H.R. 4032 Unveils the Next Savings Tool for Part B Clinical Lab Testing

H.R. 4032 Unveils the Next Savings Tool for Part B Clinical Lab Testing

The Clinical Laboratory Fee Schedule (CLFS) has been a frequent target of federal cost saving initiatives in Medicare; recent hits to the schedule have included negative “productivity” adjustments offsetting inflation adjustments; ACA-initiated annual schedule cuts; and one-off cuts. Signed by President Obama at the beginning of this month, H.R. 4032 (“Protecting Access to Medicare Act of 2014”) sets the groundwork for a new system of cost-saving adjustments to the schedule (Section 1834A):

Beginning January 1, 2016, and every 3 years thereafter (or, annually, in the case of reporting with respect to an advanced diagnostic laboratory test, as defined in subsection (d)(5)), an applicable laboratory (as defined in paragraph (2)) shall report to the Secretary, at a time specified by the Secretary, applicable information (as defined in paragraph (3)) for a data collection period (as defined in paragraph (4)) for each clinical diagnostic laboratory test that the laboratory furnishes during such period for which payment is made under this part.

applicable information means, with respect to a laboratory test for a data collection period, the following:

(i) The payment rate (as determined in accordance with paragraph (5)) that was paid by each private payor for the test during the period.

(ii) The volume of such tests for each such payor for the period.

The legislative act prepares the stage for CMS to begin systematically evaluating areas of overpayment in Medicare-reimbursed clinical lab testing. “Technological adjustments” to CLFS rates had been vaguely promised since a recent Office of the Inspector General (OIG) report, among other studies, documented Medicare overpayment for routine tests compared to Medicaid and Federal Employee Health Benefits (FEHB) plans. The opaque process of determining technology-based adjustments will be superseded by the market-based process. Beginning 2016, clinical labs are obligated to provide CMS with test volumes and pricing data that will significantly expand the agency’s comparative data resources and assist in the production of adjusted, weighted median prices.

Weighted median CLFS rates informed through private payer rates will be implemented first in 2017. Data will be submitted by labs every three years with the exception of esoteric or advanced clinical lab testing data, which must be provided to CMS annually. Weighted median prices are intended to depress reimbursement rates for the majority of tests, particularly routine tests, and reduce reimbursement costs. Independent commercial labs are heavily represented among suppliers to private payers, and thus will factor significantly - high automation, high test volumes, and all - into the median test prices introduced by CMS.

Even with the exclusion of capitated lab test prices from established median prices, the CMS initiative is in danger of squeezing smaller labs even further. Repeated reimbursement cuts and pricing pressure from private payers has already forced many smaller community labs out of business or into the arms of larger testers. Fewer and fewer protections are being afforded to labs that pay premiums on internal costs for personnel, reagents, and smaller workstations. As The Pathology Blawg has proposed, two scenarios bear watching in the clinical lab industry and the distribution of lab demand for IVD products:

…since Quest Diagnostics and LabCorp already control approximately 43% of the clinical laboratory market just between the two of them, they will have a significant influence on the price CMS ends up paying for each test.

So it will be interesting to see what the behemoth labs do.  Will they begin charging private payors more, which will bring the weighted median up, or will they charge private payors the same amount or less, thereby keeping the weighted median low?

If the former, this could help smaller labs out, but if the latter, it could mean more pain for smaller labs at a time when reimbursement relief would be much welcomed.

 For more information on the U.S. clinical lab market, please consult Kalorama Information’s Clinical Lab Services Market (Growth Opportunities, Competitive Analysis and Competitor Profiles)