How Proposed Medicare Cuts Will Affect Your Lab’s Bottom Line

The Centers for Medicare and Medicaid Services (CMS) recently proposed cuts to clinical laboratory reimbursement codes, which are scheduled to take effect as of January 2014. Pending a decision in November, the proposed cuts could potentially devastate the more independent or specialized laboratories that healthcare facilities use for advanced testing — leaving in-house facilities and larger, national labs to pick up the slack. ADVANCE reached out to the American Clinical Laboratory Association for comment.

“When you have that kind of a cut, it really starts to raise questions about if anyone’s actually going to be able to provide these tests,” said Alan Mertz, president of ACLA.

The hospital outpatient perspective payment system is the system used to determine reimbursements for hospitals — a wholly different model than the physician fee schedule, which determines laboratory reimbursements. CMS Medicare cuts have proposed a limit on certain laboratory testing reimbursement codes to keep them on par with hospital reimbursements. The reimbursement changes ranged from 25 percent to as high as 75 percent in some cases, such as Flow Cytometry, and spanned 39 different clinical codes.

“Whatever they pay at the hospitals for those same codes or tests, hospital outpatient,” explained Mertz. “They would cap the rates they were going to pay the independent labs for doing the same codes under the physician fee schedule.”

Essentially, there are two parts to laboratory reimbursements. The technical component applies to equipment, preparation and the baseline necessities of running an assay, while the professional component covers the cost of the pathologists performing the test. The proposed cuts will impact the technical component specifically, and in some cases, the cost of the baseline test will no longer be covered by the reimbursement.

In his interview, Mertz discussed HER2 testing specially as an example of the overall possible impact of the new reimbursement codes. On their own, the materials necessary to run the HER2 testing option would end up costing around 200 dollars — with the addition of labor and additional professional fees, the price of the test as a whole jumps up to roughly 400 dollars. According to Mertz, the reimbursement a laboratory would receive for running the assay would be cut down to 130 dollars – leaving laboratories responsible for the testing to operate at a heavy loss.

“There are some questions about whether anyone can afford to do some of these tests anymore, particularly if they don’t have a broad array of test menus,” he continued. “If this is one of their main tests in which they operate, then they’re not going to be able to continue to provide these tests at such a huge loss.”

As the majority of the cuts could impact pathology codes, more specialized laboratories that cater to specific testing options stand to see a portion of that loss if the new reimbursements are passed, while the majority of in-house laboratories at health facilities aren’t equipped to run those kinds of tests. Apart from the new pathology codes, Mertz also noted that CMS is planning an overhaul of the clinical laboratory fee schedule, re-evaluating and adjusting all 1200 codes in a process that could take effect as early as 2015. For laboratory staff and professional groups like ACLA, the question isn’t how to whether the financial burden once the codes are made a reality, but how to prevent the new codes from taking effect until they’ve been re-accessed and revised.

The effects of the new codes could lead to inefficient means of testing. With smaller labs unable to afford to run the complex testing methods offered in more specialized environments, healthcare facilities will have to send more complicated tests out to larger laboratories with slower turnaround times. For patients, the delay in results could potentially cause problems in life-threatening or even time-sensitive cases. As it currently stands, groups like ACLA are partnering together and working with members of Congress and Senate to lobby against the implementation of the new reimbursement regulations.

“It raises questions about the access that patients and doctors are going to have to these tests anymore or – we’re just concerned that it might not be available,” said Mertz. “It’d be hard to get results as quickly and there would be areas of the country that might not be served.”

Along with the proposed cuts in November, CMS is also considering cuts the physician fee schedule under the sustained growth rate by roughly 30 percent come January of 2014. Although Congress is trying to freeze the cuts for a year, there is concern in the lab community that, in the effort to avoid cutting the physician fee schedule, regulators will cut the clinical laboratory fee schedule to help finance the program. While lab groups like ACLA are concerned about this, the most pressing matter at hand currently is the proposed cuts to reimbursement rates, which could take effect as early as November of 2013.

Michael Jones is on staff at ADVANCE.

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