Labs Fight Back Over Proposed Medicare Cuts

After seeing Medicare payment for lab services cut by more than 11 percent since 2010, clinical laboratories are bristling over recommendations from the Health and Human Services Office of Inspector General (OIG) that Medicare lower payment rates and establish deductibles and coinsurance for lab tests.

Since 2011, the year that data was analyzed for the OIG report, clinical laboratories have received significant cuts in reimbursement, including a cut to pay for a short-term fix in Medicare physician payments and another cut through sequestration, notes Mark Birenbaum, administrator of the National Independent Laboratory Association (NILA), which represents community and regional labs. These cuts are on top of a cumulative 20 percent cut implemented through health care reform—five direct fee cuts and a permanent provider productivity adjustment.

Medicare paid approximately $8.2 billion for lab tests in 2010, which accounted for about 3 percent of all Medicare Part B payments.

“This is death by a thousand cuts for the nation’s community laboratories,” said Birenbaum. “NILA is very concerned that OIG would make such drastic and baseless recommendations without considering the impact such changes would have on access to community-based laboratory services.”

Alan Mertz, executive director of the American Clinical Laboratory Association (ACLA), concurred. “Despite clinical labs only accounting for 1.6 percent of annual Medicare spending, payment for lab services have been cut by over 11 percent since 2010 and face double the amount of cuts already scheduled for the next nine years,” he said. “The OIG used Medicare payment data from 2011. In 2013 alone, Medicare payment was cut by 5 percent.”

OIG Findings
The OIG recommendations are contained in a report issued in June, “Comparing Lab Test Payment Rates: Medicare Could Achieve Substantial Savings” (OEI-07-11-00010). The OIG collected payment data from 50 state Medicaid programs and three federal employee health benefits (FEHB) plans that pay for lab tests on a fee-for-service basis. The office requested payment rates in effect from Jan. 1-March 31, 2011, for 20 lab tests. The OIG then compared Medicare-paid claims with the state Medicaid program fee schedule amount and FEHB plan median claim payment amounts. Investigators also surveyed Medicaid programs and FEHB plans to determine how the payment rates were formulated, whether a copayment was charged to the patient, and whether lab test charges counted toward a member’s deductible.

The OIG found that in 2011 Medicare paid between 18 percent and 30 percent more than other insurers for 20 high-volume or high-expenditure lab tests. Medicare could have saved $910 million, or 38 percent, on these lab tests if it had paid providers at the lowest established rate in each geographic area, the OIG said.

The report, “Comparing Lab Test Payment Rates: Medicare Could Achieve Substantial Savings” (OEI-07-11-00010) is available at

According to the OIG, Medicare paid 29 percent more than Medicaid for CPT 81002 (urinalysis, nonautomated, without microscopy) and 30 percent more for CPT 83550 (iron binding test). The report recommends that the Centers for Medicare and Medicaid Services seek legislation that would allow it to establish lower payment rates for lab tests and consider seeking legislation to institute copayments and deductibles for lab tests.

Flawed Conclusions

While Medicare may pay more than Medicaid for some tests, the report examines only 20 of more than 1,000 laboratory test codes. By comparing Medicare clinical laboratory fee schedule payment rate for these codes to Medicaid and three FEHB plans in 56 areas, there appear to be more than 4,000 comparisons in the report, notes Mertz of ACLA.

“As we examine all of the comparisons . . . we find that Medicare is sometimes the lowest payer in comparison to Medicaid and/or some or all FEHB plans,” he says.

Mertz also noted that there is extremely wide variation in prices in the FEHB plans. For instance, FEHB payment for CPT 81003 (urinalysis, automated) ranges from $2.85 to $29 in one state. For CPT 80061 (lipid panel), FEHB prices ranged from $8.20-$52.50.

“These variations raise questions about what these prices represent and how they were determined,” says Mertz.

Birenbaum adds that the Medicare payment rates were compared to Medicaid at a time when many state Medicaid budgets are strained and reimbursement levels for health care services across the board are very low. What’s more, the report only includes data from independent and physician office-based laboratories, ignoring hospital laboratories, which make up the rest of the clinical laboratory market.

“There are clear oversights and omissions in the approach taken by the OIG to examine the laboratory market,” says Birenbaum. “But what’s most concerning are the recommendations that the OIG makes from this limited review, which would devastate the small and midsize laboratory market today.”


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