CEO SUMMARY: As 2016 approaches, nearly every lab organization is watching and waiting to learn how federal regulators at CMS and the FDA will move forward with plans to implement PAMA market reporting and regulation of laboratory-developed tests, respectively. Most knowledgeable observers expect that each government program will cost labs substantial amounts of money—from fee cuts to the Part B lab fee schedule and from the costs to comply with proposed LDT regulations.
ON TWO IMPORTANT FRONTS, the federal government is poised to reshape the clinical laboratory marketplace during 2016 and into 2017. There is the potential for every lab organization to experience significant financial consequences as a result of how federal officials move forward with just two regulatory initiatives.
One is the implementation of market price reporting by labs to the federal Centers for Medicare & Medicaid Services as mandated by the Protecting Access to Medicare Act of 2014 (PAMA). After issuing its draft rule this fall, the time for public comments closed on November 24.
The other is regulation of laboratory-developed tests (LDTs) by the Food and Drug Administration. The federal agency issued draft guidelines this fall and recently told Congress that it intended to move forward with its plan to regulate LDTs. (See TDR, November 24, 2014.)
Both federal regulatory efforts have met with widespread disfavor across the clinical laboratory industry. There has been plenty of criticism, but at the moment, lab professionals watching developments inside Washington, D.C., don’t see much possibility that each of these draft regulations will either be stopped before implementation or modified significantly enough to allay the concerns of lab executives and pathologists.
Market Reporting Issues
Over the past year, THE DARK REPORT has provided insights about the problems with how PAMA defined lab price market reporting and how CMS proposed to implement that part of the law. The flaws in the draft rule are many and have the potential to create much disruption among clinical labs that provide testing to Medicare patients. (See TDR, February 17, 2015, and October 5, 2015.)
Of equal significance is the observation by some experts that, if the rule is implemented as currently written, many of the nation’s smaller community labs—already surviving on thin profit margins—will go out of business. Because most of these labs serve mostly Medicare patients in smaller communities and in nursing homes, as they shut their doors, Medicare patients in those communities will have a more difficult time gaining access to clinical lab testing services.
When Congress passed PAMA in 2014, the bill was scored as saving $2.5 billion in Part B clinical laboratory test fees over 10 years. Thus, the lab industry was caught by surprise when CMS released the draft market reporting rule this fall. It said that the rule would double the savings—$5 billion—over 10 years.
Lab professionals have reason to be concerned about this turn of events. In a study of Part B lab test claims and payments made in 2010, the OIG determined that just 20 tests make up 47% of all claims and represent 56% of CLFS payments made to labs that year. These 20 tests make up a substantial proportion of testing at most of the nation’s smaller community labs. Thus, deep cuts to these prices are likely to cause many community labs to lose money, if not file for bankruptcy.
Proposed LDT Regulation
The consequences of the FDA’s regulation of LDTs are causing much concern among another class of medical labs: those labs that perform LDTs that make up a substantial proportion of their specimen volume and revenue.
The American Clinical Laboratory Association (ACLA) says that the FDA lacks the statutory authority to regulate LDTs. Earlier this year, it retained attorneys Paul D. Clement, a partner with Bancroft PLLC and former Solicitor General, and Laurence H. Tribe, Professor of Constitutional Law at Harvard University, to represent it on the LDT issue.
It is a significant sign that the major lab companies that are members of ACLA may be prepared to litigate this issue in federal court. Thus, even as the FDA continues to move forward with its plans to regulate LDTs, it may face a serious court challenge that must be addressed before it can implement its rule to regulate LDTs.
FDA Testifies to Congress about LDT Regulation
ON NOVEMBER 17, AT A HEARING OF THE HOUSE ENERGY & COMMERCE COMMITTEE, House members heard testimony from the FDA and lab industry groups about the FDA’s intent to regulate laboratory-developed tests (LDTs).
Jeffrey Shuren, MD, JD, is Director of the FDA’s Center for Devices and Radiological Health (CDRH). In his testimony he defended the FDA’s plans to regulate LDTs. He also referenced a newly-released report issued by the FDA titled: “The Public Health Evidence for FDA Oversight of Laboratory Developed Tests: 20 Case Studies.” This study identified LDTs that were considered to be inaccurate enough to cause patient harm.
“The problems are more prevalent than people want to recognize,” declared Shuren. “Doctors and patients rely on these tests to make well-informed healthcare decisions. If they get inaccurate results, they can make the wrong decisions, and people get hurt as a result.”
There is a new twist in the story of FDA regulation of clinical lab tests. Prior to the hearing, the committee released a 185-page draft bill that described the creation of a new “Center for In Vitro Clinical Tests” within the FDA. The bill referred to the tests as “in vitro clinical tests” and there is uncertainty as to how, under this bill, the FDA would regulate the in vitro diagnostic clinical tests differently from in vitro diagnostics (IVDs).
Under this bill, the newly-created FDA center would be required to classify in vitro clinical tests as high-risk (if an inaccurate test result would cause serious harm, or death, to the patient), moderate-risk (if an inaccurate result for the intended use would cause non-life-threatening injury) and low- risk (meaning an inaccurate result would cause minimal or no harm, immediately reversible harm, or no patient disability).