Test price data shows major difference between Medicare lab fee schedule and private payers

Coming cuts to lab test pricing will impact thousands of companies

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This is an excerpt from a 1,500-word article in the November 7 issue of THE DARK REPORT. The complete article is available for a limited time to all readers, and available at all times to paid members of the Dark Intelligence Group.

CEO SUMMARY: THE DARK REPORT presents the lab industry’s first look at actual price data that four sectors of the clinical lab industry are preparing to submit to CMS under the requirements of the Protecting Access to Medicare Act. XIFIN Inc. reports that private payers paid its independent lab clients a weighted average price that was 19.6% less than what Medicare pays for 20 of its highest-volume tests. This exclusive report gives labs a critical understanding of the real differences between what private health insurers pay for lab tests and the Medicare lab fee schedule. Additionally, a report by the OIG indicates that CMS will use data reported by 5% of all labs to set new rates for 69% of Medicare lab test payments!

IN JUST EIGHT WEEKS, certain clinical labs will begin reporting their PAMA lab test market price data to CMS. Those reports will set off a series of events that could trigger the single most financially-disruptive event to hit the clinical laboratory industry in the past three decades.

That event would be Medicare’s implementation, as of Jan. 1, 2018, of substantial price reductions to the highest-volume tests that the nation’s community laboratories and hospital outreach lab programs depend on for financial stability. Experts predict such reductions could force many labs into bankruptcy.

Officials at the Federal Centers for Medicare & Medicaid Services are implementing the Protecting Access to Medicare Act, which includes a requirement to use private market lab test prices to establish a new Part B clinical laboratory fee schedule, effective on Jan. 1, 2018, just 14 months from now.

The potential for large swathes of the clinical laboratory industry to undergo financial crises should the 2018 Clinical Laboratory Fee Schedule (CLFS) impose deep cuts on existing prices in the Medicare lab fee schedule is a significant concern for those labs. If many labs close, large numbers of Medicare patients may lose access to medical lab testing in their communities that have served them for decades. Related to that is the longer-term problems Congress and CMS could face if a large number of community labs and hospital lab outreach programs went out of business, concentrating even more market share in the hands of these two lab industry oligopolists.

How deep might the price cuts be? Until now, only CMS has had access to the range of price data that would provide even a partial picture of what Medicare pays for lab tests versus what private health insurers pay.

But that has changed. In this issue, THE DARK REPORT presents the lab industry’s first look at actual price data that four sectors of the clinical lab industry are preparing to submit to CMS.

The analysis was conducted by XIFIN, Inc., of San Diego, which provides revenue cycle management services and laboratory information services to more than 200 laboratory clients.

XIFIN handles between 200 million and 300 million lab claims each year and is electronically connected to all of the nation’s payers. Its client mix includes the nation’s largest lab companies, independent labs, hospital labs with NPI numbers, molecular/genetic labs, and pain management/toxicology labs.

XIFIN tapped its data base to look at the data that its client labs will report to CMS for 20 high-volume lab tests. It calculated a weighted average price that private payers paid for these four lab sectors when compared with the Medicare lab fee schedule, as follows:

  • Independent labs are paid 19.6% less.
  • Hospital labs with NPIs are paid 25.6% more.
  • Molecular and genetic testing labs are paid 27.3% more.
  • Pain management and toxicology labs are paid 50.4% more.

This real price data is derived from tens of millions of private payer payments and shows two things. First, large independent labs are paid less, according to the weighted average, than the Medicare lab fee schedule prices.

Second, private payers pay hospital labs with NPIs a weighted average price that is significantly more than what Medicare pays under the CLFS. Private payers also pay more than the Medicare CLFS pays to molecular/genetic labs and to pain management/toxicology labs.

One conclusion drawn from these basic findings is that CMS is about to significantly reduce its costs by targeting price cuts so as to pay significantly less to the limited number of the biggest labs performing the highest volume of tests that represent the biggest share of the money paid annually for Medicare lab test claims.

The question, then, is how will the data from XIFIN translate the results CMS will derive from the PAMA exercise? To answer this question, Lâle White, Founder and CEO of XIFIN, explained that some of the data XIFIN reviewed were based on the same top 20 tests that the Office of Inspector General analyzed in a recent report on what CMS might save as a result of implementing PAMA.

part B Lab payments

“The report says that 1% of labs (292 out of 29,101 labs) received 54% of all Medicare Part B payments for the top 25 lab tests last year. These labs received an average of $7.6 million each in 2015,” said White.

“The OIG said new payment rates for lab tests will be based on data provided by a projected 5% of labs, and these labs received 69% of Medicare payments in 2015,” she said. “Also, OIG said that for the top 25 tests, 79% of payments go to the top 4% of labs.

“That means that CMS will use data reported by 5% of all labs to set new payment rates which accounted for 69% of Medicare payments for lab tests in 2015.”

On the pages that follow, THE DARK REPORT presents four tables that show how XIFIN calculated a weighted average of private payer prices for 20 of the top 25 tests that incurred the highest costs to Medicare in 2016. These data were compared with the Medicare National Limit price for each of the 20 lab tests.

How should the clinical lab industry respond to this approach by CMS to cutting Medicare prices? Please share your thoughts with us in the comments below.



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