Medicare Reimbursement: 2019 CLFS Offers Some PAMA Relief But Not Nearly Enough

The battle between CMS and the lab industry over Medicare Part B pricing for lab tests is intensifying notwithstanding the ACLA’s recent court loss and the supposed relief offered by the agency in its final 2019 Clinical Laboratory Fee Schedule (CLFS) (Final Rule).

CMS’s Olive Branch
The center of the controversy remains the overly narrow CMS definition of “applicable laboratories” that has the effect of excluding the pricing data of hospital outreach labs in calculating market rates for lab tests (see box below).

CMS Definition of Applicable Laboratory

An entity that’s a laboratory (as defined in CLIA) that bills Medicare Part B under its own NPI and/or that gets more than 50% of its Medicare revenues during a data collection period from the CLFS and/or Physician Fee Schedule (PFS). Applicable labs must also meet a “low expenditure threshold,” i.e., get at least $12.5K of Medicare CLFS revenues for clinical diagnostic lab tests that are not advanced diagnostic lab tests (ADLTs).

The Final Rule acknowledges that the definition may be too narrow and lays out what it claims to be relief by excluding Part C Medicare Advantage payments from the denominator by which the CLFS/PFS numerator is divided. The Final Rule, in other words, makes it easier for labs with significant MA plan revenues to qualify as “applicable labs” under the majority of Medicare revenues threshold.

Too Little, Too Late, Says Industry
While a step in the right direction, these changes aren’t nearly enough to satisfy industry, especially since they wouldn’t kick in for another two years. “These modifications are insufficient because the changes outlined in the final PFS rule will not take effect until 2021. Regional and community clinical laboratories face an unsustainable 10% cut in less than two months, on January 1, 2019,” according to an NILA and AAB statement.

The heart of the problem is the current definition’s reliance on NPI number which has the effect of excluding hospital outreach labs that bill under the hospital NPI as “applicable laboratories.” In the Final Rule, the CMS acknowledges the problem and characterizes the arguments made by industry during the comment period to include more hospital outreach labs “particularly compelling.” But the comments also reveal the agency’s hand and the essence of the philosophical difference with industry. Simply stated, CMS wants more hospital representation but not too much more.

Reasoning: By basing the definition on CLFS/PFS rather than inpatient and OPPS revenues, the intent of the Affordable Care Act is to exclude hospital labs and “limit reporting primarily to independent laboratories and physician offices.” So, it’s hardly surprising that none of the solutions that industry recommended made it into the Final Rule. Here’s the rundown:

1. TIN, Not NPI
One recommendation was to base price reporting on the Tax Identification Number (TIN) the lab uses to report taxable income to the IRS rather than NPI. This was an idea that CMS considered but rejected when creating the first CLFS proposed rule back in October 2015. Because test prices are negotiated at the TIN level, TIN-based price reporting would lead to double counting of the same pricing data, CMS reasoned.

2. CMS 1450 14x TOB, Not NPI
The ACLA proposed that CMS replace the NPI number with the CMS 1500, a CMS 1450 form using a 14x Type of Bill for hospital outreach lab data collection reporting. Under this approach, applicable revenues would be based on the bills used for hospital lab services provided to non-patients, which are paid under Part B. Although it would relieve hospital labs of the burden of getting their own unique billing NPI, CMS rejected this approach because:

  • Defining “applicable laboratory” using the Form CMS-1450 14x TOB doesn’t identify an entity the same way the NPI does;
  • Hospitals may not have enough time to develop the information systems to collect, track and report the necessary data that such a system would require;
  • “Significantly”, such an approach would enable all outreach labs to meet the majority of Medicare revenues threshold.  

3. CLIA Certificate, Not NPI
CMS rejected the idea of basing “applicable laboratory” on CLIA certificate-based definition as “overly inclusive,” explaining that it would include all hospital” labs rather than just outreach labs. In addition, the CLIA certificate is a health and safety standard that, unlike the NPI, isn’t associated with Medicare billing and can’t be used to identify revenues for specific services.

Future Lab Reimbursement Issues Still on the Table

The Final Rule addresses but reserves for later determination issues affecting future Part B reimbursements for lab tests, including:

Weighted Median Pricing: Some industry groups have called for a “weighted median” formula for calculating Medicare reimbursements which would consider the percentage of hospital labs in relation to the total market. For example, if hospital labs make up 20% of the market, data from those facilities would be weighted to 20% of the final calculation.

Low Expenditure Threshold: Another big concern for the lab industry is CMS’ proposal to reduce the “low expenditure threshold” for reporting private payor lab prices by 50%, from $12,500 to $6,250. Reducing the threshold wouldn’t make a significant impact on PAMA pricing and could overburden small labs, industry experts argue.

Latest Developments from the Litigation Front
Meanwhile, the ACLA isn’t giving up on its efforts to secure PAMA relief on the judicial front. In September, the organization suffered a setback when a federal court tossed out its lawsuit on procedural grounds. But now the ACLA has decided to appeal the ruling in the case called ACLA v. Azar. Experts like Seattle attorney David Gee say the appeal is a long shot. As any administrative attorney will tell you, the likelihood of reversal on appeal in cases like this is miniscule.

But the ACLA is all too aware of that fact. But filing the appeal is less about ultimate victory in court than keeping the case alive and maintaining the pressure on HHS. The ACLA’s apparent strategy, Gee suggests, is to leverage that pressure to negotiate changes via the legislative and regulatory process. With the threat of litigation hanging over it, HHS may be more willing to make regulatory changes.


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