Medicare Reimbursement: CMS Provides Needed PAMA Relief—But Newly Covered Hospital Labs Must Report in 2019

The battle between CMS and the lab industry over Medicare Part B pricing for lab tests could be on the road to resolution notwithstanding the ACLA’s recent court loss. But even as the legal battle continues, the final 2019 Clinical Laboratory Fee Schedule (CLFS) (Final Rule) offers significant relief that may result in higher Medicare reimbursement rates for all labs. At the same time, it may also imperil the hospital labs that are now subject to pricing data reporting requirements but may not realize it.

The “Applicable Laboratories” Controversy
The center of the controversy remains the overly narrow CMS definition of “applicable laboratories” that has the effect of excluding the pricing data of hospital outreach labs in calculating market rates for lab tests (see box below).

CMS Definition of Applicable Laboratory

An entity that’s a laboratory (as defined in CLIA) that bills Medicare Part B under its own NPI and/or that gets more than 50% of its Medicare revenues during a data collection period from the CLFS and/or Physician Fee Schedule (PFS). Applicable labs must also meet a “low expenditure threshold,” i.e., get at least $12.5K of Medicare CLFS revenues for clinical diagnostic lab tests that are not advanced diagnostic lab tests (ADLTs).

One major part of the problem is the current definition’s reliance on NPI number which precludes hospital outreach labs that bill under the hospital NPI from counting as “applicable laboratories.” In the Final Rule, the CMS acknowledges the problem and characterizes the arguments made by industry during the comment period to include more hospital outreach labs as “particularly compelling.”

At the same time, the comments also reveal the agency’s hand and the essence of its philosophical difference with industry. Simply stated, CMS does want more hospital representation but not too much more. Reasoning: By basing the definition on CLFS/PFS rather than inpatient and OPPS revenues, the intent of the PAMA legislation is to exclude hospital labs and “limit reporting primarily to independent laboratories and physician offices.”

A Significant Concession
Notwithstanding its reservations, CMS included a significant change in the Final Rule by adopting an American Clinical Laboratory Association recommendation to treat hospital outreach labs that use the Form CMS-1450 14x TOB to bill for non-patient lab services as “applicable laboratories.” Result: Many hospital outreach labs that had been prohibited from providing commercial payor information to CMS are now required to provide this data. Robust reporting from hospital labs could positively impact future Medicare reimbursement rates for all labs.

No Time to Waste
This is a potential game changer that positively impacts Medicare reimbursements for all labs. The tricky aspect of the change is that it takes effect in the next data collection and reporting periods (Jan. 1, 2019 thru June 30, 2019, and Jan. 1, 2020 thru March 30, 2020, respectively).

The risk is that hospital outreach labs may not realize that they’re now considered “applicable laboratories” who are required to report their pricing data.  Applicable laboratories that fail to report could be subject to civil monetary penalties of up to $10,000 per day for each day they fail to report.

A Less Significant Concession
In addition to addressing the hospital labs situation, the Final Rule provides for more PAMA relief by excluding Part C Medicare Advantage payments from the denominator by which the CLFS/PFS numerator is divided. The Final Rule, in other words, makes it easier for labs with significant MA plan revenues to qualify as “applicable labs” under the majority of Medicare revenues threshold (see the shaded box above for the technical definition of “applicable laboratory).

While a step in the right direction, these changes aren’t nearly as significant as the hospital outreach lab concessions, especially since they wouldn’t kick in for another two years. “These modifications are insufficient because the changes outlined in the final PFS rule will not take effect until 2021. Regional and community clinical laboratories face an unsustainable 10% cut in less than two months, on January 1, 2019,” according to an NILA and AAB statement.