CEO SUMMARY: Congressional cost-cutters are putting the 20% patient co-pay/coinsurance requirement for lab testing back on the table. The added complication this year is that the new Joint Select Committee on Deficit Reduction is mandated to produce its own list of cuts to the Medicare program. This is in addition to the normal budget cycle that occurs each year in the House and Senate. One estimate is that reinstituting coinsurance for lab tests could produce savings of $8.5 billion to $16 billion over 10 years.
BY NOW, MOST PATHOLOGISTS AND LAB ADMINISTRATORS know about the legislation that raised the federal debt ceiling. But few in the lab industry realize that one component of this new law has the potential to significantly reduce Medicare reimbursement for lab testing services.
That component is the possibility that the 12-member congressional Joint Select Committee on Deficit Reduction could implement cost sharing for laboratory services in Medicare. This cost sharing would probably come in the form of requiring laboratories to collect a 20% patient co-pay or coinsurance for Medicare Part B laboratory tests.
This is major bad news for the laboratory testing industry. Moreover, the possibility of implementing cost sharing for lab services in the Medicare program is actually being discussed in two separate sets of budget negotiation talks.
First is the Joint Select Committee. The Budget Control Act of 2011 mandates that this committee identify $1.5 trillion in spending cuts for the years 2012 through 2021. Second is the normal budget process now unfolding in both houses of Congress.
It is expected that the Joint Select Committee will work from a list of 27 specific sources of spending cuts from the Medicare program that was prepared during negotiations conducted prior to passage of the federal debt ceiling bill. It was back on July 15 when DarkDaily.com was the first lab industry news source to publish the contents of these leaked briefing papers.
In these leaked documents, restoration of the Medicare patient co-pay for clinical laboratory tests was identified as generating between $8.5 billion to $16 billion in savings over 10 years. That put the lab test co-pay as the sixth largest source of cost savings among the 27 specific ideas on the list. Those top six items represented $283 billion in potential savings. By contrast, all 27 items totaled between $334 billion to $353 billion in Medicare savings over 10 years.
Large Spending Cuts Sought
The point here is that, should members of the Joint Select Committee (known as the Super Committee) decide to include substantial cuts to Medicare in whatever final package of budget cuts and new taxes it recommends to Congress, there is a high probability that the 20% patient co-pay or some form of cost sharing will be included. At $8.5 billion to $16 billion, the 20% lab test co-pay represents too much in cost savings for the negotiators to ignore.
The second set of discussions involving the lab test co-pay is taking place within Congress as part of the regular yearly budget process. The American Clinical Laboratory Association (ACLA) is concerned about an option raised by the Congressional Budget Office (CBO) and the National Commission on Fiscal Responsibility and Reform to change cost-sharing structures for Medicare beneficiaries. This includes the addition of a new 20% coinsurance requirement for laboratory services.
In response to these legislative proposals, ACLA, the American Association of Bioanalysts (AAB), the National Indepen- dent Laboratory Association (NILA), and members of the Clinical Laboratory Coalition are educating lawmakers about the problems associated with imposing a coinsurance requirement on Medicare Part B laboratory testing services.
Further, it is important for laboratory administrators and pathologists to recognize that this year’s budget battles in Congress are extraordinarily different than those of recent years. Currently, the federal government borrows 40¢ of every dollar it spends.
That single fact has energized politics in Washington, DC, this year with an intensity that exceeds even the debate over passage of the Accountable Care Act (ACA) in 2010. It is also a reason why both the Democrats and Republicans may be motivated to have Medicare patients pay some form of coinsurance for laboratory testing and use those cost savings to spend money for other purposes.
“We have been on the Hill and talked with officials at the White House,” stated ACLA President Alan Mertz. “In addition to holding dozens of meetings on the Hill with members of Congress, the heads of the lab companies have been meeting members of Congress as well.
“Contact with members of Congress over this issue has been more intense in a short period of time than we have had over any issue in eight years,” noted Mertz. “ACLA members have sent more than 10,000 letters to members of Congress about this issue.”
In a briefing paper it sent to its members earlier this month, ACLA said that this coinsurance option would cut Medicare reimbursement for clinical laboratory services by 20%. It would also require laboratories to attempt to collect the coinsurance from beneficiaries. ACLA said that, in connection with the debt ceiling extension negotiations, a variation of this option surfaced. This proposal would impose a flat copayment of $1 to $2 per laboratory test.
“Both of these options would have the same negative consequences for patients and the providers that perform their laboratory testing, and represent a virtually unworkable policy for laboratory services,” said ACLA. “Over the past nearly three decades, coinsurance or co-pays on laboratory services have been considered and rejected numerous times by independent outside organizations, government agencies, and Congress.
The proposals have been rejected for essentially the same reasons each time: laboratories are unique among all providers in several very important respects.”
Five Reasons Cited
The ACLA cited five specific reasons that co-pays or coinsurance for Medicare Part B laboratory tests are unworkable, as follows:
- First, the amount of the coinsurance or co-pay is so small in comparison to the cost of collection that the average coinsurance billed would be only $6.20, and the average co-pay billed would be $3 to $6, depending on whether negotiators add $1 or $2 co-pay per test. Yet, the collection costs are estimated to be at least $3.50 per bill, and could be higher if repeated col- lection attempts were needed.
- Second, most laboratories do not have face-to-face, personal relationships with beneficiaries, as do all other providers who bill patients. “This lack of a face-to-face relationship or billing relationship will make collection extremely expensive, difficult, and, in many cases, impossible,” said ACLA.
- Third, many small labs tend to be the sole providers of lab services to Medicare’s most vulnerable beneficiaries in nursing homes and other such settings. For these labs, the coinsurance or co-pay proposals could be economically devastating.
- Fourth, any cost sharing requirements for laboratory services do not save the healthcare system money because they shift billions in costs from the government to the nation’s most vulnerable seniors without affecting utilization. Cost sharing would thus dramatically increase seniors’ out-of-pocket healthcare costs and administrative costs for providers. According to the Institute of Medicine (IOM), this would hit the sickest and poorest seniors the hardest.
- Fifth, and perhaps most important, imposing coinsurance on seniors for laboratory services conflicts with congressional intent to encourage more prevention and early detection of chronic diseases such as diabetes, heart disease, kidney disease, and cancer. Lab tests help physicians detect these conditions early and prescribe preventive care.
THE DARK REPORT observes that the Super Committee must issue its recommendations by November 23. It should be expected that cuts to Medicare providers, including laboratories, will be included in the committee’s proposals.
Budget Cuts Hit Labs Hardest, ACLA Says
IN A BRIEFING PAPER ABOUT PROPOSALS TO REINSTATE COINSURANCE, the American Clinical Laboratory Association (ACLA) pointed out that such a step would financially undermine the ability of many laboratories to continue serving Medicare’s vulnerable patients.
Independent clinical laboratories that serve rural communities or nursing homes often have 80% or more of their patients on Medicare. The effective reduction in Medicare reimbursement from reinstating coinsurance would threaten their viability.
Also, over the past 20 years, Medicare payments for clinical laboratory services have been reduced by 40% in real (inflation-adjusted) terms, ACLA said. This finan- cial erosion is compounded by the Affordable Care Act (ACA), which mandated an annual cut of 1.75% to the Medicare Clinical Laboratory Fee Schedule for five years. ACLA noted that this cumulative 9% cut is the largest cut among all Medicare Part B providers.
Another provision of the ACA legislation specifies that clinical laboratories take a permanent cut through the productivity adjustment. For labs, this adjustment took effect this year and will result in an additional 11% cut in Medicare reimbursement over the next 10 years.