GAO Suspects Monetary Motive in Physician In-House Pathology

August 06, 2013

In-house pathology laboratories in specialty practices come under fire as profit-driven in a recent study from the Government Accountability Office (GAO), which has spurred one member of Congress to propose banning self-referred pathology in Medicare.

Anatomic pathology services that physician practices self-referred grew 3 times faster in Medicare from 2004 to 2010 than those performed by outside labs, according to a report issued online in July by the GAO, a federal watchdog agency. The GAO suspects that monetary self-interest helps explain this self-referral boom.

"These analyses suggest that financial incentives for self-referring providers were likely a major factor driving the increase," the agency said.

The study focused on what the US Department of Health & Human Services (HHS) calls "the most commonly furnished anatomic pathology service." Officially classified as level 4 surgical pathology in the billing-code bible of the American Medical Association, this service encompasses a broad range of biopsied tissue, including that taken from the prostate, colon, and skin. Physicians use the billing code 88305 when they submit a Medicare claim for this work, which involves slide preparation and both microscopic and naked-eye examination of tissue samples.

Each sample from a single biopsy that a pathologist examines and interprets can be billed by itself, but clinicians also can combine multiple samples into one lab specimen. Physicians can self-refer the service in several ways:

  • They can prepare the lab specimen in-house to earn the technical component of the Medicare fee ($36.74 on average), and let an outside pathologist read it.

  • They can read a lab specimen — earning the professional component of the fee ($33.34) — that an outside pathology lab has prepared.

  • They can both prepare and read a lab specimen in-house to receive the so-called global fee ($70.09).

HHS responded to the GAO's suspicions of profit-driven referrals to in-house pathology labs by saying it had already acted to make self-referrals less tempting. In commenting on a draft version of the GAO report, HHS said it had reduced the payment for services coded 88305 by roughly 30% in 2013 after recalculating what it cost to produce a specimen slide. The GAO replied that this pay cut isn't enough to discourage self-referrals that may be inappropriate.

The insinuation of un-Hippocratic motivation has stung 3 medical specialties — dermatology, gastroenterology, and urology — that accounted for 90% of self-referred pathology in 2010 by the GAO's reckoning. The societies for these specialties defend in-house pathology as clinically beneficial, stating that it speeds up diagnosis and improves care coordination. And they reject the idea that their members are pumping up the volume of self-referrals to improve their bottom line.

"The GAO's assertion that urologists and other specialists are utilizing ancillary services for financial gain is both fundamentally wrong and offensive," said leaders of 2 urological societies in a news release.

Eliminating the temptation of financial self-interest is the premise of a federal law known as "Stark" that prohibits physicians from referring patients to ancillary services in which they have an ownership stake. The law carves out an exception for in-house pathology labs and other in-house ancillary services.

The "in-office" exception to the Stark self-referral ban could end up on the budget chopping block. President Barack Obama's proposed budget for fiscal 2014 would eliminate the exception for radiation therapy, physical therapy, and advanced imaging "except in cases where a practice meets certain accountability standards." The move would save $6 billion over 10 years. And on August 1, Rep. Jackie Speier (D-CA) introduced a bill that would expand Obama's proposal to include anatomic pathology.

"This is a golden opportunity to choose patients over profits," Speier said in a news release.

The bill's backers include the College of American Pathologists and the American College of Radiology.

New Lab Owners Ordered More Tests, GAO Found

The GAO limited its study to self-referred pathology that was either in-house preparation of a specimen, or in-house preparation and reading combined. Excluded were self-referrals only for reading the specimen.

The agency found that the volume of self-referred anatomic pathology services — again, those with billing code 88305 — increased from 1.06 million in 2004 to 2.26 million in 2010 for a growth rate of 113%. In contrast, the number of anatomic pathology services that were not self-referred increased 38% during that period (Figure 1).

Figure 1

To flush out the reason for the faster growth of self-referrals, the GAO looked at dermatologists, gastroenterologists, and urologists who had sent out pathology specimens to outside labs in 2007 and 2008, but switched to an in-house lab beginning in 2009. Anatomic pathology services jumped dramatically from 2008 to 2010 for these "switchers," as the GAO calls them — 23.8% among dermatologists, 14% for gastroenterologists, and 58.5% for urologists (Figure 2). In comparison, the volume of these services rose at a far smaller rate among colleagues who had been either self-referring these services all along or sending them to an outside lab. The GAO said that the trend for switchers could not be attributed "to a general increase in the use of these services among all providers."

Figure 2

Self-referrers on average ordered more anatomic pathology services than colleagues who did not self-refer mostly because they submitted more specimens per biopsy, according to the GAO. Urologists with in-house labs, for example, submitted 47% more specimens per prostate biopsy for diagnosing elevated prostate-specific antigen levels than urologists who used an outside lab. In addition, self-referring dermatologists treating medium and large numbers of Medicare patients performed biopsies at a higher rate than their colleagues who did not self-refer pathology services. The GAO viewed this trend with alarm because complications from biopsies can land a person in the hospital. For other combinations of medical specialty and Medicare population, biopsy rates for self-referrers and nonself-referrers were similar.

The GAO said that the relatively higher volume of anatomic pathology services among self-referring physicians "cannot be explained by patient diagnosis, patient health status, or geographic location." That left financial self-interest as a likely "major factor."

By the GAO's calculation, self-referrers performed 918,000 more pathology services in 2010 — costing Medicare $69 million — than if they had performed biopsies and ordered pathology services at the same rate as physicians who used outside labs. "To the extent that these additional services are unnecessary, avoiding them could result in savings to Medicare and to beneficiaries," the agency said.

So how can unnecessary self-referrals for pathology services be deterred? One solution, the GAO suggested, is revising Medicare claim forms to include a "self-referral" flag that physicians can check off when they order in-house pathology services. That move would help the Centers for Medicare & Medicaid Services (CMS) study these self-referrals and determine whether any are unnecessary. More data could enable CMS to audit self-referring physicians — in particular, dermatologists — who perform a higher average number of biopsies.

The GAO also advised CMS to eliminate the financial incentive for physicians to send in-house pathology labs as many specimens as possible — each one separately billable — from a single biopsy. It noted that CMS has already begun paying a lump sum for all specimens from a prostate saturation biopsy. The payment methodology could be extended to other biopsies and the pathology services that follow, said the GAO. The agency noted, however, that clinicians differ "on whether or to what extent tissue samples can be combined in creating a specimen or if each tissue sample must become a specimen."

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The GAO report included comments on these findings from the American Urological Association (AUA), the American Gastroenterological Association (AGA), and the American Academy of Dermatology Association (AADA), an advocacy-oriented sister organization of the American Academy of Dermatology. All 3 groups generally didn't like what they heard.

The AUA cited methodological problems with the GAO study while the other 2 societies offered explanations other than financial self-interest for the patterns found among self-referring physicians. The AGA and AADA, for example, said that the sharp increase in anatomic pathology services observed in physicians who began self-referring in 2009 could be partly the result of those physicians joining large groups with busy pathology labs. In its remarks, the GAO discounted that theory, saying that switchers who remained in the same practice as opposed to joining a large group also upped their use of pathology services once they began to self-refer.

All 3 groups protested the GAO proposal for CMS to pay a lump sum for specimens from a single biopsy. The AADA worried about "any discentives for dermatologists to perform biopsy procedures."

After the GAO published its report, the 3 societies continued to speak out in postings on their Web sites:

  • The AGA noted that the increase in self-referred pathology among its members coincided with a push to improve the detection rate of adenomas as part of preventing colorectal cancer. The result was more biopsies, but the annual incidence and mortality from colorectal cancer significantly decreased during the time period of the GAO study.

  • The AADA reiterated its defense of in-house pathology. However, the society seemed willing to find common ground with the GAO, referring to a policy adopted in March that took a stand against "inappropriate uses of dermapathology services." Its policy statement cautioned members, for example, not to split up the work of slide preparation (the technical component of the Medicare fee) and interpretation (the professional component) simply to boost revenue. One example of this is for a dermatology practice to prepare the slides, but farm out the reading to an outside lab. The policy statement, however, affirmed the right of a dermatologist to read a slide that his or her practice had prepared, or else give it to a dermapathologist on staff.

  • The harshest critique of the GAO report came from David Penson, MD, the AUA health policy chair; and Deepak Kapoor, MD, president of the Large Urology Group Practice Association (LUGPA): "To label an entire profession by proposing that urologists are performing unnecessary or inappropriate biopsies to boost their bottom line not only disparages urologists, but does a great disservice to patient care," said Dr. Penson and Dr. Kapoor in a joint news release. "Patient access to in-office ancillary services, including laboratory services, allows for prompt treatment and ensures continuity of care while simultaneously allowing for optimal patient management by the urologist."

Organized urology has been busy lately responding to GAO allegations of self-referrals stemming from self-interest. On August 1, the watchdog agency issued another study stating that the volume of intensity-modulated radiation therapy (IMRT) performed by self-referring practices for Medicare patients increased rapidly from 2006 to 2010. IMRT is a common treatment for prostate cancer. In contrast, the volume of IMRT ordered by groups that did not self-refer declined during this period. The GAO again pointed to "financial incentives" as one likely reason for the self-referral upswing.

The AUA and LUPGA call this latest GAO report "flawed and misleading."


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