Inside the Lab Industry: CCLA Files Suit Over MAC Local Coverage Determinations

The ongoing friction between providers and Medicare Administrative Contractors (MACs) was elevated by a lawsuit filed last month by a leading laboratory lobby claiming the local coverage determination (LCD) process is arbitrary and restrictive. The lawsuit, filed April 18 against the U.S. Department of Health and Human Services (HHS) in federal district court in the District of Columbia by the California Clinical Laboratory Association (CCLA), comes as the lab sector continues to be pressured by a combination of reimbursement cuts and claims denials—a trend some in the lab sector say originates with the MACs. The MACs, which serve as regional administrators for the Centers for Medicare and Medicaid Services (CMS), have been the focus of provider ire for several years. Another service many MACs perform, recovery audit contracting, is being aggressively questioned by hospitals, particularly over the payment of claims for patients who are only hospitalized for a day or two. However, the LCD issue with labs is in a way more existential in nature—the venue where the care is being delivered is not being debated, but whether assays should be employed and paid for at all. “It seems to be a process with complete unilateral authority to ignore . . . scientific evidence to understand these issues, and our folks have finally decided something has to be done to address the problem,” said CCLA President Michael Arnold. The suit pivots on a patient denied access to lab testing: an 82-year-old retired nurse and Medicare Part B enrollee who suffers from chronic illnesses that require an extensive drug regimen—drugs that at times have caused allergic reactions so severe that she has contacted the Food and Drug Administration (FDA) to obtain more information on their potential side effects. The suit claims that Palmetto GBA, the MAC that leads the way in approving coverage for molecular diagnostics through its MolDx program, began unilaterally denying such testing under an LCD it approved in March. That’s despite the fact the FDA received more than 210,000 reports regarding serious adverse events to therapeutic drugs in 2012 alone. The suit claims that the LCD is in conflict with the Medicare edict that providers should be able to provide reasonable and necessary services in order to treat their patients. Arnold calls the woman, whose identity was kept confidential, the “perfect person” to serve as a plaintiff. Her age and situation renders her immediately sympathetic, and Medicare enrollees are a potent political force in the United States. The type of testing she requires—which falls under the mantle of personalized medicine—is considered crucial to the future growth of the laboratory sector. Moreover, she requires molecular testing—another type of assay crucial to the sector’s future—and one that the MACs have been systematically denying, according to the suit and industry observers. Francisco Velázquez, M.D., chief executive officer of Spokane, Wash.-based PAML, noted that the MACs have been targeting molecular tests for LCD-based denials in part because of their costs, which can easily climb into the four figures. The lawsuit notes that Palmetto, which makes LCDs in several populous states, issued a directive earlier this year that bars coverage of any molecular tests unless it gives its explicit approval, whether through an LCD or another process. But aside from molecular testing, far less pricey assays are also being curbed, according to Velázquez. “We have seen more restriction on testosterone and vitamin B testing as well,” he said. According to the suit, various MACs have also adopted inconsistent LCDs regarding testing for illicit drugs or prescription drug abuse, which has been another growth segment for laboratories, although it is unclear how large a market exists among the Medicare population. In some regions, a negative result from a more basic drug test bars the use of more sophisticated testing. The lawsuit also claims that the LCDs promulgated by one MAC may have a national impact because it may regulate a lab operating within a specific jurisdiction but govern how they perform testing throughout the United States. OIG Cites LCD Inconsistencies HHS may not be completely unsympathetic to the laboratory sector. Its Office of Inspector General published a report last January concluding that LCDs create inconsistencies in Medicare coverage. “The presence of . . . LCDs was unrelated to the cost and utilization of items and services,” a portion of the report read. “Furthermore, LCDs limited coverage for these items and services differently across states. LCDs also defined similar clinical topics inconsistently.” The OIG recommended that CMS create a new plan to create more consistency between LCDs by region and that its evaluation of LCDs take into account how they impact coverage for patients nationally. Labs are not completely powerless regarding the LCDs, but their ability to push back against them is fragmented. Currently, they must appeal each claim denial individually. The appeals process can go through five separate steps, including a hearing in front of an administrative law judge, whose backlogs often last for months, if not years. And if certain filing deadlines are not met in contesting a denial, the labs are completely barred from pursuing them. The process can be so cumbersome that hospitals have dedicated staff or law firms specifically assigned to appeal claims denials. Labs, which tend to be much smaller than hospitals—and are likely contesting claims of a smaller monetary amount—may not have the resources to do so. Moreover, the MAC-issued LCDs have a tendency to seep into the policies of commercial payers, the lawsuit claims and Velázquez has confirmed. “We are seeing overall general payers being somewhat more restrictive,” Velázquez said. This has placed labs like PAML in the curious position of “whether we should do the test [at all], or risk getting paid very little, or do we have to put more burden on the patients,” he added. And there is connective tissue between the MACs and private payers. Palmetto is owned by Blue Cross of South Carolina. WellPoint, a large national insurer, owns another MAC, Noridian. Partly a result of noncoverage policies, PAML recently launched a pilot project of inserting a new patient financial responsibility form into the testing process. Such forms—which communicate that the patient’s insurer may not pay for their assays and therefore they may have to foot the bill instead—are being distributed at three PAML testing centers in Washington state, a first in the lab’s 59-year history. The initial results have not been encouraging. “Patients were not happy they had to read another form. And they are concerned that the test is expensive, and they are wondering how they are going to pay for it,” Velázquez said. That these issues have bored in on labs made the CCLA lawsuit all but inevitable, Arnold said, but he added that it is also a “last resort.” A trial date for the lawsuit has not been set, but it is likely being utilized more as a tool to get HHS and the MACs to enter negotiations about the setting of LCDs for lab testing. If the lawsuit does eventually lead to change in that process, it is likely to take years. Hospitals and HHS have been tussling for well over a year over rules intended to clarify what constitutes a short inpatient stay subject to an audit by MACs. A resolution on that issue is not yet in sight. Takeaway: The lab sector has entered into what it considers a “last resort” battle over the use of local coverage determinations by the Medicare program’s fiscal intermediaries.