Medicare OPPS Rule Has Pitfalls for Labs

CMS finally issues rules for packaging certain lab tests for OPPS outpatients

CEO SUMMARY: On January 1, the new Medicare rule for requiring bundled or packaged reimbursement for certain services covered by the hospital Outpatient Prospective Payment System (OPPS) became effective. Just four days earlier (on December 27), Medicare officials issued instructions on how hospitals and laboratories should bill for these services. The new rules trigger serious compliance risks if providers—including labs—fail to meet these requirements.

SINCE THE START OF THE NEW YEAR, both clinical laboratories and hospitals must pay attention to Medicare’s new “bundled payment” rules for certain outpatient procedures.

However, the federal Centers for Medicare & Medicaid Services (CMS) issued instructions on how to implement this new complicated billing procedure only on December 27. “That left labs and hospitals just four days before the new rules went into effect on January 1,” stated Robert E. Mazer, a lawyer and Principal with Ober Kaler, in Baltimore, Maryland.

Medicare Bundled Pricing

At issue are the “bundled pricing” rules for certain procedures that took effect on January 1, 2014. The result is that hospitals spent January implementing the procedures necessary to get paid under the revised hospital outpatient prospective payment system (OPPS).

“Under the new rule, CMS adopted a policy that calls for ‘packaging’ certain clinical laboratory tests provided to hospital outpatients into the OPPS,” stated Mazer. “Most clinical laboratory tests provided to hospital outpatients are included under the new packaging or bundling policy, although certain molecular pathology tests are excluded from packaging.”

“The new payment policy this year applies only to services for Medicare beneficiaries who are hospital outpatients,” wrote Mazer in a report issued by Ober Kaler. “Although CMS indicated that it has included the cost of laboratory tests in determining payments for hospital outpatient services, hospitals can expect a likely reduction in Medicare payments for clinical laboratory tests furnished to their out- patients.”

In the report to Ober Kaler’s clients about the new rules, Mazer wrote:

CMS’ instructions further define those laboratory tests that would be exempt from the “packaging” requirement. Tests performed under the following three scenarios would not be “packaged,” but instead would continue to be paid under the Medicare clinical laboratory fee schedule(CLFS):

1) The test is a “non-patient” laboratory test; 2) the patient does not receive any hospital outpatient services other than laboratory tests as part of the same “encounter;” or, 3) the patient does receive hospital outpatient services in addition to laboratory tests during the same “encounter,” but the tests are “clinically unrelated” to the other hospital services, and the laboratory tests were ordered by a different practitioner than the practitioner who ordered the other services.

The instructions specify that the same “packaging” principles apply whether the hospital actually performed the laboratory tests or if they were provided “under arrangement,” that is, the tests were performed by another laboratory that had agreed to accept payment from the hospital as full compensation for the test.

Clinical laboratory services for outreach non-patients (outreach services) are subject to the new billing procedure, Mazer said in an interview with THE DARK REPORT. “While the new packaging procedure applies to clinical laboratory tests for hospital outpatients only, hospitals need to make sure that they properly designate the testing as for a hospital outpatient or a non-hospital patient (outreach) to which the new principles would not apply,” he explained.

Definition of Non-Patient

“The instructions CMS issued note that a non-patient is an individual who is neither an inpatient nor an outpatient but whose specimen is provided to the hospital for testing and who is not physically at the hospital,” he added.

“In addition to differentiating between hospital outpatient and non-patient tests,” he continued, “hospitals will need to develop procedures to differentiate between clinical laboratory tests for hospital outpatients that should be packaged and those that should be billed under the CLFS. This includes determining whether particular laboratory tests were ordered for a purpose that was clinically unrelated to the primary procedure.

“CMS stated that laboratory tests would be ‘packaged’ when they were considered integral, ancillary, supportive, dependent, or adjunctive to a primary service or services provided in the hospital outpatient setting,” Mazer wrote. “A laboratory test that was ‘packaged’ would be paid for by Medicare only as part of OPPS. A laboratory test that was not ‘packaged’ would continue to be paid separately based on the Medicare clinical laboratory fee schedule (CLFS).”

Mazer said that in the 2014 OPPS final rule, CMS adopted a two-step approach to determine which laboratory tests would be packaged for OPPS payment. “Under the new payment policy, a laboratory test will be ‘packaged’ when 1) it is provided on the same date of service as the primary service; and, 2) it was ordered by the same practitioner who ordered the primary service,” he said.

When to Package a Lab Test

“By contrast, a laboratory test will not be packaged if it is the only service provided to a Medicare beneficiary on the date of service,” stated Mazer. “Additionally, a laboratory test that is performed on the same date of service as the primary service will not be packaged if it is unrelated to the primary service and is ordered by a practitioner who is different from the practitioner who ordered the primary service.” he wrote. “Note that tests for non-patients would never be packaged.” (See sidebar below for two examples.)

Mazer explained that when putting this arrangement in place, CMS called for using the type of bill (TOB) 13x and 14x. Previously, 13x was used for outpatient diagnostic testing services and 14x was used for laboratory tests performed on a laboratory specimen for a non-patient.

“Under the new payment policy, laboratory tests that are packaged into OPPS must be billed on a 13x claim with the pri- mary service,” he said. “A laboratory test that is not packaged should be billed on a 14x claim. According to CMS, it will be the hospital’s responsibility to determine when to separately bill laboratory tests on the 14x.”

As Mazer explained, every hospital needs to implement procedures that reflect the new payment policy. The hospital’s procedures should cover outpatient tests performed by the hospital laboratory directly and laboratory tests referred to a reference lab.

Lab ‘Under Arrangement’

Mazer also pointed out that “the instructions issued December 27 specify that tests provided for a hospital outpatient by another laboratory ‘under arrangement’ are subject to the new policies.”

Labs are likely to have three other areas of concern. “One unknown involves clinical laboratory services performed by independent labs that provide reference tests for hospital outpatients,” observed Mazer. “These reference labs may receive requests from hospitals for additional discounts on such tests—based on the reduced Medicare payments that hospitals will receive under OPPS.

“The second area of concern associated with the new OPPS rule is the possibility of fraud,” warned Mazer. “Hospitals should be aware that Medicare contractors may actively look for improper arrangements that are intended to circumvent the new payment policy and to avoid the claims processing edits that will be put in place.”

Third, hospitals and laboratories should be on the alert for glitches in the new Medicare edits that result in the improper denial of payment claims. “CMS recently acknowledged that an edit it put in place to prevent payment of the technical component (TC) of pathology services with the same date of service as an outpatient hospital service also incorrectly denied TC claims that had a place of service other than the hospital,” noted Mazer.

Splitting The Fee Bundle

The most interesting question that arises from Medicare’s new rule for packaging these OPPS services is how much of the bundled fee hospitals will be willing to pay for the laboratory tests. Other clinical services must be included in the package and all of these providers will want to maximize their share of the bundled fee.

Another important question relates to the financial impact this OPPS rule will have on both hospital labs and reference labs that provide lab testing services that are covered by the new rule. Labs will need some weeks or months for enough claims to be submitted and settled before that question can be answered.

Two Examples for OPPS Billing of Clinical Lab Tests

UNDER THE NEW packaging or bundling policy for the hospital outpatient prospective payment system (OPPS), the federal Centers for Medicare & Medicaid Services (CMS) provided two examples.

“According to CMS, if a Medicare beneficiary was scheduled for eye surgery by an ophthalmologist, but on the same date of service received unrelated laboratory tests that had been ordered by his or her cardiologist, those laboratory tests would not be packaged,” wrote Robert E. Mazer, a lawyer and Principal with Ober Kaler, in Baltimore, Maryland. “As a result, the hospital would receive separate payment for those laboratory tests under the clinical laboratory fee schedule (CLFS).

“By contrast, if the ophthalmologist ordered laboratory tests as a part of pre-operative testing and those tests were performed on the same date of service as the eye procedure,” continued Mazer, “then payment for the laboratory tests would be packaged into the payment for the surgical procedure under OPPS.”

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