A new type of business arrangement in which specialty physicians send pathology referrals to laboratories they operate could potentially drain revenue from local pathology groups, say attorneys and lab groups, who note that these structures raise serious legal and compliance issues.

Under these arrangements, referring physicians such as urologists or dermatologists enter into contracts with outside managers who set up "turnkey" laboratories to which these physicians can refer their pathology specimens. The outside manager also supplies the pathologists who provide the services. Often, in an attempt to comply with federal Stark law requirements, the manager sets up numerous separate "pod" laboratories in a single space, with each pod dedicated to referrals from a separate group practice.

According to the American Clinical Laboratory Association, the growth of these new labs has been fueled by two related developments. First, phase II of the Stark II rule implementing the federal ban on physician self-referrals has eased the in-office ancillary services exception so that, in effect, the pathologist no longer has to be an employee or shareholder in the group practice that refers the work. These rules, released March 25, are effective as of July 26 (GCR, April 2004, p.1). Second, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 eased the prohibition on reassignment of benefits, allowing physicians to bill for services performed elsewhere so long as the billing physician has a contractual arrangement with the entity furnishing the services (GCR, April 2004, p.1).

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