June 2010: Volume 36, Number 6
Healthcare Reform Arrives
How Will Labs Fare in the New Era?
By Bill Malone
Like it or not, on March 23, President Obama signed healthcare reform legislation into law. But as Congress agonized over the bill, everyone in the healthcare community, already worn down by cost cutting, knew full well that cuts to reimbursement and taxes on industry were inevitable. After all, Congress had to find some way of paying for such an ambitious plan that broadens coverage to millions more Americans. Laboratorians especially had good reason to expect more pain than gain from the new law, as Congress has historically reduced Medicare payments to labs almost every time it had the chance.
However, in spite of the hand wringing by many stakeholders, the Patient Protection and Affordable Care Act avoids the deepest cuts and higher taxes on labs that were on the table during the debate. Several new programs in the law aimed at quality and prevention even have some lab observers cautiously optimistic, while everyone in the lab can be pleased that the law includes laboratory services as part of the basic coverage that will be offered to approximately 33 million Americans who currently lack insurance.
The law will cut the Consumer Price Index (CPI) update to the lab fee schedule in two ways for at least the next 5 years (See Box, below). However, laboratorians didn’t really have high expectations of getting positive updates every year anyhow, noted Charles Root, PhD, president of CodeMap LLC, a lab coding, reimbursement, and compliance consulting firm. “Labs didn’t fare too badly, and realistically the fee schedule could just hover near zero for the next few years,” he said. “In the bigger picture, there will likely be more lab testing because of the higher number of insured people and the bill’s emphasis on preventive care.”
As the many details of the reform legislation get fleshed out during the law’s implementation phase, laboratorians will also continue advocating for elements of the law that could boost emerging technologies in lab medicine. “For the first time, this law introduced the principles of personalized medicine into statutory language by insuring that comparative effectiveness research (CER) will respect individual variation and call for molecularly informed clinical trials,” explained Edward Abrahams, PhD, president of the Personalized Medicine Coalition (PMC), a non-profit education and advocacy group. “We believe that the bill goes a long way in protecting the principles of personalized medicine and providing a platform for its future development.”
What Went into the Lab Fee Schedule Cuts
Now that the ink has dried on the healthcare reform legislation, labs and other healthcare providers are coming to terms with how reimbursement cuts could affect them. The cuts to labs are a mixed bag: more painful cuts were at one point on the table, but the final law leaves labs somewhat in limbo because the fee schedule update cuts are tied to two independent variables.
Due in part to successful lobbying of Congress by lab advocacy groups, labs narrowly avoided the grim scenario of a 20% copay by patients. The copay itself would have been tantamount to a 20% reduction of the lab fee schedule, said Alan Mertz, president of the American Clinical Laboratory Association (ACLA). “Labs would have been asked to collect that 20% of the fee schedule, and with the collection costs it could have surpassed $20 billion dollars over ten years.”
ACLA worked with the American Association of Retired Persons, which came out against the copay because it was the only portion of the entire Senate Finance bill that would have increased beneficiary out of pocket costs. With opposition from lab groups and AARP, the Senate Finance Committee decided to drop the copay and replace it with a $750 million annual tax that would have been applied to all laboratory revenue permanently, Mertz explained.
Then in September 2009, lab advocates working with Congress made the decision that a temporary cut to the lab fee schedule update, which sets rates for billing Medicare, would be less painful than a permanent tax on labs themselves. The lab fee schedule is updated every year according to the Consumer Price Index and is intended to keep the fee schedule at pace with inflation, but Congress has usually acted to reduce or eliminate the update.
After negotiations, the final deal signed into law includes a 1.75% cut to the fee schedule update for 5 years, a blow much more preferable than the permanent $750 million 2–3% tax taken against all laboratory revenue originally on the table, Mertz said. “The fee schedule update cut was purely in exchange for getting rid of the tax.”
In addition to the 1.75% cut, the law also establishes a permanent productivity adjustment to the fee schedule update, another type of cut. The law imposes the productivity adjustment across the board on all Medicare Part B providers, not just labs, and has been estimated to range from 1.1% to 1.4% over the next 10 years. This number comes from the Department of Labor, which every year estimates the productivity growth of the overall economy. Taken together, the temporary 1.75% cut and the productivity adjustment will knock down the CPI update by about 3 points. This means that the CPI needs to be at least 3% in order for the fee schedule to stay flat. However, if inflation is tame, then the reductions to the CPI update will turn into cuts to the lab fee schedule.
The hope is that possible cuts to the fee schedule might be offset by the projected increase in testing coming from broader preventive coverage and increases in the rolls of insurance companies and Medicare. But just how the scenario will play out is unpredictable, said Elissa Passiment, CLS, executive vice president of the American Society for Clinical Laboratory Science (ASCLS). “We would have liked for the cuts to not be as deep as they are, but there were worse ways they could have taken the dollars from us, so in that respect, we got some of what we wanted in that we didn’t get a copay or a tax on labs,” she said. “Both preventive services and the fact that a majority of those 33 million people are going to get covered does mean that there is a real potential that lab testing will increase, and the increase in volume should help offset the cuts to the fee schedule somewhat.”
Opportunities in Preventive Care
Critics of the health reform law point out that it’s really more of a health insurance reform law than a comprehensive reform of the U.S. healthcare system. But even though most of the big changes have to do with offering more Americans health insurance—and the cuts and taxes needed to pay for it—a handful of measures under the law’s rubric of prevention and wellness aim to shift the focus of healthcare to prevention.
Under the new law, Medicare will cover 100% of the cost of preventive services, such as screening tests, and all private health plans must also provide coverage for preventive services without cost sharing, even in basic plans. The catch is that coverage is only guaranteed for preventive services rated A or B by the U.S. Preventive Services Task Force (USPSTF), an independent panel that reviews evidence of effectiveness and develops recommendations for preventive services under the auspices of the Agency for Healthcare Research and Quality (AHRQ).
USPSTF is known for requiring a large body of definitive data before awarding high grades to tests—at least until now. The reform law revamps USPSTF, emphasizing that its members must have appropriate expertise, as well as giving the task force new freedom to consider less definitive evidence previously out of bounds, explained Alan Mertz, president of the American Clinical Laboratory Association (ACLA), in a conference call with reporters. “There is now a specific provision directing USPSTF to use a more clinical care approach and allow input from medical societies and other agencies,” he said.
Under the law, USPSTF recommendations must consider clinical preventive best practice recommendations from AHRQ, the National Institutes of Health, the Centers for Disease Control and Prevention, the Institute of Medicine, specialty medical associations, patient groups, and scientific societies.
Guidelines from professional associations or government agencies will provide an opening for more tests to gain higher USPSTF endorsement, Mertz emphasized, especially since clinical trials and other outcome data are often not as clear for diagnostics as they are for pharmaceuticals. For example, the American Diabetes Association (ADA) now recommends HbA1c for diabetes screening for those with risk factors such as high blood pressure, weight, and family history. In contrast, the most recent USPSTF statement only recommends screening in adults with blood pressure higher than 135/80 mm Hg.
Under the new law, USPSTF could take another look and incorporate the broader ADA advice, Mertz indicated. “Hopefully USPSTF will be more enlightened and take another look at diabetes, or we could miss the opportunity to catch the estimated 34 million Americans with pre-diabetes simply because we don’t want to spend a few dollars on an HbA1c test.”
How far the new USPSTF goes in recommending more testing will depend in large measure on whether people who understand the value of diagnostics are part of the reshaped task force, said Elissa Passiment, CLS, executive vice president of the American Society for Clinical Laboratory Science (ASCLS). “It’s hard to say if this will mean a lot more tests get covered, because USPSTF is a conservative group,” she said. “They really need to actively seek laboratory medicine input, and they need to seek it from laboratorians who really understand the new technology and the new genomic information that we’re able to produce. If the person representing the laboratory perspective is weak in his or her molecular knowledge, it’s not going to help.”
As USPSTF shifts to accommodate the new law, adding more tests to its list of A or B-graded recommendations will happen slowly, and most likely will result from outside pressure, Root predicted. “If it’s something the public wants, something they start asking Congress about, then it will happen,” he said. “If people get organized to advocate for something, there is at least a pretty clear mechanism now that USPSTF and the Centers for Medicare and Medicaid Services have for including it.”
Making screening tests and other preventive care accessible to more people is a good thing, but whether the public take advantage of these new benefits is up to them, Passiment pointed out. “The potential is there if people take an active interest in their health,” she said. “But it’s hard to predict. It’s very difficult to know whether people really understand and grasp their responsibilities for their own health. If they do, and they use this new access to prevention that they have available to them, then yes, we will definitely see more laboratory testing.”
The experience of labs in Massachusetts, which passed a law requiring all adults in the state to purchase health insurance in 2006, offers a glimpse to labs across the country of what they can expect from the reform law. However, numbers on an overall increase in testing are inconclusive, said Passiment. “Those of our members who are in hospital laboratories in Massachusetts tell us that there has definitely been an improvement with how people access the system,” she said. “With health insurance, now people are not using the ER as the doctor’s office as frequently as they used to.” Laboratorians in Massachusetts also say they’re actually seeing people come to clinics or care settings much earlier, so they’re not seeing people as severely ill as they were before, Passiment said. “Unfortunately, it’s still too early to tell if it is a trend that will continue, or if it’s just the novelty of having health insurance.”
At the same time the reform law broadens access to care, it also counters the potential for dramatic growth of costs by establishing a 15-member Independent Payment Advisory Board (IPAB). This new entity will displace the current Medicare Payment Advisory Commission (MedPAC), which has served solely as an advisory group to Congress on Medicare payment. In contrast to MedPAC, IPAB recommendations will automatically become law unless shot down by both Congress and the president.
“The Independent Payment Advisory Board is Congress’s attempt to cap things off and make sure costs don’t get out of hand,” Root commented. “They will only be debating cuts, not increases.”
IPAB will submit legislative proposals to reduce the per capita rate of growth in Medicare spending only if spending exceeds a target growth rate. Beginning April 2013, the law requires the chief actuary of CMS to project whether Medicare per capita spending exceeds the average CPI, based on a 5-year period. If so, beginning January 15, 2014, IPAB must submit recommendations to cut Medicare spending. The board must also submit recommendations every other year to slow the growth in national private health expenditures while preserving quality of care.
The threshold target will then change beginning 2018, when it becomes Medicare per capita spending that exceeds GDP per capita plus 1%. The law specifically prohibits IPAB from submitting proposals that would ration care, increase revenues or change benefits, eligibility, or Medicare beneficiary cost sharing. For the first year, clinical labs will not be subject to cost reductions proposed by the board, and hospitals are exempt until the second year. The board’s recommendations become law unless Congress enacts its own proposal to reduce spending by the same amount.
As implementation of the reform law moves into high gear, what matters now is who gets a spot at the table, stressed Passiment. “If they put a lot of physicians together who don’t really grasp what lab testing has to offer, what you get is people saying, ‘really, I use lab tests to confirm my impression, but they’re not that important.’ But if you put a hematology-oncology or an infectious disease person in there, they’ll tell you that they haven’t got a clue what’s going on in the patient without the lab test result,” she explained. “I don’t know how to impress enough on these folks that if you don’t bring the right experts to the table, it’s all garbage in, garbage out.”
A Nod to Personalized Medicine
Continuing the Obama administration’s push for CER, the reform law will support CER by creating an independent, non-profit Patient-Centered Outcomes Research Institute (PCORI) that will be overseen by an appointed multi-stakeholder board of governors and assisted by expert advisory panels. Moving the locus of control outside of government agencies, PCORI replaces the Federal Coordinating Council for Comparative Effectiveness Research that was founded under the American Recovery and Reinvestment Act and has acted as a guide for the $1.1 billion allocated for CER under that law.
Of particular interest to the lab community, the reform law makes specific mention of molecular diagnostics in several instances, noting that CER must be designed to take into account “the potential for differences in the effectiveness of health care treatments, services, and items as used with various subpopulations, such as racial and ethnic minorities, women, age, and groups of individuals with different comorbidities, genetic and molecular sub-types.”
These and other acknowledgments of personalized medicine in the law will help protect against a one-size-fits-all paradigm, said Abrahams. “We at the Personalized Medicine Coalition think that Patient-Centered Outcomes Research Institute is a good idea, and that by making a public-private partnership, we’ll have a more independent perspective,” he said. “It’s important to get it outside of the government point of view, otherwise it can be politicized. Our main goal was to preserve the principle that science should drive decision making—real science.”
Congress worded the purpose of PCORI very carefully, spelling out that CER should help patients, clinicians, and policy makers make informed health decisions, but CER findings are prohibited from being construed as mandates for payment, coverage, or treatment. But it will be difficult to keep CER out of coverage and payment decisions forever, Root noted. “If comparative effectiveness research finds that a new drug, device, or test is definitely better than another, then no doubt practice will follow,” he said. “When you’ve got a hard piece of evidence that something else is better or just as good, it’s going to be very difficult for vested interests to argue that doctors should keep prescribing drugs or ordering tests that have been shown to be ineffective. However, this is an indirect influence on CMS, so change won’t come too rapidly.”
Where to Find More Information
The American Clinical Laboratory Association (ACLA)
ACLA prepared a side-by-side comparison of lab provisions during legislative process on healthcare reform.
The Kaiser Family Foundation
The foundation features a comprehensive web page dedicated to reports, summaries, timelines, and articles on all aspects of the reform law.
This website is the Obama administration’s official portal to news, reports, and Q&A about the law. It features the ability to subscribe to email updates on insurance reform news.
Now that the reform bill has become law, the government, as well as healthcare providers, are entering an implementation stage Susan Dentzer, editor-in-chief of Health Affairs, called “implemageddon.” It is now up to Congress and the Washington bureaucracy to write new regulations that put the law into practical terms, especially for those elements that are somewhat vague and not directly related to insurance coverage, said Dentzer, speaking at ACLA’s annual meeting in April. “Congress put in a lot of potential for change, but it is not all mandated. The Secretary of Health and Human Services has broad authority to test out new approaches, and the major theme is a more integrated health system and a greater emphasis on performance and outcomes.”
Pilot programs in the law include bundling Medicare payment for episodes of care that begin 3 days before admission to a hospital and span 30 days following discharge; a value-based purchasing program in Medicare that pays hospitals based on performance on quality measures; and a 2-year demonstration project that will allow independent labs performing advanced molecular tests to receive separate and direct reimbursement under Medicare Part B even when the sample has been collected during a hospital stay.
As more payments become bundled and CMS focuses on performance and outcomes, laboratorians and IVD manufacturers will have to work even harder to demonstrate the value of testing, Root emphasized. “What’s lacking right now for a lot of the newer molecular tests is a clear indication of the outcomes,” he said. “If people do studies that clearly show there are savings by performing a certain test, then it will fare very well and be covered and paid reasonably by CMS. On the other hand, there are a lot of molecular tests out there that when you start to look for that payback, it’s not that clear. It may provide interesting information, but the question is, does it really influence patient care, mortality, or morbidity? So it’s only going to get more difficult to get coverage in the future.”
Vince Stine, AACC’s director of government affairs, added a cautionary note, pointing out that there is no single template for how healthcare reform will affect labs, so each lab will need to develop its own business model for how it responds. “In developing their plans, laboratories need to keep in mind that the healthcare reform changes are staggered over the next few years,” he said. “Legislators frontloaded the payment cuts, so that they take effect as early as 2011, whereas the testing increases won’t materialize until 2014.”
Labs will need to examine the source of any increased volume of testing, Stine noted. “More than half of the newly covered will be through the Medicaid program, which typically pays less than other insurers,” he said. “Laboratories will need to take this into consideration as they make adjustments to their operations.”