CEO SUMMARY: All signs point to a potentially dismal financial outcome for the clinical lab testing industry as Congress tries to trim spending by $1.2 trillion over the next 10 years. At least three proposals to significantly cut lab test reimbursement are in active debate by federal lawmakers. One proposal calls for reinstituting the Medicare patient 20% lab test co-pay. Other credible proposals would reduce lab testing fees by between $11 billion and $20 billion over 10 years.
MOVING INTO 2012, the clinical lab industry faces unprecedented funding cutbacks as Congress wrestles with intractable budget problems.
The news is bad. At least three different proposals to impose significant reductions in reimbursement for clinical lab testing are in play in Congress. It is also possible that other unknown ideas to further control spending on laboratory tests are being evaluated.
Although the Clinical Laboratory Coalition and a number of lab industry leaders are aware of these important developments, most lab administrators and pathologists do not know the full range of threats to lab test reimbursement. Nor do many in the profession realize how deeply these proposals would slash existing levels of reimbursement.
“Every clinical laboratory and pathology group has reason to be concerned about what is unfolding in Washington this year,” stated Alan Mertz, President of the American Clinical Laboratory Association (ACLA). “There are more threats to the financial stability of lab testing from more directions than has ever been seen in the past.”
Each of the three biggest proposals to cut lab test funding now under consideration will dwarf the ongoing Medicare Part B fee reductions that were mandated by the Patient Protection and Accountable Care Act (PPACA) passed in 2010. Moreover, these proposals will leave those scheduled multi-year fee cuts in place.
The most immediate action will come from the bipartisan, 12-member Super Committee that was created last summer as a result of the debt limit legislation. The Super Committee is tasked to find $1.2 trillion in budgetary savings over 10 years, from spending cuts or tax revenue.
Major Cuts in Medicare
“Medicare is at the top of the list of possible spending cuts that the Super Committee will propose,” noted Mertz. “It’s difficult to know exactly what they’re considering because this is a different process than ever before used by Congress. The process is not at all transparent. Further, the committee members are inaccessible and that means we can’t speak to them.
“We are talking with some of their staff members, but that’s not the same as meeting with the committee members,” he added. “Plus, the committee is on a very fast time track and will not conduct any public hearings. The process is about as controlled and opaque as any I’ve ever seen in Congress. All we keep hearing is that everything is on the table.
“But, by meeting with other members of Congress, we do know that the lab cost- sharing [patient co-pay] idea is being considered, and possibly another proposal to implement an additional cut in the lab test fee schedule,” Mertz commented. “Beyond that, we really don’t know.
“To achieve the goal of cutting at least $1.2 trillion over 10 years, the committee members feel they can’t get there without substantial Medicare cuts,” he explained. “That is why everything is on the table. By law, the Super Committee must vote on its plan by November 23. That plan next goes to the full House and Senate in December and the resulting bill can neither be amended nor filibustered.
An Opaque Process
“In the past, when there was an ill-advised proposal on the table, we would work with Congress to revise the proposal to make it less destructive to labs and patients,” he said. “But this Super Committee’s process is so unusual that we can’t even discuss the ideas with the committee members. And this committee’s work is just the first of the threats now facing the lab testing industry.
“The second threat is related to the first one because, if the Super Committee can’t agree on cuts that total $1.2 trillion in federal spending, there would be an automatic ‘sequestration,’ or cut in Medicare provider reimbursement of 2%. In addition, the formula Medicare uses for the physician fee schedule will expire at the end of the year,” Mertz added. “That formula is called the sustainable growth rate (SGR).
“When it expires, Congress will need to extend it and find a way to pay for it,” he stated. “Lab funding cuts could again be on the table to help get the funds to pay for the physician fee schedule update.
“The third threat comes from MedPAC, which is an independent group that advises Congress on Medicare issues,” he added. “Last month, MedPAC proposed to permanently repeal the SGR and replace it with a formula in which they would pick and choose which specialties would get funded and which ones would be cut.
Cuts to Pathologist Fees
“Under this plan,” continued Mertz, “the payment rate for primary care physicians would be frozen for 10 years and all the other specialties, including pathology presumably, would get annual cuts of 5.9% in three consecutive years. After that, the payment rate would be frozen.
“The problem with this idea is that it would cost Medicare about $235 billion over 10 years,” he noted. “That means Congress would have to cut payments to other providers over 10 years—meaning drug companies, health plans, equipment companies, and everyone else. So, this idea could hurt clinical labs as well.
“Originally, MedPAC proposed $22 billion in cuts to lab testing reimbursement, but we strongly opposed this cut as well as pointed out an error in their calculations,” explained Mertz. “They ended up proposing $11 billion in cuts to the clinical lab fee schedule. While that is not as bad as $22 billion, labs should not be cut at all given how much they have been cut in recent years. Keep in mind that there would still be the cut to pathology under the physician fee schedule of 5.9%.
“It may be optimistic to think that Congress would not approve MedPAC’s proposal on the physician fee schedule,” commented Mertz. “However, the Super Committee could look at MedPAC’s ideas and use them as an alternative to the lab co-pay idea. If that happens, the total cuts to lab testing fees could be 10% each year over 10 years. That is something clinical laboratories could ill afford.
“Among all these ideas, I’m most worried about cost sharing [patient co-pay] or the cuts to the clinical lab fee schedule,” Mertz commented. “Even if neither were enacted right now, one proposal could be passed and the other could happen soon after as part of some worst-case scenario, such as another deficit-reduction negotiation.” Mertz is careful to point out that the lab test funding can be negatively impacted from other activities unfolding now in Washington, DC. “In addition to these budget considerations, there are other proposals that could affect lab payments,” he noted.
Regulating Home Brew Tests
“For example, the FDA continues to con- sider issuing guidance to regulate laboratory-developed tests (LDTs, also called home brew tests) as FDA devices,” stated Mertz. “We are very concerned about that because it could stifle innovation and the ability of laboratories to introduce new LDTs that are essential to patient care.
“Therefore, we are very supportive of ideas the House Energy and Commerce Committee has about taking a different approach to this issue,” he explained. “We prefer that Congress address this matter legislatively such that FDA does not regulate LDTs as medical devices.
CLIA and LDTs
“The best way to achieve this would be to enhance CLIA in ways that would allow it to address the clinical validity of LDTs,” he added. “That is a much better way to deal with this issue, and some legislators are in favor of this idea.
“Another proposal that concerns us relates to the issue of code stacking,” he said. “The AMA has proposed moving some codes related to molecular tests from the clinical lab fee schedule to the physician fee schedule. So far, this proposal has not moved forward very fast.
“The problem is that the physician fee schedule increases by only a small amount each year while the clinical lab fee schedule has no volume limit built into it,” observed Mertz. “Plus, there is a 20% co- payment in the physician fee schedule and that co-pay is not part of the clinical lab test fee schedule—at least not now. Therefore, the lab profession doesn’t want to move molecular test codes to a fee schedule that is so limited and that requires a patient 20% co-pay.
Lab Professionals Respond
“While all of these proposals have the potential to cripple labs, there has been one promising aspect of this effort,” he continued. “That is the advocacy work on the part of labs and the grassroots efforts by laboratorians.
“Lab administrators and lab staffs have been phenomenal. I’ve never seen anything like it,” said Mertz. “The entire lab testing community has been doing a great job to get the message out to members of Congress. The American Association of Bioanalysts (AAB) and the National Independent Laboratory Association (NILA) have been instrumental in getting their members to participate, as has the Clinical Lab Coalition and ACLA.”
Mertz urged laboratory professionals to respond to these Congressional proposals. “Right now, we don’t need to do anything any differently,” he added. “What is needed is for more lab professionals to step forward and voice their views to their congressmen and Senators. Tell them the importance of the work that labs do.
“We have encouraged our members, meaning the CEOs and lab directors, to meet with their congressmen or senators or at least schedule a phone call with them,” Mertz said. “When you have the top people calling members of Congress, that’s called ‘grass tops.’ And when you have employees contacting members of Congress, that’s called ‘grass roots.’”
Special Audio Conference
Because of the unprecedented nature of the reimbursement-slashing proposals facing the lab testing industry, THE DARK REPORT has scheduled a special audio conference with Alan Mertz and Peter Kazon, who is Senior Counsel in the Washington, DC, office of Alston & Bird.
It is titled, “Washington Puts Lab-Test Cost-Cutting on the Table for 2012: Devastating Fee Cuts plus Other Congressional Proposals and How Your Lab Can Prevent Them.” It takes place on Wednesday, October 26.
Details and registration to the audio conference are at www.darkdaily.com. Mertz and Kazon will provide an insider’s perspective of how Congress is responding to these proposals to cut lab test funding, along with actions labs can take now to educate lawmakers on these issues.
Any New Lab Fee Reductions To Be Added To Cuts Already in Health Reform Law
AS CONGRESS CONSIDERS NEW AND DEEPER cuts to clinical lab payments, Mark S. Birenbaum, Ph.D., pointed out that the healthcare reform law of 2010 already has lab fee cuts built into it.
“The Affordable Care Act (ACA) called for five annual cuts in lab fees under the Medicare Part B fee schedule of 1.75% each year,” said Birenbaum, the Administrator of the American Association of Bioanalysts (AAB) and the National Independent Laboratory Association (NILA) in St. Louis, Missouri.
“This year, the first cut of 1.75% was implemented and the second cut will take effect next year,” he said. “Those two cuts already total 3.5% and three more cuts are coming for a total reduction of lab fees of 8.75% over five years.
“This is happening even as a number of law suits question the constitutionality of that law,” added Bire nbaum. “The constitutionality issue is expected to be addressed by the Supreme Court next year. But, meanwhile, labs have already taken the hit.
“In addition, we know that the Super Committee may cut lab test fees even more,” he continued. “Should they not reach $1.2 trillion in spending cuts, there would be an across-the-board cut that equals about 2% of Medicare spending. Thus, if the super committee members do nothing, that 2% Medicare cut goes into effect next year, and gets tacked on to the 3.5% cuts mandated by the ACA legislation.
“On October 5, our members visited Capitol Hill and conducted more than 50 meetings with members of Congress about how these cumulative cuts will affect clinical labs,” said Birenbaum. “We explained that many community laboratories have profit margins of 5% and 6%. T hese labs cannot continue absorbing cuts of 2% and 3% each year and remain in business.
“Our concern is that, once these funding cutbacks get to a certain point, labs will just have to close up shop,” he said. “Clearly, the level of funding cuts now under consideration threatens the financial viability of many labs.”