BILL ANALYSIS
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|Hearing Date:April 24, 2006 |Bill No:SB |
| |1369 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS AND ECONOMIC
DEVELOPMENT
Senator Liz Figueroa, Chair
Bill No: SB 1369Author:Maldonado
As Amended:April 17, 2006 Fiscal:Yes
SUBJECT: Clinical laboratories: Anatomic pathology
services.
SUMMARY: Expands the billing restrictions for cytologic
pathology services to apply to anatomic pathology services,
and defines anatomic pathology services to include
cytologic pathology, histopathology, hematology,
sub-cellular pathology and molecular pathology.
Existing law:
1)Provides for the licensure, regulation and discipline of
healing art professionals by various boards within the
Department of Consumer Affairs, and makes it unlawful for
any licensed healing art professional to charge, bill, or
otherwise solicit payment from any patient, client,
customer or third party payer for cytologic services
relating to the examination of gynecologic slides if
those services were not actually rendered by that person
or under his or her direct supervision.
2)Requires clinical laboratories performing cytologic
examinations of gynecologic slides to directly bill either the
patient or responsible third-party payer for services, and
expressly prohibits clinical laboratories from billing the
physician or surgeon who requests the tests.
3)Allows a clinical laboratory to bill for cytologic services
relating to the examination of gynecologic slides that were
performed by an affiliated clinical laboratory, as defined.
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4)Provides that any person or entity that is responsible to pay
for cytologic examination of gynecologic slides provided to a
patient is a responsible third-party payer.
5)Exempts from the requirements above any of the following:
a) A person or clinical laboratory that contracts directly
with a licensed health care service plan providing prepaid
services to members.
b) A person or clinical laboratory that provides services
to patients without charge or on a sliding scale basis.
c) Health care programs operated by public entities.
d) Health care programs operated by private educational
institutions serving their students.
e) A person or clinic that contracts with an employer to
provide medical services to its employees if the services
are provided under the contract.
This bill:
1)Expands the prohibitions of existing law, as stated
above, to apply to anatomic pathology services, which
includes cytologic pathology services.
2)Defines anatomic pathology to include any of the
following:
a) Histopathology or surgical pathology, meaning the
gross and microscopic examination of organ tissue, as
specified.
b) Cytopathology, meaning the examination of cells
obtained from fluids, aspirates, washings, brushings,
or smear, including Pap test examinations, as
specified.
c) Hematology, meaning the microscopic evaluation of
bone marrow aspirates and biopsies and blood smears,
as specified.
d) Sub-cellular pathology and molecular pathology.
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FISCAL EFFECT: Unknown. This bill has been keyed "fiscal"
by Legislative Counsel.
COMMENTS:
1.Purpose. This bill is sponsored by the Author in
response to an issue raised by the September 2005 Wall
Street Journal article, highlighting physician markups of
clinical laboratory tests. The Author is concerned with
the growing practice of marking up and splitting the cost
for laboratory services and seeks to eliminate the
financial incentives that lead to over-utilization of lab
services. By requiring the lab to bill the responsible
party (insurance company, Medi-Cal, or patient), the
incentive for a physician to mark up the cost of the lab
service or to split the fee with a lab is eliminated,
according to the Author.
The Author contends that existing law is not strong
enough to prohibit the mark-up and fee splitting done by
some doctors because it is hard to detect. Since the
doctors are actually the ones to mark up the cost of the
lab tests, the Author states that the Department of
Health Services (DHS) Field Laboratory Services (FLS),
which has clinical laboratory oversight, would not be
made aware of the problem. Furthermore, patients, while
notified of the billing, would not necessarily report any
discrepancies since insurance or Medi-Cal is paying the
bill.
The Author believes that mark-ups for these laboratory
tests provide an incentive for physicians to send work to
the cheapest laboratory, and not necessarily to the best
laboratory in order to maximize the profit margins.
Furthermore, the Author states that the practice entices
doctors to order many tests, which ultimately drives up
health care costs.
2.Background. Existing law, in general, prohibits licensed
healing art professionals, including physicians and
surgeons, or any health facility from charging for any
clinical laboratory service that they did not actually
perform or supervise, unless the patient or customer is
informed at the first time of the charge of the clinical
laboratory performing the services, as specified. The
law does not prohibit charging patients for services,
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such as interpreting test results that are actually
rendered in connection with laboratory testing which the
physician did not actually perform or supervise, as long
as all appropriate disclosures are made to patients.
Medicare and Medi-Cal rules require clinical laboratories
to directly bill patients for any testing services.
However, the law does not allow physicians to bill
patients for laboratory cytologic services relating to
the examination of gynecologic slides which they did not
perform or supervise. For those services, the laboratory
must directly bill the patient or third party provider.
The practices of fee splitting and mark ups are illegal
under Medicare and Medicaid, and have been declared
unethical by the American Medical Association (AMA).
That AMA Code of Ethics states that "the physician who
disregards quality as the primary criterion or who
chooses a laboratory solely because it provides low-cost
laboratory services on which the patient is charged a
profit, is not acting in the best interests of the
patient." The AMA code further states "As a
professional, the physician is entitled to fair
compensation for his or her services. A physician should
not charge a markup, commission, or profit on the
services rendered by others. A markup is an excessive
charge that exploits patients if it is nothing more than
a tacked on amount for a service already provided and
accounted for by the laboratory."
The Wall Street Journal article affirms that physicians
are more likely to order services for patients if they
have a financial incentive. The article cited a 1993
study by the Center for Health Policy Studies, a
consulting group, for the American Clinical Laboratory
Association which compared states where doctors are
allowed to bill for outside lab work and states where
they aren't. The study found that doctors which were
allowed to bill for outside lab work ordered 28% more
tests. According to the article, the study's author,
economist Zachary Dyckman, expects he would find the same
results today, stating that it "appears to be done
exclusively to earn more revenue and increase profits."
3.Expanding "cytologic" services to include "anatomic pathology"
services.
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Existing law requires direct billing for cytologic
examination of gynecologic slides. The billing
restrictions in California law regarding direct billing
for cytologic examination of gynecologic slides were
established in 1990. These restrictions were the result
of reports of physicians capitalizing on financial
incentives to use "pap mills," or laboratories that would
provide low-cost and low-quality gynecologic pathology
services. This bill would broaden these prohibitions to
apply to anatomic pathology, of which cytology is a
subset.
Anatomic pathology is the branch of pathology (the study
of disease as it relates to the body) that is concerned
with the diagnosis of disease based on the gross (meaning
examination of tissue without magnification) and
microscopic examination of cells and tissues.
Cytopathology is a subset of anatomic pathology and is
the examination of cells spread and stained on glass
slides, including pap test examinations. In addition to
cytopathology, this bill would also require direct
billing for the following subsets of anatomic pathology:
Histopathology or surgical pathology - the
gross and microscopic examination of organ tissue.
Hematology - the microscopic evaluation of bone
marrow and blood.
Sub-cellular pathology and molecular pathology.
4.Related Legislation. SB 165 (Machado, Chapter 319,
Statutes of 2003) added the provision allowing a clinical
laboratory to bill for cytologic services relating to the
examination of gynecologic slides that were performed by
an affiliated clinical laboratory.
5.Arguments in Support. The California Society of
Pathologists (CSP) states that pathologists are the
physician specialists who most often evaluate and provide
a diagnostic evaluation of tissue and other biological
specimens for a determination of the presence or absence
of disease. CSP argues in support, that direct billing
removes the potential conflict of interest by the
referring physician who might choose a lab based upon the
opportunity to mark-up the actual charge by the rendering
lab or pathologist. CSP further notes that Medicare has
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required direct billing by the actual provider or
pathologist since 1994, and nine other states have
adopted a direct billing requirement for these services
including New York and New Jersey. By removing the
possibility that economic motivation may dictate the
referral of outside anatomic pathology services, patients
can be assured that their physicians are choosing the
pathologist or laboratory to evaluate biopsy specimens
and other anatomic pathology services on the basis of
quality and professional expertise.
Proponents further contend that the current "disclosure"
and "anti-markup" provisions of BPC 655.5 have proven
insufficient to protect the interests of patients, and
abuses are occurring either out of ignorance of the
complex requirements or willful disregard as the risk of
enforcement is perceived to be low. This bill would
clarify and eliminate ambiguity in the legal
requirements.
6.Arguments in Opposition. The Committee has received
opposition from a dermatologist who argues that the bill
will unintentionally raise healthcare costs considerably
for patients and their insurance companies, arguing that
many dermatologists are able to read their own pathology
slides at a cost significantly less than an anatomical
pathologist. It is further argued that under this bill,
the dermatologist would no longer be able to charge for
his or her evaluative service, and would instead be
forced to rely upon an anatomical pathologist to read the
slide and bill the patient or insurance company - at a
significantly higher cost. The opponent argues that the
bill would make it more difficult to practice
cost-effective medicine for patients.
7.Enforcing Billing Restrictions. The Medical Board of
California (MBC) is responsible for investigating
complaints against physicians. Upon receiving a
complaint relating to the mark-up of laboratory service
costs or about a physician fee-splitting with a
laboratory, the MBC would review medical records to
determine whether law violations or fraud has occurred,
and take appropriate disciplinary action against the
license of a physician if necessary.
Clinical laboratories are licensed and regulated by the
Laboratory Field Services (LFS) within the Department of
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Health Services. LFS is responsible for ensuring
accurate and reliable clinical laboratory testing in
California, and providing oversight for clinical
laboratory operations and the personnel who perform tests
in clinical laboratories. Clinical laboratories located
in other states, that provide testing services in
California, are required to obtain a license from LFS.
LFS also inspects clinical laboratories and investigates
complaints.
The Senate Health Committee Analysis (March 29, 2006)
states that according to LFS, complaints received about a
laboratory that does not directly bill a patient for
anatomic pathology services would likely be referred to
the MBC, since LFS generally limits its laboratory
complaint investigations to service-quality issues, not
billing disputes.
In bifurcating enforcement responsibilities, it would
appear that physicians or clinical laboratories that
violate the direct billing or mark-up laws could have
greater opportunity to avoid any negative consequences
for their violations.
8.Policy Issue: Direct Billing for All Laboratory
Services. Existing law makes it unlawful for a physician
to bill for cytologic laboratory services that the
physician did not actually provide. The law further
requires clinical laboratories performing cytologic
laboratory services to directly bill for those services.
This bill proposes to broaden these restrictions to apply
to a larger world of anatomic pathology. In discussing
the issues relating to this bill, the question has been
raised regarding the appropriateness of allowing
physicians to bill for any laboratory services that they
do not actually provide. It would appear that the same
factors which prompt the restrictions for cytologic
laboratory services, and as this bill suggests, anatomic
pathologic services, may also apply for other types of
laboratory tests.
By requiring clinical labs to direct bill for all
laboratory tests, the issues of whether or not a
physician may be marking up a laboratory test could be
drastically simplified. In discussing this bill, it has
been suggested to Committee staff that physician billing
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issues are a low priority with the MBC; and that the MBC
must focus (appropriately) its overtaxed investigatory
resources upon other more serious issues with physicians.
Requiring clinical laboratories to direct bill for all
laboratory services, would take the issues of physician
mark-ups off the table, and streamline enforcement
issues, for both the MBC and LFS.
The Committee may wish to have the Author discuss whether
the bill should be amended to require clinical
laboratories to direct bill for all laboratory services.
9.Concerns and Ongoing Discussion of Possible Amendments.
The Author's office has had discussions with a number of
interested parties involved in this legislation regarding
possible amendments. The California Society of
Dermatology and Dermatologic Surgery (CDS) has expressed
concern that the bill, in its current form, would
inadvertently limit the capacity of physicians and
surgeons to render their licensed professional services,
and bill third party payers for the services rendered.
CDS has proposed amendments intended to maintain the
capacity of individual physicians and surgeons to both
render their professional evaluative, interpretive and
diagnostic services and bill third-party payers when the
clinical laboratory performs only the technical
preparation of the slides at the request of the
physician. While it appears that agreement will
eventually be reached between the parties involved,
discussions are still ongoing on this issue.
The Committee may wish to monitor the progress of these
discussions to evaluate whether the bill should be
referred back to this Committee if and when the bill is
amended to address these issues.
NOTE : Double-referral from Health Committee to BP&ED
Committee.
This bill was heard by Senate Health Committee on March 29,
2006 and approved 7-0.
SUPPORT AND OPPOSITION:
Support: California Society of Pathologists
Pathology Medical Associates of Orange County, Inc.
California Society of Dermatology and Dermatologic Surgery
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(CDS)
4 Pathologists
Opposition: 1 Physician
Consultant:G. V. Ayers