Where we are, how we got here and what’s next.
By Jim Poggi, Principal, Tested Insights
PAMA has been around for 10 years now, but due to the many twists and turns since its initial implementation in 2018, I am providing Repertoire readers with an update. For some of you, it will be eye opening. For others, it represents a concise summarization of the bill and its impact on us and our customers. However, this year, I have some new insights and recommended actions to offer that I believe are in our customers’ best interests, irrespective of what eventually happens with PAMA.
PAMA, the Protecting Access to Medicare Act, originally became a law in 2014 and was initially implemented in 2018, with the intention of aligning the higher costs of lab tests being reimbursed under the Clinical Laboratory Fee Schedule (CLFS) for Medicare payments with the lower costs paid by private insurance companies.
As many of you may remember, the Office of the Inspector General published a report pointing out the gap in reimbursement between the CLFS and private insurance and recommending cuts to the CLFS over a six-year period, with 10% mandated for each of the first three years, and 15% in the next three years until such time as CLFS fee schedule payments were aligned with private insurance payments. The OIG claimed the gap between these payment schedules would amount to a saving of $2.5 billion over a 10-year period. However, in just the first year of cuts an impact of up to $370 million was estimated. Cumulative cuts over the first three years in CLFS are estimated at $4 billion by the American Clinical Laboratory Association (ACLA).
The magnitude of these cuts, and concerns about access to lab services (in rural areas in particular) if smaller labs went out of business or were acquired by the largest labs were voiced widely by the laboratory community. Additionally, the observation was made that while private payer data was supposed to be collected using a representative sample of labs being reimbursed by both Medicare and private insurance, the fact that the largest labs were grossly over-represented was widely acknowledged within the lab community. While the largest labs reporting data in 2018 performed fewer than 50% of all U.S. lab tests, their data represented 90% of the information used to determine the size of the gap between private pay and CMS under the CLFS.
For all these reasons, PAMA has been a cause of concern across the lab business with advocacy groups including the National Independent Laboratory Association (NILA) and the Association for Diagnostics and Laboratory Medicine (formerly AACC) issuing legislative appeals for postponement of PAMA due to the significant cuts in its initial implementation as well as the observation that data collected to show the differences between CLFS and private payers was highly skewed to the largest private labs and did not represent a true cross section of labs reimbursed under Medicare for lab tests. Ultimately, the Centers for Medicare and Medicaid Services (CMS) agreed to change the definition of reporting labs to create a more equitable representation of the marketplace. Most lab advocacy groups still believe the balance remains too skewed toward the largest labs.
Since 2020, PAMA has been put on hold by three successive legislative actions. First there was the Laboratory Access for Beneficiaries (LAB) Act during the COVID pandemic, passed in 2019. Then came Protecting Medicare and American Farmers from Sequester Cuts in 2021. As we enter 2025, once again PAMA fee cuts to the Clinical Lab Fee Schedule have been postponed by an extension of the Continuing Appropriations and extensions Act, 2025 which was also responsible for the delay in PAMA cuts in 2024. The Saving Access to Lab Services (SALSA) Act has been around 2022 and has been locked in committee since 2023. It provides needed changes in how lab reimbursement data is collected, which labs will collect it and the timing and extent of cuts to the CLFS. It addresses many of the shortcomings of the current PAMA legislation and is endorsed by virtually every lab advocacy organization. Unfortunately, both the 117th and 118th Congresses have failed to pass this bipartisan bill and have used work around solutions placing holds on PAMA rate cuts into broader legislation. Its future is unclear.
So, is there a stop, yield or dead-end sign ahead for PAMA? Should we care? In this column, I am going to suggest a practical approach to protecting our current lab customers, assuring our new customers start off on the right foot, and assuring our reputation as lab consultants provides significant benefits to our lab customers.
Keep the big picture in view
What does this mean and how can we, as valued consultants to our lab customers, use this approach wisely? You and your key lab manufacturers have an obligation to perform periodic audits of your customers’ current laboratories and offer your recommendations to management. Additionally, we need to remind our current customers and position the value of lab to prospective customers across ALL the three pillars of value for our lab products and services.
Controlling future risk means being highly involved with each of your customers’ labs and their needs. Remember that “quality provides sustainability,” and act accordingly in your interactions with your customers and prospects.
Specific threats to be watchful of include:
Internally
- Poor performance against any of the three elements of value described below.
- Lack of enthusiasm, inspection issues, staff turnover, focus on revenue.
- Leases coming up for renewal without a solid business review to reinforce the three elements of value and clear direction on the right assays and right instrument platform.
Externally
- Likely to come from private insurance.
- I will be conducting research to verify this supposition and will report back later this year.
- Negative feedback from your customers’ peers about their lab solution
- Changes in your customer’s payer mix
Clinical value
Clinical value remains the greatest single reason to perform lab tests in any setting, but most particularly in the physician office and point of care. The most appropriate reason to perform any lab test is to provide data “to initiate or modify a patient treatment program.” This has been the defining reason I have proposed for lab testing at the point of care for a number of years and still assures that the clinician’s encounter with the patient is most productive.
Whether the clinician is trying to establish an initial diagnosis, engaging in general or risk-based screening or follow up for a chronic condition, lab testing, in combination with vital signs monitoring, provides the most actionable data to base a diagnosis. The conventional wisdom is that 7 out of 10 medical decisions are based at least in part on laboratory data. Most clinicians would agree. Make sure you lead with the clinical story and develop your clinical value story along with your trusted lab manufacturer. Always seek agreement from your customer or prospect as you develop this narrative and ask questions about how they manage the leading causes of morbidity and mortality. Chances are, they will remind you of how often they rely on lipid tests, tumor markers, CBC, hemoglobin A1C, and organ panels. Taking the clinical high road and focusing on the leading causes of morbidity and mortality will set you apart as a thoughtful consultant who understands the daily challenges our customers face.
Workflow value
From the initial patient encounter to the request for lab tests, to performing them, counseling the patient and reporting results into EMR, the shortest time frame with the most direct path to having the data available wins every time. Delays in diagnosis prolong the road to treatment and risk the patient not returning for proper counseling and medication and lifestyle direction. In addition to the general workflow, assuring the most needed tests are available during the patient’s encounter, you need to take on the tough issues.
Is the lab well organized and run to be CLIA compliant? Are the lab personnel confident and competent? Are the right tests being done on the right instrument platform? Each lab solution must be customized to the customer’s needs, and you need to work collaboratively with the lab manufacturers providing your customers’ solutions to research, discover and recommend ANY needed changes.
Do lab personnel need additional training? Are there obvious CLIA compliance challenges? Are the testing platforms compatible with the most urgently needed tests and being performed in the most economical fashion? If any of these answers is “no” your business is vulnerable from either customer dissatisfaction or your competition providing a more well-tailored solution. You need to take this element of value head on and be very objective in providing your recommendations. Is it uncomfortable providing a recommendation that differs from the previous one? Of course, but it is better to be open and objective than to learn your lack of transparency has led your customer to look elsewhere for solutions.
Economic value
PAMA certainly adds challenges here, even with reductions in CLFS rates postponed yet again. But, is PAMA the biggest economic risk? Probably not. Private insurance has led the way to reductions in reimbursement for lab tests. Do you know the proportion of your customers’ patients covered on Medicare, Medicaid and private insurance? You should. We are not here to propose lab as an economic panacea, but knowing which insurance plans they offer can help you guide your customers to internal discussions about which tests to offer, and this discussion will have a direct impact on your guidance in which lab platforms make the most sense.
In addition to payer mix, staffing issues lead to more labs closing than any other preventable reason I know of. Poorly trained or unhappy staff can lead to CLIA issues and proficiency testing failures. Dissatisfaction can also lead to turn over, which compromises test availability and costs time, and money as new staff are recruited and trained. Turnover also ultimately challenges the practice to reevaluate their need for a lab every time it comes up. Loss of a lab director or key technical resources could spell the end of lab testing at even your best, most loyal customers.
Make sure you help your customers’ management know your insight into overall lab performance, recommendations for improvement and any specific recommendations you and your leading lab manufacturers can offer. Properly positioned, you should be viewed as proposing insightful data rather than being intrusive. A respectful tone along with objective findings and recommendations by you and your lab manufacturer are in the best interests of all involved and should always be positioned as in the best interests of the practice and their patients.
In summary, is PAMA really the root issue and reason a lab may reduce or eliminate testing? Not by a long shot, but it is one of the issues that you, as a thoughtful and respected lab consultant, need to integrate into your overall lab solutions and customer counseling.
Know your customers’ needs, stay focused on the big picture, work closely with your key lab manufacturers and you will reap the rewards. Quality provides sustainability. Your consulting quality will create sustainability in your customers’ labs and patient care plans.