CEO SUMMARY: For years, the clinical lab industry has sought unsuccessfully to get the federal Centers for Medicare and Medicaid Services to address the inequities in the payment formula CMS adopted after Congress passed the Protecting Access to Medicare Act (PAMA). In April, the lab industry received good news when the Medicare Payment Advisory Commission (MedPAC) reported that its staff found a more equitable and less burdensome method of data reporting for labs.
THERE MAY BE SOME GOOD NEWS ON THE SUBJECT of how Medicare officials require clinical laboratories to report the lab test prices paid by commercial health insurers, as mandated by the Patient Access to Medicare Act (PAMA).
If Congress were to act on the recommendations in the final report by the Medicare Payment Advisory Commission (MedPAC), two significant changes could result. One change would be an increase in clinical lab test prices as listed on the Medicare Part B Clinical Fee Schedule (CLFS). The second important change would reduce the reporting burden on labs when they gather private payer lab test prices from all types of labs that currently provide testing to Medicare patients.
This information comes from a preliminary report submitted last April to Congress by the MedPAC, a nonpartisan legislative branch agency that provides the U.S. Congress with analysis and policy advice.
MedPAC’s report was based on its analysis of how the federal Centers for Medicare and Medicaid Services (CMS)implemented PAMA. It determined that a more efficient way of reporting data on what commercial insurers pay for lab tests could lead to increased Medicare payment to labs of 10% to 15% over what CMS currently pays clinical labs for tests. MedPAC is due to issue a final version of the report this month and it could come as early as Tuesday (June 15), according to sources in the clinical lab industry.
MedPAC was required to do the analysis under the Laboratory Access for Beneficiaries (LAB) Act, which went into effect at the end of 2019. The LAB Act addressed two of the most onerous requirements of PAMA. First, it delayed the data-reporting requirements under PAMA. Second, it required MedPAC to review the methods Medicare officials used to implement PAMA and to recommend revised data collection and rate-setting processes.
For more than six years, the clinical laboratory industry has tried—but mostly failed—to make progress in its efforts to get CMS to implement a more efficient and equitable way for labs to report data on the lab test prices paid by commercial insurers.
Now that MedPAC is about to issue its final report, as required by the LAB Act, the industry may be about to get a more equitable way to report what insurers pay for lab tests. A more equitable method of assessing how labs are paid would result in higher payment rates for labs, according to lab industry sources who commented on background, meaning they would not be named.
More Types of Labs to Report
In its preliminary report, MedPAC showed that producing accurate estimates of private payer lab test prices from a wide range of laboratories could reduce by as much as 70% the total number of laboratories currently required to report this information. Under the current rule issued by CMS, all applicable labs must comply with a complicated formula to assemble and report the lab test prices they’ve been paid by private payers. Labs have regularly complained that CMS’ data-reporting requirements are onerous, time-consuming, and costly, while excluding data from relevant types of labs.
In its preliminary report, MedPAC noted that, not only would revising the data-collection method improve the efficiency of the data-reporting system that CMS has used, but it also would increase the types of laboratories that would be required to report. Having a wider range of labs report payment rates would help to ensure all labs are represented even though all labs would not need to report, the preliminary report suggested.
In the first round of data-reporting under PAMA, MedPAC’s preliminary report showed that independent labs were over-represented. This confirms a major criticism that clinical laboratories have made to CMS since issuance of the first draft rule years ago.
Independent Lab Reporting
In 2016, for example, independent labs ran 48% of all tests on the Clinical Laboratory Fee Schedule (CLFS), MedPAC noted, but that level of tests represented 90% of the payment-rate volume reported to CMS.
Hospital outpatient labs ran 29% of all tests on the CLFS in 2016, but that volume represented only 1% of the payment-rate volume reported to CMS, the report showed.
In that same year, physician-office labs (POLs) ran 28% of all CLFS tests, but that volume represented only 8% of the payment-rate volume reported to CMS, the report added.
In addition, hospital outpatient and POLs reported higher payment rates from commercial insures, on average, MedPAC reported. Relative to what commercial insurers paid independent labs, commercial insurers paid hospital outpatient labs at rates that were 45% higher than what they paid independent labs, MedPAC noted. Also, insurers paid POLs rates that were 53% higher than what they paid independent labs, the report added.
Since independent labs were over-represented when CMS calculated what commercial insurers paid for lab tests in 2016, the resulting calculations showed independent labs were paid rates that were close to the median payment rates for all labs, the report noted. Although MedPAC’s preliminary report did not say so, the report implied that when CMS set payment rates for lab tests based on these calculations, the rates were lower than they were previously and lower than they would have been if all segments of the lab industry were represented more equitably.
After all changes under PAMA became effective, Medicare payments for tests on the CLFS decreased by an average of 24%, but changes in payment were not uniform and even increased for about 23% of tests, MedPAC reported. Payment for routine, low-cost tests declined by 20% to 30% while newer, more expensive tests had smaller payment rate cuts and even had some increases in payment, the report noted.
CLFS Payments in 2019
In 2019, CMS paid more than $7.5 billion to labs for 428 million assays on the Clinical CLFS, MedPAC reported in April. Most of that $7.5 billion went to three types of laboratories: independent labs such as Quest Diagnostics, Labcorp, and others; hospital outpatient labs; and physician office labs, the advisory agency reported.
Having all types of labs report payment rates to CMS would make the data-collection method more equitable and would increase what CMS pays for clinical laboratory tests. Basing Medicare payment rates on a representative sample of laboratories would increase Medicare spending on lab tests by 10% to 15%, the preliminary report showed.
A new methodology that is designed to include all segments of the clinical lab industry would mean that CMS would collect data from independent labs, hospital outreach laboratories, and physician-office laboratories.
Sources representing clinical laboratories have said they support the idea that CMS would use survey methods for most tests on the Clinical Laboratory Fee Schedule (CLFS), instead of requiring each laboratory to report all data that they have on what commercial health insurers pay for their clinical lab tests.
PAMA Led to Deep Cuts in Lab Test Payments
AFTER CONGRESS PASSED THE PATIENT ACCESS TO MEDICARE ACT (PAMA) OF 2014, the Centers for Medicare and Medicaid Services used data it collected during the first reporting period in 2017 to cut the Medicare Part B Clinical Laboratory Fee Schedule (CLFS) prices in 2018, 2019, and 2020. (See TDR, “PAMA Final Rule Issued, CMS Plans to Cut Rates by 5.6%,” July 5, 2016; “What Labs Can Expect from PAMA in 2019,” May 20, 2019.)
In 2017, the American Clinical Laboratory Association (ACLA) filed a lawsuit against Alex Azar, who, at the time, was the Secretary of the federal Department of Health and Human Services (HHS). In that lawsuit, ACLA challenged a rule that HHS issued in 2016 in which HHS defined laboratories that needed to report what commercial health insurers pay under PAMA for lab tests as “applicable laboratories.” Under the definition of “applicable laboratories,” HHS said labs must report what they get paid if they bill Medicare Part B under their own national provider identification (NPI) number.
In the lawsuit, ACLA charged that the definition of an applicable lab under this standard was arbitrary and capricious and that it excluded significant numbers of hospital labs that provide outreach services to patients from needing to report what health insurers pay them. Most hospital laboratories bill under their hospitals’ NPI numbers. By excluding hospital outreach labs, the data-collection method was skewed, the lab industry contended.
By excluding hospital outreach labs, the data tended to over-sample large commercial labs. Private payers tend to pay large commercial labs less than they pay hospital outreach labs. Therefore, the data that CMS collected resulted in lab test prices for all labs that were lower than labs had been getting paid.