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QUALITY ASSURANCE 

PHYSICIAN OFFICE 
lABS 
SiIlV/CIS. 
l" 
"'''Ja 
OFFICE OF INSPECTOR GENERAL 
OFFICE OF ANALYSIS AND INSPECTIONS 
MARCH 1989  QUALITY ASSURANCE 

PHYSICIAN OFFICE 
LABS 
Richard P. Kusserow 
INSPECTOR GENERAL 
OAI-05-88-00330 
MARCH 1989  ........................  ............... .......................... ............................ .............................. ................................... ....... ................................................................... . .................................................. .............. ......  
............................................................. ................. ................  ............... ............................ ........... .......... 
TABLE OF CONTENTS 
EXECUTIVE SUMMARY 
NTRO D UCTION 
rpose 
Pu  ........................................... 1 
Backg ro und ......... ............... ............  .................................. 1 
Scope and Methodology  ......................... 1 
FINDINGS 
Estimates of the Number of POLs 
and the Type of Testing Performed in Them 
Vary Widely...................... ...................... 

Quality of POL Testing Concerns Respondents; 
Many Believe the Greatest Risk 
Comes From the Lack of Training 
and Attention to Quality 
Control.................................................................... 6 
Few States Regulate POLs; 
OBRA of 1987 Is Viewed as Well-
Meaning
But Impractical... .................... 

................................... ................... 1 

RECOMMENDATIONS 
Recent Events 
Draft Recommendations  .......... 1 6

................................................. ....................... ........ 16

Long Range Quality Assurance Planning 
niUal POL Regulation .................................................................... ................. 16

Rationale for Draft Recommendations 
 .................................................. 20

APPENDICES 
A. Contacts
B. 
POL Survey Methodology 
C. Medicare Tests Biled by 
POLs During 1985-
1986 
D. States Regulating Laboratories
BIBLIOGRAPHY  EXECUTIVE SUMMARY 
PURPOSE 
This inspection examnes the characteristics of physician office laboratories (POLs), 
discLlsses 
conce:-ns regarding the quality of testing in POLs, and evaluates State and Federal 
effort to
regulate them. 
BACKGROUND 
Physicians operatig office laboratories conduct approximately 25 percent of all laboratory 
testing in the countr. Sixteen States have laws pertning to them. About $20 billion is 
spenr
nationally on laboratory services annually, of which POLs receive $5 bilion. 
Each year
Medicare pays POLs over $400 milion. 
Pror to 1987, neither the Clinical Laboratories I 
provement Act of 1967, which covers interstate laboratory activities, nor the Medicare 
program, which certfies laboratories for payment
, regulated-the vast majority of POLs. 
The quality of testing in unregulated POLs concerned Congress and orhers involved with the 
laboratory community. Consequently, Congress mandated in the Omnibus Budget Reconcilia
tion Act (OBRA) of 1987 that
, effective Januar 1, 1990, POLs performng over 5 
000 tests a
year meet Medicare quality standards as established by the 
Secretar. 
In October 1988, following a series of 
congrssional hearngs regarding laboratory issues and
drt 
release of our  report, the Clinical Laboratory Improvement Amendments (CLIA) of 
1988
were enacted. While OBRA of 1987 
mandates regulation of only high volume POLs billing
Medicare, the CLIA of 1988 requirs all laboratories, including POLs, to be regulated based
on complexity of testing rather than size or volume. 
METHODOLOGY 
Information was gathered though interviews with 
State and Federal offcials, national associa
tions representing the medical and laboratory communities, and manufacturers of laboratory 
equipment. Prvious studies, Federal reports andjournal 
aricles were reviewed. In addition 
a national survey of 200 randomly selected physicians 
' offices was conducted to estimJ( how 
many POLs are operating in the countr. 
This report reflects data collection and analysis performed prior to the passage of CLIA of 
1988.  FINDINGS 
Estimates of the number of POLS and the type of testing perfonned in them 
varies widely.

Based on our national 
surey, we estimate there are approximately 98,400 POL sites in
the countr. 
Previous estimates 
var from 20,000 to 200,000 due to: (1) lack of a
unifonn State and Federal POL definition 
, and (2) dependence on physician
self-reporting. 
The complexity of testing performed in POLs vares widely, as does the type of 
equipment being used. This is largely because there are no restrctions on the type of 
testig POLs can perform. 
Quality of POL testing concerns respondents; many believe the greatest risk comes from 
lack of training and attention to quality 
control. 
Quality of testing in POLs concerns all bur a few of the 79 respondents. 
qualifications, training and the lack of proficiency testing  Staff
ar 
their primary concerns.
There is no consensus regarding whether POLs should be held to the same Medicare 
standards as Independent Labs (lLs). 
Respondents believe the greatest ri'
sk of test error comes from the operator 
training and attention to quality control s lack of
, rather than from the equipment itself. 
Efforts by the private sector to address the quality of testing in POLs have nor been 
parcularly effective because partcipation is voluntary. 
Few states regulate POLS; OBRA of 
 is viewed as well-meaning but impractical. 
1987 
Thiny-four States do nor regulate POLs. They cite lack 
of legislative support or funding
as the most common reason for lack of regulation. 
Sixteen States have legislation pertaining to POLs, although five have nor fully 
implemented their laws. These State programs are 
nor uniform and most exempt large
numbers of POLs from regulation. Identification of POLs is the most often cited 
problem. 
Many respondents believe that OBRA of 
1987 is a well-meaning attempt to regulate
POLs. However, they ar concerned about the practicality of implementing the statute.
If POLs performng over 5 
000 tests are held to the same Medicare standards as ILs 
estimate the annual cost of implementing the OBRA of 1987 provision to be  , we 
approximately $63 millon. Estimates will var, 
are defined  depending on how " POL" and " test Many respondents believe quality standards, based on complexity of testing, shouid 
apply uniformy to all 
laboratOries. 
RECOMMENDATIONS 
Follo\ving the Inspector General' 
s congressional testimony regarding POLs and the release of
our draft report in June 1988
, Congress passed and the 
Prsident signed into law CLIA of
1988 (P.L. 100-
578). These ameIfdments incorporate our draft recommendations by mandat-
Ing: 
that all laboratories be regulated based on complexity of testing; 
that all POLs register and meet certain stadards and inspection 
requirements as 
appropriate; and 
that a registration fee be imposed on all laboratories which will provide funding 
for the laboratory registration and inspection pregram and will save the Depart
ment millions of dollars in operating costs. 
Our POL recommendations wil be implemented under 
the Public Health Service Act
, rather
than under the Medicar statutes which was our original intent. The recommendations, as 
they appeared in the drt 
report, 
ar contaied on pages 19-
sion regardig how  23 of the report. Specific discLls
these amendments wil effect POLs 
biling Medicare are 
also included. 
We wish to 
than al who commented on our draft report. Many of the suggestions to 
clarfy and strngthen the  help
text have been included in the fmal report.  INTRODUCTION

PURPOSE 
The purpose of this inspection is to: (1) identify 
physician office laboratory (POL) characteris
tics, (2) provide an overview of quality assurance in POLs 
, (3) discuss State experiences in
regularing POLs, and (4) identify and evaluate Federal strategies being developed to help en
sure accurate laboratory testing in POLs. 
BACKGROUND 
This report reflects data collection and analysis performed prior to the passage of the Clinical 
Laboratory Improvement Amendmenrs (CLIA) of 1988. The draft report was released to the 
public at the congrssional hearng 
concerning laboratory legislation. For further information
regarding CLIA of 1988, refer to the recommendation section of this report. 
Industr estiates of 
POLs operating in the  frm 
countr range  as low as 20 000 to as high
200,000 with a projected growth rate of 16 percent annually through 
1990. The Health Care

Financing Admnistration (HCFA) 
estimates the number of POLs to be about 100 
000. The

laboratory 
industr estimates that testing POLs represents about 25 percent of the laboratOry 
market, resulting in about $5 billion in payment to physicians for these services. Medicare 
share represents over $400 million annually.

The following char provides information 
regardig Medicare s 1985 outpatient laboratory
payments, volume of services, and average payment per service. Hospital inpatient and out
patient laboratory services are excluded from this data. 
MEDICARE PART B  1985 LABORATORY STATISTICS 
LABS 
TESTING SITE 
ILs  POLs 
OTHER 
Test Volume 
7 Millon 
58.7 Million 
5 Million 
Total Payment  $510 Million 
$425 Millon  $201 Million 
Average Pay-
 $10. 
$7.  $19.
ment 
SOURCE:  Part B Medicare annual data (BMAD)fi/e.  Currently, 16 States have laws governing POLs; however
, 5 of these have nOt fully imple
mented their laws. Thiry-four States do nOt regulate POLs. 
Sixteen of these 34 non-regu!at-
ing States regulate laboratory sites that conduct certain types of testing such as 
premarital
syphilis, drgs and AIDS. The extent to which these tests 
ar being done in POLs is not 
known. 
Federal regulation of laboratOries is governed by title 18 of the Social Security Act and the 
Clinical LaboratOries Improveme!1t Act of 1967. 
Title 18 requires that hospitals and inde
pendent laboratOries meet certai conditions of coverage in order to receive reimbursement
under Medicare and Medicaid, and CLIA regulates interstate laboratory activities. 
BOth laws
exempt the vast majority of POLs from regulation. Medicare regulates POLs that accept more 
than 99 referrals, in a paricular category of laboratOry testing during a calendar year. The 
CLIA precludes regulation of physicians 
' office laboratories that perform testing for their 
O\vn
patients but nOt physicians who accept and test specimens on referral. 
Although the majority of POLs have never been regulated by the Federal Government, 
Medicare legislation over the last 5 years has affected them dramatically and encouraged their 
growth. When the Medicar program began in 1965, physicians were allowed to bil for
laboratOry services which they performed in their offices and for 
laboratOry services they pur
chased from independent laboratories (ILs). The ILs typically discoumed their charges to 
physicians. Many physicians "marked up" the charges they incurred from ILs, creating higher
costs for consumersnincluding Medicare--and higher profits for themselves. Physicians jus
tified charging a higher price to their patients and third-pary insurers by claiming the markup
was an interpretation fee. Physician markups were prevalent despite HCFA 
and American
Medical Association policies that physicians should 
nOt profit from work performed by Others. 
The Omnibus Budget Reconciliation Act (OBRA) of 1980 
tred to eliminate markups on pur
chased laboratory services by requiring physicians to disclose the actual cost df services pur
chased from ILs. Enforcement of this law was difficult and many physicians continued to 
purchase laboratory services at discounted prices and bill at marked up prices. 
Other
physicians began operating their own 
laboratOries or offered expanded laboratory services to 
preserve their profits and avoid violating the law. 
In 1983, the Medicare Prospective Payment System was implemented. Laboratory services 
performed by hospitals on their inpatients were included in the diagnosis related group (DRG) 
payment. Thus, the more effectively hospitas contaied laboratOry costs, the more profit they
made from the DRG payment. 
Hospital laboratories became cost centers instead of revenue centers. This resulted in the fol
lowing: (1) physicians began performng preadmission and post-
hospital laboratory testing
procedures that were previously done in hospitals; and (2) hospitals reduced purchases of 
laboratory equipment which caused manufacturers to focus their equipment sales on the POL 
and home testing markets.  In 1984, Congress again tred to address the problem of physician laboratOry markups. 
. The
Omnibus Deficit Reduction Act of 1984 prohibited physicians from billing for laboratory 
work they did not perform. It also established 
regional fee schedules (carer 
specific) for
reimbursement of Medicare laboratory services performed by ILs or hospital 
laboratOries :lnd 
required them to accept assignment for Medicare services. In other words 
, hospitals and ILs
could not collect more than the amount Medicare recognized as reasonable for a 
laboratOry 
procedure. P ysicians were exempt from the mandatOry assignment requirement. ServIces 
performed in POLs were paid at 80 percent of the established regional fee schedules, \vhile 
physicians who submitted assigned claims were paid 100 percent of the schedules. 
During par of 1984, reimbursement for physician services was frozen. LaboratOry 
services 
biled by physicians were not subject to the freeze. Therefore, increasing their laboratory ser
vices was one way physicians could recoup lost revenues. 
Other factors besides Federal regulation have influenced the growth in POL testing: (1) con
venience afforded the physician and patient; (2) quick turnaround time of test results which 
pemrts expeditious treatment decisions; (3) developmentpfreasonable priced, " 
user frie'hdly.
automated, desktop analyzers and (4) increased competition 
among physicians which en
couraged them to offer a broader rage of 
patient services. 
The regulated laboratOry 
industr and others expressed concern to Congress that these factOrs
and Federal regulations had resulted in a restrcruring of the clinical laboratOry industry which
gave POLs an unfai market advantage. Consequently, milions of laboratory 
tests, once per
formed in ILs and hospitals, have shifted to non-regulated settings primarly 
under the control 
of physicians. Not only were POLs not subject to the same payment provisions as ILs and 
hospitals, they were also exempt from Medicare proficiency testing, personnel
, health and
safety, and record stadards. 
Congress responded by including in the Consolidated Omnibus Budget Reconciliation Act 
(COBRA) of 1985 and the Omnibus Budget Reconciliation Act of 1986
, provisions which sub
jected services performed in POLs to the same percentage of regional fee schedules in effect 
for independent and hospital laboratories. 
Prviously, fees were set at 60 percent of the
prevailing charge levels for tests performed by ILs and by physicians in their offices, and ar 
62 percent of prevailng charge levels for 
tests performed by a hospital laboratOry for out
patients. They also required POLs to accept assignment, and mandated a move to eventually
brig all laboratories under a national fee schedule. In addition
, COBRA of 1985 also re
quird the Secretar of Health and Human Services to submit to Congress a report on POLs. 
and to discuss appropriate quality standards that might be imposed on them. 
The Omnibus Budget Reconciliation Act of 1987 mandated that the 
Secretar of Health and
Human Services implement Medicare quality standards for POLs performing more than s.
noo
tests per year by Januar 1 , 1990. Orginally, there was some uncertainty as to whether ' high
volume" POLs would have to meet the same Medicare standards as ILs or whether the 
Secretar had some flexibility in establishing POL standards. The HCFA believes the latter 
be tre.
 SCOPE AND METHODOLOGY 
Information and data regarding POLs were obtained by conducting four surveys. The first 
in-
volved interviews with national associations representing physicians, medical technologisrs,
bioanalysts , chemists, laboratory equipment manufactuers, hospitals and ILs. 
The second
was a survey of all 50 States
, and the third involved interviews with 12 manufacturers of 
labor:nory equipment. Appendix A contains a list of those 
contacted. 
A fourth survey of 200 randomly 'selected physicians was conducted to ascertain the number 
of POLs in the countr. Physicians or their staff were asked if they performed laboratory tests 
in their offices, Physicians or staf who 
indicated they did were asked if their testing exceeded 
000 tests per year. Information regarding sample 
selection and methodology can be found ill
appendix B. 
A literature search identified POL quality assurance studies. These studies
, journal articles
Federal and State reports (in final and draft), position papers and quality assurance guidelines 
issued by varous associations pertaining to different 
aspects of testing POLs were reviewed.
In addition, representatives from HCFA, the Centers for Disease Control (CDC) and the Food
and Drug Admistration (FDA) were also contacted. 
Laboratory testig volume and payment information was obtained from journal articles 
, pre-
vious studies, and from HCFA'
s Par B Medicare annual data (BMAD) fie. 
For puroses of this study, we define quality assurance as the overall approach to laborarory 
testing that ensures the accuracy of the test results. 
Included in quality assurance are internal
quality control measures to ensure that appropriate procedures are followed in collecting and 
preparng specimens, and in operating and maintaining equipment. Quality control measures 
also include the use of vald reagents, equipment 
calibration and systematic procedural
checks, error detection and correction, and the review and reportng 
of test results. 
Also included in quality assurance is proficiency testing. Proficiency testing is defined as an 
external form of quality control which involves sending specimens to a laboratory for 
analysis. The specimens, although labeled as proficiency testing samples, contain constituents 
in amounts unkown to the laboratory. The laboratory performs testing on the proficiency test
ing samples and sends the test results to the proficiency testing organization for evaluation. 
This organization determnes whether the results fall 
within a prescribed range of grading
criteria.  FINDINGS 
Estimates of the number of POLs and the type of testing perfonned in them vary 
widely. 
Finding: 
Based on our national surey of 200 physicians, we estimate the number of POLs to be 
approximarely 98,400. To our knowledge , this survey is the first of its kind to estimate 
the number of POLs using random sampling techniques. 
Shortcomings in data maintained by HCFA and the States, coupled with the diversity in es
timates as to the number of POLs , were instrumental in our decision to sample physicians ro 
arve at our own estimate as to the number of POLs. We asked 200 
randomly selected
physicians or their staff if they conducted laboratory tests in their office and if they estimated 
they performed over 5,000 tests a year. (It should be noted, that for survey purposes, the
definition of "test" was determned by the respondent.) Based on our national 
survey, we es
timate there are 98,400 POLs and approximately 34 
000 of them perform 5 000 or more tests 
annually. Appendix B provides more detail on our sample 
methodology. 
The BMAD fIe can be used to identify physicians biling for laboratory 
services and to derive 
volume and payment data. This fie cannot identify the number of POLs because physicians
are allowed to hold multiple provider numbers
, and because the biling codes showing where
services were performed are often inaccurate. 
The 16 States that govern POLs admt they too cannot identify the total number of 
POLs 
operating within their States because: (1) all but 2 exempt some POLs from 
regulation: and
(2) most depend on the physician to voluntary identify the laboratory site. Those States that
require POLs to be licensed, as a condition for Medicaid payment
, may have greater success
in identifying POLs. The 34 States that do not regulate 
POLs also admt they cannot provide 
an accurte estimate of POLs operating in their 
States. 
Other estimates as to the number of POLs 
var from 20,000 to 200 000. This variance is due 
to: (1) lack of uniform POL definition; (2) absence of uniform State regulations; (3) depend
ence on self-reporting by physicians who operate laboratories; and (4) absence of Federal 
defimtions and regulations. 

Medicare and most States do not specifically define a POL. Most States that regulate POLs 
defme a POL as one where physicians use a laboratory to perform tests for their own patients; 
as one operated by severa physicians for the benefit of their own 
patients; or as one that does
not accept more than 99 specimens per category per year from another source. Medicare ex
empts frnm regulation any laboratory maintaied by a physician for his patients, provided the
laboratory does not accept over 99 specimens from physicians outside the practice during a 
calendar year.  Finding: 
The complexity of testing in POLs vares widely, 
as does the type of equipment being
used. This is largely because there are no restrctions on the type of testing that POLs 
can perform.

Data indicate that POLs are usually operated by primar care physicians; e.  , family prac
titioners, pediatTcians and internists. They are likely to perform one or more of the 
following:
analysis of urne, blood sugars, p esence of blood in stOols and white blood counts. 
These
tests are common because they 
ar easy to perform, provide rapid results , and do nOt incur
large overhead costs. 
Advances in medical technology have allowed physicians to expand the scope and complexity 
of their testing. Some POLs have evolved to 
such an extent that it is impossible to distinguish
the nature of their testing from that conducted in Medicare cenied 
independent and hospital
laboratories. Test menus offered by some 
POLs are more extensive than those offered by
some regulated laboratories. This is supported by Medicare payment data for 
1986; which in
dicate that complicated, quantitative procedures, such as r'ldioactive immunological assays. 
aerobic bacterial cultures, and Pap smear, are performed in POLs. 
Appendix C lists the proce
dures most often biled as being performed in 
POLs during 1985 and 1986. Topping 
these
lists is urnalysis. In both 1985 and 1986, more than 45 percent of all Pap smears biled to 
Medicare were claimed to have been performed in POLs. 
This range in POL testing is due to the advancement in laboratory technology. LaboratOry 
equipment is marketed to POLs based on desktop utility and its purported "
en-or-free" opera
tion. It is priced to 
accommodate any physician s practice and budget. The range of technol
ogy and price goes from simple dipstick reagent strps for urinalysis, which can be 
purchased
for $5 - $10 from the local drg 
store, to sophisticated analyzers incorporating microprocessor 
technology available for $3,00 - $50,00 from maufacturers or their distrbutors. A 
physician is limted only by whether the size of 
the practice (curent or projected) can 
SUppOI1 
the initial investment and the fIxed costs of operating and maintaining the equipment.
Quality of POL testing concerns respondents; many believe the greatest risk comes from the 
lack of training and attention to quality control 
Finding: 
Quality of testing in POLs concerns almost all of the 79 respondents contacted in the as
sociation, State, and manufacturer surveys. Staff qualifications and training, and the 
lack of proficiency testing are their primar concerns. 
Testimony regarding inaccurate laboratory test results was heard at a number 
01 recent con
gressional heargs. Many of our respondents related anecdota stories similar to those 
heard
by Congress. One respondent, representing a laboratory equipment manufacturer
, reported
receiving a call from a POL employee who wanted to know "
where do you get the serum?"
The " serum" was the patient blood sample needed to run the test. Most 
of our respondents,  knowledgeable and expert in this area
, believe a national problem exists and that there ShOll!,
be Federal intervention in this area. 
State concerns focused on the lack of quality control procedures and untrained staff. All 
professional associations representing laboratorians had grave concerns regarding the quality, 
of testing in POLs. The lack of mandatory quality 
assurance programs, proficiency testing, 
and untrained or unqualified staf were problems most often mentioned by these respondents, 
All of the laboratory equipment manufacturers agree there are difficulties in maintaining 
quality control in POLs. Many felt that 
physicians were reluctant to commit the necessary
staff time and resources needed to 
maitain adequate quality control. They believe 
others, that POLs lack an understanding as ro the purpose of quality control in the la,b aosr datoory, 
One respondent summed up the problem by stating that POL personnel (physicians, physician 
assistants, nurses, receptionists) are "
people oriented, not technicaly oriented. 
Most of the laboratory experts we spoke to
, and the studies we read
, acknowledge the ability
of today s modern analyzers to produce accurate test results rapidly. However
, these same 
sources also point out that equipment and reagents 
properly maintaied and calibrated, and if valid conatrro nlso to ft okntaolw  ne rcroomr-pfroeseit.i oIfn  eaqreu irpumne innt  cison
junction with samples of unkown composition
, the results produced are highly reliable.
To achieve valid test resulrs, specimens need to be properly obtained and prepared for 
analysis. Equipment must be properly calibrated
, and controls run. More important
operator must rigidly adhere to the manufacturer  , the
s recommended procedures. Many believe
that the greatest risk of error comes from the operator 
s lack of training and attention to
quality control , rather that the equipment itself. 
Laboratory equipment must be approved by the FDA before it can be marketed. The FDA 
process assures that analyzers are capable of consistently producing accurate results. The 
FDA does nOt address the risk of error or the likelihood of inaccurate results from 
improper 
operation or complexity of equipment. 
While there are few independent sources to confirm equipment manufacturers 
consumer group called the Emergency  ' claims,. one
Car Research Institute has begun (bur 
published) independent evaluations of medical devices, including those targetendO tt oy ePtOLs. The 
American Association for Clinical 
Chemistr is also considerig evaluating 
ment used in POLs.  laboratory equip
One study indicates that approximately two-thirds of those conducting testing (including 
physicians) have little or no formal laboratory training. Another study indicates 44 percent 
have little or no formal traiing. 
Our respondents felt that POL employees have inadequate 
trning, and as a result often do not recognize that something has 
the equipment, or the reagent that may have compromised the accuoracccyu roefd l awbiothra trhoery s taemstp le.
results. Other studies indicate that 
larger group practices, doing high-volume and more com
plex testing, often employ qualified laboratory technicians, thus 
gratly reducing this risk.  Physician association representatives recognize that POLs have problems replicating test 
results and realize that regulation is inevitable. A paper entitled "
Regulation of Office
Laboratory Testing in the Physician Offce 
" presented by Loschen and Steindel at the 
19SfJ
College of American Pathologists (CAP) conference, reflects the position of the 
physiciLln rep
resentatives interviewed. The paper states: 
'vost primary care physicians who operate POLs recognize that there are some 
leginmate concerns about the quality and accuracy of the resulrs generated b 
v some
POLs. Although it would be misleading to say that POLs welcome Federal regularioll 
most physicians are reasonable enough to recognize the value of uniform regularury 
standards by which their laboratories 
' performances could be 
assessed againstrheir 
peers ' performances. Most physicians also recognize that in the future 
, reimbursemem
by Medicare might be tied to successful 
participation in laboratory 
improvement.
proficiency testing,' and accreditation programs. Physicians would generally 
welcome
the educational components of such a program. 
It is hoped that such regulation wil be reasonable in their 
expectations, as voluntqry as
possible, and administered by the private sector, with geemed status being granted by 
the governmental regulatory agencies. Such regulations should 
make use of local 
pathologists and their technical staffs in the 
assessment and improvement ofrhe POL. 
Finding: 
Efforts by the private sector to address the quality of testing in POLs have 
nOt been ef
fective because parcipation is voluntar. 
. In 1985, representatives from the American Academy of 
Famly Practitioners, the American
Society of Internal Medicine (ASIM) and the College of American Pathologists (CAP) 
fomed
the Commission on Laboratory Offce Assessment (COLA). 
The purpose of this commission 
is "to establish a volunta educational and assessment program to insure the quality of data 
produced in POLs, and to provide a mechanism for accreditation/certification. " 
While still in the planning stages, COLA plans to become an independent corporation and 
offer a volunta progr of 
offce laboratory assessment. The COLA's program will include:
(1) an internal quality control system, (2) proficiency testing, (3) a self-assessment checklist 
and (4) consultative and educational materials. Two Other associations 
, the National Council
on Clinical Laboratory Standards (NCCLS) and ASIM have issued or are developing quality 
assurance guidelines for POLs. 
Physician response to volunta 
quality assurace programs is reported to be low. While the
International Society for Clinical Laboratory Technology offers an accreditation program for 
POL staff, overall there ar few training or accredited progrs 
specifically desig.1ed for
physician office staf. This is 
primarly because there has been linle demand for such 
programs. However, a number of respondents stated they would be prepared to offer training 
given suffcient demand.  The CDC have offered training courses for laboratory personnel for a number of years at 
Headquarers in Atlanta. In an effort to  rh:-ir 
reach a larger audience
, CDC, laboratory and profes
sional societies are joining together to form regional consorta
, offering training to laboratory
personnel. These trning 
centers may consider offering 
progrms directly 
targeted to POL
staff if the need for such training becomes apparent. 
Like educational programs
, all sponsors of proficiency testing programs admit to low POL par
ticipation. Proficiency testing has been available to 
POLs for many years. The CAP offers
the External Comparative Evaluation for Laboratories program
, and provides data processing
and technical support to ASIM which offers the Medical Laboratory Evaluation program. 
progrs 
BOth  are targeted for POL use. The American Association of Bioanalysts, manufac
turers and several States
, including three States that regulate POLs
, also offer proficiency test
ing modules for use in POLs. Approximately 3 
000 POLs parcipate in the proficiency
testing programs offered by CAP and ASIM. The exact number of POLs participating in State 
and equipment manufacturers 
' proficiency testing programs is unkown. All of 
for proficiency testing indicate POL participation is very low. One State told us tiht eosfefe sroeudr ces
proficiency testing to POLs for $65 a year. At this low 
priee-. this State could not generate
enough POL paricipation to 
warant continuation of the program. Respondents generally felt
that POLs which voluntarly engage in proficiency testing, represent 
the " cream of the crop. 
Finding: 
Association and State respondents overwhelmingly agree that proficiency testing, con
tinuing education or training, and record k 
eping should be included in a quality as
surance plan for POLs. Personnel standards were the most 
controversiaL 
Of the 79 State, association and manufacturer respondents, 25 felt that the same quality stand
ards should apply to all laboratories. 
Forr-seven respondents believe different standards
should apply based on a number of factors such as complexity of testing, type of personnel 
needed to operate the equipment, volume of testing, and size of group practice. Seven respon
dents had no opinion or did nOt 
respond to the question. 
In our surey of associations and State offcials, we included a list of possible quality stand
ards and asked respondents to indicate which of these should apply to POLs. There was over
whelmig consensus on four quality measures: (1) a written quality assurance plan 
continuing education or trning,  , (2) 
(3) proficiency testing and (4) record keeping. 
A wrtten document, deraling quality 
assurance measures, and continuing education are two
elements considered essential to a good quality assurance program. 
Our respondents strongly
support continuing education and training with emphasis on laboratory procedures. Many feel 
that for training to be effective, it should be adapted to the POL environment. One State 
reports grateJ. success with "on-site " traiing at POLs. 
The third qualty assurance 
element on which everyone agrees was proficiency testing. All
believe proficiency testing should be flexible enough to accommodate the type and sophistica
tion of testing POLs.  The fourth element considered essential was record keeping. Requirements respondents sup
port most strongly ar:

documentation that control samples were run and with what frequency (80 
percent); 
a written procedura manual for the techniques used for 
each test perfol1ed (92
percent); 
a quality control log showing daily quality control measurements
, problems
encountered, investigative and corrective actions taken (92 percent); and 
wrtten procedures for routine maintenance and calibration of equipment, and a 
repai log (92 percent). 
Respondents feel that record format mattered less than the 
ability to reconstrct what has 
ac
tually been done in the POL. Others expressed concern that 
patient confidentiality be
protected and that record retention requirements be specifed. 
While these four elements are endorsed by 
virally everyone as essential to a good quality as
surance program, there was less consensus in the area of personnel qualifications. Seventy-
five percent of the respondents thought there should be restrctions on 
who can conduct 
testing, but there was no agreement as to who should be prohibited from testing. Many 
believe it depends on the complexity of the testing. 
Few states regulate POLS; OBRA of  1987 is viewed as well-meaning but impractical. 
Finding: 
The 34 States that do not regulate POLs cite lack of legislative support or funding as the 
most common reason for nonregulation. 
Thiry-four of the 50 States contacted do 
nOt regulate POLs, although 4 of these have some 
form of legislation pending. Eighteen of these 34 States have no 
laboratOry regulations at all.
Sixteen of these 34 States have regulations pertaining to certain kinds of tests that could affect 
POLs. For example, if a POL did premartal or prenatal syphilis 
testing, it theoretically should 
be regulated in these 16 States.

These 34 States were asked why they did not regulate POLs. 
Most cited lack of general or
legislative support, 
includig statements to the effect that there was " no interest " or " no need.
Some indicated a lack of funding to support a regulatory effort. Several 
Others mentioned ac
tive physician opposition. Appendi D lists States that do not regulate POLs.  Finding: 
Sixteen States, have legislation penaining to POLs. 
Identification of POLs is rhe 
mo:;(
difficult problem they encounter in regulating them. 
Sixteen States have laws regulating POLs
, including two States that have laws but do 
nOt en
force them, and three States that have passed laws but are stil developing implementing 
regulations. According to 
the respondents ' estimates, approximately 9 000 POLs fall under
some form of State regulation. 
States use a varety of criteria for determning which POLs 
come under regulation. The most
ar: 
common criteria 
(1) size of group practice, (2) type or complexity of tests perfonned and
(3) prerequisite for Medicaid reimbursement. Four States have a "
tiered" system, where the
degree of regulation depends on the " tier" in which the POL is categorized. Placement in a
tier is usually determned by either the type or the complexity of testing. By the same token
most States exempt some POLs from regulation based on the above criteria. All regulating 
States require certai POLs to proficiency test and some have mandated personnel require
ments. The char on the following 
page demonstrates the difference in the regulating 
programs we reviewed. 
Identification of POLs is the "loophole " or shoncoming mentioned most often by officials in
States that regulate. Some States depend entirely on physicians voluntarly coming forward 
and identifying themselves. Other States sent out mass 
mailings to all licensed physicians re
questing they come forward and identify their POLs. 
Stil Others require all POLs to register
and disclose whether they meet the criteria for regulation or exemption. 
The States that require POLs to be licensed or registered as a condition for Medicaid payment. 
or the two that use reimbursement data to 
taget "pOtentials," have a better chance of identify
ing POLs. However
, most States do nOt have the personnel
, time, or financial resources to
find POLs who have not identifed themselves, or to validate the 
information provided by 
POLs. 
Other regulatory shortomings mentioned 
were the inadequacy of group practice size as an in
dicator of testing volume or complexity, the inabilty 
of State regulations to keep up with rech
nological changes , and the "voluntar" aspects of some State regulations on proficiency
testing. Another shortcoming appears to be the lack of a viable mechanism to identify POLs 
in violation of State laws.

On-site inspection of POLs vares tremendously from 
State to State, depending on the 
tOtal 
number of regulated POLs in relation to the State 
s staff and funding. We did 
ask the States about the frequency and content of their inspections. However nOt specifically 
, staff from one 
State said they "had the authority but have 
nOt done many " because of a shortage of man-
power. AnOther, with 200 "regulated" POLs, has been able to inspect only 50 so far. Two 
States with regulations pendig anticipate doing on-site visits only when proficiency testing 
performance shows a problem, or in response to a complaint.  S' 
RmCN  FHCI' 
OF 
OFFCE 
Regul at i on  Criteria  Require8nts of 
POls Subject 
to Regulation 
All  State labs Must 
110.  Test  Medicaid 
Register CR) or do  Proficiency  site 
State  Group  COI l ex i ty  Rei8brsetnt  On- Quality  Personne
Prof i c i ency Test ing  CPT)  Testing  Inspect ions  Control 
S t anda rd 
California 
Licensed 
in PT pgrll

Fl or i da 
Idaho 
Naryl and 
Perlli ts 
inPTpgrlD 
Nassachuset ts

Full  lic. 
Ltd lic.

Director 
N i ch i gan 
Nevada 
Director 
Oregon 
Cirec:t(JI" 
Pennsylvania 
Level 
level 2

Level 3

IJ.  Vi rgini a 
IJiscons.in 
Director 
HIJ - current State la  has authority to reqire proficiency testing in POLs , but has never exercised this authori
IL - recently passed la  regarding POLs, but is still developing i8ple8nting regulations

/lE - recent ly passed la 
regarding POLs. but is sti II developing i8ple8nting regulations
NJ . current State definition of .

clinical laboratory. includs physician grou practices of 4 or 
iaplemnting regulation 8Ore; revisions of
Jt - has 3-tier syste8 based o.n  itnyclpusd iongf  tpersovtsis ions speific to POLs. ..ndted before the en of 1988
surveys of POLs has been don.  perfor8e. Due to li.ited resources. little 80re than .educational
;ource: 
.State Regulation of Physician Office Laboratories 
January 1986. Suppletnted  . Gorove, C.. et. al. . Laboratory Medicine, Yol  , No . t
by OAf discussions  ith State regulatory agencies
. 1988.
 Finding: 
While many respondents believe that OBRA of 1987 is a well-meaning attempt ro 
regu-
late POLs , they ar concerned about the practicality of implementing the statute. 
Most respondents feel that implementation of OBRA of 1987 would be extremely difficult. 
Test, " as used in the statute, would need to be more clearly defined. Furthermore, identifying 
POLs perfonnng over 5,000 tests annually without access ro nongovernment data woujd be 
problematic, in that HCFA would most likely have to rely on the physicians ro identify them
selves, their laboratory sites, and rhe volume of testing they perform. Physician self-
identificl-
tion was a major problem mentioned by both regulating and non-regulating States. Some 
respondents feel that the statute wil never be implemented 
because the cost of implementation 
wil be prohibitive or because of intensive political pressure from physician groups. 
Finding: 
Applying current Medicare II standards to POLs may be 
costly, and could increase the
currnt HCFA workload by a factor of seven. 
The OBRA of 1987, under one deparmental option, would allow HCFA to apply Medicare 
requirements to " high-volume" POLs. The Medicare II requirements 
include: (1) compliance
with applicable State and local laws, (2) personnel qualifications, (3) proficiency testing, (4) 
environmental safety compliance, (5) maitenance 
of adequate records, (6) adherence to stipu
lated qualty control procedurs, and 
(7) on-site review. 
Our survey estimates that there are 98,400 POLs in the 
countr and approximately 34 000 per
formng over 5,000 tests annualy. It should 
be noted that we did not define " test " in our POL 
surey because OBRA of 1987 does not define this term. Therefore interpretation was left to 
the individual respondent. The HCFA 
estimates 100,000 POLs in operation and believes that
the majority of them perform over 5,
000 tests per year. These estimates vary 
nOt only because
there is no uniform definition of a POL
, but also because there is no uniform definition of 
test " Multiple tests (caled "profies ) ar sometimes counted as one test and sometimes as 
more than one test. Should a " test" be defined as an individual component of a profile or 
panel, then it is possible that most POLs would exceed the 5 
000 test threshold and the cost of 
regulation would be higher than estimated below.

The HCFA regulates approximately 4 
500 IIs. Should provisions of OBRA of 1987 be imple
mented by imposing Medicare II standards on POLs
, we doubt that the II certification 
process, as it cUITently stands, could remain 
effective with such an increase in workload. The 
HCFA indicates that precise projections for the anticipated costs of regulating POLs will vary 
depending on the scope of the regulatory model selected and the size of the regulated popula
tion. Applying 
curnt Medicare II standards to POLs would have to include at a minimum 
the following: 
costs to hir additional HCFA and State staff to process paperwork and to track 
proficiency testing;  costs to hire and 
trai State surveyors to perform required on-site revie\\.s: 
costs of surveying the 34 000 POLs performng over 5 000 Medkare and non-
Medicare tests per year (an estimated $61 milion annually at $1 
800 per visir); 
carer 
costs to reprogram computer systems to monitor POLs and ensure that pay
ment is made only for those tests where proficiency testing scores are acceptable 
(estimated at $1 million); and 
hearngs and appeals costs resulting from adverse actions taken against POls (es
timated at $1 million). 
This paral listing of potential costs totals at least $63 million if Medicare IL standards are im
posed on " high volume " POLs. The HCFA anticipates additional unidentified costs that can
not be estimated and foresees problems that would have to be resolved; e. 
, use of multiple
provider numbers, limitations of 
curent billng codes, and proficiency testing categories. 
Finding: 
The majority of respondents feel that all laboratories should be subject to some fOI1 of 
Federa regulation regardless of site or volume of testing. Many believe quality stand
ards should be based on the type and the complexity of testing being performed. 
The majority of respondents welcome some form of Federal POL regulation; however
, there
was no agreement regarding whether IL standards should apply to POLs. Respondents felt 
patients should be assured of the accuracy of their laboratory tests regardless of where they are 
performed. 
As previously mentioned, respondentS were concerned that staff conducting laboratory testing 
be adequately trained. These same respondentS also stated that many people working 
laboratOries, doing the same procedures daily, can produce highly accurate test results. 
Many
respondents believe the ability to consistently produce accurate test results depends on proper 
initial traiing, periodc review of test technique and parcipation in ongoing refresher cour
ses. Discussions regarding who should perform the tests and what training and experience
were necessar, often focused on the complexity 
of the equipment and the degree of human in
teraction 
requird to perform a test. 
A wide range of laboratory services are conducted in POLs. Some 
of these tests should only
be performed by an experienced, qualfied medical technologist, because the risk of error as
sociated with these procedures is extremely high. 
Our respondents felt that the type of equip
ment and the complexity of reagent 
prepartion and technique, coupled with the degree of
subjectivity in interpretation of tests, should be factors 
taen into consideration when making
decisions as to whom should perform laboratory tests. 
The ability of a laboratory to consistently produce highly reliable results is the ultimate goal of 
regulation. All laboratories should be held to uniform standards which facilitate accurate test ing. Based on our 
study, we conclude that in order to develop uniform quality standards. 

ldcir
tional study is needed to: (1) 
determne the degree of risk associated with equipment in 
LIse:
(2) assess the potential for error due to complexity of equipment
, test procedure and Other fac
tors; and (3) determine the degree of 
traiing required to minimze errors.  RECOMMENDA TIONS 
RECENT EVENTS

Following the Inspector General' s congressional testimony regarding POLs and the release of 
our draft report in June 1988, Congrss passed and the President signed into law 
CLIA 
1988 (P. L. 100-578). Specifcally, this legislation mandates laboratOries, including POLs biJI
ing YIedicare, to be certified under the Public Health Service Act and meet specified standards 
ad inspection requirements. Laboratories that perform only drg testing and that are certfied
for testing Federal employees are exempt. However
, if the Secretar finds that certain criteria 
are met, laboratories may receive a certficate of waive from these requirements. 
DRAFT RECOMMENDATIONS - POLS 
Following ar the recommendations as they appeared in the draft report, and a description of 
the impact CLIA of 1988 wil have on all POLs 
biling Medicare. In effect
, CLIA of 1988 re
quire implementation of our 
drt recommendations 1  , 5..and 7. The amendments also in
corporate recommendation 3 and include pars of recommendations 2 and 6. 
I. LONG-RANGE QUALITY ASSURANCE PLANNING 
The ultimate goal of regulation is to assure that laboratories consistently produce highly reli
able results. All laboratories, regardless of volume of testing or location site
, should be held to
standards that facilitate accurate testig. 
We recommend that HCFA develop a 
Recommendation 1: 
 laboratory regulatory 
strategy, based on complexity of testing instead of volume or setting. 
Congres  onal Acnon 
As previously mentioned, the amendments mandate quality 
standads for laboratories, includ
ing POLs, based on the complexity of testig in the laboratory, rather than on size or volume 
of testing.

n. INITIAL POL REGULATION 
As a fIrst step toward a 
long-rage qualty assurce program, we recommend that HCFA con
currntly move to: develop regulatory standards as set 
fort in recommendation 2, and seek
legislative authority to regulate al POLs, per recommendation 3. This would enable 
HCFA to
begin to collect the information necessar to develop quality 
assurance stadards, based on
complexity of testing, while meeting the need for initial action to regulate POLs.  A. Quality Standards
We recommend that HCFA implement
Recommendation 2: 
 , through regularions pur
1987 quality standards for POLs that
suantto OBRA 
 , at a minimum, require POL direc
tors to: 
operate an internal evaluation of laboratory staff that ensures their proficiency in 
conducting tests and operating equipment in accordance with appropriate quality 
control mechanisms, including those stipulated by the manufacturer of the 
equipment; 
parcipate in laboratory training progrs 
and provide conrinuing laboratOry 
education for staff; 
maintain a laboratory record keeping system which records all testing and 
equipment maintenance activities; and 
parcipate in HCFA-approved proficiency testing program. 
Congressional Action 
In general, CLIA of 1988 require laboratories to operate a 
qualty assurance program that en
sures reliability and accurcy of the test; that meets requiremenrs regarding collection 
transporttion and storage of specimens, and that provides for properly maintained records,
equipment and facilities necessar for proper operation of the laboratory. In addition
, the
Secrta may establish personnel qualfication for diction
, supervision , and performance of
testing in the laboratory. These stadards shall take into 
consideration competency, training,
experience, job performance, and education. The 
stadards may very depending on 
the type
of testing being performed and the risks and consequences that erroneous results would cause 
patients. Also, laboratories must 
parcipate in approved proficiency testing programs. 
R Legislative Authority 
To achieve an effective regulatory strategy, all POLs must be subject to regulation. 
Recommendation 3: 
 We recommend that HCFA, at the same time it develops the regula
tions discussed above
, seek a technical amendment to OBRA 
 that would remove
1987 
the 5,000 test volume requirement, thus giving HCFA the necessary legislative awhoriry 
to regulate all POLs. 
If a technical amendment to OBRA 1987 is not fonhcoming by 
Januar 
1990, HCFA should 
impose the qualty stadards, discussed above, on POLs performng over 5,
000 laboratOry
tests per year. We recognize that implementation of an 
unamended OBRA 1987 wil require
HCFA to define a laboratory test and seek ways to identify "
high volume" POLs. Eve:i if it be comes necessar to begin regulation with just 
those POLs performing more than 5 
000 (eq
HCFA should continue to seek a technical amendment which would enable them to regulate 
all POLs. 
Congressional Action 
The CLIA of 1988 require all laboratories to submit an application and identify the typc and 
volume of testing being performed to the appropriate authorities. 
If certain criteria are met.
they may then receive a certficate of waiver which excludes them from certain 
standards and
inspection requirements. However
, those receiving waivers must report any changes in the
scope of testing within specified time frames. Thus, the intent of recommendation 3 has becn 
accomplished. The scope of testing in all POLs 
will be known and regulated to the ap
propriate extent. 
C. Implementation and Enforcement
Recommendation 4:  We recommend that HCFA enoo1Jrage POLs to rely on 
tor, Federal, State and manufacturer programs like those offered by COLA  private sec

, NCCLS and
CDC regional consortia
, to provide them with quality assurance guidelines and exper
tise in implementing the quality standards indicated above. 
Congressional Action 
The CLIA of 1988 state that a laboratory (including POLs) may be accredited
, for purposes of
obtaining a certifcate, if the laboratory meets the 
standards of an approved accreditation body
and authorizes the accreditation body to release records and other information regarding the 
laboratory to the appropriate authorities. In effect
, quality assurce 
programs offered by
private sector, State, and other not-for-profit organizations can be used by POLs to meet the
certfication requirments, if 
these accreditation conditions are met. 
Recommendation 5:  To implement the above quality standards and 
monitor POL com
pliance, we recommend that HCFA: 
requir registration of all POLs biling Medicare; and 
perform unannounced, random on-site inspections of POLs and inspection of 
POLs which fail to pass proficiency testing. 
Congressional Action 
As mentioned earlier, under CLIA of 1988, all POLs must apply for a cenificate or a 
In addition, the amendments provide for announced or unannounced inspections of  waiver.
laboratories by appropriate authorities. These 
wil be performed either on a biennial basis or
more frequently, if necessar, in order to 
determine compliance with certfication requirements  and standards. The amendments also provide for on-site 
proficiency testing to assure com
pliance. 
Recommendation 6:  We further recommend that this POL regulation program include 
one or more of the following enforcement mechanisms: 
that noncompliance with POL standards be grounds for removing the POL from 
parcipation in 
edicare Program; 
the 
that failure to pass certain proficiency testing modules be grounds for suspension 
of Medicare payment until the POL deficiency is corrected; 
that failure to meet POL standards be grounds for medical licensure sanctions or 
revocation; 
that failure to register a POL, failure to proviCe. accurate information 
concerning
a POL or noncompliance with POL standards, waive the physician 
s right to a 
defense on counts of negligence in malpractice cases involving laboratOry

testing; and 
that physicians operation POLs be required to anest to compliance with POL 
standards; in cases of misrepresentation
, civil monetar penalties and other
sanctions could be invoked 
Congressional Action 
Besides providing for suspension
, revocation or limitation of laboratory 
s certificate, the
amendments also provide for intermediate sanctions if the laboratory is found to no longer sub
stantialy meet the requirements for certcation. Intermediate sanctions may include directed
plans for corrction, civil monetar penalties, payment of costs for on-site monitoring or any
combination of the above. 
D. Cost Management
On-site inspection of laboratories is essential to information gathering, educational endeavors 
and enforcement. It is, however, costly. The HCFA 
estimates the cost of surveying ILs to be
$8. 1 millon annually. The cost of radom and targeted visits to POLs could increase these
costs by a factOr of five. 
We recommend thaI HCFA offset these costs by imposing 
Recommendation 7: 

registration fee on all Medicare certifed laborarories. 
The total fees should not exceed 
deparrmental costs for performing on-site inspections. Imposition of a regisrrationfee  could save the program an estimated  milion annually. Further details are
$43.5
provided on pages 24-25. 
Congressional Action 
The CLIA of 1988 alow the Secretar to 
collect a fee from each laboratory applying for a cer
tificate. A nomial fee 
is required for the issuance and renewal of a ceI1ificate of a waiver. 
The apmreongdmr,e nts state that the fe  s shall cover the general costs of administerig the certifica
tion  including the evaluation and 
monitorig of approved accrediting bodies. Addi
tional fees wil be charged for 
the inspection for laboratOries not accredited by an approved 
body, and for performng proficiency listing on laboratories which do not paricipate in ap
proved proficiency testing programs. These fees must be sufficient enough to cover 
the entire
cost of the above activity. 
The amendments stipulate that the fees should 
var by group or classification of laboratOries.
The secretar has discretion in determining the amount of fees, however
, it may var based
the dollar volume and scope of testing being performed. 
should save the Deparent milions of dollar that wouldI nhoavseit ioothne rowf ias er ebgeiesntr saptieonnt  foene the
registration and inspection of laboratories. Progr 
savings resulting from the fees can be cal
culated as soon as the fee schedule has been set 
RATIONALE FOR DRAFT RECOMMENDATIONS 
With emphasis on POL ability to produce consistent acceptable outcomes, we believe initial 
quality standards for POLs need not be identical to 
curent Medicare IL 
standards. At a mini
mum, physicians or laboratory 
dictors should ensure that staff involved in testing have com
pleted approved trning program(s) designed to sensitize them to the problems that could
occur in laboratory testing, and that they 
ar following recommended quality controls. The
POL records should provide an audit trail sufficient to assist 
sureyors in determining the
cause of proficiency test faiures, and to evaluate the 
accurcy of tests performed. These audir
trail should enable sureyors to assess POL adherence to manufacturers 
' recommendations for 
equipment calibration and stadardization. Specimen collection and test methodology records
should also show what tests were performed in the POL, that controls were run, and at what 
frequency. 
States that regulate POLs indicate that identification of physicians operating 
laboratOries is the
biggest problem they face. Requirg 
physicians to register each POL site they operate, as a
condition for receiving 
Medicar payment, wil provide a needed incentive for physician
cooperation. This registrtion requirment should identify most POLs operating in the 
countr, includig those operated by physicians who do not bil Government programs. Ser
vices not payable under the Medicare progr ar 
not payable by Medicaid and often are 
nOt
payable by other third pares. We believe this wil provide additional incentive for registra
tion of POL sites.  Identification of all sites where blood, urine, tissue and other specimens derived from the 
human body ar analyzed is prudent and necessar in ensuring the health and safety of the n:l-
tion and the quality of laboratOry results. Implementation of registration as a condition of pa: 
ment would be relatively simple. Anyone billng 
for laboratory services, would need to
identify the registered site on their claim. Since fields for this 
aleady exist on Medicare paper
claims and on electTonic media claims, implementation could occur quickly and without exten
sive change ro current systems are now required to recognize 
certfied II sites and the special
ties they perform. 
Our purpose in proposing mandatory proficiency testing is to enable independent measure
ment of the quality of POL testing. Despite some problems with proficiency testing by un
scrupulous providers, we feel it is stil the best measure of the q 
ality of a laboratory s testing.
Failure to arve at an acceptable result for aproficiency challenge would result in an on-site 
visit, the purpose of which would be to determne the cause of the failure and to correct the 
situation. On-site visits to other laboratOries would be conducted at random and in proponion 
to funds available from 
registrtion fees. 
A laboratory registration fee would be paid to register each faboratory site. These fees would 
be used to offset the expenses of on-site visits. The HCFA 
currntly surveys approximately
500 IIs, at an estimated cost of $8. 1 million annually (4 500 x $1 800). Assuming 10 per
cent of all POLs are randomly surveyed each year
, surveying costs for POLs could amount ro 
$35A  milion annually (19,680 x $1 800), for tota annual surveying cost of $43. 5 million 
500 + 19 680 x $1,800). 
We believe on-site inspection of POLs is essential to information gathering as well as to enfor
cement of POL regulations. However, the cost of such a progr wil 
be expensive. In addi
tion, many State respondents indicated that the cUIent 
II sureying program is understaffed
and underfunded. To rectify this situation , we recommend a 
registrtion fee be imposed on all 
IIs and POLs biling Medicar. Assuming that 4 500 lls and 19,680 POLs are surveyed each
year at $1 800 per site visit, charging lls and POLs a registration fee of $425 per year would
make the laboratory survey program budget neutral and save the program approximately 
$43. 5 millon dollar. Additional savings, which cannot be estimated, would be realized by 
improvements in the quality of POL testing.  APPENDIX A 
INSPECTION CONTACTS 
ASSOCIA TIONS 
American Academy of Famy 
Physicians
American Association for Clinical 
Chemistr 
American Association of Bioanalysts 
American Clinical Laboratory Association 
American Hospita Association 
American Medical Association 
American Society for Medical Technology 
American Society of Clinical Pathologists 
American Society of Internal Medicine 
10.  Clinical LaboratOry Management Association 
11.  College of American Pathologists 
12.  Commttee on Office 
LaboratOry Assessment 
13.  Health Industr Manufacturers Association 
14.  International Society of Clinical Laboratory Technology 
15.  Joint Commssion on Accreditation of 
Healthcare Organizations
16.  National Accrediting Agency for Clinical LaboratOry Science 
17.  National Council for Clinical 
LaboratOry Standards

MANUFACTURERS 
AbbOtt Laboratories 
Prar 
Becton Dickenson 
Care Diagnostics
Coulter Diagnostics 
Diagnostic Division of Miles Inc. 
Eastman Kodak 
L. DuPont de Nemours & Company
Electro- Nucleonics 
M Diagnostic Systems 
Labsystems 
10.  Oron Biomedical 
11.  Sequoia- Turner Corporation 
12.  Technicon Instrments  APPENDIX B
 APPENDIX a 
POL SURVEY METHODOLOGY

This study used a two-stage cluster sample to estimate the number

of physician office laboratories 
(POLs) nationwide. The States
were selected at the first stage with probability proportional to

size, where the size of the State was determined by the ,total
number of laboratory procedures billed under Medicare Part B

during 1985. The information on the total number of laboratory

services was obtained from the Health Care Financing

file. 
Administration' 
s 1985 Part B Medicare data 
Ten States were
survey. 
selected for inclusion in the 
The following table gives
the States selected, the corresponding estimated total number of

laboratory services and the proportion that total is of all

1985. 
laboratory services for 
This proportion represents the
probabil i ty of selection associated with each State. 
Number  Percent 
Carr ier  Lab Services 
of Total 
Aetna Oregon
 12, 651 
09%
Florida BS  99, 694 
59%
Aetna Oklahoma  12, 516 
08%
Pennsylvania BS
 53, 678 
63%
Prudential NC  33, 908 
92%
Illinois BS  42, 234 
64%
BS of Greater NY  60, 610 
22%
Kansas BS  10, 193  88%
Gen'l Am Life  (Missouri)  14, 587 
26%
Prudential GA  25, 842 
23% 
Sample Total
 365, 913  31. 
53% 
Total of All States  1, 160, 530  100. 
At the second stage of sampling, each selected State was

contacted and requested to provide a listing of all physicians

licensed in that State. 
listing.T hree of the selected States were unable

to provide this 
Each of these three States were,
instead, asked to provide a listing of the name and address for

Numbers presented are from a 1% random sample of all

laboratory services in calendar year 1985.  ervice (BHAD 86)
Totel Allw  907 111 912 166 5117 423 703 162 976700 116 512671 163 352117 753 346192 , 296 810121 , D28 386252 195 674 223 186 286 644 166 125 512 005S 14 742 5149 114  422 891 298 415  133 972 011 112 132 
S
 
f  
o t
  o
e l
c  
ieceof 1.8. 5. 6. 6. 6.  4. 5. 6. 9. 7. 3. 
Pi  912534 713261
fX
lclens OfAll..  510 822 122 521 116 900 198 123 099 997 114 063 115 396 S15 281 257 131 S19 , 209 685 520 972  538 514  363 452 
e
y
h
P
750 1 , 895 437 521 063 280 1 , 366 1 , 507 969 549 388 024 781  9 412  5, 404 
7 J
4 5
113 343 181 674 604 103 522 850 271 488 356 850 974  233  923 
 85)  Allw  111 166 158 '15 '40 116 162 120 171 160 S48, '13 1169  515  ". J61 
D 1
A
H
ervice (BToUI  1 , 717 056 150 536 , 775 592 , 100 962 1 , 720 990 401 504 618  409 864  066. 860 
S
 
f
o
Piece ice  X of Tot  92. 25. 30. 1 X 59. 40. 54. 18. 66. 24. 38. 33. 74. 16.  51.  51. OX 
PhYllclenl OffAllw  90 '82 66 137 117 , '17 49 910 14 131 '16 10 661 17 . 745 '13 36 251 11 895 868 63 '23 41 042 44 958 115 13 608 18 128 615  500 834 15 IJ.  50 14. 421 251 
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"CPCS  87210 83718 80006 87205 81088 85044 84419 87060 82756 84420 83036 87081 88302  APPENDIX D
 APPENDIX D

STATES REGULATING LABORATORIES

STATE 
POL 
ALABAM 
ALASKA 
ARIZONA 
ARKASAS 
CALIFORNIA 
COLORADO 
CONNECTICUT 
DELAWARE 
DISTRICT OF COLUMBIA 
FLORIDA 
GEORGIA 
HAWAII 
IDAHO 
ILLINOIS 
INDIANA 
IOWA 
KASAS 
KENTUCKY 
LOUISIANA 
MAINE 
MAYLAD 
MASSACHUSETTS 
MICHIGAN 
MINNESOTA 
MISSISSIPPI 
MISSOURI 
MONTANA 
NEBRASKA 
NEVADA 
NEW HAPSHIRE

NEW JERSEY 
NEW MEXI CO 
NEW YORK

NORTH CAROLINA

NORTH DAKOTA

OHIO 
OKLAOMA 
OREGON 
PENNSYLVANIA 
RHODE ISLAD 
SOUTH CAROLINA

SOUTH DAKOTA
 STATE 
POL 
TENNESSEE 
TEXAS 
UTAH 
VERMONT 
VIRGINIA 
WASHINGTON 
WEST VIRGINIA

WISCONSIN 
WYOMING 
PUERTO RI 
Sources: 
Steindel, Steven J. "Legal Issues Associated With Physician

Office Testing,  Journal of Medical Technoloav 
4: 3

May/June 1987

OAI telephone interviews with State officials (no interview
with Puerto Rico).
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 , "

--- 
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