News, Analysis, Trends, Management Innovations for
Clinical Laboratories and Pathology Groups

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News, Analysis, Trends, Management Innovations for
Clinical Laboratories and Pathology Groups

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AP Condo Lab Operator UroPath is Acquired, Apparent Victim of Medicare Anti-Markup Rules

Medicare anti-markup rules implemented last January 1, 2008, have apparently contributed to the sale of UroPath, LLC , to HealthTronics, Inc. (NASDAQ: HTRN), based in Austin, Texas. The sales price was $7.5 million and the acquisition was announced on July 21, 2008.

UroPath, of Arlington, Texas, is the largest operator of anatomic pathology condominium complexes (pod labs) in the United States. It serves 50 urology practices spread among 17 states. UroPath says it processed more than 400,000 specimens last year. With the implementation of the January 1, 2008 Medicare anti-markup rules, UroPath found itself unable to markup services on Medicare patients over its costs. The federal Centers for Medicare and Medicaid Services (CMS) amended its regulations to limit the amount a provider can bill Medicare for pathology services under certain conditions. After CMS issued the new rules in January, UroPath and its affiliates challenged the rules in a suit against federal Health and Human Services Secretary Michael O. Leavitt. In the suit, UroPath said the new rules would essentially put them out of business.

In May, U.S. District Court Judge Rosemary M. Collyer dismissed the UroPath suit, saying the plaintiffs should pursue a grievance through CMS’ administrative procedures. (see The Dark Report, May 27, 2008).

“The Centers for Medicare & Medicaid Services have been publicly concerned since at least 2004 about a growing tendency of physician groups to utilize so-called ‘pod’ [condo] laboratories for lab work, miles from the physicians’ offices, and then to claim that doctors in both locations are ‘sharing a practice’ for purposes of billing Medicare,” Collyer wrote in her decision. On June 30, 2008, CMS proposed additional amendments to its regulations which could further affect the way pathology services may be reimbursed, a fact HealthTronics noted in its announcement of the acquisition last week.

Despite the challenging regulatory environment, HealthTronics said the acquisition allows it to offer its services and products to UroPath’s 450 physicians in 50 urology practices nationwide. HealthTronics sells lithotripsy systems and other surgical products. It also owns an anatomic pathology laboratory in Augusta, Georgia, called ClariPath Laboratories.

There is one interesting aspect to this acquisition. Should the new Medicare anti-markup rules, in combination with the existing anti-markup rules, undermine the economics of the AP condo lab business model and cause the current urology group owners of the condo labs to close those operations, HealthTronics may believe it has a reasonable business alternative. Because HealthTronics owns an existing anatomic pathology company, it could convince those urology groups to refer their AP specimens to its ClariPath Lab operation.

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Medicare Laboratory Competitive Bid Repeal Passed by Senate Yesterday

Yesterday was big news for the lab industry as Senate passed the “The Medicare Improvement for Patients and Providers Act of 2008″ (HR 6331).” This bill includes repeal of the Medicare Laboratory Competitive Bidding Demonstration Project. Because the House passed this bill last month, it means the bill now moves to the President for his signature or veto.

Also included in this Medicare funding bill for 2008 are a reversal of the 10.6% cut in Medicare physician reimbursement and an 18-month extension of the “TC Grandfather clause” (which covers independent laboratories located outside a hospital that provide technical component [TC] pathology services furnished to hospital patients). On July 1, 2008, the Medicare physician fee cut of 10.6% took effect. Also on July 1, the Centers for Medicare and Medicaid Services (CMS) implemented “a policy to pay only the hospital for the technical component (TC) of physician pathology services furnished to hospital patients.”

Thus, this Medicare funding bill represents a significant victory for pathologists and the laboratory industry. It is known that the President opposes this Medicare bill, as passed, because it would cut funding for Medicare Advantage insurance plans. However, both the vote in the Senate (69-30 in favor) and the House (355 to 59 in favor) indicates the likelihood that, were the President to veto this bill, there enough votes to probably override that veto.

In the meantime, some attorneys have advice to independent laboratories that provide TC services to Medicare inpatients. They suggest that these labs hold claims originated since July 1, 2008. Once the Medicare funding bill, with the 18-month extension of the TC grandfather clause becomes law, they should be able to submit those claims and be reimbursed.

Dark Daily observes that this legislative outcome is evidence that the collective lobbying effort of the laboratory industry and various associations in Washington, DC, has achieved a degree of effectiveness unseen in more than two decades.

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Senate Passes Medicare Package, Lab Competitive Bidding Repeal-ACLA Thanks Senate for Passing HR 6331 & Urges President Bush to Sign the Bill

Senate passes doctor reimbursement bill