PAMAgeddon: GAO Official Acknowledges Flaws in Lab Price Report as a Powerful Senator Enters the Scene

In November 2018, the U.S. Government Accountability Office (GAO) issued a controversial report suggesting that the new PAMA system will result in billions of dollars worth of Medicare overpayments for future tests. And now it turns out that the GAO report may have been seriously flawed. That conclusion comes not from the lab industry but the actual report author.

The GAO Report Brouhaha
To assess the future financial impact of CMS' implementation of new PAMA lab payment rates, the GAO analyzed 2016 Medicare claims data. The conclusion: By 2020, Medicare costs could increase by as much as $10.3 billion due to the unbundling of certain lab panel tests. The GAO also suggests that labs are receiving "excess payments" by no longer charging Medicare reduced rates for bundled tests.

Of course, this conclusion flies directly in the face of what the lab industry and other critics have been saying about PAMA. The lab industry lost no time in criticizing the report, contending that the GAO's findings on unbundling and excess payments are based entirely on a fundamental misunderstanding of how labs bill and are reimbursed for panel testing. Rather than acknowledge the standard practices of billing Medicare for panel tests based on CPT codes currently carried out by the vast majority of labs across the country, the GAO "concocted a hypothetical scenario that suggests labs are unbundling certain panel tests and receiving larger reimbursements for individual tests," according to an American Clinical Lab Association (ACLA) press release.

"It's clear that the GAO overlooked standard industry practices and instead concocted hypothetical scenarios to inform its recommendations and conclusions," the press release continues. "In the process, the report neglects the dangers that CMS' year-over-year cuts pose to the clinical laboratory industry and the patients they serve."

The GAO's Admission
While not necessarily agreeing with the ACLA's conclusion, the GAO has admitted that at least part of its contentions with regard to methodology are true. The GAO's findings are not reflective of current industry practice, but based on a hypothetical scenario, acknowledged James Cosgrove, GAO health care director and author of the report, during a recent interview.

However, Cosgrove wasn't backing down and continued to defend the report's findings. "We weren't analyzing what labs are or aren't doing," Cosgrove said. "We were analyzing what the exposure to Medicare would be."

The Grassley Factor
Meanwhile, one of the country's most powerful lawmakers has waded into the controversy. Elected to the Senate in 1980, Senator Charles Grassley (R-Iowa) has become a fierce advocate for lower health care prices and a thorn in the side of the drug companies. And this January, he became one other thing: Chairman of the powerful Senate Finance Committee.

Senator Grassley read the GAO report; and he apparently believed it. And now he's determined to find out what CMS intends to do to fix the "overspending" on lab tests problem. In a recent letter, he poses a series of specific questions.

Senator Grassley's 6 Questions to CMS on Supposed PAMA Lab Overpayments

1. What steps have been taken to ensure that all labs which are expected to report data to HHS actually do so?
2. Does HHS agree with the GAO recommendation that CMS phase in payment-rate reductions based on actual rather than maximum rates? If so, what steps have been taken to amend relevant HHS rule(s) and implement the GAO recommendation?
3. Does HHS believe it has the authority to create CPT codes for panel tests where they don't currently exist, or take other steps to ensure the completion of a bundled payment while remaining compliant with the provisions of PAMA and other relevant federal laws? If so, why has HHS paid individual rather than bundled rates for these panel tests?
4. Did CMS make a systems edit to its claims processing system that prevented CMS from detecting whether individually billed tests should have been bundled? If so, why?
5. What's the status of efforts to detect panel tests where CPT codes do exist but haven't been correctly billed by labs? When does CMS believe it will be able to effectively detect and correct the billing problems?
6. Did CMS know how many labs billed individual tests and received a higher reimbursement rate when they should have billed as a panel code during the time the claims processing system was unable to detect when a panel CPT code was appropriate? Is CMS able to perform an audit to determine that number and the cost in excess reimbursement? 

While Grassley's letter does ask some important questions, it also overlooks lab industry concerns. Indeed, some of the questions flat-out ignore key points. For example, Grassley asks whether CMS can create new CPT codes for panel tests and enforce existing panel test codes so it can continue to make bundled payments while remaining compliant with PAMA. He also asks whether CMS plans to amend a rule so it can base pricing reductions on average instead of maximum Medicare payment rates.

Takeaway: Grassley's questions seem to reflect an indifference to lab industry concerns. Yet, his intervention may prove a blessing in disguise. While his agenda is to cut medical prices, Grassley is also known as a dogged investigator who's fair, intelligent and determined to unearth the truth, precisely the qualities that many in industry believe have been missing in PAMA pricing implementation.