Knowledge Base Article

Competition is the cornerstone of America’s free market economy. Everyone loves to get the best price and not pay more than someone else is paying. The same goes for Medicare. Medicare issued a final rule on June 17, 2016 that will change the Medicare payment rates for clinical diagnostic laboratory tests (CDLTs) paid under the Clinical Laboratory Fee Schedule (CLFS) to be competitive with what private insurers are paid. This rule was the result of legislation in the Protecting Access to Medicare Act of 2014 (PAMA). To determine the basis for the revised payment rates, certain laboratories will be required to submit payor data to Medicare.

REPORTING REQUIREMENTS

Who Reports? – Laboratories are required to report data to Medicare if, based on their National Provider Identifier (NPI),

• More than 50 percent of their total Medicare revenues are received under the CLFS and Physician Fee Schedule (PFS) and
• They receive payments under the CLFS of at least $12,500 during a six-month data collection period

Based on these criteria, approximately 95% of physician office laboratories, 55% of independent laboratories, and most hospital laboratories will be exempt from reporting.

A hospital outreach laboratory that is independently enrolled in Medicare and has its own NPI would meet the definition of an applicable laboratory if it meets the above criteria – that is at least 50 percent of its Medicare revenues are from CLFS and PFS services and its revenues from the CLFS are at least $12,500 during a data collection period.

What Is Reported? – Reporting entities will be required to report private payor payment rates for laboratory tests and the corresponding volumes of tests. Private payors for the purpose of this final rule are a health insurance issuer and a group health plan, a Part C Medicare Advantage plan, and a Medicaid managed care organization.

When is Data Collected and Reported? – CMS adopted a 6-month data collection period. The first data collection period will be from January 1, 2016 through June 30, 2016. The data collected during this period will be reported to CMS from January 1, 2017 through March 31, 2017. All subsequent data collection and reporting periods for CDLTs, except for ADLTs, will follow this same data collection and reporting schedule, every three years.

What Happens If An Applicable Lab Doesn’t Report? – The statute provides for civil monetary penalties of up to $10,000 per day, adjusted for inflation as required by the Inflation Adjustment Act Improvements Act of 2015, for each failure to report and/or each misrepresentation or omission in reporting private payor prices with respect to a CDLT.

Payment Rates

• Private payor rates for laboratory tests reported by the applicable laboratories will be the basis for the revised Medicare payment rates for most laboratory tests on the CLFS beginning in January 2018.
• The payment amount for a test on the CLFS furnished on or after January 1, 2018, will be equal to the weighted median of private payor rates determined for the test.
• The payment amount for a test cannot drop more than 10 percent as compared to the previous year’s payment amount for the first three years after implementation of the new payment system, and not more than 15 percent per year for the subsequent three years.
• Payment rates under the revised CLFS will be updated to reflect market rates paid by private payors every three years for most tests, and every year for ALDTs.

ADVANCED DIAGNOSTIC LABORATORY TESTS

Advanced diagnostic laboratory tests (ADLTs) will have different data collection, reporting, and payment policies associated with them. An ADLT is a laboratory test that is covered under Medicare Part B and is offered and furnished only by a single laboratory, that is not sold for use by a laboratory other than the original developing laboratory (or a successor owner), and that meets one of the following criteria:

1. The test is an analysis of multiple biomarkers of DNA, RNA, or proteins combined with a unique algorithm to yield a single patient-specific result;
2. The test is cleared or approved by the Food and Drug Administration (FDA);
3. The test meets other similar criteria established by the Secretary.

New ADLTs will be paid using their actual list charge amount during a new ADLT initial period of three quarters. Once the new ADLT initial period is over, payment for a new ADLT will be based on the weighted median private payor rate paid to the single laboratory and reported to CMS.

WHAT THIS MEANS FOR HOSPITALS

In the long run, hospitals will likely receive lower payments for clinical diagnostic laboratory tests. The impact of this will not be as significant as it once would have been since payment for most hospital outpatient lab tests is now bundled under the Outpatient Prospective Payment System (OPPS). Separate payment for laboratory tests is only made to OPPS hospitals if the lab tests are the only services provided for the day or if unrelated lab tests (those ordered by a different physician for a different diagnosis from other outpatient services) are furnished. The payment reduction will affect hospital outpatient laboratories and hospital reference lab services where patients and/or specimens are referred from a physician’s office to the hospital to obtain laboratory testing only.

It is also unlikely that a lot of hospital laboratories will meet the criteria to be an applicable reporting laboratory. The lab would have to be independently enrolled in Medicare with its own NPI number and meet the reporting criteria as explained above.

For more details on this topic see the Medicare Fact Sheet, Press Release, or the Final Rule.

So welcome to the free market economy of healthcare competitive payment rates. Probably a smart thing for our government, but another belt-tightening for hospitals that again must do more for less.