Knowledge Base Article

In a June 2016 Wednesday@One article about the new payment rates for laboratory tests, it was pointed out that Medicare wants competitive pricing for the services for which they pay. That is why the new lab payment rates are designed to be competitive with the rates of private insurers.

Background

The Protecting Access to Medicare Act of 2014 (PAMA) mandated a change to the way Medicare determines payment rates for laboratory tests under the Clinical Laboratory Fee Schedule. The purpose of this change was to make Medicare lab payments competitive with what private insurers are paid. A final rule was published in June 2016 implementing this requirement. To determine the basis for the revised payment rates, certain laboratories were required to submit private payor data to Medicare.  Below is some information that appeared in that previous Wednesday@One article concerning how the new payment rates were to be determined.

Payment Rates Determination

• 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.

Preliminary CLFS Rates

On September 22, CMS published preliminary rates for the new private payor rate-based Clinical Lab Fee Schedule (CLFS) that will go into effect on January 1, 2018.  The data reported to CMS upon which the new CLFS rates are based captured over 96% of laboratory tests on the CLFS and represented over 96% of Medicare’s spending on tests in CY 2016.  CMS will be accepting comments on the preliminary determinations until October 23, 2017.  To see the preliminary rates, how to submit comments, and more information about the PAMA requirements see the CLFS PAMA Regulations webpage.

The table of preliminary payment rates with 10% phase-in reduction in 2018, 2019 and 2020 includes 1,360 laboratory HCPCS codes.  Of these,

• 879 codes have a 2018 payment reduction of 10% (the cap),
• 115 codes have a payment reduction < 10%,
• 134 codes have an increase in payment,
• 161 codes did not have a payment rate for 2017 but are assigned one for 2018,
• 71 codes are not assigned a 2018 payment rate due to payment and/or volume equal to 0 or they were new codes for 2017 or 2018.

Payment rates will continue to be adjusted until they reach the weighted median.  For 2018, 2019, and 2020, the maximum decrease per year will be a 10% reduction (reduction cap); after that, the reduction will be 15% for the next three years.  Regarding the reductions,

• 410 codes will reach the full payment change in 2018 (this includes the 115 codes with a reduction < 10%, the 134 codes with an increase in payment rates, and the 161 codes with a new rate for 2018),
• 61 codes will reach the full payment change in 2019,
• 102 codes will reach the full payment change in 2020,
• 716 codes will still require adjustment after 2020 to reach the full payment change.

Here are the proposed payments rates for some common laboratory tests.

For hospitals, the adjustments to payment rates will not have as significant an impact as they will for independent testing laboratories. This is because since 2014, the payment for most Medicare outpatient clinical laboratory tests billed by hospitals is packaged into the payment for other outpatient services.  This means lab tests performed in the emergency department, outpatient surgery, outpatient clinics or performed with other outpatient services are not separately paid. Separate payment for lab tests is only made to hospitals when the laboratory tests are the only outpatient services performed and billed on a claim. This includes testing on outpatients referred to the hospital lab by their physician and lab specimens sent to the hospital lab for testing.  Therefore, the impact on any particular hospital depends on the volume of outpatient hospital outreach lab testing.

Let’s look at the potential impact on hospitals.  Using data from our sister company, RealTime Medicare Data (RTMD), I determined the Medicare payments for a year for the common laboratory tests listed above from several hospitals with a significant amount of outpatient laboratory payments. These are actual payments so they represent laboratory testing that was separately paid by Medicare.  I averaged the payment data and estimated volumes based on 2017 pricing to allow comparison between these volumes and your facility’s volumes.  As you can see, even hospital laboratories with robust outreach business have limited loss of payments, with a total of around $166,000 annually for these 8 high-volume lab tests.  Of course, there are many more lab tests and payment reductions for most tests will continue over time, at least over a three period until a new evaluation of private payor payments is done.

Even though this is not a huge reimbursement loss for hospitals, in these days of already declining revenues and increasing costs, every penny counts.  And these are just more lost pennies.