What are the challenges facing pathology practices in 2008? How will your group respond and what will be the outcome? Below are several major issues that need to be reviewed.
The most important insurance question is how your practice will respond to decreasing insurance payments. Many insurance plans are trying to force the contract language they have with national labs onto smaller hospital based groups and regional independent labs. For example, insurance plans that previously paid 200% of Medicare are now paying only 25% to 50% of Medicare. This can be devastating for a practice. In addition, many managed care contracts are built on current Medicare rates, and if/when Medicare lowers their rates, groups will lose even more money with these contracts. Usually practices do not recognize these changes until a large amount of money has been lost. It takes detailed reporting and extreme diligence to find the problem early. Once discovered, the group must start the process of reversing the trend and creating leverage for a more profitable relationship.
There is a continuing trend nationwide of hospital based practices losing work to specialty practices, such as urology and gastrointestinal groups. The latest OIG (Office of Inspector General) ruling has basically stopped the practice of marking up these services in a pod lab arrangement, but the ruling has not stopped the practice of sending work to these specialists, and many of these specialists may continue to pursue pathology work as a revenue stream until the last possible moment. Your practice will need to be vigilant to keep these referring physicians happy with you. In addition, hospitals and health systems may sell their outreach work to national or regional labs. If you lose this work, you will need a strategy to replace the lost revenue.
Many independent labs will struggle in 2008. The reduced fee schedules of national labs will filter down to the smaller independent labs, who will need to differentiate themselves from the national labs. The strategies here will be complex and may include some joint venture arrangements.
Some regional independent labs have service contracts with the large national labs. Many national labs use regional independent labs and some hospital based practices to provide coverage for specimen volume. These contracts can be very punitive if the practices are not correctly informed. The key will be for the group to know and understand their internal pricing models. If they accept a contract without the correct due diligence, the result can be a slippery slope.
Significant changes are likely to take place in the hospital environment. The national labs are seeing their payments for non-hospital based pathology slip below 60% of Medicare. Once they figure out that hospital based work is more profitable, I believe they will pursue more hospital contracts. Simply put, why do the work at 65% of Medicare when you can get 140% of Medicare. The national labs see pathology as a commodity that can be bid out at the best margin. How can you prevent this from happening to your practice?
Major changes taking place in the billing world also. Numerous pathology billing firms have been bought or sold in the last year, leaving some pathology practices with revenue issues that need resolution. In my opinion, there will likely be additional buyouts soon. Many practices are just now seeing the results of these changes, with increased receivables, increased billing costs and reduced services.
Pathology is rumored to be taking a large cut in the 2008 fee schedule. If this happens, expect all your managed care plans to give you the same discount.
Physician Quality Reporting Initiative:
There is some good news. Under this Initiative, Medicare will implement CAP guidelines for breast and colon cases as a quality assurance measure. If your practice handles these cases correctly, Medicare will pay a 1.5% increase on all their cases. In an era of reduced reimbursement, this simply cannot be passed up.
There are significant changes coming to the business of pathology. Whether you are a hospital based group or an independent laboratory, you must have a keen business sense and a complete understanding of both the regional and national market. Failure to respond to changes in your business environment will always lead to decreased revenue.