Clinical Laboratories: Proposed Rule Implements Requirements for Reporting and Payment Based on Private Payer Rates

As required by a 2014 statute, CMS has issued proposed regulations (Proposed Rule) implementing new requirements for laboratory reporting of, and eventually basing Medicare payment on, rates for clinical laboratory services paid by private payers. When finalized, the rules will appear in 42 C.F.R. Part 414, primarily in Subpart G. Comments on the Proposed Rule are due on November 24.

The first data collection period for applicable labs is proposed as July 1, 2015 through December 31, 2015, making first reports due no later than March 31, 2016. Medicare payments based on the new data and methodology will commence in January 2017. Different provisions will apply for advanced diagnostic laboratory tests (defined below), based on CMS’ view of the statute as intending to award special payment status to the one laboratory that is expending the resources for all aspects of the test–developing it, marketing it to the public, performing it, and selling it.

In addition to the Proposed Rule itself, CMS also issued a summary Fact Sheet. As summarized there:

In general, starting in 2017, the payment amount for a test on the CFLS [clinical laboratory fee schedule] will be equal to the weighted median of private payor rates determined for the test, based on data collected by applicable laboratories during a specified data collection period and reported to CMS during a specified data reporting period. In addition, a subset of tests on the CFLS, advanced diagnostic laboratory tests (ADLTs) will have different data collection, reporting and payment policies associated with them.

The Proposed Rule includes several proposed definitions of interest, including the following:

• Advanced diagnostic laboratory test will be a Medicare Part B (Part B) covered test that is marketed and performed only by a single laboratory and not sold for use by a laboratory other than the laboratory that designed the test or a successor owner meeting certain criteria, and must be a test which is approved or cleared by the U.S. Food and Drug Administration, and falling within certain categories such as a molecular pathology analysis of multiple biomarkers;
• Applicable laboratory will be determined based on Tax Identification Number, rather than National Provider Identifiers; and
• Private payer means a health insurance issuer, a group health plan, a Medicare Advantage plan, or a Medicaid managed care plan.

A failure to report, or a misrepresentation or omission in reporting, may result in a civil monetary penalty of up to $10,000 per day for each failure to report or each misrepresentation or omission.

The Protecting Access to Medicare Act of 2014 (PAMA) also requires that the U.S. Department of Health and Human Services Office of Inspector General (OIG) monitor payments for lab tests and the implementation of the new payment system. In accordance with those requirements, OIG issued a Data Brief entitled, “Medicare Payments for Clinical Laboratory Tests in 2014: Baseline Data.” As noted in the Data Brief, the implementation of PAMA will reduce the number of fee schedules from the current 57 regional fee schedules to a single national fee schedule beginning in 2017. As part of its statutory obligations, OIG will publicly release an annual analysis of the top 25 laboratory tests based on Medicare payments, and for this year has released baseline data for those top 25 tests. Two of the top 25 tests (Current Procedural Terminology codes 81226 and 81225) were molecular pathology tests, which were the most expensive on a per-test basis, albeit less frequently billed. In terms of where laboratory services are provided, OIG determined that approximately 57% of lab testing paid under Part B occurred in independent labs; 24% occurred in hospital-based laboratories; and the remaining 19% occurred in physician-based laboratories. OIG also notes the estimate from the Congressional Budget Office that PAMA will save the government $2.5 billion over ten years.

Originally, this article was an alert sent to the American Health Lawyers Association’s (AHLA) Regulation, Accreditation and Payment; Hospitals and Health Systems; Life Sciences and Physician Organizations Practice Group Members. For more information, visit AHLA’s website.