Congress’ New SGR Law Has Mixed News for Labs

SGR law initiates lab reporting requirements and multi-year adjustments to lab test prices

CEO SUMMARY: Once again, the lab industry faces a mixed bag following passage of a new law by Congress last week. Besides the one-year fix for the SGR, H.R. 4302 also has language that may defer adjustments to Medicare Part B lab test fees until 2017 and creates a new procedure for Medicare officials to use when pricing new clinical lab tests. At the same time, the law establishes onerous new annual reporting requirements for labs and requires market-based Part B lab fee adjustments in the years 2017-2022.

POTENTIAL NEW CUTS to Medicare lab test fees are causing concern for clinical laboratories. The new pricing will take effect in 2017 under H.R. 4302: Protecting Access to Medicare Act of 2014, the federal law Congress passed last week to patch the sustainable growth rate (SGR) formula.

The bill to extend the SGR creates new requirements for CMS to follow when establishing prices for Medicare Part B clinical laboratory tests. Some in the lab industry predict the law will result in deep cuts in reimbursement. Others in the industry say this law is better than immediate across-the-board cuts and possible unlimited cuts anticipated from CMS next year.

Essentially, the Medicare price cuts for clinical lab tests scheduled to take effect in 2015 will probably not happen. Beginning in 2017, however, CMS will be allowed to adjust prices using lab-reported market data and other factors for all lab tests—except those defined in the law as “new tests” and “advanced diagnostic tests.”

Based on what labs report to be “market prices” for lab test codes in the years 2017, 2018, and 2019, Medicare can reduce the price of a lab test by a maximum of 10% in each of three years (a total potential cut of more than 30%). Then, in 2020, 2021, and 2022, CMS can cut lab prices by 15% in each year (an additional total potential cut of more than 45%).

In addition to these potential draconian price cuts to most of the existing codes on the Medicare Part B Clinical Laboratory Fee Schedule, the SGR law mandates that, every three years, labs will report to CMS the prices specific payers pay for each clinical lab test. CMS will use these data to establish prices for lab tests. Lab administrators and pathologists already recognize that it will be impossible for most labs to identify this information in order to report it to CMS in a uniform manner.

Less Revenue for Labs

The two requirements described above will have the most significant effect on revenue. If implemented as currently written, Congress estimates that the lower prices paid by the Medicare program will generate savings of $2.4 billion.

Additional parts of the bill also will affect labs. They spell out how Medicare will establish pricing for new laboratory tests. The language in this section of the law seems to favor new diagnostic tests over traditional lab tests, as Congress permits new pricing for “advanced diagnostics.”

Initially, Medicare will pay labs the “list price” for these new tests before CMS evaluates the processes involved in running these tests. If CMS determines the tests have been priced greater than 130% of average market prices, then CMS can recoup the difference.

Reaction by lab industry organizations to this new law is varied. It is likely that few lab industry executives fully understand the complexities of administering the requirements of this law, and few know precisely how it could undermine the finances of local and regional laboratories while favoring the fortunes of the nation’s largest lab companies.

Potential Consequences

At the Association for Molecular Pathology (AMP), Executive Director Mary Steele Williams, MT(ASCP)SM, said there is concern about potential unintended consequences.

In a letter sent to Senate Majority Leader Harry Reid (D-Nevada) before the Senate vote, AMP stated its concern that labs had no chance to analyze the bill before it was introduced. AMP pointed out that Congress also needs to provide oversight on the effects of the bill. If the effect on labs or patients is detrimental, Congress should repeal the bill, AMP said.

The National Independent Laboratory Association (NILA) also criticized the bill. Administrator Mark Birenbaum said, “The SGR patch places an unprecedented unfunded mandate on certain ‘applicable’ laboratories to begin reporting private commercial payer data to CMS.

“The expressed purpose of the language is to assess laboratory market rates,” he stated. “However, as written, the language could exclude a majority of the laboratory market and that could place the burden and risk of significant penalties squarely on regional and community- based laboratories. This new law threatens market competition for clinical laboratory services and access to testing services for Medicare beneficiaries.”

Support for the New Law

While AMP and NILA were displeased with the bill the House passed March 27 and the Senate passed on March 31, the American Clinical Laboratory Association (ACLA) supported the provisions in the SGR legislation. The law pro- vides a “more rational process for transitioning to changes in reimbursement,” the ACLA said.

“These things are never perfect and there are areas in it that we have to work on going forward,” stated ACLA President Alan Mertz. “But you have to look at this legislation in the context of what would have happened if this bill did not pass. The lab industry was facing the triple threat of an immediate across-the-board cut, followed by potentially deep and unlimited cuts by CMS next year, as well as cuts in future years to pay for the SGR.

“The federal Centers for Medicare & Medicaid Services was preparing to make deep cuts in payments for lab tests starting in January 2015,” he noted. “Those would be significant cuts to some high-volume lab test codes under a process that was not transparent and was without limits. We wouldn’t know which codes would have been cut or by how much they would be cut.

Facing Across-the-Board Cut

“The lab industry was also facing an across-the-board cut to get savings for the SGR package,” continued Mertz. “This was potentially as much as $8 billion—more than three times as much as the new law is estimated to cut.

“On top of that, lab test fees would continue to be subject to being cut in subsequent years each time Congress has to pay for the SGR,” he noted. “This is why we faced a triple threat. This law makes those future cuts less likely. Therefore, this was a far better alternative than what we were facing.”

Besides the potential of substantial price cuts to lab tests specified in the law for each year from 2017 through 2022, labs will be under new data collection and reporting requirements.

In its comments, AMP observed that, beginning January 1, 2016, labs must report to CMS the payment rate from each non-capitated private payer and the volume of each test for each payer, although CMS can make exemptions for low-volume/low expenditure labs.

“The payment rate reported must reflect all discounts, rebates, coupons, and other price concessions, and an officer of the laboratory must certify the accuracy and completeness of the information reported,” AMP said. “Labs that fail to comply face a civil monetary penalty of as much as $10,000 per day for each failure to report, or for misrepresentations or omissions. The information will be confidential and shall not be disclosed to a Medicare Administrative Contractor.”

The law also disregards the CPT code process by establishing a new market- based method of setting prices that conflicts with current law because it allows CMS to use only one MAC to establish coverage policies and process claims, AMP said. Also, it creates confusion by establishing different reporting requirements for different types of tests, AMP added.

Labs Must Know their Costs

“I don’t think hospital laboratories have the infrastructure to collect the information they will be required to provide to CMS,” Williams said. “We know from the gapfill process last year that labs don’t really know what their full costs are to perform an individual test. Likewise, we don’t know if labs can readily distinguish between tests that are bundled—for which the bill states they will not have to report—and those lab tests that are not bundled, the payments for which labs must report.”

Perhaps the biggest concern, Williams said, is that H.R. 4302 creates an unlevel playing field that favors independent laboratories significantly. “The new weighted median calculations will place a disproportionate burden of reduced payments on hospital-based labs and favor large volume independent laboratories,” she said.

Laboratory Industry Groups React; One Says SGR Law Favors Independent Labs Over Others

HERE ARE SOME COMMENTS FROM DIFFERENT LAB INDUSTRY ORGANIZATIONS about the passage of H.R. 4302: Protecting Access to Medicare Act of 2014, and its possible consequences.

American Clinical Laboratory Association (ACLA) supported the legislation, saying it:

  • Provides a rational process for transitioning to changes in lab test reimbursement.
  • Avoids another potential round of indiscriminate, across-the-board payment cuts.
  • Brings predictability in lab reimbursement over the next several years and provides more transparency.
  • Allows more time for laboratories to prepare for changes in Medicare Part B clinical lab test reimbursement.

The Association for Molecular Pathology (AMP) criticized the law, saying it:

  • Disadvantages hospital- based laboratories while favoring independent labs.
  • Requires collection of data on costs and test volume that hospital labs may not be able to provide.
  • Disregards the CPT code process by establishing a unique identifier system for certain tests.
  • Conflicts with current law by designating one or more Medicare Administrative Contractors to set prices for clinical diagnostic laboratory tests.
  • Creates confusion among labs by requiring different reporting requirements for different tests.

The National Independent Laboratory Association (NILA) opposed the law, saying it:

  • Places an unfunded mandate on community labs to report private payer data, thus assessing only a portion of the lab market by potentially permitting some large labs and an unknown number of other labs to be excluded from the reporting requirement.
  • Subjects community-based laboratories to massive fines and the threat of violation of the False Claims Act.
  • Threatens serious reductions to Medicare lab test payment rates and provides no overall adjustment to individual test rates for smaller labs with lower test volume.


New Federal Law Directs CMS to Reprice Lab Tests

BOTH PARTIES IN THE HOUSE AND THE SENATE came together on the SGR law to include sections in the law that direct CMS to adopt new approaches to determine the prices that it will pay for clinical laboratory tests. There are six important sections to the law that pertain to clinical lab tests:

  • Setting Prices with Market Data: Certain labs will be required, beginning on January 1, 2016, to report private payer payment rates and volumes for their tests.
  • New Category: Advanced Diagnostic Tests (ADTs): For certain tests developed and performed by single laboratories, the initial payment rate for ADTs will be set at the “actual list charge.” If the charge exceeds private payer rates by more than 130%, CMS can recoup the overpayment.
  • Setting Prices for New Tests and Expert Advisory Panel: To ensure transparent and reliable decisions about pay rates and coverage, CMS will assemble a panel of outside advisors, including clinicians and other technical experts. Also, CMS must follow either the crosswalk or gapfill process to determine the initial payment rates and explain, in a transparent manner, how the calculations were made.
  • Changes in How Medicare Codes: For new lab tests, CMS will use temporary HCPCS codes to enable payment prior to a permanent HCPCS or CPT code.
  • Coverage Requirements and Decisions: In support of fair and open coverage decisions for a lab test when a local coverage determination is needed, MACs must now follow a defined development and appeals process.
  • Oversight of Lab Test Pricing and Coverage Process: Two levels of oversight are written into the law; one by the U.S. Government Accountability Office (GAO), the other by the Office of Inspector General (OIG) of DHHS.


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