Time’s running out to stop Medicare lab fee schedule cuts

Lab industry hopes to keep Medicare lab fee schedule cuts from causing major financial chaos

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This is an excerpt from an article in the August 7, 2017 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: Only a few months remain before it hits: the single most financially-disruptive event in the clinical lab industry in two decades. CMS will make Medicare lab fee schedule cuts deep enough to impact the entire healthcare system. In this exclusive business analysis, THE DARK REPORT explains that lab associations and professionals are being called on to lobby members of Congress and the new administration on the flaws in CMS’ PAMA final rule, and to delay the price cuts long enough to fix the problems.

COMING TO YOUR LAB in less than 150 days are Medicare lab fee schedule cuts from the federal Centers for Medicare and Medicaid Services that will be so deep, they’ve been called the most financially-disruptive cuts to clinical lab fees in more than 20 years.

If the final rule under the Protecting Access to Medicare Act is implemented as written, experts who understand laboratory medicine and its role in the healthcare system say the rule will have devastating consequences.

On July 17, THE DARK REPORT produced a well-attended webinar on the most recent developments involving the PAMA Part B fee cuts that will start on Jan. 1, 2018. One of the experts who addressed the webinar was Julie Scott Allen, Senior Vice President of the District Policy Group at Drinker Biddle and Reath. Allen represents the National Independent Laboratory Association (NILA).

In her presentation, Allen explained the multiple and serious problems that CMS wrote into the final rule, and outlined how the clinical laboratory profession is working to educate members of Congress and the new administration about the flaws in the rule and why it is necessary to delay and fix the rule.

Message Is: Delay Medicare Lab Fee Schedule Cuts

Allen pointed out that a delay would allow time for CMS to work with Congress and the clinical laboratory profession to address the flaws and biases in the final rule as currently written. Revisions are needed to protect Medicare beneficiaries’ access to lab testing, avoid severe financial disruption for community-based, physician office, and hospital laboratories, and still help Medicare achieve savings on Part B clinical laboratory spending.

One of the most significant problems with the final rule is that it excludes almost all of the nation’s 5,000 acute care hospital labs from reporting market-based laboratory prices, Allen explained. Also, it has limitations that threaten to exclude complete rate information and accurate data from physician office laboratories (POLs) and community-based laboratories.

This bias is a huge concern for the clinical laboratory industry. “How can CMS conduct a valid study of the market prices that private health insurers pay for lab tests if it excludes thousands of labs from reporting their private payment rates and those labs serve millions of patients every day?” she asked.

“Those hospital labs, community labs, and physician office labs are essential providers of lab testing in rural areas, towns, and smaller cities throughout the United States,” she added. “Private insurers recognize this value. That is why, for decades, private health insurers have paid these labs with test prices that take into consideration higher costs per test, as well as the greater costs these labs have for phlebotomy and specimen transport.

“By requiring only the lab organizations in the United States that have the highest volumes of tests to report their market price data, Medicare officials have introduced a troubling bias into the market price study,” Allen explained. “These larger labs have substantially lower costs per test because of their high volumes and, consequently, health plans pay many of these labs lower prices.”

Financial havoc

The first consequence of the Medicare lab fee schedule cuts comes in the short term. Cuts to Medicare lab test fees—which CMS and the Office of Inspector General estimate will be about $400 million in 2018—will cause financial havoc to two types of medical laboratories. The first type is the small, independent lab companies that have between $2 million and $20 million in revenue. Many of these labs primarily serve nursing homes. Medicare Part B lab tests make up 40% to 80% of their total revenue.

For these labs, 10% cuts to the Medicare prices of the highest-volume, automated lab tests will take them from break-even or a small annual profit to a significant financial loss. In a study, the National Independent Laboratory Association documented that these labs typically operate with net profit margins of 2% to 4%. The decline in Medicare revenue associated with the Part B fee cuts will cause these labs to shut their doors, file for bankruptcy protection, or sell out to a larger lab company.

The second type of lab vulnerable to the Medicare fee schedule cuts is in community and rural hospitals. As with small independent lab companies, these labs usually serve nursing homes and patients in their small towns and rural counties. Medicare Part B lab tests represent a high proportion of the outpatient revenue these labs earn.

Cuts at Rural Hospitals

Reductions in Medicare lab test fees will cause the hospitals operating these labs to slash the number of lab tests they perform in-house, which affect inpatient and outpatient care. More significantly, these hospitals will be forced to stop serving the nursing homes in the small communities and rural areas they serve. The expense of sending phlebotomists and couriers to these facilities cannot be recouped should CMS cut Medicare Part B lab test prices on Jan. 1.

Thus, in the first 36 months from Jan. 1, 2018, the PAMA rule price cuts and subsequent loss of revenue will cause many of the nation’s small community labs to shut down. As this happens, patients, physicians in these cities, towns, and rural areas will lose local access to clinical lab tests. Also affected will be nursing homes, which, because large public lab companies exited the nursing home business in the 1990s, rely entirely on small community labs.

As Jan. 1 approaches, several lab associations and companies are meeting with Congress and officials in the new administration. Their message is simple: CMS’ PAMA market price reporting rule is deeply flawed. Therefore, the smart course of action is to delay implementation of the final rule and the price cuts to allow time for government officials and clinical lab professionals to work together to address these problems.

Have you been working to get Congress to delay the Medicare lab fee schedule cuts? Please share your experiences with us in the comments below.

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