Hospital labs won't dodge cuts in new CMS proposed rule, but also won't contribute pricing data

Editor's Note: This story has been updated. The original report said that hospital laboratories would be excluded from the payment cuts under the Protecting Access to Medicare Act. Many will not report payment data used to make payment changes, but they will still be subject to potential cuts. This updated version also includes comments from Alan Mertz, president of the American Clinical Laboratory Association.

Hospital laboratories won't be immune from payment cuts under a proposed rule that aims to create more parity in the reimbursements medical laboratories receive from the Medicare program compared to private payers. However, they will be mostly excluded from participating in the reporting process.

The Centers for Medicare & Medicaid Services' (CMS) proposed rule, which will officially be posted in the Federal Register later this week, is part of the Protecting Access to Medicare Act (PAMA). The rule intends to bring Medicare payments to laboratories on par with reimbursement levels in the private sector.

A 2013 report by the U.S. Department of Health and Human Services' Office of Inspector General (OIG) concluded that Medicare was overpaying between 18 percent and 30 percent for lab tests compared to the private sector, costing the program as much as $910 million per year. Spending on clinical laboratory services also rose 29 percent between 2005 and 2010, leading the OIG to conclude that at least 1,000 labs nationwide were engaging in dubious billing practices.

Under the proposed rule, any laboratory that receives $50,000 or more in revenue from Medicare for laboratory services or 50 percent or more of their revenues from laboratory and physician services must report private payer data and volume from July 1, 2015 through the end of this year. CMS would then use the data to adjust its payment rates by November 2016 for implementation at the start of 2017.

The Office of Management and Budget has concluded that the new rule would save the Medicare program as much as $360 million for fiscal 2017 and as much as $5 billion over the next decade.

Payers have been particularly aggressive with laboratories in ratcheting down payments in recent years. In Indiana earlier this year, Anthem was able to persuade more than 60 labs to cut their negotiated fees for blood and tissue testing between 50 and 80 percent.

The proposed rule excludes hospital labs from reporting their payer data if they perform tests on inpatients or registered outpatients because they are paid under the Inpatient Prospective Payment System or Hospital Outpatient Prospective Payment System, respectively, rather than the Clinical Laboratory Fee Schedule. 

Alan Mertz, president of the American Clinical Laboratory Association, told FierceHealthFinance Tuesday that the exclusion of hospital laboratory reporting from the process could impact any payment cuts because hospital labs tend to get paid more than independent labs by Medicare for such work.

"We are concerned that the pricing won't reflect the true marketplace" as a result of excluding hospital laboratories, Mertz said. He added that only hospitals that have laboratories with separate taxpayer identification numbers would be able to report their payer data, but there are few such labs in operation.

CMS will accept comments on the proposed rule until mid-November and will likely publish a final rule sometime in early 2016.

To learn more:
- read the proposed CMS rule (.pdf)