CMS has posted the long anticipated final rule implementing a new Medicare payment system for clinical diagnostic laboratory tests, based on rates paid by private payers.1 Under the new system, required by the Protecting Access to Medicare Act of 2014 (PAMA), certain labs have to report to CMS the rates they are paid by private payers for each test they perform, and Medicare rates will be based on the weighted median of these reported rates. For most lab tests, private payer rates will be reported, and Medicare rates updated, every 3 years. CMS had proposed using the new rates in 2017, but due to delays in the rulemaking process, they have pushed back implementation to January 2018, based on rates paid by private payers in 2016.

In response to numerous comments, CMS also revised its proposed definition of “applicable labs” that are required to report their private payer rates to CMS, so that it now includes many hospital outreach laboratories (i.e., hospital labs that serve patients who are not hospital patients). CMS also shortened the data collection period from a full calendar year to 6 months. Under PAMA, tests considered to be “Advanced Diagnostic Laboratory Tests” (ADLTs) are subject to different reporting and payment requirements, and in the final rule CMS made some changes to its proposed definition of ADLTs and how they’ll be priced.

Who Must Report and Who is Excluded

PAMA requires collection and reporting of private payer rates by “applicable labs” that receive the majority of their Medicare revenues under the Clinical Lab Fee Schedule (CLFS) or the Physician Fee Schedule (PFS).

  • In the final rule, in response to many comments, CMS revised its definition of “applicable lab” to be one that bills Medicare Part B under its own National Provider Identifier (NPI), rather than looking at entities at the Taxpayer Identification Number (TIN) level, as had been proposed.
    • CMS believes this will allow reporting by hospital outreach laboratories that have, or may obtain, their own NPI, separate from the hospital, and will make the private payer data more robust and accurate.
  • Labs receiving less than $12,500 of their Medicare revenues under the CLFS during the 6 month data collection period are not required to report.
    • This will exclude the vast majority of physician office labs and many independent labs from having to report.
    • This exception doesn't apply to labs performing ADLTs.
  • "Private Payers" are defined in the statute as a health insurance issuer, a group health plan, a Medicare Advantage plan, or a Medicaid managed care plan. 

What Data Must be Collected and Reported, and When

  • Labs have to collect and report their private payer rates for each test for which final payment has been made during a “data collection period”, the volume of tests performed at each rate, and the specific HCPCS code associated with each test.
    • The first data collection period is January 1, 2016 through June 30, 2016.
  • Labs must report this data to CMS during the 3 month data reporting period, which is January 1 through March 31 of the year following each data collection period.
    • The first data reporting period is January 1 through March 31, 2017.
  • For Clinical Diagnostic Lab Tests (CDLTs) that are not ADLTs, private payer rates will be collected and reported every 3 years, and for ADLTs that are not new tests, rates will be reported every year.
    • Treatment of new CDLTs and new ADLTs is described below.
  • The President, CEO or CFO of the reporting entity, or their designee, must certify that the data are accurate, complete and truthful. Entities submitting false or misleading data, or failing to report, may be subject to Civil Monetary Penalties.
  • Medicare payment for lab tests determined under this new system will go in to effect January 1, 2018.
    • If test payments are lower under the new system, payment reductions will be phased in. Rates for a test can't drop more than 10 percent per year for the first 3 years of the new system (calendar years 2018-2020), and not more that 15 percent per year in the subsequent 3 years (2021-2023).

Advanced Diagnostic Laboratory Tests and Other New Tests

Tests that fall under the definition of Advanced Diagnostic Lab Tests (ADLTs) are treated differently in a number of ways, including how payment is calculated for new ADLTs.

  • ADLTs are lab tests offered and furnished by only a single laboratory, that are not sold for use by a lab other than the lab that developed the test, and:
    • The test is an analysis of multiple biomarkers of DNA, RNA or proteins combined with a unique algorithm to yield a single patient-specific result; or
    • The test is cleared or approved by FDA.
  • For new ADLTs that haven’t been paid under the CLFS prior to January 1, 2018, payment will be the actual list charge for the test during an “initial period” of 3 quarters, beginning after the test has been approved for ADLT status and covered under Medicare Part B.
  • After this initial period, payment will be based on the weighted median of private payer rates, as it is for other tests, and if the actual list charge that was paid initially is more than 130% of this weighted median rate, CMS will recoup the difference from the lab.
  • For ADLTs furnished prior to January 1, 2018, payment will be based on the crosswalking or gapfilling methods used under current Medicare regulations.
  • For new clinical lab tests that are not ADLTs, and for any other tests for which CMS receives no private payer rates, CMS will continue to use the crosswalking and gapfilling methodologies currently in place until new Medicare rates are established based on private payer rates.

Implications

Beginning in January 2017 most clinical labs, other than physician office labs, will be subject to a significant new reporting requirement, and are likely to see major changes in Medicare payment rates for lab tests beginning in 2018. For most tests, labs will have to report payment data, and Medicare rates will be updated accordingly, every 3 years; for ADLTs the cycle will be every year. It will be essential to ensure the completeness and accuracy of the data or labs may face Civil Monetary Penalties.

For new ADLTs, payment during an initial period will be the actual list price for the test, but it will be important for labs to understand the timing and other details applicable to reporting and being paid for ADLTs, most notably including the potential for recoupment if the list price the lab was paid initially exceeds the weighted median of private payer payments by more than 30 percent.

CMS will publish additional guidance regarding the form and format for reporting private payer rates, but developing the infrastructure for collecting and reporting this data, and ensuring its accuracy, will require a significant effort by clinical labs. 

As CMS noted in the final rule, there are a number of parallels between the new clinical lab payment reporting requirements and the government requirements already in place for drug price reporting.  Hogan Lovells has extensive experience advising clients on these drug sales and price reporting requirements and we have experts available to work with clients in setting up systems to comply with the new requirements for labs.