Perform services, send out bills, collect the money. If only pathology practice management could be boiled down to a formula like that. Instead, practices today often feel they need brilliant business acumen to grapple with complex billing and management issues—especially in an era of contracting reimbursement.
"We've seen as much revenue as we're going to see in
the world when it comes to medicine, period, and when it comes to pathology
specifically," says Michael Ferrie, president and CEO of pathology billing
company Physician Data Management LLC and anatomic pathology software
firm PathSync, both of St. Louis, Mo. "On a per-test-code basis, practices
are not going to get more money without changing contracting arrangements,
that is, terminating contracts. Those days of increasing reimbursement
But whether they manage their own business affairs
or turn to outside management firms, say experts in the field, practices
can take numerous measures to stem losses and stay well in the black.
And a lot of the remedies are right in front of their
"What we're seeing in pathology is a decreasing
revenue trend over the last five to seven years," says Mick Raich, owner
of Vachette Pathology, a pathology practice management firm that was launched
in 2002. "With fee schedules for pathology being cut, and Medicare driving
down the professional component for the 88305 CPT code, you've got the
classic 'jaws' effect where revenue is going down but the number of cases
is going up."
Raich's company, in Palmyra, Mich., takes a two-part
approach to pathology practices. "I tell them: You've taken a pay cut
the last five years in a row and you want to turn it around. First, we
will go in to audit your billing to make sure it's being done correctly,
and second, we will do what we can to help managed care companies pay
In remote pockets of the country—say, in western
Nebraska or Wyoming, or extreme southern Mississippi—there are still
areas without many managed care plans, he says. "But 10 years ago there
were a lot more of those pockets. Now the guy that had no managed care
plans 10 years ago has two or three, and the guy that had two or three
now has seven or 10."
"With all of these payers accepting Medicare
fee schedules as their benchmark, when Medicare gives everyone a nine
percent pay cut, the group loses money on the Medicare and on
the commercial side if they don't renegotiate." The result, in some cases:
"There are practices that can't recruit people because they don't make
enough money," he says.
It doesn't take outright billing-company fraud for
groups to lose hundreds of thousands of dollars, Raich finds. Among the
causes of lost revenue: too-generous payment for billing services. "Some
groups are paying more than they should. It's not unusual to see groups
paying nine or 10 percent when the going rate is around seven."
"We just recovered $937,000 with one of our
groups because of charges being miscoded or not sent to the payer," Raich
reports. A common problem is the payer agreeing to pay a certain rate
under a contract, but then reneging-and usually not in an obvious way.
"If you look at how managed care determines what it's going to pay, very
few have a set factor. It's RVU times a conversion factor times a GPCI
[geographic practice cost index]; then it might fluctuate three to five
percent. It's a huge game, and you're constantly moving your feet trying
to see what they'll do next."
With the billing industry in the midst of a merger
wave, including McKesson's acquisition of the hospital financial company
Per Se, and Med3000's purchase of Pathology Service Associates LLC, groups
that do their own billing may not necessarily be on the wrong track, he
adds. "Usually groups pay more this way than they would if billing were
outsourced. But if you can do your own billing for nine percent and outsourcing
would be seven percent, that's a good trade. The difference is your cost
However, "we still have some groups doing their own
billing and paying 25 percent for it. They have five employees for a two-man
pathology group; they're still using paper instead of electronics. Some
of them just don't want to change. They say, 'These people are family
to me; they've been with me for 20 years.'"
Frequently he acquires new clients because the leaders
in a high percentage of practices are rotating out. "We had probably six
or seven groups sign this year where the leader retired and the new people
called us to conduct an audit and help them figure out what's going on."
Should they insource or outsource billing? Should their
next hire be a hematopathologist or not? If they bring an HPV test in
house, will it be profitable? Those are examples of questions they often
need a consultant to answer, Raich says.
Though a lot of pathologists hope to steer clear of
arguments and avoid raising red flags—and that makes him attractive
as a "hired gun"—pathologists are not much different from any other
specialty, he believes. "There are some very aggressive entrepreneurs
out there and some very passive partners. Eighty percent of the people
sit right in the middle."
But what many pathologists don't know are the payment
possibilities under Part B. "It amazes me that a number of groups don't
bill for clinical pathology at all. In Illinois, for example, Blue Cross
as well as Medicaid pay $4.50 per test for professional component, but
still many groups don't bill. They'll say: 'I get paid for clinical pathology
through Part A.' But I'll read the contract over and it won't say anything
about it at all. That's money going down the drain."
There are 17 clinical codes pathologists can bill through
Part B—including blood bank, electrophoresis, and other procedures—but
a majority of pathology groups don't bill for them because they think
they're paid under their Part A contract with the hospital. Says Raich,
"We turn this on, and the next thing you know they are making $6,000 or
$8,000 a month more." At one time that may not have seemed like a lot
of money, but most practices can no longer afford to be casual about four-figure
losses. "I have a feeling it's going to be a very busy year for me next
year," Raich predicts.
Getting good value from your billing company is a key
factor in maximizing a practice's net income. But traditional practice
management companies rely on basic ratios and weekly reporting to manage
operations, says Mark S. Daniels, founder and president of San Diego-based
Audit Quality Inc., which performs quality performance audits for hospital
"If you are looking at variation at that level,
your eye is completely off the ball. You're missing the forest for the
trees." Trying to improve quality based on such measures is like playing
"whack-a-mole," he contends. His approach, borrowed from manufacturing
concepts in the automobile industry, is to look at outcomes and measure
The process Audit Quality follows includes an integrated
audit of a practice's coding, billing, and contracts. When pathologists
come to him, Daniels says, they frequently recognize they might not have
the right controls to prevent embezzlement, or they may not be getting
the right type of information. "Sometimes they have lost a partner who's
taken a lot of business away, or they've seen a decline in income that
their billing company claims is due to 'a change in your payer mix.'"
But the practice's billing company may be coasting
on personality rather than performance, he points out. "It's the case
where the lady or guy is extremely cordial, remembers everything, knows
when your kids were born, and so on. The doctors have an emotional investment
in the billing company. But if the billing company's performance is subpar
so consistently, the practice can easily be losing three to five percent
of its income every month."
If claims and revenues are relatively stable, the losses
may not be noticeable. "It's like being a patient on a gurney who doesn't
feel any pain from donating blood until you die; you can't see you're
slowly bleeding to death."
Typical causes might include claims not getting paid
because the billing company did not bill in time, or didn't appeal denials
early enough, or used incorrect codes, he says. On the physicians' end,
the usual problem is undercoding.
But payers are responsible for some of the worst shortchanging.
An IPA that he audited in California had internal guidelines whereby a
certain percentage of all claims were rejected. "Basically they were cheating
physicians out of a couple million dollars a year. And management knew,
and I knew they knew because I gave them my report, and they never called
The IPA's technique was simple: "They would just put
the claim in a drawer and not pay it. Then when they got towards the end,
payments got later and later" until they declared bankruptcy and left
the practices holding the bag. That's where pathology groups have to be
careful, he warns. "You really have to keep on top of payments to decide
early on whether to cancel or not renew a contract."
It's important to remember that pathologists are different
from anesthesiologists, Daniels points out. "They have a lot of small
dollar claims of $45 or $50, where an anesthesiologist or interventional
radiologist claim could be thousands of dollars, and it's less likely
that claims like that will not be processed."
"But the danger in pathology is if you miss
one small claim, you're missing a pattern, and generally you're going
to miss hundreds. That's where you really have to pay attention to how
the process is functioning in terms of outputs."
In particular, pathologists may not realize their billing
company has only one or two pathology group clients and is not at all
effective in billing for the professional component of clinical pathology.
"Physicians can lose a lot of money because they don't know what they
don't know," he says.
"On the other hand, some pathologists make a
conscious decision not to bill for PC/CP. For instance, the hospital may
pay such a large amount in terms of compensation for Part A that physicians
don't want to risk losing that, so they just say they're not even going
to bother. They may also be concerned about what their colleagues, the
referring physicians, might think when patients start getting billed for
Whether or not they rely solely on anatomic pathology
for income, Daniels says, "pathologists need to understand and have a
high confidence level in the billing company's ability to provide them
with information that helps them manage their business."
"Most reporting is sort of overwhelming to a
group if it has too much data. The physicians simply don't have time to
go through that in a meaningful way. So pathologists need to ask: Is the
reporting I'm getting okay, and is it adding a benefit in improving my
ability to understand my business?"
Contrary to conventional wisdom, says Harry E. Pukay-Martin,
MBA, CPA, the practices that have the best numbers are the ones that do
billing themselves. But that means less than it might appear, because
"probably the ones with the worst numbers are inside operations as well."
The internal billing system for physician specialists
at Ohio State University, Columbus, has been successful, says Pukay-Martin,
who is general manager and chief financial officer of the 45-member pathology
services group. "We had been using a billing service for years, but all
the specialists at Ohio State came together and bought our own IDX billing
system. Our goal is to be one of the top 10 billing pathology groups in
the country, and a number of times, I believe, we've succeeded in being
He cites two factors in measuring that success. "First,
the days in accounts receivable. Second, and most important, is the net
collection rate. If your days in A/R are over 50 or 60, you're probably
not doing well or you're in a very disadvantaged market."
"Your net collection rate, an overall indicator
of how efficient and effective your billing processes are operating, should
be in the nineties. Like the costs of billing, this is a statistic to
monitor since it represents ongoing streams of revenues coming into the
Pukay-Martin has seen several shifts in payment emphasis
over the years. Before prospective payment to hospitals came along in
1983, "at least in faculty practice, because you could make so much money
on the clinical pathology side, anatomic pathology was less emphasized."
Then DRGs came in. "Many of us didn't realize it at
the time, but this caused a paradigm shift in pathology to an extremely
heavy reliance on reimbursement from anatomic pathology."
What's happening now is another shift, he says. "We're
moving toward the merger of anatomic and clinical pathology with the emergence
of molecular diagnostics. This shift will be further enhanced with the
renewed interest in and emphasis on the component billing of clinical
That pathologists have small bills means they need
to be more automated and efficient in their processing, Pukay-Martin agrees.
But equally important is the need to maintain unrelenting pressure on
payers to pay. "There are a number of groups that haven't really professionalized
either the billing service or the oversight of the billing service. They'll
use the local person they knew at church or the spouse of one of the pathologists,
"And the problem with that is unless you have
somebody doing the work who is specialized and expert in it, who makes
sure all the charges are captured, the cash is booked appropriately, rejections
are handled right away, and claims aren't going unpaid for erroneous or
unjustified reasons, then you're not going to do as well as you would
"OSU Pathology Services participates in almost
every health plan around," he says, largely because they have an extensive
outreach program and don't want to inconvenience their customers. "There
are some hospital-based pathology groups that don't have major outreach,
and since they've got a captive market, they aren't participating providers
in many managed care plans."
He considers the exclusive contracts that Aetna and
UnitedHealthcare have signed with the large national laboratories a potentially
serious threat. "But there are a number of ways to respond. If the group
doesn't have any really strong outreach effort they could simply not participate,
or set fees to cover the higher costs of doing pathology in an inpatient
or ER setting."
"What happens in that case is you're getting
all the high-cost specimens that take pathologists the longest time to
do, and the large laboratories are getting the easy specimens that have
the highest profit margin. In order to survive, pathologists can sign
up with the national lab and do the work for them, "or another route would
be for the pathologists to simply say, 'Fine, you have to pay what it
costs us to take care of your inpatients.'"
As a large multispecialty group with about 650 physicians,
OSU is able to gain leverage with payers by presenting a unified front.
"Almost every day a payer will come up with
another way not to pay you. And in my mind, their job is to collect premiums
and pay providers either slowly or never. And that's what they do quite
well. There's always another wrinkle about why they shouldn't pay you
and you'll go into cycles: One payer will send you a bunch of rejections,
you start pounding on them to get paid, the issue gets resolved, and that
payer is quiet for a while. Meantime, another payer or set of payers will
present you with another set of rejections and life continues."
Pathologists can respond to the pressures from payers
through their testing and through their business structures. "If you're
moving along the paradigm that we're seeing with molecular and additional
studies in genomics—tests that can give us another, better view
of the disease state of patients—these things are helping offset
cuts in rates on current pathology work."
At the same time, Pukay-Martin says, because pathology
is automating some processes for the first time, the equipment is more
expensive, "so your base has to be larger so you can make the capital
investments to keep up." This pressure is going to prompt groups to consolidate,
Physicians faced a threat last winter when the Centers
for Medicare and Medicaid Services launched its "medically unbelievable
edits" initiative, Pukay-Martin notes. That plan, which was partially
pulled back based on concerns voiced by the medical community, would have
set limits on the number of units of service that can be billed per patient
per day, including limits on many pathology and laboratory CPT codes.
"A lot of specialty groups were alarmed, but
if it had been pushed through, it would have had an especially severe
impact on pathology." It would have been disastrous because pathologists
have units of service that are larger than one, he explains. "We may have
a case that consists of many different specimens—say five GI biopsies
from the same colonoscopy procedure—and each one requires individual
examination and pathologic diagnosis."
Pathology practices need to focus on systems to make
their processes as efficient as possible, says Ferrie.
His pathology software company PathSync, formed in
2006, is developing an anatomic pathology data-management system that
integrates a laboratory information product called Lab Manager and a billing
product called Billing Manager.
"One of the pet peeves of people has been that
they have to have two separate systems, because nobody on the laboratory
side has invented a system that does the billing piece well, and nobody
on the billing side would ever think to do laboratory information," he
says. PathSync's goal is to offer a seamless solution for pathology practices.
"What we're putting in place are safeguards,
places in the system that will warn you either something should have happened
and didn't, or something didn't happen on time, and to prevent mixups
in the process." They're focused, too, on efficiency—taking manual,
time-intensive steps out of the lab to save time and expense.
For example, "Say you have a biopsy and for whatever
reason a particular block gets separated from the rest of the blocks.
The system lets you visually see cases in progress, and a case out of
standard will show up in red to capture people's attention," Ferrie says.
On the billing side, he believes pathologists need
to wage a three-pronged war to get reimbursement. First, pursue payment
claim by claim through phone calls, inquiries, appeals, or whatever it
takes. "If you're not fighting at the margin to get payment, you're leaving
money out there that belongs to you. It's easy for pathologists to get
lost in the system. You've got to call on those claims and beat on those
payers, and you can't take no for an answer."
His advice when a payer does say no: "You hang up the
phone and call back to get somebody else until you get the right answer."
Second, when trends become clear, go to the payer from
a policy perspective and say "Look, something is wrong here."
"Unfortunately, it happens with great regularity
that you'll call the payer and they had no idea somebody switched something.
A whole bunch of claims start getting denied and nobody knows why that
happened. Sometimes it's a system error, sometimes a process error, and
sometimes a change in policy that went into effect and nobody was ever
Third, monitor contracts carefully. "Too often money
is left on the table because the pathologists don't want to fight too
hard and sort of upset the proverbial apple cart," Ferrie says. "Either,
one, they don't negotiate a lot harder to get what should be coming to
them, or, two, they stay in contracts they need to figure out a way to
get out of."
A little-acknowledged factor in pathology billing today
is what's happening in coinsurance and deductibles, Ferrie believes. "More
people in this country have significantly more coinsurance and deductibles
than three years ago, and the dollar amounts of both are going up at alarming
rates." His clients have had a few patients recently with $10,000 deductibles—essentially
coverage only for catastrophic care.
"It used to be these dollars were paid by the
insurance company, but now an alarming amount of these dollars are in
the patients' hands to pay, and they often don't have the ability to pay."
A great deal of diligence and reliable monitoring
systems are necessary to cope with the intricacies and pitfalls of practice
management, OSU's Pukay-Martin says. For those in charge of the business
end of pathology, "It's a never-ending process and an always-changing
environment. And if you think you want to do the same thing every day,
then you're not in the right business."
Anne Paxton is a writer in Seattle.