Medicare Payments to Hospital Outpatient Labs Showing Huge Shift

Medicare payments to hospital outpatient laboratories made under the Clinical Laboratory Fee Schedule (CLFS) are expected to decline by more than 60 percent in 2014 as a result of many lab tests being bundled into hospital outpatient payment. According to the Centers for Medicare and Medicaid Services’ (CMS) 2014 Medicare Trustees Report, CLFS payments to hospitals will drop to $1.837 billion this year, down significantly from 2013 levels of $4.63 billion. However, Barry Portugal, president of Health Care Development Services Inc., notes that this is not a real decline in payments but simply a shift from one Medicare bucket to another. Payments that previously had been made under the CLFS are now being bundled into ambulatory payment classifications (APCs) under the Hospital Outpatient Prospective Payment System. “Our clients have reported that there is no appreciable drop in Medicare payment to outpatient labs,” says Portugal. Effective Jan. 1, 2014, CMS is packaging lab tests into outpatient payment “when they are integral, ancillary, supportive, dependent, or adjunctive to a primary service or services provided in the hospital outpatient setting.” To be packaged, the lab tests have to be provided on the same date of service as the primary service and ordered by the same practitioner who ordered the primary service. While Part B payment to hospital labs is expected to decline, Part B payment to hospitals is actually expected to increase from $37.217 billion in 2013 to $40.767 billion in 2014. Part of that increase is likely due to an increase in hospital outpatient payments.

Medicare Part B Spending on Lab Services (in billions)
	2014*	2013	2012	2011
Hospital labs (intermediary)	$1.837	$4.630	$4.675	$4.420
Independent, POLs (carrier)	5.277	5.116	5.102	4.579
Source: 2014 Medicare Trustees Report. *Estimated.

  In terms of incurred reimbursement amounts per fee-for-service enrollee for intermediary services, outpatient lab payment is expected to drop from $129.97 per enrollee in 2013 to $47.11 per enrollee in 2014. On the flip side, however, outpatient hospital payment per enrollee is expected to increase from $1,057.88 per enrollee in 2013 to $1,190.53 per enrollee in 2014. In a footnote for both categories, CMS notes that a large portion of outpatient laboratory services is now bundled into the Outpatient Prospective Payment System, one more indication that the money is simply being shifted from one bucket to another. Part B spending for lab tests performed by independent labs and physician offices is expected to total $5.277 billion in 2014, up about 3.1 percent from 2013 levels of $5.116 billion. Altogether, Medicare Part B payment for lab services is estimated at $7.114 billion in 2014. Total Medicare spending in 2014 is expected to increase by 4.9 percent to $611.7 billion when compared to 2013’s spending of $582.9 billion. Lab spending as a percentage of Medicare is estimated at 1.2 percent in 2014, down from 1.7 percent in 2013 and 2012. In 2014, the number of new Medicare beneficiaries increased by 3.3 percent to 54 million. Takeaway: While Medicare Part B payment made to hospital outpatient labs under the CLFS is expected to drop significantly in 2014, the decline is being offset by an increase in payment to these labs under the Hospital Outpatient Prospective Payment System.