If you're a physician-owner, it's logical to want your surgical facility to be as profitable as possible, and oftentimes that means adding services rather than cutting costs. I'm seeing more physician-owners and their partners examine pathology services as a potential profit center. Here's what you need to know.

A working relationship
In a typical arrangement between an ASC and a pathologist group, the ASC refers work to the pathologists, and the pathologists bill the payer for the pathology services. Now we're seeing the arrangement done with a twist: The ASC refers work to the pathologists; the ASC pays the pathologists a predetermined discounted fee; the ASC, and not the pathologists, then bills the payers for the pathology services.

Overall, this arrangement should be subject to minimal legal restrictions as long as the center, its physician-owners and their practices follow these caveats:

• Do not bill Medicare, Medicaid or government payers;
• do not send any Medicare or Medicaid patients to the pathologists;
• do not use this model if a federal or state program is the primary or secondary payer;
• do not bill contrary to payer restrictions;
• fully review and take steps to ensure compliance with state law; and
• do not allocate the right to bill to owners generally or in a manner that is based on volume or value of referrals.

Because regulations, laws and ASC requirements are constantly evolving, it's important that you be able to terminate the arrangement on short notice. You should also ensure your liability insurance will cover incidents arising out of pathology services.

What's holding you back?
There are six regulations (or types of regulations) you have to keep in mind if you're going to set up a pathology services agreement.

• The Stark Act forbids a physician from making referrals to an entity for any designated health service paid by Medicare, Medicaid or other federal funds if the physician has a financial relationship with that entity. As long as the surgery center and its physicians don't refer any services paid for by federal or state funds to the pathologists - and you don't bill for any such referred services - the Stark Act should not be implicated.
• The Anti-kickback Statute forbids payment or remuneration of any sort made to induce the referral of services paid for by Medicare, Medicaid or other federal funds. Providing discounted services to a provider in hopes of gaining further referrals is a specifically enumerated safe harbor not forbidden by the Anti-kickback Statute.

OIG Advisory Opinion 99-13 examined a physician group specializing in pathology services that offered practices the ability to "buy" their services for a predetermined discounted rate. The practices also referred their Medicare and Medicaid patients to the pathology group, but the pathology group billed Medicare and Medicaid themselves. The OIG determined that this structure was prohibited and that the groups could be subject to sanctions or exclusion from federal health programs. Therefore, to comply with the concepts set forth in this Advisory Opinion, your center's physicians must not refer Medicare, Medicaid or other federally funded services to the pathologists.

In addition, your center's arrangement with the pathologists would violate the Anti-kickback Statute if any third party is induced to refer Medicare and Medicaid patients to the pathologists as a result of such arrangement, even if you've agreed to not directly refer such patients. This includes physician-owners' private practices.

• Bill all services in a truthful manner to avoid implicating the False Claims Act. Even if the services do not relate to federally funded patients, improper billing (or failing to disclose that services have been purchased and are being resolved) can create federal liability.
• Many state laws specifically prohibit self-referral - like a state Stark Act - and many have their own anti-kickback legislation. Be sure, therefore, to review any arrangement according to state laws. Do not refer Medicaid or other public-assistance program patients to the pathologists.
• Before you provide billing for services performed by the pathologists, carefully examine your payer contracts and third-party billing practices with private insurers. These contracts may contain conditions or exclusions that prevent such a billing structure. For example, you should ensure that payers will let you bill for such services, and that you are not prohibited from either subcontracting or buying and rebilling for services.
• Because you would be outsourcing this service and not directly providing it within the center, this proposed arrangement should not violate the Medicare Conditions of Coverage for surgical centers. However, it is possible that surveyors or other authorities will question the arrangements. If this occurs, you should have the ability to cease the practice.

Increased oversight
Essentially, your center should only use the pathologists for patients for whom you will bill - and no others. If you're examining a relationship with a pathology group, be forewarned that government regulations and third-party payers are more and more often investigating arrangements in which a referring party buys a service, then bills it to a payer.