Late Friday evening, the Centers for Medicare & Medicaid Services (CMS) released their long-awaited preliminary private rate-based clinical laboratory fee schedule rates. These rates begin to implement section 216(a) of the Protecting Access to Medicare Act of 2014 (PAMA) by establishing new clinical laboratory fee schedule (CLFS) payment rates for diagnostic tests paid by Medicare based on a weighted median of private payor rates for these tests. These rates will take effect on January 1, 2018.

Cumulatively, the market-based CLFS rates established under PAMA are expected to save Medicare Part B approximately $670 million in calendar year 2018. Public comments on the new payment rates will be accepted through October 23, 2017.

Data Collection

PAMA required “applicable laboratories” (those with annual Medicare revenue of at least $12,500, of which more than 50 percent is derived from the CLFS) to report their private payor reimbursement rates and volumes for each of the tests on the CLFS to CMS by March 31, 2017 (later extended to May 30, 2017). A number of organizations, including the American Clinical Laboratory Association and American Medical Association, expressed concern that laboratories would be unable to properly comply with the data reporting requirements within the deadlines established by CMS and proposed a number of delays and improvements, but CMS has remained dedicated to implementing the new rates before the January 1, 2018 deadline. CMS claims to have modeled a variety of alternate participation scenarios (e.g. vastly more hospital reporting, twice as many physician offices, increases across all provider types) and found no significant difference in projected CLFS rates.

In an explanatory summary included with the new CLFS rates, CMS stated that they received data from 1,942 applicable laboratories on nearly 248 million tests. Of these, the majority of reporting laboratories were located in physician offices (57.0 percent), but 90.1 percent of the actual reported test volume came from independent laboratories. Only 36 of the reporting laboratories are located in rural areas, which CMS attributes to the $12,500 revenue threshold.

CMS received data from laboratories on 95.7 percent of the tests paid on the CLFS, which was generally consistent with CLFS claims data. CMS will use crosswalking and gap-filling to set rates for new tests, and plans to discuss what to do for existing tests for which they received no reported rates at a meeting at the end of this month.

Effects on CLFS Rates

CMS estimates that the new rates will save Medicare Part B approximately $670 million in CY 2018. It should come as no surprise then that for approximately 75 percent of test codes on the CLFS, the new rate for 2018 is lower than the 2017 fee schedule rate. In fact, because PAMA establishes a maximum per-year reduction in test rates, 58 percent of tests (those declining by more than 10 percent) will have their reductions phased in over multiple years. Meanwhile, approximately 10 percent of tests will receive an increase relative to the 2017 CLFS.

After reviewing the comments due October 23, CMS plans to publish final rate determinations for 2018 in early November. If you have questions or concerns about how PAMA and the new CLFS fee schedule affects your business and the patients you serve, contact us at gpugh@appliedpolicy.com or 202-558-5272.