Institute of Medicine Calls For 12 Medicare Lab Reforms

Recommendations for improvement

CEO SUMMARY: Since 1987, the clinical lab industry has endured almost non-stop cuts in the absolute level of Medicare reimbursement for lab testing. But the time may be ripe for laboratories to work together to effect far-reaching reforms to Medicare laboratory payment policies. Just as the Institute of Medicine issued its 12 recommendations for reforming Medicare lab payment policies, the country gained a new President, a new Congress, and a new HCFA administrator.

Many laboratorians have rightly categorized the clinical laboratory industry as the apparent “whipping boy” of the nation’s Medicare program.

Their belief stems from an incontrovertible fact: Every year since 1987, the effective level of funding for laboratory services under the Medicare Part B schedule has been reduced! That’s 14 years of ongoing reductions to the effective amount of reimbursement paid for clinical lab services.

Of course, there are other intractable problems with the Medicare program that frustrate the clinical lab industry. Most lab administrators and pathologists are familiar with those issues.

But what many laboratorians currently overlook is an emerging opportunity for the clinical laboratory industry to effect beneficial changes to the way Medicare Part B treats laboratory testing.

IOM’s Lab Recommendations

That opportunity derives from the Institute of Medicine’s (IOM) recent report that makes 12 recommendations for reforming Medicare laboratory payment policies. Issued last fall, it has attracted some notice in the lab industry press, but has generated little widespread action by laboratorians to date.

THE DARK REPORT believes the clinical lab industry has an unmatched opportunity to effect positive reforms, using the IOM’s 12 recommendations as the lever.

The timing is also extraordinary. The IOM report is fresh, having been issued only months ago. There is a new HCFA administrator, a new Congress, and a new President. The conjunction of these four events is unusual. It provides the perfect opportunity to present a compelling case that immediate and significant reforms must be made to Medicare Part B laboratory reimbursement policies.

Unfortunately, the laboratory industry may not be up to the challenge. The industry is fragmented and argumentative among itself. There is no precedent for creating a united effort to push Congress, the President, and HCFA to enact much needed-reforms to Medicare laboratory reimbursement policies. This is disappointing, since the benefits of specific fundamental reforms are certainly in the best interest of all clinical laboratories.

The story of how and why the IOM was chartered to study reforms to Medicare laboratory payment policies indicates that the lab industry already has a few friends in high places. Certain individuals in Congress were successful at including a mandate in the Balanced Budget Act of 1997 (BBA–Public Law105-33). This mandate directed the Department of Health and Human Services (DHHS) to examine the laboratory industry and make recommendations on improving the existing system.

Committee of 12 Experts

To accomplish this, DHHS arranged for the Institute of Medicine to create a committee of 12 experts, including three laboratorians, as well as physicians, economists, health care administrators, and health policy analysts. It was called the “Committee on Medicare Payment Methodology for Clinical Laboratory Services.”

During 2000, the committee conducted studies and held five meetings. Not surprisingly, the committee found “limited data” about the national laboratory testing industry. It could not identify accurate financial data about different testing segments served by clinical labs. Nor could it find detailed data about the cost of performing lab tests and how current Medicare payment amounts compare to the cost of testing and to payments by other purchasers.

Despite the lack of comprehensive data about clinical lab testing in the United States, the 12 members of the IOM committee ended up sharing a common opinion: important reforms are long overdue to the existing policies Medicare uses to reimburse for clinical laboratory services.

The committee issued 12 recommendations. (See sidebar below.) The first six recommendations focus specifically on payment methodology. The second six recommendations deal with problems in the current system and can be implemented independently or concurrently with the first six recommendations.

Three of the twelve committee members were laboratorians. They were: John Matsen, M.D., Professor Emeritus of Pathology and Pediatrics at the University of Utah, and formerly Board Chair of Associated Research University Pathologists (ARUP); J. Stephen Kroger, M.D., Chief Executive Officer of COLA (formerly the Commission on Office Laboratory Accreditation); and David T. Smalley, Ph.D., Professor of Pathology at the University of Tennessee Health Sciences Center in Memphis, TN.

Solutions To Basic Problems

Taken collectively, the committee’s 12 recommendations represent solutions to basic problems in the existing system for Medicare reimbursement for clinical lab testing services covered under Part B. Any clinical laboratory providing lab services to patients referred by physicians’ offices would gain immediate and sizeable benefit if these recommendations were enacted in a swift and orderly manner.

Therein lies the challenge. Across the spectrum of the clinical laboratory industry, there has never been common agreement and united effort to lobby Congress on issues affecting clinical laboratory services.

This should not be surprising. Each of the lab industry’s professional associations has a different purpose. For example, the College of American Pathology (CAP) exists to support the issues involving professional pathology services. The American Clinical Laboratory Association (ACLA) represents larger lab companies, including Laboratory Corporation of America and Quest Diagnostics Incorporated. Its lobbying efforts are generally directed to issues which directly impact its member labs.

Institute of Medicine Created to Serve Congress

IT WAS 1863 WHEN CONGRESS GRANTED a charter to the National Academy of Sciences as a “private, nonprofit, self- perpetuating society of distinguished scholars engaged in scientific and engineering research…”

As part of this charter, the National Academy of Sciences is required to advise the federal government on scientific and technical matters. The Institute of Medicine (IOM) was founded by the National Academy in 1970 specifically to advise the federal government on issues of “policy matters pertaining to the health of the public.”

Not surprisingly, the Institute of Medicine was created only four years after the Medicare program was launched. Healthcare had become a major issue for Congress and federal policy makers. The need for an objective source of study and analysis on national healthcare issues was recognized and the IOM was formed to meet that need.

Solutions To Basic Problems

Taken collectively, the committee’s 12 recommendations represent solutions to basic problems in the existing system for Medicare reimbursement for clinical lab testing services covered under Part B. Any clinical laboratory providing lab services to patients referred by physicians’ offices would gain immediate and sizeable benefit if these recommendations were enacted in a swift and orderly manner.

Therein lies the challenge. Across the spectrum of the clinical laboratory industry, there has never been common agreement and united effort to lobby Congress on issues affecting clinical laboratory services.

This should not be surprising. Each of the lab industry’s professional associations has a different purpose. For example, the College of American Pathology (CAP) exists to support the issues involving professional pathology services. The American Clinical Laboratory Association (ACLA) represents larger lab companies, including Laboratory Corporation of America and Quest Diagnostics Incorporated. Its lobbying efforts are generally directed to issues which directly impact its member labs.

Hospital Lab Emphasis

The majority of members of the American Association of Clinical Chemistry (AACC) and the Clinical Laboratory Management Association (CLMA) work in hospital-based laboratories. Since most funding for hospital laboratories is covered under Medicare Part A policies, these associations stress a different set of Medicare lab testing issues than the commercial laboratory segment of the industry.

One of healthcare’s lobbying giants, the American Hospital Association, has traditionally devoted little, if any, resources to lobby for Part B clinical laboratory reforms. That was because, during the 1980s and early 1990s, most hospitals did little or no testing that was covered under Medicare Part B reimbursement.

However, hospital consolidation in the second half of the 1990s has changed this situation. An increasing number of AHA member hospitals and health systems operate viable lab outreach testing programs that serve physicians’ offices. Thus, within the AHA, there should be a greater incentive to invest resources in lobbying for Medicare Part B lab reimbursement policy reforms.

Diverse Lab Interests

Historically, then, fragmentation of interests within the clinical laboratory industry has resulted in an ineffective lobbying effort. Not surprisingly, that is why Congressional budget cutters found it easy to cut funding for Part B laboratory services through the past 15 years. Unlike other types of healthcare providers, budget recommendations that reduced the funding for lab testing encountered minor, often insignificant political opposition.

THE DARK REPORT believes that the time is ripe to change this situation. Unlike past years, there is now a general consensus among laboratories of all types that reforms to Medicare Part B laboratory payment policies are long overdue. There is also consensus that it is time for HCFA to undertake a comprehensive review of procedures used to establish laboratory test prices update them as appropriate.

At this year’s Executive War College in Cincinnati on May 8-10, Lab CEOs will hear a presentation by IOM committee member Dr. John Matsen. In attendance will be individuals representing a number of lab industry professional associations, as well as independent laboratory owners.

Advance Agreement

Participants in this special program have agreed, in advance, to launch discussions on how to create an ad hoc lobbying effort that involves all segments of the lab industry. THE DARK REPORT believes that, for probably the first time ever, the compelling need for Part B lab pricing policy reforms can encourage an unlikely coalition of players to work together under a common lobbying “umbrella.”

Ideally this would include independent laboratory owners, whether large or small, all the laboratory professional associations, the American Hospital Association, diagnostic vendors, information system companies, and even possibly group purchasing organizations. Each of these entities has a strong economic motive to support the enactment of overdue reforms to Part B laboratory pricing policies.

Failed Lobbying Strategy

It is time to end fragmented lobbying by the lab industry. As a business strategy, it has failed. The evidence is a virtually unbroken 14-year string of Medicare cutbacks in lab funding. Sensible business executives, when they see a business strategy fail, know it’s time to try something new.

For the clinical lab industry, 2001 is the year for the entire industry to gather around a common strategy for enacting Medicare reforms. After 14 years of financial pain, it is certainly time that Congress and HCFA give the laboratory industry a higher level of respect.

IOM’s Study Committee Recommends Reforms To Medicare Laboratory Payment Policies

HERE ARE THE INSTITUTE OF MEDICINE’S 12 RECOMMENDATIONS for reforming Medicare laboratory payment policies. The first six recommendations deal exclusively with payment methodology, such as “how to establish the relative value of one test versus another and how to determine the relative resource use of different tests.” The second six recommendations involve solutions to such problems as “the structure of claims processing contractors and how to improve payment-related administrative procedures.”

RECOMMENDATION 1: Medicare payments for outpatient clinical laboratory services should be based on a single, rational, national fee schedule.

RECOMMENDATION 2: On an interim basis, relative payments for Medicare outpatient clinical laboratory services should be based on the current National Limitation Amounts.

RECOMMENDATION 3: A data-driven consensus process for refining the new Medicare national fee schedule for outpatient clinical laboratory services should be developed. HCFA should explore alternative methods for gathering data to be used in the process.

RECOMMENDATION 4: Medicare national fees for outpatient clinical laboratory services should be adjusted for geographic location. HCFA should also evaluate the need to adjust for certain other circumstances, particularly those likely to affect beneficiary access and make recommendations to Congress.

RECOMMENDATION 6: To incorporate new tests into the Medicare laboratory fee schedule, there should be an open, timely, and accessible process that is subject to challenge. The process and fees produced should not impede clinical decision-making that is essential to providing appropriate care.

RECOMMENDATION 7: HCFA should review alternatives to the current system for doing outpatient clinical laboratory services for claims processing. More accurate, open, and timely coding process for new technologies as well as test and services should be sought.

RECOMMENDATION 8: The current policy of not requiring beneficiary cost sharing for Medicare outpatient clinical laboratory services should continue. Cost sharing is unlikely to significantly reduce overuse or increase the detection of fraud and abuse; it could create barriers to access for the most vulnerable Medicare beneficiaries; and it would be financially and administratively burdensome for laboratories, patients, and the Medicare program depending on its design.

RECOMMENDATION 9: HCFA should discontinue use of International Classification of Diseases, Ninth Revision (ICD-9) diagnosis codes as the basis for determining the medical necessity of clinical laboratory tests. HCFA should assess the need for any approach to evaluating the medical necessity of individual laboratory tests prior to payment of a claim. In addition, HCFA should evaluate alternative approaches for identifying and reducing unnecessary or inappropriate laboratory testing.

RECOMMENDATION 10: In its policy formulation processes, HCFA should provide opportunities for stakeholder input and develop better communication with contractors and other stakeholders when policies are being developed and once they are adopted.

RECOMMENDATION 11: HCFA should move promptly to consolidate the number of contractors processing all Medicare outpatient clinical laboratory claims, including claims from physician office laboratories (POLs) and hospital-based laboratories. The design of this consolidation should ensure that claims processing by regional laboratory carriers will not require major new billing procedures for POLs or hospital-based laboratories. Efforts should be made to strengthen local provider services and relations between carriers and laboratories.

RECOMMENDATION 12: HCFA should collect the data needed to effectively manage the performance of the Medicare outpatient clinical laboratory payment system.

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