CEO SUMMARY: On Nov. 2, the federal Centers for Medicare and Medicaid Services released its Physician Fee Schedule for 2019. It says it will expand the number of labs from which it collects data about the lab test prices paid by private health insurers. While some labs may welcome these changes, groups representing clinical laboratories said the changes CMS calls for won’t take effect for two years. Meanwhile, on Jan. 1, CMS will make another 10% cut in what it pays for lab tests under the Protecting Access to Medicare Act.
There is bad financial news for clinical laboratories following the publication on Nov. 2 by the federal Centers for Medicare and Medicaid Services (CMS) of the final rule for the 2019 Medicare Physician Fee Schedule.
Sections in the final rule specify improvements in the way CMS will collect data on the prices private health insurers pay clinical labs. While some labs may welcome these changes, groups representing clinical laboratories noticed a significant flaw in the plan, said Mark S. Birenbaum, PhD, Administrator of the National Independent Laboratory Association (NILA) and the American Association of Bioanalysts.
“Included in the new physician rates for 2019 were corrections to problems that have plagued the clinical lab industry since Congress passed the Protecting Access to Medicare Act (PAMA) in 2014,” explained Birenbaum. “However, those corrections will not take effect for two years. Therefore, just as the Medicare Part B Clinical Laboratory Fees were cut by 10% at the start of 2018, comparable price cuts will be enacted in each of the next two years.”
Medicare prices for many clinical lab tests will be cut a collective total of 30% during the years 2018, 2019, and 2020. These price cuts are the result of the market study conducted by CMS and how it used that data to set prices as directed by the language of the PAMA law. The clinical laboratory industry has complained that CMS used a flawed data-collection process to produce the deep fee cuts that will happen during these three years.
In the final rule for the 2019 Medicare Physician Fee Schedule, CMS said it will adjust the methods it uses:
- to collect private health insurer price data from labs serving Medicare Advantage members; and,
- to use the CMS-1450 14x claims form to categorize hospital outreach laboratories as being applicable laboratories under PAMA.
“Theoretically, these changes will increase the number of hospital outreach laboratories required to report applicable data,” noted Birenbaum. “CMS expects this change to capture private payer price data from a larger portion of the laboratory market.”
Julie Khani, President of the American Clinical Laboratory Association (ACLA), had a similar comment about the language in the 2019 Medicare Physician Fee Schedule (MPFS), saying, “it recognizes the flaws in the agency’s approach to implementing PAMA and represents a starting point in advancing a more sustainable, competitive market for millions of seniors who depend on clinical diagnostics for their health.”
Intent of Congress
Khani qualified this statement by noting that “CMS has not implemented PAMA as Congress intended, requiring action from Congress to ensure that labs and patients are not harmed further.” ACLA also is pursuing a lawsuit against Health and Human Services’ Secretary Alex M. Azar for unlawfully instituting a flawed data collection process in the transition to a market-based payment system, Khani added.
Birenbaum said the problem with the language of the 2019 MPFS is that the changes CMS says it will make won’t take effect until at least 2021. “In other words, the fees for 2019 and 2020 aren’t affected by what CMS says it will change in this Medicare physician fee schedule,” he stated. “It means labs may not see any improvement from these changes until CMS does its next data collection and uses that information to set medical lab test prices for the next three-year cycle—2021 through 2023.”
For clinical labs, the three-year cycle creates two problems, both of which have a negative effect on what CMS pays for clinical lab tests.
“The first problem is labs must financially survive through 2019 and 2020 and, in each of those years, CMS is scheduled to cut what it pays labs for most lab billing codes by 10% each year,” stated Birenbaum. “Throughout this year, medical labs have struggled under a price cut of 10% that went into effect on Jan. 1.
“The second problem is that we don’t know how much these changes will affect the data CMS collects as to the prices labs are paid by private health insurers in coming years,” he added. “It’s not clear how much additional marketplace data CMS will include when they make these changes. Compared to the first data collection effort, we know now that CMS will collect data from more labs, but we don’t know the specifics about which labs are to be included and which are to be left out.”
As The Dark Report has reported, some clinical labs have reduced services and others have gone out of business, particularly community laboratories serving nursing homes and long-term care facilities located in rural areas.
Next Round of Lab Fee Cuts
Birenbaum noted that, while CMS appears to be making an effort to fix some problems with how it collects data in private payer prices for lab tests, Medicare officials will once again move forward to institute lower rates beginning in January. This means labs “face a second unsustainable 10% price cut in less than two months,” Birenbaum said.
“This imminent price cut threatens Medicare beneficiaries’ access to critical laboratory services because—after this next price cut takes effect—the drop in revenue will make it difficult or impossible for many community laboratories to sustain their testing services for Part B Medicare beneficiaries,” he emphasized.
Final 2019 Medicare Physician Fee Schedule Has Significant Changes for Clinical Labs
RELEASE OF THE FINAL RULE for the 2019 Medicare Physician Fee Schedule (MPFS) gave the clinical laboratory industry an opportunity to see how officials at the Centers for Medicare and Medicaid Services (CMS) responded to the large number of public comments it received following its publication of the 2019 MPFS proposed rule last July.
CMS put the 2019 MPFS on display at the Office of the Federal Register on Nov. 1. The final rule is scheduled to be published in the Federal Register on Nov. 23.
For the clinical laboratory industry, the most significant change in the 2019 MPFS is that CMS expanded the definition it uses for “applicable laboratories.” Those hospital outreach laboratories that receive payments from the Medicare Part B Clinical Laboratory Fee Schedule (CLFS) totaling at least $12,500 from claims submitted on the CMS-1450 14x bill type will now be “applicable laboratories” and must report the lab test prices they are paid by private health insurers.
The next reporting period, which CMS will use to set prices for the second three-year period (2021-2023), comes in 2019. Applicable laboratories will need to report this data for payments made during the period Jan. 1, 2019, through June 30, 2019.
The data to be reported must include the HCPCS/CPT code for each test, the rate paid by every private payer for each test (after all discounts and contractual adjustments), and the volume of each type of test that corresponds to that payer’s rate.
Another change in the final rule is that CMS revised its definition of an “applicable laboratory” to exclude Part C Medicare Advantage payments in certain calculations. CMS believes this will increase the number of laboratories reporting private payer prices.
Clinical labs throughout the United States won’t have much time to respond to the changes CMS enacted in the final 2019 Medicare Physician Fee Schedule. The reporting period starts on Jan. 1, 2019.
One section of the PAMA statute sets out penalties for clinical laboratories that fail to report, or report incomplete data, or inaccurate data on the prices they were paid by private health insurers. In the first cycle of data gathering, federal officials did not assess penalties against any clinical laboratory. Will this be true during the next cycle of data-gathering? CMS has made no statement about how it may penalize labs now or in the future.
30% Cut to Medicare Fees
“Smaller community labs operate on profit margins between 5% and 10%,” noted Birenbaum. “These labs may not survive a 30% cut in Medicare fees. This is especially true of those labs serving nursing homes, for example, where the bulk of their income is from serving Medicare beneficiaries.”
When labs struggle financially, the first step they take is to reduce services. “This year, we’ve seen a number of labs cut back services to physicians and patients because of the deep reductions to Medicare test fees,” he said. “With this next round of price cuts soon to take effect on Jan. 1, 2019, we will see community labs merge or be acquired because owners cannot financially sustain their lab operations. We will also see some labs simply close their doors and walk away. Some labs did that this year.
“Labs that struggle might be able to survive for one year, but following additional 10% cuts in year two and year three more labs may be unable to survive,” Birenbaum added.
Will Congress Act?
“Congress could address this situation,” he added. “NILA, with others, started a grassroots campaign to persuade members of Congress to pass a moratorium on making further cuts under PAMA. We encourage labs to join NILA on this effort.
“During the lame-duck session of Congress that is starting now, the lab associations will engage with members of Congress to get something done before Jan. 1,” he added.
In conclusion, Birenbaum said, NILA continues to oppose how CMS implemented PAMA. NILA says CMS should set lab test rates based on the entire clinical laboratory market, and to delay future cuts under Medicare Part B until a complete market study is performed.
With issuance of the 2019 MPFS final rule, clinical laboratories now understand what changes CMS officials will make to how it conducts the second market study of the prices private health insurers pay for laboratory tests. However, these changes do not address or correct the problems and flaws that have been regularly identified and described by lab professionals, their attorneys, and other lab industry experts. That leaves action by Congress or success in federal court as ways the clinical lab industry could fix these problems.
Hospital Labs Face Challenge to Report Payer Lab Prices
MANY IN THE CLINICAL LAB INDUSTRY would consider it a positive development that the Centers for Medicare and Medicaid Services will require an expanded number of hospital outreach laboratories to report the lab test prices they are paid by private health insurers during the next reporting cycle.
But adding the price data from hospital outreach laboratories presents its own challenges for those organizations.
It is widely-acknowleged that most hospital laboratories have disparate software systems which are designed for a different era of healthcare, lab test ordering/reporting, and laboratory billing/coding/collections.
Following the Nov. 1 release of the final rule, lab industry consultants and experts have spoken out about the difficulties that hospital outreach labs will have to provide accurate and complete price data from private payers. This will be similarly true for many community lab companies that serve nursing homes and long-term care facilities.
Labs must report accurate and complete data in a timely manner to CMS. Failure to do so can subject the lab to substantial penalties, defined in the Protecting Access to Medicare Act as up to $10,000 per day for a laboratory that fails to report, or has misrepresentations or omissions in the data it submits to CMS.
For labs required to report this data, lab billing consultants advise keeping source documents, logs, and other information to support how they gathered their private payer price data.
It may be a positive development for the clinical lab industry that more hospital outreach labs are now applicable labs for PAMA private payer price data reporting. But such reporting creates new risks for those same hospital labs.
Contact Mark Birenbaum, PhD, at 314- 241-1445 or email@example.com.