Revisiting the ‘Substantially in Excess Rule’

BY NOW, NEARLY EVERY LAB MANAGER knows that Medicare lab test fee cuts will commence in just 13 months, on Jan. 1, 2018. The federal Centers for Medicare & Medicaid Services estimates that the final rule for PAMA private payer market price reporting will produce cuts of $5.4 billion over 10 years. (See TDRs, November 7 and November 28, 2016.)

Thus, CMS is preparing to implement fee cuts that total more than double the $2.4 billion cost cuts that Congress and the Office of Management and Budget scored at the time that the Protecting Access to Medicare Act was passed in 2014. As reported by THE DARK REPORT and other lab industry news sources, the aggressive fee cuts planned by CMS will cause a substantial number of the nation’s community labs to go out of business. The cuts will also do financial harm to many rural hospitals that depend on the revenue generated by outreach lab tests.

If the clinical laboratory industry wants Congress to derail the PAMA market price reporting program that CMS is implementing, it will need to have an acceptable alternative. The lab industry must show Congress how to achieve the original targeted cost savings by an alternate and credible method. Recently, some lab leaders called our offices to discuss their thoughts about resurrecting the “substantially in excess rule.” They think it might be a viable way for Congress to stop the PAMA market price reporting program and replace it with this rule. They also pointed out that Congress can limit this rule to just the clinical laboratory industry (and not all healthcare providers, as was originally proposed).

In 2003, CMS published a proposed “substantially in excess rule,” then later withdrew that rule. The core concept was that “substantially in excess” would mean an amount that is 20% greater than the provider’s usual charge for a given item or service and this would include negotiated rates that managed care plans pay (capitation excluded).

The lab leaders suggested that crafting a version of the “substantially in excess rule” would give Medicare approximately the same discounted prices that labs offer to managed care plans and would be an equitable way for Congress to realize the cost savings expected from PAMA without putting many of the nation’s community labs at risk of financial failure or bankruptcy. If you have thoughts on this problem, please share them with us!


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