CMS Shows Its Hand in New Draft Rules for 2019

CMS proposed continuing to exclude hospital outreach lab prices from PAMA data collection

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CEO SUMMARY: Publication of the draft Medicare Physician Fee Schedule on July 12 brought unwelcome news for the clinical lab industry, at least as it pertains to whether hospital lab outreach data should be included in the PAMA market study that the federal Centers for Medicare and Medicaid Services must conduct. In the draft rule, CMS again asserted that the intent of the PAMA statute does not encompass hospital labs and hospital outreach labs. Labs may now comment on the draft rule.

IN A PROPOSED RULE ISSUED JULY 12, the federal Centers for Medicare and Medicaid Services continued to push an interpretation of the Protecting Access to Medicare Act (PAMA) that will reduce still further what CMS pays for clinical laboratory tests.

In its proposed physician fee schedule for 2019, CMS said that it interprets PAMA in a way that excludes hospital laboratories and hospital outreach labs, both of which make up large and important segments of the clinical laboratory testing market. On the other hand, the rule could expand the number of labs that need to report data under PAMA by adding more independent labs and physicians’ office labs, according to Amanda Murphy, an analyst with William Blair & Company, a financial services company in Chicago.

If approved as is, the proposed rule for the 2019 Physician Fee Schedule (PFS) would also cut what CMS pays for flow cytometry tests and would make some modest cuts in what it pays for some FISH tests and those cuts will be phased in over four years, Blair reported.

In a note to investors, Murphy further reported that CMS will pay more for some immunohistochemistry tests. The PFS affects tests Medicare covers when a physician is involved in the test.

The proposed rule also could change the definition of which clinical laboratories would be required to report data under PAMA. These labs are defined as “applicable labs” for data-reporting purposes. CMS seeks comments on a proposal to change the payment level used for labs that must report under the “Majority of Medicare revenues threshold” provision in PAMA.

The current level is $12,500 and CMS wants comments on the effect of lowering the threshold to $6,500 and raising it to $18,750. This would mostly affect physicians’ office labs and independent labs.

In addition, CMS seeks comments from clinical laboratories and pathologists about how it could improve the data-collection processes it uses when setting clinical laboratory payment rates under PAMA. All comments are due to CMS by Sept. 10.

The most significant changes in the PFS could come under the revisions CMS is considering in the way labs must report data to CMS under PAMA. Since Jan. 1, when CMS began paying laboratories under PAMA, it reduced what it paid clinical labs for tests by an estimated 10%. Those rates were set under rules established under PAMA that are the subject of litigation in the U.S. District Court for the District of Columbia.

CMS Sued by ACLA

In December, the American Clinical Laboratory Association (ACLA) sued the federal Department of Health and Human Services (HHS), saying that the agency disregarded the requirement in PAMA that all applicable laboratories report relevant market-rate data about what private health insurers paid to clinical laboratories when it set the 2018 Clinical Laboratory Fee Schedule (CLFS). That lawsuit is pending. (See TDRs, Jan. 2 and Mar. 5, 2018.)

In an interview with THE DARK REPORT, Erin Will Morton, Senior Vice President of CRD Associates, a government relations firm in Washington, D.C., that represents the National Independent Laboratory Association, explained that the proposed PFS does not adequately address the problems with CMS’ implementation of PAMA and continues to be flawed because it excludes the hospital lab market. CMS’ interpretation of PAMA excludes hospital labs and hospital outreach labs from the data-collection processes, she said.

“CMS claims in the proposed 2019 Physician Fee Schedule rule that hospital labs and hospital outreach labs are not intended to be included in the PAMA statute,” she said. “They are digging in by reiterating their own interpretation in the proposed PFS rule.”

“In the proposed PFS rule, CMS seeks comments on possible changes to improve the data collection process,” she added. “But, while, CMS says it is interested in hearing comments from stakeholders on ways to increase the volume of data it uses to establish the new rates, the agency also claims that the statute— meaning PAMA itself—excludes hospital labs and hospital outreach labs.”

CMS makes this claim in the PFS when it states, “We believe Congressional intent [in PAMA] was to effectively exclude hospital laboratories as applicable laboratories, which was apparent from the statutory language, in particular, the majority of Medicare revenues threshold criterion in section 1834A(a)(2) of the [PAMA] Act.

“CMS goes further in the proposed PFS, stating that if the CMS-1450 14x bill is used to define applicable laboratories, then all hospital outreach laboratories will meet the majority of Medicare revenues threshold,” she adds. “And then CMS states, ‘At this time, we believe that this approach would be inconsistent with the [PAMA] statute.’”

Inconsistencies Cited

The issue of inconsistency raises the question of whether the PAMA statute itself is clear. “Indeed, the statute is clear in its definition of an applicable lab,” Morton said. The statute requires that 50% or more of a lab’s revenue must come from the physician fee schedule (PFS) or from the Clinical Laboratory Fee Schedule (CLFS) if a lab is to be considered an applicable lab.

“The statute does not exclude hospital labs.” Morton said. “The problem comes from CMS’ interpretation of the statute to define an applicable laboratory by its National Provider Identifier (NPI) number under Medicare Part B, and its exclusion of hospital labs as part of this interpretation.”

Some members of congress were clear that the intent of PAMA was to collect data from all sectors of the laboratory business, Morton recalled. To support this claim, she quoted a statement from theCongressional Record by U.S. Senator Richard Burr (R-North Carolina) who, on May 8, 2014, said this about PAMA:

‘It is my understanding that the intent of this provision is to ensure that Medicare rates reflect true market rates for laboratory services, and as such, that all sectors of the laboratory market should be represented in the reporting system, including independent laboratories and hospital outreach laboratories that receive payment on a fee-for-service basis under the fee schedule.’”

Morton also added a quote from Senator Orrin Hatch (R-Utah) on the same day. Hatch said the following about the intent of PAMA: ‘The Senator [Burr] is correct…[T]he intent is to ensure that Medicare rates reflect true market rates, and that commercial payment rates to all sectors of the lab market should be represented, including independent laboratories and hospital outreach laboratories.”

After citing these quotes, Morton said, “The senators’ comments make clear that, at the least, hospital outreach labs should be included in the data collection. But that’s not what CMS says in the proposed Physician Fee Schedule for 2019.”

ACLA Lawsuit Says CMS Lab Data Collection Was Flawed From Start, Did Not Follow Law

BASED ON ITS CALCULATIONS before the 2018 CLFS went into effect, the federal Centers for Medicare and Medicaid Services predicted that its payments to laboratories would decrease by $390 million during 2018. But because the methods CMS used to collect the market-rate data under the Patients Access to Medicare Act of 2014 (PAMA) were so flawed, reimbursement decreased by $670 million this year, according to documents filed in a lawsuit the American Clinical Laboratory Association (ACLA) brought against Health and Human Services Secretary Alex M. Azar. This amount is about 10% of the $6.8 billion that CMS paid under Medicare Part B for lab tests in 2016.

In its lawsuit, ACLA and other associations that represent labs and support the ACLA’s lawsuit, outlined several ways the PAMA data-collection methods were flawed. The Advanced Medical Technology Association (AdvaMed) said, for example, that the way CMS implemented PAMA, it excluded hospital outreach laboratories and physician office laboratories (POLs) because hospital outreach labs generally do not have a separate National Provider Identification (NPI) number and because most POLs do not get at least $12,500 of their Medicare revenue from the CLFS, the brief said.

The ACLA also was critical of the way CMS collected lab test payment data under PAMA. It said in a news release earlier this month that it would urge CMS and Congress to address problems in the way CMS collects payment so that care for the nation’s most vulnerable seniors is not jeopardized.

The data-collection methods were flawed because CMS collected data from less than 1% of laboratories nationwide, ACLA said. “By excluding more than 99% of the nation’s laboratories, CMS violated the statute and undermined Congress’s goal of protecting beneficiaries and supporting value-based care delivery,” the association added.

Contact Erin Morton at 202-484-1100 X158 or


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