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May 03--For most people, a biopsy is a fast and simple procedure -- a sliver or patch of skin or a few drops of fluid are extracted in a doctor's office and sent to a laboratory for examination.
It's also potentially lifesaving. Biopsies such as Pap smears and the analysis of polyps, tumors and skin anomalies are crucial in detecting certain cancers.
But how much a biopsy costs and who pays for it can be complex.
For example, a skin biopsy may cost $40 from a discount lab, but a dermatologist may mark up the price and bill the patient two, three or four times the lab rate.
These biopsy markups are a hidden profit center in the health care industry, especially in states such as Missouri, where physicians are allowed to charge extra for lab services. Many states bar the practice, as do the Medicare and Medicaid programs.
Unknown to most consumers, there's a running feud over who controls the billing for biopsies -- one stretching back for several years and involving a tug-of-war between physicians, hospitals and laboratories. As consumers pay an increasing share of their medical costs, markups are drawing new attention.
On one side: the Missouri Society of Pathologists, the organization that represents the professionals who quickly diagnose disease and guide treatment. They've sought state laws and regulations to put an end to such markups, which they claim are unethical and result in higher prices for consumers.
In opposition are referring physicians -- independent clinicians such as dermatologists, gynecologists, gastroenterologists and family medicine practitioners who obtain biopsies from patients and send specimens to outside labs.
At stake is a piece of an extremely lucrative and growing business, one that's helped fuel the growth of nationwide laboratory chains while also providing new profit opportunities for physicians.
Tom Holloway, executive vice president of the Missouri State Medical Association, said his group has taken a neutral stance on biopsy markups given the divergent views of its members.
"I think both sides really see this as a black-and-white issue, but those in the middle see infinite shades of gray," Holloway said. "In the halls of the Capitol, it's doesn't seem to have enough heft to warrant a lot of attention. It's white-hot to the people involved in it, but it's not sexy enough for everyone else."
Long ago, independent physicians would examine a tissue sample through a microscope to explore signs of disease. With specialization, sophisticated technical analyses and the growth of independent labs, pathologists emerged as expert interpreters of biopsies.
But today, pathology services are often controlled by a referring physician who orders the biopsy, ships a specimen to an external lab, marks up the lab costs, and sends a final bill to the consumer and/or insurer for both the doctor's visit and lab services.
Two national companies -- Quest Diagnostics Clinical Laboratories Inc. and LabCorp of America Holdings -- have become large players in lab services. These labs' economies of scale permit them to undercut smaller competitors by granting volume discounts to physicians, hospitals and insurers, industry experts say.
In the last decade, Quest and LabCorp have gobbled up more than a dozen of the nation's smaller labs in a wave of consolidation that has helped alter the power balance among health insurers, hospitals and physicians.
But the two lab companies also have been sued repeatedly by competitors and whistleblowers. Critics, who tout regional labs' high quality and customer service, have chalked up the emergence of Quest and LabCorp to the "Walmartization" of biopsies.
"The big reference labs have been siphoning off the business by saying to doctors, 'Send it all to us, We'll save you overhead, time and money,'" said Samuel Steinberg, a Florida-based hospital finance consultant.
But, he added, it's misleading to generalize about the quality of national versus regional labs.
"It's like any other service industry. Some do a good job, some do a crappy job," he said.
Referring physicians, who have absorbed cuts in reimbursements from Medicare in recent years, rely on markups on lab services to help fuel their practices. They usually don't have equity in these external labs, but still profit from the pathologist's work.
Professor Art Caplan, who heads the Division of Medical Ethics at New York University'sLangone Medical Center, said biopsy markups are "purely a combination of 'my time' and greed. ... I understand it, but the rates seem high."
Doctors justify such markups, he said, by citing the time they expend to process a biopsy: sample it, box it, store it, send it, receive it, bill for it.
Many doctors' offices do not disclose to patients that a biopsy has been sent to an outside lab, let alone the dollar amount paid to a lab, industry experts say.
Because insurance carriers often pick up the tab for doctors' bills, many patients never question their lab costs -- unless a patient takes issue with an invoice sent directly by a lab. So it is difficult to quantify the economic impact on patients.
Missouri pathologists say that marking up biopsies gouges patients, inflates health care costs and may induce physicians to overutilize unnecessary medical tests -- simply because they can make money from these markups.
"Patients should recognize that biopsies performed on them will be submitted to marked up charges and in our opinion these are exploitative charges," said Dr. Joseph Lombardo, president of the Missouri Society of Pathologists, who oversees lab services at St. Joseph Health Center in St. Charles.
Referring physicians -- particularly in specialties such as dermatology, obstetrics and gynecology, gastroenterology, urology and family practice -- have grown used to profiting from the work of discount labs.
These doctors, who claim to win savings for consumers, say their markups are fair, given the time and expense of handling specimens and negotiating with outside labs.
NYU's Caplan said the debate over biopsy markups reflects "the mysterious world of health care prices."
"More legislative and regulatory oversight is needed on these price issues, because we can't do that as consumers," Caplan said. "We are living in a world where we're told this is how much it costs. That's not a good system. It's not a free market. ... There's too much dependency on the (health) provider to generate demand and say what it costs.
"I would like to see at the state level more transparency and more requests to justify how prices are set," he said. "We don't have any idea where these prices come from. You should know what you're paying for."
The Missouri Society of Pathologists, whose board includes independent pathologists and others affiliated with hospitals and regional labs, has vowed to support efforts to pass direct billing legislation. Such bills have twice passed the state Senate in recent years but have never won approval in the House.
Lombardo described marked up charges for lab services as "surreptitious fees that are being charged to patients and their payers." He said the markups, which he characterized as pervasive, "exploit Missouri's patient populations."
"These bills can be marked up as much as 150 percent, 200 percent, 300 percent," he said. "We don't think it's fair that a patient awaiting a cancer diagnosis is exploited by these practices."
Dr. Justin Puckett, who practices family medicine in Kirksville, Mo., said he contracts with a lab to provide his patients a volume discount for pathology services.
"I know exactly what it's going to cost the patient," Puckett said. "And we're able to take care of a lot of people who don't have any insurance at all, offering those patients a discount on lab services they wouldn't get otherwise. It helps increase access to care for those who are uninsured or have a high deductible."
He attributed direct-billing legislation -- which requires the lab or provider of pathology services to bill the patient without an intermediary -- to pathologists who "want to be the only ones who can bill the insurer direct. ... They're trying to legislate removal of the competition, removing us as the middleman who's cutting into their profits."
Puckett said pathologists tell horror stories of grossly marked-up prices but offer little if any proof. "We mark up our lab fees just the same way we mark up our radiology. The cost is reasonable."
For years, health insurers tolerated markups for lab services by paying these patient bills and passing along the higher costs to consumers in the form of higher deductibles, co-pays and premiums. But some insurers such as Anthem Blue Cross & Blue Shield in Missouri now require direct billing for lab services.
Since 1984, the federal Centers for Medicare and Medicaid Services has banned the practice of markups for biopsies by requiring direct billing by the physician who performed or supervised the service.
The American Medical Association discourages its members from profiting on outside lab work. The AMA's Code of Ethics says "a physician should not charge a markup, commission, or profit on the services rendered by others."
In 2001, the AMA's Council on Ethical and Judicial Affairs declared that markups for lab services are contrary to the association's ethical guidelines and serve to exploit patients.
But the Missouri State Board of Registration for Healing Arts has taken a hands-off approach to regulating biopsy markups or the billing practices of referring physicians, pathologists and freestanding labs.
Pathologists have sought unsuccessfully in recent years to push legislation through the Missouri Legislature that would ban the practice of marking up biopsies. Twice, such bills have passed the state Senate.
Nineteen states including California and New York have laws requiring direct billing of pathology services by a lab rather than a doctor's office, according to the College of American Pathologists. Six states prohibit markups for such services. Sixteen states mandate that providers disclose to patients the actual charges for all pathology and lab services.
"Marking up a fee is not appropriate, but it's not illegal (in Missouri)," Lombardo said. "And that's our objective: to get something on the books to prevent these practices from occurring."
Opponents of direct billing, he said, have "sought to confuse the issue and characterize this as differences of opinion among specialties. Our position is that the health care industry and patients will benefit from direct billing."
Last year, the Missouri Society of Pathologists asked the state medical board to make a rule prohibiting the mark up of pathology costs by physicians. The medical board declined, concluding it was not within its rule-making authority.
The proposed rule was opposed by the Missouri Academy of Family Physicians, which represents about 1,900 doctors and medical students statewide.
"This is clearly not an ethical issue," Dr. Kate Lichtenberg of Kirkwood, then president of MAFP, and Dr. Todd Shaffer of Kansas City, then board chair of MAFP, wrote in May 2013 to the medical board. "It is a payment issue that should not be under the jurisdiction of the Missouri Board of Healing Arts."
Current billing practices for lab services, they wrote, "greatly benefit our patients."
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