Beware Ides of March! Lawmakers Are in Session

Congress must address physician pay cuts and seek offsets that don’t threaten clinical labs

CEO SUMMARY: Few pathologists and lab administrators know that, when the Protecting Access to Medicare Act of 2014 (PAMA) became law last April 1, language in the bill was scored to reduce Part B clinical laboratory test fees by $2.5 billion over 10 years. Congress used those lab fee cuts to patch the Sustainable Growth Rate (SGR) temporarily. The one-year patch expires on March 31, 2015. Now federal lawmakers must again address the SGR problem with some type of fix, including more spending offsets.

IN SHAKESPEARE’S PLAY, Julius Caesar, the new emperor is warned to “Beware the Ides of March.” Indeed, when it comes to Congress, that may be good advice for the clinical laboratory industry.

In recent years, federal legislators have scurried in February and March to address the problem of crafting another one-year fix to the Sustainable Growth Rate (SGR) formula. Over the years, that fix has frequently resulted in significant threats or painful cuts to the Clinical Laboratory Fee Schedule. In 2012, CLFS took a 2% cut, paying for a substantial portion of the SGR one-year patch.

This cut happened because, to pay for extending the SGR for any amount of time, Congress must find budget offsets from other areas of healthcare spending. Every area of healthcare has been expected to support the offset, but after most areas of healthcare received significant cuts to pay for the Affordable Care Act in 2010, the tolerance for additional cuts to fix the SGR does not exist.

Last year, Congress took a somewhat different tact. Rather than simply pull from a list of offsets as they had in the past, congressional committees with jurisdiction over SGR sought to put together a policy bill that reformed payment systems. This included changing the way clinical laboratories are paid under Medicare.

The Protecting Access to Medicare Act (PAMA) emerged from that process. It included a section that, starting in 2016, requires certain labs to report to CMS private market prices by test code and payer, and their associated volumes. CMS will then use that market data to set prices for the Part B CLFS beginning in 2017. (See TDR, April 7, 2014.)

THE DARK REPORT has learned that the fee cuts specified in PAMA were scored by Congress to reduce spending on Medicare Part B lab tests by $2.5 billion over 10 years. This may be the first time that this number has been disclosed to the public, outside of possible communications by certain lab associations to their members.

Since the March 31, 2015, deadline for addressing the SGR cut to physicians is approaching, clinical laboratory associations, lab directors, and pathologists are meeting with federal lawmakers to ensure that additional cuts to lab fees are not imposed while PAMA is being implemented. They also want to address PAMA concerns and to identify other adjustments that can offset additional spending required to fund another temporary or permanent fix to the SGR formula.

Medicare Budget Cuts

This pattern for lawmaking and Medicare budget cuts has created a new problem for the profession of laboratory medicine. The House and Senate often work at a frenetic pace to craft the bill that addresses SGR.

Congress also wants to develop palatable legislation that would permanently address the SGR. However, that has a hefty price tag, currently estimated by the Congressional Budget Office at $119 billion. The major hold-back toward passage has been Congress’ inability to identify enough offsets through provider cuts to pay for the legislation.

Whether it is a short-term patch or a permanent fix, Congress aims to minimize political opposition. It wants to write a bill that can receive the least amount of policial pressure, leaving opponents with little ability to fight individual provisions.

Last year, as Congress rushed to pull together an SGR bill, differences in the professional and economic goals of varying sectors of the lab testing industry surfaced. In deciding to focus on labs as part of last year’s legislation, lawmakers were influenced by several studies authorized by the U.S. Department of Health and Human Services that mainly looked for ways for Medicare to save money on what it pays for clinical laboratory testing.

Report: Savings are possible

In one such report released in 2013, Comparing Lab Test Payment Rates: Medicare Could Achieve Substantial Savings, the federal Office of Inspector General wrote that Medicare paid 18% to 30% more than other insurers paid for 20 high-volume or high-expenditure lab tests.

If Medicare had paid labs at the lowest established rates in each geographic area, the report’s authors argued, it could have saved $910 million, or 38%, on these lab tests, OIG said. (See TDR, June 17, 2013.)

“All of these factors were in place when Congress began considering SGR offsets in late 2013 and early 2014,” explained Julie Scott Allen, a Government Relations Director for Drinker Biddle & Reath and Senior Vice President for the firm’s District Policy Group. She represents the National Independent Laboratory Association (NILA) and American Association of Bioanalysts (AAB).

“All signs directed at Congress convinced a few key congressional committee offices that there needed to be changes in how CMS paid for lab testing under Medicare,” observed Allen. “A handful of congressional staffers dug in on the idea that they could get revenues from the traditional CLFS and simultaneously address coverage and payment concerns for newer laboratory tests that faced scrutiny and no coverage decisions by the Medicare Administrative Contractors (MACs).

“During this time last year, associations representing laboratories, including NILA, initially agreed that the lab community needed to push back against additional cuts,” noted Allen. “Following years of negative adjustments to the CLFS that resulted from the ACA and SGR offset reductions, and in the face of a CMS effort to deliberately cut lab test payments based on undefined ‘technological changes,’ lab groups argued the additional cuts were unwarranted.”

The Senate Finance Committee asked laboratory associations to prepare other proposals that could improve how Medicare paid for laboratory tests and that would address concerns of the committee and CMS.

“NILA deliberated on this issue, acknowledging that there were two key ways to address Medicare lab costs: Either adjust reimbursement, or affect volume in a smarter way,” she said. “NILA issued a proposal to set forward something similar to ‘appropriate use criteria’ by instituting a process to ensure Medicare was paying for the right test at the right time.

Improving Test Utilization

“NILA’s suggestion was that physicians could be guided more effectively on which tests to order for certain patients and when,” she stated. “This would address the ongoing pattern of over-ordering or ordering lab tests that are not needed.”

Under NILA’s proposal, labs would not tell doctors what to order, but rather a system would be set up within the government to establish algorithms that could support physician understanding on which test to order at what intervals and in which chronological order to get to a diagnosis.

“NILA members often receive questions from physicians asking for expertise about which tests they should order,” she stated. “NILA believes that instituting a process that could enhance the quality of the ordering process would help doctors improve their diagnostic accuracy and control Medicare costs too.

“This approach seemed to address everything that concerned members of Congress and CMS: higher quality, better patient care, and improved processes to boost efficiency and save costs,” she explained. “NILA worked with members of the Senate Finance Committee to support having the proposal added to legislation that addressed the SGR.

Alternative Market Approach

“Ultimately, however, the American Clinical Laboratory Association (ACLA) and the large national laboratories opposed this approach and offered an alternative market approach with proposed funding attached,” Allen said.

“When anyone offers a direct ‘pay-for’ to fund an SGR legislative proposal intended to seek pay-fors only, Congress gladly accepts,” explained Allen. “Con – versely, NILA’s proposal could promise only savings over time, not a guaranteed hard number upfront.

“At this point, NILA, ACLA and a few other organizations were forced to sit as one group to engage congressional offices on how they could fairly assess the market to determine adjustments to Medicare laboratory payments,” she said. “We all agreed that some limit needed to be imposed on how far cuts to the CLFS could go in any given year, and any assessment of the lab community needed to encompass the entire lab market, including hospitals and hospital labs,” she noted.

Better Care, Lower Costs

“NILA argued that special consideration and financial adjustments needed to be given to certain laboratories serving niche markets within Medicare where cuts could affect patient’s access to services,” said Allen. “This is similar to what Congress has done for other healthcare services, including ambulance providers. “The problem was that this legislation— and the policies being crafted within it—faced a looming SGR deadline,” she added. “There was no time and little interest to develop such a proposal and run the numbers.

“A handful of congressional offices decided they would eliminate the current fee schedule for labs and replace it with a new, untested system in the absence of any congressional hearings, reviews by the Medicare Pay ment Advisory Commission, or evaluations on its feasibility,” she stated. “This would allow them to say that they reformed lab payments and also met a pay-for obligation.

“The mission of the few congressional offices leading this charge was supported by ACLA and diagnostic equipment manufacturers,” continued Allen. “Within a few days before the bill moved in the house, ACLA expressed support for the mandatory reporting of private lab payment rates by test volume, something NILA vehemently opposed.

“NILA not only feared the cost and administrative burden of mandatory reporting on small and mid-sized laboratories,” observed Allen, “but it also opposed any system that would seek to collect and recalculate payment rates based on the very rates used to undercut the laboratory market for years because the largest labs in the market sought sole-source contracts with large commercial payers.”

Adjustment to Part B CLFS

PAMA requires CMS to adjust the Part B clinical laboratory fee schedule beginning in January 2017, based on its evaluation of market rates reported by labs during 2016. Cuts to any of the codes on the fee schedule as a result of the evaluation are phased in at 10% for each of the first three years beginning in 2017 and then at 15% in each of the next three years. Follow ing the first six years, there are no limits on how far CMS can make adjustments.

“NILA never supported such a drastic schedule for adjustments to the CLFS,” noted Allen. “When the committee discussed phasing-in the adjustments, NILA and others in the lab community said that if such a process were undertaken, Congress needed to cap how much CMS could make in adjustments in any given year.

“For example, not permitting CMS to cut the CLFs in aggregate by more than 2% when making adjustments to codes based on a market evaluation would have given small independent labs some protection against CMS taking an ax to the fee schedule in any of the years after this process begins,” she said.

Was It a Victory for Labs?

“Following enactment of this new law, some lab organizations explained the price cuts in PAMA as a victory for clinical labs because the cuts did not begin until 2017; the new law took CMS’s technological adjustment effort off the table; and the lab community did not receive a direct cut to address the 2014 SGR patch,” Allen said. “Some people have said labs got a deal that was better than what CMS was planning” she added. “I don’t see it that way.

Cuts in the magnitude of 75% to any given lab test are significant to NILA’s labs. Also, there are no promises in politics. Already, we are hearing that Congress could consider adjustments to labs on top of these cuts.

“If Congress permanently repeals the SGR later this year and needs $113 billion or more to pay for that fix, copayments for lab services or 20% coinsurance likely will be on the table,” warned Allen.

“Additional drastic and devastating cuts to labs come in many different forms. “Such potential sources of cuts include imposing copayments, coinsurance, and other Medicare payment reforms that could happen in addition to the ‘marketbased’ pricing requirements,” concluded Allen. “Such actions would threaten the financial health of community laboratories and reduce access of Medicare patients to laboratory testing services in their localities.”

Contact the National Independent Laboratory Association at 314-241-1445.

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