Richard D. Raskin Catherine Kim Barbara Cammarata Stephanie P. Hales November 11 2015 Proposed rule to reform Medicare reimbursement for clinical diagnostic laboratory tests Sidley Austin LLP | Healthcare & Life Sciences - USA Richard D. Raskin, Catherine Kim, Barbara Cammarata, Stephanie P. Hales Healthcare & Life Sciences IntroductionProposed scopeData collection and payment changesDifferent requirements for ADLTsPenaltiesIntroductionOn October 1 2015 the Centres for Medicare and Medicaid Services (CMS) published a proposed rule in the Federal Register to implement provisions of the Protecting Access to Medicare Act 2014 that require major changes in the reimbursement methodology for clinical laboratory tests. As part of these payment reforms, applicable clinical laboratories will be required to report private payer reimbursement rates and volume data for laboratory tests.The proposed rule sets the stage for the Protecting Access to Medicare Act's significant changes to Medicare's clinical laboratory reimbursement methodology and addresses key issues, including:which laboratories will be required to report private payer data;the timeline for data reports and subsequent changes to reimbursement rates; anddiffering requirements that the CMS proposes to apply for advanced diagnostic laboratory tests (ADLTs).It also addresses the penalties that may apply to laboratories that fail to comply with the requirements imposed under the Protecting Access to Medicare Act and implementing regulations.Proposed scopeThe Protecting Access to Medicare Act requires each applicable laboratory to report private payer payment rates and volume for each test on the clinical laboratory fee schedule (CLFS) that the laboratory performs. Under the proposed rule, laboratories that receive at least $50,000 in Medicare revenue from laboratory services and more than 50% of their Medicare revenue from services paid under the Medicare CLFS and physician fee schedule (PFS) will be considered applicable laboratories, subject to Protecting Access to Medicare Act reporting requirements.Regarding entities composed of multiple facilities, the CMS proposes that an organisation will be an applicable laboratory as long as more than 50% of the total Medicare revenue of the entire organisation is received from payments under the Medicare CLFS and PFS.The CMS estimates that those physicians and laboratories that would be required to report under the proposed rule would account for 96% of CLFS spending on physician office laboratories and more than 99% of CLFS spending on independent laboratories.Data collection and payment changesSubject to certain limited exceptions, the Protecting Access to Medicare Act requires the Medicare reimbursement amount for tests on the CLFS furnished on or after January 1 2017 to be equal to the weighted median of private payer rates for the specific test, based on data collected and reported by applicable laboratories. Under the proposed rule, laboratories will be required to collect private payer data from July 1 2015 to December 31 2015, and to report such information to the CMS by March 31 2016. The proposed rule states that the CMS "believe[s] it is reasonable to limit the time period of the first data collection period to 6 months" rather than a full year, but proposes that subsequent data collection periods will cover a full calendar year.The CMS proposes to publish the final CLFS rates based on private payer data collected in the first reporting period by November 1 2016, to be effective January 1 2017. The next data collection period will take place from January 1 2018 to December 31 2018, and applicable laboratories will be required to report the 2018 data by March 31 2019. Such data will then be used for CLFS payment rates in calendar years 2020 to 2022 and the same process will recur every three years.Different requirements for ADLTsADLTs are subject to different reporting and payment requirements. An ADLT is a laboratory test covered under Medicare Part B that:is offered and furnished by a single laboratory;is not sold for use by a laboratory other than the original developing laboratory (or a successor owner); andmeets one of the following criteria: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;the test is cleared or approved by the Food and Drug Administration (FDA); orthe test meets other similar criteria established by the secretary of health and human services.The CMS proposes additional requirements for tests qualifying as ADLTs under the first criterion and also provides its interpretation of what it means for a test to be 'cleared or approved' by the FDA.Regarding payment of ADLTs, the CMS proposes that initial payment of new ADLTs be based on the actual list charge of the test for three calendar quarters, referred to as the 'new ADLT initial period'. Accordingly, the CMS proposes to codify the requirement that applicable laboratories report the necessary information for new ADLTs no later than the end of the second calendar quarter of the new ADLT initial period. The CMS also proposes a definition of the term 'actual list charge' for purposes of ADLT reimbursement.Following the new ADLT initial period, the CMS proposes that payment for new ADLTs be based on the weighted median private payer rate reported by the single laboratory that performs the new ADLT.PenaltiesUnder the Protecting Access to Medicare Act, applicable laboratories may be subject to civil monetary penalties of up to $10,000 per day for each failure to report or each misrepresentation or omission in reporting private payer prices for laboratory tests.The proposed rule is available on the Federal Register website. The deadline for submitting comments is November 24 2015.For further information on this topic please contact Richard D Raskin or Catherine Kim at Sidley Austin LLP's Chicago office by telephone (+1 312 853 7000) or email ([email protected] or [email protected]). Alternatively, contact Barbara Cammarata or Stephanie P Hales at Sidley Austin LLP's Washington DC office by telephone (+1 202 736 8000) or email ([email protected] or [email protected]). The Sidley Austin website can be accessed at www.sidley.com.