National reimbursement, CMS innovation, and the three elements of value guiding lab sales forward.
By Jim Poggi
It’s February, and there are a few things you can count on during February each year: Groundhog Day, Valentine’s Day and my annual column on the Protecting Access to Medicare Act (PAMA). After last year’s column suggesting that PAMA was at a dead end, you might have assumed there would be no further news on PAMA. I did. But it turns out that since PAMA has not been repealed by an act of Congress, it will still be around in one fashion or another.
While decreases in reimbursement under the Clinical Lab Fee Schedule (CLFS) managed by the Centers for Medicare and Medicaid Services and mandated by PAMA have been on hold since 2020, Congress has avoided passing the SALSA (Saving Access to Lab Services) Act which would have made meaningful changes to PAMA. These modifications to PAMA would have assured that data collection truly represented the types of labs eligible to report payment data (reference labs, hospital outreach labs and physician office labs) more equitably. The best available data indicates that while private reference labs represent only about 50% of all lab tests performed in the U.S., PAMA calculations weighted their reimbursement at 90% of the data they collected to determine the baseline of private lab reimbursement. It was this highly skewed baseline against which cuts in CLFS reimbursement were to be measured, with the goal of closing the gap between the CLFS reimbursement and private insurance. In addition to making the data collection more equitable by weighting different types of labs more accurately, the SALSA Act would also have increased the reporting cycle for reimbursement by labs from every three years to every four years, reducing the burden on labs reporting payment information. It also proposed to create “guardrails” against payment increases or decreases to avoid dramatic impacts on laboratories, ensuring more stable and equitable reimbursement. However, rather than pass the SALSA Act, Congress has created an annual patchwork of legislative work arounds, including the Lab Access to Beneficiaries Act (LAB) in 2019, the CARES Act (Coronavirus Aid, Relief, and Economic Security Act) in 2020 and various “add on” legislative addenda to annual budget bills since then. As of this writing, PAMA was again on hold through the end of January, 2026 pending a longer term federal budget which was pending at that time. As you read this column in February, I anticipate that Congress will once again have added a temporary fix to PAMA within the new federal budget rather than enact the SALSA Act. In the event SALSA is passed, I will alert you in a future column and present the changes in the CLFS that would result from this more comprehensive action.
So, then, where does this leave us? There is no question that the improvements anticipated under the SALSA Act would result in a distinct and more permanent solution than the annual “kick the can down the road” legislative patchwork we have experienced, but delays in further PAMA cuts to the CLFS are welcome nonetheless. Moreover, when we look at CLFS reimbursement compared to private insurance and do our work as valued consultants to identify and communicate the economic value of lab testing, it turns out that PAMA and the CLFS truly is our friend. Follow along with me while I provide my data and logic for this conclusion. I am willing to bet you will find a few surprises, and information you can share as high value consultants to your customers.
Before we dive into the specifics of why PAMA and the CLFS is our friend, I need to provide a note of caution on selling on profit. While this selling technique was popular and largely successful from the 1980s through the early days of the current century, it is fraught with danger in today’s market. Courting customers mainly motivated by profit leads inevitably to the customer question, “Why am I not making the amount of money you said I would?” And discussions veer away from the true total benefits of in-office testing to analysis and review of customer financial data. It is a rare customer who is primarily motivated by profit that will be satisfied with the results, no matter how much profit they make. Then your solution and your reputation with this customer and others they may influence is on the line. Take it from me and hundreds of other successful distributor account managers who have abandoned selling lab on profit: use this technique at your peril and do not be surprised if the results end up with unhappy customers and lots of your time spent justifying their results. Stick to the three elements of value (more on this later) and avoid the inherent dangers in selling on profit. You will be glad you did.
The CLFS value story: Most CLFS reimbursement is now standardized nationally
This may not sound like a big deal for newer distribution account managers who joined their company after the CLFS instituted national reimbursement for most tests, but, for those of us who were around when there were more than 50 CLFS carriers and a crazy quilt of reimbursement rates for the same test, this is a welcome and meaningful change.
Just to make the point, I pulled up my copy of the 2015 CLFS CPT payment schedule. There were 57 different carriers with individual CPT payment rates! In my research, I looked up influenza, CPT code 87804(QW). In 2015, the payment rates peaked at $16.32, but they ranged from $12.63 all the way up to $16.32 with multiple carriers below the high value of $16.32. At that time, manufacturers and distributors needed to alert their field sales teams that reimbursement for influenza varied and to be careful to check with local carriers if the distributor account manager chose to let the customer know the approximate reimbursement they could expect. Many other tests followed this same pattern, and it caused confusion at the manufacturer, distributor account manager and customer level. Fast forward to the current CLFS reimbursement schedule, and influenza CPT code 87304(QW) is national (no variation by carrier) and reimbursed at $17.00.
The extent to which CPT code reimbursement has become national is significant. Of the current 2,149 lab CPT codes, 2,032 of them or nearly 95% are standardized nationally. What an improvement! In contrast, there are only 117 local CPT codes and most of them are for CLIA high complexity molecular assays. Bucking the trend toward standardization of CPT code reimbursement, CMS went backwards in my opinion when they once again began initiating local coverage for new CPT codes following the COVID pandemic. While disappointing, the only local coverage determination CPT code that should impact us to any extent is G0567(QW), screening test for hepatitis C. So, for the most part, the tests we usually sell are reimbursed on a national scale.
In contrast, lab CPT code reimbursement from private carriers is as complex and difficult to understand as ever. Reimbursement within the same carrier for any CPT code varies by geography, and reimbursement among carriers for the same CPT code varies widely. There has been no improvement on the private payer side to standardize reimbursement, and I do not see current market forces that will change this.
The CMS value story: Coverage for new molecular assays
Our portfolio of molecular tests began with respiratory assays and continues to grow. CMS covering a broader range of molecular tests is a benefit to the lab market overall. This trend points to the fact that CMS understands and fosters innovation in the lab business and rewards it with new CPT codes. As a result, CMS is far ahead of private payers in rewarding innovative new lab tests and I expect this trend to continue. From an overall value to the healthcare system perspective, I believe this is a healthy approach. While many private carriers classify new molecular tests covered by CLFS as “experimental” and do not cover them, the CMS has adopted a different approach and adds new tests frequently. There are many good examples, but a couple of specifics will make the point. CPT code 0497U is an assay to determine the risk of prostate cancer, the most common cancer in men and number two behind breast cancer for all cancers. It is reimbursed at $3,873 nationally in the CLFS. Why does this matter and what does the future hold? It matters since it is consistent with the latest trends in technology, specifically including the advent of data mining tools including AI. Overall, creating reimbursement for these new tests acknowledges innovation and stimulates manufacturers to continue meaningful innovation. Remember when we were talking about “big data” just a few years ago and the buzz about AI now? Well, the data bases are getting larger and new data mining techniques are making it easier to use lab tests in two novel ways. First, there are new tests to estimate “predisposition” to develop a specific cancer, typically performed when a patient has a family history of prostate, breast or colorectal or other cancer. These tests can help as part of a strategy to determine which patients need to be followed more closely for specific cancers if they show the same genotype as family members who have experienced specific cancers. This is a new way to provide even earlier surveillance of patients and prevent disease. Secondly, there are tests that compare the genotype of a patient’s tumor with vast data bases of other patients with similar cancers. The outcome here is to attempt to estimate whether the progression of this patient’s cancer will be slow or rapid and to understand which therapies will be most successful. These two uses of molecular data in combination with utilization of massive data bases has the possibility to initiate cancer diagnosis earlier and make treatment more precise and effective. CMS’ decision to add these new tests early once reasonable proof of their usefulness has been established is a meaningful new way to harness innovation to improve patient health. Private insurance companies are lagging well behind the federal government.
The CMS Story: Recognizing the value of new molecular assays
It’s not just the breadth of new molecular assays where CMS is leading the pack. They are also assigning significant reimbursement to these assays. There are now 186 lab CPT codes that reimburse more than $1,000. Most of them will not soon be available in the physician office market, but they point to advances in lab technology that will benefit the healthcare system, improve patient health and reduce healthcare costs. As usually happens, I expect at least some of these tests to migrate to the physician office. At the same time, I predict that private data base companies will begin offering analytical services to the physician office market (some already have) based on a panel of molecular tests. There is already a panel of prostate assays using a combination of three different tests to predict whether a patient has prostate cancer or just a more benign condition. There is every reason to believe the combination of new tests and new ways to interpret them will lead the way in cancer diagnosis and treatment in the future. I am confident an increasing number of these assays and services will be coming to the physician office lab.
At this point, you are probably wondering: OK, what does this mean to me? Key takeaways: CMS/CLFS/PAMA: expect temporary halts in implementation of PAMA to continue. Be sure to check in with the Clinical Lab Fee Schedule from time to time, discuss the information with your colleagues and trusted lab manufacturers and become familiar with it. This, alone, will set you apart from others: cms.gov/medicare/payment/fee-schedules/clinical-laboratory-fee-schedule-clfs. This is a tremendous resource for you and your customers.
My view of the future is a continuing merger of data mining tools and lab tests with predictive measures becoming more common. Keep an eye on this trend.
The three elements of value will continue to be our “north star” now and in the future, no matter what direction new assays and data base mining methods take.
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 pro-vide data “to initiate or modify a patient treatment program.”
Workflow Value: From 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.
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.
The three elements of value will all point you and your customers in the direction of the most meaningful tests for them and their patients. Are you using the three elements of value in your daily customer consultation? If you are not, beware. Your competition may be. Get ahead of the pack and become familiar with the three elements of value and use them as your guide-post to successful lab sales!