Ms. Dianne Wolman
Senior Program Officer
The National Academies
Institute of Medicine
Division of Health Care Services
Committee on Medicare Payment Methodology
For Clinical Laboratory Services
2101 Constitution Avenue, NW
Washington, DC 20418

Dear Ms. Wolman:

The American Association for Clinical Chemistry (AACC) welcomes the opportunity to participate in the Institute of Medicine’s (IOM’s) study on Medicare Payment Methodology for Clinical Laboratory Services, which represents the first comprehensive review of the current laboratory payment system since it was adopted in 1984. AACC looks forward to working with you and the panel in examining this system and developing recommendations for improving it.

AACC agrees that the existing framework needs to be reformed. The current system is overly bureaucratic, fragmented, complicated, inconsistent from one carrier to another and payment rates are out-of-date (underpaying and overpaying for laboratory procedures). We believe that significant changes are needed to update the Medicare payment structure to make it more efficient and understandable-both to patients, as well as laboratory providers. AACC is not convinced, however, that the current fee-for-service methodology needs to be discarded. In fact, we believe that recent congressional and agency initiatives have started to address some of the concerns that laboratorians have with the current payment structure.

The Balanced Budget Act of 1997, which authorized this study, created a negotiated rulemaking committee (comprising the Health Care Financing Administration (HCFA) and interested parties) to develop uniform national coverage and administrative policies for clinical diagnostic tests. That committee completed its work in August 1999, reaching agreement on national coverage policies for 23 high volume tests, which account for more than 60 percent of all Medicare laboratory claims. These policies clearly delineate for providers and contractors alike when such tests will be reimbursed and what documentation is required for payment.

Although these negotiated policies will not take effect for a few years, they are certainly a step in the right direction. HCFA has also established a formal process for making coverage determinations (April 27, 1999 Federal Register), and formed a Medicare Coverage Advisory Committee (MCAC) to assist it in this process. We believe these initiatives to simplify the reimbursement process and include laboratories, manufacturers and other interested parties in the decision-making process are positive moves. However, there is still much to be done.

Strengths of Medicare that should be preserved ]

Maintain fee-for-service framework
We believe there are a number of strengths to the existing Medicare payment methodology that should be preserved in any future reimbursement system. AACC supports the continued use of the fee-for-service approach, which permits both the government and laboratories to know what tests are being performed and the payment amount for each individual test.

Full payment for service(s) provided.
In addition, we believe that laboratories should continue to receive full payment for their services without beneficiary coinsurance. Although Medicare reimbursement is often too low, the addition of coinsurance would only increase laboratory costs (having to bill both Medicare and the patient for the same service) and patients’ out-of-pocket expenses, while not affecting test utilization, since physicians order tests, not patients.

Maintain direct billing by laboratories
Also, any laboratory payment system should maintain direct billing by laboratories. Permitting physicians to bill for testing, in lieu of laboratories, would increase the costs of the program, since practitioners would mark-up the service when billing Medicare. Without direct billing, diagnostic determinations could be fraught with conflict of interest issues for the ordering provider, since he or she would have financial interests in the procedures selected. Thus, we believe any changes to the payment methodology should maintain this aspect of the system.

Weaknesses of the current system that should be changed

Present fee schedule is based on out-of-date data and contains no mechanism for
adjusting payments

The payment levels for the majority of tests listed on the fee schedule are based on outdated 1983 Medicare carrier charge data. These fees have not been adjusted beyond the annual consumer price index (CPI) provided by Congress (the CPI update for laboratory tests is routinely eliminated or reduced by Congress-it has been reduced or eliminated five times since 1990). Currently, however, there is no established mechanism for HCFA to adjust payments in order to address errors in the initial payment amounts or make adjustments to reflect decreases in costs due to new, less expensive technologies. In addition, arbitrary across-the-board cuts have reduced reimbursement below the actual testing costs for many laboratories, particularly laboratories offering emergency testing, laboratories located in smaller communities, and laboratories that do not have a workload large enough to justify total automation.

AACC believes that the existing fee schedule needs to be updated, so that laboratory payments accurately reflect current costs. In addition, a mechanism needs to be established to adjust payments, when necessary. One option for rebasing the fee schedule would be to examine government cost data for laboratory services. The government (federal and state) is the biggest customer of health care providers, through VA and military hospitals, public health, state and county hospitals, penitentiary health services, Federal Health Service, etc. Because of this role it requests and receives numerous bids from laboratory testing from the commercial laboratories. In addition, its own employees (VA, military, state and county) perform many of the same tests-this gives the government a tremendous amount of data to determine testing costs. Together, therefore, the state and federal entities should be able to determine a fair compensation rate without resorting to competitive bidding, which actually creates a false and anti-competitive system.

We believe that some adjustment process, similar to what is outlined in the inherent reasonableness rule, could serve as a starting point for making periodic updates. Under inherent reasonableness, HCFA is required to invite those parties interested in a particular test to meet with the agency and provide cost data associated with performing the test. Based on these meetings, and the data presented, HCFA determines the new fee amount. This process must be open, however, if it is going to serve effectively as a mechanism for periodically reviewing all tests. In addition, an appeals process would need to be included so that interested parties could question the rationale for a payment amount.

The coding process is closed, fragmented, lengthy and outdated
The current reimbursement system uses the American Medical Association’s (AMA’s) Common Procedural Terminology (CPT) coding system to report professional services provided to Medicare beneficiaries. Although the AMA has performed an admirable job over the past 16 years, we believe the current process has proven to be confusing, secretive, and unnecessarily lengthy. We believe that HCFA should take responsibility for making coding decisions.

Under the existing structure, the AMA is the organization primarily responsible for adding, modifying and eliminating pathology and laboratory codes. These decisions are made by the CPT Editorial Panel, appointed by the AMA and composed exclusively of physicians. Only recently have meetings been opened to the public, but with no public notice of agenda items or proposed additions or changes. And, there is no subsequent public explanation for panel decisions (e.g., addition of calcium to Basic Metabolic Panel, addition of Total Protein to the Hepatic Function Panel). In addition to being secretive, the current process is too lengthy, taking up to two years from submission of a proposed change to the date when the new or modified code, if approved, becomes effective.

AACC recommends that HCFA’s new ICD-10 coding system replace the existing CPT system or, alternatively, the federal agency should obtain the rights to the CPT system and administer it in order to streamline and open up the process and improve the timeliness of assigning new codes. In addition, HCFA should create a coding advisory committee of physicians, laboratorians, manufacturers and other affected parties to assist it in making future decisions. We believe these changes would reduce barriers to the introduction of new technologies, open the process to greater public scrutiny and involvement and reduce laboratories’ administrative costs associated with flawed coding decisions.

Lack of uniformity and clarity in payment decisions
The recent negotiated rulemaking coverage process for clinical laboratory tests was very successful in developing uniform national coverage policies for 23 high volume tests. However, there are still many tests without such policies. AACC recommends that a permanent advisory body, similar to the negotiated rulemaking panel, be created to work with the agency in developing such policies. Such a panel should be comprised of physician, laboratory, manufacturer and consumer groups, along with the government contractors affected by these polices. We believe it is important that the Medicare program continue to strive for uniformity and clarity of policies.

Payment rates do not compensate for differing types, values and levels of service rendered
The existing fee schedule does not recognize nor compensate differing types, values and levels of service provided by laboratories. For example, physicians frequently request that a laboratory perform a test on a "stat" or emergency basis. This means that the laboratory must interrupt its normal testing operations to perform the test and get the result to the physician, so that he or she can treat the patient. This disruption reduces the overall efficiency of the lab, thereby increasing its costs, although it may also reduce the overall long-term costs to the health care system from delayed treatment. AACC recommends that laboratories be compensated for added-value services.

The ABN process is unworkable in its existing format
The current system permits a laboratory to request that patient’s pay for a test not covered by Medicare. However, the laboratory must first get the patient to sign an advanced beneficiary notice (ABN), which explains that they are financially responsible for paying for the test. In theory, this should work. In reality, it doesn’t. Typically, the physician orders the patient’s tests. If he or she does not know that a test is not covered, and the patient does not sign an ABN, the laboratory has to absorb the costs. We recommend that any new system permit laboratories to provide physicians with a generic ABN for patients to sign each time a test is ordered. Thus, the patient will know that if Medicare does not cover the test, he or she will have to pay for the service.

Best methodology for beneficiaries
The best system has to include certainty: the physician, the beneficiary and the laboratory must know what will be reimbursed and what will not. If everyone is fully informed in advance, each can make informed decisions.

Technology related issues

The Medicare coverage process for new technologies is too lengthy and payment amounts are not based on accurate cost data
The present system does not have an accurate or efficient means of determining reasonable reimbursement for new assays or new technology. New technology is typically forced to fit into the existing system using either "Gap Filling" or "Cross-Walk" methods to arrive at a Medicare payment.

"Gap Filling" by carriers results in a wide range of arbitrary fees which bear little relation to the cost or benefits of new technology. As a result, new diagnostic tests that could improve clinical outcomes are often slow to be adopted because Medicare reimbursement does not reflect the actual cost of the new technology.

Cross-walking one CPT code to another may be reasonable in that the same analyte is being determined, however, new technology may produce more accurate or timely results. Such added value is not accounted for since the reimbursement rates stays the same. There needs to be a mechanism in place to more fairly compensate laboratories for using a new device that may provide improved health and cost savings downstream.

By way of background, AACC is the principal association of professional laboratory scientists--including MDs, PhDs and medical technologists. AACC’s members develop and use chemical concepts, procedures, techniques and instrumentation in health-related investigations and work in hospitals, independent laboratories and the diagnostics industry nationwide. The AACC's objectives are to further the public interest and educational activities and to help maintain high professional standards.

If you have any questions or we may be of any assistance, please call me at (919) 684-8724 or Vince Stine, Director, Government Affairs, at (202) 835-8721.



Frank A. Sedor, PhD President

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