Recapping the ’Doc Fix’ Act’s Impacts on Medicare Lab Reimbursement

Recapping the ’Doc Fix’ Act’s Impacts on Medicare Lab Reimbursement

The clinical lab and IVD industries continue to assess the “Doc Fix” Bill or Protecting Access to Medicare Act of 2014 (H.R. 4032) following its passage in April 2014. The law, to be implemented by 2017, has seen no shortage of reactions from stakeholders. Under its provisions, the Act will allow CMS to systematically collect test payment rate and volume data from “applicable” private labs, including at least reference or commercial labs and likely hospital labs (or those with outreach businesses). Medicare reimbursement rates under the Clinical Laboratory Fee Schedule (CLFS) will then be adjusted to the average rates charged to private payers.  The market-based rate changes to the CLFS will replace a number of convoluted and, at times, deep-cutting adjustment mechanisms used to curb Medicare lab payments.

The Act will also implement standardized procedures for the coding of new tests (seeking to improve upon the recent roll-out of new molecular codes), establish a new expert advisory panel for lab reimbursement, and ban the multiple, layering annual updates, cuts, and adjustments applied previously to the CLFS. The Act also eliminates once-planned “technological adjustments” from future test rates; reimbursement rates would have been cut according to a formula to compensate for advances in the cost efficiency of core lab tests through cutting-edge molecular-based diagnostics.

The fallout of market-based CLFS rate adjustments beginning in 2017 is widely expected to include boosted market shares for leading (Quest, LabCorp) and larger private labs. Across from the winners, small private and community labs will struggle under Medicare rates reflecting market averages heavily influenced by the scales of larger labs. As is already the case, rate adjustments may not cover the cost to perform certain tests. Small community labs will be especially sensitive to future market-based Medicare adjustments, as many depend upon CMS as their largest payer and bulk of their business.

Between 2017 and 2019, CMS will be able to cut the price of an individual test by no more than 10% a year, and no more than 15% a year between 2020 and 2022. Onlookers remain concerned test prices could enter a downward spiral as market-based Medicare reimbursements reflect heavily discounted rates offered by large labs under contract, and payers in turn negotiate under new contracts for rates below Medicare (which commonly serves as a benchmark for private payers).

Specific to IVD markets, the Act will provide special treatment to single-source or proprietary tests, whether offered as a product for labs or as a lab-developed test (LDT) service. Currently, multi-analyte algorithm-based assays (MAAA) (near exclusively LDTs) are singled out under the Act for provisionary list prices without market-based adjustment for the first 9 months of coverage. While additional tests are likely to be granted initial list prices, the Act as of now will not provide the same benefit to other advanced tests such as those based on next-generation sequencing (NGS). Most advanced tests will benefit from other helpful reform:

For new tests that don’t fit the special advanced diagnostics criteria [MAAA-like], the law promises to speed payment and force CMS to make more deliberate decisions on initial rates. The law spells out how CMS must assign codes and use the gapfill process for initial pricing of new tests. It also creates a new advisory board of laboratory medicine experts who must be consulted.

On the other end of the spectrum, routine tests are likely to see the sharpest reductions in reimbursement with the enactment of the Act’s market-based pricing reform. Routine tests performed at the point of care (POC) or in a physician office laboratory (POL) are most vulnerable, as the cost of the test is often higher without the scale and efficiencies of a core lab environment. Non-automated tests or routine, waived manual tests with a unique code are unlikely to see price erosion on the scale of those largely performed on automated instruments in higher volume private and hospital labs. Benchtop analyzers performing low volume automated POC testing in clinics and offices could represent an increasingly poor proposition for physician offices and other POC testers as market-averaged reimbursement rates slide towards the per-test costs achieved at large labs.

For more information regarding reimbursement and other market issues facing U.S. laboratories and IVD market participants, please consult Kalorama Information’s The U.S. Market for In Vitro Diagnostic Tests and Clinical Lab Services Market reports.