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Taking care of business

December 2003
Karen Lusky

For 22 years, Dennis Padget helped labs focus on the numbers. What lies ahead?

To see pathology come into its own as a business profession takes on special meaning when you have invested your career in helping to bring that about. And that is what Dennis Padget, CPA, MBA, an advisor and friend to the pathology community for the past 22 years, has done. Padget plans to retire from active consulting on Dec. 31 to focus on creating educational products on compliance, billing, and practice business management.

If you ask pathologists to sum up the Simpsonville, Ky.-based consultant’s contributions, they invariably talk about how he helped them develop business acumen to supplement their clinical skills. "Mr. Padget helped the pathology community transition from what might be called a cottage-type industry to practices that are in step with the corporate business setting of the present health care delivery system," says Fred Gorstein, MD, director of clinical laboratories at Thomas Jefferson University, Philadelphia. "And he’s worked not only with hospital pathologists but also with other institutions," says Dr. Gorstein, such as billing agents and professional societies.

George Branam, MD, laboratory director and CEO of Pathologists Associated, Muncie, Ind., concurs: "Padget has shown our practice over the last 15 years how to be as smart about billing as we are about pathology."

To demonstrate just how far pathology has come in the business arena, Padget recounts how he organized a little get-together in Louisville in 1986 for the newly hired pathology billing managers to meet representatives from the key payers-Medicare, Medicaid, and Blue Shield. He asked each of the payer reps to give a brief overview of the basic claim-processing requirements the managers would be expected to meet. "When the Medicaid rep got up to speak," Padget says, "the first words out of her mouth were: ’I’m not sure why I’m talking to you about billing; you’re all hospital employees.’"

Padget is sure he wouldn’t hear those words from a government payer or commercial insurer today. "Pathology today is viewed and treated as much as a business as a medical profession," he notes. "Intra- and inter-group meetings today regularly cover topics you once almost never heard discussed, such as marketing tactics, entrance and exit strategies involving capital buy-in and cash-out, business risk assessment and management, compliance evaluation and management, mergers and acquisitions, and outsourcing, such as setting up an independent lab," he says.

Even so, pathologists continue to face serious and emerging challenges on several fronts, some of which demand the profession’s immediate attention, Padget says. To discuss these challenges and other pressing business, payment, and compliance issues, CAP TODAY asked Padget, on the eve of his retirement, to share his insights and advice.

What do you see as the key trends and challenges that pathologists must act upon now?

First is Medicare’s national correct coding initiative [NCCI]. Long-standing American Medical Association-prescribed CPT coding principles are being overturned with the click of an Excel spreadsheet box. Recent NCCI tables preclude billing 88358 with 88342, 88104 with 88108, and 88342 with 88321, to name but three examples. At a minimum, the Centers for Medicare and Medicaid Services appears to be breaching its contract with the AMA for use of the CPT system for paying physicians. In my view, CMS is also violating the Administrative Procedures Act by fundamentally using NCCI to bypass the public notice and proposed rule-making process.

The second issue requiring immediate attention is account billing. Pathologists are the only physicians I know of that still, after all these years, let others get rich off their labors. To add insult to injury, the price other physicians are demanding from pathologists is falling due to lower margins on the private insurance payment end. One could perhaps take small comfort in the fact that account billing for many years was pretty much limited to dermatology accounts. But now it’s rapidly expanding to urology and gastroenterology. This is happening in the face of growing concern for the ethical and regulatory compliance of account billing as a viable way of doing business.

Pathologists in some states are having success getting direct bill legislation through their state legislatures, but that approach as a national solution will take a great deal of time and capital, even if all 50 state legislatures can ultimately be convinced to act. I personally think national direct bill legislation could be won, provided the dilemma is presented as a women’s and children’s health issue or as part of the overall solution to the under- and uninsured economic problem. However it happens, this long-standing practice has to end if pathologists’ gains in independence and self-worth the last 20 years are to be preserved.

We have to figure out a way to protect the practice of clinical pathology. A great deal of time and money has been expended on this in the past 25 years, but obviously we haven’t hit on the right formula because hospitals and private insurers are still regularly attacking and diminishing clinical pathology via their payment practices, or, more accurately, their lack of willingness to pay. I have no ready solution to offer; in fact, I’ve grappled with this myself for two decades, without consistent success.

Another concern has to do with genetic testing. I see much of this science evolving and being implemented independent of pathology. While this is a broad generalization and not true in all instances, I think the profession needs to fairly quickly decide exactly what role it should play in this science and to aggressively stake its claim accordingly.

What are your thoughts about the Clinical Laboratory Improvement Amendments today-that is, is there anything about CLIA that concerns you at this point?

A recent development in the CLIA area is simultaneously a serious threat and a possible opportunity for pathologists. It looks like CMS is going to start holding pathologists with medical director responsibility accountable for the CLIA-related improper acts and omissions of hospital laboratory employees. Depending on the infraction, a pathologist can be barred from serving as a medical director for up to two years. In addition, if the medical director contract with the hospital is in the name of the pathology group, all physician members of the group can be barred from service as a medical director. So it’s possible a group would have to give up its Part A contract for up to two years because of an infraction by a hospital employee. If a group covers multiple hospitals, it might have to default on all the contracts because a hospital employee at one hospital did something that violates CLIA.

If this thing plays out the way it’s headed just now, a great many groups in the country will need to rewrite their hospital contracts so that they focus on one person as the medical director, rather than the entire group. It’s conceivable this dilemma might be headed off by getting a change in the CLIA law or regulation, but that looks doubtful. Pathologists shouldn’t jump the gun, however, because this is an evolving issue-and it’s possible the outcome of the current battle may be less onerous than I’ve outlined. But anyone who thinks this matter may have implications for his or her group should contact a qualified health law attorney.

On the positive side, if it turns out that pathologists really are to be held accountable for improper acts and omissions of hospital laboratory employees, this would seem to be a pronounced, rock-solid justification for equitable Part A compensation for medical director duties. Who in their right mind would agree to risk up to two years of their career without fair pay?

What one compliance issue should pathologists be most concerned about today?

Medical necessity. Medicare and managed care companies are continually challenging physicians to demonstrate the necessity of the laboratory and other medical services that are ordered and performed. They’ve squeezed about as much as they can out of payment rates, so now they’re going after the services themselves.

Medical necessity lies at the heart of not only Part B contractors’ local medical review policy [LMRP] manuals, but also equivalent manuals maintained by managed care companies. The frequent targets of LMRPs are esoteric, but common, laboratory physician services such as flow cytometry, immunohistochemistry, image analysis, molecular diagnostics, cytogenetics, and molecular cytogenetics. If it’s the patient’s good fortune not to have leukemia, lymphoma, or some other "qualifying" disease or condition, the lab and the pathologist are not likely to get paid for their work.

The problem with laboratory-service-oriented LMRPs is that they’re often developed by carrier or insurer personnel without adequate input from knowledgeable pathologists. Another common problem is that LMRPs are not kept up-to-date. This is where a very active state association of pathologists can play a major role in preventing or minimizing payment issues. Unfortunately, my sense is that state societies have backed away from aggressive, frequent participation in the regulatory process.

But medical necessity issues aren’t limited to LMRP problems. A special stain may be challenged because there’s no evidence in the medical report why the pathologist ordered it. Lab test interpretations, blood smear reviews, and physician transfusion medicine services are sometimes challenged on this basis too. Even the medical necessity of gross-only examinations and multiple biopsies from the same organ-like prostate needle biopsies or colon biopsies-have been questioned in recent years.

I don’t think there’s a way to anticipate or predict how medical necessity may be used by an innovative carrier or insurer, outside the LMRP arena. Practitioners and their representatives have to remain vigilant, and they have to be prepared to mount strong objection, which includes lobbying legislators at the state and national level.

Measuring pathologist productivity has been difficult. Have you discovered or observed any workable methods?

For the anatomic pathology side of a practice, yes, but not for the clinical pathology side, especially involving laboratory direction and oversight.

I’ve used a model driven by case counts for many years, and it’s proven fairly accurate and reliable over a broad range of practice environments. The method considers inpatient versus outpatient surgical volume, gyn versus non-gyn cytology counts, medical autopsies, bone marrow and fine needle cases that involve pathologist procurement of the specimen versus those that don’t, and so on. But the best I can do on the clinical side is to use time study data and ratio comparison among groups. That’s still meaningful and quite helpful, but it’s just not as solid as I’d like. Hospital clinical lab test counts, nonphysician full-time equivalents, etc., don’t correlate all that well with pathologist staffing patterns and needs. You’d think they would, but they don’t.

I’ve talked to people who say they successfully measure and monitor pathologist productivity using the Medicare RVUs [relative value units]. That approach has intuitive appeal, but you can run into problems with specimen mix. For example, we know it takes quite a bit longer for a pathologist to adequately examine a prostate TUR specimen than the average skin specimen. But because both are coded 88305, the pathologist who reads most of the TURs will appear to be a lot less productive than the one who does most of the skins. I’m not saying this is a reason to not measure productivity using RVUs, but you have to be careful how you interpret and use the output. Of course, this approach doesn’t do anything on the lab director side of the practice, so you still have to figure out another mechanism to cover that important area.

I know that the College recently rolled out its PathFocus [Pathology Practice Activity and Staffing Program] data capture, reporting, and peer comparison service. The sample executive summary on the Web site looks very interesting. I look forward soon to having the time to study the service in much greater detail, and hopefully to see how subscribers are using the output. I think it’s great the College has done this for its members.

Pathologists really need some internal mechanism to measure and monitor staffing and productivity. How the output will be used plays a major role in deciding on the system selected. For example, being able to demonstrate how much time you spend directing a hospital’s clinical lab will be important when it comes time to negotiate your Part A contract. Also, it’s extremely helpful to have RVU-based cost and productivity data at hand when deciding whether a managed care contract or an offer to handle all the skin specimens from a large dermatology group is worth going after. Obviously, you need to know, too, how many associates you’ll need to add in the next three years if your business grows by 20 percent.

Where I’ve seen productivity systems become damaging is when they’re used as the primary way to determine who gets paid what-the so-called "eat what you kill" approach to income distribution where someone’s income goes up based on the number of RVUs they turn in each month. That’s OK as long as the specimen mix is fairly distributed among all members of the group, but it can quickly become divisive if one or two pathologists do all the skins. Also, if you don’t assign a compensation value to important administrative activities like negotiating hospital contracts, fulfilling hospital Part A obligations, and dealing with managed care companies, who’s going to volunteer to perform those vital functions? You therefore need to figure out on the front-end whether there may be serious, adverse consequences to the system you’re planning to implement, then adjust accordingly.

In your view, what variables need to be considered in deciding whether two pathology groups should merge? And once they have formally merged, what practical problems should they expect to encounter in the first few months?

One of the first things to consider is whether the two groups match or can be made to match from a culture standpoint, which encompasses everything from how the physicians view themselves-scientists versus business people, for example-to how they interact with surgeons and other referring physicians. A culture clash can actually be made to work to one’s advantage, if handled properly. For example, merging science-oriented physicians with business-oriented doctors can make for a much stronger whole when compared to the sum of the parts. But professional jealousy or frustration at having to drag someone along will make for a very bad fit. All prospective participants in a merger have to go through serious and in-depth soul-searching to make sure there’s a realistic chance of living together.

Another thing that should be done early on without fail is to have both groups lay all their financial cards on the table. Marrying two groups is probably going to be difficult-but not necessarily impossible-if there’s a radical difference in average earnings per physician. For example, if the doctors in group A are making $600,000 a year, but those in group B are at $250,000, the ’B’ docs are going to have to pony up a lot of front-end capital to equalize the transaction. That may not even be possible, let alone acceptable, to the docs in group B.

I’ve seen things that most pathologists take for granted get in the way of a merger or complicate things if they don’t consider them before signing all the papers. For example, if the groups have two different billing agents, which one will serve the combined entity? Or if both groups have an in-house billing operation, how do they fairly decide which software to keep and which employees should be let go, if they aren’t all needed?

What if both groups have a histology lab, but the doctors in one group can’t abide the quality of the slides made by the other group’s technologists? How do you resolve that issue?

It’s absolutely vital to involve knowledgeable, experienced outside advisors, such as attorneys, consultants, and accountants, early on in the deliberations. There are major state and IRS tax issues, any number of which have to do with the legal structure of the existing entities and that of the proposed entity. The deferred-compensation programs have to be carefully analyzed too. If one group happens to own an independent laboratory or a billing company, that raises a bunch of questions about how to meld that business line into the new formation.

One also can’t lose sight of the fact that a merger is going to impact outsiders. For example, are all affected hospital contracts assignable? Might hospital administration see this as an opportunity to cut one group’s Part A money? If you have to rewrite your managed care contracts, how likely is it that you can preserve the existing favorable payment rates and terms? How long will it take to get new Medicare provider numbers for the merged entity and each physician? What do you do going into the deal if you know certain referring physicians in the community can’t stand one set of pathologists? Are there any pending malpractice claims against one group, or other skeletons in the closet that have to be given serious consideration, including possible third-party payer compliance matters?

All that being said, I don’t mean to scare anyone into thinking they’re best to forgo mergers. There are too many examples of successful and highly beneficial mergers of pathology groups to conclude the task is too daunting. Yet expert advisors are required to help guide the groups down the garden path-looking at both the roses and the thorns.

One hears that pathologists sometimes are forced by their hospital contract to participate with managed care companies. Does this happen often? Are there ways a pathologist can avoid objectionable managed care agreements?

Hospitals do demand to some extent that their pathologists and other hospital-based physicians participate with managed care companies seen as important to the hospitals’ current and future financial success. These contract clauses came about as a result of managed care companies insisting that hospitals bring along their hospital-based physicians, if the hospitals wanted the companies’ business. It’s arm-twisting for sure, but my health law friends tell me it’s not illegal.

Not infrequently the managed care contracting clause initially proposed by a hospital will be of the "thou shalt participate, or else" variety. The "or else" usually is termination of the pathologist’s contract at the pleasure of the hospital.

It’s nearly impossible to convince a hospital to delete a managed care obligation clause once it’s in the draft contract. The best one can hope to do is get the language softened by introducing escape provisions-that is, transform the clause to something like "thou shalt participate, except when this, this, or that happens."

The ideal solution is to get the hospital to agree to language that limits the pathologists’ obligation to negotiate in good faith with managed care companies for equitable participation terms. If terms can’t be agreed on after 60 days or so of good faith deliberation, the pathologist simply notifies the hospital of the impasse, and everyone goes on with life. But, as you might expect, few hospitals are willing to accept such a fair, reasonable, and sensible clause.

The most common reason a pathologist might not want to participate with a managed care company is that the payment rates are too low. We often can at least get a hospital to agree to a floor below which a pathologist doesn’t have to participate. You can say, for example, that participation isn’t required if a particular company offers less than 135 percent of Medicare’s payment rates under its managed care products. Alternatively, the floor might be tied to the hospital’s discount to the managed care company, or to the rates the pathologist gets paid by other managed care companies, or to the average discount the surgeons at the hospital give the insurer. Making the managed care obligation clause conditional in this way at least gives the pathologist a reasonable degree of protection.

There are a few other tactics a pathologist can use, but it all boils down to a question of how threatened a particular hospital feels-by managed care and competitor hospitals-and how much trust there is between the pathologist and hospital administration. I’ve certainly had situations where my client ultimately had to "eat" an onerous managed care contracting clause, or lose the hospital contract. There’s no magic bullet here-you just do the best you can.

Although pathologists generally seem to be comfortable with CPT coding by now, what are the remaining areas of weakness or concern?

The first problem has to do with medical reporting-how pathologists go about documenting all the billable services they’ve performed for each patient. While I don’t think many Medicare and other auditors are necessarily out to get physicians, it certainly is true that they hold doctors to very high standards of evidence when it comes to justifying the charges they’ve billed. And in my experience, too many pathologists fail to accommodate those high standards. They tend to be trusting people and maybe assume they’ll be given the benefit of the doubt when they’re audited, which just isn’t true.

Pathologists have to accept that they’re communicating with two distinctly different audiences each time they dictate a patient report: the surgeon and a cadre of auditors. Some people would add malpractice attorneys to the mix, as these individuals are very much interested in that report. The key to understanding how to communicate effectively with auditors is to realize that they are not physicians, and, perhaps more important, by and large they have little or no idea what a pathologist does.

Auditors look for CPT keywords in the medical reports under investigation. For example, if an 88307 has been billed for a LEEP cervical biopsy, the auditor wants to see the word "cone" or "conization" somewhere in the report, because "LEEP" isn’t in CPT. Or if 88307 was billed for a "breast mass," the auditor expects to see evidence in the report that the surgical margins were microscopically examined; thus, a statement in the gross description that the "specimen was inked" won’t cut it. A pathologist who bills an 88311 without mentioning a "decalcification" somewhere in the report, under the assumption that "everybody knows" bone has to be decalcified before it can be sectioned, is just asking for trouble.

Now, by producing the physical slide for example, a pathologist probably can prove to the satisfaction of a hearing officer or an administrative law judge that a Giemsa stain was indeed examined to determine that the gastric biopsy didn’t exhibit H. pylori. But in the meantime that pathologist has probably spent several thousand dollars in attorney and consultant fees-not to mention billing and lab staff time, plus personal emotional angst-to defend the $45 or so in payment received.

Pathologists can prevent 99.9 percent of these issues, and the prevention simply requires adding keywords to the pathology report.

The second dilemma has to do with an age-old problem of how to keep pace with the CPT coding rules. Experience suggests some people solve the problem by taking the attitude that the Medicare RBRVS-compatible CPT reporting system for pathology effective at the beginning of 1992 is so cut and dried that there’s no need for continuing education.

It’s true that there have been only a dozen or so pathology-related changes in the CPT text the past 12 years, but there have been many, many interpretive changes. For example, I still find pathologists making use of intraoperative touch imprints and mammography films, but not charging for them. Some are also failing to charge for the separately received [from the uterus] ovary that’s suspicious for significant pathology and the large segment of terminal ileum that’s attached to the right bowel resection. In other words, failing to stay up to date will cost you money. And it can also expose you to audit risk-for example, when you’re reporting cytokeratin stains on sentinel nodes by section or block instead of by specimen, as was clarified in a CAP TODAY "Q&A" several months ago.

So pathologists definitely shouldn’t adopt a set-it-and-forget-it attitude toward the CPT reporting standards they’re supposed to follow. But the trick is, how do you keep up-to-date? The short answer: You invest in continuing education in this arena just as you do on the medical front.

The nice thing about CPT coding continuing professional education is that generally one person-and a nonphysician at that-can handle the function for everyone associated with the practice. That person must be knowledgeable in the principles to begin with, and must be attentive, interested, and enthusiastic. But the unit cost will be far less than for medical continuing education, and the payback will be measurable and positive.

To draw this interview to a close, please tell our readers what you plan to do in the next few years.

My main project after the first of the year will be putting together a comprehensive, updatable manual covering the business side of pathology. What I have in mind is a highly detailed how-to guide to CPT and ICD9 coding, medical reporting to support billed charges, claim filing, pricing of services, compliance essentials, hospital and managed care contracting, merger and acquisition considerations, outsourcing and purchased technical component billing, etc. This will almost certainly be Web-based with quarterly updates. I expect to have at least the core volumes completed by fall of next year.

That will be my serious endeavor. On the just-for-fun side, I’ve got a rough sketch of a novel put together and, yes, there will probably be a pathologist in the novel. As Samuel Clemens reportedly said, "You write about what you know."


Karen Lusky is a writer in Brentwood, Tenn.