Philadelphia Reflections

The musings of a physician who has served the community for over six decades

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Personal Reminiscences
One of the features of aging past ninety is accumulating many stories to tell. Perhaps fewer are left alive to challenge insignificant details.

Billing Medicare for Office Lab Work (Without Bookeeping Tangles?)

New Law Increased Administrative Costs for Everyone

George Ross Fisher, MD


Hidden in the hundred of pages of the budget reconciliation act which Congress passed on December 22, 1987, is a short provision which makes physician charging for office laboratory work a prohibited transaction. It's not so prohibited as selling cocaine, but if a doctor performs laboratory work on a "Medicare eligible person" (i.e. anyone over age 65), he is forbidden to charge the patient for the service. Ay reimbursement must be sought by filing a Medicare claim form, accepting assignment, and hence accepting Medicare's increasingly stingy fee schedule.

Aside from this law's dubious constitutionality, it creates a monstrous administrative headache for doctors. For that matter, it creates a big problem for Medicare's fiscal intermediaries, too. The Prudential Life Insurance Company has just announced it is withdrawing as Medicare intermediary for New Jersey, North Carolina, and Georgia as of next January first. The laboratory billing requirements potentially cause a huge increase in claims volume and a parallel increase in complaints and confusion for the intermediary.

For their part, care physicians face four underlying choices of billing procedure in complying with the new requirements. They might yield to the obvious motive underlying the congressional action, and accept assignment for all service, laboratory and otherwise. That response might simplify bookkeeping, but it could reduce gross Medicare income by an average of 30% (the current average difference between doctors' charges and Medicare "allowable" cost.). Since there would be no parallel decline in overhead, the proportionate loss of net income would be even greater. The second type of approach would be to submit a separate claim form for the laboratory work, or two claim forms (one for laboratory work and the other for other professional services), or write in a "mixed" assignment acceptance in box #25 on the claim form.

All of these claims submission modifications, however, create the same subsequent bookkeeping dilemma: how can doctors credit payments for these laboratory services on their books, when they aren't allowed to bill for them? If doctors do credit the assigned payment to their patient's accounts for something which was never charged to the accounts, the ultimate result is a negative balance or an unintended reduction of charges for whatever else the patient owes. If doctors charge the accounts to balance the books, they are violating the law.

There seems to be no way out of this bookkeeping nightmare except by creating extra bookkeeping accounts to handle Medicare laboratory charges. For those doctors who utilize a computer for their business affairs, it is practical to have the machine create a separate laboratory account for each Medicare patient. For those doctors who still use a manual bookkeeping system, it may be more manageable to create one gigantic account from which Medicare is billed for office lab services, and to which the payments are credited. The underlying accounting theory of this approach is that the patients who are old enough to be eligible for Medicare are officially no longer responsible for office laboratory charges and that the US Government is responsible. That's a bizarre accounting theory, but then it's a bizarre congressional action.

Regardless of extra cost for doctor and Medicare alike, the new law offers doctors no choice but to open separate new bookkeeping accounts for Medicare laboratory services.

For Doctors, Computer Hardware Catches up. Major revisions of Medicare rules have become so frequent that computer software for doctor's offices can be modified quickly enough, only if written in "high-level" programming languages such as interpretive BASIC. Unfortunately, such quickly modifiable code makes inefficient use of the machine; it is "slow".

However, recent advances in cheap computer hardware chips have so greatly accelerated desktop computers that software inefficiency scarcely matters. With "386" processors, doctor's office software written "quick and dirty" in a high-level language can be quickly and cheaply modified to accommodate abrupt changes in HCFA policy. The fiscal intermediaries, on the other hand, must still invest huge resources in painfully reprogramming their mainframe computers in low-level languages.

Originally published: Wednesday, September 26, 2018; most-recently modified: Tuesday, May 14, 2019