Senator Asks: Are Lab Test Payments Too High?

GAO report on PAMA implementation shows confusion among federal agencies about fee cuts

CEO SUMMARY: It is ironic that, after the federal Centers for Medicare and Medicaid Services (CMS) enacted the deepest price cuts to the Part B Clinical Laboratory Fee Schedule in more than 50 years, a U.S. Senator now asks CMS why it will pay billions more for lab testing. The question from Iowa Senator Chuck Grassley is based on a recent report to Congress from the Government Accountability Office about how CMS has implemented the Protecting Access to Medicare Act.

CLINICAL LAB INDUSTRY EXPERTS SHARPLY CRITICIZED the Government Accountability Office (GAO)  after it issued a report to Congress stating that payment rates from the federal Centers for Medicare and Medicaid Services (CMS) may lead Medicare to pay billions of dollars more than is necessary for clinical laboratory testing.

The report could be an example of how one government agency (in this case the GAO) can trip over the actions of another (CMS). A quick read of the report led journalists and at least one U.S. Senator to conclude that the GAO may be correct, which could cause the industry to face still deeper price cuts than it has experienced since Jan. 1, 2018.

In the report sent to Congress on Nov. 30, “Medicare Laboratory Tests: Implementation of New Rates May Lead to Billions in Excess Payments,” the GAO concluded that the way CMS instituted new payment rates under the Protecting Access to Medicare Act of 2014 (PAMA) was incorrect and may result in CMS paying $733 million more than it should pay for clinical lab tests starting last year and continuing through 2020.

The report led Senate Finance Committee Chairman Chuck Grassley (R-Iowa) to send a letter on Jan. 23 to Health and Human Services Secretary Alex M. Azar II and CMS Administrator Seema Verma asking them to explain what his press office said is “the potential for a striking increase in costs to Medicare for laboratory services.” He demanded answers from HHS and CMS by Feb. 6.

While the GAO report and Grassley’s questions are a concern for the clinical lab industry, there may be a silver lining in that Grassley is asking questions of Azar and Verma that lab industry leaders want answered as well.

“The administration ought to be doing all it can to ensure fiscal responsibility prevails when it comes to Medicare payments,” Grassley said in a prepared statement. “It’s the right thing to do for patients, taxpayers, and for the preservation of Medicare for future generations.”

CMS Issued Guidance in 2017

David Gee, a partner in the Seattle office of the law firm Davis Wright Tremaine, pointed out that on Nov. 17, 2017, CMS issued guidance specifying that for calendar year 2018, payment for tests bundled into panels, which CMS calls automated test profiles or ATPs, would instead be paid at the individual HCPCS code level. This guidance relates to GAO’s concerns about test panels.

The CMS guidance continued, “In other words, we will pay for each appropriately billed HCPCS code based on the CLFS amount for the specific code billed by the laboratory. Moving forward we will continue to consider the efficiencies of ATPs and the appropriate payment methods for these tests under the new [PAMA] private-payer rate-based CLFS. Medicare administrative contractors will continue to apply editing to ensure that if a laboratory panel HCPCS code is submitted and is payable, an individual laboratory HCPCS code that is part of the same panel is not also paid separately.”

GAO’s Assessment

One year later, Gee added, the GAO concluded that CMS’ implementation of this change could allow clinical labs to drive up sharply the amount they charge for panels of tests by unbundling and charging for each test individually. “The problem with the GAO’s assessment is that the Medicare National Correct Coding Initiative (NCCI) requires labs to report the CPT code for the panel (not the individual tests) if the laboratory performs all tests included in one of these AMA-defined panels,” Gee explained.

In fact, labs generally do not unbundle tests included in the organ and disease testing panels established by the American Medical Association (AMA-defined panels), Gee and other lab experts told THE DARK REPORT.

“Moreover, HHS responded to the GAO on Nov. 7, to specifically clarify its position on panels, Gee said. “In its response, CMS said the following, ‘With regard to panel tests that have their own CPT code, whether the laboratory bills for the CPT panel code or component tests, per HHS policy the laboratory should be paid the CPT panel code amount when applicable.’

“In addition,” Gee continued, “HHS informed GAO that ‘HHS is working to update the claims processing system to detect these claims in an automated fashion. This edit will be similar to one implemented in earlier versions of the Clinical Laboratory Fee Schedule payment system until a change related to an instruction [was] issued in 2016. This update is targeted to be operational no later than summer 2019. In addition, HHS plans to release sub-regulatory guidance by the end of 2018.’”

‘Unsubstantiated’ Claim

Mark S. Birenbaum, PhD, Administrator of the National Independent Laboratory Association, in a report to NILA members, said HHS issued guidance on this issue in amendments to the NCCI manual. “GAO’s claim that CMS could be paying billions in excess payments between 2018 and 2020 is unsubstantiated based on amendments CMS made on Dec. 12 to require laboratories to bundle test panels as outlined in the National Correct Coding Initiative Policy Manual for Medicare Services for 2019,” Birenbaum wrote.

But then the GAO apparently disregarded these HHS responses, Gee commented. “In its report, the GAO claims CMS rules will result in unbundled payments for panels of tests, and in Medicare potentially paying $10.3 billion more than it would if it continued to automatically bundle payments for test panels, as it has done since the late 1990s,” he said.

Based on the erroneous GAO report, Grassley was sharply critical of what Modern Healthcare magazine called “newly unbundled payments for panel tests,” as if, as the magazine reported, labs have in fact stopped billing for AMA-defined panels on a bundled basis.

Grassley Sends Questions to HHS and CMS That the Laboratory Industry Wants Answered

IN HIS LETTER TO FEDERAL HEALTH OFFICIALS, Sen. Chuck Grassley (R-Iowa) asks questions that many in the clinical laboratory community have been asking for more that two years.

In fact, clinical lab associations have even filed a lawsuit against Health and Human Services Secretary Alex M. Azar II over some issues Grassley raised in the letter he sent to HHS and to CMS Administrator Seema Verna on Jan. 23.

Most of the questions Grassley asked Azar and Verma relate to panel tests. In his first question, he asked what steps the agencies have taken to ensure that all laboratories that are expected to report PAMA data to HHS actually do so.

Here are the four questions on panel tests that Grassley asked in the letter:

  • 1. Does HHS believe that it has the authority to create CPT codes for panel tests where they do not currently exist, or take other steps to ensure the completion of a bundled payment, while remaining compliant with the provisions of PAMA and other relevant federal laws? Please explain why or why not? If yes, why has HHS paid individual rather than bundled rates for these panel tests unnecessarily?
  • 2. Did CMS make a systems edit to its claims processing system that prevented CMS from detecting whether individually billed tests should have been bundled? If so, why did CMS make that edit?
  • 3. What is the status of efforts to detect panel tests where CPT codes do exist but have not been billed correctly by laboratories? When do you expect that CMS will be able to effectively detect and correct the billing problems?
  • 4. During the time the claims processing system was unable to detect when a panel CPT code was appropriate, does CMS know how many laboratories billed individual tests and received a higher reimbursement rate when they should have billed as a panel code? Is CMS able to perform an audit to determine that number and the cost in excess reimbursement? If so, will CMS perform the audit?

Grassley also asked if HHS agreed with the GAO recommendation that CMS phase in payment-rate reductions based on actual rather than maximum rates, and if yes, what steps did the agencies take to implement that recommendation.

Cost to Taxpayers

In his letter to HHS and CMS, Grassley wrote, “The estimated cost to taxpayers as a result of that decision is staggering.”

But, in fact, lab industry experts said, the GAO’s findings about unbundled billing for test panels are factually incorrect because clinical labs must follow the Medicare NCCI billing rules for AMA-defined panels. Those rules do not allow unbundling, the experts said.

For clinical laboratories, the erroneous GAO analysis may mean CMS will consider still deeper cuts than those already implemented under PAMA, warned Birenbaum. Under PAMA, CMS cut the spending it pays for clinical lab tests by 10% last year, 10% this year, and 10% in 2020. CMS spends about $7 billion annually on clinical lab tests.

On the issue of how labs bill for AMA-defined test panels, Lâle White, Executive Chairman and CEO of Xifin, a lab revenue cycle management company, was unequivocal, telling newsletter 360Dx that labs do not bill Medicare for AMA-defined panels on an unbundled basis.

“Labs continue to bundle automated chemistries consistent with the AMA panels in accordance with the CPT billing guidelines,” White told the publication. The GAO’s assertion that labs have been unbundling basic metabolic, comprehensive metabolic, lipid, renal, and electrolyte panels is based on an erroneous assumption from the GAO, she added.

Medicare NCCI Rules

Gee agreed, saying, “The Medicare NCCI rules require labs to report—and bill—the CPT code for the AMA panels and not the individual tests. Nor does CMS’ change in methodology eliminate the requirement that the lab must have a valid test order for any test; and for a test panel, the lab would need a valid test order for each of the component tests in the panel. That means the ordering physician must order each individual test, and Medicare coverage rules require that each test must be medically necessary.

“The fact that CMS changed its reimbursement methodology for panels that previously were automatically bundled by the Medicare contractors doesn’t negate the Medicare NCCI rules or eliminate Medicare’s medical necessity requirements,” Gee added. “I’d be surprised if any reputable lab made any significant changes to its protocols for billing panels.

“Also, CMS has indicated its intent to update its claims processing system to detect any ‘unbundled’ AMA panels in an automated fashion,” Gee explained. “What’s most disappointing is that the GAO report gave absolutely no evidence that panel billing patterns actually changed after CMS implemented PAMA last year, thus falsely alarming labs and others by raising the hypothetical yet erroneous possibility that labs could and would suddenly begin to unbundle their billing to Medicare for AMA panels.”

‘Hypothetical Scenario’

Julie Khani, President of the American Clinical Laboratory Association (ACLA), also criticized the GAO’s report, saying it concocted “a hypothetical scenario that suggests labs are unbundling these tests and receiving higher reimbursement. This is grossly inaccurate. According to a recent survey of more than 20 million lab claims, labs consistently billed panel tests as required.”

In a prepared statement, she added, “The underlying assumptions for GAO’s analysis and recommendations reflect a serious misunderstanding [by the federal agency] of standard industry practice for laboratory reimbursement and ignore unprecedented [price] cuts to clinical laboratory tests that pose serious harm to beneficiaries.”

Unbundling Not Likely

It is unfortunate that the GAO’s report was not accurate in how it concluded that the unbundling issue would make it feasible for labs to bill the Medicare program for billions of dollars. The lab industry experts quoted above provide a clear explanation of this issue and why clinical labs would not be unbundling for the tests in question.

Contact Mark Birenbaum at 314-241-1445 and nila@nila-usa.org, or David Gee at 206-757-8059 or davidgee@dwt.com.

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