PAMA: The New LAB Act Buys Labs One Year of Price Reporting Relief

The lab industry has been making slow but steady progress in its quest for PAMA relief. After winning a federal court appeal preserving its right to challenge CMS’s PAMA pricing systems, the industry achieved one of its key legislative priorities for 2019, passage of the Laboratory Access for Beneficiaries Act (LAB Act), which delays the next round of PAMA reporting for one year. Here’s a rundown of the LAB Act and where things stand with regard to the larger PAMA situation.

The LAB Act

The Protecting Access to Medicare Act (PAMA) requires CMS to base Medicare Part B lab test reimbursement rates on the actual market prices labs charge private payors. To carry out this mandate, CMS requires participating labs to report pricing information and then uses the data to set rates for particular tests under the Clinical Laboratory Fee Schedule (CLFS). While price reporting is all well and good, the problem with the CMS scheme is that it excludes hospital labs, a group that not only represents a significant part of the market but also commands higher prices due to its relatively greater leverage vis-à-vis private payors. As a result, current reporting results in lab prices artificially low in direct opposition to the PAMA mandate of implementing truly market-based pricing.

At the start of 2019, CMS gave some ground by extending PAMA reporting to a segment of hospital labs. But the change was abrupt and many hospital labs weren’t prepared to meet their reporting obligations on time.

Labs were supposed to report the next round of pricing data between Jan. 1 and March 31, 2020. The plan was for CMS to use that data to set CLFS lab test rates for the next three years, beginning on Jan. 1, 2021. The LAB Act, which was passed as part of an end-of-year spending package, delays that process by a year. That’s a big deal because it gives hospital labs more time to collect payment data and thereby increase their participation in the process.

The LAB Act also paves the way for additional PAMA reforms by commissioning a study on how to improve data collection and rate setting to better reflect Congress’ original intent of a market-based fee schedule for clinical lab services. “Fortunately, Congress’ decisive action puts us on the path to enact meaningful PAMA reforms that will protect seniors’ access to essential lab services, as the law originally intended,” noted American Clinical Laboratories Association (ACLA) President Julie Khani in a statement.

Impact of LAB Act

 Giving hospital labs more time to report pricing data won’t prove meaningful if they’re not willing to go along with the idea. The American Hospital Association (AHA) opposed CMS’ move to require hospital labs to collect and report private payor data under PAMA, arguing that the burden of reporting this data outweighs whatever boost in pricing reporting might provide. The refusal of many hospital labs to participate could limit the LAB Act’s effectiveness. However, the delays enacted by the law would give the industry time to pursue other efforts to blunt PAMA’s impact, most notably ACLA’s ongoing lawsuit challenging the rate-setting process.

The LAB Act also offers nothing in the way of immediate price relief. According to Wall Street analyst William Quirk, while the data collection would originally have provided a “small positive update” in 2021 lab reimbursements, the delay will impact 2022 pricing, instead, as reimbursements in 2021 under PAMA will be based on the original PAMA schedule from data collected during the 2017 period and not the 2020 reporting period. He added the delay is “incrementally negative” for the LabCorp and Quest.

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