American Association for Clinical Chemistry
Better health through laboratory medicine
January 2011 Clinical Laboratory News: Reimbursement and Reform in 2011


CLN Banner Logo

January 2011: Volume 37, Number 1



Reimbursement and Reform in 2011
Will the Push for Integration Open a New Role for Labs?

By Bill Malone

With the healthcare reform law not yet 1 year old, healthcare providers are now beginning to sort out how some of the reimbursement cuts in the law will affect them. Labs will be hit immediately in 2011 with an across-the-board cut of 1.75% to the Medicare lab fee schedule. What’s more, the usual update for inflation was swallowed up this year by the negative 1.2% productivity adjustment, another new factor in the equation instituted by the reform law.

Despite this and other distressing news about reimbursement for healthcare providers, already many are moving from surprise to acceptance of the reimbursement cuts and taxes included in the law, and discovering just how radical some of its delivery reforms could be. One provision that has garnered intense interest is the shared savings program scheduled to begin in 2012, which encourages providers to form accountable care organizations (ACO). Under this new contracting model, physicians and other providers agree to take joint responsibility for keeping a population of Medicare patients healthy and then get to share in any financial savings that result. Although the Secretary of the Department of Health and Human Services (HHS) has yet to write the final regulations for ACOs, providers are already scrambling to reshuffle their processes so they can be eligible to participate in the program. Also adding pressure is the recommendation from President Obama’s National Commission on Fiscal Responsibility and Reform that the government “aggressively implement and expand payment reform pilots,” including ACOs, bundled payment, and other programs that center on performance and quality.

According to industry observers, ACOs will bring both challenges and opportunities for the lab. Some even see this program as another harbinger of the death of fee-for-service reimbursement—a prospect that could upend current presumptions about how value is assigned to lab tests. Though few expect fee-for-service reimbursement to disappear quickly or completely, most agree that change is inevitable. Providers’ and policymakers’ focus on quality and outcomes is reaching a climax at the same time that the reform law is rolling out trials of integrated care and bundled payments, creating a new environment that will require rethinking cost and value, said Brian Jackson, MD, assistant professor of clinical pathology at the University of Utah and medical director of informatics at ARUP Laboratories in Salt Lake City. “I think we’re getting close to an inflection point where suddenly it will make more sense to focus on the actual medical value and the downstream costs associated with lab testing, and the fee-for-service side will become a sideline rather than the main picture,” he predicted.

Accountable Care Organizations
New Model Focuses on Quality

Part of the healthcare reform law passed in 2010, Accountable Care Organizations (ACOs) are a new healthcare contracting model in which physicians and other providers agree to take joint responsibility for keeping a population of Medicare patients healthy and get to share in any financial savings that result. To receive their shared savings payments from the government, ACOs must prove that they are promoting evidence-based medicine and improving overall quality of care for the population of Medicare beneficiaries served by the ACO. By intent, the law promotes coordinated care that is a hallmark of integrated delivery systems, such as Geisinger Health System, Mayo Clinic, and Intermountain Healthcare. However, the law focuses more on outcomes than exact methods for achieving such integration, according to experts.

Under the reform law, the Department of Health and Human Services (HHS) must establish the ACO program as of Jan. 1, 2012. HHS will have to flesh out the program with regulations. Currently, few details are known about exactly what will be required of ACOs. According to the reform law, among other requirements, ACOs must:

  • accept accountability for the quality, cost, and overall care of at least 5,000 Medicare beneficiaries;
  • develop a legal structure for distributing payments from shared savings;
  • have defined processes to promote evidenced-based medicine, report the necessary data to evaluate quality and cost measures, and coordinate care; and
  • demonstrate that the they meet patient-centeredness criteria.

At least for now, HHS plans to pay physicians and other providers in ACOs under the original Medicare fee-for-service program, but participating ACOs are eligible to receive additional payments for shared savings if they meet quality performance standards, and a benchmark amount established by the HHS secretary. ACOs will receive a percentage of the difference between the estimated average per-capita Medicare expenditures and the benchmark amount, and Medicare will keep the remainder of the savings. For example, if HHS calculates that treating the population of primary care patients assigned to the physicians in an ACO would normally increase 6% in the next year, but that particular ACO keeps cost increases down to 3%, the providers within the ACO get to keep some portion of the 3% they saved.

The Perfect Storm

For decades, laboratorians have been stoically coping with the irregularities and constraints inherent in the lab fee schedule and have put their energies into maintaining the quality of what they can control within the four walls of their labs. Nevertheless, steady shifts in the economy and government policy are giving labs a chance to think creatively and consider stepping outside old patterns of thought, said Jackson. He studies test utilization patterns, cost-effectiveness of laboratory testing strategies, and mathematical modeling as a mechanism to augment laboratory diagnosis.

“The way we pay for lab tests today is very similar to the way that the Soviet Union priced bread in 1980, where we have a government office in charge of central price planning, and everyone calibrates their prices to that. This leads to all kinds of weird effects and lacks any economic truth, because really pricing should be based on the value of a test to the patient,” he said. “There remains a huge disconnect between the way many laboratorians currently think about costs and reimbursement that just has no relationship to reality because in a lot of cases we get paid too much for tests and in others we aren’t paid enough.”

However, three forces are forming a perfect storm that could eventually usurp the fee-for-service model and force labs to change their thinking, according to Jackson: larger and more integrated delivery systems; new payment and contracting models pushed by healthcare reform; and the coming-of-age of healthcare information technology (IT). Integrated delivery systems include organizations like Geisinger Health System, Intermountain Healthcare, and Mayo Clinic, that stress care coordination, chronic disease management, and clinical practice guidelines. Care coordination is at the center, bringing together patient care activities among multiple care providers.

The second major trend comes from new government initiatives aimed at bending the healthcare cost curve while improving quality of care, including ACOs as well as pilot programs to bundle reimbursement around episodes of care. “At the national policy level there is essentially universal agreement that fee-for-service is a big part of our woes, so it’s just a question of how fast people can make the transition,” Jackson said.

Finally, the growing use of advanced healthcare IT tools is making all this integration possible and cost effective, especially electronic health records (EHR) and computerized physician order entry systems (CPOE). “We are just now getting to the point where healthcare organizations can start to use this data strategically,” he said. “Integrated delivery systems are starting to get some real leverage out of their clinical data warehouses that helps them take care of patients cost effectively.”

ACOs and the Lab

If healthcare really is ripe for the kind of paradigm shift Jackson sees coming, then providers’ enthusiasm for ACOs may be an early signal. Even before HHS issues any regulations to specify in detail how ACOs will have to function in order to receive shared savings payments from the Centers for Medicare and Medicaid Services (CMS), hospitals, health systems, and other providers are already preparing to develop the partnerships and coordination that will be necessary.

One of the country’s largest coalitions of hospitals and healthcare systems, the Premier Healthcare Alliance, is already preparing a comprehensive effort to get its member organizations up to speed on ACOs and create an “accelerated learning environment” to allow early adoption of the ACO model. Premier is a performance improvement alliance and group purchasing organization for more than 2,400 U.S. hospitals and 70,000-plus other healthcare sites, and maintains the nation’s most comprehensive repository of clinical, financial, and outcomes information that are often tapped by federal regulators for information.

“We see ACOs as the next major transformation in healthcare that will require putting people first and reorganizing our processes so that we can simultaneously improve quality and lower costs,” said Brent Hardaway, MS, vice president of Premier Consulting Solutions. “Providers are definitely excited about this and are gearing up for this new model.” At least 80 hospitals and some 5,000 physicians in Premier’s coalition have already indicated they intend to take advantage of the ACO collaborative in order to form local ACOs in 19 states around the country, initially covering close to 1.5 million patients.

According to Hardaway, labs will be a core component of the network of providers ACOs will demand. He sees labs competing in this new market on the basis of the so-called triple aim laid out by the Institute for Healthcare Improvement: improved outcomes, enhanced patient experience, and control of costs. “In many ways, labs will need to do what they’re already doing: be convenient and responsive, offer good access to high quality results, and be competitive pricewise,” he said. “If your lab is doing all those things, you shouldn’t have any problems.”

While hospitals and physician groups work on retooling their processes to match the ACO model, some healthcare industry observers see even more dramatic change on the horizon. “Many physician groups and hospitals getting on the ACO bandwagon do expect fee-for-service to continue, but if you read a bit between the lines of the healthcare reform act, it is really trying to push us to change the underlying metrics for how we pay for healthcare services,” said Randy Cook, MPH, FACMPE, senior medical practice consultant for State Volunteer Mutual Insurance Company (SVMIC). “It’s moving us from a unit-based system—fee for service—into a paying for value, or a payment for outcome-based system. ACOs are clearly a big part of that.” Cook works for the consulting branch of SVMIC and specializes in the healthcare reform law.

Because of the requirement that ACOs prove to CMS that they truly are improving quality, hospitals and other systems with the requisite IT infrastructure will have the initial advantage in forming ACOs, but physician groups will be organizing ACOs as well, Cook noted.

“There will be cases where you’ll see primary care physician groups step out front and be the ones to turn around and buy services,” he said. “Large primary care practices will look at what it takes to clinically integrate care around their patients, and they’ll seek relationships with specialists, a hospital, and a laboratory. Then they can contractually build those relationships and manage care from the bottom up of the traditional pyramid.”

As a variety of provider groups patch together networks and form different permutations of the basic ACO model, labs will have to understand how and by whom each ACO is organized and consider how they might fit into one or more of these networks, Cook emphasized. “If I were a clinical laboratory, and I wanted to play ball with one or more ACOs in my market, the first thing I’d want to consider would be who is organizing the ACO, and then evaluate my relationship to that organization. It’s clear that hospitals in most markets will organize ACOs, but large physician-based systems will organize some too,” he said. “So the second question is, who are the primary care physicians that are going to be involved, and what’s the lab’s relationship with them?”

ACOs, as set out in the healthcare reform law, will be paid at least initially via the old fee-for-service system. However, Cook expects CMS is already thinking of switching to bundled payment once ACOs are firmly established. “The problem for providers will be the inevitable intersection where we have the fee-for-service line that’s declining over time and the bundled payment line that’s inclining over time. Where those lines traverse is the most critical juncture,” he said. “Getting through that transition is going to be a whale of a challenge for all providers.”

Jackson echoed Cook’s comments. “The implication for the lab industry is why on earth should labs be paid according to the old fee-for-service system? They don’t have to be. If I were a healthcare organization, I would be willing to pay more for a test that gives significant value to my patients, and I wouldn’t want to pay anything at all for a test that gives no value to my patients.”

Health IT Comes Full Circle

The fact that EHRs will be essential to integrated delivery systems, including ACOs, was underscored in a recent Government Accountability Office (GAO) report that surveyed integrated delivery systems. GAO found that EHRs were essential for care coordination, disease management, and use of care protocols by increasing the availability of individual patient and patient population data and by improving communication among providers. The report also noted that employment of physicians facilitated accountability for quality of care because physicians employed by the healthcare system had to meet performance indicators, and the system could collect data on and review physician performance.

Integrated delivery systems, whether they chose to form ACOs under HHS or not, will require that labs integrate more fully with many more providers, according to Jay Jones, PhD, who directs the regional laboratories at Geisinger. “ACOs will require more from the lab in terms of integrating with the clinical enterprise to drive disease management and coordinate care,” he said. “All of this is going to become broader and broader as labs become part of regional models in health information exchanges. This will slowly take the lab out of the silo and into system analyzing on a much more global scale.” The lab is also a cornerstone of ACOs because it’s the lab that houses much of the measurable data that ACOs will be required to report in order to demonstrate quality improvement, Jones noted.

Geisinger and other integrated delivery systems after which ACOs are modeled also have focused on decision support tools for physicians, another element that requires lab input. “Forcing physicians to hunt and peck through individual tests in a CPOE is very inefficient and does not contribute to accountable care,” he said. “The trend will be toward front-end decision support and bundling of best practice alerts, all grounded in evidence-based medicine that physicians can quickly approve electronically. Labs will have to step up and participate in that because physicians are overloaded with information. It’s another example of where the lab will get out of the old mentality of ‘send me a tube of blood and when it crosses my threshold I’ll turn it into numbers.’”

Geisinger is also using lab data to close the loop beginning with patient lab values and ending with best practices back at the point of care. Geisinger’s Center for Health Research has undertaken translational research to create best practices based on Geisinger’s own data, including storing specimens in the organization’s biorepository. “All this fits together into a grand strategy of finding out what is the best intervention for different disease categories, and then becoming accountable by providing statistics of how we are improving outcomes,” Jones explained. “The Center for Health Research takes our data, turns that data into knowledge, and then we can take the knowledge and plug it back into the front end of the system where physicians are interacting with patients to improve quality.”

Physician Signature Rules Tightened for Test Orders
Proof in Medical Record Not Enough for Paper Requisitions

Labs will have one more reason in 2011 to urge physicians to switch to electronic ordering if they have not already done so. At CLN presstime, the Centers for Medicare and Medicaid Services (CMS) was standing by a rule in the new 2011 physician fee schedule that makes a physician signature mandatory for all paper requisitions for lab tests. Telephone and electronic orders are not affected.

Until now, CMS has considered it sufficient for providers to maintain evidence of the physician’s order in the patient’s medical record, and not on each paper requisition that is mailed, faxed, or hand delivered to the lab. “This has incredible implications for most laboratories because most laboratories today do not get a signature on their paper requisitions,” said Peter Kazon, JD, senior counsel at the Washington, D.C. law firm Alston and Bird. “What makes this so scary for labs is that it certainly could be interpreted that if the lab does not have a signature on the requisition, then the lab does not have a valid order for that test. As a result, the lab would not be able to bill Medicare for those services. It’s not definite that CMS would consider it a false claim, but it’s an issue that we’re all going to be wrestling with because a lot of unanswered questions remain.” Kazon, who specializes in healthcare law and policy, spoke during AACC’s November 16 webinar, Reimbursement and Regulatory Update 2011.

CMS does not define what exactly a requisition is, Kazon noted, although the agency described it as paperwork, such as a form that identifies the test to be performed, “ministerial in nature and an administrative convenience to providers and patients,” according to new rule.

Kazon also emphasized that it’s not yet clear how the rule will apply to standing orders, such as those used by nursing homes and other such care settings, since often times they use paper forms. “Standing orders are traditionally signed by physicians, and they authorize testing on a particular schedule, but the question is, if you have a standing order for one year, do you need a signed requisition for individual tests? I would argue no, but we can’t be sure yet,” he cautioned.

CMS has promised to try to educate physicians on the matter; however, the onus of the new rule will fall on labs and not on physicians if a lab is audited, for example, by a third-party recovery audit contractor, Kazon said. “Currently in the lab field where audits are done, there tends to be a lot of wrangling between the auditor and the lab about whether they have a valid order. The lab says ‘you have to look at the medical record, and if you look there you’ll see that in fact there is support for it,’ and it goes back in forth. I think the purpose behind this new signature requirement might be to put an end to that kind of discussion so that the auditor can come in and claim that there is no signature on the requisition, therefore the lab doesn’t have a valid order.”

Complicating this area further, CMS also issued a transmittal in 2010 requiring that all physician signatures on orders be legible. The physician’s name must be clearly readable, and if not, the lab must validate the signature by another means, such as an attestation from the physician.

As the new year gets underway, Kazon stressed that labs will have to keep a close eye on how CMS implements these new policies. “I think most people in the industry view this as a huge burden for labs since the physician is not the one who’s on the hook for this,” he said. “We all know, for example, with regard to NPI numbers or ICD-9 codes, how difficult it is to get information from physicians when it is not their own reimbursement that is at stake.”

Taking Ownership

As ACOs and other new models of integrated delivery evolve, a limited but critical period of opportunity will open for labs to demonstrate their often undervalued contribution to the quality of healthcare and play a proactive role in test utilization, emphasized Jackson. “If the lab sits back and says, ‘we’re just going to be the factory, so send us the orders and we send you the results, same as we’ve done for the last fifty years,’ your role in the organization is going to be right up there with the janitorial services—you’re just performing another overhead function,” Jackson said. “In contrast, labs that want to be a player in the healthcare of the future need to play a central role in lab test utilization, which means identifying which tests are adding value for patients and which ones are not, and communicating that information back in a way that leads to doctors using the tests in productive ways.”

Jackson suggests labs take inspiration from pharmacists, who went from just filling orders, to taking responsibility in drug utilization. For example, most hospitals have a pharmacy and therapeutics committee, with pharmacists in leadership roles alongside clinicians. Together they make decisions about which drugs can be ordered and when. He also pointed out that pharmacists have taken a more active clinical role, for example, by going on rounds in the intensive care unit and helping physicians optimize their drug ordering patterns. By the same token, “If you sit back and let the hospital purchasing folks or some other entity put utilization controls in place for the lab, that’s not going to be nearly as medically useful as if you have lab professionals making those decisions,” he said.

Cook stressed that labs do not need permission to go ahead and improve their own understanding of how they contribute to quality of care. “I think the challenge for any provider is to ask themselves this basic question: how is it that I create value in the healthcare system? And ask the question with courage and honesty,” he said. “If the only answer that you can give is a lower price, then you have to scratch your head and ask, is that a survivable strategy? I’m not sure it is. If the only thing you can deliver is a discount, eventually you may find that you’re not delivering what the market wants to buy.”