Valuation of Pathology Services

The need to value pathology services arises when a hospital, physician group, or another provider contracts to buy or sell pathology-related services. Since the parties to these contracts often refer business to one another, compensation needs to be at fair market value for compliance purposes. The technical nature and complex reimbursement structure of pathology services can often make these valuation engagements more challenging than most traditional physician services arrangements.

A general process for valuing pathology services is as follows:

1. Examine the pathology group’s duties and responsibilities as outlined in the pathology services agreement.

Appraisers will need to be able to differentiate between the two major disciplines in pathology: clinical pathology and anatomic pathology. Note that anatomic and clinical pathology services involve different types of physician work and are reimbursed differently by insurance. 

2. Add any additional services being provided by the pathology group to the list.

In many situations, the pathology group will be providing services that are not described in the agreement. Quite often, these services have been specifically requested by the hospital (committee work, for example). Ask the pathology group to provide a full list of the services they perform as the hospital’s pathology provider. 

3. Determine who benefits the most from each of the services and group the services accordingly.

Note that some pathology service agreements refer to “Part A” services provided by a pathology group. “Part A” work often refers to the medical directorship of the clinical laboratory. It may also include other services provided by the pathology group for which the group cannot bill or collect from patients or insurers.

4. Understand the reimbursement opportunities for these services.

Investigate which services can be billed to patients and insurers, and which services the pathologists expect to be compensated for under the pathology services agreement. Note that extra research may be necessary to determine whether commercial patients can be billed for the professional component of clinical laboratory services. 

5. Determine how much time is being devoted to each type of service and how much time should be budgeted going forward.

Interview physicians, review time logs, read committee minutes, etc., to determine how many hours the pathologists spend providing each type of service. Determine  which duties/responsibilities are needed and how much time should be allocated to them each year.

6. Determine the Fair Market Value of the compensable services or calculate the cost to provide the services with employed physicians.

FMV rate x pathologist hours = $ per year

7. Analyze the mix of professional duties.

Determine if the breakout seems reasonable and in line with the hospital’s and the group’s expectations.

8. Document the results.

BFMV is experienced in reviewing and designing fair market value and commercially reasonable pathology services arrangements that meet the volume or value standard. Contact us for hourly consulting or FMV opinion engagements.

This article has been updated from a previous publication.