CMS Ignores Flawed Processes, Finalizes 2018 PAMA Pricing; Labs Need to Take Immediate Action to Offset Impending Lean Times

By Kyle Fetter  bio

The final 2018 clinical laboratory fee schedule (CLFS) is out, and it is evident that the argument that the Centers for Medicare & Medicaid Services (CMS) PAMA process was fundamentally flawed fell on deaf ears within CMS. Despite a groundswell urging delay, CMS issued a final clinical lab fee schedule for 2018 that is, with a few exceptions, in line with draft pricing.

While stakeholders like ACLA, AHA, and Quest Diagnostics continue to appeal to government entities for a halt to implementation, it’s time for laboratories to face facts: the deep cuts that have resulted from the PAMA exercise mean troubled times are ahead and labs will not be able to cost-cut their way into the black. More than ever, diagnostic providers need to focus on ensuring their lab operations maximize revenue, reimbursement, and cash flow, in an efficient, scalable, and automated manner.

Changes from the Draft Schedule to Final

While it is disappointing that CMS did not give most of the lab industry’s comments on preliminary schedule enough consideration, there are a few instances where they did adjust according to the commentary. Even so, the general trends seen with draft rates still hold. Sole-source lab tests came out on top based on this market-based pricing scheme, while the broader impact on the molecular diagnostics market was more varied.

While the preliminary 2018 CLFS release did not cap codes that did not have a national limitation amount at the 10 percent cut, as required by PAMA, CMS applied this cap in final pricing.

CMS also agreed that the general health panel—including complete blood count tests, the comprehensive metabolic panel, and thyroid tests—is not a payable Medicare benefit and was therefore deleted from the 2018 CLFS. The agency also corrected payment rates for 23 codes where the phase-in reduction cap for 2019 and 2020 were wrongly listed due to transcription errors.

In addition to final PAMA rates, CMS released final crosswalk and gapfill determinations for new CPT codes for 2018. The agency also said that it is working on an application that labs can use to classify their tests as advanced laboratory diagnostic tests, which are priced every year under PAMA, as opposed to every three years for clinical diagnostic lab tests.

Flawed Methodology Delivers Severe Impact

Quest Diagnostics went on the record stating “The final fee schedule remains deeply flawed because it is plagued by a distorted market data collection process that excluded key components of the lab market. As an example, less than 1 percent of all laboratories submitted data, and over 99 percent of hospital and physician office laboratories were prohibited from reporting their rates. Also, based on the data submitted to CMS, Quest alone represented nearly 40 percent of all the market data CMS collected despite accounting for less than 15 percent of Medicare claims under CLFS.” XIFIN has performed its own extensive analysis and agrees the exclusion policies have led to a fundamentally flawed data set.

Furthermore, as XIFIN CEO Lale White explained in a genomeweb interview, “CMS did not address some of the anomalies of clearly faulty reporting by tossing out clear outliers where prices were reported at a penny, or an unusually low rate. Disappointing, but consistent with a lack of consideration for legitimate comments from the industry.”

CMS’ preliminary prices for clinical lab tests issued under the Protecting Access to Medicare Act (PAMA) raised concerns with many labs. Although the agency had initially estimated that PAMA pricing would save the government $390 million, current estimates hover closer to $670 million in cuts, a 10 percent reduction in the $7 billion that CMS pays annually for lab tests.

Quest Diagnostics CEO Steve Rusckowski states, “These cuts will hurt the industry and our company.” ACLA calls the final schedule “detrimental to patient care.”

How Outreach Labs Can Overcome the PAMA Reimbursement Squeeze

If implementation of the 2018 PAMA-based CLFS is not delayed, many laboratories, including hospital outreach labs, will face severe consequences. In fact, one hospital CEO has stated, “In certain instances, this will cause rural hospitals to significantly scale back—if not completely eliminate—their outreach laboratory programs simply because they can no longer afford the cost to provide those services.”

At Lab Reimbursement Summit on December 8, 2017, I’ll discuss the challenges facing outreach laboratories and addresses how RCM systems can become the backbone to ensuring financial health for outreach labs.