How Pathologists Get Paid: What Every Pathologist Should Know

You go into work each morning, sign out surgical or clinical cases, attend frozen sections, do fine needle aspirations, tumor boards, spend time with residents, and, depending on the payroll schedule of your organization, you get a paycheck every two weeks or at another regular interval. It sounds pretty simple. Do you need to bother with the technicalities and details of how you get paid?

While it may seem that such technicalities are the responsibilities of administration, in reality, they are intricately and fundamentally tied to the responsibilities of a pathologist. Payment systems and rules affect not only the dollar amount of your paychecks, but also how pathologists practice, their role in the broader practice of medicine, and ultimately how patients receive care.

Despite variations in practice scenarios and payor relationships, for pathologists there are essentially three ways to earn revenue:

1. Providing “one on one” professional services to individual patients.
2. Providing laboratory oversight services.
3. Providing other contracted services for, and on behalf of clients.

Medicare, the federal health insurance program for people aged 65 and over (and some younger people with certain qualifying disabilities), is the largest single payor for health care services in the United States. Medicare is administered by the federal government’s Center for Medicare and Medicaid Services (CMS). Under Medicare, the services provided to individual patients are covered as “Part B” (Medical Insurance), while facility and oversight services are covered under “Part A” (Hospital Insurance). Knowledge of Medicare payment processes is particularly important because private insurers follow some analogous processes, and often set their payment rates as a percent of Medicare’s fee schedules. So, how do these payment systems work and why do they matter to you?

The most common source of payment, familiar to most pathologists, is the payment mechanism under Medicare for surgical pathology, cytopathology, and certain clinical laboratory tests. For these professional services, the pathologist examines and interprets the submitted material, such as a gastric biopsy or a cytologic preparation, and produces a report. The payment for that service is determined by assigning a Common Procedural Terminology (CPT) code, which is a standardized coding system for physician services. This physician-based professional service coding system is also used by payors other than Medicare. Payment for a CPT code can be split into the “professional component” that covers the physician’s professional service, and the “technical component” that covers the cost of equipment, supplies, and non-physician personnel . When billing only for the professional services, as is done by some pathology practices, the modifier “26” is appended. The “technical component” alone can be billed with the modifier “TC” appended, and is generally paid under Medicare “Part A.” When combined, the sum of the professional component (PC, “26”) and the technical component (“TC”) is referred to as the global fee.

The CPT codes for basic surgical pathology services are in the 88300-88309 series range. These codes, usually based on specimen source and specimen type, are meant to recognize varying degrees of physician effort, practice expense, and malpractice expense associated with the specimen. For example, a gastric biopsy would be coded as “88305, level IV surgical pathology, gross and microscopic examination,” while a nonneoplastic appendix specimen is reporting using CPT- code 88304. The professional evaluation of a non-neoplastic colon segmental resection (such as for diverticular disease) is 88307, while the CPT code assigned to a colon resection for cancer is 88309.

After the appropriate CPT code is determined, a corresponding monetary amount is assigned by the payor. To ultimately determine a payment amount for a particular CPT code, Medicare (CMS) considers 1) physician work, 2) physician’s practice expense, and 3) malpractice insurance expense involved in performing that particular service, and assigns each element corresponding numeric “relative value units” (RVUs). The CMS utilizes recommendations from the AMA/Relative Value Update Committee (RUC) to make these determinations. The CAP has a seat on this body and develops the recommendations for all pathology services considered by the AMA RUC. An adjustment factor is introduced based on the geographic location where services are provided since, for example, some costs may be higher in a major metropolitan area than in rural setting. The sum of assigned RVUs for a particular code is then multiplied by a conversion factor (CF), which is determined and adjusted annually by CMS, to generate the fee.

Why is knowing this important? Depending on various factors payors, including Medicare or private insurers, may decide to increase or decrease payments for certain CPT codes. Also, while private insurers generally pay more, they can also introduce significantly more variation into the payment formula based on the different insurance plans purchased by their members. Decreased payment or other variations may pose difficulties to pathologists and pathology practices if they do not fairly reflect the value of the work being performed. Additionally, Congress may consider new physician payment legislation impacting payment for physician services. With changes, pathologists must step up and advocate on behalf of themselves to avoid unfair changes in reimbursement. For example, CAP members can participate in the RUC survey, where you can have a voice in the value of reimbursement assigned to the various services pathologists perform.

Pathologists play a vital role in directing laboratories, including ensuring the quality of testing and maintaining laboratory compliance with regulatory requirements. Pathologists are on call 24 hours a day to perform these duties, and bear ultimate responsibility for timely and accurate test results, new test development, and assuring laboratory compliance with regulations. How are pathologists paid for these crucial services?

Payment for the physician professional services of clinical laboratory oversight is less straightforward, and has more variation between payors, than the CPT code model discussed above. Moreover, pathologists face more difficulties in being fairly paid for these services. Attempts to secure fair payment have led to many hard-fought battles. These battles continue today. There are historical roots to the current circumstances.

Under original Medicare, pathologists could bill patients for their services in clinical as well as in anatomic pathology on a “fee-for-service” basis under Part B coverage as a physician service. This changed with Tax Equity and Fiscal Responsibility Act of 1982, known as TEFRA, a wide-ranging federal economic legislation with aim of reducing the budget deficit. Under TEFRA, Medicare transitioned to diagnosis-related group (DRG) system for Part A payments, and clinical pathology services in directing the laboratory were bundled into the Part A payment that the hospital received from Medicare. Then and thereafter, under Medicare, pathologists are required to negotiate a management fee with their hospital administration to obtain payment for these services.

It is crucial to note that Medicare includes payment for clinical pathology professional services in their Part A payment to hospitals, and intends that these services be paid for. However, there is no uniform mechanism to determine attribution and allocation of this revenue to the pathologist, and various methods are used. For example, payments may be determined by calculating the percentage of time that the pathologist spends conducting “Part A” directorship services. This percentage can then be expressed as a dollar amount relative to salary, and negotiated with the owner of the laboratory (i.e., the hospital or health system) to generate a source of income for the pathologist. However, the reality is that hospitals may not readily pay pathologists for their laboratory directorship services. Some hospitals argue, for example, that the provision of office space constitutes fair trade for pathologists’ Part A contributions, In turn, pathologists may not want to jeopardize their contract with the hospital, a source of specimen referral, by arguing the point. To help pathologists negotiate for Part A services, the CAP has developed a Part A Toolkit. 

With respect to private insurers, mechanisms of payment for these services vary. With some insurers, pathologists are able to bill for these professional services using the 26 modifier, indicating services separate from the technical component of laboratory testing. However, many private insurers have refused to pay for these services, using a variety of arguments. This paper from CAP reviews these arguments and ensuing litigation.

Faced with these difficulties, the role of the pathologist is to speak up, advocate, and ensure that the value of the services they provide is recognized. Without advocacy, pathologists may fail to receive fair payment for their valuable work.

The last revenue source for some pathologists is sometimes overlooked. For the professional services discussed above, pathologists or pathology practices bill private insurers or Medicare. However, there are circumstances when a client, whether a physician office, another pathology practice, or an academic institution, contracts a pathologist or pathology group for specific services and subsequently pays directly for such services. The services rendered could be anatomic pathology consultations, clinical pathology consultations, administrative coverage, or even teaching engagements that do not involve a third-party payor. While such billing may take on the form of submitting an invoice, it can also occur in a more subtle manner. This is the case for academicians whose salaries may arise from two principle sources – an academic physician group practice, and the affiliated university. Under such arrangements, off-service time allocation for teaching and research may have been considered by contractual agreement. Thus, these payors are yet another party that pathologists must convince of their value. Otherwise, just like in the other major payment structures, pathologists may end up insufficiently or unfairly compensated for their work.

The importance of fair payment for pathologists goes beyond the monetary income of individual pathologists. Without adequate compensation, future generations of doctors may be discouraged from joining the practice of pathology. As such, ensuring fair payment for pathologists ensures the strength of the future of pathology. With the rising cost of health care and subsequent pressure to reduce costs, pathologists must ensure through advocacy that neither they nor the patients to whom they provide essential services will be left behind.

• Pathologists may be paid for (1) “one-on-one” services rendered to patients, (2) laboratory directorship activities, or (3) contracted services in other client-based arrangements.
• Payments are received by reporting CPT codes, which may be billed for the professional component (PC), technical component (TC), or the “global” combination of the two. The actual payment amount for a particular CPT code is determined by multiplying the assigned relative value units (RVU) by a conversion factor (CF).
• PC payments in clinical pathology have been particularly problematic for pathologists.
• Ultimately, fair payment for pathologists ensures the continuation of the practice of pathology and the interests of patients who benefit from the essential services pathologists provide.

Brian H. Le, MD, MBA, FCAP is a community hospital-based pathologist in Reading, PA. He is certified in Anatomic & Clinical Pathology, as well as Neuropathology. A member of the Practice Management Committee and Digital Contents Committee of the CAP, he holds an MBA and is a Certified Professional Coder and Biller with interests in revenue cycle management. He can be found on Twitter: @brianhlemd.

Ziad M. El-Zaatari, MD, is a fellow in Surgical Pathology and former GU/Renal fellow and AP/CP resident at Houston Methodist Hospital in Houston, Texas. Dr. El-Zaatari is a junior member of the College of American Pathologists’ Digital Content Committee and member and past Chair of the Texas Society of Pathologists’ Digital Content Subcommittee. He can be found on Twitter as @ziad_zaatari.

We are grateful to Dr. Bekra Yorke, former president of the Texas Society of Pathologists, for input in writing this article.