CMS Releases Proposed Plan to Overhaul Medicare Laboratory Payment

September 30, 2015

McDermott+Consulting

The long-awaited proposed rule offers some insights into how CMS will implement the reforms of the Protecting Access to Medicare Act of 2014, but leaves many key questions unanswered. Laboratories and other stakeholders should review the proposed rule and consider submitting comments to CMS by November 24, 2015.

On September 25, 2015, the Centers for Medicare and Medicaid Services (CMS) released a long-awaited and much-delayed proposed rule to implement Section 216 of the Protecting Access to Medicare Act of 2014 (PAMA), legislation that requires the agency to substantially overhaul how and how much Medicare pays for clinical laboratory services.

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On April 1, 2014, Congress enacted the Protecting Access to Medicare Act of 2014 (PAMA), legislation that overhauled the statutory framework and instructions that guided Medicare coverage and payment for clinical laboratory services for more than three decades. Generally, PAMA replaced the historical processes of “cross-walking” and “gap-filling” to determine Medicare payment amounts for lab services in favor of a market-based and driven payment system that will peg Medicare payments to payments made by private payers for lab services.

As in most legislation, Congress provided a broad framework, but left it to the regulatory agency to fill in specific details. CMS was required by statute to complete this rulemaking, including issuing a final rule, by June 30, 2015, but is just now issuing a proposed rule, well behind schedule. The laboratory community and other affected stakeholders therefore have been anxiously awaiting the release of this proposed rulemaking to see how CMS interprets and intends to implement the various reporting, rate-setting and other requirements established by PAMA. The proposed rule provides considerably more details about the agency’s plans, but also defers on a wide variety of important details until future rulemaking.

CMS states in the rule that it intends to implement new payment rates derived from market prices by the statutory implementation date of January 1, 2017, and begin requiring affected laboratories to report that market information by January 1, 2016. Both dates, however, are called into question by the agency’s tardiness in issuing this rulemaking, as well as by the many concerns about the draft already being voiced by the affected community.

Reporting

“Applicable Laboratory”: Laboratories Subject to the Reporting Requirement

Under PAMA, “applicable laboratories” must report payment rates to CMS for diagnostic laboratory tests beginning in 2016. How CMS would define the term “applicable laboratories” and which laboratories would be required to report payment rate data pursuant to this requirement has been the focus of much speculation, concern and lobbying.

CMS opted to apply the reporting obligation to entities that derive more than 50 percent of their Medicare revenues from payments under Medicare’s Clinical Laboratory Fee Schedule (CLFS) or Physician Fee Schedule (PFS) during a defined collection period, but that also realize at least $50,000 in Medicare revenues for CLFS services in that same period. CMS proposes to use a full 12-month reporting period once fully implemented, but to use only a six-month collection period (July 1, 2015, through December 31, 2015) during the first year of implementation. Consistent with this truncated collection period, CMS proposes to prorate the minimum Medicare revenue threshold such that laboratories with less than $25,000 in Medicare revenues for CLFS services in this six-month period would be excluded.

Using these parameters, CMS expects that only independent laboratories and a small number of physician offices will be considered “applicable laboratories” and required to report, and that hospital based laboratories will not be included. CMS proposes that entities that fall outside of these parameters would not only be exempt, but in fact would be barred from reporting. Consequently, the $50,000 minimum annual Medicare revenue threshold may block some start-up laboratories without significant Medicare revenue from reporting and having a Medicare payment amount determined using exclusively private payer rate data.

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