MedPAC Reports to Congress on Issues in Lab Test Price Survey

Yes, CMS’ collection of private payer lab price data fails to collect prices paid to hospital labs, POLs

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IN THE HALLS OF CONGRESS, A GOOD NEWS/BAD NEWS STORY is unfolding around the multi-year cuts to the prices Medicare pays for clinical laboratory tests. First the good news. 

In its latest semi-annual report to Congress, the Medicare Payment Advisory Commission (MedPAC) confirms much of what the clinical laboratory industry has been saying about Medicare’s new lab test payment rates  being skewed and suggests that a sampling of private-payer rates would provide a more accurate picture of actual rates than the methodology currently being used by the Centers for Medicare and Medicaid Services (CMS).

The clinical laboratory industry has long complained that the methodology used to set payment rates for laboratory testing under the Protecting Access to Medicare Act (PAMA) was flawed and that hospital outpatient laboratories and physician office laboratories were under-represented in the data, resulting in Medicare payment rates being artificially lowered.

Report’s Positive Points

The good news is that MedPAC concurred with this conclusion. It noted that Medicare’s new methodology reflects 85% of the Medicare payments made to independent labs, but only 22% of the payments made to hospital labs and physician-office laboratories. The report states that by the time PAMA is fully implemented in 2025, fees on the Medicare Clinical Laboratory Fee Schedule (CLFS) will have been reduced a total of 24% overall.

MedPAC looked into whether using a survey approach to gathering private payer data would address some of the concerns raised by clinical laboratories. The group concluded that such an approach would reduce the overall regulatory burden on laboratories and permit the CMS to gather more data on the lab test prices that private health insurers pay from a larger number of hospitals and POLs.

Report’s Negative Points

However, the bad news is that what MedPAC gave the lab industry with one hand, it took away with the other hand. In its report, MedPAC pointed out that using the price survey methology it described would result in an increase of Medicare spending for laboratory testing in therange of 15% to 24% and may be undesirable in certain circumstances. 

Should Medicare officials use such a survey methodology, MedPAC recommends excluding higher lab payments made to hospitals and POLs (which it says are the result of “enhanced” negotiating leverage from the non-laboratory services they perform) as well as new high-cost molecular tests that are often sole proprietary tests not subject to competition.

“For most routine tests, policymakers should consider setting laboratory payment rates based on private-payer data from certain types of laboratories (e.g., independent laboratories), while excluding the data from the others (e.g., hospital outpatient laboratories),” the report says. 

“Through the first two years of setting Medicare rates based on private-payer data, lower Medicare payments appear to have had little impact on the use of routine laboratory tests among Medicare fee-for-service beneficiaries, suggesting that access to services can be maintained with lower rates,” MedPAC wrote in the report. “However, if access issues did arise, policymakers could consider implementing targeted payment adjustments instead of incorporating private-payer data from laboratories that receive private-payer rates. Targeted payment adjustments could help ensure access in particular circumstances without overpaying for all laboratory tests.” 

Lab Groups Support Sampling 

Mark Birenbaum, PhD, Administrator of the National Independent Laboratory Association (NILA), says that NILA supports conducting a survey that would better represent the clinical laboratory market than that which was implemented originally under PAMA. 

“The original implementation of PAMA left out large segments of the clinical laboratory market, leading to artificially low Medicare reimbursement rates that underestimate the cost of delivering laboratory services to patients,” he said. “NILA advocates for legislative changes that would require a more accurate sampling of private payer rates to rectify the flawed implementation of PAMA. 

“Without legislative action, additional devastating rate cuts to Medicare lab test prices will go into effect in January 2022,” Birenbaum noted. “These rate cuts will undermine the country’s response to the ongoing COVID-19 public health emergency. Fixing PAMA, avoiding these cuts, and implementing a sustainable laboratory reimbursement structure should be a public health priority.” 

Julie Khani, President of the American Clinical Laboratory Association (ACLA), concurred. MedPAC, she noted, found that a sampling of private payer rates from independent labs, hospital labs, and POLs is feasible and would produce accurate, representative data while reducing burden, and would correct below-market Medicare rates. 

‘Unsustainable Rates’ 

“This finding [in the MedPAC report to Congress] validates concerns long expressed by the clinical laboratory community that reimbursement reduction imposed as a result of a flawed data collection process are too extreme and have resulted in unsustainable below-market rates,” she stated. “Importantly, this finding also refutes CMS’ assertion that the inclusion of hospital rates would not materially change Medicare rates.” 

ACLA also supports a legislative change and has called on Congress to establish a payment system that is representative of the market and that supports continued innovation and access to clinical laboratory services. 

This would require Congress to take up this issue and enact legislation that would address and correct the flaws and biases identified in the MedPAC report. Such legislation would need to clearly describe and define how CMS would gather the private payer lab test price data it uses to determine fees for the Medicare Clinical Laboratory Fee Schedule. 

Represents All Lab Sectors 

The clinical laboratory industry has consistently called on CMS to use a fair, unbiased process for collecting the lab test prices paid by private health plans—a process that accurately represents all the major segments of the clinical laboratory profession. 

The June 2021 MedPAC report is available at www.medpac.gov. 

Contact Mark Birenbaum at 314-241-1445 or birenbaumm@birenbaum.org; Julie Khani at 202-637-9466 or jkhani@acla.com. 

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