Congress Acts to End PAMA Price Cutting Reign of Terror

In a perverse twist of irony, the Protecting Access to Medicare Act (PAMA) that Congress enacted in 2014 to ensure Medicare patients access to lab testing has morphed into a significant financial threat to the survival of the independent labs patients rely on to provide those tests. But now, after years of resistance, the lab industry’s hopes and prayers for relief may soon be answered.

The Perversion of PAMA Pricing

The idea that Medicare shouldn’t have to pay more than private payers for the same lab tests was one to which few objected. So, the lab industry basically said Amen when Congress passed a bill mandating that Medicare Part B prices for lab tests be based on market rates.

What nobody could foresee was how the Centers for Medicare & Medicaid Services (CMS), the agency responsible for implementing market-based pricing, would sabotage the plan by excluding hospital outreach labs from the definition of “applicable laboratories” required to report pricing data. In addition to providing most of the lab tests delivered in the US, hospital labs have the financial leverage to command higher prices from payers. By limiting price reporting to lower-reimbursing freestanding labs, CMS ensured that the Clinical Laboratory Fee Schedule (CLFS) rates yielded by those data would artificially deflate reimbursement rates for lab tests.

And so it has. First implemented in 2018, CLFS reimbursement under the PAMA pricing system has strangled and threatened the financial survival of independent labs across the country.

Efforts to Roll Back the CMS PAMA Pricing System

From the beginning, the lab industry, led by the American Clinical Laboratory Association (ACLA), has headed the effort to roll back the CMS scheme. Resistance has been waged across a number of fronts, including litigation in federal court, direct negotiations with CMS, and calling on Congress to adopt legislative relief. While the lawsuit has stalled, the ACLA scored a major victory on the negotiation front by persuading CMS to include some hospital outreach labs in PAMA price reporting.

But it’s the legislative effort that seems to offer the most promise. In 2019, Congress passed the Laboratory Access for Beneficiary Act to delay PAMA price reporting for a year and require the influential Medicare Payment Advisory Commission (MedPAC) to review how CMS has implemented PAMA market pricing. The industry has also won a series of legislative rear guard skirmishes, resulting in three consecutive one-year delays of upcoming PAMA price cuts.

After this string of partial successes, final victory over CMS’ PAMA pricing system may finally be at hand. What may prove to be the turning point came in June 2021 when MedPAC submitted its report. Key conclusion: The CMS data collection process did indeed lead to deeper payment cuts than would have been made had price reporting been more representative of the lab industry as a whole. In addition to officially confirming the industry’s longstanding contention, MedPAC suggested that Congress address the problem by requiring a random-sampling approach to collecting lab price data while also reducing the number of labs required to report data to alleviate the administrative burden on labs.

SALSA and the Prospects for Final Victory

A year later, Congress has acted on MedPAC’s recommendations by introducing legislation called the Saving Access to Laboratory Services Act (SALSA) requiring CMS to use a more statistically reliable representative sample of lab test prices to determine CLFS reimbursement rates. SALSA would also provide labs administrative relief by increasing the time between price reporting periods from three to four years.

SALSA is a bipartisan bill introduced by senators from both parties, including Senators Sherrod Brown, D-Ohio, and Richard Burr, R-N.C., and Representatives Gus Bilirakis, R-Fla., Richard Hudson, R-N.C., Bill Pascrell, D-N.J., Scott Peters, D-Calif., and Kurt Schrader, D-Ore.

The ACLA praised the bill and thanked the senators for acting “to permanently end these senseless [PAMA] cuts,” noted ACLA president Susan Van Meter in a statement.

A statement from National Independent Laboratory Association (NILA) executive director Mark Birenbaum echoes the same sentiments. “Community and regional independent laboratories are an indispensable part of our nation’s healthcare infrastructure…NILA is grateful to the bipartisan group of legislators who are committed to putting an end to steep laboratory reimbursement cuts and enacting a long-term fix to PAMA.”