CEO SUMMARY: In an effort to forestall CMS’ efforts to implement the PAMA final rule on market price reporting, Laboratory Corporation of America and Quest Diagnostics are meeting with members of Congress, officials in the administration, and the new leadership of CMS. During recent conference calls, executives at both lab companies shared insights about these meetings and the possibility that there could be a delay in implementation of the Part B price cuts.
DURING THEIR RESPECTIVE SECOND QUARTER CONFERENCE CALLS with financial analysts, executives at Laboratory Corporation of America and Quest Diagnostics spoke about the PAMA market price reporting rule and lab industry efforts to delay and fix the rule before a new Medicare Part B clinical lab fee schedule is implemented Jan. 1.
Lab industry representatives are having ongoing meetings with members of Congress, with the new administration, and with CMS officials to discuss industry concerns about the PAMA final rule. Comments made during the two conference calls provide lab administrators and pathologists with an understanding about the possibility that implementation of the new Medicare Part B lab fee cuts could be delayed.
Efforts to Delay and Fix
During their conference calls, the executives at the two lab companies discussed the coming Medicare Part B lab test price cuts and efforts to work with Congress and the new administration to fix the most egregious aspects of the PAMA market price reporting rule crafted by Medicare officials.
Quest Diagnostics Incorporated: Comments about CMS Final Rule
On July 25, Quest was first to conduct its quarterly earnings conference call. In his opening comments, Quest CEO Stephen H. Rusckowski said, “I’d like to briefly discuss PAMA. This month, a number of ACLA board members met with the executive branch as well as key members of the Senate Finance Committee and both the Ways and Means and the Energy and Commerce subcommittees to reiterate our belief that the current regulation effectively excludes hospital outreach labs, which are a significant segment of the laboratory marketplace.
“Last month, our trade associations sent a letter to CMS recommending it postpone the calculation and publication of the new clinical lab fee schedule,” continued Rusckowski. This would give CMS time to “redefine the definition of the applicable laboratory [for market price reporting] to ensure it includes hospital outreach laboratories.”
The lab trade associations recommend that CMS, after “…gathering data from hospital outreach laboratories, publish new clinical lab fee schedule rates effective not earlier than July 1, 2018,” he stated. “While we support reform of the Medicare payment system, we believe any modification [of Medicare Part B lab prices] should be market based and appropriately include all applicable independent and hospital outreach labs.
Strong Case To Congress
“At this point, we have made a strong case to CMS and Congress,” emphasized Rusckowski. “While we continue to believe that CMS has not carried out the congressional intent of PAMA, we recognize that a new [Part B] clinical laboratory fee schedule could be in place by January of 2018 and we will be prepared.”
Later, in an answer to an analyst’s question, Rusckowski stated, “We have shared with them [CMS] that we believe several things are going on with the data they had collected. One is they haven’t included all the [private health insurer price] data from those laboratories from whom they buy, typically hospital [lab] outreach.
“We believe their approach still limits the size of the sample, and we shared that,” he added. “This has been also reinforced by the Office of the Inspector General when it said [in a report last fall] that only 5% of the laboratories [in the United States] are being asked to submit data, which is about 69% of what they [Medicare] actually buy from.
“The second is what we have heard from some of the smaller laboratory associations that affect some of the data input [to CMS],” he said. “So we have shared this with them because some of the smaller laboratories did not have good access to retrospective data.
“Our concern is that if they [CMS] use that data for the basis of publishing a tentative clinical lab fee schedule in the fall, it won’t be right,” noted Rusckowski. “So our strong recommendation to them—and we have got support from Congress broadly, many different leaders of Congress as well as the Centers for Medicare and Medicaid Services—we believe the best thing for us all is to take some time to get it right. So our recommendation is to postpone it [implementation of the final rule].
“We have made a recommendation of how we believe they could collect the [expanded sets of] data. That will take some time,” he added. “We think if they [CMS] work aggressively, they possibly could publish the new clinical and fee schedule no earlier than July of 2018.
“So that is the path we are on,” he said. “…but [we are] working hard because we believe it [the rule as currently written] does not reflect the impression or intent [of Congress with the PAMA statute] to get a full sampling of the marketplace and get that data in a good form and get good quality data to establish a rate. So we are pushing that in a big way across the trade association.”
Laboratory Corporation of America: Comments about CMS Final Rule
During LabCorp’s conference call which took place on July 27, financial analysts had several questions about the PAMA final rule. In response, LabCorp executives offered comments.
“We sent a letter to CMS, met with the CMS Administrator, have had multiple legislative and executive branch meetings, [all to] explain that the data set that CMS is reviewing includes only approximately 5% of the [outreach lab test] volume that goes through hospital labs” stated David P. King, CEO of LabCorp.
“As we know, there is a significant delta between what hospitals get paid by commercial insurance and what independent laboratories get paid,” he noted. “So, as we’ve said from the very beginning, Congress intended to have a market-based approach, and the rule that CMS wrote—and we said this in our initial comments of the rule and we’ve said it ever since—the rule that CMS wrote looks at a highly-selective portion of the clinical lab market in a way that doesn’t reflect the true market.
Requested Six-Month Delay
“So we’ve asked for a six-month delay for them to fix the rule to allow for inclusion of the hospital outreach laboratories and the commercial pricing [for those labs] that is not included [in the current PAMA final rule],” stated King.
“I don’t have insight on whether that would be permitted, other than to say that ACLA and all of our colleagues in the industry, other laboratory trade associations, and the hospital trade associations have been involved in discussions with CMS and with the legislative and executive branches about trying to make this proposal work the way that it was intended to work,” summarized King. “So I am hopeful that we will get a better resolution than what we have seen to date.”
Another interesting point emerged during the question-and-answer session of the conference call. Apparently LabCorp encountered problems with the CMS website when it attempted to upload its lab price data. It said that it requested that CMS extend the reporting deadline. If true, this means that CMS recognized that it was unable to get data from a major lab company that was expected to provide it with the lowest market prices.
CMS Extends Deadline
“When we were having trouble loading the data in the portal, we made multiple requests for an extension of the deadline,” King explained during the conference call. “We didn’t hear [from CMS] for quite a while, and then they agreed to extend the deadline, pretty close to the initial deadline, which, as I recall, was in March, and they gave us a 60-day extension.”
Do the two CEOs have any expectations that, among Congress, the administration, and the new leaders at CMS, that a decision will be made or an action will be taken to delay implementation so as to allow time to fix the problems with the PAMA final rule?
During his conference call, LabCorp’s King said, “We’re optimistic that they’ll respond in a timely fashion. I will say, though, we are obviously preparing for next year  on the assumption that there is not going to be any change in the implementation [of the existing PAMA final rule] and that we need to take the appropriate actions to manage whatever will come out in September.”
Optimism And Uncertainty
That optimism, tempered with uncertainty, was also true in comments from Quest’s Rusckowski. “We remind Congress and we remind CMS of where we started and why we believe paying market-based price is quite important,” he commented. “So, what I’ll share is we think they are very, very responsive to listening to our concerns. We realize there is an element of administration. They realize what was put in place was put in place over the last couple of years. They realize there is an opportunity to work with us to get it right. So we remain hopeful but I can’t handicap the possible outcome.”
These comments from the two lab companies’ conference calls with analysts provide useful insights for pathologists and lab administrators about the efforts of the clinical lab industry to get Congress, the administration, and CMS leadership to understand the serious biases and flaws that exist with the existing PAMA market price reporting rule.
It is important for lab managers and pathologists to contact their senators and representatives to express concerns about the PAMA final rule. Legislators pay attention to the largest employers in their states and districts, as well as issues that might reduce access by Medicare beneficiaries to health services. Clinical labs certainly employ lots of people, and rural access is always an issue of concern!
Medicare Beneficiaries in Rural Areas, Small Towns at Risk of Losing Access to Laboratory Testing
IN MEETINGS WITH MEMBERS OF CONGRESS AND THE ADMINISTRATION, representatives of the clinical laboratory industry are communicating their concerns about the consequences of implementing Medicare Part B lab test fee cuts that are based on a flawed study of private payer lab test prices.
During their second quarter conference calls, the CEOs of Quest Diagnostics and Laboratory Corporation of America described some of the problems for Medicare beneficiaries that CMS will create if it implements its PAMA final rule as written.
Quest CEO Stephen H. Rusckowski said, “We have also met a couple of times with the leadership at CMS. The leadership at CMS understands this well, understands that the current approach [the CMS final rule] has issues associated with it. Our simple messaging on this is take the time to get it right. We continue to support the idea of paying or having CMS pay market-based pricing. To get the right [private payer lab price] data, take the right approach to bringing on those rates is important for all of us.
“And what we remind them is the reason why we have PAMA is reflective of the law’s name, that it is called the Protecting Access to Medicare Act, and it’s important for Congress—and it’s part of their congressional [intent]—not to just pay at the lowest rates, but to make sure that they pay for what they use,” continued Rusckowski.
“And the reason for this is there are many parts of this country that are not served by the large national laboratories,” he said. “The concern that they [legislators and government officials] are now aware of is, if in fact, this is not done in the right way, [Part B lab test] rates could be cut, smaller labs that are very necessary in smaller rural areas—that in some segments of the marketplace are providing the majority of lab testing [for Medicare beneficiaries]… could be substantially cut. The example is what’s happening in nursing homes, where a majority of their testing is basically the most routine tests that are done by many small clinical laboratories all over this country.”
LabCorp CEO David P. King commented that, “I would also say that I think that would be—from my perspective—a serious mistake if CMS does it. I don’t think it’s been well thought through. I don’t think they’ve thought about the implications.
“I was just reading an article that came out in CAP TODAY… [about] a hospital system in New Mexico that serves 125 nursing homes in highly rural areas,” he noted. “And if there are significant cuts to what they get paid by Medicare for those services, we’re going to see significant beneficiary access issues in my view.
“…this statute was called the Protecting Access to Medicare Act, not the Diminishing Access to Medicare Act,” emphasized King. “We made that point to CMS and they told us that Congress didn’t tell them to take it as a consideration in the statute.
“So this is a very, very important policy decision that CMS is going to make,” concluded King. “I hope that they, and Health and Human Services and the legislative branch will be able to come to some understanding that they need to do this right as opposed to just do it and get it done with.”