PAMA One Year Later

By Jim Poggi

PAMA: One year later: Do you feel lucky?

Not since CLIA ’88 has a single piece of legislation stirred so much controversy and anxiety in the healthcare and lab communities as PAMA. Under PAMA, the Centers for Medicare and Medicaid Services (CMS) was under congressional mandate to align Medicare lab test reimbursement with private pay, which was acknowledged to be about 20 percent lower overall. As a result, in 2018, year one of PAMA, 996 CPT codes (about 88 percent of all the lab CPT codes) experienced a reduction to meet this mandate.

Reductions to most CPT codes are expected in each of the first three years of implementation of PAMA and are capped at 10 percent annually. 2019 is year two, and nearly 1,000 CPT codes are expected to be reduced by up to 10 percent again. Reimbursement data is being collected by labs in 2019 and the next changes to CLFS rates based on these findings is expected to take place in 2021.

How did we get here?
Overall, Medicare costs have been rising faster than expected, and the ballooning cost of Medicare is a substantial element to the overall federal budget. As such, it has created concern in government and healthcare circles alike for some time. An Office of the Inspector General Report published in 2017 described the scope of the lab test cost problem as Congress saw it: in 2016, Medicare spent $6.8 billion on lab tests under Medicare Part B (outpatient services) and Medicare lab payment rates were known to exceed private payment rates. This analysis underscored the objective to align Medicare lab payment rates with private insurance rates. The first-year goal of PAMA was to lower Medicare CLFS payments by about $100 million. CMS later estimated 2018 reductions at $390 million and industry estimates come in at about twice that figure. Since the OIG estimates Medicare lab spending at only 2 percent of the Medicare/Medicaid healthcare budget, one cannot help but wonder if CMS is squeezing the wrong end of the balloon to lower the costs of Medicare while assuring access to healthcare under Medicare.

Where are we now?
In addition to reductions in CLFS payment rates, PAMA made other changes. PAMA created one national fee schedule to replace the prior 57 local carrier fee schedules. It also eliminated the discounts applied to tests frequently ordered together in panels (Automated Test Panel reimbursement schedule), such as Comprehensive and Basic Metabolic panels. The panels continue to exist and be paid at “panel” rate, but the tests within the panels are no longer discounted if ordered separately. The Sustainable Growth Rate formula, while never actually implemented, was eliminated from Medicare regulations also. Overall, PAMA has created the most fundamental changes to CLFS reimbursement under Medicare since 1984.

Reaction in the market regarding PAMA has been predictably mixed. The lab and healthcare communities are united in arguing that PAMA cuts too deep, may reduce access to lab tests especially in rural areas and did not equitably align new payment rates because only a fraction of labs performing Medicare tests submitted private payer data. Only 5 percent of POLs and 44 percent of the independent reference labs’ data is represented by the median private insurance lab rates used to set the current CLFS rates.

On the other hand, in reporting on comments it received and changes planned for 2019, CMS in its November 23, 2018 final and interim rule publication in the Federal register defended its data collection methodology, with the exception of agreeing to add lab tests provided under Medicare Part C (Medicare Advantage Plans) and broadening the range of hospital outreach laboratories eligible to report data to the calculation base for the 2019 data collection period. CMS indicated that they would “consider” lowering the CLFS revenue for a lab to be eligible to report data from the current level of $12,500 to $6,250, but did not commit to do so. From a purely statistical viewpoint, it is unlikely the addition of the new data will materially impact the median CLFS reimbursement level going forward.

A General Accounting Office publication in November 2018 called for the most sweeping changes to data collection and the methodology of setting future CLFS rates. Arguably, its recommendations are even more aggressive in cutting CLFS reimbursement than the current structure. The GAO’s summary observation is that rather than lowering the costs to Medicare due to PAMA’s new CLFS rates, CMS may experience significantly higher costs due to two factors. First, the new PAMA rates were set against the prior maximum Medicare payment rates per CPT rather than actual Medicare payment rates. Second, they argue that eliminating the bundled payment rate for test panels could lead to widespread implementation of these tests in unbundled fashion, which could cost Medicare “as much as $10.3 billion from 2018 to 2020”.

Their recommendations involve requiring CMS to make data collection more complete (add data from more laboratories), re-set CLFS payment rates and rate reductions based on actual Medicare payment rates, and finally to re-establish the bundled test panel reimbursement system. Given that current estimates of cost reduction to Medicare under CLFS significantly exceed initial estimates, the GAO recommendations are at substantial conflict with the healthcare and laboratory community viewpoint and the initial extent of PAMA cost reductions. Only an analysis of actual costs under the first year of PAMA will lead to the clarity needed to understand just how deep the PAMA cuts impacted the Medicare CLFS budget.

The impact of these cuts on the large number of labs that care givers and patients count on to provide needed services is also unclear at this point. Will PAMA cut Medicare costs without impacting healthcare delivery and access to lab tests for Medicare beneficiaries? Will the cuts substantially exceed initial estimates and objectives? Will PAMA lead to widespread use of “unbundled” tests and increase costs to the system? Will it unbalance competition among laboratories and favor only the largest, most high scale labs?
All eyes in the lab community are on these questions. Uncertainty and anxiety will continue until we have the data needed to truly understand the impact of PAMA. To (mis)quote a line from a famous 1971 movie: “Do you feel lucky? Well, do you?”