PAMA’s New Rules Affect Lab Test Pricing, Coverage

Association representing nation’s smaller labs outlines its biggest concerns about the new law

CEO SUMMARY: For several reasons, the “Protecting Access to Medicare Act” (PAMA) has the potential to be the most disruptive federal legislation directed at the clinical lab industry since the enactment of CLIA 1988. Following passage of the law, some lab industry groups have taken different stances toward the positive and negative elements of PAMA. The following interview is one of a series designed to help lab administrators understand different viewpoints about PAMA.

SINCE THE PASSAGE, IN APRIL, OF THE “Protecting Access to Medicare Act” (PAMA), various lab industry associations have expressed different opinions about whether the law will turn out to be good or bad for different segments of the clinical laboratory industry.

THE DARK REPORT is presenting these different opinions about PAMA to provide pathologists and lab executives with insights into the lobbying strategies and legislative maneuvering that took place before the bill’s passage and subsequent signing by President Obama in early April. (See TDR, April 7, 2014.)

Representing NILA

The National Independent Laboratory Association (NILA), in St. Louis, Missouri, is represented by the District Policy Group in Washington, D.C. According to Julie Scott Allen, Senior Vice President, and Erin Will Morton, Senior Policy and Advocacy Advisory, of the District Policy Group, NILA worked closely with policymakers and their staff leading up to the passage of the legislation, but ultimately did not support the final package.

Because NILA’s members are independent regional and community clinical labs, they are concerned about how CMS will implement the sections of PAMA that call for the federal agency to gather market data from laboratories and then use that market data to set new prices for the Medicare Part B Clinical Laboratory Fee Schedule. (CLFS). They are also concerned about the law’s oversight requirements.

“The Office of the Inspector General and the Government Accountability Office will conduct oversight and issue reports about CMS’ implementation of the new law only after it has gone into effect, which might be too late for some labs,” observed Morton. “NILA’s members have questions about the OIG and GAO reports that will follow the first year and each year after PAMA payment rates go into effect in 2017.”

“Will the GAO have the time needed to assess all the relevant issues and implications in its first report, due by 2018?” asked Allen. “That will be only one year after new CLFS payment rates are estab- lished and we might not know the full impact this law will have by then.”

“A report from OIG also is very concerning to NILA because OIG is specifically tasked with review of the top 25 tests by expenditures,” noted Morton. “We are not sure if those tests will be ranked by overall dollar value or by volume. That question is very important as we do not want CMS to consider a list of the top 25 codes by volume as a target for their review of the fee schedule.”

Top 25 CLFS Lab Tests

“The OIG analysis outlined in the new law looks to be too similar to the way the OIG conducted its evaluation in its damaging and significantly misleading June 2013 report,” stated Allen. “In that report, the OIG concluded that CMS could save $940 million per year simply by setting lab test rates for the 25 top CLFS tests closer to those paid by state Medicaid programs and a few Federal Employee Health Benefits plans.

“That 2013 OIG report created a perception in Congress that something should be done to make major cuts to Medicare lab test rates,” she continued. “Our fear is that this is what Congress wants to do again. There is no date for the release of the first OIG report under the law. The law just says OIG should do an annual analysis.”

Another issue is the requirement in PAMA that CMS gather payment data and use that payment data to establish prices for the CLFS without considering other factors. The law specifies that, beginning in 2016, reporting labs must submit the volume and price paid for each assay by each payer.

NILA members are concerned about the market data component of PAMA. “Gathering that level of detail will make it difficult for GAO to get much useful information after only a few months of assessment,” she said. “The GAO might say it doesn’t have enough data to evaluate the effects of the law. GAO has to report no later than October 1, 2018.”

The law calls for potential new cuts to Medicare lab test fees when new prices take effect in 2017. PAMA restricts CMS from cutting the price of a specific test by no more than 10% per year for 2017, 2018, and 2019, followed by cuts not to exceed 15% per year for 2020, 2021, and 2022.

It is the magnitude of those multi-year cuts to CLFS lab test prices that concern NILA’s community and regional lab members as well as others in the clinical laboratory industry. Thus, the comments by Allen and Morton about how CMS, GAO, and OIG fulfill their responsibilities under PAMA reflect the concerns of the clinical laboratory testing industry.

“There is some hope that, because PAMA calls for CMS to establish an advisory committee of lab industry representatives, this committee could serve as a place for the lab community to raise issues about pricing and coverage—not only for new lab tests but for those on the existing fee schedule,” observed Allen. “There was consensus in the lab industry that an advisory committee was needed in an effort to bring transparency to the CMS process. NILA would argue that if the committee is set up properly, it should be used to help CMS set appropriate rates for all tests, not just new test rates.”

Advisory Committee to CMS

“CMS has an opportunity to create a robust advisory committee to help ensure the right expertise is brought to any new CMS process relating to lab testing,” noted Morton. “However, the problem is that CMS ultimately doesn’t have to do anything that the advisory committee recommends, and it is currently set up only to help review new tests. Therefore, labs may still not have a mechanism to get the answers they want from CMS.”

Negotiations Led Congress to Favor Large Labs over Smaller Clinical Labs in the PAMA Law

CONGRESS SUCCEEDED IN REWRITING how clinical laboratories are paid under Medicare in the absence of any formal studies, committee hearings, or input from the full laboratory community when it passed the Protecting Access to Medicare Act (PAMA), said Julie Scott Allen and Erin Will Morton of the District Policy Group.

“The Part B Clinical Laboratory Fee Schedule (CLFS) has been a long-standing concern for Congress,” Morton explained. “Policymakers have wanted to find a way to reform the CLFS.”

“In the past when Congress wanted to cut lab fees, the CLFS was subject to across-the- board cuts or the institution of new copay requirements was considered,” added Allen. “In recent years, Congress expressed interest in considering other approaches to manage lab costs outside of direct across-the-board cuts. When CMS came out with a final regulation to adjust CLFS rates based on their own assessment of ‘technological changes’ in the lab industry, Congressional staff decided it was time to act and do something themselves.”

“I don’t think the congressional committee staff cared whether CMS was going to make cuts the right way or not,” said Allen. “I think the congressional staff simply wanted to be able to take credit for doing so while using the labs to help offset the spending required to fix the sus- tainable growth rate.” SGR is a formula Congress uses to control federal health spending by linking physician payment to a growth target.”

“We hoped that Congress would find a way to reform the CLFS that was agreeable to the community and regional laboratories and to members of Congress,” stated Morton. “But that’s not what happened with the new law.”

“As Congress debated the SGR, the National Independent Laboratory Association (NILA) made a proposal that would have represented labs’ interests and served to improve lab payments under the Medicare program,” explained Allen. “Despite interest in that proposal, and in the face of opposition by those representing the national labs, the congressional focus shifted back to making fee schedule reductions. When that happened, it put the community and regional labs at greatest risk because the CLFS cuts that are now coming through this law may affect all labs that provide Medicare services—but larger labs will be more likely to survive deep cuts while smaller labs may not.

“The real question now is how competitive the market for lab services will be in the coming years and that will depend on how CMS writes the language to implement PAMA,” noted Allen. “Another question that labs are asking is whether the cuts under PAMA, which could be as deep as 75% off current Medicare reimbursement rates, are better or worse than what CMS was proposing to cut before PAMA.”

“Previously, CMS was going to make a number of price adjustments to the CLFS, and we were unclear about how deep those cuts would be,” she continued. ““But now we’re very clear on how far CMS can go because the law allows for cuts of 10% per year for three years and then 15% per year for three more years, totaling up to 75%.

“Under CMS’ plan, community labs might have faced a quick death versus the slow death that they may see under PAMA. Which is better for a community lab?” she asked. “I say both are the wrong approach, and both are bad for community labs.

“During the negotiations on direct ‘market’ adjustments to rates, NILA wanted a payment adjuster for community labs that recognized their increased cost of providing services to beneficiaries whose access to tests would otherwise be threatened if they no longer could provide services,” added Allen. “Congress instituted payment adjusters for other healthcare providers that recognized the increased costs of service in rural geographic areas or the need to recognize the effect of payment changes when a business’ volume of services is significantly less than that of larger competitors. This type of adjuster was not supported by those representing the national laboratory providers.”


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