In-office anatomic pathology under attack

Legally Speaking

Rob Portman

Rob Portman is a health care attorney with Powers Pyles Sutter & Verville in Washington, D.C., and serves as General Counsel for the AAD and AADA.

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Proposed legislation would make in-office referrals for dermatopathology a violation of the Stark Law

Many dermatologists and dermatopathologists set up laboratories in their offices to perform diagnostic testing, anatomic pathology, and other services for their patients, often on a same-day basis. This practice involves self-referrals that implicate the federal Stark law, which prohibits physicians from referring patients to entities with which they have a financial relationship for certain “designated health services” (“DHS”) covered and paid for by Medicare or Medicaid, including clinical laboratory services, unless they perform the services personally or an exception applies.

In most cases, pathology referrals within a single group practice are permissible under the “in-office ancillary services” exception to the Stark law. The in-office ancillary services exception allows physicians to make in-office referrals for certain health services instead of having to outsource them to other providers. (Many dermatologists outsource these services; see the sidebar on client billing.) Since dermatologists often do not perform the technical component of pathology services themselves, they depend on the in-office ancillary services exception to allow for pathology referrals within their group practices without violating Stark. Violations of the Stark law carry severe civil penalties.

But the in-office ancillary services exception is under congressional attack. H.R. 2914, introduced on Aug. 1, 2013, would expand the Stark law to prohibit more in-office referrals than ever before. This bill is a direct response to recent concerns raised by the Government Accountability Office (GAO) in its review of the in-office ancillary services exception. The GAO expressed particular concern that the in-office ancillary services exception has led to an increase in self-referrals for anatomic pathology and other advanced imaging services. If enacted, H.R. 2914 could prevent dermatologists from billing for pathology services performed in their offices. [pagebreak]

Why is the in-office ancillary services exception under attack?

The in-office ancillary services exception has been widely blamed for inducing a period of major growth in the number of physician self-referrals for certain DHS. The GAO recently released a series of separate reports on the in-office ancillary services exception’s relationship to the rise in anatomic pathology, radiation therapy, advanced diagnostic imaging, and physical therapy services. The report on anatomic pathology services, made public in July of 2013, found that these services had more than doubled from 2004 to 2010 and that dermatologists, gastroenterologists, and urologists were responsible for 90 percent of these referrals. The GAO also found that there were 918,000 more self-referrals among those who brought anatomic pathology services in-house than there would have been if those services had not been brought in-house, at a cost of over $69 million in 2010 alone.

The GAO’s conclusions did not escape the attention of Rep. Jackie Speier (D-Calif.). On Aug. 1, 2013, Rep. Speier introduced H.R. 2914, the “Promoting Integrity in Medicare Act of 2013,” to the House of Representatives. This bill would carve out “specified non-ancillary services” from the in-office ancillary services exception, including anatomic pathology, radiation therapy, advanced diagnostic imaging, physical therapy, and other services as designated by the Secretary of Health and Human Services (“the Secretary”). All of the services spelled out in the bill have been the subject of the GAO’s reports.

While the bill’s language indicates that anatomic pathology services are to be further defined by the Secretary, H.R. 2914 explicitly includes surgical pathology, cytopathology, hematology, blood banking, and pathology consultation and clinical laboratory interpretation services in this definition. If H.R. 2914 is passed, referrals for all of these services to other physicians within a group practice would violate the Stark law, even if all of the requirements of the in-office ancillary services exception were met. (Anatomic pathology performed by the same physician who ordered the test would still be allowed as long as none of the work is delegated.) H.R. 2914 would also direct the Secretary, working with the Office of the Inspector General (OIG), to conduct enhanced screening and review of claims to determine which entities are more likely to bill for specified non-ancillary services. Given the rate of GAO-reported dermatology self-referrals for these services, it is likely that the OIG would be focusing on claims involving non-ancillary services submitted by dermatologists and dermatopathologists. [pagebreak]

More importantly, H.R. 2914 would also increase the penalties for violating the Stark law for specified non-ancillary services. Submitting a claim or bill for in-office referrals for these services would be subject to a penalty of up to $25,000 per claim. Physicians entering into “circumvention schemes” for referrals for specified non-ancillary services would be subject to a penalty of up to $150,000. Both of these rates are higher than for other Stark law violations.

H.R. 2914 justifies these changes on the grounds that they restore the in-office ancillary services exception to its original purpose of enabling physicians to better care for patients during their first visit by providing necessary services that same day. According to H.R. 2914, this rationale means that routine diagnostic and other services should be covered under this exception, but more complex services, which are unlikely to be provided same-day, should be excluded. H.R. 2914’s supporters say they also hope to reduce incentives for physician self-referrals for specified non-ancillary services, which would save Medicare billions of dollars based on the GAO’s previous findings.

What is the likelihood that H.R. 2914 will pass?

H.R. 2914 was referred to the Committee on Energy and Commerce’s Subcommittee on Health on Aug. 2, 2013. The bill has yet to make it out of committee, and Rep. Speier has had only limited success with similar bills in the past, including the Integrity in Medicare Advanced Diagnostic Imaging Act of 2011, which died in committee. She has, however, been able to add more minor provisions that implicate complex imaging services to other laws, including provisions requiring patients to be provided with a list of alternative providers for physician-ordered CT, MRI, and PET scans under the Affordable Care Act. The White House has also given support to similar measures. In fact, its proposed FY2015 budget sought to generate revenue by limiting the services subject to the in-office ancillary services exception. The proposed budget included anatomic pathology on the list of services to limit. [pagebreak]

H.R. 2914 has also generated plenty of attention from provider groups. The Alliance for Integrity in Medicare, representing associations such as the American Clinical Laboratory Association and the American Society for Clinical Pathology, issued a statement in support of H.R. 2914 on Aug. 1, 2013. Without the protection of the in-office ancillary services exception, many specified non-ancillary services provided by members of these groups currently referred within a physician’s own office might instead be referred to outside practices.

A number of other provider associations, including the American Academy of Dermatology Association (AADA) and the American Medical Association (AMA), have opposed the bill. These associations and other groups sent a letter to the U.S. House of Representatives in opposition to the bill on Aug. 12, 2013, arguing that the in-office ancillary services exception improves patient care and efficiencies by integrating necessary medical services in a single office. Despite this opposition, so long as the in-office ancillary services exception to the Stark law remains controversial and proponents of closing it are able to claim that doing so will reduce federal spending, proposals to limit the scope of this exception are likely to continue.


While the in-office ancillary services exception remains safe for now, the threat of a major retrenchment is very real. Dermatologists who perform pathology services in their offices would be well advised to support efforts by the AADA and the AMA to preserve this exception. Dermatologists should also be cautious about building new pathology labs in their offices or expanding existing labs until the controversy over the in-office ancillary services exception settles down. If the exception is significantly narrowed, dermatologists may need to sell or otherwise restructure the ownership of existing in-office labs to avoid the severe penalties that can accompany a Stark self-referral violation. 



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