Providers and suppliers may be restless about reimbursement cuts for lab tests as a result of the Protecting Access to Medicare Act, or PAMA. But six months after PAMA rates went into effect, it’s still unclear how big an impact the legislation will have on physician practices’ bottom lines, and to what extent the new reimbursement rates may change the way they conduct point-of-care testing.
What is clear is that Repertoire readers will be called on to emphasize the overall value of the tests they sell. Not only does that refer to reimbursement and profitability, but patient satisfaction and convenience, outcomes, and reduced costs to the healthcare system and the patient.
So what else is new?
“We have heard from our members that payment reductions are impacting their physician office labs,” says Mollie Gelburd, associate director, government affairs for the Medical Group Management Association. “At this point, the cuts are not at the point where labs are closing their doors. But they are threatening access to point-of-care testing, modifying clinical workflows, and delaying equipment upgrades.”
Gelburd shared the following quote from an MGMA member: “The cuts to reimbursement this year have kept us from upgrading some of our equipment. We had several equipment contracts that ended late last year, which has helped to offset the drop in reimbursement. We now own four of our instruments and are leasing three.
“We usually upgrade or replace an analyzer very close to the time when the contract ends, because as they age, they become more subject to mechanical issues,” said the MGMA member. “We have elected to keep the instrumentation we have at this time. However, on a go-forth basis, this is simply a stopgap measure. We will not be able to go back into an instrument agreement any time soon based on continued reimbursement cuts. We are also working on renegotiating our leases, but not sure how successful we will be. These are essentially one-time solutions and are not sustainable as a permanent offset to the cuts.”
Reductions just starting for some
“AMA is still working to ascertain the impact of the new, lower reimbursement rates on physicians,” a representative from the American Medical Association told Repertoire. “Due to differences in billing practices, some members have just started to see the reductions to reimbursements over the last couple of months. Because the PAMA reductions were capped at 10 percent this year, we are not anticipating a major disruption this first year, and are mostly hearing about confusion from members over the new rates.
“We have not yet heard that physicians are discontinuing services at this time. However, as the full reductions are phased in over the next three years, we anticipate a much larger disruption to physician practices. Physicians offering these testing services do so on very thin financial margins; reductions of over 30 percent for these tests will likely make these tests cost more than the reimbursement, at which time we anticipate practices will discontinue these services. If that happens, patients will be forced to seek additional appointments to receive these testing services at other locations.”
Jim Poggi of Tested Insights LLC says, “I have not seen a drop in lab test orders in primary care yet, but I do expect it. I presume that the tests like PT/INR and some waived chemistries may encounter challenges with the lower reimbursement due to their costs and reimbursement being pretty close together even before PAMA.
“CMP and BMP should hold up pretty well since they are so important to initiating and/or modifying a patient treatment program,” says Poggi, former director of lab business development for McKesson Medical-Surgical. “I believe the same holds true of CBC, especially with the emphasis on infection prevention and antibiotic stewardship.”
Questions raised early on
Medicare pays approximately $7 billion a year to Medicare-enrolled laboratories for more than 1,300 types of clinical laboratory tests on the Clinical Laboratory Fee Schedule, according to the Centers for Medicare and Medicaid Services. Medicare’s fee schedule rates had remained relatively unchanged since 1984, apart from setting payments for new tests or implementing across-the-board statutory payment updates, says the agency. The Protecting Access to Medicare Act of 2014 was an attempt to lower those costs to Medicare by making the agency’s reimbursement for tests more closely match those of private payers.
For the first three years after implementation, the statute limits any reduction to 10 percent per year; then to 15 percent per year for the following three years. (Payment rates under the revised CLFS will be updated to reflect market rates paid by private payers every three years for most tests, according to CMS.)
From the beginning, provider and supplier groups questioned the method by which CMS gathered data with which to set the new rates.
PAMA called for a sample of labs to report the amounts paid by private insurers for tests. Medicare then used those private insurer rates to calculate Medicare payment rates for tests paid under the CLFS beginning Jan. 1, 2018.
The agency relied on data gathered by a representative sample of so-called applicable labs, referring to those that receive at least $12,500 in Medicare revenues from laboratory services paid under the CLFS, and more than 50 percent of their Medicare revenues from laboratory and/or physician services. They were required to report lab-related revenues from private payers for the period between Jan. 1 and June 30, 2016. (Originally, they were to have completed their reporting by March 31, 2017, but CMS extended it to May 30, 2017.)
“There was a lot of confusion over who had to report data,” says Gelburd. The regulation required reporting labs to have their own National Provider Identifier, or NPI, she explains. But that excluded many physician office labs, because few have their own NPI; rather, they operate under the physician practice’s NPI.
What’s more, the labs that were required to report data had a difficult time discerning the actual rates CMS wanted and the amount of data they had to submit. “We talked to members who, despite their due diligence, found they had reported data incorrectly. So we had reports of inaccurate data submission,” she says.
The fact that CMS extended the deadline for reporting to May 30 speaks to the fact that CMS itself was aware of the confusion, she adds. “They recognized all these issues, yet continued to move forward.”
The American Clinical Laboratory Association objected so strongly to the data collection method that it filed suit against the U.S. Department of Health and Human Services. ACLA charged that “the vast majority of the data collected by the Secretary [of Health and Human Services] was collected only from the nation’s two largest, independent laboratories, which are located predominantly in large, urban areas, and have much lower cost structures.
“[E]xcluding important sectors of the clinical diagnostic laboratory market from PAMA’s reporting requirement means Armageddon for laboratories serving elderly patients in skilled nursing facilities, nursing homes, and other long-term care facilities,” said the association in a subsequent filing for summary judgment. “If the Secretary’s failure to require data reporting for all applicable laboratories is not corrected, one of ACLA’s member companies will be out of business within ‘one or two years’ – after having been in operation for more than 45 years as a family-owned business.”
‘A little early’
“We think it’s a little early to tell what the impact [of PAMA] will be on patient access to in-office testing,” says John Daly, M.D., chief medical officer, COLA, an accrediting agency of medical laboratories. “When physicians with laboratories are only billing a few of these tests at a time, a 10 percent cut may be a little more difficult to notice.
“Ironically, it is the low volume that will ultimately be what hurts these practices the most when it comes to the PAMA cuts. Physicians providing in-office laboratory services have higher costs, for example, because they do not normally buy supplies – reagents, controls etc. – in bulk, like a larger reference or hospital laboratory. This leads to physician office laboratories having higher costs on a per test basis than a reference laboratory. Because a physician office wouldn’t necessarily track these costs the same way that a reference laboratory would, it will take time for a physician’s office manager to notice the cuts in reimbursement. But they eventually will.
“As we saw when we did interviews with practices in rural communities, practices don’t do laboratory testing as a profit center,” says Daly. “They do it as a matter of convenience for their patients. Which also means that these laboratories are not operating at a profit, nor do they have any intention to. Rather, they want to ensure they have the diagnostic information they need to treat their patients.
“As the price point on many of these common laboratory tests start moving towards the weighted median, it will make it increasingly difficult for these laboratories to continue operating.”
Poggi believes that POLs will, in general, fare reasonably well. “The physician practice is where demand for lab tests originate,” he says. “I foresee some shrinkage in testing at the lower volume practices as well as some up market, where the lab will feel a higher amount of financial pressure.
“There is a prediction that rural markets and nursing homes may experience reductions in testing, which would be disappointing, given the need for testing for these patients,” Poggi continues. “To remain financially viable, the labs that serve these patients will need to reduce costs and offer a new mix of tests that includes higher profitability tests. If they don’t, they may face the prospect of closing up or being acquired by a larger entity.
“Ultimately, manufacturers of new tests will be under more pressure than ever before to offer a unique combination of improved diagnostic utility and economic value. I believe some areas of testing, such as colorectal cancer screening, and other cancers, such as lung and prostate, will benefit from development of better tumor markers. Their challenge will be to offer these new tests at reasonable cost/price points in addition to telling a compelling story of why they offer better clinical outcomes.”
Manufacturers’ perspective
PAMA’s full impact among diagnostics manufacturers remains to be seen.
“In many cases, with our point-of-care immunoassay products, very little change to the overall reimbursement occurred, so the impact has been minimal,” says Tammi Ranalli, PhD, vice president of marketing for Quidel. “In a few selective cases, the reimbursement actually increased due to PAMA. Furthermore, our molecular platform, Solana, provides one of the strongest combinations of exceptional test performance with exceptional value in a changing reimbursement environment and thus hasn’t been significantly impacted by PAMA.
“Relative to our portfolio, we haven’t seen any significant changes in testing behaviors,” says Ranalli. “However, we do realize that our customers are now taking a closer look at the testing they are implementing going forward.
“As it relates to our products, we continue to push the message of the right test, the right place, and the right time. There is no one-size-fits-all testing solution for every customer, and we empower our team and the distributor sales rep to work with the customer to provide the solution that best fits the customer’s needs, whether it’s an immunoassay or a molecular test.”
David Franklin, western regional sales manager for Sekisui Diagnostics, notes that Sekisui’s immunoassay and molecular products are already low on the price spectrum, and PAMA’s impact on its customers may be minimal. “Nevertheless, [POLs] will make less, that’s the reality.” They will be financially challenged to perform the tests that are needed and beneficial to the patient. “They have to adapt to the changes,” he says.
“Distributors and manufacturers need to continuously educate themselves on their customers’ needs and changes in the market. Just because you sold something yesterday, doesn’t mean it’s the best fit today.”