Many clinical laboratories are welcoming the 1-year delay in implementation of the new Medicare lab payment system, but just how the new system will affect reimbursement in the future remains unclear. The Centers for Medicare and Medicaid Services (CMS) announced the delay in the final rule implementing section 216 of the Protecting Access to Medicare Act of 2014 (PAMA), which mandated that Medicare payment for clinical laboratory tests be rebased to reflect private sector rates. The final rule was published in the June 23 Federal Register.

As many expected, the new payment system will be delayed 1 year, from January 1, 2017 to January 1, 2018. Many groups, including AACC, the American Clinical Laboratory Association (ACLA), The National Independent Laboratory Association (NILA), and the College of American Pathologists, had urged a delay, saying laboratories would need more time to gather and report the private payer data required by CMS.

The final rule also modifies the criteria used to determine which laboratories are required to report private sector payment data and shortens the data collection period from 1 year to 6 months. The proposed rule had limited reporting to mostly independent laboratories, where test volumes are dominated by the large national laboratories, and excluded most hospital labs, which many had feared would result in lower prices. While some believe the new criteria will bring in more hospital labs, others are skeptical.

Under the final rule, “applicable laboratory” is now defined at the National Provider Identifier level rather than the Taxpayer Identification Number (TIN) level (though the TIN-level entity will still do the reporting of data). AACC and other laboratory organizations had expressed concerns that using only the TIN would have effectively eliminated most hospital outreach laboratories from being considered an applicable laboratory. However, there is still some question as to how many hospital outreach laboratories have their own NPI. Both NILA and ACLA had argued for having CLIA numbers be the standard for lab applicability. Under the final rule, an applicable laboratory will be required to receive more than 50% of its Medicare revenues from the Clinical Laboratory Fee Schedule (CLFS) or the Physician Fee Schedule.

CMS is also lowering the low-expenditure threshold requirement from $25,000 to $12,500. That is, if a laboratory receives less than $12,500 of its Medicare revenues from the CLFS during the 6-month data collection period, it is excluded from the definition of applicable laboratory. For a single laboratory that offers and furnishes an Advanced Diagnostic Laboratory Test (ADLT), the $12,500 will not apply with respect to the ADLT.

According to James Nichols, PhD, a professor of pathology, microbiology, and immunology at Vanderbilt University School of Medicine and chair of the AACC government relations committee, this modification should provide a more equitable assessment of test reimbursement. “The criteria in the final rule is fairer than in the proposed rule,” Nichols said. “This eliminates the smallest labs, but includes most others, including many hospital labs. This should result in pricing that is more equitable and based on multiple-sized labs in the industry.”

ACLA President Alan Mertz agreed. “We don’t know exactly how many hospital labs will be included, but it’s certainly more than what had been proposed,” he said. ““The establishment of a market-based system for determining Medicare reimbursement for laboratory services was clearly preferable to the alternative—unlimited cuts to payment rates by CMS through its technological changes authority, as well as across-the-board reductions by Congress.”

However, NILA, which represents laboratories ranging from small community to multi-state regional labs, believes the final is in violation of the statute and creates a biased reporting process deliberately intended to reduce payments. NILA Administrator Mark Birenbaum, PhD, argued that “the two nationally publicly-traded laboratories drive test volumes, and their rates will dominate CMS’s evaluation.”

CMS estimates that the final rule will result in cuts of $390 million in Part B program payments for tests paid under the CLFS in 2018, with the 5-year impact estimated at $1.71 billion and the 10-year impact estimated at $3.93 billion.

Advanced Diagnostic Laboratory Tests

Another key change from the proposed rule is that CMS reverted to an earlier definition of ADLTs to include tests involving proteins. The proposed rule had defined an ADLT to be “a molecular pathology analysis of multiple biomarkers of deoxyribonucleic acid (DNA) or ribonucleic acid (RNA).” In response to public comments, the agency is removing the requirement that the test be a molecular pathology analysis and permitting protein-only based tests to qualify for ADLT status, a change supported by AACC and others.

Nichols said he remains concerned about one aspect of the definition of ADLTs. “We had wanted the definition to be even broader to include advancements in current diagnostic tests,” he said. “Here it seems they are just talking about new diagnostic tests.”

Initial payment for ADLTs will be based on the actual list charge of the test for three calendar quarters; thereafter, the payment rate will be determined using the weighted median of private payer rates and associated volume reported every year. For new and existing tests for which CMS receives no applicable information to calculate a weighted median, CMS proposes establishing a payment rate by using cross-walking or gap-filling methods. Otherwise, Medicare will pay up to 130% of the weighted median private payer rate for tests furnished during the new ADLT initial period. For amounts over 130%, Medicare will recoup the difference.

Data Collection

Under the final rule, the data collection period covers January 1, 2016 to June 30, 2016, and the data reporting period will begin January 2017, giving labs 6 months to review and verify their data before reporting it. Reporting will occur between January 1 and March 31 every 3 years. Laboratories will be required to provide the private payer rate for each test (final payment made), the Healthcare Common Procedure Coding System code associated with the test, and the volume of tests for each payer on each separate contract. Payment rates will include both in-network and out-of-network amounts, as well as patient deductibles, and coinsurance, rebates, and discounts. Denied payments will not be included.

For new ADLTs, the data collection period will begin on the first day of the first full calendar quarter following the latter of either the date a Medicare Part B coverage determination is made or ADLT status is granted by CMS. The agency plans to issue further guidance on exactly how to report this information.

Looking Ahead

Dennis Weissman, president of Dennis Weissman & Associates, a laboratory consulting company, advised labs to take steps right now to prepare for the data reporting that the rule will require. “Be sure to understand the rule and have someone in your company take the lead on developing an action plan to get this done,” he said. “Labs need to set up an internal process to ensure they are collecting the necessary data,” given that reporting will begin January 1, 2017.

Ultimately, the CLFS rebasing may be a mixed bag for labs, Weissman added. Since rates will be adjusted only every 3 years, labs will have some predictability in planning. However, the new rate-setting formula does not allow for any inflation or geographic adjustments—a significant change from the previous system.

“The big issue here is what this will do to market pricing for tests outside of Medicare,” Weissman noted. “Once CMS comes out with the median rates, there may be some payers who actually drop their rates to the median. We won’t know that for a few years.”

Kimberly Scott is a freelance writer who lives in Lewes, Delaware. +Email: kmscott2@verizon.net