CPI Lab Fee Adjustment Threatened by New Bill

Proposal is to link annual CPI price updates for lab testing with start of competitive bidding

CEO SUMMARY: Once again, the laboratory testing industry has been singled out as a healthcare “whipping boy” by Congressional aides. In working to develop the next federal budget, legislators again propose to deny annual CPI price updates for laboratory tests. This won’t be anything new, since only once in 14 years has Congress funded a lab test CPI price update that was at least equal to the actual CPI rate for that year!

IT’S ANOTHER Congressional sucker-punch for the clinical laboratory industry. The newest budget bill proposal maintains the existing CPI (consumer price index) adjustment freeze, due to expire this year, until competitive bidding for Part B laboratory services is instituted.

Neither option is palatable for the lab industry. In 13 of the 14 past years, the lab industry failed to get an annual CPI price adjustment for laboratory testing that fully matched the actual CPI. As a result of these specific cuts in payments for lab testing services, Medicare now reimburses less money for lab testing than it did in 1992!

Competitive bidding is a concept that CMS (Centers for Medicare and Medicaid) has tried to implement in various healthcare specialties for many years. Providers ardently object to this concept. To date, efforts of providers to stymie this initiative have prevented CMS from launching even a demonstration project of competitive bidding.

Under current law, a five-year CPI freeze for laboratory test prices is set to expire at the end of 2002. 1997 was the last year the lab industry got a CPI price update on Part B laboratory services. Moreover, it was the only year since 1989 that the CPI price update equaled or exceeded the actual CPI rate.

Thus, language in the new draft bill calling for maintaining the freeze on CPI price updates for lab tests until competitive bidding is instituted represents a significant blow to the lab industry. Until now, lab industry lobbyists had been optimistic that funding proposals for the next fiscal year would be favorable to the laboratory industry.

Only Itself To Blame

The clinical laboratory industry has only itself to blame for this situation. Compared to other categories of healthcare providers, lab testing has become a funding orphan every time Congress and CMS sit down to budget funding for Medicare and Medicaid.

The American Association of Clinical Chemistry (AACC) recently published numbers that dramatically illustrate the funding shortfall which the laboratory industry has tolerated. Assume a Medicare reimbursement of $10.00 per laboratory test in 1984. Today, 18 years later, Medicare reimburses that same test for $8.55, almost 15% less in real dollars. The AACC calculates that, if full CPI price updates had been granted each year, Medicare would be paying $16.57 per test in 2002 in real dollars.

However, the AACC example does not factor in the full effect of inflation during the past 18 years. In inflation-adjusted dollars, Medicare’s funding of lab testing services has been cut- back by a factor approaching 50%.

Industry At A Crossroads

THE DARK REPORT believes the laboratory testing industry is now at a crossroads. Survival will be increasingly difficult if this industry cannot reverse the well-established pattern of federal underfunding demonstrated during the past 14 years.

Because Medicare prices and reimbursement guidelines are increasingly used by private payers to establish their own lab testing reimbursement policies, inadequate funding at the Medicare level will drive inadequate funding at the private payer level. This will eventually precipitate a financial crisis within the lab industry, negatively affecting commercial laboratories, hospital laboratories, and pathology groups.

One reason for this current situation is the lack of unity that exists within the clinical laboratory industry. There are too many diverse interests for laboratorians to speak with one concentrated and powerful voice to Congress and CMS. For example, pathologists concentrate on anatomic pathology issues and professional component reimbursement.

In contrast, commercial laboratory companies closely watch Medicare Part B lab test prices and guidelines, but hospital labs, paid under Medicare Part A policies, tend to have less interest in Part B lab test pricing issues.

Professional Associations

Historically, professional associations have reflected their member’s unique interests. Thus, the American Hospital Association (AHA), always a powerful lobbying force, has not devoted significant resources to lobbying for improved funding of Medicare Part B lab test services. Not enough hospital labs operate laboratory testing outreach programs for the AHA to invest time in lobbying for more appropriate funding from Medicare.

Some aspects of this disorganized lobbying situation are changing. In recent years, the Clinical Laboratory Coalition was formed and has steadily attracted more members. It currently represents at least 10 professional associations, all with direct involvement in diagnostics and clinical laboratory testing.

However, across the clinical laboratory industry, there is still lots of apathy by pathologists, laboratory executives and administrators, and lab industry vendors on the importance of more appropriate funding for Medicare Part B lab test services.

This apathy has contributed to one undeniable fact. During the past 14 years, the clinical laboratory industry has an almost unbroken record of Medicare funding failures. This relative decline in revenues realized from Medicare testing during this time period is one factor behind the collapse of the independent clinical laboratory industry.

Thus, it is imperative that individual lab executives and pathologists acknowledge that continued apathy at Medicare budgeting time will eventually lead to a further erosion in the capabilities of America’s clinical laboratories to provide high-quality testing to patients of all socioeconomic levels.

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