Are you missing out on a valuable profit center? - physician-office laboratory

Medical Laboratory Observer, May, 1997 by Michael Jahn

If you believe CLIA, Stark, and managed care have killed the office lab, you may be in for a pleasant surprise.

THINK YOU CAN'T have a physician-office lab without running afoul of the government and managed care? Think again.

Traditionally, medical practices have considered the POL a key source of profit. For practices with enough volume, a lab wasn't just good medicine; it was also good business. A lab can still be a source of significant revenue--one 59-doctor group in North Carolina nets more than $2.3 million yearly from its POL--as well as provide convenience and enhance patient satisfaction.

But in recent years, the POL's reputation as a profit source has been tarnished by CLIA regulations, Stark considerations, and managed-care restrictions. This triple threat scared many doctors and groups out of the POL business. Why?

CLIA--the Clinical Laboratory Improvement Amendments of 1988, most of which took effect in 1992--brought intensive government oversight of how and by whom POL tests were done. The Stark antireferral law prevented physicians from sending tests to a facility in which the doctors had a financial interest. Moreover, managed-care companies required doctors to send tests to large national laboratories with which they negotiated discounts.

So, does all this mean it's time to abandon your lab--as many small practices and solo practitioners have done--or expand it, as many larger groups such as the one in North Carolina have done? If you don't have a lab, should you try to get one? Are the problems presented by CLIA, Stark, and managed care concrete and insurmountable, or illusions that a clever group practice can overcome?

Here's a look at the lab picture today, with guidelines on how, under the right conditions, your group can clear the hurdles and establish a profitable POL.

How the government tried to spoil a proven winner

How could office-lab technology--as natural a part of a good primary-care practice as the blood pressure cuff--go into and out of favor so quickly? Answer: The government got involved.

First, the development of small, self-contained lab instruments (the mini-chemistry analyzer, the cell counter) made the POL possible. "Manufacturers sold this stuff to doctors by the truckload in the 1970s and 1980s, saying, `Here's a box that runs itself and makes money,'" explained Charles B. Root, president of Venture Resources, a consulting firm in Barrington, Ill. "Doctors hired untrained personnel, such as their nurses or spouses, to do the tests. Then came CLIA, Stark, and managed care, and physicians pulled away. They thought, `Having a lab is bad news. CLIA and Stark will be all over me and I'll lose my shirt.'"

But CLIA and Stark aren't the problems everyone thinks that they are. And the office lab needn't be a money-loser.

CLIA is indeed expensive for the solo practitioner or very small group that can't afford a laboratorian. But a practice that can pay the $25,000 or so starting salary of a medical technologist, as well as $750 or more a year in fees and about an equal amount for proficiency testing, shouldn't worry about CLIA. "There are 15 to 18 responsibilities that CLIA says the POL's laboratory director must perform," explained C. Anne Pontius, president of Laboratory Compliance Consultants in Raleigh, N.C., "and all but four can be delegated to a laboratorian."

A physician can often act as lab director. But a non-pathologist physician needs 20 CME credits in lab director responsibilities, the equivalent training during residency, or a year's experience supervising certain testing.

What does CLIA require of the director? Essentially, he or she supervises what the lab manager does. That can take an hour, a day, or longer each month. "CLIA is kind of a pain for me, but my doctors don't ever get involved," said Stacy Askvig, lab manager at the Minot (N.D.) Center for Family Medicine, a four-partner residency training program. "The doctor who oversees the lab spends maybe an hour a month on lab issues. If you hire the right laboratorian, you won't have a problem."

The laboratorian should be experienced in complying with CLIA, OSHA, and your state's own regulations, if any. And compensate the physician who serves as laboratory director. The aforementioned North Carolina practice, High Point's Cornerstone Health Care, pays $500 a month to the hematologist/oncologist who acts as director of its busy and profitable lab. In return, he devotes about 10 hours a month to POL issues.

Stark doesn't apply to a medical practice--be it solo or group--that owns its own lab. Generally, doctors can send tests to any lab they or their partners own outright and run as part of their practice (they only have to make sure they don't distribute lab revenues based on usage). What the doctor can't do is send tests to an outside lab in which he has merely a financial interest. In a nutshell: It's okay to buy a lab, merge it into a practice, and do the testing there. It's illegal to buy it, leave it a stand-alone entity, and send tests to it.