Could Community Labs Become Extinct after PAMA?

Could Community Labs Become Extinct after PAMA?

IN THE PURSUIT OF IMMEDIATE COST SAVINGS, our federal government may be about to tinker with an essential clinical service in ways that will severely harm patients in rural areas and small towns throughout the United States.

Specifically, will the final rule to implement PAMA lab test market price reporting turn out to be a financial death blow to a sizeable number of community labs, rural hospitals, and community hospitals (who depend on outpatient and outreach lab test revenues for financial stability)?

Our editor makes that argument in this DARK REPORT, which is our second special issue devoted to helping lab executives understand why implementation of the PAMA market price reporting rule has the potential to be the single most financially-disruptive event to the clinical lab industry in three decades.

Why are community labs, along with rural and community hospitals, at financial risk because of PAMA? As our editor explains, these labs are typically paid higher prices by private payers for three reasons (reasons that are not addressed by CMS in its final rule for PAMA). First, in many towns and regions, health insurers need access to lab testing that these labs provide. So payers keep those labs in network to provide that access.

Second, because these labs have smaller specimen volumes, they also have a higher average cost per test. Payers recognize this fact and thus agree to prices that are higher than Medicare Part B prices so that these labs have adequate revenue to stay in business.

Third, private payers know that the nation’s largest public labs won’t provide comparable access and lab testing services to these rural areas and towns that community labs, rural hospitals, and community hospitals serve. This factor is another reason private payers continue to pay higher-than-Medicare prices and keep these labs in their networks.

Given that these small labs and hospitals operate on razor-thin margins, deep cuts in Medicare Part B lab test fees—as Medicare officials have predicted are coming—cause the owners of these organizations to understand that their ability to stay in business will be compromised, putting their labs at high risk of financial collapse. Several lab groups and experts have predicted this scenario, saying they fear that coming cuts in Medicare lab prices could trigger the extinction of labs that provide essential access to rural communities and small towns.

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