Delay and Fix Is Message From Labs to Congress

How CMS intends to cut Medicare lab prices is a major concern for clinical laboratory industry

CEO SUMMARY: Only a few months remain before the federal Centers for Medicare and Medicaid Services makes deep price cuts to Medicare Part B clinical laboratory test fees. Before those cuts go into effect, lab associations and lab professionals are educating members of Congress and the new administration about the bias and flaws in CMS’ PAMA final rule. The message is that it is best to delay implementing the price cuts and fix the problems in the rule. It is still uncertain whether a delay can be arranged.

COMING TO YOUR LAB in less than 150 days are deep cuts to Medicare Part B lab test fees. The federal Centers for Medicare and Medicaid Services is scheduled to implement the most financially-disruptive cuts to clinical laboratory fees in more than 20 years.

If the final rule under the Protecting Access to Medicare Act is implemented as written, experts who understand laboratory medicine and its role in the healthcare system say the rule will have devastating consequences. For one, it will reduce access Medicare beneficiaries have in smaller cities and rural areas to clinical laboratory testing.

The first consequence comes in the short term. Cuts to Medicare lab test fees—which CMS and the Office of Inspector General estimate will be about $400 million in 2018—will cause financial havoc to two types of medical laboratories. The first type is the small, independent lab companies that have between $2 million and $20 million in revenue. Many of these labs primarily serve nursing homes. Medicare Part B lab tests make up 40% to 80% of their total revenue.

For these labs, 10% cuts to the Medicare prices of the highest-volume, automated lab tests will take them from break-even or a small annual profit to a significant financial loss. In a study, the National Independent Laboratory Association documented that these labs typically operate with net profit margins of 2% to 4%. The decline in Medicare revenue associated with the Part B fee cuts will cause these labs to shut their doors, file for bankruptcy protection, or sell out to a larger lab company

The second type of lab vulnerable to the Medicare lab price cuts is in community and rural hospitals. As with small independent lab companies, these labs usually serve nursing homes and patients in their small towns and rural counties. Medicare Part B lab tests represent a high proportion of the outpatient revenue these labs earn.

Cuts at Rural Hospitals

Reductions in Medicare lab test fees will cause the hospitals operating these labs to slash the number of lab tests they perform in-house, which affect inpatient and outpatient care. More significantly, these hospitals will be forced to stop serving the nursing homes in the small communities and rural areas they serve. The expense of sending phlebotomists and couriers to these facilities cannot be recouped should CMS cut Medicare Part B lab test prices on Jan. 1.

Thus, in the first 36 months from Jan. 1, 2018, the PAMA rule price cuts will cause many of the nation’s small community labs to shut down. As this happens, patients and physicians in these cities, towns, and rural areas will lose local access to clinical lab tests.

Of equal significance, the nursing homes in these communities will lose the only local laboratories that provide testing. As noted in THE DARK REPORT’S earlier coverage, large public lab companies exited the nursing home business in the 1990s because they considered it unprofitable. Since then, small community labs have filled that need, providing nursing homes with almost 25 years of unbroken service.

In the 36 to 72 months following Jan. 1, 2018, the Part B fee cuts will cause the nation’s smaller cities, towns, and rural areas to lose the independent labs and the community and rural hospital lab services that they have relied on for decades. The loss of revenue from Medicare price cuts will cause these labs to close or sell out to other lab companies.

The question that officials at CMS who designed the PAMA market price rule have not answered is: How will they address this problem when it happens? It is short-sighted of bureaucrats to pursue near-term savings on what Medicare spends on lab tests (which is about 3% of Medicare’s total healthcare spending), and not see the dilemma that looms in a few years as rural and community hospitals, nursing homes, and physicians in these areas lose access to essential lab tests.

As Jan. 1 approaches, several lab associations and companies are meeting with Congress and officials in the new administration. Their message is simple: CMS’ PAMA market price reporting rule is deeply flawed. Therefore, the smart course of action is to delay implementation of the final rule and the price cuts to allow time for government officials and clinical lab professionals to work together to address these problems.

Delay and Fix PAMA Rule

Leaders of most national medical laboratory associations are calling on their members and all clinical laboratory managers, scientists, pathologists, and clinical chemists to contact their senators and representatives with a simple message: delay and fix the PAMA market price rule.

The stories that follow provide the latest information about how different lab organizations are working to educate members of Congress and the new administration about the need to delay and fix a biased and deeply-flawed PAMA market price reporting rule.

The biases and flaws in the final rule are identified and described. Next, the recent comments by certain public lab company executives about their company’s respective views on the PAMA final rule are presented.

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