American College of Physicians: Internal Medicine — Doctors for Adults ®


The office lab shakeout

Who's surviving the effects of CLIA and managed care—and why—may surprise you

From the June 1996 ACP Observer, copyright 1996 by the American College of Physicians.

By Deborah Gesensway

Martha Adams, ACP Member, figured her office lab's perfect score on its first CLIA inspection was proof she knew how to run a lab. Then, managed care struck.

Now, as she masters all the details of the 1988 Clinical Laboratory Improvement Amendments—a time-consuming and expensive task—Dr. Adams also calculates how maintaining a "high complexity" office lab fits into her physician group's strategy for economic survival.

"We're in the managed-care transition," said Dr. Adams, the lab director for four physician office labs (POLs) in the Duke University Affiliated Physicians network and a full-time practicing general internist in Durham, N.C. She said she was looking at automation, point-of-care testing, bulk purchasing, improving information systems, regionalization and anything else that might keep their in-office labs profitable despite revenue cuts and cost hikes.

POL operations have changed dramatically in the four years since CLIA took effect, but whether to attribute those changes primarily to government regulations or the changing economics of health care delivery provokes debate.

Since 1991, most primary care physicians have dropped at least some in-office testing, many cutting all but the most basic tests to qualify for CLIA's "waived" category. (Waived tests are exempt from regular inspections and CLIA's proficiency testing and training requirements. Physicians performing only waived tests must register with HCFA every two years and pay a $100 registration fee, compared with $1,000 for the average POL doing moderate- or high-complexity testing.)

Still other physicians have found that their managed care organizations have not allowed them to handle more complex testing—despite their continued interest and skill in doing so. Many health plans instead have mandated that all testing go to commercial labs offering deep per-test discounts. Some physicians who retained in-office testing, meanwhile, have found that during the '90s, lab services have changed from their practice's cash cow to its money pit.

For many physicians, it is now too costly to maintain a lab, said Cheryl Toth, a Phoenix practice consultant with the Chicago-based national consulting firm, Karen Zupko and Associates. "But it's not mainly CLIA that has affected [profitability]," she said. Managed care plans "have brought reimbursement down to such a level that it is no longer profitable to do any lab work in your office other than the most basic tests."

Dr. Adams, one of the exceptions to this rule, says her lab does not earn what it used to, but it still more than pays its way. The in-office lab also yields other benefits, from improved patient satisfaction to a significantly higher valuation of the practice when the doctors were selling it to Duke's new physician network.

In fact, the shakeout in the office lab marketplace has led many physicians to upgrade their office labs on a par with Dr. Adams'—capable of meeting CLIA's standards for quality assurance and committed to proficiency testing for sophisticated, high-complexity testing, said J. Stephen Kroger, FACP, chief executive officer of the Commission on Office Laboratory Accreditation (COLA). "That's the flip side of all the lab closures," he said.

An AMA study last fall by Mathematica Policy Research Inc. (sponsored also by ACP and five other physician and group practice associations) concluded that two-thirds of POLs dropped some or all on-site testing between 1991 and 1995, primarily because of CLIA, which took effect in 1992 and applies to all labs, including hospital labs, commercial labs and POLs. But the U.S. Inspector General's Office and HCFA have found no significant change in the number of registered labs and even an increase in the number of tests labs have billed to Medicare since CLIA took effect. In 1988, for example, Medicare was paying for seven tests per senior enrolled in Part B, costing Medicare $2.8 billion; in 1993, that figure had increased to 12 tests per enrollee, at a cost of $5.9 billion. This overall increase occurred although the number of lab services provided in POLs "declined slightly," the Inspector General concluded.

"We found a small proportion of labs closing, but that [group] also included labs where the physician retired or merged into a shared lab or were bought up by a hospital," said Judy Yost, HCFA's director of the Center for Laboratories. CLIA regulations also "played a part in [the closings], but there are so many other things going on in the marketplace that it's hard to say it was just the regulation." About 157,000 labs are registered with HCFA now—90,000 in physician offices, Ms. Yost said. The numbers have remained stable since CLIA started, she said. The Inspector General found that the number of physicians with access to an in-office lab remained unchanged since 1988, concluded.

According to Howard Shapiro, PhD, ACP's Director of Public Policy, there are no data to confirm speculation that managed care has reduced in-office testing. Additionally, he said, "the outcomes of lab regulations on patient care have never been measured. ... The best way to improve lab accuracy is through education, not regulation. What physicians need help on is learning about good operating practices for office laboratories."

Has quality improved?

CLIA was enacted in response to public concern about inaccurate reading of Pap smears. If nothing else, it is supposed to improve lab accuracy. Although internists responding to an ACP survey last year overwhelmingly reported they did not feel CLIA had done that, HCFA and other organizations performing CLIA inspections, many of whom also sell proficiency testing programs and consulting services, insist experience speaks otherwise. They say physicians who kept their labs after CLIA, in general, have dramatically changed how they operate them and made them more professional.

COLA now sees, for example, that "problems with things like performing enough quality control are going away." Before CLIA, said Dr. Kroger, "there were a lot of labs that were not practicing at acceptable lab quality standards." COLA is a private not-for-profit POL-accrediting organization sponsored by the AMA, AAFP, American Society of Internal Medicine and College of American Pathologists. "I have a political history of being opposed to CLIA, but I have to say in retrospect it has done some good," Dr. Kroger said.

HCFA inspectors also saw "dramatic improvements in performance" of labs from their first to second surveys: The first round of HCFA inspections cited 667 POLs with "condition-level" deficiencies indicating "major" problems; that number dropped to 523 in the second round. Failing to perform and document two levels of quality control each testing day was the most common deficiency. About 35% of the POLs were cited for that deficiency the first time; on the second round, only 20% were. This requirement "directly relates to lab accuracy," Ms. Yost said. ACP, on the other hand, says the vast majority of citations were for procedural and paperwork mistakes.

Although Gordon J. Hutchinson, ACP Member, understands that quality assurance is necessary, he questions CLIA's integrity. An inspector last year did not even examine his microscope or watch him do a test in his rheumatology office in New Haven, Conn., Dr. Hutchinson said. Nonetheless, all of his HMOs still want to see his CLIA certificate if he is to continue on their panels.

Though he believes CLIA is "unnecessary government regulation that grew beyond its bounds," David H. Filipi, MD, chair of the laboratory subcommittee of the American Academy of Family Physicians, said he thinks managed care organizations are letting POLs do more testing than they were even a year or so ago, partly because they believe CLIA has improved in-office test quality.

"The need for lab quality assurance will not disappear [even if Congress votes to exempt POLs from CLIA], because the managed care companies still have to ensure for their contracting employers and patients that things are being done right," said Dr. Filipi. "Managed care companies are insistent that you have inspections and certification," otherwise they will implement their own, he predicted.

Dr. Hutchinson, whose only in-office moderate complexity test is examining synovial fluid under polarized light for crystals, said he continues his testing because the quality of patient care demands it. "It's not an uncommon problem that the hospital lab misses crystals," he said. So when he calculates all the financial, regulatory and clinical costs and benefits of maintaining his lab, the lab stays.

The trade-offs

That's exactly the kind of calculation practice management and lab operations consultants recommend physicians do in today's regulatory and economic climate. The consultants say physicians should consider limiting their lab offerings to tests they need for immediate patient care.

If a test really should be done "on site for patient care, then that's a smart test to keep locally," said Jane Dale, MD, of the College of American Pathologists. "As long as you have adequately trained staff—and if the test isn't too complex—testing on site is the way it should be done. But if there are tests that you don't need that day, then maybe those are tests you should consider sending to another facility."

After completing this exercise, consultants recommend physician offices compile spreadsheets showing which lab services earn and lose money to better understand what the practice is being reimbursed per test and how much it pays to perform it.

Focusing on meeting CLIA's requirements, meanwhile, also can help a practice meet its managed care needs. In capitation, said Dr. Kroger of COLA, "every return visit costs you money, every referral to a lab costs you money. And, in fact, an efficient office lab can pretty well produce tests at a cost comparable to commercial labs," he said.

Though keeping up the documentation required by CLIA can be a hassle, those same quality-control and problem-solving checklists have helped practices win managed care contracts that allow them to continue to perform lab work and be paid fee-for-service for them, said C. Anne Pontius of Laboratory Compliance Consultants Inc. of Raleigh, N.C.

"Managed care wants to see that not only do you try to improve your services, but that you target certain aspects to improve," she said. "They want to see what you are doing to keep up with technology. Are you able to supply the patient with timely results? Are the tests you are providing relevant to the type of services you provide? Are you as sure of your accuracy as commercial labs?"

In North Carolina, Dr. Adams said she thinks CLIA is raising the status of physician office labs within the laboratory profession and with payers. Without something like CLIA, which mandates POLs comply with the same quality control, quality assurance and proficiency testing standards as hospital or commercial labs, neither payers nor even other physicians really trusted the results that came out of doctors' office setups. Now that she can prove her lab functions at the same level as the hospital's, Dr. Adams said she thinks her lab will end up being picked as the regional lab for the new physician network forming at Duke.

"CLIA has turned out to be very educational. And I do believe the principle is right for patient care," said Dr. Adams. "But it's hard. I sweat it every day."

Office lab on the Internet, elsewhere

Martha Adams, ACP Member, says access to the Internet's lab-related resources has become as essential to the success of her lab operation as having a good mentor and a background in chemistry.

Dr. Adams, a lab director, has created a World Wide Web home page that collects many of the resources related to CLIA, proficiency testing and quality assurance to help physicians run their office labs.

Dr. Adams' home page also provides links to mailing lists where medical technologists and other laboratory experts share information. She has even included a link to a source of CME credits CLIA requires of lab directors. To reach her site, go to for the Duke University Affiliated Physicians home page and then look in the "provider" area for "POL."

Other sources of information for physician office labs (POLs) include:

  • The Commission on Office Laboratory Accreditation (COLA). COLA will fax physicians fact sheets on various aspects of CLIA and OSHA rules governing POLs. Topics include "How to change your CLIA certificate" and "What every laboratory should know about documentation." For a list of topics, call COLA: 800-298-8044.
  • NCCLS. The lab standard writing organization has published new versions of "Physician's Office Laboratory Guidelines" and "Physician's Office Laboratory Procedure Manual." Information: 610-688-1100.
  • The College of American Pathologists (CAP). CAP offers educational programs and publications for POLs under its Excel program. Information: 800-323-4040, ext. 531.

  • The College presses for POL exemption from CLIA
    ACP continues to press Congress for a complete exemption of physician office labs from the regulations of the 1988 Clinical Laboratory Improvement Amendments (CLIA), saying there is no evidence CLIA has improved the accuracy of lab testing. However, since legislative relief is unlikely this year, the College also is arguing for several specific rule changes that would make compliance less burdensome for doctors.
    The College's latest efforts concern several new CLIA policies, including HCFA's plans to bill physician office labs (POLs) up to a year in advance for the required inspection, according to Sharon Mikolanis, ACP's senior associate for payment policy in the Washington, D.C., office.
    "The College and others have found this to be unreasonable and a financial nightmare," Ms. Mikolanis said. HCFA says it will bill labs 12 months before their certificate expires, which is anywhere between three and six months in advance of their biannual inspection. There have been some cases, however, of HCFA sending out bills 21 months in advance of the inspection, Ms. Mikolanis said.
    ACP joined the AMA, the American Society of Internal Medicine and a dozen other physician organizations in a letter this spring protesting the practice. The organizations called on HCFA to bill POLs no sooner than four months before the two-year survey cycle begins. The organizations also urged HCFA to send the bills at a consistent date each time, perhaps pegged to the lab's enrollment date, so physicians can budget the expense.
    The College also has concerns about a new rule that could help some POLs. Beginning in February, HCFA has offered labs the opportunity for recertification without having to go through another on-site inspection if they performed "exceptionally" the last time and had "satisfactory" results on their proficiency tests.
    HCFA will allow these labs to complete a 45-question self-survey—the Alternative Quality Assessment Survey. ACP is concerned with the survey's length, saying it is "cumbersome and will require extensive work to complete," Ms. Mikolanis said. The survey, she said, "demands as much time, if not more, to complete as an on-site inspection." Additionally, she said, HCFA still requires labs to pay the same fee even without an inspection. (5% of these labs will be inspected at random anyway, HCFA said.) ACP and other medical societies have written to HCFA protesting this plan.
    The College also wants internists to be aware of a new Medicare rule affecting lab test billing. Starting March 1, Medicare will no longer pay for all tests in an automated profile when only one or a few of the tests was "medically necessary." HCFA promulgated this rule, Ms. Mikolanis said, because technology now allows labs to do a few select automated tests rather than the entire profile.
    Congress enacted CLIA to answer concerns that some lab tests—Pap smears, particularly—were not being conducted accurately in parts of the country. Studies of CLIA's effects have not shown that the law has improved laboratory accuracy, Ms. Mikolanis said.
    Congressional Republicans have introduced proposals to exempt POLs from CLIA during the last few years, most recently during the debate on mandating health insurance portability. But so far they have failed to become law. CLIA reform sponsors in this Congress are Rep. Bill Archer (R-Texas), chairman of the House Ways and Means Committee, and Sen. Kay Bailey Hutchison (R-Texas).

  • Update on waived tests
    The following are classified as "waived" tests under CLIA as of March 1996. CDC and HCFA are considering several other tests for the waived category. Physicians can perform waived tests in their labs by applying for a waiver certificate. There are no personnel standards nor proficiency test requirements.
  • urine dipstick or tablet tests, nonautomated
  • fecal occult blood
  • urine pregnancy tests, quantitative visual color comparison
  • ovulation tests, visual color comparison
  • erythrocyte sedimentation rate, nonautmated
  • hemoglobin by copper sulfate, nonautomated
  • hemoglobin by single analyte instruments providing direct measurement and readout
  • spun micro-hematocrit
  • blood glucose by glucose monitoring devices cleared by the FDA for home use
  • cholesterol by "Accumeter" (Chem-Trac), and by "Advanced Care" (Johnson & Johnson)
  • PyloriTek Test Kit for H. pylori by Serim
  • QuickVue In-Line One-Step Strep A Test by Quidel
  • Cholestech System (total and HDL cholesterol, triglycerides and glucose by Cholestech LDX)

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