Executive Summary

On October 1, 2015, the Centers for Medicare & Medicaid Services (“CMS”) published a proposed rule that would overhaul the clinical diagnostic lab test (“CDLT”) payment system by linking the clinical lab fee schedule (“CLFS”) to private payor payment rates (“Proposed Rule”).  Under the Proposed Rule, each applicable laboratory will be required to report to CMS information on the payment rates paid by private payors (“Private Payor Rates”) for each CDLT the lab furnishes, as well as the corresponding volume of each CDLT furnished during an applicable period.  Based on all the data collected, the Medicare payment amount for CDLTs will be adjusted every three years to reflect the weighted median of Private Payor Rates determined for each CDLT.  The new payment system would become effective on or after January 1, 2017.  Different reporting and payment requirements will apply to advanced diagnostic lab tests (“ADLTs”).

The proposed changes in the lab payment system, as well as proposed changes in the coding and coverage requirements for CDLTs,  are mandated by the Protecting Access to Medicare Act of 2014 (“PAMA”).   It is easy to see why Congress would target the CDLT payment system for an update; the current payment system has been in place for over 30 years and was ripe for a major overhaul given the health care reform-related focus on decreasing costs and improving quality and efficiency. The update is anticipated to save the CMS Part B program an astonishing $5.14 billion in payments over 10 years, an overall 6.4 percent reduction in revenue for labs paid under the current CLFS.  The Proposed Rule can be found here.

Definitions and Details

The Proposed Rule applies to an applicable laboratory (“AL”), which is defined as a laboratory (as defined under CLIA) that receives more than 50 percent of its Medicare revenues from the CLFS or the physician fee schedule during a data collection period (“DCP”).  Labs with Medicare revenues under $50,000 in a DCP are exempt from the definition of an AL and, therefore, have no reporting obligations for that DCP.  An AL can be a laboratory itself or may be an entity such as a health system that includes a laboratory as a component. CMS proposes to define the AL at the TIN level for purposes of compiling and reporting applicable information (“AI”).  This means that the AL must report its data to CMS under its TIN for all of its various NPI entities associated with the TIN. So, for example, if a health system owns three labs each of which has a separate NPI but no separate TIN, the health system must submit data for all three labs.  In this example, the health system is the AL.

AI means, with reference to each CDLT for a DCP, each Private Payor Rate and the volume of tests performed for each Private Payor Rate.  CMS proposes that the AI include each CDLT’s HCPCS code and exclude information about CDLTs paid on a capitated basis.  All Private Payor Rates for CDLTs must be reported; sometimes there are different payment rates associated with the same payor for the same CDLT.  CMS proposes that the Private Payor Rate is the amount that was paid by a Private Payor for a CDLT after all discounts, rebates and other price concessions were applied and includes any patient deductible and coinsurance amounts, if applicable.   Example:  The BestHealth PPO pays the AL $80 for a thyroid panel inclusive of a discount.  BestHealth PPO charges its members a $10 copay per lab test.  The BestHealth PPO Private Payor Rate for the AL’s furnished thyroid panel is $80, not $70.

Private Payor is a health insurance issuer, a group health plan, a Medicare Advantage plan under Part C and a Medicaid managed care organization.

DCP is the calendar year during which the AL collects AI and that immediately precedes the “Data Reporting Period.”  The first proposed DCP is a shortened period from July 1, 2015 through December 31, 2015.  All subsequent DCPs will be a full calendar year, but for CDLTs, data will only be collected every third calendar year.

Data Reporting Period (“DRP”) is the three-month period during which the AL reports AI to CMS and that immediately follows the DCP.

ADLT is a CDLT covered under Part B that is offered only by a single lab and not sold for use by a lab other than the lab that designed the test.  The ADLT must be an analysis of multiple biomarkers of DNA, RNA or proteins combined with a unique algorithm to yield a single patient-specific result or be approved by the FDA or meet other criteria established by HHS.

New ADLT is an ADLT not paid for under the CLFS prior to January 1, 2017.

Formulas for Payment 

The new payment rates for tests on the CLFS will be determined by calculating the weighted median of the Private Payor Rates using reported rates and associated number of tests.  For CDLTs paid on the CLFS before implementation of PAMA, any reduction in payment amount will be phased in over six years, meaning CMS will limit the percentage reduction in payment for individual tests to cushion the blow of any new lower rates.

For new ADLTs, payment will be based on the actual list charge of the test for an initial period of three calendar quarters but thereafter will be based on the same weighted median formula as used for other CDLTs.  For new and existing tests for which CMS receives no data, CMS will use crosswalking methods (i.e., establishment of payment amount based on similarity to an existing test or test codes) and gapfilling methods (i.e., determination of payment amount in the absence of a comparable existing test) for determining payment.

PAMA requires CMS to designate a minimum of one and a maximum of four MACs to establish coverage policies and/or process claims.

Data Reporting Requirements 

In a DRP, an AL must report AI for each CDLT furnished during the DCP.  Here is the data reporting timetable CMS proposes:

  1. For CDLTs that are not new, every three years beginning January 1, 2016.
  2. For ADLTs that are not new, every year beginning January 1, 2016.
  3. For new ADLTs, initially, no later than the last day of the second quarter of the new ADLT initial period and yearly thereafter.

Proposed Timetable for Collecting and Reporting AI on CDLTs

  • First DCP is July 1, 2015 through December 31, 2015. First DRP begins January 1, 2016 and ends. March 31, 2016.

Implementation date for new rates based on first DCP data is January 1, 2017 through December 31, 2019.

  • Second DCP is January 1, 2018 through December 31, 2018. Second DRP begins January 1, 2019 and ends March 31, 2019.

Implementation date for new rates based on second DCP data is January 1, 2020 through December 31, 2022.

Administrative Requirements and Penalties

  • All data must be certified by the president, CEO or CFO of the lab before submission to CMS.
  • Certain information reported by a lab is confidential and may not be disclosed by HHS or a Medicare Administrative Contractor in a way that will identify a specific payor or lab; or prices, charges or payments made to a particular lab, with limited exceptions.
  • CMS will apply G codes to temporarily identify new ADLT and new CDLTs.
  • CMS will apply CMPs to an AL that fails to report the required data or makes a misrepresentation or omission in reporting AI.

Practical Takeaways

The Proposed Rule introduces market-based pricing1 to the CLFS.  Previously, CMS set its own rates without referencing Private Payor Rates.  Once a rate for a particular CDLT was set, it was set, except for periodic adjustments for inflation and other statutory adjustments.  Because large labs often discount their rates to Private Payors and these lower rates will show up in the AI data submission, market-based pricing may result in lower CLFS payments.  In turn, since Private Payors look at the CLFS as a starting point for negotiations with labs, the lower CLFS could result in a downward spiral on lab payments2.

Given the significance of this Proposed Rule, and the major impact on lab reimbursement, laboratories may want to consider submitting comments on the below topics or on other topics of concern.

CMS is soliciting comments on the following:

  1. Alternative definitions of “laboratory” other than the CLIA definition CMS proposes to adopt for purposes of this Proposed Rule;
  2. Whether to define an AL by a TIN rather than by an NPI;
  3. Allowing a corporate entity to report AI for all of its TINs;
  4. How to make the data reporting process efficient;
  5. Whether CMS should engage four or fewer MACs to write CDLT-related local coverage determinations and to process all CDLT claims; and
  6. For purposes of better understanding the reporting and recordkeeping aspects of the Proposed Rule:
    1. How many tests on the CLFS does the AL perform?
    2. For each test, how many different Private Payor Rates does the AL have in a given DCP?
    3. Does the AL receive more than one rate from a Private Payor in a given period?
    4. Is the information the ALs are required to report readily available in the ALs’ record systems?
    5. How much time does the AL expect it will take to gather and report AI?
    6. What kind of personnel will the AL use to report AI?
    7. What other information will clarify the potential reporting burden posed by PAMA?

Comments are due no later than 5 PM on November 24, 2015.