Did Some Lab Execs ‘Get What They Wished For?’

BY NOW, MOST OF YOU HAVE LEARNED  that, just 12 days ago, CMS issued the proposed rule that details how it will handle the private market price reporting mandate of the Protecting Access to Medicare Act of 2014 (PAMA). Almost immediately, critics spoke out about the obvious inequities that will result from implementing the proposed rule.

Let me call your attention to what I think is one huge problem with this proposed rule that will be corrosive to the entire lab industry over the long term, and that includes the two billion-dollar national lab companies.

It is the plan to collect and use private market price data to establish Medicare Part B clinical laboratory test fees beginning in 2017. Set aside, for the moment, that there are so many problems with the language detailing the private market- ing reporting requirements to which labs must comply that I don’t know if any single news source can describe them all. What I want to drill down on is that CMS itself estimates that the proposed rule will produce $5 billion in savings over 10 years. (See related stories here and here.)

Those of you with good memories will recall that, when PAMA was enacted in April 2014, the bill’s authors tallied estimated savings of $2.5 billion over 10 years from reduced Part B CLFS fees. Thus, CMS is doubling the amount of CLFS fee cuts that Congress was mandating. Further, you should know that, at an average of $500 million per year for 10 years, Laboratory Corporation of America and Quest Diagnostics Incorporated together will be absorbing just $90 million of fee cuts per year. (Together, those labs are paid about 18% of all Medicare Part B fees.)

That leaves the remainder of the lab industry to split $420 million per year in fee cuts. Worse yet, based on a 2013 report by the Office of the Inspector General, only 20 high-volume lab tests represent 56% of all lab test fees paid by Medicare Part B during 2010. Thus, because of this fact, the smallest labs will absorb a dis- proportionate share of those price cuts.

At the time when PAMA was enacted last year, some lab associations and lab executives praised the legislation and were quick to point out that PAMA would forestall even deeper price cuts planned by CMS, which had announced that it was ready to reform the CLFS and reset prices based on technological advances and similar factors. Given this new proposed rule-which includes bad news for labs offering advanced diagnostic lab tests-might it be said that these same lab executives will now get exactly “what they wished for”?


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