College of American Pathologists
Printable Version

  Feature Story





cap today

Outreach patient tissue biopsy: How to help your hospital avoid losing Medicare dollars

September 2004
Dennis L. Padget, MBA, CPA, FHFMA

The savvy pathologist is always on the lookout

for opportunities to help his or her hospital make more money. (When you’ve helped the CEO "shine" in front of the hospital board, there’s a better than even chance your next Part A compensation negotiation session will be more fruitful.) This article describes one such opportunity for you to check out. Your investigation will take only a few minutes, but you may be able to more than double your hospital’s Medicare receipts for outreach histology and nongynecological cytology technical services.

Out ReachOpportunity
Many hospitals large and small have entered the outreach lab testing market to gain incremental, high-profit-margin income from otherwise idle capacity. But the "gold" in this business line can quickly change to "shiny rocks" when Medicare’s precise claim filing rules are intentionally or inadvertently ignored.

Experience indicates outreach patient tissue and nongyn cytology specimens are particularly prone to incorrect billing by hospitals. And the penalty by Medicare for improper billing is severe—only about half the money legitimately due per specimen is actually paid to the erring hospital. Furthermore, the shortfall is not recouped via the year-end Medicare cost report.

Stemming the loss of legally due Medicare outreach dollars is straight forward and easy to achieve. The following tips do not attack a "loophole," nor are they an "income optimization" scheme that would be suspect under Medicare fraud and abuse standards. Instead, they reflect published Medicare policy that hospitals are expected to adopt and follow.

Defining ’outreach patient’
Medicare divides non-inpatients into two categories vis-88-vis lab testing performed in a hospital: outpatients and outreach patients. (The latter category is also often referred to as "non-patients" or "non-hospital patients.") An "out patient" is distinguished from an "outreach patient" mainly by the physical location of the patient at the time the tissue biopsy or other lab specimen is procured. To elaborate:

  • A patient whose lab specimen is acquired on hospital premises by or with the assistance of hospital personnel, when medical services beyond lab work are provided by the hospital to the patient during the same visit or will be provided during an already scheduled followup visit (for example, ambulatory surgery), is classified as an "outpatient";1 but
  • A patient whose lab specimen is acquired off hospital premises by non-hospital personnel is classified as an "outreach patient." In this instance the specimen is sent by courier to the hospital for processing and reporting, but the patient does not receive a medical service (for example, surgical procedure) from the hospital coincident with the procurement of that specimen.1,2

In general, tissue and other lab specimens received at your hospital via courier from physician offices, specialty clinics (for example, endoscopy center), ambulatory surgery centers, and other hospitals are considered outreach work. How ever, if your hospital has an ownership interest in one of these off-campus entities, Medicare’s outpatient rules may apply instead.

Proper billing of histology/nongyn cytology outreach TC services
Hospitals are so accustomed to filing claims for medical services to Medicare beneficiaries with their fiscal intermediaries using form CMS-1450 (UB-92) that most just naturally assume the same protocol is to be followed with respect to claims for lab testing and tissue processing for outreach patients. While there is one instance when that is the prescribed billing method, the circumstance does not pertain to the technical component (TC) of histology and nongyn cytology services—indeed, billing such services to the fiscal intermediary on a UB-92 results in mispayment.

Medicare’s lab work TC billing rules differ depending on the billing entity, the patient type, and the lab test class. The rules for non-inpatient lab work are summarized below. Although the focus of this article is outreach patient histology and nongyn cytology TC services, I’ve included the rules for "out patients" and "clinical lab tests" for contrast and clarity; experience indicates it is precisely because hospital financial-types tend to confuse or mentally commingle outpatients with outreach patients and clinical lab tests with anatomic pathology procedures (for example, histology and nongyn cytology) that improper billing is so rampant.

Clinical lab tests. Clinical lab tests are designated by Medicare on a CPT-code-specific basis. The 2004 CPT codes that identify clinical lab tests according to Medicare are mainly: 80048-80440, 81000-85055, 85130-86063, 86140-87999, 88130-88140, 88142-88155, 88164-88167, 88174-88175, 88230-88289, 88299, and 89050-89060.3 Medicare essentially defines a clinical lab test as one that does not normally require the interpretation of a pathologist, but limited variation is accommodated (for example, coagulopathy tests; hemoglobin and protein electrophoresis tests). With certain exceptions, clinical lab tests for non-inpatients are paid by Medicare via the clinical diagnostic laboratory fee schedule regardless of the classification of the billing entity (for example, hospital, independent laboratory, physician). The billing entity is paid by Medicare at 100 percent of the fee schedule allowance per CPT-coded service, as the beneficiary deductible and 20 percent coinsurance provisions do not apply to these tests.4 Clinical lab tests performed in a hospital for non-inpatients are to be billed as follows:

  • Many hospitals conduct their outreach lab testing program as a fully integrated business line within the overall inpatient/outpatient lab operation. When this is the case, the hospital bills its fiscal intermediary on the UB-92 form for both outpatient and outreach patient clinical lab tests.5 The "type of bill" code appearing in box 4 (FL 4) of the claim distinguishes an outpatient (code 131) from an outreach patient (code 141).6
  • Some hospitals have formally separated their outreach lab testing program from the main inpatient/ outpatient lab operation. The program conducts business as a distinct legal entity (that is, outside the hospital’s umbrella), with its own governance and management structure, registered name, state license, FEIN, CLIA number, Medicare Part B provider number, etc. In this instance Medicare should have classified the outreach entity as an "independent laboratory" (specialty 69), and its claims are then filed with the Medicare Part B carrier using form CMS-1500.7

Anatomic pathology services. Anatomic pathology services are also defined by Medicare via specific CPT code. These services are readily distinguished from clinical lab tests by the fact that each requires the personal diagnostic attention of a pathologist (the professional component) after a technologist has prepared the specimen for microscopic examination (the technical component). The 2004 CPT codes that identify anatomic pathology services according to Medicare are mainly: 88104-88125, 88160-88162, 88172-88173, 88180-88182, 88300-88319, 88331-88348, and 88355-88365.8 As explained below, the technical component of these services to non-inpatients is paid by Medicare per the outpatient prospective payment system (OPPS) APC fee schedule or the RBRVS physician service fee schedule, depending on patient type. The beneficiary deductible and coinsurance provisions apply to all anatomic pathology services under both fee schedules.

  • A hospital billing the TC of an anatomic pathology service for a Medicare outpatient files a UB-92 claim with the fiscal intermediary showing "type of bill" code 131. The service is paid via the OPPS APC fee schedule.
  • A hospital billing the TC of an anatomic pathology service for a Medicare outreach patient must file form CMS-1500 with the Part B carrier to receive the full payment to which it is legally entitled.9 (Medicare owes the hospital the RBRVS physician service fee schedule TC allowance, the same as would be paid to an independent laboratory.) If the hospital incorrectly files a UB-92 claim with the carrier, or a CMS-1500 claim with the fiscal intermediary, the charge will be summarily denied. If the hospital inappropriately bills the charge to the fiscal intermediary on a UB-92 form, it will be paid at the much lower OPPS APC rate, even though "type of bill" code 141 is used.10

In summary, to be correctly and fully paid by Medicare for anatomic pathology TC services to outreach patients, a hospital acting on its own account (that is, not as a distinct independent lab entity, separate from the hospital) must: (a) obtain a Part B provider number from the Medicare carrier; (b) prepare its claims using form CMS-1500; and (c) file its claims with the local Part B carrier. Many hospitals mistakenly bill their fiscal intermediaries on a UB-92 form instead, which is why they end up losing a significant amount of money on these services.

That they are improperly billing Medicare outreach histology and nongyn cytology TC services will come as a shock to many hospital people, and some will even greet the news with significant skepticism. For example, hospital compliance officers in particular love to quote §50.3.2 of chapter 16 of the Medicare Claims Processing Manual (one of several new CMS Internet-only manuals) as a defense for continued improper billing. That section states in pertinent part: "When a hospital ... performs a laboratory service for a non-hospital patient ... [it] ... bills its FI [fiscal intermediary] on the Form CMS-1450." Section 40.3 of that chapter says much the same thing, also without mention of the possibility of a hospital billing the Part B carrier or using form CMS-1500.

That the preceding information accurately reflects Medicare policy and expectation (not an income optimization scheme or a loophole) is substantiated by the following:

  • Chapter 16 of the Medicare Claims Processing Manual fundamentally does not apply to anatomic pathology services. For all intents and purposes, it covers billing and payment for clinical lab tests alone. The only place anatomic pathology services are mentioned with any appreciable degree of specificity is §80.2.1, and that section applies exclusively to the BIPA-2000 §542 exception to mandatory bundling of technical component services in the DRG and APC payments for hospital inpatients and outpatients respectively. Merely scanning the table of contents for chapter 16—let alone reading all 55 or so pages of text—leads to the inevitable conclusion that the intended topic of prime focus is laboratory services paid by Medicare via the clinical diagnostic laboratory fee schedule; the outpatient prospective payment system APC and the RBRVS physician service fee schedules are mentioned only in passing when necessary to clarify limited specific crossover issues. Hence, it is wrong to claim that either §50.3.2 or §40.3 governs hospital billing of anatomic pathology TC services to outreach patients.
  • A statement in the Nov. 25, 1991 Federal Register final rule implementing the RBRVS physician payment program confirms that CMS does not consider the technical component of an anatomic pathology procedure to be a "clinical lab test." The statement is: "This service [the technical component of a surgical pathology procedure by a hospital for a non-hospital patient] is a physician service payable under the physician fee schedule. We do not consider the technical component of a surgical pathology service to constitute a [clinical] diagnostic test."11
  • Section 15020 of the Medicare Carriers Manual says in pertinent part: "... payment can be made under the [RBRVS] fee schedule for the technical component of physician pathology [histology and nongyn cytology] services furnished by ... a hospital ... to non-hospital patients." This policy statement and instruction could not be clearer: A hospital billing the technical component of an anatomic pathology procedure for an outreach patient is to file the claim (form CMS-1500) with the Part B carrier for payment via the RBRVS physician service fee schedule. It is unfortunate that the clarity and precision of the §15020 instruction was seriously compromised when it was transferred to the new Internet-only manual, but there is absolutely no evidence that CMS actually intended to change the instruction; in fact, the conditional language of the new guidance ("Usually, the technical component ... should be billed ... to the FI" and "Depending upon circumstances and the billing entity, carries [sic] may pay [the] technical component," with emphasis added)12 leaves plenty of room for continued application of the very precisely defined policy in §15020.
  • In a Sept. 26, 2001 e-mail to me from the Medicare Purchasing Policy Group in Baltimore, CMS says: "The hospital should bill the [technical component] non-hospital patient [anatomic pathology] service to the carrier, and the carrier should pay this service under the [RBRVS] Physician Fee Schedule rules." In a followup note from the Policy Group dated Oct. 4, 2001, it was observed that: "Hospitals are allowed to have a Part B number(s) with the carrier. This is a common practice."
  • The instructions for completing the Medicare Part B physician and supplier enrollment form (form CMS-855B at 11/2001) confirm the advice given by the Purchasing Policy Group. In particular, subsections A.1 and A.4 of section 1 (page 5) and section 2 (page 8) respectively fully accommodate a hospital being assigned a Part B provider number by the carrier for use in billing, among other services when permitted, "pathology" department medical services. While it may be true that historically hospitals have used such numbers primarily to bill for physician professional services under employment arrangements, the instructions do not limit hospital use of Part B provider numbers to those instances.

Notwithstanding Medicare’s instructions, your hospital’s CFO is likely to want confirmation that making the conversion to form CMS-1500 billing for outreach patient anatomic pathology technical component services will be worth the effort. He or she may ask: "Since I’ll at least get paid the OPPS APC rate if I stay with UB-92 filings with the fiscal intermediary, will I get that much more money from the carrier to justify the added expense?"

The CFO will have to do the math, taking into account the hospital’s current outreach patient volumes. Of course, the CFO should find that CPT code 88305, Level IV-Surgical pathology gross and microscopic examination, dominates by far all outreach patient histology and nongyn cytology technical charges. (If it doesn’t, somebody is seriously miscoding this lab work, or you’ve got a very atypical distribution of outreach specimens. Either way, you and the CFO will want to look into the matter.) The 2004 RBRVS physician service fee schedule allowance for CPT 88305TC (technical component) is $53.77 ignoring the geographic adjustment factors. The 2004 outpatient prospective payment system APC fee schedule allowance for code 88305 (APC 0343) is $25.19, also ignoring geographic and other adjustment factors. That’s a difference of $28.58 per specimen the hospital is losing if it’s not filing its claims properly.

In addition, the CFO will want to consider the welfare of Medicare beneficiaries and the bad debt risk and collection costs for coinsurance balances. The 20 percent coinsurance on a $53.77 Medicare allowed charge is only $10.75, but the outpatient prospective payment system APC national unadjusted copayment due for an 88305 service is $12.55. Granted, that’s only $1.80 more, but should the hospital’s Medicare clients have to bear an unnecessary financial burden? How will referring physicians feel about their senior patients having to pay more out of pocket compared with what they’d be charged by a competing laboratory?

Getting started If your hospital is not properly filing claims for Medicare outreach patient histology and nongyn cytology technical services, be assured that converting to accepted practice is straightforward and painless. The process consists of the following steps.

  • Part B provider number. Medicare Part A and B provider numbers are not compatible. A hospital cannot use its fiscal intermediary-assigned Part A provider number on form CMS-1500 claims filed with the Part B carrier. A unique Part B provider number must be obtained for these purposes, and form CMS-855B must be completed and sent to the local Medicare Part B carrier to obtain that number. The cited form and instructions can be downloaded from the CMS Web site. If the hospital already has a Part B provider number, it should write or call its carrier to determine whether that number will support billing of outreach patient anatomic pathology technical services.
  • Form CMS-1500 claim filing capability. The ability to efficiently and accurately submit electronic claims to the Medicare carrier conforming to the form CMS-1500 record format is an obvious prerequisite. Some hospital billing software packages readily accommodate this record format, but others do not. The hospital’s information system people will need to determine the status of the present billing software in these regards, and if an upgrade or add-on module is needed, they’ll have to estimate the cost and overall feasibility of making the change. An important make/buy decision may be appropriate: Should the hospital invest in the software, equipment, and personnel training (or the addition of specialized talent) needed to conduct the form CMS-1500 claim filing function in-house, or should it outsource the function to a qualified, reputable commercial medical billing enterprise?
  • Staff training and payment monitoring. If the decision is made to undertake form CMS-1500 claim filing in-house, two additional conversion steps will have to be taken.
  • Billing staff will have to be thoroughly trained in the detailed mechanics of completing form CMS-1500 claims, inasmuch as the instructions and nuances are considerably different from those that govern UB-92 claims. Access to carrier bulletins will also have to be accommodated to permit the billing staff to stay up to date. In addition, account management and collection staff will have to be trained in the unique methods and tactics commonly employed when responding to written and phone inquiries from patients who receive a bill from a hospital they did not visit.
  • The easiest step to implement is nonetheless important. Specifically, a payment and account management monitoring system should be installed as a permanent feature. The RBRVS physician service fee schedule and the annual updates should be downloaded from the local carrier’s Web site. The fee schedule should be used ongoing to verify that the carrier is allowing the proper amount for each CPT-coded service that is billed. Accounts should also be periodically audited to ensure that the proper beneficiary deductible and coinsurance amounts are being billed and collected.

A word of forewarning must be given in the interest of full disclosure. When contacting their local Medicare carrier about getting a Part B provider number, some hospitals have been told, "We don’t issue Part B numbers to hospitals." That reaction—although entirely incorrect—is not especially surprising. Experience indicates many carriers have no track record in processing hospital claims for outreach patient lab services. And it’s easy to see how complex, conflicting, and confusing are the Medicare rules for paying lab services to the myriad types of providers that bill for the various patient classes. Understandably, it’s actually common to encounter Medicare contractor personnel who are themselves unfamiliar with program policy in highly specialized and nuance-ridden areas.

What should you do if your carrier reacts this way? First, don’t make the assumption that your carrier is right and that all the information you’ve just read is incorrect. Be patient but persistent. Giving the carrier a copy of this article—with its numerous citations of Medicare policy—may be helpful. But some hospitals have had to go so far as to retain a knowledgeable health law attorney to intercede to help break the "new ground" with their carriers. In at least one instance a telephone conference involving carrier personnel, a health law attorney, and CMS’ Purchasing Policy Group was necessary to convince the carrier.


  1. Medicare Benefit Policy Manual (CMS IOM Pub. 100-2), Chapter 6, §20.1.
  2. Medicare Benefit Policy Manual (CMS IOM Pub. 100-2), Chapter 6, §70.5.
  3. Clinical Diagnostic Laboratory Fee Schedule, calendar year 2004, CMS Web site.
  4. Medicare Claims Processing Manual (CMS IOM Pub. 100-4), Chapter 16, §40.3.
  5. Medicare Claims Processing Manual (CMS IOM Pub. 100-4), Chapter 16, §50.3.2.
  6. Medicare Claims Processing Manual (CMS IOM Pub. 100-4), §60, Transmittal No. 81 (Feb. 6, 2004).
  7. Medicare Claims Processing Manual (CMS IOM Pub. 100-4), Chapter 16, §10.
  8. Medicare [RBRVS] Physician Fee Schedule, calendar year 2004, CMS Web site.
  9. Medicare Carriers Manual (CMS Pub. 14-3), §15020.
  10. Medicare Claims Processing Manual (CMS IOM Pub. 100-4), Chapter 4, §120.1.
  11. Federal Register, Nov. 25, 1991, page 59565.
  12. Medicare Claims Processing Manual (CMS IOM Pub. 100-4), Chapter 12, §60.

Dennis Padget is president of DLPadget Enterprises Inc., Simpsonville, Ky. The advice he provides in this article does not represent official advice of the CAP. As a general matter of practice, before you make changes in your billing procedures, you may wish to consult with your own legal counsel.