CEO SUMMARY: Publication of the draft CMS Physician Fee Schedule on July 12 brought unwelcome news for the clinical lab industry, at least as it pertains to that perennial question: Should hospital lab outreach data be included in a PAMA market study? The federal Centers for Medicare and Medicaid Services must conduct a new market study to prepare the PFS, and in this latest draft rule, CMS once again asserted that the intent of the PAMA statute does not encompass hospital labs and hospital outreach labs. Labs may now comment on the draft rule.
IN A PROPOSED RULE ISSUED JULY 12, the federal Centers for Medicare and Medicaid Services continued to push an interpretation of the Protecting Access to Medicare Act of 2014 (PAMA) that will reduce still further what CMS pays for clinical laboratory tests.
In its proposed CMS Physician Fee Schedule (PSF) for 2019, CMS once again said that it interprets PAMA in a way that excludes hospital laboratories and hospital outreach laboratories, both of which make up large and important segments of the clinical laboratory testing market.
The PFS affects tests that Medicare covers when a physician is involved in the test.
On the other hand, the rule could expand the number of labs that need to report data under PAMA by adding more independent labs and physicians’ office labs, according to Amanda Murphy, an analyst with William Blair & Company, a financial services company in Chicago.
If approved as is, the proposed rule for the 2019 CMS Physician Fee Schedule would also cut what CMS pays for flow cytometry tests and would make some modest cuts in what it pays for some FISH tests – and those cuts will be phased in over four years, Blair reported.
In a note to investors, Murphy further reported that CMS will pay more for some immunohistochemistry tests.
The proposed rule also could change the definition of which clinical laboratories would be required to report data under PAMA. These labs are defined as “applicable labs” for data-reporting purposes. CMS seeks comments on a proposal to change the payment level used for labs that must report under the “Majority of Medicare revenues threshold” provision in PAMA.
The current level is $12,500 and CMS wants comments on the effect of lowering the threshold to $6,500 and raising it to $18,750. This would mostly affect physicians’ office labs and independent labs.
In addition, CMS seeks comments from clinical laboratories and pathologists about how it could improve the data-collection processes it uses when setting clinical laboratory payment rates under PAMA. All comments are due to CMS by Sept. 10.
The most significant changes in the PFS could come under the revisions CMS is considering in the way labs must report data to CMS under PAMA. Since Jan. 1, when CMS began paying laboratories under PAMA lab cuts, it reduced what it paid clinical labs for tests by an estimated 10%. Those rates were set under rules established under PAMA that are the subject of litigation in the U.S. District Court for the District of Columbia.
ACLA Lawsuit Reveals Huge Reimbursement Gap
In December, the American Clinical Laboratory Association (ACLA) sued the federal Department of Health and Human Services (HHS), saying that the agency disregarded the requirement in PAMA that all applicable laboratories report relevant market-rate data about what private health insurers paid to clinical laboratories when it set the 2018 Clinical Laboratory Fee Schedule (CLFS). That lawsuit is pending. (See TDRs, Jan. 2 and Mar. 5, 2018.)
The data-collection methods were flawed because CMS collected data from less than 1% of laboratories nationwide, ACLA said. “By excluding more than 99% of the nation’s laboratories, CMS violated the statute and undermined Congress’s goal of protecting beneficiaries and supporting value-based care delivery,” the association added.
Based on its calculations before the 2018 CLFS went into effect, CMS predicted that its payments to laboratories would decrease by $390 million during 2018. But because the methods used to collect the market-rate data were so flawed, reimbursement decreased by $670 million this year, according to documents filed in the lawsuit.
In an interview with THE DARK REPORT, Erin Will Morton, Senior Vice President of CRD Associates, a government relations firm in Washington, D.C., that represents the National Independent Laboratory Association, explained that the proposed CMS Physician Fee Schedule does not adequately address the problems with CMS’ implementation of PAMA and continues to be flawed because it excludes the hospital lab market. CMS’ interpretation of PAMA excludes hospital labs and hospital outreach labs from the data-collection processes, she said.
The issue of inconsistency raises the question of whether the PAMA statute itself is clear. “Indeed, the statute is clear in its definition of an applicable lab,” Morton said. The statute requires that 50% or more of a lab’s revenue must come from the physician fee schedule (PFS) or from the Clinical Laboratory Fee Schedule (CLFS) if a lab is to be considered an applicable lab.
“The statute does not exclude hospital labs.” Morton said. “The problem comes from CMS’ interpretation of the statute to define an applicable laboratory by its National Provider Identifier (NPI) number under Medicare Part B, and its exclusion of hospital labs as part of this interpretation.”
Some members of Congress were clear that the intent of PAMA was to collect data from all sectors of the laboratory business, Morton recalled. To support this claim, she quoted a statement from the Congressional Record by U.S. Senator Richard Burr (R-North Carolina) who, on May 8, 2014, said this about PAMA:
“It is my understanding that the intent of this provision is to ensure that Medicare rates reflect true market rates for laboratory services, and as such, that all sectors of the laboratory market should be represented in the reporting system, including independent laboratories and hospital outreach laboratories that receive payment on a fee-for-service basis under the fee schedule.”
Morton also added a quote from Senator Orrin Hatch (R-Utah) on the same day. Hatch said the following about the intent of PAMA: “The Senator [Burr] is correct…[T]he intent is to ensure that Medicare rates reflect true market rates, and that commercial payment rates to all sectors of the lab market should be represented, including independent laboratories and hospital outreach laboratories.”
After citing these quotes, Morton said, “The senators’ comments make clear that, at the least, hospital outreach labs should be included in the data collection. But that’s not what CMS says in the proposed Physician Fee Schedule for 2019.”
Lawsuit Says Lab Data Collection Was Flawed From Start
Based on its calculations before the 2018 CLFS went into effect, the federal Centers for Medicare and Medicaid Services predicted that its payments to laboratories would decrease by $390 million during 2018.
But because the methods CMS used to collect the market-rate data under the Patients Access to Medicare Act of 2014 (PAMA) were so flawed, reimbursement decreased by $670 million this year, according to documents filed in a lawsuit the American Clinical Laboratory Association (ACLA) brought against Health and Human Services Secretary Alex M. Azar. This amount is about 10% of the $6.8 billion that CMS paid under Medicare Part B for lab tests in 2016.
Will you submit a comment to CMS about the proposed PFS rule, and if so what will you say?