Pathology Anti-Markup Rule and Pod Labs: Who Performs the Technical and Professional Work?

The pathology anti-markup rule limits what Medicare pays a practice that bills for diagnostic work performed by a physician who does not share its practice, when the practice or a related party ordered the test. For a pathology insider, the question starts with the work: who prepared the specimen, who supervised that preparation, who interpreted it and whose bill went to Medicare.

How Pod Labs Put the Lease Beside the Claim

Pod laboratories let referring groups place anatomic pathology work in a shared facility while claiming exclusive control of their own space. Historically, groups set them up under a Stark law exception for in-office services that allowed a separate, shared building. A group could contract for an equipped and operated pathology laboratory, take control of a pod on paper, and bill globally for specimens its own physicians referred. Global billing combined the technical and professional work in the bill.

The business proposition put a laboratory revenue stream inside the referring practice. The lease described the space as the group’s. The people processing and interpreting the specimens supplied the work behind the claim. When a practice collects more than the payment rule allows, taxpayers fund the difference. The lease alone cannot explain who earned the payment.

The payment restriction has an older statutory foundation. The limit dates to a 1987 law. The purchased-services law tied payment to acquisition cost or a lower applicable limit and required identification of the supplier and its charge. It expressly excluded clinical diagnostic laboratory tests.

The Centers for Medicare & Medicaid Services expanded the regulation in November 2007 to reach the professional component and technical work performed outside the billing office. Its final rule for 2009 shifted the inquiry to whether the performing physician shares the billing practice, as its claims-processing instruction explains.

The Technical Component and the Professional Component

Pathology divides the work into a technical component and a professional component. The technical component covers specimen processing, sectioning, staining, equipment and technician work. The professional component is the pathologist’s interpretation. These physician-fee-schedule services can be purchased and billed separately.

That split creates the commercial opening. The practice referring a specimen can also be the business buying the pathology work and submitting the bill. The amount it pays for the work and the amount Medicare allows on its claim become separate questions.

For anti-markup purposes, the Medicare regulation identifies the performing supplier differently for each component. For the technical component, it is the physician who supervised the work. For the professional component, it is the physician who performed the interpretation. The technician’s location supplies only part of the answer. Supervision belongs in the same account.

What Does the Pathology Anti-Markup Rule Cover?

The rule covers eligible diagnostic services paid under the Medicare Physician Fee Schedule and expressly excludes clinical diagnostic laboratory tests paid under the Clinical Laboratory Fee Schedule.

The order can come from the billing physician or supplier, or from a party connected to that biller through common ownership or control. A different name on the order therefore does not end the inquiry. The agency’s 2009 instruction also says this anti-markup provision does not apply to independent laboratories.

The Lowest of Three Amounts

When anti-markup applies, Medicare’s payment ceiling uses the lowest of three amounts, with the applicable patient deductible and coinsurance accounted for:

1. The performing supplier’s net charge to the biller.
2. The biller’s actual charge.
3. The fee-schedule amount Medicare would allow if the performing supplier billed directly.

The supplier’s net charge leaves out charges intended to reflect equipment or space leased to it by or through the biller. A practice cannot enlarge that net-charge figure by folding its own equipment or room rental back into the supplier’s price.

The rule also requires the biller to identify the performing supplier and its net charge. Without that information, Medicare makes no payment and the biller may not charge the beneficiary. The supplier invoice is part of the payment calculation.

The Substantially-All-Services Test

A performing physician shares the billing practice when at least 75 percent of that physician’s professional services go through it.

For a pathologist reading at another location, the work furnished through the practice matters as well as the address. The contract and the actual working relationship belong beside each other.

The Site-of-Service Test

The site-of-service test looks at each test and where the ordering physician actually sees patients. The physician doing or supervising the work must be an owner, employee or independent contractor of the billing practice. The work must take place in its office, including testing space in the same building where the ordering physician regularly treats patients.

For a physician group, the location is where the ordering physician provides substantially their usual range of patient care. A group with several offices needs more than a statement that the laboratory belongs to it. For the technical component, both preparation and supervision matter. For the professional component, the relevant work is the interpretation.

What Clinical Laboratory Send-Outs Follow Instead

The laboratory anti-markup rule’s clinical diagnostic lab exception points to a separate direct-billing rule. For these clinical laboratory tests, the Medicare payment statute generally directs payment to the person or entity that performed or supervised the test, with specified exceptions.

When the Pathology Practice Bills Preparation While an Outside Lab Bills Interpretation

When a pathology practice bills preparation while an outside lab bills interpretation, the work has been divided into its technical and professional components. Each bill needs to be connected to the work it represents, including the physician supervising the technical component and the physician performing the interpretation.

The Medicare claims instruction makes that division visible. For claims subject to anti-markup, it requires separate billing for the components and rejects global billing when the claim identifies an anti-markup test. Its paper-claim instructions call for separate forms and identify the component modifiers TC and 26. Electronic claims can carry multiple services, with the purchase amount identified for each service.

On Form CMS-1500, Item 20 carries the purchased-service indicator and amount, and Item 32 identifies the supplier by name and location. These fields connect the claim to the outside work. For a billing employee, the supplier invoice, the service location and the claim tell a connected story: whose work was bought, where it happened and what price was reported to Medicare. A global charge can hide the division that the payment calculation requires.

The ordering record supplies another part of that story. The 1997 Laboratory Medicine article Model Plan Helps Laboratories Fight Fraud described the Department of Health and Human Services Office of Inspector General’s recommendation for standardized requisitions with space for the physician to document each test’s medical necessity. It also described monitoring standing orders for continued validity. Its practical insight remains useful here: the reason for the test belongs with the order, while the laboratory and billing records show what followed.

What Pathology Cases Show About Work and Referral Value

Pathology enforcement cases connect the work to other decisions inside the business: which laboratory gets the specimen and who orders additional testing.

A Referral Benefit Can Arrive as Software

Miraca Life Sciences agreed to a $63.5 million settlement in January 2019 over alleged inducements to referring physicians. The Justice Department’s account described electronic-health-record subsidies and free or discounted technology consulting. The alleged benefit sat in expenses the referring practice would otherwise bear.

Where the concern is a lab technical component payment disguised as a referral benefit to a practice, the compensation agreement and the actual work belong beside the claim. Miraca illustrates why the financial review extends beyond the price printed on a laboratory invoice. What the practice receives can include services and avoided expenses.

One Office Laboratory, Two Bills

Atlanta Gastroenterology Associates agreed to pay $4.75 million in February 2026 to resolve allegations that included kickbacks for pathology referrals. The government alleged that beginning in about May 2017, Advanced Pathology Solutions, a Little Rock laboratory, built and ran a limited-capacity pathology laboratory in the practice’s office. Technicians there prepared and stained the slides, and the practice billed Medicare and other insurers for that technical component. In exchange for benefits connected to the laboratory, the practice agreed to refer patients exclusively to Advanced Pathology Solutions, which interpreted the slides and billed the professional component. The same settlement’s special-stain allegations are told on our page about special stains ordered before the routine slide is read.

Per-Slide Payments, Work and Referral Benefits

We help you assess per-slide payments against the work performed, the Medicare claim and any referral benefit. Where anti-markup applies, the payment ceiling includes the performing supplier’s net charge. The preparation, supervision and interpretation show what the practice actually bought.

A practice manager may know what the laboratory contract promised. A histology employee may know where preparation occurred and who supervised it. A pathologist may know which interpretations were performed, while billing staff see the component and supplier information sent to Medicare. Those accounts let us examine the arrangement as it operated.

For a healthcare insider who knows how the work and payments connect, those details can be the foundation of a whistleblower case. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

When You Know Who Did the Work

If you know why the preparation, interpretation or supplier invoice tells a different story from the claim, talk to our whistleblower experts about the pathology arrangement. We build your strongest case around the work performed and the money paid, and bring in health care fraud whistleblower lawyers who understand pathology billing and referral arrangements. Our experts stay beside you through the case, turning your knowledge of the practice into a focused challenge to its claims.