Lab Executives Declare Concerns about Fee Cuts

For some laboratories, what Medicare will pay will be lower than the cost of running lab tests

CEO SUMMARY: Members of Joint Venture Hospital Laboratories in Michigan anticipate that the 2018 Clinical Laboratory Fee Schedule rates being implemented under PAMA will lower payment from Medicare to less than the cost of running tests, especially for rural and critical access hospitals. CMS established the 2018 CLFS under the Patient Access to Medicare Act of 2014 and those rates went into effect Jan. 1. JVHL’s executive director explains why hospital labs may be forced to cease offering outreach lab testing services.

IN ITS LAWSUIT AGAINST THE FEDERAL Department of Health and Human Services, the American Clinical Laboratory Association included declarations from four clinical lab executives and ACLA board members who outlined their concerns about how the 2018 Clinical Laboratory Fee Schedule (CLFS) will affect clinical labs adversely.

Of the four executives, two were lab directors and both expressed concerns that the coming cuts in lab testing rates for this year would not cover the cost of running tests. All four executives said they supported the efforts of the federal Centers for Medicare and Medicaid Services to develop a payment system that would be equitable for all labs and they understood that cuts to lab testing rates were inevitable. They also were concerned that the resulting rates were unfair to labs, they said.

The four executives are ACLA President Julie Khani, and two lab directors: Peter Gudaitis, President of Aculabs in East Brunswick, N.J.; John Kolozsvary, Chief Executive Officer of Joint Venture Hospital Laboratories, (JVHL), in Allen Park, Mich. The fourth executive is Dermot Shorten, Senior Vice President, Strategy, Mergers and Acquisitions, and Ventures for Quest Diagnostics.

Market Disruption Expected

Kolozsvary explained in his declaration that many of JVHL’s hospital labs expect that the revised Medicare CLFS lab tests will be lower than the cost of running tests, especially for rural and critical access hospitals. CMS established the 2018 CLFS under the Patient Access to Medicare Act of 2014 (PAMA). Those rates went into effect Jan. 1.

In an interview with THE DARK REPORT, Kolozsvary went into more detail. “The potential outcome that we heard in feedback from a number of JVHL labs, particularly our smaller hospital members, was that payment may not cover costs,” he said. “These are the observations from lab members of JVHL and the Great Lakes Laboratory Network (GLN). GLN is a JVHL hospital laboratory network member representing more than 40 hospitals mostly located in western and northern Michigan.

“The cost for hospitals to provide clinical lab services almost always exceeds those of the large commercial laboratories,” he added. “As acute care facilities, our hospital labs are staffed 24 hours a day so that they can serve inpatients, surgery suites, and emergency rooms.

“Also, our members must meet accreditation and conditions of participation standards requiring them to have blood banks and other critical services in place,” he added. “All of those services drive up costs.

“Plus, from a sheer volume perspective, hospital labs—despite group purchasing arrangements—don’t have the scale that large commercial labs use to buy supplies and equipment,” he said. “Commercial lab costs are probably as much as 30% less than those of hospital laboratories.

NILA’s Attorney Supports ACLA’s Legal Strategy in Suit Against HHS over Market Price Reports

ALMOST AS SOON AS THE INK DRIED ON the Protecting Access to Medicare Act of 2014, lawyers for clinical lab associations expressed concern about a clause in the law that prohibited legal challenges to the clinical lab rates that CMS would propose under the law.

Among lawyers, this prohibition is known as a “review preclusion.” If labs cannot challenge the rates that CMS issued in the 2018 Clinical Laboratory Fee Schedule, then perhaps the best legal strategy is to challenge the data-collection methods that CMS used when implementing the rates, lawyers told THE DARK REPORT.

One of the first lawyers to express a concern about the review preclusion was Jeffrey J. Sherrin, President of O’Connell & Aronowitz in Albany, N.Y. Sherrin represents the National Independent Laboratory Association.

In an interview with THE DARK REPORT after ACLA filed its lawsuit on Dec. 11, Sherrin agreed with the legal strategy ACLA’s legal team is pursuing. “I think ACLA took exactly the right position,” he said. “They are challenging the methodology and not the rates themselves. And, I think they are entitled to do that because the methodology was faulty. Although it will be a difficult case, I think there is merit in the ACLA challenge.”

Asked if he was willing to predict an outcome in the case, he said, “It’s not only hard to predict what will happen, it’s impossible.

“That said, there are short- and long-term ways to look at this case,” he explained. “In the short term, nothing in the litigation is likely to happen immediately. A court is not likely to step in and issue an order in the coming weeks because ACLA didn’t seek a preliminary injunction.

“So, in the long term, it comes down to three questions,” he offered. “First, who wins? Second, if ACLA wins, what relief does the court order? We can’t say what that order will be right now. And, three, will the lawsuit stimulate some action from Congress to fix this problem statutorily?”

While the wheels of justice turn slowly, the clinical lab industry must meanwhile deal with the Medicare Part B price cuts that became effective on Jan. 1. Labs will soon see declines in their Medicare payments.

Will Labs End Outreach?

“My concern is that some JVHL members may need to discontinue offering outreach lab services,” Kolozsvary added. “At the moment, it’s too soon to know how many labs may need to stop doing out-reach testing.

“Currently, we’re looking at just the first round of cuts in the Medicare fee schedule that was published Dec. 11,” he explained. “Labs face a 10% cut this year, 10% next year, and 10% again in 2020. In 2021, we’ll see a 15% cut and then 15% again in 2022.

“Once reimbursement goes below what it costs the hospital to provide outreach laboratory services, some will be forced to decide whether they can continue to offer those services or not,” he said.

“It’s too early to say now but some of those decisions may involve reducing staff, scaling back, or closing certain operations,” he added. “Left unchallenged, those cuts will reach over 30% or more by the end of the PAMA implementation period.

“In rural areas in Michigan and in other markets, hospitals are the primary providers of healthcare services, and in those markets, you don’t have commercial laboratories,” Kolozsvary explained. “That means that ultimately, when the hospitals make decisions that they can’t afford to provide some vital services—meaning X- rays, emergency rooms, and clinical lab testing—it’s going to affect access to care for Medicare members.

Continuity Of Care Issue

“Another factor to consider is continuity of patient care,” he commented. “If some hospitals stop offering lab services, it will affect hospital medical records. There is a risk that hospital records may not contain a patient’s vital diagnostic testing information. That will have an effect on timeliness and possibly overall medical decision-making if those patients go to other places for lab services.”

For Kolozsvary, hospital labs were disadvantaged when CMS excluded most hospitals from participating in the market-based rate-setting process that CMS established under PAMA. CMS then used that flawed process to set the CLFS rates for 2018, he said.

“Hospitals provide 26% of the total spent on the clinical laboratory fee schedule,” he said. “If you take that out, a significant voice goes unheard. And it’s a significant amount of data that should have been used to determine the rates. We knew cuts were inevitable, but they’ve simply gone after the lowest price, in my opinion.

A Result Contrary to Intent

“That was not the intent of the lab section in PAMA,” he added. “Section 216 of PAMA was to come up with a market-based payment solution that would phase in payment reductions over time. But it was supposed to be based on the entire industry or an applicable portion of the industry, including hospitals.

“I believe the end result is totally biased,” he said. “Initially, CMS based its projections on having 12,500 entities report data in the initial reporting period. But in the end, there were fewer than 1,200 and only 20 hospitals participated.

“When you consider that there are more than 200,000 CLIA-certified laboratories in the country, including around 7,000 hospitals, and only about 20 hospital labs were included in CMS’ calculations, that’s a problem,” he added. “Under CMS’ definition of ‘applicable lab’ we know of only two that reported from Michigan. That’s less than 1% of our membership and less than 1% of the hospitals in Michigan.

Desire For Equitable Solution

“From this rate-setting process, we just wanted fairness,” concluded Kolozsvary. “Again, we recognized that cuts in reimbursement were inevitable. Given that, we wanted an equitable solution from CMS based on the legislative intent of PAMA Section 216. Personally, I do not believe we got that.”

Contact John Kolozsvary at 313-271-3692 ext. 231 or, and Jeffery J. Sherrin at or 518-462-5601.

Executives from ACLA and Quest Diagnostics Explain How HHS’ Data-Collection Effort Failed

IN TWO DECLARATIONS IN A LAWSUIT ACLA filed against the department of Health and Human Services, executives from American Clinical Laboratory Association and Quest Diagnostics explain how HHS failed to implement the Patient Access to Medicare Act according to the law’s intent. The executives are ACLA President Julie Khani and Quest Diagnostics’ Dermot Shorten.

Khani joined ACLA in 2013. She has seen firsthand how and why Congress passed the Patient Access to Medicare Act in 2014 and why Section 216 would be of significant importance to ACLA’s members. In her 381-page declaration, she explained that she was directly involved in the negotiations with the Centers for Medicare and Medicaid Services over how CMS would gather the data for its market-based reporting project and set the clinical laboratory test rates based on that data for 2018.

“I have been directly involved in ACLA’s many efforts to work with government officials to implement PAMA Section 216, including officials and executive-level staff at HHS, CMS, and other federal agencies,” she said in the declaration.

“CMS proposed and then finalized a regulatory definition of ‘applicable laboratory’ that is contrary to the statutory definition. Instead of requiring all ‘applicable laboratories’ to report private payer information, as Congress directed,” she noted, “CMS’ regulations carve out thousands of laboratories from the statutory requirements, effectively excluding hospital laboratories and many other laboratories from the obligation to report information.

“ACLA and its members repeatedly urged CMS to comply with the statutory requirements and explained why the agency’s revised regulatory definition was unlawful, unreasonable, and improper,” added Khani. “ACLA and its members also identified alternative approaches that would


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