Why Labs Have a Lot to Lose Under CMS’ Clinical Laboratory Fee Schedule

laboratory feesBig changes are coming that will impact how Medicare will pay for clinical diagnostic laboratory tests (CDLTs). The changes, according to some in the industry, could result in a significant financial hit for labs across the country because they will result in substantial fee cuts.

The changes, which take effect Jan. 1, 2018, were mandated by the Protecting Access to Medicare Act of 2014 (PAMA), and require that the Medicare payment rate for most CDLTs equal the weighted median of private payor rates for the test.

The Clinical Laboratory Fee Schedule (CLFS) final rule: “Medicare Program: Medicare Clinical Diagnostic Laboratory Tests Payment System” was published in the Federal Register on June 23, 2016.  It implements section 216 of PAMA.

The CLFS provides payment for approximately 1,300 CDLTs, and Medicare pays approximately $7 billion per year for these tests.

Under the final rule, laboratories, including physician office laboratories, are required to report private payor rate and volume data if they:

  • Have more than $12,500 in Medicare revenues from laboratory services on the CLFS
  • They receive more than 50 percent of their Medicare revenues from laboratory and physician services during a data collection period.

The final rule also reflects a PAMA provision preventing test payment amounts from being reduced by more than 10 percent compared to the previous year’s payment for the first three years of the policy and by more than 15 percent for the next three years.

Laboratories collected private payor data from Jan. 1, 2016 through June 30, 2016 and are required to report it to CMS by March 31, 2017. CMS will post the new Medicare CLFS rates (based on weighted median private payor rates) in November of this year that will be effective on Jan. 1, 2018.

It’s important to note that the statute provides for civil monetary penalties of up to $10,000 per day, adjusted for inflation, for each failure to report and/or each misrepresentation or omission in reporting private payor prices with respect to a CDLT.

While CDLTs must only be reported every three years, advanced diagnostic lab tests (ADLT) must be reported annually.

Tests that meet the criteria for being considered new advanced tests will be paid at actual list charge during an initial period of three calendar quarters. Once the initial period is over, payment for new, advanced tests would be based on the weighted median private payor rate reported by the single laboratory that performs the new ADLT, according to CMS.

CMS estimates that the new rule will result in a reduction of approximately $390 million, or 5.6 percent, in Medicare spending on clinical laboratory tests in federal fiscal year 2018 and $2.93 billion over 10 years. This will have a significant financial impact on all lab entities paid under the CLFS for laboratory services performed on or after Jan. 1, 2018.