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88305 Reimbursement in 2013


It is the end of March and the significant 2013 Medicare rate reduction for CPT code 88305 (“Level IV – Surgical pathology, gross and microscopic examination) is in effect.

The health care reform law mandated that CMS focus on high-volume codes from all specialties as potentially overvalued services. Changes to overvalued codes were reflected in the 2013 Medicare Physician Fee Schedule (MPFS) and because 88305 is a high volume code that not been reviewed since 2000, it was ripe for revision. The result of the review, as most know, was that the technical component reimbursement was reduced by 52% for 2013.  The professional component rate was increased 2%, resulting in a global reimbursement reduction of 33%.

The 33% cut to the Medicare global rate has been estimated as a $460 million revenue loss for pathology groups and labs this year.  The estimate is based on $1.378 billion of allowed charges for 2011 multiplied by the 33.4% reimbursement reduction.  The reductions in technical component reimbursement for surgical pathology will be partially offset by increased rates for immunohistochemistry, flow cytometry and UroVysion FISH testing.  This results in estimates that Medicare expenditures on pathology services will decline by $358 million, or 14% this year.[1]

However, it is not only Medicare reimbursement that should concern labs and pathologists.  Commercial carriers often follow CMS’ lead when it comes to pricing CPT codes and may use Medicare’s fee schedule to price their own allowable rates, or use it as a guideline.

In a recent review of a pathology client billing globally, Medicare 2012 collections were 38% of total collections, and we estimate the 2013 Medicare revenue loss to be approximately 6% (of total revenue).  The group’s second largest payor, Blue Cross Blue Shield, will update their fee schedule in June 2013, and if they follow Medicare’s lead, the total collection loss will exceed 10%.


A key question is will small in-office pathology labs be able to stay in business, particularly those operated by “physician specialists in gastroenterology, dermapathology, and urology groups, as they lack the diversity of specimens needed to absorb the deep cuts to 88305.[2]  We may see small in-office practices consolidate with other small practices or attach themselves to larger laboratories.  Other options are to close down and send their business to nearby hospitals or large independent laboratories.

Hospital-based Pathology Groups

The effect of the 88305 reduction on hospitals and hospital-based groups could help or hurt pathologists. On the positive side, if small-group laboratories go out of business and the business moves to the near-by hospital, there could be appositive effect.  Since many hospitals have DRG contracts with Medicare and other large carriers for inpatient services, and DRGs are not affected by the technical component reimbursement reduction, there would be no change in revenue.  The change would be in their outpatient business, which could be offset by the new increase in business.

The reduction of 88305 could hurt pathologists.   If the hospital’s histolab does become unprofitable, due a significantly large outpatient population, hospitals may not only halt or reduce investing in new equipment, but they may have to reduce payments to pathologists and, at worst, cut staff which could include pathologists.

The future of 88305

All of the major pathology societies and organizations have written CMS criticizing its method of reducing the rate for this code and other surgical pathology codes.  The two main criticisms are:

1.  The potential revaluing of CPT code 88305 was not mentioned in the proposed MPFS for CY2013 or anywhere else.  The proposed rule suggested a practice expense of 2.2, and then reduced it to 0.98 in the final rule. The process by which CMS implements interim pricing changes without notice of the change and without a chance for stakeholders to comment is unfair and inappropriate and puts all Medicare providers at a disadvantage.   Laboratories were aware some reduction would be implemented but nothing of this magnitude.  To only have 60 days until implementation makes it difficult for laboratories to adjust and prepare for such a large reduction in such a short period of time.  Additionally, this cut is coming at the same time as other 2013 cuts,

  • Stakeholders are asking for CMS to refrain from implementing the cut or to phase it in overtime.

2. CMS’ rejection of several of the RUC recommended cost inputs, the disallowance of other inputs essential to preparing a tissue and CMS’ characterization of the “direct” and “indirect” costs associated with the code. CMS did not consider several of the direct inputs that were recommended by CAP and the RUC, including equipment maintenance costs (courier transportation, lab information system, software, etc.) and specimen, solvent, and formalin disposal costs, among others issues.

  • Stakeholders are urging CMS to reconsider its assumptions about the direct and indirect costs associated with CPT code 88305 and to acknowledge and account for the wide variations in the costs of the tissue specimen examinations that are encompassed by this code.  They ask that CMS reflect these changes as soon as possible and certainly in the Medicare Physician Fee Schedule Proposed Rule for 2014.

CMS intends to further review the number of paraffin blocks used to create some of the direct inputs. CMS accepted the recommendation based on the number of interim blocks for 2013 but is seeking additional evidence regarding the appropriate number of blocks for each service. CMS is concerned about the accuracy of the number of the blocks assumed for each CPT code and if these concerns are not addressed, then CMS could apply further reductions in 2014 and beyond.

All laboratories large and small, as well as hospitals and pathology groups, will need to work on improving revenues and not just cut costs.  Understanding what is reimbursed for each CPT code can assist these entities to see where their profits come from and where their reimbursement is declining in order to make a plan to stay profitable.

In the future, ways to profitably build specimen volume and revenue must be found.  In the face of shrinking budgets, the healthcare system will pay for lab testing services that add value: meaning, lab testing services that improve patient outcomes and at the same time reduce the overall cost per healthcare encounter. This is where labs, hospitals and pathologists must concentrate their efforts to survive financially.

Resources:  Some of the letters written to CMS in response to the MPFS Final Rule

Letter written to CMS by ACLA (American Clinical Laboratory Assn.)

Letter written to CMS by the ASCP (American Society of Clinical Pathologists)

Letter written to CMS by the CPACDS (Coalition to Preserve Access to Cancer Diagnostic Services)

[1] Laboratory Economics, Vol. 7, No. 11, November 2012

[2] The Dark Report, December 31, 2012