XIFIN Analysis of Its Real Price Data Shows Hospital Lab Price Effect

Study based on hundreds of millions of lab test claims

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CEO SUMMARY: In a new analysis of data its lab clients will use to report market prices to CMS, XIFIN Inc., reports private payers paid independent labs a weighted average price that was 19.6% less than what Medicare pays for 20 of its highest-volume tests. By contrast, private payers paid hospital labs with NPIs a weighted average that was 26.5% greater than what Medicare pays. Did CMS exclude hospital labs without NPIs from reporting because it would skew CMS payments higher?

IN JUST EIGHT WEEKS, certain clinical labs will begin reporting their PAMA lab test market price data to CMS. Those reports will set off a series of events that could trigger the single most financially-disruptive event to hit the clinical laboratory industry in the past three decades.

That event would be Medicare’s implementation, as of Jan. 1, 2018, of substantial price reductions to the highest-volume tests that the nation’s community laboratories and hospital outreach lab programs depend on for financial stability. Experts predict such reductions could force many labs into bankruptcy.

Officials at the Federal Centers for Medicare & Medicaid Services are implementing the Protecting Access to Medicare Act, which includes a requirement to use private market lab test prices to establish a new Part B clinical laboratory fee schedule, effective on Jan. 1, 2018, just 14 months from now.

The potential for large swathes of the clinical laboratory industry to undergo financial crises should the 2018 CLFS impose deep cuts on existing prices of lab tests is a significant concern for those labs. If many labs close, large numbers of Medicare patients may lose access to medical lab testing in their communities that have served them for decades. Related to that is the longer-term problems Congress and CMS could face if a large number of community labs and hospital lab outreach programs went out of business, concentrating even more market share in the hands of these two lab industry oligopolists.

How deep might the price cuts be? Until now, only CMS has had access to the range of price data that would provide even a partial picture of what Medicare pays for lab tests versus what private health insurers pay.

But that has changed. In this issue, THE DARK REPORT presents the lab industry’s first look at actual price data that four sectors of the clinical lab industry are preparing to submit to CMS.

The analysis was conducted by XIFIN, Inc., of San Diego. XIFIN describes itself as a “health economics optimization platform that is a connected health solution that facilitates connectivity and workflow automation for accessing and sharing clinical and financial diagnostic data.” It provides revenue cycle management services and laboratory information services to more than 200 laboratory clients.

XIFIN handles between 200 million and 300 million lab claims each year and is electronically connected to all of the nation’s payers. Its client mix includes the nation’s largest lab companies, independent labs, hospital labs with NPI numbers, molecular/genetic labs, and pain management/toxicology labs.

XIFIN tapped its data base to look at the data that its client labs will report to CMS for 20 high-volume lab tests. It calculated a weighted average price that private payers paid for these four lab sectors when compared with what Medicare pays, as follows:

  • Independent labs are paid 19.6% less.
  • Hospital labs with NPIs are paid 25.6% more.
  • Molecular and genetic testing labs are paid 27.3% more.
  • Pain management and toxicology labs are paid 50.4% more.

This real price data is derived from tens of millions of private payer payments and shows two things. First, large independent labs are paid less, according to the weighted average, than the Medicare CLFS prices.

Second, private payers pay hospital labs with NPIs a weighted average price that is significantly more than what Medicare pays under the CLFS. Private payers also pay more than the Medicare CLFS pays to molecular/genetic labs and to pain management/toxicology labs.

One conclusion drawn from these basic findings is that CMS is about to significantly reduce its costs by targeting price cuts so as to pay significantly less to the limited number of the biggest labs performing the highest volume of tests that represent the biggest share of the money paid annually for Medicare lab test claims.

Focus on Most-Used Tests

“It’s important to recognize that Medicare is focused on the top tests because that’s where it incurs much of its spending,” observed Lâle White, Founder and CEO of XIFIN. “Plus, the lower end tests are more esoteric and so don’t represent the bulk of what the Medicare program pays.”

The question, then, is how will the data from XIFIN translate the results CMS will derive from the PAMA exercise? To answer this question, White explained that some of the data XIFIN reviewed were based on the same top 20 tests that the Office of Inspector General analyzed in a recent report on what CMS might save as a result of implementing PAMA.

“We were trying to concentrate on some of that same data that OIG reviewed because this is where labs will feel the majority of the impact from PAMA,” she explained. “In our analysis, we collected data on the top 20 tests selected by the OIG and reviewed private payer data against Medicare Part B payments in 2016. Many of our top 20 tests are the among the OIG’s top 25 tests.

“When you look at the OIG report, you see that the OIG came to conclusions that were similar to our findings,” she added. “When we looked at the top 20 clinical lab tests, we saw that there would be a fairly significant decrease of 19.6% for independent labs. And a large portion of our clinical database represents data from the larger labs.

part B Lab payments

“This is important when you look at the OIG report. The report says that 1% of labs (292 out of 29,101 labs) received 54% of all Medicare Part B payments for the top 25 lab tests last year. These labs received an average of $7.6 million each in 2015.

“The OIG said new payment rates for lab tests will be based on data provided by a projected 5% of labs, and these labs received 69% of Medicare payments in 2015,” she said. “Also, OIG said that for the top 25 tests, 79% of payments go to the top 4% of labs.

“That means that CMS will use data reported by 5% of all labs to set new payment rates which accounted for 69% of Medicare payments for lab tests in 2015.”

On the pages that follow, THE DARK REPORT presents four tables that show how XIFIN calculated a weighted average of private payer prices for 20 of the top 25 tests that incurred the highest costs to Medicare in 2016. These data were compared with the Medicare National Limit price for each of the 20 lab tests.

Accompanying each of the four tables are comments from our editors and White. The commentaries provide insights about the actual payer data used in the analyses, the mix of lab types that contributed data, and some conclusions to draw from the information provided in each table.

Question To Be answered

There is one question that is not addressed in this intelligence briefing regarding CMS and its plan to implement the lab test price market reporting section of the PAMA statute.

These critics question whether the CMS plan for market reporting is consistent with the language of the PAMA law and the intent of Congress when this bill was passed in 2014. One reason they raise this question is because CMS administrators, since the early 1980s, have regularly come forward with plans to make significant cuts to the Medicare CLFS. And, just as regularly, Congress has stepped in to stop or moderate those efforts.

Contact Lâle White at 858-436-2908 and lwhite@xifin.com.

OIG Describes How CMS Is Preparing to Implement PAMA Laboratory Test Market Price Reporting

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