In a perfect billing world, clinicians would always check to see whether
the lab tests they order for Medicare patients fit the government’s medical
necessity requirements to diagnose or treat specified health conditions.
Any time a test didn’t appear to be covered, clinicians would explain
to patients why the service would be beneficial even though Medicare would
be unlikely to pay for it in their particular situation. Patients would
then be given the choice to forego the testing or sign an advance beneficiary
notice agreeing to receive it and foot the bill if Medicare wouldn’t.
Clinicians would always attach the ABNs they collected to test requisitions
so labs that perform the testing could bill the patients or their secondary
insurers for it once Medicare denied the claims.
Dream on, labs say.
In reality, "it’s a rare day when labs receive ABNs from physicians
ordering the tests because the physicians really have no [financial] incentive
to collect them," says Paul Keoppel, MBA, MT(ASCP), compliance/billing
administrator for laboratory services at Intermountain Health Care in
Salt Lake City, a nonprofit integrated health system. "And if the
physicians don’t collect an ABN, there’s a good chance that the lab will
have to write off [the charge] for the test, which the patient gets for
In some labs, the incremental losses from medical necessity write-offs
go largely unnoticed until they take an obvious toll on the bottom line.
The good news is that labs can quantify and rein in Medicare medical
necessity write-offs by implementing Six Sigma, a data-driven measurement
and process improvement approach designed to fix systems that fall below
specifications, says Keoppel, who shared his own experience in July at
the AACC annual conference in Orlando, Fla.
Intermountain Health Care, or IHC, implemented a Six Sigma project in
2002 with the aim of slashing its Medicare medical necessity write-offs
for lab services by 75 percent in one year. Sounds like an aggressive
goal, Keoppel admits, but not when you consider that IHC had posted $1.3
million in Medicare laboratory write-offs that year because no one had
collected ABNs from beneficiaries. The red ink generated by write-offs
had been inching up four percent each year since 1999, which was the first
year the lab’s computerized billing system had edits to measure the medical
"Left unchecked, the lab write-offs would have hit $3.9 million
by 2007," Keoppel told conference attendees. And no matter how noble
a health care organization’s mission might be, he said, "no money
means no mission."
As a result of the Six Sigma project, the lab implemented new standard
operating procedures in 2003 for determining medical necessity of testing
and collecting ABNs. The changes cut the write-offs from 5.5 percent to
0.65 percent of total Medicare outpatient lab billing overall for IHC’s
21 hospitals. "In 2004, the outpatient lab write-offs were down to
$220,000," Keoppel told CAP TODAY.
So how did the lab set about to pull off this dramatic reduction?
Keoppel and his cohorts first had to convince the chief financial officers
that obtaining ABNs was not worse than the write-offs. Being able to quantify
the growing six-figure losses helped. Keoppel also couched the write-off
problem as a compliance risk—failure to obtain ABNs meant the lab
was essentially giving Medicare patients free testing.
The icing on the argument for ABNs, however, came when the imaging department
began to run into local medical review policies limiting coverage for
In fact, imaging/radiology accounted for 59 percent of the medical necessity
write-off pie in 2002 compared with the lab’s 24 percent share. The cardiac
catheterization lab share was nine percent, and a miscellaneous "other"
category claimed eight percent. (Imaging/radiology and the cardiac catheterization
lab implemented Six Sigma projects concurrent with the lab’s, Keoppel
To tackle the lab write-offs, Keoppel and his project team followed the
five steps in Six Sigma, which are sometimes portrayed in a circle.
- Define. The team developed a clear statement of the
problem and the goal to reduce lab write-offs for Medicare by 75 percent
within a year. It also identified the stakeholders: Medicare beneficiaries
(or their family members) who weren’t used to paying for lab tests at
IHC, the ordering physicians who often viewed payment for testing as
the lab’s problem, and the frontline lab staff since ABN collection
usually falls to the lab, Keoppel says.
- Measure. As Keoppel puts it, "It’s hard to improve
what you can’t measure." The team defined data parameters it wanted
to measure and then collected data to identify problem areas and establish
- Analyze. This step involves use of statistical tools
to identify the problem’s root causes. The analysis involves "slicing
and dicing" the data to look at it in different ways, Keoppel says.
For example, the team identified which hospitals, doctors, patient types,
tests, and diagnosis codes were connected with the most write-offs.
- Improve. The team designed processes and new standard
operating procedures based on an analysis of the problem.
- Control. This step often gets overlooked after an
organization makes quality improvements, Keoppel says. But an organization
must monitor and control its new procedures because "processes
tend to mutate back to old patterns" over time.
In defining the problem and its backdrop, the project team noted that
Medicare pays for clinical laboratory services if the patient has the
specified indications for a test, and that some tests have frequency limits.
Knowing what will be covered has become easier since the Centers for
Medicare and Medicaid Services implemented 23 national coverage determinations
for testing that encompass 80 percent of testing. The NCDs list all of
the Current Procedural Terminology codes and descriptors for the tests,
as well as the diagnosis codes that support medical necessity for the
Local Medicare contractors can add to a national coverage determination
or impose local coverage decisions, though Keoppel says he’s unaware of
any that have done so thus far. Medicare contractors do impose local coverage
decisions for testing that the NCDs do not address.
Labs and other providers cannot bill Medicare for tests that don’t have
an ICD-9-CM code listed by an NCD or local coverage determination unless
they obtain an ABN before providing the services, Keoppel notes. But outpatient
labs that make that determination up front and collect ABNs whenever possible
can shift financial responsibility for the testing to the beneficiary.
To its surprise, the Six Sigma project team discovered that 93 percent
of IHC’s Medicare laboratory outpatients had secondary Medigap-type health
plans that covered the testing listed on the ABNs about 80 percent of
the time. A lab is also free to bill the Medicare patients its customary
charge, which usually includes a markup. IHC is, however, looking at developing
a discounted fee schedule for patients who pay out of pocket.
Once the Six Sigma team defined the problem and the improvement goal,
it decided to measure the following:
- Write-offs attributed to lack of an ABN.
- How the problem was stratified. The team stratified the write-offs
based on where the testing was done, for example, walk-in outpatient
testing, other outpatient (where patients register in imaging or cardiology,
for example, and then receive lab tests ordered by that department),
outreach, emergency department, and ambulatory day surgery.
- Details listing write-offs by hospital per month; doctor; patient
type (for example, outpatient, outreach, ER); test; ICD-9-CM code used;
and the ratio of write-offs to total Medicare outpatient charges.
The key data elements included the date of service; patient identification;
hospital (if more than one—IHC has 21); ordering doctor; patient
type (outpatient, emergency room, etc.); test name, CPT, charge number;
ICD-9-CM code submitted; and test price (amount written off).
In analyzing the data, the Six Sigma project team found that the so-called
Pareto principle (also known as the "80-20" rule) applied in
that 80 percent of the problem could be attributed to 20 percent of the
ordering physicians. But in IHC’s case, 80 percent of that 20 percent
of physicians worked for IHC, which gave the organization clear leverage
in getting the physicians to provide accurate diagnostic information for
Walk-in outpatient and outreach testing accounted for the bulk of the
write-offs. The tests racking up the most write-offs because of inadequate
diagnosis codes were the lipid profile and thyroid-stimulating hormone,
prostate-specific antigen, and glycohemoglobin tests.
The project team also drilled down to specific ICD-9-CM codes submitted
for tests with the most write-offs. For example, when PSA testing was
done for diagnostic purposes, the most commonly rejected diagnosis was
for benign prostatic hypertrophy. "You can’t report a benign condition
when doing PSA to see if someone has cancer," Keoppel says. Medicare
would pay for the test, he adds, when the patient had an ICD-9-CM code
of 601.9 (prostatitis, unspecified) or 602.9 (unspecified disorder of
For the Six Sigma team, walk-in outpatient testing was a golden opportunity
to collect ABNs before the phlebotomy procedure. At the time, the lab
was checking the codes for medical necessity after collecting specimens.
And that left the lab behind the eight ball if the diagnosis codes didn’t
pass muster with Medicare contractors’ local medical review policies.
To reverse that process, the Six Sigma team decided to turn phlebotomists
and registration clerks into certified coders for lab services and give
them a coding program to help change physician-supplied narrative diagnoses
into an ICD-9-CM code.
To develop coding expertise, the laboratory staff attends a three-day
session where they learn the outpatient coding guidelines for ICD-9-CM,
and then annual half-day training on the new diagnosis codes and problem
areas, says Anita Orenstein, corporate health information management compliance
coordinator for IHC. The training also covers compliance dos and don’ts
for ABN collection—for example, the lab can’t dispense blanket ABNs
to cover any unforeseen Medicare denial. Labs can, however, tender ABNs
for any test that has a frequency limit since there’s no way to validate
whether the patient has hit the limit.
Following the new standard operating procedures, the phlebotomists and
registration clerks trained in coding and ABN collection run the diagnosis
codes through a computerized program developed in-house to see if the
codes are covered for the test. If the test doesn’t have a code on the
national or local coverage determination lists, the phlebotomist or registration
clerk collects an ABN from the beneficiary or his or her representative
before the lab draw.
Explaining the ABN to patients requires finesse lest they get the idea
that their physicians ordered a test they didn’t need. So the Six Sigma
team developed scripts for staff to use to explain to beneficiaries why
Medicare probably won’t pay for a test.
While the ABN process sounds time-consuming, it moves along quickly,
Keoppel says. "When the patient is familiar with the ABN, the process
takes 40 seconds," he says. And if the frontline staff person has
to explain the ABN to the patient for the first time, the process requires,
on average, two minutes, which Keoppel views as time well spent compared
with the expense of a write-off.
After the patient signs an ABN, the frontline lab staff may, if time
permits, call the physician to ask for more specific information about
a diagnosis code, Orenstein says. Lab personnel use a script prepared
by the Six Sigma team for that task as well. The script standardizes the
process and helps ensure that lab personnel don’t inadvertently engage
in the verboten practice of "code steering" by prompting the
physician to provide a covered code for the service.
("The lab staff can, however, use a cheat sheet internally to determine
if a physician-supplied code is covered for a test," billing and
compliance consultant Christopher Young, principal of Laboratory Management
Support Services, Phoenix, told CAP TODAY.)
In cases where the physician supplies additional codes or narrative diagnoses
that meet medical necessity requirements for the test, then the staff
person discards the ABN.
Once the lab obtains a signed ABN from the beneficiary for specified
tests, the frontline lab staff person adds a "32" occurrence
code to the account which goes on the UB-92 (universal billing form) sent
to the hospital lab’s fiscal intermediary. (Inpatient providers use the
UB-92 in lieu of the 1500 form to file Part B lab claims.) "An occurrence
code 32 tells the fiscal intermediary that the lab has an ABN on file,
which is comparable to the GA modifier on a 1500 form," Keoppel says.
With the ABN on file, IHC then bills Medicare for the testing. If the
fiscal intermediary denies payment based on national or local coverage
determinations, the lab is free to bill the patient’s secondary insurer
or the patient on a private-pay basis. (All claims with a signed ABN are
submitted to Medicare and Medicare makes the final determination of medical
necessity. If the laboratory collected an ABN in error, the CMS will evaluate
the claim and pay it if the diagnosis is medically necessary.)
Getting a handle on write-offs for outreach testing was trickier because
the lab never sees the so-called nonpatients to secure an ABN.
The Six Sigma team considered how best to work around that obstacle.
The lab could call patients to obtain an ABN before doing the testing,
but that involved the hassle of having the patient send the signed form
by mail, Keoppel says. The lab could also simply refuse to do testing
if the physician hadn’t collected an ABN up front, but, Keoppel says,
the team concluded: "If a patient gets stuck, it implies you’re going
to do something with the sample."
A third option was to "share the pain" with physicians by charging
them a penalty when they didn’t obtain an ABN, Keoppel says. But alas,
the physicians would just find another lab.
So the project team decided to use for outreach testing its existing
process for determining medical necessity. The outreach lab staff codes
the specimens in batches as they arrive in the evening. They then run
the codes through the computerized edits to see if the diagnoses are covered
for the specific test. If not, the testing goes on an "exception
report" that comes out each morning.
In fact, all Medicare testing that fails medical necessity edits and
lacks an ABN appears on the exception report, says Craig Stacey MBA, MT(ASCP),
laboratory compliance and billing director at IHC Urban Central Region.
The billing clerk uses the list to call the ordering physicians and ask
them why they ordered the testing.
"The physicians will sometimes say the patient wanted the test so
he or she ordered it and didn’t obtain an ABN, in which case the lab just
writes off the test," Stacey says.
Any time a physician does supply more diagnostic information for the
testing, the lab staff documents the conversation, including the date
and time, and who supplied the information. "The lab needs significant
documentation when you change the original diagnosis codes or narrative
that appeared on the requisition," Stacey says.
The Six Sigma team devised new procedures to track outreach write-offs
by physicians and tests so as to target educational efforts. Says Keoppel:
"We’ve had success in that regard with IHC-employed physicians ...
but we still have trouble with the nonemployed, unaffiliated physicians.
That’s where we face the same challenges as a Quest or LabCorp-type operation.
Education helps, but some physicians don’t care who pays for the test."
The lab does station its own phlebotomists in high-volume, unaffiliated
practices, which has the side benefit of reducing write-offs once the
phlebotomists are trained to check for medical necessity and obtain ABNs
correctly, Keoppel says. The lab hasn’t thus far tracked the precise impact
that placing the trained phlebotomists in high-volume offices has had.
Keoppel says IHC will implement early next year a computerized physician
order entry system from 4Medica in all physician offices using its labs,
which should improve compliance with the ABN process.
"The [electronic ordering] system’s primary goal is to get quicker
orders from physicians and to tie the orders into the office management
system so the lab can get accurate billing data," Keoppel explains.
But the software program also has a coding tool and can check codes against
medical necessity requirements. "The system prompts the physician
that the diagnosis code doesn’t meet medical necessity and asks for additional
diagnostic information," Keoppel says. And it automatically generates
an ABN for tests that don’t meet medical necessity requirements or that
have a frequency limit.
To maintain the gains realized by the Six Sigma project’s new standard
operating procedures for outpatient and outreach testing, the lab monitors
write-offs monthly and sends "drill-down reports" to hospitals
that identify the write-offs by patient type, patient name, doctors, tests,
and ICD-9-CM codes. IHC-employed physicians receive feedback when their
write-offs climb too high. IHC also holds people accountable for achieving
reductions. "We give them annual goals and let them know monthly
how they are doing," Keoppel says.
The Intermountain Health Care lab plans to tackle ambulatory same-day
surgery and the emergency department next.
In ambulatory surgery, write-offs for partial thromboplastin time and
prothrombin time INR testing have become a major problem since the CMS
eliminated a V code two years ago for preoperative screening that covered
those two tests, Keoppel says. "If the lab could resolve inappropriate
coding and ordering for those two tests, it’d vanquish about 80 percent
of the write-offs in the day surgery area for Medicare," he says.
The problem with prothrombin times isn’t unique to IHC, notes consultant
Christopher Young, who sees write-offs for these tests in all settings
with a hospital-based laboratory. "In the ’old days,’ physicians
did the tests to make sure a patient wasn’t going to bleed abnormally
in surgery," he says. "But now the reimbursement for the testing
isn’t there unless the testing meets more narrow medical necessity requirements."
As a first step toward reducing write-offs in same-day surgery, the pathologist
is going to educate surgeons and anesthesiologists about medical necessity
requirements for preoperative prothrombin time testing.
For example, neither of the tests detects a surgical patient’s bleeding
risk caused by inherited or acquired platelet disorders, including antiplatelet
medications such as aspirin, says Sterling Bennett, MD, director of clinical
pathology for IHC-owned LDS Hospital in Salt Lake City, who assisted with
the Six Sigma project. "So we think surgeons sometimes rely on testing
that doesn’t fully answer the question of whether the patient may have
a coagulopathy because PT and PTT tests don’t detect platelet disorders."
Dr. Bennett says the decision to do preoperative coagulation testing
should be based on the patient’s personal and family history of bleeding
problems or thrombotic conditions and on risk factors, including medications.
"Unless the patient has signs or symptoms of a current coagulopathy,
the most reliable predictor of excessive surgical bleeding is the patient’s
response to previous hemostatic challenges, including accidents, dental
extractions, surgeries, and other invasive procedures, and history of
menorrhagia," he says.
And the most common condition associated with excessive or prolonged
bleeding is von Willebrand disease, which has a worldwide prevalence of
about one percent, Dr. Bennett says. "PT and PTT are not good screening
tests for this condition," he says. "Patient history is the
best screening ’test’ and von Willebrand factor testing is required to
establish the diagnosis."
PTT and heparin assays are used to assess bleeding risk for people on
heparin. "But in many cases, [the physician] will stop the patient’s
heparin prior to the surgery," depending on the physician’s cost-benefit
analysis and type of surgical procedure, says Dr. Bennett. "And PTT
is not a reliable test for monitoring low-dose heparin therapy because
it is frequently not prolonged even during therapy."
If the educational effort doesn’t do the trick, the lab may move to plan
B, which is to give same-day surgery patients an ABN before doing the
testing since the lab staff collects the specimens, Keoppel says.
As for reducing lab write-offs in the ER, education will be the lab’s
only recourse. The Emergency Medical Treatment and Active Labor Act requires
a hospital emergency department to evaluate and stabilize patients before
asking about insurance information, Keoppel notes. That means the ER staff
can’t give a patient an ABN until the person is stabilized.
And the initial workup to evaluate the patient usually involves laboratory
testing that doesn’t meet Medicare medical necessity criteria about 15
percent of the time at IHC, based on 2004 figures. Says Dr. Bennett: "Testing
in the emergency department setting is directed toward immediate decisionmaking
rather than screening or risk assessment tests such as lipids, PSA, etc."
Does a lab have to use Six Sigma to reduce Medicare writeoffs?
Not necessarily, Young says. "But the only really effective way
to reduce them systematically is to use some sort of quality improvement
process involving data collection, such as Six Sigma or a strategic planning
approach," he says. The problem has to be defined and data have to
be collected to find out who is making what kind of errors—and then
the people making them have to be taught how to put an end to the problems.
"’One shot’ deals where you get mad one day and write to clients
to ride hard on them don’t work."
Karen Lusky is a writer in Brentwood, Tenn.