In This Issue...

Overlooked in Budget Deal, Lab Fee Schedule Slashed Again
Due to a weak economy and cost-cutting provisions of the Affordable Care Act (ACA), labs in 2014 will see a 0.75% cut across the board on tests paid from the clinical laboratory fee schedule (CLFS). Although not as sharp a drop compared to some years, it comes on top of several years of deeper cuts, including a 2% cut in 2012 due to the Middle Class Tax Relief and Job Creation Act—known as the payroll tax cut—and an additional 2% in 2013 from Congress's debt-ceiling fallout, which led to broad federal cuts called sequestration.

While leaders from both houses of Congress struck a budget deal in December to avoid another government shutdown, at CLN press time the agreement only scaled back a portion of the sequestration that affects areas like the National Institutes of Health and the military, leaving in place a 2% cut to healthcare providers.

The formula for annually updating the CLFS from Centers for Medicare and Medicaid Services (CMS) used to be a modest increase for inflation based on the annual consumer price index. However, Congress has often stepped in to turn the adjustment into a negative. Most recently, the ACA included a new annual productivity adjustment and automatic 1.75% cut that eats into any inflation updates through at least 2015. As a result, when inflation is low, the annual update becomes a negative.

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Final Physician and Outpatient Payment Rules Spell Trouble for Labs
Beginning in 2014, Centers for Medicare and Medicaid Services (CMS) announced it will move ahead with two new payment policies that could have a significant impact on labs. First, in the final physician fee schedule, CMS decided to move forward with a plan that will systematically reevaluate prices on the clinical laboratory fee schedule (CLFS) over 5 years, trimming reimbursement for tests based on technological innovations that introduce greater efficiency or automation.

Under this provision, CMS, beginning in 2014, will conduct a data analysis of codes on the CLFS and propose a batch of codes the agency believes requires review each year. Factors such as how long the codes have been on the CLFS and high-volume or high-dollar codes will determine which codes the agency reviews first. CMS plans to unveil its first batch of codes under review later this year as part of the proposed 2015 physician fee schedule. Any changes in reimbursement would begin in 2015.

The second significant policy change for 2014 will be outpatient bundling of lab tests. This plan comes out of the final 2014 rule for hospital outpatient prospective payment and ambulatory surgical center payment. Now, rather than pay for lab tests separately for outpatients, lab services will be bundled into ambulatory patient classification (APC) groups when the test is ordered on the same date as the primary service, and by the same provider. Similar to diagnosis related group (DRG) payments for inpatients, APCs give a hospital a single payment based on services provided to a patient.

The bundling provision will leave labs stripped of direct payment and competing with other providers and departments for their piece of the APC. The change also makes outpatient lab testing part of deductibles and copays under Medicare for the first time.
One piece of good news did come out of the final physician fee schedule. CMS scrapped a proposal to cut several key anatomic pathology codes to match APC rates. This policy would have cut several common codes, such as for immunohistochemistry, flow cytometry, and fluorescence in situ hybridization, by up to 75%.

The final rules are available from

CMS Offers More Time to Achieve Meaningful Use of EHRs
The Centers for Medicare and Medicaid Services (CMS) and the Office of the National Coordinator for Health Information Technology (ONC) announced they would offer providers one extra year to meet meaningful use standards for electronic health records (EHR) and avoid payment penalties.

Under the revised timeline, stage 2 of meaningful use will be extended through 2016 and stage 3 will begin in 2017 for those providers that have completed at least 2 years in stage 2.

"The goal of this change is two-fold: first, to allow CMS and ONC to focus efforts on the successful implementation of the enhanced patient engagement, interoperability, and health information exchange requirements in stage 2; and second, to utilize data from stage 2 participation to inform policy decisions for stage 3," according to a joint statement from Robert Tagalicod, director of the Office of E-Health Standards and Services at CMS and Jacob Reider, MD, head of the ONC. "The phased approach to program participation helps providers move from creating information in stage 1, to exchanging health information in stage 2, to focusing on improved outcomes in stage 3. This approach has allowed us to support an aggressive yet smart transition for providers." The announcement also noted that as of October 2013, 85% of eligible hospitals and more than six in 10 physician offices had received an EHR incentive payment.

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Critics Say Harsh Penalties Still a Problem for Proficiency Testing Infractions
Hospitals and lab advocacy groups are criticizing the proposed regulations for dealing with proficiency testing (PT) referral under CLIA. A proposed rule from the Centers for Medicare and Medicaid Services (CMS) gives CLIA regulators more flexibility in penalizing labs that refer their PT specimens to other labs. However, groups such as the American Hospital Association (AHA) and the American Clinical Laboratory Association (ACLA) say the CMS proposal does not go far enough and still prescribes sanctions that are too severe.
For example, CMS proposes three categories of sanctions for PT referral. Even for category 3—the least severe—CMS proposes mandatory civil monetary penalties (CMP) and a directed plan of correction, such as staff training. "The AHA is concerned that CMS's proposal to require CMPs even for minor, unintentional infractions is excessive and should be reconsidered," AHA wrote to the CMS Administrator Marilyn Tavenner.

The AHA letter notes that in the proposed regulations, CMS offers an example for category 3 in which a lab realizes it has accidently sent out a PT specimen and calls the reference lab to which the specimen was referred to stop any analysis and reporting. For such obvious accidental referrals where another lab's results are not reported as a lab's own, AHA recommends only staff education, rather than fines or other penalties.

Similarly, ACLA called for CMS to draft a new definition of "intentional" PT referral that avoids penalties for "innocent PT referrals." According to ACLA, "CMS has not taken full advantage of the flexibility that Congress granted the Secretary to consider the circumstances under which a PT sample was sent to another laboratory and to impose lesser sanctions for referrals that may have been unintended or inadvertent."

The proposed rules are available from