On July 5, 2011, CMS issued a notice of the Treatment of Certain Complex Diagnostic Laboratory Tests Demonstration (Demonstration) mandated by PPACA. The Demonstration is directed at hospital-based and independent labs that perform "complex diagnostic" tests, such as gene protein expression, topographic genotyping or cancer chemotherapy sensitivity assay, for which there has been determined not to be an alternative test having equivalent performance characteristics. The Demonstration is for a two-year period, beginning on January 1, 2012, subject to the $100 million limit, and will allow direct payment to a lab for these complex diagnostic tests. CMS expects no more than nine entities to be eligible to meet the criteria.

Under current practice, any lab tests ordered within 14 days of a patient’s discharge from a hospital are considered part of the bundled Medicare payment as part of that associated hospital stay and are paid only to the hospital where the patient was admitted. The hospital must bill Medicare for the lab test, and the hospital then pays the lab if the test was furnished under arrangement. Under the Demonstration, the lab may bill Medicare directly for complex lab tests ordered within 14 days of discharge.

Labs choosing to bill Medicare directly under the Demonstration also must obtain temporary codes assigned by CMS for the complex diagnostic lab tests. CMS requires that information about utilization, the lab’s CLIA certificate number, current codes used and costs be submitted to CMS by August 1, 2011, for labs wishing to participate in the Demonstration. The Demonstration is intended to test the impact of direct lab payments on Medicare costs and the quality of the complex tests.