Reaction Split on New Changes to Clinical Laboratory Fee Schedule

Industry reaction to a new law that makes changes to the Clinical Laboratory Fee Schedule (CLFS) appears to be split, with some laboratory groups applauding the changes and others concerned that it places hospital labs and regional and community labs at a disadvantage. The Protecting Access to Medicare Act of 2014, signed into law in early April, extends current Medicare payment for physicians for one year and implements a new system tying Medicare payment for lab tests paid under the CLFS to market rates. While the American Clinical Laboratory Association (ACLA) maintains that the changes to the CLFS under the new law are preferable to potential alternatives under consideration by Congress, the National Independent Laboratory Association (NILA) says there is no way of knowing which alternative is better. “We’re not willing to say that this is better than what could have been because we don’t know what could have been,” says NILA Administrator Mark Birenbaum. “Cuts [under the new system] could be draconian for labs that do a lot of routine testing because they do tests with the lowest median.” NILA represents small and community labs. However, ACLA President Alan Mertz counters that under the new law, any cuts will be delayed until 2017 and will be capped. “We have two years and eight months before any cuts go into effect, and there are no across-the-board cuts, which we were facing,” he notes. “We have more than a year to work with [the Centers for Medicare and Medicaid Services] on rulemaking and many more opportunities to have input.” Determining Payment for Lab Tests Section 216 of the new law adds a new section to the Social Security Act that will use rates paid to laboratories by private payers to determine Medicare rates for lab tests. Private payers includes health insurers, Medicare Advantage plans under Part C, and Medicaid managed care organizations. Beginning Jan. 1, 2016, and every three years thereafter, “applicable laboratories” will be required to report payment rates paid by each private payer during the specified period, as well as volume. An applicable laboratory required to report is one that receives the majority of its revenue under the CLFS or Physician Fee Schedule (PFS), subject to any low-volume or low-expenditure threshold established by the Department of Health and Human Services (HHS). The information reported will not include payments made on a capitated basis, but the reported rates will reflect discounts, rebates, coupons, and other price concessions. Payment for clinical diagnostic laboratory tests furnished on or after Jan. 1, 2017, including those furnished by hospital labs that are not bundled, will be equal to the weighted median for the test for the most recent data collection period. For years 2017 through 2019, a payment amount cannot be reduced more than 10 percent of the payment amount for the previous year; for 2020 through 2022, the limit is 15 percent. There are no limits beyond 2022. Thus, CMS would develop a weighted median of private payer rates and, if the median is lower than the Medicare rate in effect at that time, limit the amount of any annual reduction in Medicare payment. The weighted median would stay in effect until the year after the next information collection period. The law also establishes a new category for new advanced diagnostic laboratory tests, with initial payment (for the first nine months) based on the actual list charge, which the law defines as “the publicly available rate on the first day at which the test is available for purchase by a private payer.” Labs offering these tests will have to report private payer rates no later than the last day of the “second quarter of the initial period.” After the initial period, the data will be used to establish the payment amount using the same method described for other tests. If the secretary determines the amount paid for an advanced diagnostic lab test during the initial period is greater than 130 percent of the private payer-based payment amount, the secretary will recoup the difference between the two amounts. A new test that is not an advanced diagnostic laboratory test would be paid using crosswalking or gap-filling. The secretary of HHS could also consider input and recommendations from a new clinical laboratory payment advisory committee, which would be composed of a variety of individuals such as molecular pathologists, researchers, laboratory economists, and those with expertise in the development, validation, performance, and application of clinical laboratory tests. The Government Accountability Office and the HHS Office of Inspector General (OIG) would perform, publish, and submit to the House and Senate committees of jurisdiction a study that analyzes the payment rates, transition process, impact on beneficiaries and on labs that specialize in a small number of tests, the number of new Healthcare Common Procedure Coding System (HCPCS) codes, the spending trend for lab tests, and other issues. The OIG annually would publish an “analysis of the top 25 laboratory tests and expenditures” under Medicare and would conduct other analyses of implementation of the new payment system. Must Hospital Labs Report? A concern raised by Birenbaum is that he believes under the law, many hospital laboratories will not be required to report their private payer rates, and since those rates tend to be higher, that could actually result in lower medians overall. However, the law does not state that hospital laboratories are excluded from reporting. Any lab that derives a majority of its revenue from the CLFS or PFS is required to report, whether it is independent or hospital-based. Mertz from ACLA tells National Intelligence Report that he expects that hospital outreach labs will be required to report their private payer rates. “The burden is the same for everyone,” says Mertz. “If hospitals don’t report, it will hurt them. It certainly is in their best interest to report.” Small Labs v. Big Labs Birenbaum believes that smaller community or regional labs are likely to be hurt by the law because they do more routine testing and not much advanced or esoteric testing. Larger labs that perform advanced testing will be able to develop new tests and be paid the list price, thus offsetting any potential reduction to routine testing, he argues. “Our labs would love to be on a schedule where we get paid list price for our lab tests,” he says. However, Mertz notes that even the bigger labs derive the majority of their volume from routine tests, not advanced or esoteric tests. “We are concerned about small, community labs,” he says, adding that ACLA fought for an increase in the sample collection fee for labs that service skilled nursing facilities and home health agencies, which typically are smaller labs. That sample collection fee is increased $2 under the law. Pathology Concerns The College of American Pathologists (CAP) and the Association for Molecular Pathology (AMP) also have expressed concerns about the new law. In a March 27 letter to Sen. Harry Reid (D-Nev.) prior to the Senate vote on the legislation, AMP President Elaine Lyon, Ph.D., said she felt the measure could have significant unintended consequences for hospital-based labs, which she says lack the infrastructure to collect the data outlined in the bill. Section 216 also disregards the Current Procedural Terminology (CPT) code process by establishing a new system for use of permanent HCPCS codes for new lab tests and disregards the use of CPT codes by establishing a unique identifier system for certain tests for the purposes of tracking and monitoring, believes Lyon. “The current CPT coding system is more than sufficient for tracking, monitoring, coverage, and payment,” she wrote. “It is a waste of Medicare resources to build a redundant system. There is no need for further identifiers, which will increase costs and create administrative burdens to both CMS and laboratories.” CAP also opposes the new law, saying it fails to repeal the sustainable growth rate permanently and neglects critical Medicare reforms such as closing the self-referral loophole. “HR 4302’s patch legislation does not provide stability for physician payments, does not address pathologists’ specific concerns with participation in the current pay-for-performance program, and would drastically alter the payment system for clinical laboratories,” said CAP President Gene Herbek, M.D., FCAP, in a statement. Takeaway: Lab and pathology groups are split on whether the new law changing how lab tests are priced under the Clinical Lab Fee Schedule is good for the industry or not. Much uncertainty remains about how the new law will be implemented. Side Box: Penalties for Failing to Report If HHS determines that an applicable laboratory has failed to report or made a misrepresentation or omission in reporting information with respect to a clinical diagnostic laboratory test, a civil money penalty in the amount of $10,000 per day for each failure may be imposed. Side Box: Definition of Advanced Diagnostic Laboratory Test The law defines an advanced diagnostic laboratory test as a test offered and furnished only by a single laboratory and not sold for use by a laboratory other than the original developing laboratory and that meets one of the following criteria:

• The test is an analysis of multiple biomarkers of DNA, RNA, or proteins combined with a unique algorithm to yield a patient-specific result.
• The test is cleared or approved by the Food and Drug Administration.
• The test meets other similar criteria established by the secretary of HHS.

Side Box: Coverage Policies After Jan. 1, 2015, a Medicare administrative contractor (MAC) could issue a coverage policy for a clinical laboratory test only in accordance with the process for making a local coverage determination, including both appeals and review process. This would not apply to national coverage determinations. In addition, the secretary may designate one or more (not to exceed four) MACs to either establish coverage policies or process claims for clinical diagnostic laboratory tests.