One month from today, the law that permits independent laboratories to bill and receive payment from Medicare Part B for the technical component of certain anatomic pathology, cytopathology, and surgical pathology services (“TC Services”) provided to patients of “covered hospitals” will expire.   

Medicare pays hospitals a per-discharge amount for inpatient services pursuant to the inpatient prospective payment system.  Similarly, outpatient services are reimbursed on a per-procedure basis under the outpatient prospective payment system.  For both inpatients and outpatients, the payment received includes most services provided to the patient.

Payments for inpatient services include all clinical laboratory services as well as TC Services.  Clinical laboratory services and TC Services provided to outpatients are separately billable, but the hospital, rather than the independent laboratory, must submit claims for those services to Medicare.  

In 2000, Congress enacted the Grandfather Clause to prevent the Centers for Medicare & Medicaid Services from ceasing to pay independent laboratories separately for TC Services furnished to patients of hospitals who had an agreement with an independent laboratory for the provision of those services as of July 22, 1999 (referred to as “covered hospitals” in the statute).  The original legislation applied to services furnished to a covered hospital through 2002, but Congress has since extended the provision many times.  The current extension runs through July 1, 2012, but Congress is not expected to grant additional extensions due to concerns about Medicare paying twice for the same services and about CMS’s ability to determine with certainty which hospitals qualify as “covered hospitals.”   In addition, eliminating the protection would reportedly save $50 million per year.

Although the American Clinical Laboratory Association, the College of American Pathologists, and others continue their lobbying efforts, chances for an additional extension appear bleak.  Covered hospitals and the independent laboratories with which they do business should therefore begin to prepare for this substantial change in their business relationship.  Independent laboratories will have no choice but to look to those hospitals previously covered by the Grandfather Clause for payment for TC Services provided to their patients becuase the laboratories can no longer bill Medicare.