In Medicare Bull’s Eye: Lab Test Reimbursement

YOU CAN CONSIDER THIS ISSUE OF THE DARK REPORT TO BE an early warning of the escalating effort by public and private payers to rein in the “soaring cost” of clinical laboratory testing and anatomic pathology services.

The intelligence briefings you will read on the following pages address important topics, specifically: 1) a new Medicare policy on how prostate biopsies will be reimbursed; 2) the lab industry’s first coverage of a Medicare study that looks at the feasibility of national competitive bidding for Part B clinical laboratory tests; and, 3) the interest of the Senate Finance Committee in having providers share stories of times when RAC (recovery audit contractor) audits went badly, due to auditor overreach, improperly-trained auditors, and similar reasons.

I put the “soaring cost” of laboratory testing in quotes for a reason. Both private and government payers complain about the year-over-year increase in the cost of clinical laboratory testing. They are quick to attribute it to how laboratories may be encouraging inappropriate utilization by physicians. But they are equally slow to acknowledge that expanded use of evidence-based medicine (EBM) guidelines by physicians is a major reason why there are regular increases in the number of lab tests (and associated costs) ordered each year.

As you read the intelligence briefings in this issue of THE DARK REPORT, I recommend that you consider how each story is interrelated. Medicare offi- cials are clamping down on what we can assume they deem to be excessive utilization of prostate biopsies—in particular, those prostate biopsies that generate 12 tissue cores for analysis. National competitive bidding for Medicare Part B has similar elements, in that lower reimbursement per test would be a disincentive for laboratory providers to encourage physicians to order more lab tests if those tests come with a fee-for-service reimbursement that is less than a lab’s fully-loaded cost to perform those tests.

As to RAC audits, in many ways, the design and implementation of this program is odious to honest providers. Among other things, it creates economic incentives for private contractors—armed with the power of federal law—to gin up findings that would result in revenue to their pockets, even if the auditors themselves knew their audit findings were based on a faulty reading of Medicare policies. Simply said, these three distinct efforts to control laboratory testing costs point to a tougher financial environment for clinical labs and pathology groups.


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