This is the first in a series of Alerts describing recent changes to reimbursement policies related to clinical diagnostic laboratory tests, molecular diagnostics, and pathology.
On December 10, 2013, CMS published its final rules regarding the 2014 Medicare Physician Fee Schedule (the “2014 PFS Final Rule”) and the 2014 Medicare Hospital Outpatient Prospective Payment System (the “2014 HOPPS Final Rule”), both of which go into effect on January 1, 2014. In the 2014 PFS Final Rule, CMS made a fundamental change to the Medicare Clinical Laboratory Fee Schedule (“CLFS”) by establishing a process to make annual adjustments to payment rates based on technological changes in laboratory services. CMS declined to finalize a controversial proposed cap on non-facility Practice Expense Relative Value Units (“PE RVUs”) based on hospital outpatient payment rates, however. Under the 2014 HOPPS Final Rule, CMS will now bundle most clinical laboratory services into the HOPPS Ambulatory Payment Classification (“APC”) payment rates rather than paying separately for such outpatient tests under the CLFS. Molecular pathology tests will be exempt from bundling at this time.
The 2014 PFS Final Rule
Annual CLFS Update Based on Technological Changes
In the 2014 PFS Final Rule CMS instituted a significant change to the fundamental methodology used to pay for clinical laboratory tests, which has historically been static in nature (e.g., various tests on the CLFS are currently paid at rates established in 1984). Beginning in CY 2015, CMS will adjust the prices of clinical laboratory tests (up or down) annually based on “technological changes,” which is defined broadly. In making this change, CMS cited the development of such things as point of care testing, genetic/genomic testing, and laboratory developed tests (“LDTs”), all of which involve new forms of technology, and in some cases, reduced cost of testing.
Beginning with its 2015 Medicare PFS Proposed Rule (which is released in mid-2014), CMS will annually conduct a data analysis of codes on the CLFS to determine which codes should be proposed during the rulemaking cycle for a payment adjustment due to technological changes based on such factors as length of time on the CLFS, high volume test codes, high dollar payment, or rapid spending growth, as well as clinical or technological similarity to codes identified based on these factors. CMS will also allow the public to nominate codes for pricing review but may or may not choose to review them. According to CMS, this change is likely to reduce overall reimbursement to clinical laboratories with many tests experiencing reductions in payment due to advances in technology that have reduced their costs.
No HOPPS Caps Imposed on PE RVUs at This Time
In the 2014 PFS Final Rule, CMS also declined to finalize its controversial proposal to impose a payment cap on PE RVUs in the non-facility setting that would base non-facility payments on the total Medicare payment (i.e., combined payment to the facility and the practitioner) for a service provided in the outpatient hospital or Ambulatory Surgical Center setting. Laboratories and pathologists would have been particularly negatively affected had this change been promulgated, as nearly 20% of the codes subject to the proposed cap were pathology codes (39 of the 211 CPT codes affected).
CMS stated its belief that the costs of services in the non-facility setting should never exceed those in the outpatient setting, leading it to believe that faulty data and an anomaly in the PE RVU calculation were to blame for certain existing higher non-facility PE RVU values. Stakeholders, however, emphasized the long-standing statutory requirement that PE RVUs be resource-based and the many differences in the process and rationale used to determine hospital costs as compared to physician costs, as well as the fact that the cap could result in reimbursement below cost.
CMS decided to revisit its proposal in a future rule-making. Laboratories and pathologists should continue to monitor and respond to CMS’ future proposals.
Changes to Specific CPT Codes
CMS also made changes to various specific CPT codes that are also expected to negatively affect laboratories and pathologists by limiting units of service that may be billed and/or bundling payments. These include limits on certain immunohistochemistry, cytology and prostate biopsy codes, among others.
The 2014 HOPPS Final Rule—Bundling of Laboratory Services into APCs
Under the 2014 HOPPS Final Rule, CMS will bundle payments for most laboratory tests on outpatients into the HOPPS APC payments made to hospitals for most outpatient services beginning January 1, 2014, rather than paying separately for such outpatient tests under the CLFS. Molecular pathology tests will be exempt from bundling, as will outreach tests on non-hospital patients.
CMS will bundle such laboratory tests when they are “integral, ancillary, supportive, dependent, or adjunctive to a primary service or services provided in the hospital outpatient setting,” defined as those laboratory services that are: (1) provided on the same date of service as the primary service, and (2) ordered by the same practitioner who ordered the primary service. CMS exempted molecular pathology tests based on its belief that they “have a different pattern of clinical use,” and, at this stage in their development, are not as closely tied to underlying primary services provided in the hospital outpatient setting.
This change will align outpatient payment methodology for laboratory tests more closely with payment for inpatient tests, which are currently paid under the Inpatient Prospective Payment System (IPPS). CMS also predicts that the new methodology will reduce payment to rural and major teaching hospitals which will no longer receive separate payment for common laboratory tests, but CMS did not comment on the financial impact on independent laboratories. In practice, such bundling may cause hospitals to seek the lowest-priced provider of laboratory services, rather than making decisions based on treatment needs, quality, the special features of diagnostic tests, or other non-financial factors. Pursuit of the lowest cost option thus poses potential financial risk to all laboratories, but may be especially difficult for smaller esoteric testing laboratories that generally have fewer test offerings and higher costs.