3 Things We Learned from New OIG Report on 2015’s Top 25 Lab Tests by Medicare Payment

Buried in the back of the Office of Inspector General (OIG) recent report on 2015 Medicare payments for Part B lab tests are three key revelations about the new Protecting Access to Medicare Act of 2014 (PAMA) payment system scheduled to take effect on Jan. 1, 2018.

1. Hospital Labs Will Not Report
The report confirms what the lab community has long suspected: that the private payer data the Centers for Medicare and Medicaid Services (CMS) will use to set the new payment rates will not come from hospital labs except for the handful of hospital outreach labs that have their own National Provider Identifier. Just about all of the data will come from (1,398) independent labs and (11,149) physician office labs which, together, constitute only 5% of all labs. These 12,547 labs accounted for 69% of Medicare payments for lab tests in 2015, the report notes.

2. Payment Rates for at Least Some Tests Will Go Up in 38 States
Although lab payments will be generally lower, the report states that rates for 22 of the 25 top most frequently ordered lab tests will go up in some parts of the country, with 38 states seeing higher rates for at least one of the top 25 tests. Increases will range from $0.02 to $30.27 per test, according to the report.

Source: OIG analysis of Medicare's 2015 Clinical Laboratory Fee Schedule.
Note: New York has three local fee schedules, and California, Kansas, and Missouri each have two local fee schedules. For States with more than one fee schedule, the number shown is an average for the State's fee schedules.

3. 3 Red Flags OIG Intends to Monitor
Ominously, the OIG warns that certain aspects of the new system "could limit potential savings" and will be subject to "monitoring going forward." The report cites three examples:

• Switching to a single national fee schedule could lead to higher prices for certain tests in locations where Medicare currently pays less than the new national rate for the test;

• Elimination of bundled rates for blood test profiles under the new system in favor of individual pricing might lead to higher payments than Medicare would have paid for the profile; and

• The fact that 95% of labs (including about half of independent labs, most physician office labs and virtually all hospitals) will not report their private payer data may limit Medicare fee decreases for certain tests, according to the report.

Industry Reaction
Perhaps not surprisingly, the early reaction to the OIG report from the lab industry has been less than enthusiastic. From the beginning, industry has argued that omitting hospital labs from the private payer data reporting pool would artificially suppress rates. In addition to confirming the industry's fear about hospitals being kept out, the OIG's contention that narrowing the reporting pool may actually result in lower fees adds insult to injury.

One industry group, the American Clinical Laboratory Association, has also "taken exception" to the OIG's suggestion that "ongoing monitoring" may be necessary in cases where payment rates increase. "In enacting PAMA, Congress was clear in its intent that Medicare reimbursement for lab tests are to reflect true market rates," bristles ACLA President Alan Mertz in a recent statement, adding that ACLA has worked closely with Congress, CMS, the PAMA Advisory Panel and other stakeholders in implementing CLFS payment reform.