CMS Ready To Hack Away at Cost of Lab Testing

If proposed rules take effect on January 1, clinical labs and pathologists will see prices fall

CEO SUMMARY: In July, the federal Centers for Medicare & Medicaid Services (CMS) published three proposed rules which would allow it to act independently of Congress to set prices for clinical laboratory testing and pathology services. Analyses of these proposed rules indicate that they would substantially reduce reimbursement paid to labs and pathologists under existing arrangements. Some industry attorneys point out that these rules are likely to go beyond the agency’s existing legal authority.

THERE IS AN INTERESTING TUG-OF-WAR unfolding between Congress and Medicare officials over who should have the authority to set prices for clinical laboratory testing.

This tug-of-war is a high-stakes contest for the clinical laboratory industry. Since the launch of the Medicare program in 1966, Congress has reserved for itself the power to establish funding levels for Part B Clinical Laboratory Testing.

Now, however, officials at the federal Centers for Medicare & Medicaid Services (CMS) appear ready to challenge that authority. In July, CMS published three proposed rules as part of the 2014 updates to the different Medicare fee schedules. CMS would claim additional power to determine coverage guidelines and prices for clinical lab tests and pathology services.

Implementation of these proposed new rules would be a significant change with deep ramifications for the clinical laboratory industry. If the primary power to set Part B lab test prices and funding shifts from Congress to CMS, it would dramatically change the interaction clinical lab professionals have with the federal government.

In particular, it would take lab test funding decisions out of the political arena and put them into the hands of regulators. That would upend a 47-year old process.

Two questions are being widely asked. First, why are CMS officials proposing these rules that would give them more authority to change the reimbursement for lab and pathology testing services? Second, why are they doing this now— and not earlier or later?

Two recent events within CMS provide solid clues into how the agency is thinking about the cost of clinical laboratory testing. In May 2012, a study favorable to national competitive bidding for Part B clinical laboratory testing was published in the Medicare & Medicaid Research Review (MMRR, 2012: Volume 2, Number 2). The study was titled “The National Market for Medicare Clinical Laboratory Testing: Implications for Payment Reform.” 

How To Save $910 Million

Early this year, on June 11, the Office of the Inspector General (OIG) issued a report titled “Comparing Lab Test Payment Rates: Medicare Could Achieve Substantial Savings.” It stated that the Medicare program could save $910 million per year on Part B clinical lab testing.

Essentially, the OIG concluded that, if the Medicare program would set its price for each lab test at the lowest price paid somewhere in the United States by a state Medicaid program, it would pay $910 million per year less than it currently pays for these lab tests.

More has happened since these two federal studies dealing with how to save money on Part B clinical lab tests were made public. The deep cut to CPT code 88305-TC was enacted. And the entire lab industry is still dealing with the botched implementation of the 114 new molecular CPT codes that became effective on January 1, 2013.

All of these developments fit a pattern. Officials at CMS seem to have decided that there is a problem with the existing Medicare Part B Clinical Laboratory Test Fee Schedule and they intend to fix it, now!

If one assumes that this conclusion is true, then clear battle lines will soon emerge. For one, the anatomic pathology profession and the clinical laboratory industry will each oppose CMS actions they deem to be outside the law.

They may have a good legal basis to support their opposition. As you will read in this issue of THE DARK REPORT, a number of lab industry attorneys and associations believe that CMS does not have the basis in existing laws and regulations to assert the authority to allow it to change the prices for lab testing as described in the three proposed rules.

Next, Congress itself may weigh in on this issue. You will read in this article how events are unfolding in Washington, D.C., along with observations about why Congress would want to be in control of Medicare lab test budgets so it can use any cost cuts as offsets to support other budget priorities.

Simply said, CMS has set a new game in motion when it proposed the three new rules in July that it wants to use to establish different prices for lab and pathology testing services. There will be members of Congress fighting CMS over aspects of these new rules.

At the same time, it can be expected that the different lab and pathology associations, societies, and organizations will step forward with their opposition to implementing these proposed rules as currently written. Early analysis of the impact of these new rules shows that they can be financially devastating to all lab organizations, whether large or small.

CMS Has the Next Move

Now that CMS has closed the comment period as of last Friday, the next move is up to the agency. It must respond to the comments and publicly release its final rules. This typically happens early in November.

With fee cuts of 4% to 80% estimated to result from implementation of the proposed new rules as currently written, it is reasonable to expect tough opposition from the laboratory medicine profession. One thing will be clear to any lab executive who studies these proposals: deep reimbursement cuts lie ahead if these rules are implemented as written.

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