A new reimbursement model shaving up to 30% off Medicare payments to clinical laboratories is threatening the bottom line of an entire laboratory sector. Beginning this year, the Centers for Medicare & Medicaid Services (CMS) is using a new payment model for diagnostic laboratory tests paid under the Clinical Laboratory Fee Schedule (CLFS) with the intent of modernizing the CLFS, better reflecting the market, and saving government expenditures.
This revised payment methodology results from the Protecting Access to Medicare Act (PAMA) and is based on weighted medians from private payor rates provided by a limited subset of qualifying laboratories. As not all laboratories submitted data — leaving hospital and physician office laboratories underrepresented in the equation — many in the field are concerned the data are flawed. Laboratories receiving most of their payments from Medicare and Medicaid are more vulnerable to these cuts, and their survival is threatened. AACC and other organizations have joined efforts to warn CMS about the implications of PAMA limiting access to care, but the changes are already up and laboratories are reacting to them.
The short- and long-term effects of PAMA remain to be seen, as the cuts will take place in phases and will impact some tests more than others. While healthier laboratories are figuring out how to weather the storm and stay independent, major restructuring of hospital laboratories through acquisitions and mergers may already be taking place in anticipation of these changes. A yet unknown number of laboratories are expected to close.
Can a laboratory stay viable and competitive under this reimbursement model? Experts say the laboratories that will stay afloat are operationally efficient, simultaneously reducing costs and maximizing workflows.
Aligning costs with reimbursement is essential to financial success. Yesterday’s session “Are Your Lab Tests Viable under PAMA Medicare Reimbursements?” provided a roadmap to aligning costs and test reimbursement, a skillset needed by all laboratory leaders. During his talk, “Examining High Level Test Cost Structures to Determine Viability,” Michael Baisch, BS, a systems engineer at Mayo Clinic, provided the audience with a systematic method to calculate the cost of all components of testing and to identify how well these costs fit in the context of expected reimbursement. Baisch stressed the importance of considering patient care comprehensively when assessing laboratory expenses. “The need of the patient comes first, regardless of the test having a positive or negative margin, medical need should outweigh financial performance.”
Ultimately, laboratories lacking financial fitness will need to develop plans to gain operational efficiencies and lower costs. “Once you identify your test cost, the place to start is identifying opportunities for cost reduction,” said Matthew Clark, BS, an operation and process improvement leader at Mayo Clinic. During his talk, “Identifying Specific Cost Savings to Improve Viability,” he highlighted strategies to bring costs back into alignment. When determining what to focus on, Clark said that quite often people mistakenly pick the test losing revenue when priority should be placed on saving opportunities even on a test making money. Tests that offer saving opportunities may offset loses from non-profitable tests absolutely needed for patient care.
According to these experts, the key to thriving is to prioritize down to critical opportunities using data, understand the issue, implement changes, monitor success, and then re-do this again as part of a continuous process improvement program. “Today is PAMA, tomorrow will be something else. We can no longer assume it will work itself out. It is harder to change under the gun, than continuously and staying ahead of the wave.” Clark stated.