The final rule is still estimated to provide substantially more Medicare savings than originally projected.


June 20—A revised approach for setting Medicare lab rates was delayed one year, to 2018, in a recently released final rule for the Clinical Laboratory Fee Schedule (CLFS).

The rule implements the Protecting Access to Medicare Act (PAMA), which overhauls the payment system for clinical laboratory diagnostic tests (CLDTs). The final rule generally will require reporting entities to report private-payer rates and test volumes for laboratory tests if an applicable laboratory receives at least $12,500 in Medicare revenues from laboratory services paid under the Clinical Laboratory Fee Schedule (CLFS) and more than 50 percent of its Medicare revenues from laboratory or physician services.

However, the law required the Centers for Medicare & Medicaid Services (CMS) to issue the final rule implementing the new CLFS by June 30, 2015, for it to go into effect by Jan. 1, 2017. The law required “applicable laboratories” to report the rates they receive from private payers for each clinical diagnostic lab test, with CMS using that information to calculate a weighted median payment amount for each test. The final rule was estimated to reduce Medicare’s $7 billion in annual spending on such tests by $390 million, or 5.6 percent, in the first year.

Hospital advocates had urged delaying implementation until 2018 to give provider-based laboratories time to review the final rule and clarifying guidance; to change laboratory finance-information systems to enable correct and complete data collection and reporting; and to engage in end-to-end testing of the data-reporting system with CMS.

CMS said in a release that it plans to use the delay to perform independent validation and testing of the system through which laboratories will report applicable information and to allow laboratories to perform end-to-end testing of their systems with CMS’s system.  

NPI Change

Another major change from the proposed rule, which was issued in the fall of 2015, was that the national provider identifier will be used to determine whether a laboratory is considered an applicable laboratory. CMS had initially proposed using taxpayer identification numbers to define an applicable laboratory, which largely would have eliminated hospital-based laboratories and allowed only 4 percent of practice-based laboratories to qualify as applicable laboratories. Excluding those facilities—and relying instead on large, independent laboratory-company costs—would result in rates far lower than the overall market’s costs.

“We are pleased that CMS will delay the program start date and include data from hospital-based labs in setting payment rates,” Tom Nickels, executive vice president for the American Hospital Association, said in a written statement. “The one-year delay will give labs more time to develop the technology needed to participate in the program. Including hospital-based labs will better reflect market trends and lead to more appropriate reimbursement.”

Unlike hospital-based and physician office laboratories, large independent laboratories are able to charge much lower rates due to their high testing volume, according to provider advocates.

The changes from the proposed rule to the final rule moved PAMA’s lab payment savings closer to the Congressional Budget Office’s original 10-year, $2.5 billion estimate. The final rule was estimated to save $3.9 billion over a decade, compared with the proposed rule’s $5.14 billion.

Sharply lower reimbursements would have saved Medicare more but also threatened many provider-based labs with closure, according to provider advocates, and such closures would reduce the availability of clinical laboratory services. Of the $7 billion in Medicare lab payments in 2014, 24 percent went to hospital labs and 19 percent to physician office labs, according to a report by the Office of Inspector General at the U.S. Department of Health and Human Services.

Other Changes

The final rule also shortened the period—from one year to six months—during which private-payer rates must be reported to CMS. The first data collection period will span Jan. 1-June 30, 2016. The first period for submitting that collected data to CMS will be Jan. 1-March 31, 2017. All subsequent data collection and reporting periods for CDLTs, except for advanced diagnostic laboratory tests (ADLTs), will follow this same data collection and reporting schedule, every three years. The reporting of private-payer rates for ADLTs will occur on the same schedule, but on an annual basis. 

The proposed time frames for collecting and reporting data from applicable laboratories would have resulted in widespread confusion and errors, according to AHA. And because PAMA authorizes civil monetary penalties of up to $10,000 per day for each failure to report or each misrepresentation or omission, “such confusion also could expose hospitals to compliance risk and enforcement penalties,” Nickels wrote in a letter on the proposed rule.


Rich Daly is a senior writer/editor in HFMA’s Washington, D.C. office. Follow Rich on Twitter: @rdalyhealthcare

Publication Date: Monday, June 20, 2016