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New Market-Based Payment Systems for Clinical Lab Tests Delayed

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at June 23, 2016

The website GenomeWeb is reporting that the Centers for Medicare & Medicaid Services (CMS) has decided to extend the timeline for implementing a new market-based payment system for clinical lab tests by another year.

The Protecting Access to Medicare Act of 2014 — requiring that Medicare payment for a clinical lab test equals the weighted median of private payor rates — was slated to go into effect Jan. 1, 2017. But in issuing its final rule on PAMA last week, CMS said the private payor rate-based fee schedule would be implemented on Jan. 1, 2018.

As the original deadline was approaching, large reference labs such as Quest Diagnostics and Laboratory Corporation of America, industry groups the American Clinical Laboratory Association, the American Hospital Association, the American Medical Association, as well as members of Congress expressed concerns over aspects of CMS’ proposed plan, and criticized the agency for failing to meet pre-implementation deadlines and for not providing labs sufficient time to meet new requirements.

Currently, CMS pays for lab tests “furnished” in a physician’s office, by an independent lab, or in some limited cases in a hospital lab under the clinical lab fee schedule (CLFS). The tests are paid the lesser of the billed amount, the local payment rate established by a Medicare contractor, or the national limitation amount that represents a percentage of the median of all the Medicare contractor prices.

For new CLFS tests that may be described by existing CPT codes, pricing is “crosswalked” to the payment amount for that original code. When tests cannot be described by existing codes, pricing is established by “gapfilling,” where Medicare contractors establish local payment after factoring in various charges and resources needed to perform testing, and after a year CMS establishes the national limitation amount based on the median of contractors’ rates. Private payors typically take CMS’ lead in setting pricing for lab tests.

Once implemented, however, PAMA will flip the system to one where Medicare pricing is based on private-payor rates. Although for new and existing tests that don’t have the necessary information to calculate a weighted median or private-payor rates, the gapfill and crosswalking methods will still apply.

One of the most controversial aspects in CMS’ proposed rule was its definition of “applicable labs,” which are the labs that will report private payor rates and the volumes for each test over a period of time. Based on this information, CMS will calculate a weighted median payment amount for each test.

AdvaMedDx noted that CMS’ definition of applicable laboratories will now include hospital outreach labs with a separate NPI. “We are encouraged by this change and hope that it will provide for more accurate rates based on the full spectrum of laboratory providers,” Moebius said in a statement.

Hospital outreach labs test patients who aren’t admitted as inpatients or registered as outpatients, and according to CMS these types of entities are distinguishable from hospital laboratories because they are “enrolled in Medicare separately from the hospital of which they are a part” and may be treated as independent labs.

CMS’ final rule also included critical clarifications with regard to so-called advanced diagnostic laboratory tests (ADLTs). Within PAMA, ADLTs are a new category of tests that use a unique algorithm to asses a panel of DNA, RNA, or protein markers, or a US Food and Drug Administration-approved or -cleared test. In practical terms, ADLTs refer to tests, such as Genomic Health’s Oncotype DX, which are developed and performed at a single lab.

In a regulatory impact analysis, the agency said the final rule was “economically significant,” since it could have an annual effect on the economy of $100 million or more. The agency noted that its final rule stands to significantly impact many small businesses, estimating that more than 90 percent of medical labs are small businesses with yearly revenues of less than $32.5 million.

One of the main reasons CMS is requiring that TIN-level entities report pricing, and NIP-level entities will be applicable labs, is to reduce the number of entities that have to report pricing, and make it less burdensome for independent, physician office, and hospital outreach labs to report pricing. The rule will not have a big impact on rural hospital labs, CMS added, unless they own independent labs and are largely paid under CLFS.

CMS pays $7 billion a year for around 1,300 clinical lab tests under the CLFS. The agency calculated that the new market-based payment system would reduce Medicare Part B payments for CLFS tests by $390 million in fiscal year 2018, and by $1.71 billion and $3.93 billion over five and 10 years, respectively.

“The establishment of a market-based system for determining Medicare reimbursement for laboratory services was clearly preferable to the alternative — unlimited cuts to payment rates by CMS through its technological changes authority, as well as across the board reductions to the CLFS by Congress,” ACLA President Alan Mertz said in a statement. “ACLA’s next step is to evaluate completely this final rule and consult with our membership.”

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