On October 1, 2015, the Centers for Medicare & Medicaid Services (CMS) published its long-awaited proposed rule to base Medicare clinical laboratory fee schedule (CLFS) reimbursement on private insurance payment amounts beginning January 1, 2017. CMS estimates that the new policy, which was mandated by the Protecting Access to Medicare Act of 2014 (PAMA), will reduce Medicare CLFS payments by $360 million in FY 2017 and by $5.14 billion over 10 years. CMS will accept comments on the proposed rule until November 24, 2015.

The proposed rule would establish both reporting and payment provisions for clinical diagnostic laboratory tests (CDLTs). Note that CMS proposes different requirements for a subset of CDLTs that CMS determines to be “advanced diagnostic laboratory tests” (ADLTs). As defined by PAMA, an ADLT is a CDLT that is offered and furnished only by a single laboratory and not sold for use by a laboratory other than the original developing laboratory (or a successor owner) and that meets one of the following criteria: (1) the test is an analysis of multiple biomarkers of deoxyribonucleic acid (DNA), ribonucleic acid (RNA), or proteins combined with a unique algorithm to yield a single patient-specific result (CMS proposes more specific standards to meet this criterion); (2) the test is cleared or approved by the Food and Drug Administration; or (3) the test meets other similar criteria established by the Secretary (CMS is not proposing additional criteria at this time). CMS proposes to require laboratories to submit evidence to support their application for ADLT status.

Reporting Requirements

With regard to reporting, the proposed rule would require “applicable laboratories” to report to CMS specified “applicable information” about payment rates paid by private payors for each CDLT and the volumes of tests furnished during a specified period. CMS proposes to define an ‘‘applicable laboratory’’ as one that receives (1) $50,000 or more in Medicare revenues from laboratory services in a data collection period, and (2) more than 50% of its Medicare revenues for the entire organization from services paid by under the CLFS and the Medicare Physician Fee Schedule. The applicable laboratory will be the Taxpayer Identification Number (TIN) level entity, which will report for all of its National Provider Identifier (NPI) level components. CMS does not expect hospital laboratories to be considered applicable laboratories, and the agency estimates that more than 50% of independent laboratories and more than 90% of physician offices will be exempt from reporting private payor data under the low expenditure criterion.

CMS proposes that applicable information to be reported would include: (1) the payment rate paid by each private payor for each CLFS test (by HCPCS code) during the data collection period; and (2) the volume of such tests for each such payor. As mandated by the statute, CMS proposes to define “private payor’’ as a health insurance issuer or a group health plan, a Medicare Advantage plan under Medicare Part C, or a Medicaid managed care organization. The payment rate reported by a laboratory must reflect all discounts, rebates, coupons, and other price concessions, and it would be inclusive of all patient cost sharing amounts. CMS proposes not to include information about tests for which payment is made on a capitated basis. The proposed rule includes detailed discussion of the concepts and terms embedded in its definition of the payment rate.

Payment Provisions

With regard to payment, subject to certain exceptions, the payment amount for a CDLT furnished on or after January 1, 2017 (other than new tests) would equal the weighted median of private payor rates determined for the test, based on the data reported by laboratories during the data collection period. CMS proposes its methodology for implementing a PAMA provision providing that the payment amount for a test cannot be reduced by more than 10% compared to the previous year’s payment for the first three years of the policy (2017-2019) and not by more than 15% for the subsequent three years (2020-2022). For new and existing tests (other than new ADLTs) for which CMS receives no applicable information to calculate a weighted median, CMS proposes that payment rates would be determined by using crosswalking or gapfilling methods.

New ADLTs would be paid at actual list charge for a minimum of three quarters. CMS proposes to define actual list charge as the publicly-available rate on the first day the new ADLT is obtainable by a patient who is covered by private insurance, or marketed to the public as a test a patient can receive, even if the test has not yet been performed on that date. After the new ADLT initial period is over, payment would be based on the weighted median methodology. CMS also discusses how it proposes to implement its authority under PAMA to recoup Medicare payment amounts during the new ADLT initial period if they exceed 130% of the Medicare payment amount determined by the weighted median methodology.

Implementation Schedule

CMS proposes the following schedule for implementation of its new reporting and payment methodology for purposes of CY 2017 payment rates:

  • First data collection period: July 1, 2015 through December 31, 2015
  • First data reporting period (for applicable laboratories to report applicable information to CMS): January 1, 2016 through March 31, 2016
  • Annual laboratory public meeting for new tests (that are not new ADLTs) for which there is no private payor data collected: mid-July 2016
  • Preliminary gapfilled/crosswalked rates for CY 2017 published: early September 2016 (with approximately 30 days for public comments)
  • Final CY 2017 CLFS fee rates available on the CMS website: November 1, 2016
  • Statutory implementation date of new CLFS: January 1, 2017.

Other Policy Issues and Comment Opportunity

The proposed rule also addresses a variety of other related policy issues, including: the schedule for reporting applicable information to CMS; certification of submitted information; civil monetary penalties for applicable laboratories that fail to report or that make a misrepresentation or omission in reporting applicable information); confidentiality and public release of limited data; temporary coding for new tests; the local coverage determination process; and the potential designation of Medicare Administrative Contractors (MACs) for laboratory tests (CMS is not proposing provisions related to the MACs at this time).