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Change and Constancy: The 2025 CLFS Update

by | Jan 21, 2025 | CMS-lca, Essential, Fee Schedules-lir, Funding-lir, Lab Industry Advisor, Reimbursement-lir

The 2025 CLFS update—what has changed, what has stayed the same, and what that means for diagnostic test reimbursement in 2025

The emergence of the 2025 update to the Centers for Medicare & Medicaid Services (CMS) Clinical Laboratory Fee Schedule (CLFS) has brought both good and bad news.1 To the relief of many labs, fees for basic clinical diagnostic laboratory tests have not changed significantly—but reductions in other areas may have knock-on effects that threaten patients’ access to high-quality testing. What has (and hasn’t) changed since the 2024 update—and how will the news affect labs in 2025?

Key changes—and lack thereof

“It’s interesting that, according to CMS, we are not expecting any payment reductions at all for clinical diagnostic lab tests that are not also advanced diagnostic tests,” says Dyana Williams, director of revenue cycle management operations at Lighthouse Lab Services. “My colleagues and I live in an environment where reductions are expected, but in this case, the lack of change is not really surprising because the CLFS is based entirely on the median amount commercial payers will pay for the same services. The way Medicare gathers that information is through the Protecting Access to Medicare Act of 2014 (PAMA) reporting requirements,2 but because those requirements have been paused on a number of tests, any major changes to reimbursement have also been paused.”

The same is not true of advanced diagnostics. “There are about 800 codes in the advanced diagnostic lab testing space that could potentially face up to a 15 percent reduction in 2025,” Williams says. “That’s a real shame because it’s where all of the innovation is taking place and, unfortunately, the PAMA legislation is driving down the reimbursement for those services.” She describes the phenomenon as a compression in the industry, reducing profit margins and negatively impacting labs’ ability to effectively use advanced technologies.

“Clinical labs invested a lot of money in technology during the [COVID-19] public health emergency,” she explains. “Now that that infectious disease testing isn’t needed at that scale anymore, many labs have started to shift focus to other areas. If the insurance industry did the same, we could see some really amazing evolutions of diagnostic lab testing.” But, although patients and providers want faster, more accurate, and more comprehensive testing, the fee reductions in the 2025 CLFS show that commercial payers have yet to get on board. “All of the cards are in their hands right now,” says Williams. “With the No Surprises Act in their pocket,3 all of the power to negotiate and drive reimbursement is in their hands—and that’s what influences Medicare’s rates.”

Meeting patient and provider needs

Williams is concerned that shortsightedness in the area of advanced diagnostics could negatively impact both labs and the patients they serve. “Clinical diagnostic lab tests aren’t reimbursed at high rates, so when they start shrinking the margins on advanced lab testing, it doesn’t just limit individual patients’ access to those tests. It also means that providers can’t sustain their own margins. They need to maintain the equipment; they need to maintain validation; they need to be accredited—all of that carries a tremendous administrative and compliance burden. If test reimbursements are reduced or delayed, the lab may not be able to scale or even sustain itself.”

When asked what would make life easier for professionals in billing, coding, and reimbursement, Williams highlights commercial payers’ lack of transparency with respect to policy. “Payer policy drives everything in reimbursement. Being contracted with a payer doesn’t guarantee that they cover the service you offer for their beneficiaries, so a major challenge we have is finding the payer’s published policy for whatever test the laboratory is providing.” Although there are subscription software options that make policy information easily available, most labs don’t have access to those tools, meaning that registrars must search through complicated payer documentation to find the necessary details—which Williams adds are often buried deep within the documents. “That can make it really difficult to understand what they cover, what they allow, and how laboratories should be billing for the services that are provided.” And, when payers decline coverage or declare a test not medically necessary, it’s typically labs who are left with the bill.

For a model of good communication, Williams points to Medicare. “They communicate really well about not only what updates they’ve made, but also future updates under consideration so that everyone can comment. I think that’s a really important part of a healthcare organization’s engagement with the industry—to watch for those comment periods and engage in the conversation because Medicare uses those comments to make decisions about their policies.”

A shifting landscape

Increasingly, Williams and her colleagues are noticing roadblocks and silos in health care. “There needs to be a stronger connection between payers, providers, and labs,” she says. “If a payer wants more robust information regarding the clinical justification for a test, the lab has to go back to the provider and say, ‘We need you to explain in your documentation why this test is important and why you chose it over other tests.’ But nobody wants to make life more difficult for ordering providers—and they don’t want to spend their time documenting instead of treating patients. It can be a difficult conversation to have, but I think maintaining that feedback loop is important.”

To support more effective communication and documentation, Williams sees opportunities in the rise of artificial intelligence (AI)-based assistive tools. “There’s a difference between tools that create documentation and tools that can understand and explain a clinician’s reasoning based on the documentation already provided,” she says. “We don’t want to introduce AI that creates documentation, but we do want tools that can help us fill in the gaps.” AI tools that identify utilization trends could also benefit providers. Because payers use these tools to flag potential issues, providers who do the same could spot and address concerning trends before they impact reimbursement.

“The other big thing I see changing right now is the amount of conversation around reimbursement,” Williams adds. “Within the industry, we’ve always discussed the issues, but I’m noticing that it’s really beginning to enter the mainstream consciousness now. Patients are starting to see how the lack of reimbursement for diagnostic testing is impacting them and they’re gaining an appreciation for the issues the healthcare industry is facing. It feels like momentum has been gathering over the last year—and I think we’ll see that carry over into 2025.”

References:

  1. Centers for Medicare & Medicaid Services. Clinical Laboratory Fee Schedule. CMS.gov. https://www.cms.gov/medicare/payment/fee-schedules/clinical-laboratory-fee-schedule-clfs.
  2. H.R.4302 – Protecting Access to Medicare Act of 2014. Congress.gov. April 1, 2014. https://www.congress.gov/bill/113th-congress/house-bill/4302/text.
  3. Centers for Medicare & Medicaid Services. Ending Surprise Medical Bills. CMS.gov. https://www.cms.gov/nosurprises.

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