State medical legislation targets 'indirect billing'

By Kathleen O'Dell

In some medical practices across Missouri, doctors are turning a profit from lab work done by other doctors. And most patients and their insurance company don't know about it.

It's called "indirect billing" or "pass-through arrangements," and a bill in the Missouri legislature would outlaw the practice.

Senate Bill 817, or "direct-billing" legislation, states that only the physician who provides or directly supervises that service should bill for it. It prohibits doctors from marking up the cost of anatomic lab tests such as Pap smears and skin biopsies performed by pathologists.

Current Missouri law allows physicians to mark up the cost of anatomic pathology services charged to Missouri patients who are privately insured or uninsured. Medicare and Medicaid prohibit the physician-lab business arrangements.

Bill sponsor Sen. Jack Goodman, R-Mount Vernon, and backers say it's unethical for physicians or clinics to mark up work done by others. This is the legislature's third try to pass such a law.

They say the inflated costs create unethical profits for referring physicians who do not provide the pathology service, driving up the cost of health care through over-billing and creating a hidden profit incentive. It also could lead to unnecessary testing because physicians have a financial incentive to order numerous tests.

The Senate bill is in the House now, waiting to be assigned to a committee. A companion House bill 1990 is expected to be assigned to a hearing on the House floor.

Here's how the pass-through practice works:

A doctor and an independent, outside lab agree on a volume-based negotiated price for lab work: The doctor sends a patient's tissue biopsy or sample to the lab for testing.

The lab charges the doctor the discounted price of, for example, $20 for a mole biopsy.

The doctor bills the patient's insurer for a higher amount, such as $50, and the insurer pays that to the doctor. The doctor keeps the $30 profit.

Family practice physicians and some dermatologists are among those who have testified in favor of keeping the indirect billing practice.

Doctors who are allowed to negotiate discounts with labs and handle billing are able to guarantee patients a set package price for the in-office test and the pathology lab fee.

Doctors also have the ability to pass along the full discount to low-income or uninsured patients, said Kirksville family practice physician Dr. Arthur Freeland.