The Newest PAMA Controversy: The GAO Report & Intervention of a Powerful Senator

The recent moves by CMS to include certain hospital outreach labs as “applicable laboratories” for purposes of PAMA reporting and pricing (see National Intelligence Report (NIR), Dec. 31, 2018) has done little to calm the PAMA controversy. The American Clinical Laboratory Association (ACLA) is still pursuing its federal court case challenging the legality of the CMS PAMA system (see NIR, Dec. 14, 2018). And a recent government report suggesting that PAMA is too generous to labs has raised the temperature even higher. Here’s what’s going and what to expect.

The GAO Report & Industry Response
The new controversy began last November when the U.S. Government Accountability Office (GAO) issued a report suggesting that the new PAMA system will result in billions of dollars’ worth of Medicare overpayments for lab tests. This conclusion flies directly in the face of what the lab industry and other critics have been saying about PAMA.

According to a January statement from American Clinical Laboratory Association (ACLA) President Julie Khani, “The GAO’s conclusions on overbilling of laboratory services in the Medicare program are fundamentally flawed and inaccurate. The underlying assumptions for GAO’s analysis and recommendations reflect a serious misunderstanding of standard industry practice for laboratory reimbursement and ignore unprecedented cuts to lab tests that pose serious harm to beneficiaries.”

In February, the ACLA and AdvaMedDx, College of American Pathologists, National Independent Laboratory Association, and Point of Care Testing Association sent a joint letter to GAO expressing “strong disagreement with key assertions” in the GAO report and citing the “flawed approach to data collection that excluded large portions of the laboratory market.”

Lab industry pushback against PAMA is nothing new. But now there are more voices, not to mention actual outcomes that can be cited resulting the “flawed” CMS process. “Payment rates for the vast majority of laboratory tests are not based on market prices and as result, cuts have far exceeded initial projections,” the letter notes. The five organizations signing the letter have requested a meeting with GAO.

The Grassley Factor
Unfortunately, one person apparently didn’t get the lab industry memo. And that person just so happens to be one of the country’s most powerful lawmakers. Senator Charles Grassley (R-Iowa) is the last person you’d ever want to pick a fight with. Elected to the Senate in 1980, he has become a fierce advocate for lower health care prices and a thorn in the side of the drug companies. And this January, he became one other thing: Chairman of the powerful Senate Finance Committee.

Senator Grassley read the GAO report; and he apparently believed it. And now he’s determined to find out what CMS intends to do to fix the “overspending” on lab tests problem. In a recent letter, he poses a series of specific questions.

Senator Grassley’s 6 Questions to CMS on Supposed PAMA Lab Overpayments

1. What steps have been taken to ensure that all labs who are expected to report data to HHS actually do so?
2. Does HHS agree with the GAO recommendation that CMS phase in payment-rate reductions based on actual rather than maximum rates? If so, what steps have been taken to amend relevant HHS rule(s) and implement the GAO recommendation?
3. Does HHS believe it has the authority to create CPT codes for panel tests where they don’t currently exist, or take other steps to ensure the completion of a bundled payment while remaining compliant with the provisions of PAMA and other relevant federal laws? If so, why has HHS paid individual rather than bundled rates for these panel tests?
4. Did CMS make a systems edit to its claims processing system that prevented CMS from detecting whether individually billed tests should have been bundled? If so, why?
5. What’s the status of efforts to detect panel tests where CPT codes do exist but haven’t been correctly billed by labs? When does CMS believe it will be able to effectively detect and correct the billing problems?
6. Did CMS know how many labs billed individual tests and received a higher reimbursement rate when they should have billed as a panel code during the time the claims processing system was unable to detect when a panel CPT code was appropriate? Is CMS able to perform an audit to determine that number and the cost in excess reimbursement?

Lab Industry Concerns
While Grassley’s letter does ask some important questions, it also overlooks lab industry concerns. Indeed, some of the questions flat-out ignore key points. For example, Grassley asks whether CMS can create new CPT codes for panel tests and enforce existing panel test codes so it can continue to make bundled payments while remaining compliant with PAMA. He also asks whether CMS plans to amend a rule so it can base pricing reductions on average instead of maximum Medicare payment rates.

Takeaway:The uphill battle to peel back PAMA has become that much steeper now that Senator Grassley has joined the fray. Disabusing him of his misconceptions about lab reimbursement, if that’s what they are, will not be a simple task; the good news is that the Senator is as fair and intelligent as he is tough and determined in his quest to secure lower medical prices for patients.