Gov’t Demonstrates Willingness to Use Surgical Touch in Controlling Physician Office Ancillary Service Spending

Gov’t Demonstrates Willingness to Use Surgical Touch in Controlling Physician Office Ancillary Service Spending

The administration’s 2015 federal budget, never a reliable model for the eventually passed budget, still establishes a favorable precedent for physician office laboratory (POL) testing: distinguishing between anatomic pathology services and the remaining bulk of office lab tests reimbursed under Medicare Part B. As discussed in previous posts of this blog, rate cuts to fee schedules have hit clinical lab testing hard with independent and hospital labs struggling to retain testing profitability in certain areas. While a seemingly peripheral concern at only 2-3% of total health spending, clinical lab testing in recent years has seen unsustainable growth in certain segments. One culprit behind rising lab expenditures under Part B has been physician self-referral of anatomic pathology services by specialists and within physician practice groups:

The Congressional Budget Office (CBO) has scored President Obama’s proposed 2015 budget that, among many other things, seeks to close the in-office ancillary services exception to the Stark Law and found Medicare would save $3.4 billion between 2015-2024 if the self-referral loophole were closed. This represents an 89% increase over the CBO’s 2014 budget estimate.

You will recall President Obama’s 2014 budget sought to close the in-office self-referral loophole for radiation oncology, advanced imaging and physical therapy, but not anatomic pathology.  Thankfully, anatomic pathology was included in the 2015 budget.

Self-referral or referral of services to an entity with which a physician has a financial relationship is prohibited under Medicare by the Stark Rule. In the interest of patient convenience - receiving results during the visit or day of the visit - exceptions to the Stark Rule were implemented for certain in-office ancillary services (IOAS). The administration’s 2015 budget seeks to reduce clinically unnecessary and potentially more costly self-referred services while maintaining appropriate and patient-beneficial usage of IOAS exceptions:

The in-office ancillary services exception to the physician self-referral law was intended to allow physicians to self-refer for certain services to be furnished by their group practices for patient convenience. While there are many appropriate uses for this exception, certain services, such as advanced imaging and outpatient therapy, are rarely furnished on the same day as the related physician office visit.  Additionally, there is evidence that suggests that this exception may have resulted in overutilization and rapid growth of certain services. Effective calendar year 2016, this proposal would seek to encourage more appropriate use of ancillary services by amending the in-office ancillary services exception to prohibit certain referrals for radiation therapy, therapy services, advanced imaging, and anatomic pathology services except in cases where a practice meets certain accountability standards, as defined by the Secretary.

One study analyzing Medicare physician claims found that over half of billed in-office clinical lab testing services were not performed on the same day as the patient office visit, though potentially an even greater portion of tests are completed in the following days as the study counted same-day tests as those when only sample collection took place on the same day as the office visit. A major factor in this observed disassociation of office testing from visits has been anatomic pathology; tissue processing and histologic testing (IHC, ISH) are labor-intensive procedures often pushing test completion outside the window of a specialist visit. Nearly one-third of technical anatomic pathology procedures billed under Part B are completed in a physician office setting or practice laboratory, making self-referral a major cost component for anatomic pathology billing.

For now the reach of regulatory reform under Medicare excludes physician office testing, with attention focused squarely on anatomic pathology. Many anatomic pathology procedures already saw significant fee reduction in recent years. A broader scope of reform, however, could impact some non-anatomic pathology POL testing:

Under another approach, diagnostic tests that are generally not provided on the same day as an office visit would be excluded from the IOAS exception. The rationale  for this option is that certain tests are rarely used by  physicians to make a diagnosis at the time of the patient’s office visit, which is a key justification for the exception…There was also wide variation in how frequently different high-volume clinical lab tests were furnished on the same day as an office visit in 2008, ranging from 9.6 percent for parathyroid hormone tests (Healthcare Common Procedure Coding System (HCPCS) code 83970) to 49.9 percent for natriuretic peptide tests (HCPCS 83880).

Despite the similar disconnect between office testing and visits in the non-pathology office lab, the implementation of thresholds for Stark Rule exception eligibility suggested above would be problematic among traditional POLs. Rates of “near patient” or same day completion for POL tests vary widely by test technology, but also by patient medical condition, practice operations, and lab conditions. While effective reimbursement remains a challenge for office labs, the POL market is likely to be spared the additional scrutiny directed at hospital lab testing and anatomic pathology. The emphasis in POL testing upon “patient convenience” and an expedient clinical response to testing results, coupled with inconsistent accommodation in reimbursement for higher per-test overheads, is likely to reinforce already predominant CLIA-waived testing volumes in office labs.