OIG Backs CMS on PAMA Market Rate Setting—and the Lab Industry Is None Too Pleased

CMS did it right and saved Medicare a boatload of money in the process, concludes a new OIG report examining the agency’s work in carrying out its PAMA mandate of establishing market-based Medicare Part B rates for lab tests. But to the extent it was designed to quell the controversy over the new PAMA rates, the OIG report is likely to prove a dismal failure.

The Context
At heart of the controversy is CMS’s decision not include hospital outreach labs as “applicable labs” when calculating market rates. Since these and other excluded labs generally command higher rates than freestanding labs, their exclusion from the calculation artificially skewed lab prices downward. CMS brushed industry objections aside, leading to a lawsuit that’s still pending in federal court.

The OIG’s role is to review how CMS implemented the new PAMA system. The new OIG report is not only lacking in criticism but highly commendatory of CMS’ efforts. They were able to cut rates for 75% of tests and save Medicare $670 million in 2018, the OIG gushes.

The concern that CMS didn’t play fair in achieving this result gets glossed over. Sure, the new pricing data sample size was smaller than it should have been, the report acknowledges. “Some labs reported difficulty in interpreting the reporting requirements,” it blithely explains. But it was the next sentence that really ticked off the industry. “CMS modeling demonstrated that increased reporting from more labs would not have had a meaningful effect on 2018 payment rates.

Industry Reaction
Needless to say, the industry wasn’t impressed. The American Clinical Laboratory Association (ACLA), which is plaintiff in the federal lawsuit challenging CMS’ implementation of PAMA, took the lead in criticizing the report. “Today’s OIG report skirts the central issue: that HHS deliberately chose to ignore Congressional intent in its implementation of PAMA – cherry-picking data from fewer than 1% of labs,” according to ACLA President Julie Khan. “Any analysis by OIG that fails to recognize that fact does a disservice to Congress and to the millions of seniors who depend on access to lab testing through Medicare.”

Signs of Hope?
Although the sides are likely to remain firmly entrenched until the federal court weighs in, there are also subtle signs of accommodation from CMS. In its proposed 2019 Part B Physician Fee Schedule of July 12 CMS calls for public comments on “alternative approaches for defining an applicable laboratory, for example, using the Form CMS 1450 14x bill type or CLIA certificate number.” While not the paradigm shift demanded by CLIA—the request suggests that CMS is interested not in expanding the applicable lab tent so much as modifying the low expenditure threshold for labs already included—this is the first sign of any kind from CMS indicating flexibility on the PAMA formula.