pay, or if you don’t then the pathologist has the right to bill the patient directly.”

The single exception to that series of rulings came in 2002 in the Central States v. Florida Society of Pathologists case. While not at all involving HMOs or the statutory requirement that they pay for the professional component of clinical pathology services, “that opinion was not favorable to pathologists, and as a result, billing for the professional component in Florida has not been clear,” Bierig says.

“We felt it was wrongly decided and certainly contrary to almost all other precedent. The position of the College and the Florida society was that the decision, to the extent it applied at all, was only applicable narrowly in the district of Florida where the appellate court was located.”

“Clinical pathology is different from other specialties in that the pathologist will spend 30 percent or more of his or her time running the laboratory, so that results for patients are timely and accurate and reliable,” Bierig says.

“If you’re talking about the typical internist or dermatologist or surgeon, or almost any other specialty you can think of, they’re spending a large majority of their time dealing with specific patients. Anesthesiologists, for example, are either working on a single patient or directly overseeing nurse anesthetists who are working on a very finite number of patients. Even in radiology, you’re only going to be looking at so many films.”

Pathologists, on the other hand, have a lot of specimens coming through the laboratory and spend a lot of time making sure the right systems are in place to ensure appropriate and safe patient care, and being available to answer clinicians’ questions.

“So the question is, how do they get compensated? They’re not doing it for the hospital but for the patient,” Bierig says.

Steven R. Weinstein, a partner with K&L Gates in Miami and outside corporate counsel for Palmetto Pathology Services for more than 10 years, says, “Generally, the professional component is for oversight and supervision of the clinical laboratory, and the HMOs’ position for years and years was to pay for PC-CP [professional component of clinical pathology]. In 1999 when they stopped paying, they took the position that PC-CP is not hands-on, it’s not patient identifiable, it’s included in what we pay the facility. And frankly that’s just not true.”

“These cases concern services that are absolutely important, that the pathologist is potentially liable for, and it is absolutely appropriate that pathologists be paid reasonable compensation for their services.”

The professional component billing fight has been unique to pathology, Wood agrees. “Much of what pathologists do in the clinical laboratory is to establish parameters because the numbers may not mean anything to the ordinary doctor,” she notes.

A similarly abrupt shift in payment policy took place nationally in 2004, when United Healthcare terminated pathology contracts throughout the country. “Under the guise of their enhanced reimbursement program, they took the position that they were also going to reimburse in accordance with Medicare philosophy and stop paying pathologists directly,” says Dr. Abels of Palmetto Pathology Services.

The CAP and the AMA had several discussions with United Healthcare, and in December 2004 the AMA wrote a letter to the payer explaining that the use of Modifier 26, Professional Component is appropriate for PC-CP billing under CPT codes 80048–89356.

But frequently the insurer’s policies are determined by differing state laws. “For example, Texas physicians have the right to balance bill an HMO patient if the HMO doesn’t pay, so in Texas pathologists have a certain amount of leverage that we don’t have in Florida,” Dr. Abels says.

“To the extent United is unhappy about the balance billing or feels it is a bad business strategy, they may come to some accommodation with the pathologists. But in Florida they just say, ‘We’re not going to pay anymore.’”

However, in both Florida and Texas, pathologists have been more aggressive in pushing for the right to bill and get paid, Wood says. “There are certain parts of the country where there is not as much history of billing. In New England, for example, traditionally that has been true. But until recently, a higher percentage of pathologists there were employed by a hospital.”

Palmetto and the other pathology groups argued that under the Florida HMO Act, “HMOs must provide ‘comprehensive health coverage’ to their members or subscribers, and the professional and technical components of clinical pathology are part of the comprehensive plans,” Dr. Abels says.

“Our position was the law required that if they’re going to call these covered services, as the HMO Act says they are, then they have to make direct payment for our professional services to us as pathologists, and they have no right to make payment to anyone else including the hospitals.” Palmetto is, to his knowledge, the first case in which a pathology group has made that claim.

At trial, Health Options’ internal documents showed that executives viewed the payment policy as a relatively uncontroversial business decision that would substantially cut costs. “Some of the HMO officials indicated they realized there might be some legal challenges and they would like to modify their contract with the hospitals to specifically include the PC-CP,” Dr. Abels says. But that modification fell by the wayside. “They never made it.”

Interestingly, as the circuit court noted, there was no dispute in the Palmetto case about this and several other matters important to pathology. Both sides’ witnesses testified that PC-CP was a valuable and necessary medical service, and Health Options did not contradict that. All of the hospital officials who testified said the hospitals were paid by Health Options only for the technical component, not the PC-CP services.

Health Options did not contest this testimony, nor did it question evidence that it had contemplated paying the hospitals what it had previously paid the pathologists for their services, but never did so.

Richard J. Hausner, MD, a Houston pathologist and former member of the CAP Board of Governors, was recruited to serve as an expert witness in the case. “My testimony in part was to explain the role of the pathologist in the laboratory—that would include our responsibilities to ensure the accuracy of each patient’s test results, our daily interactions with other physicians involved in patient care, and maintaining the laboratory’s compliance with inspection and accrediting agencies,” he says. “We pathologists are in the laboratory or on call 24 hours a day and assume the professional liability associated with those duties to our patients.”

Dr. Hausner says he was able to counter attempts by Health Options to portray much of the clinical pathologist’s responsibilities in the laboratory as something other than patient care. But, he stresses, “The pathologists who had the courage and tenacity to bring this case forward—and the 11 other groups that have similar cases—are the individuals most deserving of recognition.”

Dr. Abels considers the decision a vindication of pathologists and of the value of PC-CP. “Some of us spend 50 percent of our time practicing the medical specialty of clinical pathology, and every single pathologist is medically liable to each and every patient for the accuracy, timely performance, and correct reporting of each and every laboratory result.”

“If anything goes wrong, or any patient has an adverse outcome because the laboratory result was inaccurate or [the test was] not performed correctly, that patient can turn around and sue the pathologist along with whoever else they choose to sue for any harm caused.

“While judges may not understand medicine or pathology or laboratories, they do understand liability,” he says. “And they understand that where there is liability, there is value.”

Blue Cross and Blue Shield of Florida and Health Options have put up a bond of 125 percent of the amount of the award, pending their appeal. According to Gonzalez, the insurers are not likely to file briefs until October and November, and the appeals process is likely to take a year. But over the short term, Weinstein says, “I would think a lot of HMOs would make a business decision that rather than get embroiled in litigation, it would make sense to change their methodologies, and the way they load their system and pay for these services.”

In preparation for the appeal, the CAP is composing an amicus brief on Palmetto’s behalf. In the meantime, 11 other cases in Florida are on hold pending the outcome of Health Options’ appeal, as well as cases pending outside Florida. Numerous pathology groups in hospital-based settings in different parts of the country have contacted Gonzalez for advice.

Says Bierig, “Everyone is looking at these cases to determine what are the relative responsibilities of the patient, the pathologist, the insurance company, and the hospital.” That’s one reason why Bierig views Palmetto as particularly significant.

“It really stands in some ways as a refutation of the Central States case. Certainly it’s a counterbalance to that decision,” he says. Applauding the Palmetto plaintiffs and the lawyers in the case for their work, Bierig stresses that pathologists need to support Palmetto in the appeal. “The outcome of the appeal will be very, very important to pathologists in Florida—and elsewhere as well.”

The case also underscores the need for pathologists to pursue proper reimbursement by insurance companies that seek to save money by obtaining free services. “Pathologists should be fairly paid for the work they do,” Gonzalez says, “and if they aren’t, the precedent is terrible, because we’re going to lose qualified doctors and health care will suffer. There’s no way an insurance company should be allowed to say unilaterally ‘we’re not going to pay what’s fair.’”

Dr. Abels adds: “We as pathologists—especially hospital-based pathologists—have no contemporaneous knowledge of patients’ insurance status, nor would we withhold services if we did. We give every patient our 100 percent best effort, and we need to stand up for ourselves and not minimize the importance of our specialty.”

Anne Paxton is a writer in Seattle.


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