CLINICAL LABORATORIES THROUGHOUT THE UNITED STATES ARE BRACING for what Medicare officials say will be fee cuts of $400 million in 2018 alone, followed by additional cuts that will total $5.4 billion over 10 years.
Of great concern to community laboratories, small and rural hospitals, and physician office laboratories is that the federal Centers for Medicare and Medicaid will make the deepest fee cuts next year in what it pays for the 25 highest-volume lab tests. Such cuts would be significant because they would mean that the nation’s smaller labs—those in towns and rural areas that the nation’s large public labs do not serve—will experience Medicare payment cuts at a greater proportion than will the larger lab companies.
Take, for example, a community laboratory generating $5 million in annual lab test revenue, mostly from nursing homes. Assume that 60% of that revenue comes from Medicare payments and that fees for the top 25 lab tests on the Medicare fee schedule are cut next year by the maximum 10% allowed under the Protecting Access to Medicare Act. A reasonable guess is that this lab would report a decline in Medicare payments of $300,000 or more. It is well-known that these labs operate with net profit margins of 3% to 5%, and even that estimate is generous.
Thus, by the end of 2018, this community lab company would move from a net profit of $150,000 (at 3%) or $250,000 (at 5%) to a loss of $50,000 to $150,000. Then add in the additional cuts Medicare officials will make to the Part B clinical lab test fees in 2019, and these community labs could face financial doom.
Some lawmakers in Washington, D.C., appear to be getting this message. Last month, DARK REPORT Editor Robert Michel accompanied independent lab owners on visits to the offices of their representatives and senators. There, they learned that some elected officials understand the problems lab owners face under the PAMA private payer market price reporting rule.
The message of the lab owners was simple and clear: “This rule needs to be delayed so that it can be fixed.” Could it be that the 60-day extension of the data reporting deadline that Medicare officials announced last week is evidence that members of Congress have CMS’ attention on this issue?