On June 23, 2016, the Centers for Medicare & Medicaid Services (CMS) is publishing a major final rule to base Medicare clinical laboratory fee schedule (CLFS) reimbursement on private insurance payment amounts, as required by the Protecting Access to Medicare Act of 2014 (PAMA). In an important change from the proposed rule, CMS will implement the new payment policy beginning January 1, 2018, rather than in 2017. Once in effect, the impact will be significant; CMS estimates that the final rule will reduce Medicare payments by $390 billion in FY 2018 and by $3.93 billion through FY 2025. The following is an overview of the complex new payment methodology.  Additional details are available in our Client Alert.

The final rule establishes both reporting and payment provisions for clinical diagnostic laboratory tests (CDLTs), with different requirements for a subset of CDLTs determined to be “advanced diagnostic laboratory tests” (ADLTs).  As defined by PAMA, an ADLT is a CDLT that is offered and furnished only by a single laboratory and not sold for use by a laboratory other than the original developing laboratory (or a successor owner) and that meets one of the following criteria:

  1. the test is an analysis of multiple biomarkers of deoxyribonucleic acid (DNA), ribonucleic acid (RNA), or proteins combined with a unique algorithm to yield a single patient-specific result (CMS did not adopt a proposal to exclude protein-only tests from the definition of ADLTs);
  2. the test is cleared or approved by the Food and Drug Administration; or
  3. the test meets other similar criteria established by the Secretary (CMS is not establishing additional criteria at this time).

The final rule requires laboratories to submit evidence to support their application for ADLT status.

Reporting Requirements

With regard to reporting, the rule requires “applicable laboratories” to report to CMS specified “applicable information” about payment rates paid by private payors for each CDLT and the volumes of tests furnished during a specified period. Under the final rule, CMS defines an ‘‘applicable laboratory’’ as a laboratory that receives more than 50% of its Medicare revenues from services paid by under the CLFS and the Medicare physician fee schedule (PFS). In a change from the proposed rule, CMS defines a laboratory at the National Provider Identifier (NPI) level, rather than the Taxpayer Identification Number (TIN) level (although reporting will be at the TIN level). In addition, CMS will exempt from the definition of applicable laboratory those low-expenditure facilities that receive less than $12,500 in Medicare revenues from the CLFS during the data collection period (compared to the proposed threshold of $50,000); note that the $12,500 threshold does not apply with respect to a single laboratory that furnishes an ADLT. CMS estimates that the low expenditure criterion will exclude about 55% of independent laboratories and about 95% of physician office laboratories from the private payor data reporting obligation.

The final rule specifies that applicable information to be reported includes:  (1) each private payor rate for which final payment has been made during the data collection period; and (2) the associated volume of tests performed corresponding to each private payor rate. Data will be reported by Healthcare Common Procedure Coding System (HCPCS) code. As mandated by the statute, CMS defines “private payor’’ as a health insurance issuer or a group health plan, a Medicare Advantage plan, or a Medicaid managed care organization.  CMS defines the private payor rate as the final amount that was paid by a private payor for a CDLT after all private payor price concessions are applied, and does not include price concessions applied by a laboratory. CMS excludes data from tests for which payment is made on a capitated basis. Furthermore, only private payor payment rates for CDLTs paid under the CLFS are considered for private payor rates; payment rates for laboratory tests paid only under the PFS are not considered be private payor rates and should not be reported as applicable information. CMS intends to publish a list of HCPCS codes subject to reporting on its website.

Payment Provisions 

With regard to payment, subject to certain exceptions, the payment amount for a CDLT furnished on or after January 1, 2018 (other than new tests and ADLTs) will equal the weighted median of private payor rates determined for the test, based on the data reported by laboratories during the applicable data collection period.  The final rule also reflects a PAMA provision preventing test payment amounts from being reduced by more than 10% compared to the previous year’s payment for the first three years of the policy (2018-2020 under the revised implementation schedule) and by more than 15% for the subsequent three years (2021-2023).  For new and existing tests (other than new ADLTs) for which CMS receives no applicable information to calculate a weighted median, CMS will determine payment rates by using crosswalking or gapfilling.

New ADLTs will be paid at actual list charge for three quarters, beginning on the first day of the first full calendar quarter following the later of (1) the date a Medicare Part B coverage decision for the test is made or (2) the date ADLT status is granted by CMS. CMS defines actual list charge as “the publicly available rate on the first day the new ADLT is obtainable by a patient who is covered by private insurance, or marketed to the public as a test a patient can receive, even if the test has not yet been performed on that date.”  As authorized by PAMA, if the actual list charge during the new ADLT initial period is subsequently determined to be greater than 130% of the Medicare payment amount based on the weighted median of private payor rates that applies after the new ADLT initial period, CMS will recoup the difference between the actual list charge and 130% of the weighted median private payer rate. Once the new ADLT initial period is over, payment will be based on the weighted median private payer rate.

Implementation Schedule

The final rule establishes the following schedule for implementation of the new reporting and payment methodology for purposes of setting CY 2018 rates:

  • First data collection period for determining CY 2018 CLFS payment rates: January 1, 2016 — June 30, 2016.
  • First data reporting period for reporting entities to report private payor rate data to CMS for determining CY 2018 CLFS payment rates: January 1, 2017 — March 31, 2017.
  • Annual laboratory public meeting for new tests (that are not new ADLTs): mid-July 2017. CMS will use crosswalking or gapfilling to set rates for such tests for which there is no private payor data collected for CY 2018.
  • Publication of preliminary CLFS rates for CY 2018: early September 2017 (with a public comment period of approximately 30 days).
  • CMS posts final CY 2018 CLFS rates on the CMS website: early November 2017.
  • Implementation date of new CLFS: January 1, 2018.

Subsequent data collection and reporting periods for CDLTs (except for ADLTs) will follow this data collection and reporting schedule every three years, while reporting of private payor rates for ADLTs will follow this schedule on an annual basis.

The final rule also addresses a variety of other definitions, implementation details, and policy issues, including: certification of submitted information; civil monetary penalties for applicable laboratories that fail to report or that make a misrepresentation or omission in reporting applicable information; confidentiality and public release of limited data; temporary coding for new tests; and the potential designation of Medicare Administrative Contractors (MACs) to establish coverage policies and potentially process claims for laboratory tests (CMS is not adopting changes in lab contracting functions in this rule).

CMS has scheduled a July 6, 2016 educational call to discuss the rule.