CMS Adjustments for Medicare Fee Schedule Might Be Too Late

Changes in data collection start in 2021, but more deep cuts to Medicare fee schedule start Jan. 1

This is a summary of two articles in the Nov. 13, 2018 issue of THE DARK REPORT. The complete articles are available only to paid members of the Dark Intelligence Group.

CEO SUMMARY: On Nov. 2, the federal Centers for Medicare and Medicaid Services released its Physician Fee Schedule for 2019. CMS says it will expand the number of labs from which it collects data about the lab test prices paid by private health insurers. While some labs may welcome these changes, groups representing clinical laboratories noted that the changes CMS calls for impact the Medicare fee schedule for two years. Meanwhile, on Jan. 1, CMS will make another 10% cut in what it pays for lab tests under the Protecting Access to Medicare Act.


THERE’S BAD FINANCIAL NEWS for clinical laboratories following the publication on Nov. 2 by the federal Centers for Medicare and Medicaid Services (CMS) of the final rule for the 2019 Medicare Fee Schedule.

Sections in the final rule specify improvements in the way CMS will collect data on the prices private health insurers pay clinical labs – revealing the CMS response to the large number of public comments it received following its publication of the 2019 MPFS proposed rule last July.

While some labs may welcome these changes, groups representing clinical laboratories noticed a significant flaw in the plan, said Mark S. Birenbaum, PhD, Administrator of the National Independent Laboratory Association (NILA) and the American Association of Bioanalysts.

“Included in the new physician rates for 2019 were corrections to problems that have plagued the clinical lab industry since Congress passed the Protecting Access to Medicare Act (PAMA) in 2014,” explained Birenbaum.

“However, those corrections will not take effect for two years. Therefore, just as the Medicare Part B Clinical Laboratory Fees were cut by 10% at the start of 2018, comparable price cuts will be enacted in each of the next two years.”

Medicare prices for many clinical lab tests will be cut a collective total of 30% during the years 2018, 2019, and 2020.

These price cuts are the result of the market study conducted by CMS and how it used that data to set prices in the Medicare fee schedule as directed by the language of the PAMA law. The clinical laboratory industry has complained that CMS used a flawed data-collection process, excluding the vast majority of labs and the prices they’re paid, to produce the deep fee cuts that will happen during these three years.

Thus, the most significant change in the 2019 Medicare Physician Fee Schedule (MPFS) for the clinical lab industry is that CMS expanded the definition it uses for “applicable laboratories.” Those hospital outreach laboratories that receive payments from the Medicare Part B Clinical Laboratory Fee Schedule (CLFS) totaling at least $12,500 from claims submitted on the CMS-1450 14x bill type will now be “applicable laboratories” and must report the lab test prices they are paid by private health insurers.

Another change in the final rule is that CMS will exclude Part C Medicare Advantage payments in certain calculations. CMS believes this will increase the number of laboratories reporting private-payer prices.

The next reporting period, which CMS will use to set prices for the second three-year period (2021-2023), comes in 2019.

Applicable laboratories will need to report this data for payments made during the period Jan. 1, 2019, through June 30, 2019. The data to be reported must include the HCPCS/CPT code for each test, the net rate paid by every private payer for each test (after all discounts and contractual adjustments), and the volume of each type of test that corresponds to that payer’s rate.

Clinical labs throughout the United States won’t have much time to respond to the changes CMS enacted in the final 2019 Medicare Fee Schedule. The reporting period starts on Jan. 1, 2019.

Ominously, one section of the PAMA statute sets out penalties for clinical laboratories that fail to report, or report incomplete data, or inaccurate data on the prices they were paid by private health insurers. In the first cycle of data gathering, federal officials did not assess penalties against any clinical laboratory.

CMS has made no statement about how it may penalize labs now or in the future.

Good News, Bad News

“Theoretically, these changes will increase the number of hospital outreach laboratories required to report applicable data,” noted Birenbaum. “CMS expects this change to capture private-payer price data from a larger portion of the laboratory market.”

Julie Khani, President of the American Clinical Laboratory Association (ACLA), had a similar comment about the language in the 2019 Medicare Physician Fee Schedule (MPFS), saying, “It recognizes the flaws in the agency’s approach to implementing PAMA and represents a starting point in advancing a more sustainable, competitive market for millions of seniors who depend on clinical diagnostics for their health.”

Khani qualified this statement by noting that “CMS has not implemented PAMA as Congress intended, requiring action from Congress to ensure that labs and patients are not harmed further.” ACLA also is pursuing a lawsuit against Health and Human Services Secretary Alex M. Azar for unlawfully instituting a flawed data-collection process in the transition to a market-based payment system, Khani added.

Birenbaum said the problem with the language of the 2019 MPFS is that the changes CMS says it will make won’t take effect until at least 2021. “In other words, the fees for 2019 and 2020 aren’t affected by what CMS says it will change in this Medicare physician fee schedule,” he stated.

“It means labs may not see any improvement from these changes until CMS does its next data collection and uses that information to set medical lab test prices for the next three-year cycle—2021 through 2023.”

For clinical labs, the three-year cycle creates two problems, both of which have a negative effect on what CMS pays for clinical lab tests.

Financial Survival

“The first problem is labs must financially survive through 2019 and 2020 and, in each of those years, CMS is scheduled to cut what it pays labs for most lab billing codes by 10% each year,” stated Birenbaum. “Throughout this year, medical labs have struggled under a price cut of 10% that went into effect on Jan. 1.

“The second problem is that we don’t know how much these changes will affect the data CMS collects as to the prices labs are paid by private health insurers in coming years,” he added. “It’s not clear how much additional marketplace data CMS will include when they make these changes. Compared to the first data collection effort, we know now that CMS will collect data from more labs, but we don’t know the specifics about which labs are to be included and which are to be left out.”

As THE DARK REPORT has reported, some clinical labs have reduced services and others have gone out of business, particularly community laboratories serving nursing homes and long-term care facilities located in rural areas.

How will the additional cuts to the Medicare fee schedule affect your lab? Please share your thoughts with us in the comments below.


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