Doctors Order More Lab Tests When They Own the Labs

Photograph by Kiyoshi Ota/Bloomberg

Say you find a weird splotch on your arm and go to a dermatologist to get it checked out. The doctor may order a biopsy and send the tissue sample to an outside lab for analysis. Alternatively, the clinic might have an in-house lab to examine the sample. In that case, the clinic gets paid for both the procedure and the analysis, so perhaps it’s not surprising that doctors order more tests when they run their own labs.

A new report reveals how wide the “self-referral” problem is: Medicare paid $69 million for nearly a million biopsies in 2010 that it wouldn’t have been ordered if self-referring doctors ordered tests at the same rate as colleagues who use outside labs, according to the Government Accountability Office. That’s about 22 percent of what Medicare spent on the procedures that year.

The way the tests are billed makes it almost comically easy to boost fees. Doctors can combine several tissue samples from one patient into a single “specimen” for examination, or send each sample separately. “Providers can double their payment … by submitting four specimens from four tissue samples instead of combining the four tissue samples into two specimens,” the report says.

Such perverse incentives help explain how the U.S. spends $210 billion annually on unnecessary tests and treatments, according to the Institute of Medicine. And while the Affordable Care Act takes some halting steps to reward health care providers for keeping people healthy, rather than for performing lots of procedures, most doctors continue to be paid by volume: More tests and treatments mean more revenue.

The GAO, which examines government programs at Congress’s request, looked at Medicare payments for three specialties—dermatologists, urologists, and gastroenterologists—that make up the bulk of “anatomic pathology services,” or biopsies. The GAO has previously found that self-referrals for radiology tests also cost Medicare millions each year. It’s not even subtle. In both reports, the investigators found that the number of tests doctors order jumps the year after they begin to self-refer.

Congress passed a law nearly a quarter-century ago to ban certain self-referrals, but the practice persists. The law has exceptions for some services performed on site, so doctors could, say, analyze a strep throat culture and give patients a speedy diagnosis without having to send the sample to a lab. Biopsies, on the other hand, take at least 24 hours to analyze and were never meant to be part of the exception, says Gene Herbek, a pathologist at Nebraska Methodist Hospital in Omaha and the incoming president of the College of American Pathologists. The group certifies pathologists and labs.

Herbek says specialists have moved biopsies into their clinics to boost revenue. “They’re not breaking the law; they’re just really taking advantage of the billing system,” Herbek says. What’s more, according to the GAO, Medicare doesn’t seem too worried about stopping it. While the agency has trimmed how much it pays, it didn’t agree with the GAO’s suggestion that the government start tracking self-referrals on Medicare claims. “We are concerned that [the Department of Health and Human Services] does not appear to recognize the need to monitor the self-referral” of biopsies tests, the report says.

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