Protecting Access to Medicare Act of 2014: Will price reporting rule drive small labs out of business?

Other problems include lack of time for clinical laboratories to get required data to CMS

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This first assessment of the PAMA (Protecting Access to Medicare Act of 2014) proposed rule on market reporting of lab prices gives pathologists and lab executives insights about the good, the bad, and the ugly in the language of the proposed rule. One lab group representing independent and community lab companies says that the proposed rule is likely to cause many of smaller labs out of business starting in 2017, when CMS is required to implement the rule. Another major object voiced by all sectors of the clinical lab industry is that the short time between publication of the final rule and implementation of the rule will leave inadequate time for labs to gather the necessary data and report it on time to CMS.

Medicare officials published that proposed rule late on Friday, September  25, to implement the much-anticipated section of PAMA. PAMA was passed quickly to avert a significant cut in Medicare physician payments due to the sustainable growth rate formula known as SGR. President Obama signed it into law on April 1, 2014, following quick votes by the House and Senate. This meant that the lab industry had little time to study the language of the bill and address all the potential consequences. (See TDR, April 7, 2014.)

What has caused the most concern is the section of the law that requires CMS to gather market price data on lab tests and the associated test volume tied to those prices from some of the laboratories in the market during 2016, then use that data to identify the median and set prices for the CLFS that will become effective on January 1, 2017.

Once they learned about the mandatory market price reporting requirement in PAMA and how the data would be assessed, many pathologists and lab administrators were seriously concerned that the data collection and reporting system would ultimately result in a new clinical laboratory fee schedule tied to the private sector rates that the two largest national labs, Quest Diagnostics Incorporated and Laboratory Corporation of America, set. For years, these labs have negotiated discounts that allow them to establish sole-source contracts with private payers.

Also, pathologists and lab directors worried that other independent labs, much smaller in size from the national labs, would ultimately suffer under this price reassessment model because the large national labs would report lower prices, particularly for the routine tests they run every day simply because they have much higher volume and thus can charge much less than what smaller independent labs can charge.

Broader Market Assessment

Critics charge that, unless the so-called market assessment process under PAMA includes the broader laboratory market—hospital and physician-owned laboratories—any assessment would be skewed toward the very low prices the largest national laboratories offer private payers.

Quest Diagnostics and LabCorp collected about $1.23 billion of the $6.7 billion that Medicare paid for clinical lab tests under Medicare Part B in 2006, according to estimates GenomeWeb published. The $1.23 billion represents about 18% of the total that Medicare spent on lab tests that year.

Are you concerned about the prospects for your lab going forward under PAMA and potentially drastic cuts to prices? If you have a different interpretation of this development, please share it in the comments below.

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