The Ten Commandments of professional component billing
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.
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
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
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
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
- 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
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
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
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
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
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
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
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
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
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