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The Ten Commandments of professional component billing

March 2003
Jack R. Bierig

In recent years, it has become increasingly common for pathologists to engage in professional component billing, that is, to charge patients for their services in directing laboratories to ensure that the results of clinical pathology procedures for those patients are timely and clinically useful. Professional component services include, among other things, selecting test methods, overseeing quality assurance and quality control measures, supervising laboratory personnel, reviewing abnormal or unexpected results, and being available to discuss the medical significance of laboratory results with clinicians. (See Central States v. Pathology Laboratories of Arkansas, 71 F.3d 1251, 1252 [7th Cir. 1995]).

A pathologist who bills on a professional component basis charges the patient (or the patient’s insurer) for each clinical pathology procedure performed for that patient in the laboratory—regardless of whether the pathologist personally performed the procedure or reviewed its results. After all, a pathologist who directs a laboratory is responsible for ensuring the timeliness and clinical reliability of every test result for every patient whose specimen is analyzed in the laboratory. That pathologist can be held legally accountable if a patient is injured by virtue of a test result that is untimely or erroneous.

Properly practiced, professional component billing is a reasonable mechanism for compensating pathologists for their time and expertise in directing laboratories for the benefit of patients. However, some patients and insurers have objected to such billing. They take the position that it is inappropriate for a pathologist to bill a patient for a test if the pathologist has not personally performed the procedure or reviewed its results.

Opponents of professional component billing usually make several arguments to support their position. They may argue that, in the absence of hands-on involvement in a specific test, the pathologist has not performed a service that justifies a bill to the patient. They may assert that professional component billing constitutes double billing in that the hospital sends a separate bill for the technical component of the same test. They generally point out that, under the Medicare program, pathologists are generally not permitted to bill patients for professional component services.

This article does not attempt to resolve the debate over the propriety of billing patients for the professional component of clinical pathology procedures. Instead, it suggests several steps that pathologists who engage in this form of billing should take to strengthen their position should they be challenged. Because there are 10 such steps, I have characterized these measures as "The Ten Commandments of Professional Component Billing." Unlike the Ten Commandments revealed to Moses at Mt. Sinai, the Ten Commandments of Professional Component Billing are not divinely inspired. Rather, they represent lessons learned in several cases in which the lawfulness of professional component billing has been litigated. Moreover, these Ten Commandments are not immutable. To the contrary, they change as law and practice develop. Finally, unlike the original Ten Commandments, these come with explanations.

Here, then, are the Ten Commandments of Professional Component Billing.

I.  Thou Shalt Be Mindful of the Services That Justify Professional Component Billing, and Thou Shalt Do Them.
Pathologist laboratory directors do not have a God-given right to bill for every test performed in the laboratory. Rather, they are justified in billing for professional component services only if they actually perform those services. Thus, pathologists who engage in professional component services should be actively involved in selecting and reviewing test methods, establishing ranges of normalcy and panic values, conducting quality assurance and quality control activities, supervising technicians and technologists, reviewing questionable results brought to their attention by laboratory personnel, and discussing with clinicians the diagnostic and therapeutic significance of test results in light of the patient’s history and symptoms. Moreover, they are well advised to keep records that will document that they perform these functions. Absentee lab directors and those who do not actively discharge their responsibilities as lab directors should not engage in professional component billing.

II.  Thou Shalt Draft Thy Contract With Thy Hospital in a Manner That Doth Not Undermine Professional Component Billing.
There are three ways in which a pathologist’s contract with the hospital can undermine that pathologist’s ability to bill patients for professional component services:

  • It can refer to the pathologist’s services in directing the laboratory as "administrative"—rather than "medical"—services.
  • It can recite that the pathologist is performing services for the hospital—rather than for patients.
  • It can provide that the hospital is paying the pathologist a fee for directing the laboratory.

Opponents of professional component billing will seize upon contracts that contain any provisions of this nature to argue that the pathologist should not be permitted to engage in such billing.

With respect to the first two provisions, it is important to recognize that insurers and other payers pay physicians for medical services to their insureds. They do not pay for administrative services, and they do not pay for services performed for the hospital rather than the insured. Thus, characterizing professional component services as "administrative" or as services to the hospital undercuts the position that insurers or other payers are required to pay for these services.

With respect to the third provision, a pathologist who bills patients for professional component services but who also receives payment from the hospital for the same services will be accused of double billing. Thus, a contract that provides that the hospital will pay the pathologist a specified fee for directing the laboratory lays the pathologist open to charges of improper conduct. If a pathologist who receives a lab director’s fee from the hospital wishes to bill patients for professional component services, the contract should carefully recite that the fee is for directing the laboratory for Medicare patients—or for some other defined subset of patients whom the pathologist is not billing for professional component services. An explicit limitation on the patients who are covered by the lab director fee must, of course, be accurate. A pathologist should not bill patients for the same services for which the pathologist is compensated by the hospital— at least unless the contract carefully delineates the supplemental nature of that compensation.

III.  Thou Shalt Not Bill Extra Amounts for Any Service for Which Thou Billeth a Professional Component.
One of the principal justifications for professional component billing is that it spreads the costs of a clinical pathology procedure across all patients for whom that procedure is performed in the laboratory. A patient with an abnormal or unexpected result that may require a significant amount of the pathologist’s time pays the same amount as a patient who had the same test but whose result was normal. This feature of professional component billing has been influential in getting courts to approve of professional component billing. Thus, in American Medical Intl. v. Scheller (590 So.2d 947, 949 [Fla. App. 1991]), the court noted that through this form of billing, "the cost of the professional services for abnormal tests [is] spread over all the pathology tests performed on the patients." Similarly, in Pathology Laboratories of Arkansas (71 F.3d at 1252), the U.S. Court of Appeals observed that professional component billing "spreads costs across all patients."

Pathologists who charge a professional component fee when they do not perform hands-on services and then charge an additional fee when they personally review a test result undercut this rationale for professional component billing. As a conceptual matter, of course, it could be argued that the professional component fee represents a basic charge and that add-ons are appropriate where additional services are provided. However, review of results that are brought to the attention of the pathologist by lab personnel and discussion of results with clinicians are usually listed as two of the key services that justify professional component billing. Accordingly, it does not seem judicious to send additional bills for those services. Moreover, if professional component services are limited to non-hands-on services, fees that are charged for such services may be challenged as excessive.

IV.  Thou Shalt Accept Liability for Tests Negligently Performed or Reported—Even When Thou Wert Not Directly Involved.

One of the principal justifications for professional component billing is that the pathologist laboratory director is medically and legally responsible for ensuring timely and clinically reliable test results for patients whose specimens are analyzed in the laboratory—regardless of whether the pathologist was directly involved in any specific test. If a pathologist can be held liable for an untimely or erroneous result that leads to patient injury, that pathologist should be able to charge the patient for delivering a timely and accurate result. This proposition resonates with judges. It makes judges uneasy to think that a pathologist can be liable to a patient for a service for which the pathologist cannot charge that patient.

Liability for erroneous lab results is the flip side of professional component billing. It seems inconsistent to bill a patient for professional component services and then to argue in a malpractice action that the pathologist is not liable unless he or she was personally involved. Those who live by the sword must be prepared to be wounded by the sword. If you want to deny liability for misreported procedures in a lab that you direct, don’t bill on a professional component basis.

V.  Thou Shalt Consider Having Each Patient Sign a Written Agreement To Pay for Professional Component Services.
The recent decision in Central States v. Florida Society of Pathologists (824 So.2d 935 [Fla. App. 2002]) seems to suggest that professional component billing is inappropriate unless the nature of professional component services has been disclosed in advance and the patient has entered into an agreement to pay for those services. This decision is inconsistent with precedents such as Scheller and Pathology Laboratories of Arkansas. It also appears to be wrongly decided in that the pathologist’s right to bill patients for professional component services derives from the fact that the patient has received the benefit of those services. Further, the decision is binding only in those parts of Florida covered by the Fifth District Court of Appeal.

Nevertheless, the Florida Society of Pathologists decision should put pathologists on notice that there is risk in billing a patient for professional component services in the absence of an agreement by the patient to pay for those services. A pathology group might decide to accept that risk. (See "Florida squeeze," CAP TODAY, December 2002.) However, each pathology group should make a conscious decision whether it wants to seek agreements from patients. Such a decision will depend on the jurisdiction in which the group practices, the hospital’s willingness to include the requisite language in admissions forms, the group’s assessment of the likelihood that patients will sign, and the group’s comfort level with risk. In any event, the issue needs to be confronted.

VI.  Thou Shalt Have a Readily Understandable Written Explanation of Professional Component Charges for Any Patient Who Complaineth.
It is inevitable that some patients will complain about professional component bills. After all, the patient probably has not seen the pathologist and may not understand the services pathologists perform. Accordingly, the pathology group should have a thoughtful written explanation of what pathologists do that justifies professional component billing. That explanation should be written in language that ordinary people can understand. It should invite the patient to contact a pathologist in the group to discuss questions the patient might have.

This approach reflects good patient relations and common courtesy. Moreover, it may succeed in getting the patient to pay for the services in question. At a minimum, it may avoid a complaint to the hospital administration or to a regulatory authority. And if the pathologist is ever sued for wrongful billing, it will put the pathologist in a good light before the court.

VII.  Thou Shalt Not Bear False Witness About Professional Component Services.
Sensing that patients may be reluctant to pay for professional component services, some pathologists have in the past overstated the nature of their clinical pathology services. They have implied or even stated that they review all clinical pathology results to make sure the results are accurate. (See Florida Society of Pathologists, 824 So.2d at 936.) Of course, that is generally not the case.

It is important to be accurate in describing professional component services. Indeed, it is good practice to indicate that the pathologist will bill the patient even if the pathologist did not personally perform a test or review its results. False or misleading statements about professional component services are unnecessary and expose pathologists to accusations of deceptive practices.

VIII.  Thou Shalt Not Sue Thy Patient.
If a pathologist sues a patient to collect unpaid professional component charges, the suit will probably wind up in small claims court, where the judges devote about one minute to each case. The pathologist is not going to have time to explain all the services covered by a professional component charge. By contrast, the patient will take the simplistic position that the pathologist did not collect the specimen, did not perform the procedure, and did not review the results. Faced with this factual presentation, the judge may conclude that the case involves an overreaching pathologist suing an exploited patient. Based on these perceptions, the judge may rule that the pathologist did not perform a service for the patient and that the patient need not pay.

This result would not be so bad if its only consequence was that the pathology group could not collect from the defendant patient. But an adverse ruling in a collection case may be seized upon by an enterprising attorney to bring a class action against the pathology group on behalf of all patients who have been billed by the group for professional component services. Invoking the decision in the collection case, the plaintiffs’ class action attorney will argue that professional component billing is unlawful and that the class is entitled to recover all amounts received by the pathology group in professional component fees for the entire period not barred by the statute of limitations.

This precise scenario actually occurred in the mid-1990s in Illinois after a Peoria pathology group unsuccessfully brought a collection action against a patient. Ultimately, the pathology group prevailed in the class action litigation. (See Smith v. Peoria Tazewell Pathology Group [unpublished].) However, the costs of defending the action were enormous, and the anxiety provoked by the possibility of losing the case was significant. The lesson here is that the potential benefits from suing a patient do not outweigh the potential costs.

IX.  Thou Shalt Adjust Thy Fees Periodically.
Professional component charges are supposed to reflect the reasonable value of the pathologist’s time and effort in directing the laboratory so that the results of clinical pathology procedures will be timely reported and clinically useful. Generally, pathologists charge different amounts depending on the procedure involved. Procedures that require more work by the pathologist should be billed at higher levels than those that require less work.

Over time, some procedures will require less work than they did when they were instituted. For example, when a new test is introduced, a pathologist may have to spend a lot of time training laboratory personnel about the procedure, answering questions as technicians gain experience with the procedure, and advising clinicians about the clinical implications of its results. In this situation, the pathologist will be justified in attaching a relatively high value to the professional component charge. As time passes, however, the pathologist may have to devote less and less time to overseeing the procedure. In these circumstances, it would be good practice to review the charge level annually (or at some other interval) and reduce the charge.

Periodic review of charges supports and emphasizes the position that professional component charges represent fees for the pathologist’s services for patients. In this connection, one point is certain: The time a pathologist spends on a particular procedure does not necessarily bear a one-to-one relationship with the hospital’s costs in connection with that procedure. Thus, it is not good practice to set professional component fees as a fixed percentage of the hospital’s charge for the technical component. Instead, as noted above, it is a more thoughtful practice to review professional component fees at periodic intervals and to adjust them upward or downward on a per-procedure basis in light of the amount of time spent on a particular procedure during a specific period.

X.  Thou Shalt Cultivate Good Relationships With Thy Hospital Administration, Thy Medical Staff, Thy State Legislature, and Anyone Else Whom Thou Might Need to Support Professional Component Billing.
Some payers and some patients don’t like professional component billing. They would prefer to receive the value of the pathologist’s services in directing the laboratory for free rather than pay for those services. Or they simply don’t understand the value of the services that a pathologist performs when the pathologist is not personally examining a specimen.

These opponents of professional component billing might try to put pressure on the hospital administration to prevent the pathologist from billing on a professional component basis. They might seek to enlist the support of the medical staff in this endeavor. They might even try to have legislation enacted or a regulation adopted that would prohibit professional component billing.

For these reasons, pathologists should be on good terms with their hospital administrations and medical staffs. Pathologists who engage in professional component billing should make sure that the administration of the hospital at which they practice understands this form of billing and why it is fair. These pathologists should point out that they need to be paid for providing professional component services and that, if they can’t charge patients for these services, they will have to look to the hospital for payment. They should explain to the medical staff why professional component billing is necessary to enable pathologists to turn out timely and clinically useful laboratory results and to be available to clinicians as a resource.

In states in which professional component billing is common, the state pathology society should try to develop good relationships with relevant state agencies and key legislators. These relationships can be valuable when regulatory or legislative issues arise. Further, the state society can be a valuable resource for pathologists who engage in, or who are contemplating introducing, professional component billing. The CAP’s Division of Membership and Advocacy in Washington, DC, can assist individual pathology groups and state pathology societies on issues relating to professional component billing.

Professional component billing is a legitimate mechanism by which pathologists can be fairly compensated for their services in ensuring timely and clinically useful test results for patients. However, this form of billing is not without controversy. Nevertheless, if thou hearkenest diligently unto these words, thou mayest achieve success in this form of billing. But if thou ignoreth these commandments, then shall professional component billing surely perish.

Jack R. Bierig, of the Chicago law firm Sidley Austin Brown & Wood, is CAP general counsel.