The PAMA Snag: Many Hospital Labs May Not Be Able to Participate in Reporting

When the Centers for Medicare & Medicaid Services (CMS) announced in mid-June the final rules governing the Protecting the Access to Medicare Act (PAMA), it drew praise from several groups that had lobbied for major changes. PAMA is essentially serving as a reset for the reimbursement formula the federal government uses to make payments under the Clinical Laboratory Fee Schedule.

The feds believe the Medicare program may be overpaying laboratories for services compared to commercial insurers, which have ratcheted down their rates through hard bargaining in recent years. As a result, PAMA requires labs to gather their commercial billing data and submit it to CMS for review and as the basis for future rate-setting. All labs that billed Medicare for $12,500 or more during the first half of this year would be affected.

Under the rules, labs have to submit payer data for the first half of this year to CMS by the end of the first quarter of 2017. CMS’s payment recalculations would then begin in 2018, a year later than originally proposed.

Labs are obviously not paid at uniform rates, but the differences can be significant. Hospital-based laboratories, for example, can be paid at much higher rates than standalone labs. Their inclusion on a large scale would therefore be economically advantageous for the sector as a whole.

One of the biggest of those changes CMS made to the final PAMA rule was the relaxing of reporting guidelines as they relate to hospital-based laboratories. Under the proposed rule, CMS had said a qualifying hospital laboratory would not only be an independent Medicare entity, but have a taxpayer identification number (TIN) and a national provider identifier number (NPI).

Instead, CMS relented, dropping the TIN requirement but keeping the NPI prerequisite. It also moved back the reimbursement changes from 2017 to 2018.

“It’s great CMS made the change because that will open it up for hospital lab outreach programs,” said Jane Pine Wood, a Massachusetts-based member of the health care law practice of McDonald Hopkins, although she wished the participation would have included all hospitals that performed any lab work.

“We are pleased that CMS will delay the program start date and include data from hospital-based labs in setting payment rates,” said American Hospital Association Executive Vice President Tom Nickels in a statement. “Including hospital-based labs will better reflect market trends and lead to more appropriate reimbursement.”

But whether or not many hospital labs actually have their own NPIs is a matter of speculation. In perhaps what is a reflection of the data gap the CMS is seeking to close through PAMA, no one appears to know how many hospital labs actually have their own NPI.

“We know there are more hospital labs that have their own NPI than TIN,” said Alan Mertz, president of the American Clinical Laboratory Association, which had supported the change in the PAMA final rules to help include hospital laboratories. “We don’t know how many hospital labs have their own NPI, but we also know a lot of them don’t. It’s not as easily discoverable.”

Mertz noted that ACLA’s own membership includes only a handful of significant hospital-based labs.

Wood also was uncertain of how many hospital labs have NPIs. “There are some hospitals with separate NPIs for their outreach programs, but many do not have one,” she said.

Stan Schofield, president of NorDx, the laboratory network for MaineHealth and vice president and managing principal for the Compass Group, a trade federation that represents hospital-based labs, actually believes few hospital labs will participate in reporting data.

“The way (the PAMA rules) have been engineered, most big hospital labs are going to be excluded,” he said.

Barry Portugal, president of Health Care Development Services, a Florida-based consulting firm, said he has contacted operators of many hospital-based labs. Most are not participating in PAMA, he noted.

“Everyone with whom I have spoken has said they do not plan to participate in the PAMA data collection process because their hospital laboratory does not meet the definition of an applicable lab,” Portugal said.

Portugal added that there are exceptions. Those are primarily hospital-owned labs located outside of the hospital, and where the lab performs inpatient, outpatient, and outreach testing. But he believes there are no more than 100 in operation nationwide.

Schofield concurred. “The criteria for reporting does not loop them in unless there is a really sizable number to loop them in,” he observed.

Wood and Mertz noted that this may spur a surge of NPI-seeking.

“There may be more and more of them to decide and quickly get an NPI number so they can report, because generally everyone is going to be better off with more hospitals reporting,” she said.

While Mertz agreed that hospital labs could obtain their own NPI to participate in reporting, he said it was too late to do so for the 2016 reporting period. The next reporting period is in 2019, he added.

Another issue raised by Portugal is more esoteric. For those off-premise labs that do qualify, he said the average pricing for PAMA purposes “would be far less than typical outpatient pricing because a large portion of the lab testing performed at these facilities is billed back to their hospital parents at ‘intra-hospital’ prices which are a fraction of a hospital’s typical outpatient fees.”

Mertz did not believe such situations would be widespread, while Wood said she was unaware of the issue.

But with many hospital labs seemingly cut out of the loop, Schofield believes it will present a “worse-case scenario” for reimbursement cuts.

“If a hospital lab is billing at $10 a test and they’re facing a 10 percent cut, that’s $9. But if the actual base under PAMA is going to $7, then it’s going to be cut to $6.30. The point is, they’ll be looking at 30 percent-plus cuts.”

Schofield pointed to aggressive cuts by Anthem and other big payers in recent years as the likeliest influencers of rates set under PAMA. In New Hampshire, for example, Anthem cut reimbursement to 66 percent below Medicare rates, he added.

Portugal believes that while on the face of it the changes to the PAMA final rules seemed beneficial to labs, he’s skeptical for now.

“It’s my view that the impact of a very few hospital-affiliated labs participating in PAMA data collection will be minuscule at the end of the day,” he said. “CMS will get what they originally wanted—to pay out far less money for Medicare Clinical Laboratory Fee Schedule testing.”

Takeaway: Although CMS has relaxed its PAMA reporting rules to include more hospital-based laboratories, it remains to be seen just what percentage will be able to participate in that first reporting period.