Useful Lessons for Labs That Report PAMA Data

In second reporting period, most hospital labs are required to report private payer lab test prices

CEO SUMMARY: Will clinical labs heed the lessons learned from the first PAMA private payer market price reporting cycle that CMS conducted in 2017? One major difference is that the definition of applicable laboratories now includes most hospital labs. This creates the opportunity for a larger number of clinical labs to submit their price data to CMS. Private health insurers pay higher lab test rates to hospitals labs, making their data significant for any calculations CMS would make.

FOR THE SECOND TIME IN TWO YEARS, clinical laboratories will gather data on the prices private insurers pay them for clinical lab tests, then report that data to the federal Centers for Medicare and Medicaid Services (CMS), as required under the Protecting Access to Medicare (PAMA) statute of 2014.

The new twist in this second reporting period is the fact that CMS expanded its original definition of applicable laboratories for reporting. In this reporting cycle, all hospital labs that bill with CMS-1450 14x claims are applicable laboratories and required to report. (See TDR, Dec. 3, 2018.)

Many lab executives and pathologists consider CMS’ first market price data collection and Part B price-setting effort to be an abject failure. The primary criticism was that CMS designed a flawed rule that did not fulfill the language of the PAMA statute nor the intent of Congress.

Under PAMA, CMS was instructed to conduct a market study of the prices that private health insurers paid for clinical laboratory tests. In its first data-collection effort, CMS excluded nearly all hospital and physician office labs from reporting by limiting the definition of “applicable laboratories” required to report. A report issued by the Health and Human Services Department’s Office of Inspector General stated that from January to March 2017, only 1,942 labs submitted PAMA data to CMS. To put this number in perspective, the OIG had earlier reported that 61,040 labs received Medicare payments in 2015.

Another primary criticism involved the serious inaccuracies in the data that the relatively small number of clinical labs submitted to CMS.

Evidence of Bias

Experts who studied how CMS used that data identified a number of ways that CMS biased its use of the data to justify setting prices lower than the conclusions that might result from using more reliable analytical methods.

Following its analysis of the market price data it received, CMS aggressively cut many lab test prices on the revised Medicare Part B Clinical Laboratory Fee Schedule (CLFS) it announced for the years 2018, 2019, and 2020. The PAMA law limits price cuts to a maximum of 10% in each of those years. Thus, for some tests, the cumulative price cuts can total as much as 30% over 36 months.

That cap changes in the next market price reporting and price-setting cycle. The PAMA statute limits CMS to a maximum cut of 15% per year to the price of any test in 2021, 2022, and 2023. The prospect of still lower payments should motivate lab managers of applicable labs to be more diligent in how they compile and report the lab test prices they get from private health insurers.

One expert in clinical laboratory revenue cycle management recommended exactly that. “The mistakes the industry made last time mean that all applicable labs need to be much more careful when reporting their next data sets,” advised Lâle White, CEO of Xifin Inc., a company that helps labs enhance revenue.

“Probably the best way to validate the data in your billing system is for labs to go straight to the source documents—the electronic remittance advice (ERA) and the paper explanation of benefits (EOB)— which are integral parts of the data captured in the billing system,” she said. White made these comments at the annual conference of the California Clinical Laboratory Association last fall.

“Using the ERAs and EOBs, labs can document what they were paid and for which lab testing services,” she explained. “Also, labs can use the ERAs/EOBs to compare what the lab billed to the actual amount insurers paid.

“Once you know what your lab billed and what it was paid, you can establish some audit criteria to validate the accuracy of the payment data,” White commented. “We know health insurers regularly make mistakes in what they pay and in the units paid when multiple units are submitted. Thus, it’s essential that labs not report incorrect payment rates to CMS, especially if those rates are lower than they should be.

“Another important lesson we learned from the last data-reporting cycle is that labs should be getting paid correctly,” she warned. “If a lab doesn’t review the payments it receives and then asks insurers to correct under-payments or over-payments, there is a high probability the lab will report incorrect prices.”

Reporting incorrect data increases the risk labs face from CMS. “If the prices a lab reports are wrong, then that lab could face fines of as much as $10,000 a day from CMS,” noted White. “Moreover, if the prices labs report are lower than what insurers actually paid or should have paid, then CMS could end up setting what it pays all labs less than it should pay for these tests.

Clerical Errors in Payments

“In the first reporting cycle, audit data demonstrated that there was a 10% to 15% clerical payment error rate for payments posted manually from an EOB into lab billing systems,” she said. “Also, we saw labs improperly reporting allowables too low when payments were reduced by the 2% cuts that Congress imposed under sequestration across the board. If any lab didn’t take sequestration into account, then those labs reported lower payment rates than they should have reported.

“Facing cuts of as much as 15% in each of three consecutive years (2021, 2022, and 2023), I advise labs to be much more diligent about submitting accurate data on what they were paid by private payers,” she cautioned. “To be confident that your lab is reporting accurate prices, it is absolutely critical that your lab team understand the allowable payments.”

Applicable labs also need to review their managed care contracts carefully to ensure pricing equity, White added. To do so, labs should not couple their contracts to Medicare prices because many of those contracts do not reasonably reflect equitable market pricing, she explained.

“When gathering your lab’s price data, it’s important to ensure that your lab’s contracts with payers have been negotiated properly,” suggested White. “This means all labs need to review their contracts extremely well to make sure that they understand the direct and incremental cost of each test, meaning where reimbursement has been set too low or below cost.

“If the pricing is too low, labs need to go back to their payers to negotiate equitable prices that more closely reflect the cost of performing each test,” she advised. “Labs also need to review all payments received to make sure they get paid appropriately. If a lab finds it has been underpaid, the lab should appeal the payment rather than accept an unreasonable rate.”

When Reporting Esoteric and Outreach Data to CMS, Laboratories Should Take Extra Care

FOR ALL CLINICAL LABS, Xifin’s Lâle White, recommended taking extra care when gathering and reporting data to Medicare on esoteric and outreach testing.

“In this PAMA reporting cycle, how esoteric and reference laboratories compile and submit their data on the molecular and genetic test prices private health insurers pay will be hugely important,” observed White, Xifin’s Chairman and CEO. “These data are important for two reasons.

“First, by definition, these tests are not the routine, automated, high-volume tests that labs run,” she said. “Second, private payers typically pay more for these assays than they pay for routine testing. For this reason, it is essential that labs submit accurate and complete data on what they’re paid for these tests. Then CMS will have the data to set new Medicare lab test fees that truly are based on the private pay marketplace.”

Hospital labs that fit CMS’ definition of an applicable laboratory also have an important role in ensuring that CMS gets accurate lab-payment data, White explained.

“Hospitals and health systems should recognize the importance of their data in this second PAMA market price study,” she noted. “Health insurers recognize that hospitals have higher costs and often pay higher rates to hospital labs for all lab tests. Hospital labs also perform esoteric molecular and genetic tests because the patients they serve often have complex diseases.”

One other factor hospital labs need to consider is the effect hospital consolidations have had. “Any time hospitals become part of larger health systems, such a change in ownership could affect the hospital’s outreach labs, meaning referral relationships may change,” White said. “After any merger, the labs of the hospitals involved need to review all the managed care contracts for their laboratory outreach programs.

“This issue is critical because hospital outreach labs get higher reimbursement rates from private health insurance companies than independent labs, and they get incrementally higher rates than hospital outreach labs that have to bill under a separate national provider identification number.”

Outreach operations are useful for hospitals seeking to defray some of the costly infrastructure required to run an inpatient lab because outreach volume helps to lower the overall cost of all testing. “The higher commercial reimbursement rates allow hospitals to develop and grow their outreach lab businesses to a profitable level,” White concluded. “Essentially, the outreach business helps hospital and health systems labs be profitable, and those labs might not be profitable without that outreach business.”

Contact Lâle White at 858-436-2908 or

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