• by Aaron Hackle
  • October 6 2017


CMS's Deep PAMA Cuts Surprise Industry

CMS's Deep PAMA Cuts Surprise Industry

Make sure to visit our In Vitro Diagnostics page, Kalorama's all-in-one resource covering the IVD market. 

The Centers for Medicare & Medicaid Services' has published the preliminary payment rates and supporting documentation for the new private payor rate-based CLFS payment system and the results have surprised the industry, and were deeper than even Kalorama Information had projected. The goal of the lab pricing under the Protecting Access to Medicare Act (PAMA) is to save the most important government payor around $670 million, shaving nearly 10 percent off. These rates will be implemented on January 1, 2018. Kalorama covers the important United States IVD Market in a recent study.  

Industry players have a month to comment on the draft prices and make their case to CMS for any changes before final prices are released in November.  

CMS previously estimated that using a market-based system stipulated under PAMA would save $390 million in the first year of 2018, and $3.93 billion over a decade. Among the groups opposing was the American Clinical Laboratory Association.ACLA President Julie Khani said "the impact would be devastating," 

"Hospitals and physician office labs comprise half of Medicare clinical lab fee schedule volume and lab spending, but only accounted for 8.5 percent of the reported lab volume used by CMS to calculate the rates," Quest CEO Steve Rusckowski.

“The new PAMA rates published by CMS do not reflect the intent of Congress when it directed CMS to implement market-based Medicare rates for lab testing,” said David P. King, chairman and CEO of LabCorp. “We join with the American Clinical Laboratory Association (ACLA) and others in our industry in calling on Congress to take swift action to prevent the harm that will occur if these rates take effect.

PAMA, signed into law in 2014, establishes a market-based pricing system for lab tests where Medicare payment for a test equals the weighted median of private payor rates. In implementing a process for collecting the information needed to establish pricing, CMS said only "applicable labs" could report test payment rates and volumes from private payors. From ACLA's point of view, the simulation only further proved that CMS' approach isn't inclusive of the entire lab market. According to the HHS Office of Inspector General there are approximately 7,000 hospital labs in the US, and critics believe their exclusion distorts the total market picture.

PAMA is intended to introduce a more organic methodology to reimbursement adjustments for lab testing under Medicare and will replace uniform cuts implemented across the Clinical Laboratory Fee Schedule (CLFS) with the Affordable Care Act (ACA) and other past legislation. The recent CMS final rule delays implementation of market-based pricing to 2018 and expands the body of reporting labs in order to make prices more reflective of the entire lab market. The law has the potential to significantly cut Medicare reimbursement prices on routinely performed, highly automated tests – sparking further consolidation in the clinical lab services market – and increase IVD industry emphasis upon the development of new biomarkers and sophisticated and esoteric assays. In a blog post on its website, Kalorama Information expects the new law to hit smaller labs the hardest.

"Public estimates range from $100 to $350 million a year in lost revenue, but Kalorama at this time has not performed an economic analysis," we said back in June. We were wrong, even on the high end.

In a document detailing the data that CMS considered in taking its initial crack at pricing lab tests, the agency said that close to 2,000 "applicable laboratories" submitted around 5 million records. Most of the reported test volume, 90 percent, came from 658 independent labs. Other entities submitting data included 1,106 physician office labs, 21 hospital labs, and 157 other kinds of labs. They each reported 7.5 percent, 1.0 percent, and 1.4 percent of the test volume, respectively, to CMS as it devised the PAMA rates. CMS performed a simulation to gauge whether including more independent, physician office, and hospital labs would have significantly impacted rates, and concluded that it wouldn't have made much difference. According to CMS, based on information collected from applicable labs, payment for lab tests would decrease by 21.9 percent in 2018, compared to the national limitation amount it paid for lab tests during 2017. According to the simulations it performed, allowing more labs to report would have decreased payments by around 20 percent.

Not all the news was bad. PAMA created a new category of assays, called advanced diagnostic laboratory tests (ADLTs), which CMS has defined as tests developed and offered by a single lab that use a unique algorithm to analyze multiple DNA, RNA, or protein markers, and which provide new clinical diagnostic information that can't be obtained by any other test. Each test will be identified by codes unique to them, but the ADLT definition is controversial among industry players. Test developers are awaiting further clarification from CMS regarding the requirement that ADLTs must provide new clinical diagnostic information.

In the ADLT category, Veracyte's Afirma Gene Expression Classifier (CPT code 81545), for distinguishing which thyroid nodules are benign and which are suspicious of cancer, had a price increase from $3,222 to $3,600, while CareDx's AlloMap test for gauging cardiac transplant rejection risk (CPT code 81595) increased from $2,841 to $3,240.

Other winners or "not-losers" included:

  •  Myriad Genetics myRisk Hereditary Cancer test (based on CPT codes 81211 and 81213), received an initial price of $2,949, up from $2,781 in 2017
  • Myriad's Vectra DA rheumatoid arthritis test (CPT code 81490) also saw a pricing bump to $841, compared to $591.
  • However, CMS' proposed pricing could be 10 percent lower for Invitae's hereditary cancer panel (CPT code 81432), which is currently being paid at $931 and got a 2018 PAMA price of $838.
  • Exact Sciences' Cologuard (CPT code 81528) saw a slight dip from $512 to $509.
  • Illumina and Natera's Noninvasive prenatal testing (CPT code 81420) is currently paid at $802 and its proposed reimbursement was reduced to $759
  • Tests designated for diseases affecting the Ashkenazi Jewish community (CPT code 81412) shot up from $602 this year to $2,449.
  • Genomic Health reported from private payors for the Oncotype DX breast cancer recurrence test (CPT code 81519), he noted, where the 25th to 75th percentile of rates ranged from $3,713 to $4,153.
    ased on the weighted median of all reported rates, G

CMS is seeking public comments on its draft payment rates until Oct. 23, and intends to publish final rates in November. The segment of the lab community that largely fared well in the PAMA pricing process, makers of single-source, multianalyte algorithm-based assays, or ADLTs, support this timeline.