Medical billing tips for healthcare professionals — by healthcare professionals.
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Part two of two. If you send a specimen to an outside lab and they bill you eighteen dollars for it, eighteen dollars is the most you can bill Medicare. Not your contracted rate. That is the anti-markup rule, and it is one of two things that quietly rewrite the math on in-office lab.
What to pull first. Start from your last 90 days of reference lab orders, grouped by test name and CPT code. That is demand, not a projection. Then map each test to its PAMA rate from the CMS Clinical Laboratory Fee Schedule, and check whether your commercial payers hold a separate lab fee schedule from your office visit schedule. Many do.
How Medicare lab billing works. Medicare pays the lesser of your billed charge or the PAMA rate, and there is no negotiating it. Billing $45 against an approximately $18 rate pays approximately $18. The anti-markup rule then says that if you did not perform the test yourself under your own CLIA certificate, you cannot bill Medicare above what the reference lab charged you. And ordering provider enrollment matters, because lab bills under the ordering NPI directly and incident-to does not apply.
The four costs that get underestimated. Reagent per reportable result, QC materials run daily whether or not you test a patient, proficiency testing for moderately complex, and staff time. That last one decides it: five to fifteen minutes per rapid test, which at twenty tests a day is $42 to $175 in daily labor.
The honest ceiling. On rapid strep at a blended $19 with about $10.80 of variable cost, contribution margin is $8.20 a test and break-even is about 43 tests a month. A practice converting 126 of 180 referred strep tests clears roughly $681 a month from strep alone. A full waived menu at good volume might reach $3,000 to $6,000 a month. Real money, and a real compliance program.
Three actions this week
Have your billing team pull 90 days of send-out orders grouped by test name and CPT code. That single report is your demand baseline.
Look up the current PAMA rate for every test on your candidate menu at the CMS Clinical Laboratory Fee Schedule for your year and locality.
Check how your send-out tests are currently being billed to Medicare against the anti-markup rule, before you model anything new.
Episode breakdown
Segment 1: what to pull before any revenue projection
Segment 2: how Medicare lab billing actually works, three rules
Segment 3: the business case model and a worked break-even
Part 1: EP207, should you bring lab testing in-house?
SPEAKER_00
So if you send a specimen to an outside laboratory, but you could be making a margin times hundreds of specimens, that's real margin that you could be making. So today we're going to be talking all about the numbers that make sense when you're trying to decide should I add laboratory ancillary testing to my clinic? Welcome to Nat RevMD, a podcast where we share tips on optimizing medical billing and improving practice efficiency so you can have the business of your dreams. I'm your host, Dr. Heather Signorelli, founder of Nat RevMD. Let's get started. Last time we talked about CLIA, we talked about testing personnel, compliance around this. As you guys know, I'm a pathologist. I love the laboratory space. It's what I do for my day job. And it's something that I'm very passionate about. But like we've been talking about the last couple episodes, all about a business case. You've got to make sure you know what you're getting yourself into, what are the clinical reasonings that you're doing a test. And then today we're going to talk about the financial piece that you need to pull together to make sure that you understand if truly this is going to be break-even, which may be sufficient for a laboratory test that you need to have from a patient care perspective. Or maybe you can make a little bit of a margin, which would be the ideal case. Or maybe in certain circumstances for your patient population, you can bring on some more moderately complex tests where you can have a good margin. Again, highly complex testing, like we talked about last time, typically is reserved for really large multidisciplinary or multi-location clinics where you can have centralized testing in it for highly complex laboratory tests. And it's got to make sense from a profitability perspective. You have to get the reimbursement. And once you start getting into that realm, you've got to make sure that the payers will allow you to do the testing and you'll get reimbursed enough to cover the cost. And so we'll kind of talk through a little bit of that, the, the, the numbers you need to pull so that you can figure out whether or not this is something that you want to do. So if you didn't listen to last week's episode, highly recommend it that you go back and listen to it because we do talk about wage versus moderately complex and all of that stuff. Again, if you are a seasoned pro at that, great. Maybe you don't need to listen to that. But this week we're going to talk about the business case. So I do want to make sure that you guys do recognize that there are some tricks around confirming that you are not billing for testing that you are not doing to government payers. So we have seen practices send out testing and then bill Medicare for those tests and try and charge a markup. There are some very specific rules around this, and it makes me very uneasy when I see those things. And there are some ways that that can get you into a lot of trouble. So really want to make sure that if you are not doing a laboratory test, personally, I'm risk adverse. I really recommend that you do not bill for send out tests that you're not actually doing, because if you end up doing that for government payers, you can be in a lot of trouble. So really just want to make sure that if you are sending it out, work with Lab CornQuest, have them bill it. Just stay out of that, you know, middle. Maybe there's some small revenue to be gained from the commercial payers, but the downside of doing that incorrectly and accidentally paying that or actually accidentally charging that to government payers can be really tricky. So just really don't think we need to get into all of that. But again, if you have questions about that, shoot me an email, info at net revan. So today we're going to talk about what to pull and how to calculate whether or not this makes sense financially. And again, like I talked about in the last episode, whether or not you bring laboratory testing in may not always be financial. It may be clinical. So you may want the hemoglobin A1C, you may want the urine urinalysis, you may want the rapid strep and rapid flu. And typically those make sense financially, still run the numbers, but typically those make sense financially because they're low cost. From a compliance standpoint, they're easy to do. And there's typically enough margin to at least cover the process by which you manage that laboratory process. So I do suggest always that you start with your current referral pattern. So what tests are you sending out today? And, you know, if your brand spanking new and you're like, I don't know how many patients I'm gonna see, maybe don't start here. Or maybe start with like a rapid flu, rapid, you know, strap. Um, but don't go crazy yet. Understand what your volumes are because you can have waste with these tests. Some of them have very long expiration dates and some of them shorter. And so you just kind of really want to know what your volume is first. So you can pull out that reference lab orders for the last 90 days and really understand the orders from highest to lowest volume that you send out to an outside lab. Now group those by test name and CPT code and then count how many of those per month. And then you can start thinking through okay, this is my demand baseline. This is this is the amount of volume that I can expect to need to perform. And if you are doing 180 strep tests a month that you're sending out, that's your starting volume. And that is a good place to start straps, streps and flus. We all know that, you know, sending out a rapid flu is not gonna be very useful clinically, by the time you get the results back, it's too late for TAM flu. Anyway, so map each of these tests to a Medicare rate, right? Just see locally what it is that you could be reimbursed from a Medicare perspective or your average reimbursement across your payer mix. Or if you have a high Medicaid, look at that because you're gonna want to understand is that even going to cover cost? Again, for the most part, weight tests, you can have the reimbursement's gonna be higher than the cost of the kit, but you just want to make sure that you that you have those rates ahead of time. So again, these Medicare rates, they're published online. You can find them easily. Commercial rates get a little bit trickier in terms of how to figure that out, but you can look these tests up online and have that be a starting point, at least the Medicare rates, Medicaid rates, you know, either one, depending on your payer mix. So then you want to get the reimbursement rate. So again, that could be a blended rate. If you have a high commercial patient population, you could start with the Medicare rate. And maybe your average, you know, reimbursement for commercial is about that. Maybe it's a little lower, maybe it's a little less. You could always take a blended rate or just start with Medicare. It's kind of the easiest way to do this. Obviously, you do want to make sure that your commercial contracts have lab testing specifically. Some commercial payers will hold a separate lab fee schedule from your office visit schedule. And so you just want to make sure with your credentialing team that you actually do have lab as part of that and you could look at those fee schedules for, say, your top two to three commercial payers so that you know what that looks like. Obviously, some are just gonna pay a percentage of that, you know, PAMS CMS rate, and some negotiate a flat rate. So you just want to make sure that you understand what those contractual agreements look like. All right, so now that you have your volume, you also have your reimbursement rates. Again, you can start with those Medicare rates. What's great is that, you know, Medicare, it's just published. So a rapid strep test could be, I think it's $16, $17, something like that. Rapid flu, I think is just shy of $20. Again, it depends on your locality. But again, in general, you're you're working with that assumption. Again, these are antigen tests. This is not true PCR. So understand what those CPTs are, understand what your volume is, and then you can start having the conversations with vendors. So then you can start to actually work with the vendors to say, okay, what rapid, you know, antigen tests are out there? What are the best vendors? What have look at the sensitivity? I think the other piece that we forget is there's some actually crappy antigen tests out there on the market. And flu antigen is, you know, plus or minus in terms of sensitivity, but just understand these metrics, understand sensitivity and specificity so that you can actually interpret the results. So if you have a negative result, but the sensitivity of that test is 50, 60%, you know, take that with a grain of salt, right? It may be negative, it may have a false negative. You guys know this. So this should not be new to you. I'm just reminding that really make sure that you understand the testing characteristics. Also, as we all know, right, reference lab values, right? So once we get out of the rapid flu, rapid strep realm and we're actually doing some level of quantitation, reference labs, reference values are just the central 95th percentile of a test. So even if you have a mildly high or low, doesn't necessarily mean that it's abnormal. So just take that into clinical context. Again, all things we're taught, just like to have a nice reminder on this. So the most important part of this is that you actually do set your charges high enough. I've seen where we've gone into practices where they don't have those fee schedules set high enough. And so you'll see an EOB come back with a $0 contractual adjustment, which means that your charges aren't set high enough. So just want to make sure that when you do start billing for these, that you set those charges high enough. And then once you start meeting with the vendors, okay, so then you've got to think through, okay, is this a kit, right? Am I buying a kit that I manage or am I getting an instrument that then uses some sort of cartridge or, you know, uh sample, or am I using an instrument that then uses a kit on the instrument? And again, you can do either and it depends on the test, but you'll just want to start understanding the pros and cons of those. If you're a higher volume clinic, you may want something that's instrumented because it may be easier to interface results. It may be easier for your staff to plug and play, whereas some of the more manual kits may have to actually sit there and do a couple steps, or you can set a timer and walk away. Just depends on the tests that you're bringing in. But you'll just want to think through looking at both of those options. And again, a lot of that's gonna come down to volume. The vendors will typically sit there and kind of go over some of this with you. I do highly recommend working with a consultant if you are gonna be doing moderately complex tests, just even somebody who can help set up the policies and procedures, make sure that you're following the guidelines from a quality perspective and setting that up appropriately. So, really, really recommend that somebody who knows laboratory testing help you do that, at least in the beginning. And maybe that's a lab staff that you've already hired who's gonna be running the program, and that's even better. Like I said before, really, really make sure that you are not billing out laboratory tests to Medicare that is being performed at a different laboratory. So there are some anti-markback or there are some anti-markup restrictions that apply to tests that you actually perform when it comes to government payers. So, really, you know, just be careful that you don't get into those weird arrangements, especially with small labs, they may not understand those rules. Lab cores and the quests, they all know that. So it's super easy to make sure that you're not doing that inappropriately. Now, so let's think about this. So now we've got our volume, we've got our reimbursement set, right? At $15, $20 again, you know, for those rapid antigen tests. Now you got to figure out roughly the cost in reagents to run it. And even if you're doing an instrumented test, you can do that from a capital purchase where you where you purchase the instrument or do a reagent rental. Just depends on the test and what makes sense. Again, run the numbers. And but say you get down to a cost where it's maybe six, seven dollars in reagent to run, then you bill Medicare, you are getting a margin. It is a real margin, right? So if you're doing hundreds of these tests a month, that can be real revenue. Now, you only capture it if you perform the test yourself under your own certificate. You documented that you have QC and that you put all of that within the claim, right? Not the QC, but the CLIA number on the claim. And that you really want to make sure that you are actually getting paid for these. So as you start billing out these claims, just make sure that you're not getting denials, not for those CLIAs. We actually took them over in OB practice, gosh, about a year ago, and they were having issues with their CLIA and the way that it was getting billed and having some reimbursement struggles. That has all settled out because the claims are going out appropriately now. But you do want to make sure that your team is billing for them and that you're actually getting reimbursed. All right, so now we've pulled our numbers. Let's really apply the business plan framework to lab. Now I'm gonna talk about CLIA waived because it's the simplest way to do this, right? So you this is this is not rocket science, right? So we've got volume, we've got reimbursement, we've got cost. That should be able to get you to a profitability and you should be able to then track that within a dashboard or understand and pull and make sure that those lab tests are truly getting paid. So volume, you're using those referral data, data points that we pulled. You are maybe assuming, you know, 50 to 60% of that current referral volume you convert to an in-office, and then you ramp that over time to where you're doing 100% of that as the workflow becomes routine. Now, some tests will not convert. Patients who prefer the reference lab, you know, or they have an insurance that, you know, requires it to be sent out. Again, that's infrequent with waived tests, but for some of those higher complex tests, you may have issues where certain reference labs or certain payers require you to use a reference lab. Again, complexities outside of wave testing, but just something to think through. So then you have your reimbursement rate, and then you can calculate your profitability. Again, this is going to be something you want to model out, making sure that you are putting into place any additional costs that you are having with regards to specimen prep, any quality control materials. If you are having to do an instrumented, if there is any sort of service contract or IT service payment, again, you just want to wrap all of that into your whole cost on a cost per test perspective so that you're calculating profitability correctly. Now, when you are thinking about a moderately complex lab, then you have to start talking about bringing in costs related to the application, any sort of medical directorship fees, any laboratory testing, staff, phlebotomy, any of that that then becomes real costs. Again, you'll want to make sure waived tends to be a lot more simple as you may not have all of those additional expenses when it comes to bringing in waive tests. The other thing you're gonna want to do is make sure that you have a self-pay rate. So set a cash pay rate so that you can do that for patients who aren't wanting to use insurance for their laboratory test. Then you will wanna make sure that you are adding in that if you are having to run quality control, that you're adding in the frequency at which those quality control materials are run so that you have a full, accurate picture of the quality control materials that the analyzer needs. Again, more likely in a more complex laboratory, but the frequency becomes really important for you to understand and what those materials look like. Same with proficiency testing. Again, in those moderately complex situations, you'll want to know, okay, from a proficiency testing perspective, what do those materials cost? Because they are expensive. It does add up. And again, the margin on these isn't huge. And so if you're trying to bring in a CBC instrument, it's moderately complex, you're now paying a medical director, a lab to, you know, staff member, you are having proficiency testing, more expensive CLIO license, you've got, you know, inspections that you're having to spend time on. That adds up to real dollars. And so if you don't have the volume to make that make sense, to where that margin is actually going to be covering the expense of the test, this may not be the right time to bring that on. So proficiency testing is also a subscription that adds up quickly. You'll also want to add in uh time for people who are actually having to run the test. So another thing is that running a rapid test may take, you know, five to 10 minutes of staff time. And if they are already struggling with bandwidth or process workflows, this may not be the right time to bring that in. While that's not a financial number, it is something to consider to make sure that you have your workflows down clinically before you start adding on waived testing. So at 20 tests a day, right, that's 100, 150 minutes of staff time daily. At $25 an hour, you know, that is real labor costs. And you will want to add that in to your financial calculations on a per test basis of what that expense is in order for you to add that up. So you do really want to make sure that the staff have the bandwidth and that you've added in the real cost of time for them. Now that is a soft number, meaning, okay, if my staff have bandwidth and I can have them do the testing and they're gonna be there full time anyway, is that real expense? And there's two different ways to think about it. I mean, obviously, if they weren't doing the testing, you're not gonna cut their hours, the amount of time that they would be doing that testing. So, but they could be doing their doing other tasks that then you would maybe need to outsource. I still like to include it in the business case so that you you take that labor time and it is part of the per test uh cost that you add in. So again, you're adding in reagents, you're adding any sort of instrument or service costs, you're adding in quality control, you're adding in proficiency testing if it's moderately complex, and you're adding in the amount of time on a per test basis that applies to having that staff member, whatever hourly rate that they're at, and applying that on a per test basis. That just allows you to see the true ROI when it comes to profitability for a specific test. And again, you can put this in a Claude, put this in a, you know, chat GBT, I bet would still do a really good job with this so that they can help run a cost analysis or build out the business case for you. There's lots of free spreadsheets you can use, and I'm sure actually most vendors would even do this for you. That's the other secret, is they can run this whole business case. I just would be very cautious of the reimbursement, the rosy picture they pick they give you. Oftentimes is on commercial rates and it doesn't meet meet your payer mix. And so just be careful of that. So we talked about pulling the volumes, we've got reimbursement rates, talked about expenses, right? You've got those fixed expenses, proficiency testing, equipment lease, or depreciation, the quality control. And so that contribution margin per test is going to be the net revenue per test minus the variable cost per test. Again, that's like your reagents plus your quality control materials. And then the answer will tell you how many tests a month cover your fixed cost, and then add back any sort of startup investment playbook or say you have a consultant is on top of that so that you can understand if you are breaking even or creating a profit margin for your practice. Again, for most of these wave tests, it's not a huge margin, but every little bit counts. So let's go through a real example. So say you have blended revenue of $19 a test, right? That you get and can get reimbursed. Variable cost of that test is $10.80. So that's uh, you know, just over $8 a contribution margin. Now say your monthly fixed costs are $350. So that break-even point is 43 tests a month. So if you currently refer out 180 strep tests a month and say you only brought in 70% of those, so that's 126 tests, 83 tests above your break-even point. So you are having, you know, a $680 margin every single month from strep alone. So again, not massive, but big enough to say give somebody a raise or contribute to a pizza party or something to incentivize your front desk staff to do better eligibilities. That adds up over the year, and especially if you have multiple tests that you're bringing in. So again, not life-changing, but really solving a clinical problem, breaking even with a little money extra. Now, you can make sure that you are actually billing this and getting reimbursed. That's going to be the other important thing to do. So, in summary, in-office wave tests is probably not going to be this like revenue transformation in your practice, but it can improve margin, it can improve patient experience, it can improve your ability to make clinical decisions. And when you start to really do well from a profit margin perspective, typically is when you're in that multi-location situation where you have an ability to maybe bring in one or two of those moderately complex tests. And it's just got to make sense clinically. I really, really stress that. Don't bring in tests that somebody, a vendor, says, oh, you'll make lots of money, but you don't really think you need for patients because I think that that one, you may not always get them paid for and reimbursed and medically necessary. So it can put the office at risk from a money loser if you do that or put you at compliance risk as well. So hopefully this helps. Again, start from your last 90 days of send outs, understand what the reimbursement is, understand and work with vendors to understand the fixed and variable costs for those tests so that you can understand how many tests you need to do to break even, and then how many on average you would do above that break-even point to calculate your margin. And then that will allow you to understand if it makes sense for your practice. So, as always, um, we do have a practice financial health dashboard tool in the show notes. This is something that you can help pull together different financial metrics for your practice and be able to work through what your practice is struggling with today. So, hopefully, these things are helpful. And as always, if you do have lab questions, would love to help out and answer those for you at info at netrevnt.com. Thanks so much for listening.
