Inside the Lab Industry: Lab, Pathology Sectors Campaign for CMS To Rethink Changes to Medicare Physician Fee Schedule

Aproposed rule by the Centers for Medicare and Medicaid Services (CMS) to cap payments for many anatomic pathology services at outpatient rates has elicited an especially strong response from the laboratory and pathology lobbies. The reaction has included the hiring of an outside firm to conduct an extensive pricing study and a vigorous electronic grassroots campaign to contact CMS leadership directly. “In all my years in this industry I have never seen such unity among all the groups—laboratories, pathologists, hospitals, academic medical centers, suppliers, device manufacturers—to rally against the proposal,” said Marc D. Grodman, M.D., chief executive officer of New Jersey-based Bio-Reference Laboratories. The activity appears to be the direct result of a sector that has experienced multiple reimbursement cuts in recent years and has become fearful of weathering more. The cuts range from Medicare reductions that affect all providers, cuts in technical component (TC) of CPT code 88305, cuts and delays in payments for molecular tests, and the end of the TC grandfather protection. In this case, CMS proposed in July that any services under the Medicare Physician Fee Schedule (MPFS) whose total payments are higher than the Outpatient Prospective Payment System (OPPS) be capped at the OPPS rates. The proposed changes would apply to the TC and global payments for both pathology and laboratory services. CMS claimed in its rationale that inaccurate data was used to establish practice expense values under the MPFS. Altogether, it wants to revalue 211 different physician tasks in this manner, including 38 pathology services. It’s unclear if media reports earlier this year about the American Medical Association (AMA) possibly exaggerating the amount of physician labor required to perform specific tasks had anything to do with the CMS proposal. Altogether, the cuts to laboratory services would average about 26 percent, according to the American Society for Clinical Pathology (ASCP), although it and the AMA have reported cuts to individual services that would be much deeper. One example cited by the AMA is CPT code 88367, automated in situ hybridization. Reimbursement under Medicare is currently $258.53; it would be cut 79 percent, to $54.92, under the new methodology, even though it is almost never performed in a hospital setting on an outpatient basis. “The cost of supplies is at three to four times the reimbursement CMS is proposing,” said Joanne Glisson, an American Clinical Laboratory Association (ACLA) senior vice president. The general feeling is that additional reductions on this scale could not be absorbed without the sector undergoing a major reconfiguration. “If these regulations were implemented next year, it would have a significant negative impact on independent laboratories,” said Barry Portugal, president of Health Care Development Services, a pathology consulting firm in Nokomis, Fla. “It doesn’t mean they would close, but there might be mergers of independent labs to effect greater economies of scale, and it could mean joint ventures and acquisitions, with either other independent labs, or with hospitals.” Moran Report Last month, ACLA released a 13-page report compiled by the Moran Co., a Washington-based health care research firm, that extensively rebuts the CMS proposal to move some anatomic pathology services to the OPPS. The report included a survey of 10 different laboratories, which provided pricing on 154 specific codes. “Because our sample included all of the nation’s largest laboratory companies, we believe the data we received may well typify the economic reality of performing these procedures across the industry,” the report said.

Current Medicare Test Pricing vs. Potential HOPPS Pricing
Code, Description	Median Price Among Labs Surveyed	Median Under HOPPS
88104, Cytopath Flow	$51.80	$21.61
88182, Cell Marker Study	$72.37	$47.54
88184, Flow Cytometry/tc 1	$39.11	$24.91
88307, Tissue Exam	$133.63	$66.81
88313, Special Stains	$55.04	$25.38
88323, Microslide Consultation	$115.33	$46.28
88329, Interoperative Pathology Consult	$73.62	$16.26
88348, Electron Microscopy	$691.40	$189.58
88360, Manual Tumor Immunohistochem	$124.51	$67.72
88365, FISH	$132.96	$72.16
Sources: American Clinical Laboratory Association, The Moran Co. All CPT codes copyright American Medical Association.

  At about the same time, ASCP created a template on its Web site that allows customized letters to be composed and sent directly to CMS Administrator Marilyn Tavenner and Deputy Administrator Michelle Snyder. Although ASCP has used these kind of templates for the better part of a decade, it has primarily used them to contact individual lawmakers rather than agencies. The results have been eyebrow-raising: In the first couple of days after the template debuted, more than 1,700 letters were submitted. Matthew Schulze, ASCP’s director of government relations, said the response has been far greater than its typical letter-writing campaigns. In an interview just before the Labor Day weekend, he expected at least 2,000 letters would be sent to the CMS through the template before the public comment period on the proposal ended on Sept. 6. Schulze, like Portugal, believes if the cuts are implemented, they would have the potential to change the fundamentals of pathology practices and laboratory operations. “The smaller labs, the midsized labs, they have cut out all the fat. If their margins are already low, [further cuts] become very problematic,” he said. Methodology Questioned The Moran report funded by ACLA made some troubling conclusions: that CMS arbitrarily shifted away from its traditional price-setting methodology—which focused on determining resource intensiveness of a procedure—to a new focus on determining exact costs. “It is certainly a radical departure for anatomic pathology on the physician fee schedule,” said ACLA President Alan Mertz. At the same time, the Moran report claims CMS’s pricing rationale is not granular enough to accurately capture precise costs. One example is the way capital costs are allocated by hospitals in determining outpatient care costs. “Such costs may not be fully captured in the associated cost center, but instead spread over all the cost centers as part of overhead costs,” the report said. “Expensive lab equipment may fall into this category, and if so, the [cost-to-charge ratios] associated with laboratory departments may be artificially low.” Add to that the fact that low-cost, high-frequency procedures such as 88305 are grouped together with higher-cost, less-utilized procedures, which also tends to drag down the prices, according to the report. The End Game Despite the deep concern the CMS proposal has engendered, there is a general feeling that it will not implement the changes wholesale, particularly given the response it has received. “I would hope that CMS has realized they have used the wrong methodology and would change its mind on this,” Portugal said. Schulze is also optimistic that the agency will not move forward. “I would like to believe the CMS will abandon the proposal,” he said, although he added he is not sure it will. If that’s the case, expect the campaign to be ratcheted up to yet another level of intensity. Takeaway: Lab and pathology lobbies see the proposed payment changes, when taken in context with other cuts, as a potential game-changing threat to the way they do business.