MedPAC Explores Simplified PAMA Reporting to Cut Burdens & Restore Lab Prices

The upcoming report of the Medicare Payment Advisory Commission (MedPAC) gives the lab industry new hopes for relief from the administrative burdens of Protecting Access to Medicare Act of 2014 (PAMA) price reporting obligations. The even better news is that straightening out PAMA reporting will also go a long way toward fixing the pricing disconnect and establishing something more akin to the market-based pricing for Part B lab tests that PAMA was designed to create. Here’s a sneak peak of what the MedPAC report may contain based on the April 1 Commission meeting and remarks of its marketing representatives.

The PAMA Pricing Controversy

Previously, Medicare Part B Clinical Laboratory Fee Schedule (CLFS) payment rates were based on local, historical lab charges, updated for inflation, and capped at certain amounts. In 2014, Congress passed the PAMA bill mandating CMS to establish market-based CLFS rates based on what private payors charge for those tests. The agency was also given the authority to qualifying labs to submit pricing information that it could refer to in determining what the market rates for particular tests actually are.

The controversy over PAMA pricing stemmed not from the statutory scheme but the warped way in which CMS implemented it, specifically in excluding hospital labs from the definition of qualified labs required to report and collecting pricing data mostly from independent labs. In omitting hospital labs who not only provide many if not most of the tests but also have the leverage to command higher rates from payors, the pricing data CMS received reflected artificially deflated prices not representing the true state of the private payor market. After repeated delays, the new “market-based” CLFS went into effect in 2018.

For nearly a decade, the lab industry has pushed back and tried to hold CMS accountable for hijacking PAMA market-based pricing. While court challenges have thus far proved unavailing, direct negotiations and working with Congress have resulted in some success. Most notably, in 2019 when CMS agreed to broadened its definition of “applicable laboratories” to include some hospital labs. But PAMA prices still remain artificially low. Meanwhile, the full brunt of PAMA cuts will be felt in 2025 when previously deferred cuts are finally phased in.

The MedPAC Report on PAMA Pricing

Another avenue of potential relief is MedPAC, an independent, non-partisan agency created by the Balanced Budget Act of 1997 to advise Congress on Medicare reimbursement to private health plans and providers, care quality and other issues. Congress has charged MedPAC with reviewing the methodology used by CMS to implement market-based pricing of Clinical Laboratory Fee Schedule (CLFS) tests under PAMA, as well as the reporting methods the agency uses to gather the data on which it bases those prices, and submit a written report of its findings in June 2021.

As bad as things are now, the distorted CMS scheme will drag prices down even further when the deferred cuts take effect in 2025. MedPAC Senior Research Assistant Carolyn San Soucie said payment rates will decrease by an estimated 24 percent once the rates are implemented.

In addition, private payor rates reported by labs were generally lower than Medicare’s 2017 average payment rates for 77 percent of tests, but higher for about 23 percent of tests. MedPAC noted that although lab test utilization was stable overall from 2017 to 2019, there were “sharp increases in the use of new, high-cost tests,” such as complex genetic tests. As a result, Medicare Part B lab spending actually increased from $7.1 billion to more than $7.5 billion.

Spending on chemistry tests declined 14 percent, in line with PAMA expectations, while molecular pathology spending increased due to higher use of the tests. Panel test spending didn’t decline as expected, which MedPAC attributed to unbundling and a “generous phase-in of payment rate reductions under PAMA.”

MedPAC and PAMA Reporting

MedPAC is also looking into ways to reduce the reporting burden on labs and asked a third-party contractor, RTI, to perform an analysis of the different survey methodologies that could be used to collect representative and statistically valid samples. RTI evaluated multiple sampling techniques based on two criteria:

• The extent to which a survey could produce accurate estimates of private payer prices for each type of lab; and
• How many labs would have to report data to generate accurate price estimates.

Using Medicare claims and private payer data to simulate the results of a survey, RTI concluded that setting Medicare payment rates using a survey is feasible and could substantially reduce the reporting burden on labs. RTI found that a survey could produce accurate estimates of private payer rates for all three types of labs that generate the vast bulk of CLFS tests, i.e., independent, hospital outpatient and physician office labs. Even a survey with a minimum as low as 10 labs reporting data for each particular test could reduce the number of labs required to report private payor data by up to 70 percent.

Setting Medicare payment rates on a representative sample of labs would increase program spending by 10 to 15 percent, as compared to the spending that would result from Medicare’s current rates. This increase varied depending on different parameters for different labs, such as only including tests from hospital outpatient labs that were furnished to non-patients.

Although the estimates “should not be considered precise point estimates,” the MedPAC representative noted that going from rates based largely on independent labs to rates based on data from a broader assortment of labs will likely increase Medicare spending significantly.

MedPAC also noted examples where basing payment rates on a sample of private payor rates may not be ideal, namely for routine tests and genetic tests. For routine tests, RTI found that policymakers should exclude high private payor rates resulting from negotiating power rather than the actual costs of providing the test. Medicare should instead set payment rates to ensure beneficiary access while maintaining incentives on laboratories to make better use of taxpayer and beneficiary resources. Policymakers could focus on “efficient laboratories” instead of all labs to exclude these high private payor rates.

For high-cost tests, MedPAC said private payors may have a limited ability to negotiate rates because they’re more complex and proprietary. As a result, the representative suggested that in the future the Commission would “consider alternative ways to set payment rates for new, high-cost technologies, including certain pharmaceuticals, devices, and laboratory tests.”

Takeaway

MedPAC has asked for comments on its findings and intends to use the feedback in the final report it issues to Congress in June. And when that report does come out, it will likely have significant influence. Just as important is the timing. While the devastation wrought by PAMA pricing in the past three years can’t be undone, there’s still time to fix the mess before the bottom falls out in 2025.