CEO SUMMARY: Clinical laboratories complain that implementation of a new payment system for molecular tests has been a disaster since January 1. Most contractors for the federal Centers for Medicare & Medicaid Services have not paid labs for molecular tests billed this year. Billing experts indicate that many commercial plans are not paying either. Groups representing labs have asked CMS to make changes to the new payment system to smooth implementation and make it more transparent.
CLINICAL LABS ACROSS THE UNITED STATES are facing a situation without precedent. They have now gone three full months into 2013 without payment from most federal contractors and commercial health plans for many types of molecular tests.
Blame it on the slow response by payers to the 100+ new molecular test CPT codes. Most contractors for the federal Centers for Medicare & Medicaid Services (CMS) have not paid labs for all these tests on invoices submitted this year, according to billing experts.
Because private payers typically follow Medicare’s lead on payment issues, when the Medicare contractors stopped paying for molecular tests after December 31, some commercial plans stopped paying labs as well. That has left a large number of clinical labs and pathology groups without reimbursement for claims submitted since January 1, 2013.
CMS has heard complaints about this situation from the California Clinical Laboratory Association and the American Clinical Laboratory Association, among other groups representing labs. These lab industry groups have excoriated CMS about its failure to adopt a new payment system in time to implement reimbursement codes, thereby causing the three-month interruption in reimbursement to labs for these molecular CPT codes.
As this issue of THE DARK REPORT went to press, there was no news of a satisfactory resolution to this situation. Executives at several national billing companies say that labs may not see payment for these tests until next month, at the earliest.
Faced with lower rates of reimbursement, one lab director said he laid off several staff members from his lab’s staff and that —as a result of not being paid by Medicare contractors—had experienced a revenue shortfall of about $900,000 since January 1. His lab company had expected to receive about $1.5 million in revenue for its molecular tests during this period, but so far has received only about $600,000, he said.
Complete Payment Stoppage
It is reported that a few Medicare contractors have made some payments for a few of the molecular CPT codes. But many clinical labs and pathology groups are reporting a complete stoppage of payments for these CPT codes.
One good source of market intelligence concerning this situation are the national pathology and laboratory billing companies. At McKesson Corporation, billing experts there say that April may be the earliest that pathology practices and labs can expect to see payments restarted for these molecular tests—but there are circumstances that may delay that event. McKesson serves hospital-based pathology and laboratory clients nationwide, so it has a broad perspective on this matter.
“Across all our clients, there have been only a few payments since the first of the year,” observed Stephanie Denham, Client Services Director for McKesson. “Medicare contractors are not paying for molecular tests covered by the new CPT codes.”
Specific Contract Language
“One of our clients has a contract with one of the large private payers and that lab has been paid,” she added. “But this contract has specific language stating that when a new code is used, the lab will be paid a certain percentage of the allowed amount. However, that is one of the few situations where a lab has been paid. We have not seen reimbursement from any of the Medicare contractors remitted to our lab clients.”
“Each Medicare contractor is acting independently, and we believe they are trying to determine an appropriate payment amount for each test,” explained Laura Edgeworth, CPC, Coding Compliance Director for McKesson. “But to date, we haven’t seen real movement from any of the contractors to set fees for these tests or to make payments.”
“Keep in mind that running molecular tests is costly for labs because they have to pay for staff, equipment, and reagent rentals,” stated Leigh Polk, Business Support Services Director for McKesson. “Some labs refer these tests out to other labs, meaning they incur costs without getting any reimbursement. Labs continue to provide these molecular tests because of the need to support appropriate patient care.”
Rates Less than Lab Costs
Earlier this year, the largest Medicare contractor, Palmetto GBA, was criticized for posting reimbursement rates for molecular rates that lab directors and pathologists said did not cover the costs of running the tests. Palmetto is the Medicare contractor serving the states of California, Hawaii, Nevada, North Carolina, South Carolina, Virginia, and West Virginia.
Currently, Palmetto is asking labs to use what it calls a gap-filling process when submitting bills. The lab industry is critical of this process, claiming it to be confusing and time-consuming. On page 15, a Palmetto official comments on the current situation.
In a letter to CMS, ACLA President Alan Mertz said the new pathology codes were added to the CPT Manual last year but CMS waited a year to implement them, a factor that led to the problems affecting labs now. In that time, ACLA suggested that CMS should use the simpler and more transparent cross-walking method to set prices for the new molecular codes, but CMS rejected this suggestion, Mertz wrote. (See sidebar below.)
Now, pathologists are reporting that the low rates could put some labs out of business and that the gap-filling process is confusing and not transparent. To help clinical labs and pathology groups understand the scope of this problem, THE DARK REPORT has interviewed a wide range of experts and lab executives on this matter. This entire issue provides the lab industry’s first detailed coverage of this important and still-unfolding story.
ACLA Claims that Current Gap-Filling Process Used by Medicare Is Flawed in Significant Ways
SERIOUS FLAWS EXIST IN A NEW GAP-FILLING method used by Medicare contractors to set prices for more than 100 recently-adopted molecular CPT codes, according to a letter written by the American Clinical Laboratory Association (ACLA) to the federal Centers for Medicare & Medicaid Services (CMS).
Previously ACLA has expressed its concerns about the fairness and transparency of the gap-filling method, wrote ACLA President Alan Mertz, in a letter sent on March 27 to Marc Hartstein, Director of CMS’ Hospital and Ambulatory Policy Group. Mertz stated:
It now has been five months since the decision to use gap-filling for the new [molecular] codes was announced. Based on our interactions with the [Medicare] contractors who are pricing the tests, we continue to have the same concerns about the fairness and transparency of the process.
Specifically, Mertz said CMS should instruct all Medicare contractors to release their data and methodologies to the public to show how they arrived at their pricing determinations. ACLA also suggested that CMS should convene an open forum to review the price-setting process for the remainder of the year, as well as respond to the many questions about gap-filling recently asked by lab directors and pathologists. The letter stated:
As you will recall, the new pathology codes were added to the CPT Manual for 2012, but CMS delayed their implementation for a year so that it would have time to determine how best to implement them. During that process, ACLA urged CMS to use a cross-walking process to establish prices for the new molecular pathology codes, largely because it is the simplest and most transparent method for pricing the new codes and because these new codes represent existing well-established tests. However, in its November Notice of Final Payment Determinations, CMS determined that it would use the gap- filling process to price the new codes.
At that time, ACLA expressed concern about the significant workload involved in this task, the short time in which contractors had to price the new codes, the relative inexperience of most contractors with gap-filling and molecular pathology, and the potential for a negative impact on patient care.
This far into the process, it is increasingly clear that there are major problems with how gap-filling is proceeding. Even though we are less than a week away from when prices must be reported to CMS—and almost two years from the time when the codes were first announced—the process is still far from complete, and significant questions persist about how contractors arrived at the prices that they have posted.
As of this date, CMS has not issued a public statement in response to lab industry comments about this situation.