PAMA: OIG Backing of CMS Heats Up Market-Based Lab Rates Controversy

CMS did it right and saved Medicare a boatload of money in the process, concludes a new OIG report reviewing the methods CMS used to establish “market-based” rates for Medicare Part B lab tests. Of course, the lab industry begs to differ with that conclusion and has even taken CMS to federal court in an attempt to get the new rates set aside. And to the extent it was intended to quell the PAMA controversy, the new OIG report has already proven a dismal failure.

The Context
At heart of the controversy is CMS’s decision not to count hospital outreach labs as “applicable labs” in calculating market rates for lab tests. Since hospital labs generally command higher rates than freestanding labs, excluding their pricing data from the calculation artificially skewed downward the prices CMS used to set the 2018 Clinical Laboratory Fee Schedule. CMS has repeatedly defended its methods and now the OIG has stepped in to provide cover.

The Affordable Care Act legislation requires the OIG’s to review CMS’ implementation of the new PAMA system. But if the lab industry was hoping for vindication from the OIG, those hopes have been decisively dashed. 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 report gushes.

What’s so infuriating about this conclusion is how it glosses over concerns that CMS didn’t play fair in achieving this result. 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 “CMS modeling demonstrated that increased reporting from more labs would not have had a meaningful effect on 2018 payment rates,” the report concludes.

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 (see related story on page X), 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.