Pathology/Lab Coding Alert

Question: Has the "grandfather exception" expired, which allows independent labs to bill Medicare for the technical component of physician pathology services? If not, how can an independent lab establish billing Medicare in this way?


Nevada Subscriber


Answer: No - although it was set to expire at the end of 2004, Congress extended the "grandfather exception" (Section 542 of the Benefits Improvement and Protection Act [BIPA]) through 2006 under Section 732 of the Medicare Modernization Act (MMA). But an independent lab cannot establish technical component (-TC) billing now - the grandfather exception is only for prior arrangements.

Section 542 allows independent laboratories to bill Medicare directly for anatomic pathology -TC services provided to hospital inpatients and outpatients. The extension applies to the years 2005 and 2006, but only  if such billing arrangements were in place as of July  22, 1999.

If your lab arrangements qualify, you can continue billing services such as surgical pathology codes 88300-88309 globally or with modifiers -TC (Technical component) and -26 (Professional component) to Medicare. Otherwise you must bill Medicare only for the physician service, using modifier -26. Medicare will pay the hospital for the technical component under the APC rate, and you will have to arrange with the hospital to recover those expenses.

Myth: Although BIPA appears to provide the exception to specific laboratories, the rule actually bases the exemption on the status of "qualifying hospitals." A hospital qualified for the grandfather exception to -TC bundling in its diagnosis-related group and ambulatory payment classification Medicare payments if, on July 22, 1999: (a) an outside laboratory performed the hospital's histology and/or cytology work, and (b) the outside lab billed Medicare Part B for the -TC.

In all other situations, Medicare will only pay the -TC of anatomic pathology procedures through the hospital. Note that if a qualifying hospital sells to another entity, it no longer qualifies for the grandfather exception.

CMS implemented Section 732 of MMA to extend Section 542 of BIPA in Change Request 3467. You can find Medicare's memo on the Internet at www.cms.hhs.gov/manuals/pm_trans/R382CP.pdf.