Thoughts on the proposed Medicare fee schedule

July 29, 2013

A new proposed Medicare fee schedule has been released and it brings more bad news for pathologists.  Medicare is proposing an estimated impact of -5% for the specialty of pathology and a -26% for independent labs.  The only other specialty taking a hit this large is radiology.  This dire proposal is driven by a decrease on the technical component (TC) for many CPT codes.

What does this mean? First this means more trouble for independent labs.  These dermatology labs and small anatomic pathology labs took a significant loss last year with the 88305 TC cut. Many are hanging on hoping for a small increase in the 88305 TC rate.  Sadly there is another proposed 7% decrease in the 88305 TC rate.  Most of these labs have gone on significant cost cutting sprees.  This can only be expected if you lose 33% of your revenue.  These labs have lost Medicare money and money from managed care plans as they followed the Medicare cuts.  The extra 2% pay cut from the sequester did not help any either. Few businesses can survive a 33% cut in their revenue stream.  Often this is their margin and losing this means taking drastic measures to stay in business.

Although these labs seldom do 88307 or 88309 type cases, the 88305 TC, 88342 TC and other codes cut will hurt these labs significantly.  (Although it can be argued that 88342 CPT codes is the crux of the volume based billing issue.  I personally have seen cases where 88342 x 24 is billed.)   We must know that many payers have already limited the volume on this code.  Now the volume will be limited and the payment rate cut also.

These changes in the last few years seem to be designed to prevent non-pathology groups from billing for pathology, i.e. urology, gastroenterology, etc.  If this is the case then Medicare has thrown out the baby with the bath water as these changes have hurt all pathologists and further forced the practice of pathology to be viewed as a commodity.

It should also be noted that there are 1%-2% proposed cuts for the professional component of many of the CPT codes also.  This means a total of 3%-4% decrease in the revenue for these codes if you add in the sequester cut.

Granted the government is losing money and needs to cut costs. The current Accountable Care Organization (ACOs) bundled payment model is the latest effort proposed to accomplish this task. Perhaps the  issues with ACO’s (many hospitals are dropping out of their pioneer ACO models) has driven Medicare back to the chopping block and revived the practice of cutting individual CPT codes as a stop-gap measure to prevent rising costs for these services.

If we look at radiology we can see a proposed future and it is not pretty.  In radiology, the payment for some CPT codes is actually tiered, for example they get paid 100% on the first view, 75% for the second view and 50% for all other views.  Imagine if the government built a tiered payment for pathology cases that have multiples.  For example, 88305 x 5 would get paid on a similar tiered system.

Medicare seems to be trying to equalize the cost for global pathology services.  By decreasing the technical component they are making the physician fee schedule equal to the Ambulatory Patient Classification (APC) rate.  This makes perfect sense to them; why pay more to a hospital for this than to an independent lab.   In my opinion these are the questions left unanswered:

When will the hospitals decide to leave the histology business and outsource this work? Who will take up this volume? What happens if Medicare cuts the (APC) rate for an 88305 also?  How will the 88342 TC cut affect non-pathology practices such as Urology?  Where is the tipping point that forces this work back to community pathologists?  Many of these labs are down to paying their pathologists $15.00 per case.  Are we poised on the cusp of an $8.00 pathology case?  Does this eliminate the non-pathology lab margin?  What will the national labs do when their shareholders find that anatomic pathology is no longer profitable?  Could the big three be looking to divest themselves of this loss leader? The payers are lowering their rates at a very quick rate, when do pathologists start saying no to this pay cut?  When are hospital based groups going to gain leverage to remove themselves from low paying contracts?

As we know this is only the proposed fee schedule.  Perhaps there will be major changes by the time the actual fee schedule is produced.  From what I can tell these decreases are likely to stick in one form or another as the government struggles to find a way to decrease its costs and reduce the volume of work performed.

Overall, we could see an area where no one wants to do histology work.  If the profitability in this area continues to fall who will want to do this work?  The groups, labs and hospitals that do survive these cuts are going to be the businesses that are proactive and aggressively approach this change.  Those that are passive are going to watch change steamroll them into nonexistence.

Mick Raich owns Vachette Pathology and works with pathologists, laboratories and hospitals nationwide in the area of strategic management, and revenue cycle management.

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