Abstract
It's not an exaggeration to say the new Protecting Access to Medicare Act (PAMA) marks the biggest change for clinical labs since the Clinical Laboratory Improvement Amendments of 1988 (CLIA).
Harder to assess is whether the reality of implementing PAMA will match the most pessimistic predictions that the new law will drive smaller labs and healthcare providers out of business.
Congress focused on forestalling imminent cuts to Medicare reimbursements when it passed HR 4302, signed April 1 by President Barack Obama. PAMA postpones until March 31, 2015, cuts estimated at 24% to the Sustainable Growth Rate (SGR) formula, which was to run out in March.
But PAMA gives labs and providers much more cause for concern, with new rules for phasing in reimbursement cuts, and new procedures to set rates. The new law will also force labs and providers to implement new test coding systems that will add potentially thousands of new codes.
“There will be some winners and losers, but I think overall it's probably good, because it takes a lot of arbitrariness out of the old system,” Charles Root, Ph.D., CEO of the healthcare consultancy CodeMap, told Clinical OMICs.
PAMA imposes fines of $10,000 per day for each failure to report or each reporting “misrepresentation or omission,” and requires company officers to certify the “accuracy and completeness” of filings.
The American Association for Clinical Chemistry (AACC) agrees that parts of PAMA will benefit labs. AACC cites the law's increased transparency in coding, elimination of the Centers for Medicare & Medicaid Services (CMS)' reimbursement-cutting power, and phased-in reimbursements reductions smaller than threatened.
Concern Over Cuts
AACC worries about PAMA's impact on smaller labs, which are less likely to be able to absorb increased fees, and on hospital labs, which may struggle to provide required cost data, while facing lower fees without the economies of scale needed to cut costs.
“We believe that Congress and CMS should assess the overall impact of some of these provisions on hospitals and small laboratories before implementing them,” James H. Nichols, Ph.D., medical director of clinical chemistry at Vanderbilt University Medical Center and chair of AACC's Government and Regulatory Affairs Committee, told Clinical OMICs. “These facilities have higher per test costs, because of the roles they play in their communities. Yet they will be asked to accept the lowest fees that the government can pay.
“These payment reductions may force some labs out of business and others to scale back their services, particularly in underserved areas,” Dr. Nichols added.
Effective January 1, 2016, labs that receive most of their Medicare reimbursement through the Clinical Laboratory Fee Schedule (CLFS) or Physician Fee Schedule (PFS)—most clinical labs—must report every payment from private payors, and the volume of payments per price point, per test.
Based on that data, CMS will calculate a “weighted median” payment amount per test, as a market price set to take effect in 2017. The process will be repeated every three years for most tests—but annually for a new category, “advanced diagnostic laboratory test” offered and furnished only by a single lab and not sold for use by that lab. Advanced tests will be paid at “list price” for three quarters, then on market prices—though CMS can recoup payments that are more than 130% of market price.
CMS is supposed to finalize rules for the reporting provisions June 30, 2015.
For existing tests conducted before 2017, current CPI, productivity, and even last year's sequestration will apply to CLFS. Thus, reimbursement is expected to continue dipping 1%–3% a year until market-based payments take effect January 1, 2017.
Until then, CMS will set rates for new tests based on two current methods. In “gapfilling,” local Medicare Administrative Contractors set first-year fee schedule amounts, the median of which becomes CMS' national rate. “Crosswalking” involves benchmarking payments for new codes to the same rate for comparable, existing test(s) or code(s).
PAMA requires creation of an advisory panel by July 1, 2015, to make recommendations to CMS for gapfilling or crosswalking of new tests, as well as establishment of payment rates and factors determining coverage and payment.
Danielle M. Sloane, a member of the law firm Bass Berry & Sims, noted that while Medicare rates will decrease, most lab income is from government or commercial payors. Labs will have a limited ability to increase test prices unless they can negotiate higher prices with larger commercial labs.
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“The ability to negotiate with commercial payors depends on bargaining power,” Sloane told Clinical OMICs. “Labs will all likely look at numerous ways that they can streamline and improve efficiency. Unfortunately, one negative may be a reduction in smaller innovative labs given the costs with developing new technology— which arguably could improve care and reduce costs by allowing for faster diagnosis and treatment decisions.”
On the Chopping Block
Professionals agree that CLFS, created in 1984, was overdue for an overhaul. It's one of the few Medicare fee schedules not regularly adjusted for inflation (many past attempts were deferred to show budget savings), and not adjusted at all for increased or decreased costs or efficiencies.
Congress also sought CLFS change, since Medicare was paying more for lab tests than Medicaid or Federal Employee Health Benefit (FEHB) plans. A 2013 report by the U.S. Office of Inspector General found Medicare could save more than $900 million by reducing its reimbursement rates to FEHB levels. Late last year CMS began writing new regulations it warned would cut reimbursement rates starting in 2015 following a review of CLFS for “technological changes” to tests.
“Lab fees were already on the chopping block. One way or another, in order to pay for the SGR fix, laboratory representatives had been told (reimbursement to) labs were going to be cut one way or the other,” Peter M. Kazon, senior counsel at the law firm Alston & Bird, said during a May 7 webinar on PAMA conducted by AACC.
Compared to the CMS scenario, Kazon said, PAMA offers labs many advantages: It eliminates CMS' technological-change authority. It delays reimbursement cuts until 2017, then phases them in over five years, taking full effect in 2023. Those reductions reduce the likelihood of additional lab reimbursement cuts, he added.
PAMA delays for one year the rule forcing labs, providers and payers to implement code sets for inpatient procedures based on the International Classification of Diseases, 10th Edition, Clinical Modification/Procedure Coding System (ICD-10).
Yet compliance will still prove challenging. ICD-10 has more than 140,000 diagnosis codes, each between three and seven alphanumeric digits. New code sets cannot be adopted before October 1, 2015. By January 1, 2016, PAMA requires CMS to assign a unique Healthcare Common Procedure Coding System (HCPCS) code for each advanced diagnostic test, and each existing lab test cleared or approved by the FDA and paid under CLFS or PFS as of PAMA's enactment.
“There's going to be a constant influx of codes. It's not like [the American Medical Association's Current Procedural Terminology] CPT® codes, where you have to justify the codes used and fight for it before you get it. Here, it's just going to be created. In other words, you ask for it, you get it,” Dr. Root said. “There's not enough room for very many more codes.”
A whole new coding system is not needed, Dr. Root said, adding: “On the other hand, what they will need is some way of keeping track of these codes in a user-friendly manner.”