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The practice known as client billing, or referral deals, is simple enough. A physician sends a test to an off-site lab and is charged a discounted rate of, say $40. The doctor then bills your insurance company a premium price of $90 and profits from the difference. An even more basic way to boost revenue is to request more tests, even if they're not needed.

Like unneeded tests, it's difficult to pinpoint the prevalence of medical markups in specific areas because often neither patients nor insurers know of the arrangement. By the same token, the practice seems to be picking up nationwide.

"It's really taken off," said Bernie Ness, president and CEO of B.J. Ness Consulting Group, a medical laboratory consulting firm in Toledo. Ness said the practice has been going on for decades, starting in family medicine. But these days it's becoming more common in specialized medical care as well.

As Medicare continues to cut physicians fees - next year by an estimated 4.3 percent - doctors continue to look for other income opportunities, he said.

Area physicians and billing personnel said that they don't bill insurance companies for off-site lab work. Rather, providers said that labs bill insurance companies directly, allowing no opportunity for a markup.

If the work isn't done at the office, the office doesn't bill for it, said Tracy Coakley, who works in the billing department at Dermatology & Laser Surgery Associates in Fort Wayne. Coakley has worked at several offices and said that she hasn't come across any that bill for off-site lab work.

Area labs generally concurred, saying that they bill insurers directly - or patients if necessary - rather than billing doctors and letting them bill insurers.

Parkview Health Laboratories, based in Fort Wayne, bills insurers directly for the vast majority of tests it processes. The few exceptions involve physicians who prefer that Parkview Health bill them, laboratories director Alice Friedt said. In those cases, she said the laboratories bill physicians at or near Medicare reimbursement rates.

"We don't participate in those kind of deep discount billing situations," Friedt said. Like other labs, Friedt said that Parkview Health doesn't know or ask what doctors are billing insurers. But given Parkview's rates for lab tests, she thought there wouldn't be much incentive or opportunity for physicians to charge insurers more.

While not disputing any specific claims, Ness said that a lab salesman would need only to canvass an area to find doctors who were either profiting from lab tests or interested in profiting from lab tests.

"I think doctors would like to have some degree of a business model," said Dr. Thomas Pechin, a family physician at Howe Medical Center and LaGrange County health officer. He said that included markups, although he thinks ordering unneeded tests is wrong.

How much of a markup is warranted depends on the business needs of the health care provider, he said: "Whatever markup is reasonable to pay for the cost of providing that service." He said the need to recoup money lost to unrecovered fees often incurred in treating the poor and uninsured.

Regarding laboratory services, the American Medical Association's code of ethics says that a "physician should not charge a markup, commission, or profit on the services rendered by others." It adds, however, that physicians can levy a processing charge on such services.

AMA code cautions that a doctor "who chooses a laboratory solely because it provides low-cost laboratory services on which the patient is charged a profit is not acting in the best interest of the patient." Critics worry that some health care providers do just this and risk substandard lab testing in the process.

For their part, insurance companies pay only what's "usual and customary," an inherent check on high cost, Pechin said. Many insurers also have policies that dictate which labs physicians can send tests to. Pechin said that medical markups are a contributor to rising health care costs but "not a huge contributor."

Several studies show physicians are more likely to order services for patients if there is a financial incentive. In states that allowed doctors to bill for outside lab work, doctors order 28 percent more tests, according to a 1993 study written by economist Zachary Dyckman. He expected the same would hold true today.

Increases in malpractice lawsuits - and subsequent increases in malpractice insurance premiums - and decreases in many doctors' profit margins make markups and ordering extra tests more attractive.

Among insurers directly addressing the markup practice is Anthem Blue Cross Blue Shield of Indiana. It has a policy that prohibits "pass-through" costs. Under the insurance company's policy, doctors can bill for services provided only at the doctor's office, and tests sent to the lab must be directly billed by the lab.

At the same time, many insurers aren't raising red flags. It's tempting for insurers to let the practice go unfettered where they see an opportunity to cut into Medicare's market, said Ness of B.J. Ness Consulting. These insurance companies and HMOs are willing to reimburse marked-up prices on discounted lab tests because they're still cheaper than standard Medicare reimbursement rates, he said.

Ness advises discounting labs to hold onto their No. 1 customer Medicare, forgo referral deals and raise their prices. He says if insurers are serious about curtailing the process, they need take only one simple step: require that a pathologist UPIN - or Unique Physician Identification Number - is on the pathology bill from doctors before paying for the services submitted.

According to federal law, doctors can't receive incentives for referring patients for services - such as lab tests - for which they have a financial interest. But physicians and companies involved in client billing say that their arrangements are legal.

Last year, the U.S. attorney in Oklahoma City indicted three former executives of lab UroCor Inc. for charging steeply discounted rates to doctors who in turn billed insurers a much higher rate for the lab work.

The company charged doctors as little as $2.75 for a common analysis to detect prostate cancer and also reimbursed them at $25 and up. The indictment claims that the arrangement was a kickback designed to encourage doctors to refer other work covered by Medicare, which the lab billed directly.

The company is now a division of Laboratory Corp. of America Holdings, called LabCorp. Executives have denied wrongdoing. The trial is slated for June.

Although Indiana laws regulate insurers on issues related to rates, they do not regulate how much health care providers can charge for services. Nor is Indiana among a handful of states that have direct billing, anti-markup or disclosure laws that could address the practice.

Carol Cutter, health deputy for the Indiana Department of Insurance, says competitive market forces help determine what health care providers can bill insurance companies. Based on these, insurance companies know what to expect as well, she said.

"The doc knows he's only going to get as much as the insurance companies pay, and that's it," Cutter said. Citing potential ill economic effects of price fixing, she doesn't advocate laws regulating prices doctors can charge.

The former insurance agent said she didn't hear policyholders complain about markups to any great degree. But insurance policies are so complicated, she said, that most policyholders don't know how they work to begin with.

In addition, patients are increasingly passing on the paperwork. While most insurance policy contracts are set up for direct reimbursement to patients (the patient pays and then is reimbursed by the insurer), patients typically sign off on an assignment of benefits clause in the claim forms that gives their insurance company permission to pay the doctor directly, Cutter said.

This works well for the patient because it cuts out potentially complicated and frustrating paperwork. When all works well, patients pay a co-pay, and that's that.

But the arrangement might take patients somewhat out of the billing loop, and extra paperwork for doctor's offices is likely to increase processing charges at the doctor's office, Cutter said. This might make it less likely that patients check on the cost of work, including any off-site work billed for by the doctor.

But that's not stopped some physicians groups from setting up "pod" labs, and charging the health care giant. Essentially, "pods" are off-site labs managed by physicians groups who then charge. The labs, which are housed with others - hence the nickname - have drawn scrutiny from the inspector general for the U.S. Department of Health and Human Services. Financial arrangements are among the elements being evaluated.

•Call your insurance company and ask what it considers a reasonable reimbursement rate for the various lab procedures and subsequent charges.

•Some health care providers will gladly provide their patients this information, and others will balk. Consumers should be persistent and remind the providers that they are entitled to this information just as they are with any other purchase they might make.

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