Market Price Report Rules Must Address All Issues

Lab industry awaits release of rules by CMS and whether such rules will favor some types of labs

CEO SUMMARY: Under the Protecting Access to Medicare Act, CMS must collect market price and volume data from certain labs beginning January 1, 2016. CMS will use this data to establish Part B clinical laboratory fees beginning in 2017. One lab association representing community and regional laboratories points out that CMS has complex issues that must be appropriately addressed if the resulting rules are to avoid favoring some types of labs over others, whether intentional or not.

THERE IS MUCH ANTICIPATION about how the federal Centers for Medicare & Medicaid Services intends to write the rules that specify which labs must report market data on test prices and what data must be collected and reported.

The Protecting Access to Medicare Act of 2014 (PAMA) that became law on April 1, 2014, calls for labs to report such data and the test volumes associated with that data, beginning on January 1, 2016.

Then, on January 1, 2017, CMS will use the market data to set prices for the Part B Clinical Laboratory Fee Schedule. As currently written, PAMA specifies that CMS cannot cut the price of a specific lab test by more than 10% in each of 2017, 2018, and 2019, nor by more than 15% in each of 2020, 2021, and 2022. There is no limit on price reductions outlined in the law for years following 2022.

For community and regional labs, market price reporting based on lab volume has the potential to cause such serious erosion to their finances that they may be forced out of business. This is due to several reasons. First, the largest national laboratories have significantly higher test volumes for the most commonly performed tests and offer deep discounts in pricing, and as a result, their data may dominate the pricing analysis outlined by the law.

More Medicare Patients

Second, community lab companies typically serve a much higher proportion of Medicare patients than do the nation’s biggest lab companies and they also serve more costly Medicare populations such as those in skilled nursing facilities. For example, Medicare makes up about 15% of the revenue of the two biggest national lab companies. By contrast, it is common for community labs to have between 30% and 65% of their revenue come from Medicare Part B payments.

Three, community labs tend to have a much narrower testing menu and could see far greater reductions in overall Medicare reimbursement in comparison to national competitors with broader testing menus that can buffer reductions.

This is why the current round of educational and lobbying efforts happening inside the Beltway will have a significant effect on the financial stability of a large number of the nation’s clinical lab organizations. PAMA requires CMS to issue the rules for market data reporting by clinical laboratories, and how the rules are structured will greatly affect the quality, relevance, accuracy, and usefulness of the data that labs transmit to CMS.

Will Rules Favor Some Labs?

Further, how the rules are written could favor one group of labs over another group of labs. This is precisely the concern of community labs that make up the membership of the National Independent Laboratory Association (NILA).

According to Julie Scott Allen, NILA members see the potential that the market reporting rules that CMS eventually issues could favor larger national labs over independent labs. Allen is a government relations director for Drinker Biddle & Reath and Senior Vice President with the firm’s District Policy Group, representing NILA.

“NILA disagrees with the premise that PAMA presents an opportunity for a fair market analysis,” stated Allen. “First, it is unclear whether CMS will collect data from the whole laboratory market in terms of all entities that perform laboratory testing and their prices and volumes, or whether the regulations will be skewed in a way that will harm smaller independent labs by comparing only their prices and volumes to those of the largest national independent labs.

“Second, the laboratory market is derived of different players that compete for contract business in different ways. PAMA’s approach is focused on price and volume only,” she continued. “It does nothing to look at the markets being served and to fairly evaluate issues of access to services or the cost of services in different markets. It assumes all laboratory contracts are uniform, which is not true.

“NILA is also seriously concerned about the burden labs will face when they have to report to CMS on test volume and the prices they get paid by different payers for the tests they run,” noted Allen. “There are many questions about what data CMS will collect and whether data collection can and will be uniform across all labs.

“For example, will the data allow true apples-to-apples comparisons when there is such diversity in the way private contracts for lab testing are negotiated and finalized?” she asked. “Forget how complicated it is to compare between different commercial payers; there is significant variance in each individual contract for any single commercial payer.

“We also want to understand what rate information CMS will collect,” she said. “Will those rates represent all that goes into final pricing for an individual test code, including such things as patient co-pays? Since many commercial payers have entered into arrangements with large national laboratories, effectively shutting community laboratories out of their networks, will CMS seek to collect out-of-network payment rates? Comprehensive rates and out-of-network rates certainly represent market-based rates.”

Approach Questioned

CMS must write regulations to implement the laboratory requirements under PAMA. As of early February, the laboratory industry has seen no proposed rule or economic impact analysis. The federal Office of Management and Budget must review the rule, and there was no sign as of February that it had done so.

“How can laboratories comply with requirements on January 1, 2016, when these requirements might not be finalized until late in 2015?” asked Allen. “NILA seeks to understand what the agency might do to minimize this process, and whether, for example, the agency proposes a limited review of a portion of the fee schedule and what tests are included in such a review.

Many Factors Involved in Lab Market Data Reporting

IN THE PROTECTING ACCESS TO MEDICARE ACT (PAMA), CMS is directed to collect market price data and use the data to establish prices for the Part B Clinical Laboratory Fee Schedule, starting on January 1, 2017.

“As part of its reporting of rates, PAMA requires laboratories to outline all discounts and rebates,” stated Julie Scott Allen, Senior Vice President with the District Policy Group, representing the National Independent Laboratory Association (NILA). “However, the law excludes some of the biggest forms of discounting, including capitated rate arrangements.

“Organizations such as NILA have questioned how discounting will be applied to the final rate calculations CMS conducts, given the complexity of those arrangements,” she noted. “There are numerous forms of discounting, including by test, by overall contract, and by volume. Sometimes discounts to lab tests are not applied until the end of a specified contract term to ensure a metric is met.

“How such discounts are ultimately considered and applied to CMS’ rate calculations are of concern,” Allen said. “Most community independent labs do not typically compete on volume or offer discounts. Instead, they compete on quality and an ability to provide services to communities otherwise not served by the nation’s largest lab companies. CMS needs to consider these issues.

“PAMA does not clearly define what types of laboratories are required to report test prices and volumes,” continued Allen. “The law outlines that ‘an applicable lab’ is one in which the majority of its Medicare payment comes from either the Physician Fee Schedule or the Clinical Laboratory Fee Schedule.

“Thus, we must ask, ‘Who was this intended to exclude?” she said. “Hospital inpatient laboratory services are paid under DRGs but not under either fee schedule. Hospital outpatient laboratory services have largely-though not entirely-been paid as a bundled payment for overall services provided to these patients.

“That leaves hospital outreach laboratories that can be significant competitors to small and mid-size community and regional laboratories,” concluded Allen. “However, which labs are required to report market data will ultimately be determined by CMS. “

“Any such review must include a diverse array of tests, including high dollar, high utilization, esoteric, and routine tests, in order to not have an adverse effect on market competition,” she added.

“NILA wants these issues considered as part of any proposed so-called market based regulatory assessment,” she said. “NILA members have long argued that any regulatory process and subsequent adjustments to Medicare rates must be considered for how they affect laboratory competition and access to laboratory services. In particular, this process must consider the impact in communities primarily served by community and regional laboratories, including rural communities, inner cities, and specific sites such as skilled nursing facilities.

“This kind of process and assessment simply cannot be an after-thought,” Allen explained. “It can’t wait for a GAO evaluation years later,” she explained. “By then, the small and mid-size market will likely be depleted. Congress and CMS must understand this.

“These regulations and their outcome must not favor large labs over small or midsize labs or favor publicly-traded national labs over privately-held local labs,” added Allen. “Writing the regulations so that they favor one over the other would be a gross government manipulation of the market and destroy competition.”

Lab administrators and pathologists interested in this issue should contact their respective lab associations for more information. CMS is expected to issue the market data reporting regulations soon.”

Contact the National Independent Laboratory Association at 314-241-1445.

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