2019 Outlook: Lab Industry Future Looks Dire, From Reactions to Recent Medicare Fraud Cases to PAMA Reporting and Other Stress Factors

Pressures generated by recent Medicare fraud cases account for four of Top 10 stories of 2018

CEO SUMMARY: This year’s list of the Top 10 Lab Industry Stories for 2018 is dominated by new directives from Medicare and private health insurers, as well as significant decisions by federal courts. Collectively, these developments create new compliance risks for all clinical laboratories and anatomic pathology groups. What is more notable about these top 10 lab industry stories is that, during 2018, several long-standing lab business practices may now be illegal, based on one new federal law and several federal court decisions that follow recent Medicare fraud cases.

IN MORE THAN TWO DECADES of preparing The Dark Report’s list of the Top 10 Lab Industry Stories for the year, there has never been a list that was overwhelmingly dominated by government and private payer actions.

That changed in 2018. Of the 10 stories selected for this year’s list, six stories involved one of three things:

  1. Actions of the federal government;
  2. Decisions in federal courts; and,
  3. Tougher audits by private payers.

There is another major difference in the stories that make up this year’s Top 10 list. To a greater degree than ever before, multiple stories on this list will directly create new audit, compliance, and legal risks—and a need to respond—for every clinical laboratory and anatomic pathology practice in the United States.

Two factors are among those used to identify the stories selected to make each year’s list of the Top 10 lab industry stories. One factor is whether the story affects the larger proportion of clinical labs and anatomic pathology groups in this country.

A second factor is if the immediate consequences of a story will require a response by a majority of labs. For example, in this year’s story number one, the Centers for Medicare and Medicaid Services (CMS) now defines hospitals using the CMS-1450 14x claim form for outreach lab test billing as applicable labs. These hospitals will be required to submit private payer price data as of Jan. 1, 2020. That is one way that story number one requires an immediate response by hospitals meeting this criterion.

By contrast, story number three, which describes how pharma and private equity companies want to acquire and hold proprietary diagnostic biomarkers that will be companion diagnostics for specific therapeutic drugs, is a development that will take a number of years to play out.

Lab executives and pathologists should assess each of these developments and craft an appropriate strategy and compliance policy to protect their lab from enforcement actions by the federal government and tougher audits by private health insurers.

One issue of concern to all clinical laboratories in the United States is how the Centers for Medicare and Medicaid Services uses the coming reporting period for private payer lab test prices to set the Medicare Part B Clinical Laboratory Fee Schedule (CLFS) for 2021, 2022, and 2023. This is why the American Clinical Laboratory Association’s (ACLA) lawsuit against the Department of Health and Human Services is on this year’s list at number five. However, it is unlikely that this lawsuit will produce a timely judgment in ACLA’s favor, which addresses the critical flaws in how CMS is defining and implementing the requirements of the PAMA law.

Ramifications of Fraud

One interesting theme that emerged from compiling the 2018 list of the lab industry’s Top 10 stories was the ramifications of recent Medicare fraud cases and abuse among certain sectors of the clinical lab industry. At least four stories are related in some way to the efforts of government and private payers to curb fraud and abuse.

The quick overview is tougher compliance requirements (Support Act and federal court rulings: stories one and eight); rigorous audits that use extrapolation and statistical sampling (story four), and more private payer lawsuits filed against hospitals and labs using pass-through billing schemes.

Most pathologists and lab administrators in hospital and health network labs are unaware of the extent of recent Medicare fraud cases, particularly in lab testing sectors, such as toxicology, pain management, and specialty testing such as cardiology. Both government and private payers have found themselves paying substantial amounts of money for medically-unnecessary testing, often billed at prices that are 10 times or more than the competitive price of any lab company that is an in-network provider for most major health plans.

Limited Tools, Resources

To stamp out this fraud, payers have limited tools and limited resources. Thus, it is much easier to implement restrictive coverage guidelines and slash reimbursement for the lab tests that are most often involved in fraud and abuse schemes. However, that punishes those long-established lab organizations that are diligent with compliance and truly deliver value to the physicians and patients they serve.

A comparison of the 2018 list of the lab industry’s Top 10 stories to the 2017 list shows that the issues of compliance and fraud are not new developments. Several stories relating to payers’ efforts to control fraud and excessive utilization of lab tests made the 2017 list.

In 2017, the FDA’s decision to approve the first digital pathology system for use in primary diagnosis was number three on the list. (See TDR, Dec. 11, 2017.) However, 2018’s list has no comparable example of new diagnostic technology. The closest example to a new technology advance is story number 6, how several pioneering health networks are first to use genetic tests in primary care settings.

Unfolding Industry Trends

When viewed collectively, The Dark Report’s list of the Top 10 Lab Industry Stories for 2018 reflects the current state of the profession. It is under stress. Some stress is from declining reimbursement for lab tests. Other stress comes from tough compliance requirements and audits. These are signs that the times will remain challenging for labs going forward.

Labs, Pathology Groups Face More Challenges with Federal Compliance

As 2018 comes to an end, three serious new compliance threats confront the nation’s clinical labs and anatomic pathology groups. All three emerged in the last quarter of the year.

The first threat is a federal judge’s ruling on Sept. 21 that claims involving a lab’s payment to physicians for packaging specimens, and the lab’s waiver of patient co-pays and deductible, are violations of the federal Anti-Kickback Statute and could go forward to trial. (See TDR, Oct. 1, 2018.)

The second threat emerged on Oct. 24, when the President signed the “Support for Patients and Communities Act.” This new law makes it illegal for providers—including labs—to pay commissions to sales reps for generating referrals from physicians.

Lab industry lawyers were quick to point out that this law conflicts with the safe harbors in the federal anti-kickback law. It is uncertain whether any federal agency will issue guidance about conflicts between the two federal laws. (See TDR, Dec. 3, 2018.)

The third threat is the final rule for PAMA lab-test reporting. Issued by Medicare officials on Nov. 2, the rule includes a requirement that hospitals using the CMS-1450 14x claim form to bill Medicare must submit their private payer lab-test data to Medicare officials. Few hospitals have the information systems required to gather this data and may have to do it manually. Federal penalties are $10,000 per day for failure to submit data, or to submit inaccurate or incomplete data. (See TDR, Nov. 13, 2018.)

Which of these 2019 themes will impact your lab, and how will you manage them? Please share your thoughts with us in the comments below.


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