Post-PAMA: Government Report Warns of Medicare Overspending(!) for Lab Tests

As if the deep price cuts inflicted by PAMA weren’t infuriating enough, now the US Government Accountability Office (GAO) is claiming that labs may be getting overpaid. In a report issued late November, the GAO warns that the new PAMA rates could lead to the government paying billions in excess Medicare reimbursements to laboratories through 2020.

Who’s the Victim?
The new PAMA market-based rates that took effect for the first time in 2018 resulted in a $670 million “savings” in lab revenue, according to the CMS’s own numbers. Of course, one party’s savings is the other’s loss—in this case, a highly unfair one. Hence the continuing ACLA lawsuit challenging not the PAMA legislation but how CMS implemented it.

But while the lab industry saw huge losses due to PAMA, GAO contends that it’s the government that’s getting the raw end of the deal from PAMA implementation. The new report claims the government is paying more than it should for lab tests.

The Reporting Labs Issue
Ironically, the reason the GAO cites for the perceived problem, i.e., insufficient number of labs submitting data for use in calculating PAMA CLFS rates, is the same argument industry has used to claim it’s being underpaid.

But according to GAO, the problem wasn’t in the determination of which labs to count but the failure of labs that were counted to report their required data. GAO says that incomplete data could have a larger effect on the accuracy of Medicare payment rates in future years when PAMA allows for greater payment rate reductions.

The Bundled Payment Issue
The GAO also notes that after PAMA took effect, CMS stopped paying a bundled payment rate for certain panel tests because its authority to do so under the law was unclear. GAO estimates that if reimbursement for panel tests were to remain unbundled and CMS had to continue to pay for each test individually, Medicare expenditures could increase an additional $10.3 billion from 2018 through 2020 compared to estimated Medicare expenditures using lower bundled Medicare rates.

The National Limitations Amounts Issue
The GAO contends that CMS used the 2017 national limitation amounts, or the maximum Medicare payment rates, as a baseline to start rate reductions instead of actual Medicare rates. In some cases, this resulted in Medicare paying higher rates than it had previously paid on average.

Last but not least, the report cites errors in data collection.

What Happens Now?
The GAO recommends that CMS take additional steps to safeguard Medicare funds, including:

• Collecting all data from labs required to report;
• Ensuring that the data collected was accurate;
• Using bundled rates for panel tests and, if necessary, seeking clear legislative authority to do so; and
• Phasing in payment rate reductions based on actual payment rates paid by Medicare prior to 2018 rather than national limitation amounts.

Reaction
HHS agrees that more complete, accurate data is needed, but has indicated neither agreement nor disagreement with the GAO’s other recommendations.

Meanwhile, the lab industry agrees that CMS’ data collection was incomplete and flawed but not the conclusion of the GAO report. “The report is a clear acknowledgment that CMS dropped the ball on data collection and failed to get market representative data as part of the reporting requirements under PAMA,” notes Julie Khani, president of ACLA. But, she adds, the “suggestion that laboratories are receiving substantial excess payments from Medicare misses the mark and fails to reflect the market reality.”