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Special Analysis: Two Key Legislative Initiatives Labs Should Know About

by Scott Wallask | Apr 3, 2024 | Elite, Lab Industry Advisor, Legislation-lca

Though potential FDA LDTs regulation has drawn a lot of attention, other efforts could also have long-term effects on how labs do business.

While much of the clinical laboratory world’s attention is on expected new regulation of laboratory-developed tests and efforts to avert lab test rate cuts at the start of 2025, there are other important initiatives going on in Washington that could also have long-term effects on how labs do business.

This Special Analysis will provide decision-makers and compliance officers responsible for overseeing laboratory operations with a look at two key initiatives—one a final rule and one a bill that has passed the U.S. House of Representatives—and outline what compliance might look like.

These two initiatives include:

- The Interoperability and Prior Authorization Final Rule,¹ which goes into effect on April 8, 2024. Under the regulation, private payers will be required to give providers, including many labs, access to a new a prior authorization API by 2027.

The Lower Costs, More Transparency Act,² which passed in the House of Representatives on December 11, 2023, as bill H.R.5378. The proposed law includes provisions for clinical labs to publicly post prices for diagnostic tests by January 1, 2026. The full U.S. Senate has not discussed this topic since early 2023, although Senate committees have debated parts of it.

Taken together, these initiatives increase the amount of information that consumers in the US can expect when it comes to diagnostic services. Laboratory leaders need to be aware of the role labs will play as compliance dates inch closer.

Jeffrey Davis, health policy director at McDermott+Consulting

The initial proposed rule for prior authorization came out in December 2022. “The final rule was a long time coming,” says Jeffrey Davis, health policy director at McDermott+Consulting. “This final rule does not constrain the use of prior authorization, but it sets up timeframes and tries to improve the exchange of information about prior authorization.”

When it comes to price transparency mandates, the Medicare program is demanding clearly stated pricing from providers, says Stephanie Kennan, senior vice president for federal public affairs at McGuireWoods Consulting. “And I think consumers are saying the same thing,” she adds.

Let’s look at these issues in more detail.

Prior authorization is a long-time concern for labs

Prior authorization has long been a thorn in the side of diagnostic laboratories. A common scenario for labs is to get a test requisition from a provider—perhaps for a genetic assay—only to have a payer’s prior authorization team either kick back the request for lack of information or be slow to respond.

In such cases, labs can find themselves in an uncomfortable corner: Either swallow the cost of the test to keep the order moving along for patient diagnosis or halt the test. The latter option annoys the patient and ordering physician while waiting for a payer’s approval.

Though the new rule does not restrict the use of prior authorization, it attempts to eliminate some of the delays in the process. “There’s still going to be prior authorization for labs,” Davis says. “What the rule will to do is automate that process more and set up timeframes for responding to prior authorization requests.”

A noticeable gap in the rule is that it does not apply to employer-sponsored health plans (also called self-insured plans). “Those plans cover a huge subset of the population—people who receive their healthcare coverage through employers,” Davis notes.

Technology aims to automate aspects of prior authorization

Insurance plans will need to provide access for labs to a prior authorization API by January 1, 2027. APIs can be different among various payers.

An API—which stands for application programming interface—is code that allows different software platforms to communicate.³

“Providers can use the prior authorization API to determine whether a specific payer requires prior authorization for a certain item or service, thereby easing one of the major points of administrative burden in the existing prior authorization process,” according to the rule, which was published by the Centers for Medicare & Medicaid Services (CMS).

According to a CMS fact sheet,⁴ the API must also communicate whether the payer:

- approves the prior authorization request (and the date or circumstance under which the authorization ends)

- denies the prior authorization request (and a specific reason for the denial), or

requests more information

“The API will help automate prior authorization requests instead of labs sending in a fax or email,” Davis explains.

The rule also sets new requirements for how quickly payers need to respond to prior authorization requests from labs and other providers. Most payers will need to send prior authorization decisions within 72 hours for expedited, urgent requests and within seven calendar days for standard, non-urgent requests.

This provision is a mixed bag for labs awaiting prior authorization decisions, Davis says. “Seven calendar days is still a long time for standard requests,” he notes. “But expedited requests can be resolved within three days—72 hours.”

These timeframes go into effect on January 1, 2026.

The rule estimates implementation will cost more than half a billion dollars within the first three years. Payers will assume most of these costs.

However, estimated time and financial benefits appear to outweigh the costs, according to the rule. “Based on our estimates, the total burden across all providers would be reduced by at least 220 million hours over 10 years, resulting in a total cost savings of at least $16 billion over 10 years,” the rule states.

Bill progresses to mandate price transparency for lab tests

Switching gears, let’s look at what’s happening on the price transparency front.

Under the Lower Costs, More Transparency Act—which still needs to also pass the Senate before becoming law—labs would be required to publicly post information online about diagnostic tests that they offer and update this list annually.

Specifically, the law would mandate that labs post the following information about a given test:²

- Discounted cash price for such test or, if no such price exists, the gross charge for such test.

- De-identified minimum, payer-specific negotiated charge between the lab and any third-party payer for the test.

De-identified maximum, payer-specific negotiated charge between the lab and any third-party payer.

Stephanie Kennan, senior vice president for federal public affairs at McGuireWoods Consulting

“The transparency bill is important to pay attention to,” Kennan says. “There are a lot of things going on right now in Washington affecting labs, and this bill is not moving quite as fast as others, but a lot of things can happen after the presidential election.”

Under the bill, the rate for a test includes the price of any ancillary service, such as specimen collection, that a lab would normally provide as part of the test.

It would be up the U.S. Department of Health and Human Services (HHS) to outline the format to compile this pricing information as part of rulemaking stemming from the bill if it passes.

If HHS were to determine that a lab was out of compliance with this regulation, it would need to notify the lab within 30 days. After 90 days, continued failure to comply could result in maximum penalties of $300 for each day of noncompliance.

Labs Urged to Review Test Menus Now as They Face FDA’s Upcoming LDT Regulation

By the time you read this briefing, it’s possible that the U.S. Food and Drug Administration (FDA) will have published its final rule about regulating laboratory-developed tests (LDTs). And if the rule is not out yet, it likely will come soon, as the agency wants to release the final version in April.⁷

As Lab Industry Advisor has reported previously, the proposed FDA rule would regulate LDTs under the same level of scrutiny as commercial in vitro diagnostics, including the potential need for data collection about an LDT’s effectiveness.⁸ The agency has stated that the need for improved patient safety and test quality warrant these additional measures.

Though the rule’s most significant provisions won’t go into effect until at least 2027, for labs that develop LDTs, now is the time to start considering how the regulation will affect finances, said Susan Van Meter, president of the American Clinical Laboratory Association (ACLA). She spoke on Bloomberg Intelligence’s Votes and Verdicts podcast in February.⁹

“You need to consider what’s the cost of developing [an LDT], the clinical studies necessary to prepare a submission, and the cost of the submission itself if it’s a 510(k),” Van Meter said on the podcast. “But if we’re talking about rare disease, more likely that’s going to be a PMA or De Novo,” which have larger financial implications.

PMA refers to a premarket approval application to the FDA for Class III, high-risk medical devices, which costs $483,560 to file, according to a list of FDA registration fees for 2024.¹⁰ De Novo is a classification for novel devices, and those applications cost $145,068. By comparison, 510(k) fees are $21,760.

Van Meter noted that one ACLA member has developed several hundred LDTs. For half of those tests, annual revenue from each LDT is less than the cost of a 510(k) fee. From that perspective, the member lab now must decide which LDTs to keep on its test menu to meet revenue goals and patient needs, she added.

Meanwhile, labs that develop high-risk LDTs must start budgeting for the significant costs of submitting De Novo or PMA applications—or drop the tests altogether.

“The big cost would come in meeting the requirement that is three-and-a-half years out, which is submission of all high-risk tests that are LDTs,” Van Meter said. “A laboratory needs to be taking a look at their menu now and determining which tests they believe would be considered high-risk tests.”

A frequent criticism of the FDA’s proposal is that it would stifle the creation of innovative LDTs, with increased costs being a big factor.

Given that the larger transparency bill would affect other providers, if a hospital were to publish a list of lab test prices, the lab in question would not need to post its own list separately.

Another provision would eventually require lab services furnished in off-campus outpatient departments to post the same prices as affiliated inpatient hospital labs. “There’s a concerted effort not to have lopsided payments, depending on your site,” Kennan says.

‘Shoppable services’ for labs may be up for debate

If the bill passes, it will be up to HHS to issue rulemaking to implement the law’s provisions. An area to watch for at that point will be how the agency addresses “shoppable services” for labs, Kennan notes.

CMS defines shoppable services as those that can be scheduled by a consumer in advance, such as a joint replacement or a flu shot.⁵ It’s unclear how lab tests fit into that definition. Generally, consumers do not schedule their own lab tests, although the bill mentions lab tests as shoppable services.

“We know what shoppable services are in general for a hospital,” Kennan explains. “But trying to define exactly what they mean by shoppable services for labs is something else.”

In December 2023, the Congressional Budget Office (CBO) noted that the overall price transparency bill would reduce the federal deficit by $715 million over 10 years, likely due to more streamlined pricing.⁶ However, the CBO determined that lab test price transparency would have no effect on federal spending or revenue. The CBO did not note any costs the lab industry would shoulder to implement the provisions.

Key takeaways from our analysis

Given the movement by Congress and regulators as it concerns lab test price transparency and prior authorization, decision-makers in clinical laboratories should add the following considerations to their “to do” list:

- Can the lab determine how much time its staff will save if automation of prior authorization through an API proves to be efficient? Those hours could be redirected to revenue-earning activities rather than digital paperwork.

In competitive communities, will a lab be prepared to market its public pricing for diagnostic tests and bring in more patients? Consumers are accustomed to comparing prices online for services, so a laboratory that can quickly jump on any test price advantages may get an early boost of new customers. It might even be worth posting this information sooner instead of waiting for the congressional bill to mandate it.

More attention should be given now to the prior authorization endeavor given it will soon be an active regulation. However, in the long term, the price transparency bill may have a bigger influence on labs in terms of attracting new customers.