American Association for Clinical Chemistry
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January 2010 Clinical Laboratory News: Test Reimbursement in 2010

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January 2010: Volume 36, Number 1

Test Reimbursement in 2010
Why the Devil is in the Details
By Bill Malone

The fact that labs get short shrift when Congress sits down to hammer out budgets isn’t anything new to laboratorians. Over the past 25 years, Congress has actually reduced Medicare payments to labs by about 40% in inflation-adjusted dollars, completely eliminating the Consumer Price Index (CPI) update most years and offering only modest increases in the few years the update was actually approved. But despite this dismal trend, and in an effort to be heard in the healthcare reform debates, labs began lobbying Congress at record levels in 2009, spending at least $4 million last year, according to Laboratory Economics.

Labs did get a surprise boost in 2009 with a rare 4.5% update to the clinical laboratory fee schedule, but experts are cautioning that labs should prepare for renewed scrutiny and plenty of belt tightening from the Center for Medicare and Medicaid Services (CMS) in 2010. Not only is Congress looking for ways to pin down the lab fee schedule in healthcare reform bills, but CMS is feeling the pressure to trim the suspected billions of dollars in waste that will be used to help pay for extending coverage to the uninsured.

While there are some bright spots for reimbursement in the 2010 fee schedule, CMS will be employing new methods to audit and deny claims, so labs should make a resolution to pay attention to the details of every claim and expect CMS to do the same, warned Charles Root, PhD, founder and president of CodeMap, LLC. “The viewpoint on Medicare 20 years ago was it didn’t pay very well so it wasn’t worth pursuing. But that’s no longer the case. Now Medicare often pays at a higher level than the insurance companies, so you can’t afford to have that approach,” Root said. “But a general attitude of laxness still exists out there in some places, and it’s not appropriate in today’s environment. You’ve got to collect every dollar that you bill and you have to bill it right, or you’re eventually going to have big problems. There is no room left in the system anymore where you can be sloppy and still survive.”

2010 Fee Schedule Highlights

Just as lab advocates worked hard to avert disaster in several areas of healthcare reform legislation—including a $750 million performance tax on labs and a lab services co-pay—less dramatic but equally significant victories were won in the negotiations over the latest lab fee schedule. Labs won’t be happy with all of the new and revised codes, but there are a few that now will pay significantly more than in the past (See Box, below).

Due to the nature of CMS’s review process for the fee schedule, it’s not possible to just plug in a reasonable amount for a new test based on the data, explained Root. Rather, CMS requires a new code be “crosswalked” to another existing code. As a result, negotiations over the new codes require comparisons from one test to another in order to establish a payment amount, and CMS often connects these dots in a way that steps fees down rather than upward.

Here’s a look at some of the more significant new or revised codes in the 2010 lab fee schedule.

Myeloperoxidase. A big win for this year’s fee schedule, myeloperoxidase (MPO) will now be reimbursed at more than double the rate of prior years. For the past several years, lab groups appealed to CMS to reconsider MPO, exasperated that the agency wouldn’t crosswalk the test to B-type natriuretic peptide (BNP) at $49.56 like many other new enzyme immunoassays (EIA) codes, explained Root. “For MPO, we did prevail, because we had about six different reasons CMS had gotten it wrong,” he said. “They finally got it right, but only after a lot of pressure.”

Procalcitonin. Until now, labs had to code procalcitonin under the “EIA not otherwise specified” code, which pays only $18.91. Though some lab advocates were disappointed that the new fee schedule crosswalks procalcitonin to prolactin instead of BNP, the new code does pay about $10 more than before. “Going forward, lab groups may argue that procalcitonin is similar to other markers used to detect inflammation and infection in the ER—in a patient with a severe respiratory condition, for example—and so the lab needs to run the test stat,” said Root. “This makes procalcitonin as expensive as any cardiac marker.”

Drugs-of-Abuse Screening Assays. Big changes to drug screening codes this year will hit both labs and physician office labs. As the testing technology has evolved, dipsticks have made it easy to screen for a dozen or more drug classes in a single test kit. The fee codes, however, have not kept pace and have been stuck at the time when each test procedure covered just one drug. This created a situation where it was possible to bill separate codes—reimbursed at $20.00—for each drug class included in a single, inexpensive modern kit.

Two new codes will end this practice, with one code for multiple drug test kits and one covering immunoassays for single drug classes, reimbursed at $20 each. However, Root noted that one problem remains for CMS to resolve in this case: neither code fits a multiple-drug chromatographic method. According to a CMS spokesperson, beginning January 1, 2010, the new codes are effective; however, the old codes (80100, 80101, 80101QW) will also continue to exist through at least March 31, 2010. Between now and March 31, CMS has promised to release additional guidance to laboratories about how to bill for these tests.

Immune Cell Function Assay. Manufactured by just one company, the ImmuKnow test from Cylex helps clinicians manage immunosuppressant therapy in transplant patients and has been proven useful in several independent studies, according to Cylex. But based on the amount the test will receive under the new fee schedule, transplant patients face an uncertain future, as the CMS crosswalk won’t even pay one-third of the direct test costs. “Cylex is now making a full lobbying effort on CMS because, in this case, it seems CMS ignored some of the steps in the process of performing the test, which would have raised the amount substantially,” said Root. “The company’s argument is that transplant patients will be jeopardized—no one will run a test that costs at least three times what they’ll get paid for it.”

Vitamin D. Codes for vitamin D have been revised to make sure that labs do not submit multiple codes for one test procedure. Now two of the original codes replace the previous three, 82306 for 25-hydroxyviatmin D and 82652 for 1,25-hydroxyvitamin D. Labs should only submit one of these codes.

Syphilis Testing. For 2010, CMS has also revised several codes for syphilis testing due to frequent coverage policy confusion about the confirmatory test for Treponema pallidum. Now, both the code for the qualitative syphilis test and the quantitative syphilis test note “non-treponemal antibody.” A new code replaces the old Treponema code and retains the same fee.


New Test Reimbursement Codes for 2010
New Code
Myeloperoxidase (MPO)
Procalcitonin (PCT)
Culture, typing; identification by nucleic acid sequencing method, each isolate
Human leukocyte antigen (HLA) crossmatch; non-cytotoxic, first serum sample or dilution
HLA—each additional serum sample or sample dilution
pH; exhaled breath condensate
Thromboxane metabolites, including thromboxane if performed, urine
Cellular function assay involving stimulation and detection of biomarker
Human epididymis protein 4 (HE4)
Antibody; treponema pallidum
Culture, typing; identification by nucleic acid probe, amplified probe technique, per culture or isolate, each organism probed
Infectious agent detection by nucleic acid; clostridium difficile, toxin genes, amplified probe technique
Hemoglobin (Hgb), quantitative, transcutaneous
Drug screen, qualitative; multiple drug classes, other than chromatographic method, each procedure (e.g. multiple drug test kit)
Drug screen, qualitative; single drug class method (e.g., immunoassay, enzyme assay), each drug class
*Fees are according to the 2009 fee schedule and may change based on a 2010 CPI update or other congressional action.

Medically Unlikely Edits

Describing it as “essentially a frequency screen on every claim submitted,” Root predicted that CMS’s medically unlikely edits (MUEs) program will continue to frustrate labs in 2010. In regulatory parlance, MUEs are unit of service edits for HCPSC and CPT codes submitted for services rendered by a single provider, for a single Medicare beneficiary, on the same date of service. Units of service greater than the assigned MUE don’t get paid. This is considered an error, not a medical necessity issue, so Advanced Beneficiary Notices of non-coverage (ABN) don’t help here.

MUEs tend to cause problems when a lab has to use the 83520 code for “EIA not otherwise specified,” explained Root. “There are lots of assays that fall into that category because they don’t have a unique code. And it’s not uncommon if you’re doing a panel of tests to have four of those,” he said. In contrast to what CMS has done for other codes, the agency will not disclose what the threshold MUE is for 83520, with the rationale that if they publish it, people will abuse it. “So you don’t know exactly what it is, and it may even vary from payer to payer,” said Root. “And since you don’t know, they can kind of get away with whatever they want.”

For codes that CMS has published on its website, labs have the means to report medically necessary units of service in excess of the MUE for the codes. However, even CMS’s own recommendations get tricky in this area. Since CMS reviews each line in a claim separately against the MUE for the code on that line, the agency’s suggested fix is to use CPT modifiers to report the same code on separate lines of a claim. CPT modifiers such as 91 (repeat clinical diagnostic laboratory test), and 59 (distinct procedural service) will accomplish this purpose. However, modifier 59 should be used only if no other modifier describes the service, according to an agency FAQ.

This process may seem straightforward to those familiar with the details of claims, but even modifiers don’t always solve the crux of the MUE problem. “Getting these modifiers through the system is really difficult,” Root said. “Half the time it doesn’t work because of glitches in the system and the way Medicare administrative contractors (MACs) have programmed their computers. It’s causing a lot of denials and providers frequently have to re-file and fight over it.”

Claims that exceed an MUE are either denied or returned, depending on the specific system in your area. Carriers and A/B MACs processing claims with the Medicare Claims System (MCS) deny the entire claim line if the units of service on the claim line exceed the MUE for that code. Since claim lines are actually denied, providers can appeal.

Alternatively, fiscal intermediaries (FIs) and Part A/Part B Medicare Administrative Contractors (A/B MACs) processing claims with the Fiscal Intermediary Shared System (FISS), return claims with units of service exceeding the MUE to the provider. The claim line is not denied, so there is no appeal process in this case.

Theoretically, these and other differences between FIs and MACs should have gone by the wayside with the MAC consolidation required by the Medicare Modernization Act of 2003. Under that law, CMS has begun consolidating contracts with fiscal intermediaries (Part A) and carriers (Part B) into new A/B MACs with the aim of more efficient single points of contact for both hospital and physician-practice claims processing. “As a matter of fact, one of the main things that we expected from the MAC consolidation was a consolidation of coverage policy,” said Root. “So that a MAC would have a given set of policies that would apply to all the states it covered. Instead, they have kept different policies for fiscal intermediaries on the inpatient side and carriers on the outpatient side separate, so there is still a complete set of different policies within the MAC for each of the states and for each type of provider. My impression is that nothing much is going to change unless Congress says they have to consolidate payment policy.” 

A Look Back at Clinical Lab Payment Policy
Cuts Have Steadily Squeezed Labs

The way Medicare and Medicaid pay labs for their services has changed dramatically over the last 30 years, usually because labs are an easy target when Congress is looking for a way to pay for new initiatives or slow the overall growth of the budget. Before Congress passed the Deficit Reduction Act of 1984 (DEFRA), Medicare reimbursement for lab testing was paid on a retrospective, reasonable charge basis. Back then, independent labs performed a significant share of testing, and they billed physicians who in turn billed Medicare. In fact, as much as 80% of laboratory services were billed by physicians. Medicare also required that beneficiaries be charged a co-pay for lab services, usually with physicians collecting the co-pay because they had face-to-face contact with the patient.

But DEFRA changed all that. It created a fee schedule for lab services that capped payments and required labs to bill Medicare directly, eliminating co-payments as well. Congress also took other steps over the years that have steadily cut reimbursement for lab services. The limits on payment for each test—originally set at 115% of the average fee across all carriers—have fallen steadily. The most recent reduction of payment limits occurred in 1997, when limits were set at 74%, which is where they stand today.

Another source of cuts has been the Consumer Price Index (CPI) update that was established as part of the new fee schedule. Although originally intended to help the fee schedule keep pace with inflation, Congress has eliminated or reduced the CPI update in 13 of the past 15 years.

Under the current system, each Part A/Part B Medicare Administrative Contractor (MAC) pays for services based on local geographic areas, and the fees are based on charges from labs in that geographic area. Payment is the lowest of three numbers: the amount billed; the local fee for a geographic area; or a national limitation amount (NLA) for the Healthcare Common Procedure Coding System code. Tests for which NLAs were established before January 1, 2001 are reimbursed at 74% of the median of all local fee schedule amounts, while for those that were established on or after January 1, 2001, the NLA is 100% of the median of the local fees. Each year, new lab test codes and corresponding fees are added to the schedule. For 2009, Congress set the laboratory fee schedule update at the CPI minus 0.5%, or 4.5%.

Unfortunately, it looks like there will be more bad news for the CPI update coming out of healthcare reform legislation. At CLN press time, one proposal would reduce the CPI update by an annual “productivity factor,” potentially reducing payments to labs by $5 billion over the next 5 years. Unlike the Medicare physician fee schedule, the lab fee schedule CPI updates have never included a method to incorporate adjustments for gains in provider productivity, such as improved technology. This new productivity factor for labs would be estimated each year, ranging from 1%–1.4%, and be cut off the top of the usual CPI number. For example, if the CPI update were 2.5% and the productivity factor 1.5%, the remaining CPI update would be 1%. However, the proposal would not allow this new adjustment to push the CPI update below zero.

Recovery Audit Contractors

Created by the Tax Relief and Health Care Act of 2006 and fully in place as of this year, recovery audit contractors (RACs) search for and recover past improper Medicare payments on behalf of CMS. As financial mercenaries, RACs get to keep anywhere from 8% to 12% of what they recover, leaving many industry observers uneasy about just how aggressive and expansive these audits may become.

Ostensibly, the goal of the RAC program is to help providers avoid submitting claims that don’t comply with the rules, help CMS lower its error rate, and benefit taxpayers; however, the sweeping authority given to RACs is making providers more than a little nervous. The collection process is similar to when a MAC itself identifies an overpayment, only the official demand letter comes from the RAC and the appeals process works differently. Unlike MACs, RACs will conduct automated and “complex” reviews, requesting a provider’s medical records and mining the data for anything that’s out of line.

“I think they’ll initially focus on hospitals, but with the way RACs work, they will be looking for what I would call low-hanging fruit—easy to find and document billing errors,” said Peter Kazon, senior counsel with Alston & Bird, LLP in Washington, D.C. “Unfortunately, there are a lot of opportunities in laboratory billing as well. Clearly, this type of enforcement is here to stay, and there is a general view—correct or not—that there is a lot of waste and abuse out there and that CMS will make huge savings through tools like the RACs.”

To stay on top of the latest RAC developments, laboratorians should keep an eye on CMS’s RAC website. CMS has promised to first clear in advance any new arena of claims that RACs have access to, then post the latest issues RACs are free to hunt for online. “This will be the lab’s early warning,” said Root. “Otherwise, quite honestly, labs just have to be very careful on any of the existing regulations, whether it’s correct coding, or correct code pairs and ICD-9s on coverage. A lot of the money RACs are after comes from mechanical errors where they paid money that should have been denied. If your lab has a good bill scrubbing system and a good payable claims system in place, you will catch most of that yourself, and you won’t be submitting claims that should not have been paid.” Laboratorians can get more in-depth information about RACs, as well as stay on top of the latest issues cleared for RAC review, at the CMS website.

Advance Beneficiary Notices of Non-Coverage

CMS is also challenging labs with even more subtle changes that providers will stumble over, even though they’re not all totally new. For example, the new ABN, originally rolled out in 2008, includes even more rules, consuming dozens of pages in the Medicare Claims Processing Manual (chapter 30, section 50). In the most basic sense, an ABN helps providers inform a patient when the provider believes Medicare may not pay for a service, leaving the patient financially liable. A form specific for labs is included in the appendix of the claims manual.

However, properly filling out and using the form quickly gets complicated, Kazon emphasized, and continues to be a problem for providers. CMS lays out new and more specific instructions for estimating the cost of the procedure, and a lab must make a “good faith effort to insert a reasonable estimate for all of the items or services listed,” according to CMS instructions. CMS also states that “In general, we would expect that the estimate should be within $100 or 25% of the actual cost, whichever is greater.” In a case where additional tests may be run, such as in reflex testing, and these costs can’t be “reasonably estimated,” CMS allows the lab to offer the patient an initial estimate with the caveat that other testing and further charges may apply.

Another complication with ABNs arises when the lab isn’t the entity delivering the ABN, such as when a physician orders a lab test from an independent laboratory. “It depends on the setup. If you’re a patient and you’re going to have your blood drawn in the physician’s office, then the physician will usually be the one who’s responsible for getting the ABN on behalf of the laboratory,” said Kazon. “But if, as also frequently happens, the physician simply gives the patient a requisition and says, ‘go down the hall to the patient service center that the lab operates and get your blood drawn there,’ then the ABN will be delivered at the patient service center, in which case it could be the lab employee rather than the physician who is getting it signed.”

The troubling part of all this is that according to CMS rules, regardless of who delivers the ABN, the billing entity is always ultimately held responsible—such as a laboratory that’s depending on a physician’s office to deliver the ABN. “When you’re relying on someone else to help get your job done it’s always going to be more complicated. This is why, more and more, labs are automating the system as much as they can. In those situations where physicians are ordering electronically, the software can be programmed so that when the physician orders a certain test with a non-covered diagnosis, the system recognizes that the lab needs an ABN and creates one for the physician to get signed,” Kazon explained. “The second thing is that you have to educate your physicians. A lot of this information is going to be in physician’s files, and you have to constantly try to update physicians about what’s required.”

Staying Out of Trouble

Between wondering about RACs roaming medical records, and getting frustrated by counter-intuitive rules and changes to the fee schedule, laboratorians might feel justified in feeling uneasy about the year ahead. However, experts on such problems offer some straightforward advice for keeping your head above water. “The only way you can approach these issues is by knowing what’s going on within your own laboratory. That means doing internal audits and reviewing your processes and procedures,” said Kazon. “Most importantly, document, document, document—who you talked to, all the information you get, what you’re being told by physicians, what you’re being told by contractors. We’re all so busy in our daily lives that stopping to document is always difficult, but you’ve got to have the procedures in place where you can go back and document things.”

Root offers similar guidance. “The providers who do a good job of filing their claims and diligently checking on denials, making sure they get paid when they should have been paid—nothing is going to change dramatically for those people,” he said. “But there are a lot of people who are, frankly, just not that efficient. They send in sloppy claims that have problems, and some of them, unfortunately, get through the system and are paid incorrectly.”