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New law will modernize Medicare lab payments: What physicians need to know

From international law firm Arnold & Porter LLP comes timely views on current regulatory and legislative topics that weigh on the minds of today’s physicians and health care executives.

Medicare will make sweeping changes in how it pays for clinical laboratory tests starting in 2017. The Protecting Access to Medicare Act, enacted April 1, will make the most significant reform of Medicare’s Clinical Laboratory Fee Schedule (CLFS) since its introduction in 1984, by setting CLFS payment amounts based on rates paid for laboratory tests in the private sector.

Medicare’s payment amounts for pathology laboratory services paid under Medicare’s physician fee schedule (PFS) will be unchanged by the new law. Also unchanged will be Medicare’s policy of not imposing coinsurance on CLFS tests. The possibility of imposing coinsurance has been frequently proposed in discussions about reform of the CLFS, but the new law leaves that policy — and hence the financial burden of lab testing on Medicare beneficiaries — unchanged.

How Medicare’s payment amounts will change in 2017

Payments are likely to go down for many routine office tests like CBCs and chemistry panels, but reductions of more than 10% will be phased in. CMS will establish Medicare payment amounts for each test based on the weighted median of the rates paid by private payors for each test. Payment reductions will be phased in, with a 10% maximum rate reduction for each year from 2017 to 2020, and 15% for each year from 2020 to 2022. The changes for particular tests are unknown at this time, and while payment amounts could go up in some instances, the prediction of the Congressional Budget Office that the new payment method will save Medicare, in the aggregate, $1 billion from 2017 to 2022 suggests that most payment amounts will likely fall.

 

In the future, payment rates will change at least every 3 years (more often for tests subject to phased-in reductions and certain “advanced diagnostic” tests). Payment amounts will change to reflect average payment rates for each test in the private market. CMS will no longer make routine, across-the-board adjustments for inflation or productivity, and it appears that Congress will be less likely to make arbitrary cuts in CLFS payment amounts to meet budget goals.

Laboratories will be required to report price, volume data

Physician office laboratories may have to report. Reporting will be required by “applicable laboratories,” defined as those laboratories that receive half or more of their Medicare revenues from the CLFS or from pathology tests paid under the PFS. CMS may exempt laboratories from the reporting requirement by establishing a low-volume or low-expenditure threshold; if CMS does so, many physician office laboratories may escape the need to report. Hospital laboratories, even those that do a significant fraction of their work for inpatients, may have to report if their revenues are primarily from tests paid on the CLFS or PFS.

Beginning Jan. 1, 2016, each applicable laboratory must report the payment amount and volume of each test (except for laboratory tests paid on a capitated basis) paid by each private payer, Medicare Advantage plan, and Medicaid managed care organization. Reporting for most tests will be required every 3 years, with some exceptions where annual reporting will be required. The Secretary of HHS can enforce compliance with the reporting requirements by a civil money penalty of up to $10,000 per day.

CMS will set the parameters for reporting through notice-and-comment rulemaking that is required to be completed by June 30, 2015. Since reporting will commence only 6 months later, physicians with office laboratories, in particular, should watch closely for developments in this area.

Thomas A. Gustafson, PhD, can be reached at Arnold & Porter LLP, 555 12th St. NW, Washington, DC 20004-1206; 202-942-6570; email: Thomas.Gustafson@aporter.com

Paul M. Rudolf, MD, JD, can be reached at Arnold & Porter LLP, 555 12th St. NW, Washington, DC 20004-1206; 202-942-6426; email: Paul.Rudolf@aporter.com

Nora Schneider, JD, can be reached at Arnold & Porter LLP, 555 12th St. NW, Washington, DC 20004-1206; 202-942-5711; email: Nora.Schneider@aporter.com