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Year in Review: The 8 Most Important Lab Compliance Stories of 2023

by | Jan 9, 2024 | Elite, Inside the Lab Industry-lir, Lab Industry Advisor

Though things appeared status quo in 2023, last year may prove to be a turning point for the laboratory industry.

At first glance, 2023 was a rather unremarkable year for clinical lab regulation and compliance. Nothing really changed. The perennial challenges remained. The year yielded no significant new legislation or regulation. Even so, 2023 may prove to be a turning point. The big story of 2023 is that it laid the groundwork for new laws in 2024 affecting what for the past decade have been two of the lab industry’s most pressing regulatory headaches: Protecting Access to Medicare Act (PAMA) pricing/reporting and FDA regulation of laboratory-developed Tests (LDTs). There were also significant developments in fraud enforcement, along with a new blueprint for federal regulation of artificial intelligence (AI). Here’s an analysis of the year’s eight most important developments and their potential impact on your lab.

1. Labs dodge PAMA price cuts while laying groundwork for SALSA reform

Resolving the PAMA problem remains at the top of the lab industry’s regulatory agenda. Disaster was averted for the fifth year in a row. In mid-November, Congress passed a continuing resolution (H.R. 6363) to fund the federal government through early 2024. Section 502 of the resolution imposes another one-year delay to PAMA reporting and the 15 percent cut in Part B reimbursements for 800 common lab tests that were slated to take effect on January 1, 2024.1 It’s significant to note that among the various Medicare extenders in the legislation, only the PAMA provisions provide a full year of relief, says American Clinical Laboratory Association (ACLA) president Susan Van Meter in a recent interview with G2 Intelligence: “This is a clear indication that Congress recognizes that the current PAMA system isn’t working and needs to be fixed.”

While delaying PAMA price cuts for another year is vital, impetus is building to impose a permanent resolution. Although far better than the alternative, after five straight years of frozen prices, labs are falling behind inflation, says Erin Morton, partner at Washington, DC, lobbying firm CRD Associates, to G2 Intelligence. CRD has led the National Independent Laboratory Association’s (NILA) efforts for permanent PAMA reform on Capitol Hill.

There is a solution at hand, the Saving Access to Laboratory Services Act (SALSA) bill (S.1000 and H.R. 2377) that lawmakers introduced in both houses of Congress in March 2023. 2,3 SALSA requires the Centers for Medicare & Medicaid Services (CMS) to use a more statistically representative sample of private payer rates from independent labs, hospital labs, and physician office labs to determine Medicare Clinical Laboratory Fee Schedule (CLFS) rates, which would not only make Medicare prices more accurate but also lighten the administrative burden of price reporting by reducing the number of labs that must report. “What we need to fix PAMA is a pricing system that’s more reflective of the commercial market for lab test prices,” stresses Van Meter.

SALSA also imposes guardrails and annual limits on year-to-year price cuts (and increases) that can be imposed on a particular test, starting in 2024 and establishing a permanent cap of five percent thereafter. Editor’s note: That original 2024 start date will likely be pushed back in the 2024 version of SALSA, now that Congress has implemented a one-year delay of PAMA price cuts:

PAMA/SALSA CLFS Price Cut and Increase Caps

YearMaximum PAMA Cut/IncreaseMaximum SALSA CutMaximum SALSA Increase
20240 percent0 percent0 percent
202515 percent2.5 percent2.5 percent
202615 percent2.5 percent2.5 percent
2027no cap5 percent3.75 percent
2028no cap5 percent3.75 percent
2029 and thereafterno cap5 percent5 percent
Note: The 2024 version of the SALSA bill has yet to be published. Accordingly, this table is based on the schedule contained in the 2023 bill and the assumption that the 2024 version will push back all dates by one year.
Source: ACLA4

SALSA has bipartisan and bicameral support in Congress. More than 30 different provider organizations, including ACLA, NILA, the Association for Diagnostics & Laboratory Medicine (ADLM)—formerly known as the American Association for Clinical Chemistry (AACC)—the American Hospital Association (AHA), and American Medical Association (AMA) have stated their support for its passage.5 Its proposed solutions are also recommended by the influential and nonpartisan Medicare Payment Advisory Commission (MedPAC).

The sticking point is money. Federal pay-as-you-go (PAYGO) budgetary rules require Congress to offset new spending with tax increases or cuts in other programs. According to the Congressional Budget Office (CBO), passing SALSA would cost roughly $6 billion over 10 years. However, Van Meter points out that the CBO figure is only a preliminary and unofficial estimate based on a MedPAC report with a limited data set. “To assist CBO, ACLA did the hard work of crunching actual commercial claim numbers from the FAIR Health database from 2016 to 2022,” she says. ACLA’s microsimulation model yielded a SALSA price tag of $2.8 billion over 10 years. The organization plans to share its work with CBO in determining the official 10-year scorecard that Congress will rely on in making the PAYGO cuts necessary to adopt SALSA.

Takeaway

While it didn’t happen in 2023, the groundwork has been laid for passing SALSA next year. “The lab industry is in a unique position in that Congress has acted five years in a row in recognition that PAMA hasn’t gone right,” explains Van Meter. “People in Congress are telling us that ‘we know we must address this’—something you don’t hear said about many health issues.”

Of course, there was also optimism this time last year. But as Morton points out, one big difference is that unlike in 2023, the 2024 Congress will be the same as it was last year. “The consensus is there, the sponsors remain the same, the bill is in place and doesn’t need to be reintroduced, the outreach has been done, and the grassroots messages overwhelmingly supporting SALSA have been sent.” Now it’s just a matter of keeping this drumbeat going and figuring out how to pay for SALSA. Having done the heavy lifting for CBO, the ACLA is hopeful that the scorecard issues can be quickly and fairly resolved.

2. FDA proposes new regulatory rule for LDTs

This year also saw major developments in another regulatory issue of longstanding concern, namely, FDA regulation of LDTs. The root of the problem is the FDA’s insistence that its authority to regulate medical devices under the Federal Food, Drug, & Cosmetic Act extends to LDTs. There are many who question that view and think that the FDA should be completely divested of its regulatory authority over LDTs, including sponsors of a bill called the Verified Innovative Testing in American Laboratories Act (VITAL) that would transfer the agency’s LDTs powers to the U.S. Department of Health and Human Services (HHS).

Until this year, the assumption was that the LDTs issue would be settled by Congress in the form of new legislation. In 2022, Congress twice came close to adopting a reform bill called the Verifying Accurate Leading-edge IVCT Development (VALID) Act that would have left FDA regulation of LDTs in place. However, instead of regulating lab tests as medical devices, VALID would have created a separate, risk-based framework for in vitro clinical tests (IVCTs) requiring FDA premarket review for high-risk tests while allowing lower-risk tests to reach the market via a far less stringent technological certification process.6 But like its predecessor with the same name, VALID failed to pass.

Deciding that the need for LDTs regulation was too pressing to wait for Congress, the FDA decided to resolve the problem on its own via the federal rulemaking progress. On October 3, the agency issued a proposed rule extending its medical device regulatory powers to LDTs. The FDA scheme would make all LDTs subject to all FDA controls, including not just 510(k) premarket approval (PMA) but also postmarket rules, including:7

    • quality system (QS) regulation,

    • medical device reporting (MDR),

    • registration and listing, and

  • labeling.

There is also nothing in the proposed rule grandfathering current LDTs that have secured FDA clearance.

Takeaway

In addition to questioning the agency’s constitutional authority to create it, many in the lab industry, including academic institutions and clinical organizations, have expressed concern that the FDA rule would thwart vitally needed LDTs. “LDTs are not devices,” ADLM president Octavia Peck Palmer, PhD, tells G2 Intelligence. “There’s already a strict framework for regulating LDTs under CLIA,” she explains, noting that the labs that develop LDTs go through rigorous inspection by federal agencies.

Critics also take issue with the FDA’s notion that LDTs are a potential harm. “Most LDTs aren’t commercial products,” says Peck Palmer. “They’re developed by labs in close collaboration with physicians to serve local patient needs.” She adds that the proposed rule says nothing about exemptions for noncommercial LDTs that serve vital health functions. As an example, she points to blood spot tests that screen newborns for conditions like phenylketonuria (PKU), the inability to metabolize phenylalanine. “If these tests weren’t available, PKU may not be caught early and phenylalanine will be allowed to build up in a newborn’s brain, potentially resulting in cognitive issues. Drug tests used to screen unconscious patients in the ER for the presence of fentanyl are another example of currently non-FDA approved LDTs that serve a vital public health purpose,” Peck Palmer says.

In a recent statement on the new rule, the ACLA added that it takes issue with the FDA’s “unilateral” approach to LDTs regulation, emphasizing that the FDA should instead continue to work with Congress on developing a solution that works for all stakeholders.8

“ACLA steadfastly maintains that legislation is the right—and only—approach for further oversight of LDTs,” the association wrote. “ACLA believes the proposed rule represents regulatory overreach and should be withdrawn.”8

Bottom Line: Morton says that the FDA appears determined to move fast, noting the agency’s refusal to extend the original December 4, 2023 comment date for the proposed rule. She and others close to the situation believe that a Final Rule will come as early as April and well in advance of the November presidential election. Labs that develop and use LDTs will thus have to pay very close attention to the situation.

3. SCOTUS drops a False Claims Act whistleblower bombshell

While SALSA and LDTs have attracted lots of attention, one of the most significant and far-reaching developments in lab compliance and regulation in 2023 has gone almost completely unnoticed. The story is the US Supreme Court’s ruling in a case called U.S. ex rel. Polansky.9

At issue was Section 3730(c)(2)(A) of the False Claims Act (FCA), which empowers the government to seek to dismiss a lawsuit it believes lacks merit or harms the public interest. What used to be deemed a relatively obscure provision has gained greater significance in the past decade because US attorneys are using it more frequently to get cases thrown out of court.10 This has led to controversy over the clause’s scope and limitations. On June 16, 2023, the Supreme Court issued a ruling to resolve the split among the federal circuit courts.

The case began when a physician filed a qui tam suit accusing a hospital billing firm of enabling clients to falsely bill Medicare for outpatient services at higher-reimbursing inpatient rates. For two years, the case remained under seal until the U.S. Department of Justice (DOJ) decided not to intervene. The physician proceeded with the case anyway. The result was five years of discovery in which both sides spent large amounts of time and money taking depositions and seeking to gather evidence. The DOJ decided that things were getting out of hand and that the costs of the case greatly outweighed the benefits. So, it invoked its Section 3730(c)(2)(A) authorities and asked the court to dismiss the case. After two rulings in the DOJ’s favor, the case reached the Supreme Court.

In an 8-1 decision, the court ruled that the DOJ may seek dismissal of a qui tam suit at any stage in the litigation, even if it declined to intervene in the case during the seal period. It instructed the courts to follow the normal rules governing voluntary dismissal of lawsuits under Section 41(a) of the Federal Rules of Civil Procedure, which is a very easy standard for the government to meet.11

Takeaway

The Polansky decision gives the DOJ wide latitude to get what it deems unworthy qui tam lawsuits dismissed at any time in a proceeding. While that may sound like a legal technicality, it has potentially enormous significance for whistleblowers because it increases the risks of bringing a qui tam lawsuit and could increase your lab’s leverage. Explanation: DOJ intervention or lack thereof is often the tipping point in whistleblower litigation. Thus, labs sued by a whistleblower generally have to expend significant time, effort, and expense to persuade the DOJ not to intervene. But having met that hurdle, labs may still have to defend themselves if the relator decides to proceed with the case anyway. Polansky will make the decision to litigate without the government much riskier. In addition, the prospect of the government asking that a bad qui tam case be thrown out of court may give labs and other defendants new strategic options, such as seeking the DOJ’s intervention in the case, while enhancing their leverage in settlement negotiations.

The other takeaway from Polansky is the “nonbinding dicta,” or suggestion (as opposed to a binding decision) by three justices that the qui tam provisions of the FCA might be unconstitutional.9 That might set up a future case probing the constitutionality of FCA qui tam lawsuits.

4. OIG calls out CMS for G0483 definitive drug test overpayments

In a February report, the HHS Office of Inspector General (OIG) found that CMS’s failure to implement proper program safeguards cost Medicare up to $215.8 million on medically unnecessary at-risk payments for definitive drug tests over a five-year period. Under Medicare rules, definitive tests are deemed medically necessary only when presumptive tests to detect the presence or absence of drugs in patients undergoing treatment for pain management or substance use disorders come back positive or inconclusive. The highest reimbursing definitive drug test is billed under procedure code G0483, covering 22 or more different drug classes. Based on an audit of claims from 2016 to 2020, the OIG concluded that providers may have billed G0483 definitive testing for 22+ drug classes as a matter of routine, rather than basing that determination on the presumptive test results as required by Medicare rules.12

Takeaway

CMS has agreed to review G0483 payments to certain at-risk providers, i.e., those that submit bills for G0483 tests to Medicare at disproportionate rates as compared to peer labs, and seek to recover any overpayments identified. However, CMS didn’t agree with the OIG’s recommendation to trigger the 60-day rule overpayment requirement by notifying providers that they’re under suspicion.13

5. OIG greenlights lab patient gift card arrangement

Issued on March 24, OIG Advisory Opinion (AO) 23-03 offers clarification about when a lab can offer customers a gift card for returning their at-home kit for lab testing without running afoul of the Anti-Kickback Statute (AKS) and other fraud laws. The arrangement involved payment of $75 gift cards to users of the only FDA approved non-invasive colorectal cancer screening test for average-risk patients for returning their stool samples to the lab for testing.14 In approving the arrangement, the OIG stressed that the U.S. Preventive Services Task Force (USPSTF) has recommended the test for average risk adults ages 45 to 75.15 The agency also cited the extensive guardrails in place to ensure the arrangement didn’t constitute illegal “remuneration” in exchange for referrals under the AKS nor to Medicare beneficiaries under the Beneficiary Inducements CMP, aka, section 1128A(a)(5) of the Social Security Act.

Takeaway

While it seems like an encouraging development, Nashville healthcare attorney Danielle Sloane cautions against treating the AO as a green light for patient gift cards. The real takeaway for labs contemplating such arrangements is just how narrow and limited the AO is, she says:

    • The OIG found it unlikely that the proposed arrangement would result in overutilization or increased costs to federal healthcare programs since each patient would be limited to one gift card per 36-month period to align with Medicare coverage rules and USPSTF recommendations.

    • The arrangement would advance a compelling public health purpose, namely, the prevention of colorectal cancer, which is the third most commonly diagnosed cancer in the US, according to the American Cancer Society.16

  • The company promised to implement safeguards to curb the risk of fraud or abuse, including processes to ensure that it didn’t inadvertently send gift cards to patients that had already received a gift card from the company in the past 36 months, not running ads or promoting the gift card arrangement to consumers, and refraining from advertising or marketing the proposed arrangement or offering or paying any remuneration to test prescribers in connection with the arrangement.

Sloane says that the final safeguard is of particular importance. “This wasn’t a situation where a lab company actively reached out to get physicians to order a test; the gift card arrangement applied to patients for whom tests had already been ordered.”

6. OIG sounds alarm on genetic testing molecular fraud pathology billing abuses

Medicare spending on high-priced genetic tests has been of growing concern to the OIG. On June 23, 2023, the agency published a report alerting CMS to potential abuses by labs using CPT code 81408 to bill for a level 9 molecular pathology procedure (MPP) for the testing of 24 different genes associated with rare diseases. Based on an audit of Part B claims for over 450,000 genetic tests billed with 81408 for dates of service from 2018 through 2021, the OIG concluded that CMS and its Medicare Administrative Contractors (MACs) didn’t do an adequate job of overseeing 81408-related payments. The report calls on CMS to recover as much of the $888.2 million that Medicare might have overpaid for these tests during the four-year audit period.17

Takeaway

Labs that submitted relatively high volumes of claims to Medicare for 81408 tests, take heed. MACs have been ordered to review a sample of claims to verify coding accuracy and perform additional reviews if the sample results warrant. Claims may also be reopened if they fall within the CMS four-year claim-reopening period. To demonstrate compliance with Medicare rules and avoid potential liability for improper payments of tests billed under CPT 81408, labs will have to be able to document that: (1) there was an established relationship between the Medicare Part B enrollee and the ordering physician or nonphysician practitioner (NPP); and (2) CPT 81408 was appropriate and medically necessary for the genes targeted by those tests. For example, the OIG found that 24.3 percent of the claims audited listed essential (primary) hypertension as the principal diagnosis code even though 81408 isn’t deemed reasonable and necessary for hypertension under Medicare rules.17

7. Feds crack down on COVID-19 lab testing fraud

Cracking down on COVID-19 scams has become a top priority for the federal government. In August, the DOJ announced the results of a coordinated, nationwide effort involving over 700 enforcement actions, including 371 criminal cases, for COVID-19 fraud. In addition to misuses of federal relief funds, enforcers are targeting labs that took advantage of the relaxed billing and coverage rules CMS put in place during the public health emergency (PHE).18 On October 5, the owner of California toxicology lab Matias Clinical Laboratory, dba Health Care Providers Laboratory (HCPL), pleaded guilty to billing Medicare for $359 million worth of medically unnecessary respiratory pathogen panel (RPP) tests performed on patients referred for COVID-19 tests.19 According to court documents, HCPL bundled low-price COVID-19 tests with the more costly RPPs designed to detect multiple pathogens, without regard to patients’ needs for such tests.20

Takeaway

The OIG has been sounding the warning on potential add-on testing fraud by labs from almost the moment that CMS issued its relaxed policy for the PHE.21 The case against HCPL is one of the first enforcement actions to reclaim these ill-gotten COVID-19 add-on RPP test revenues but it likely won’t be the last. To withstand potential scrutiny from government investigators and private payers, compliance and billing managers of labs that performed RPPs or other tests in conjunction with COVID-19 testing should ensure:

    • They have requisitions or other records showing that the treating physician or NPP ordered all of the tests the lab performed for the purposes of diagnosing or treating the patient;

    • The patient’s medical record contains information showing why the COVID-19 and any additional tests performed were medically necessary for that particular patient—mere reliance on Centers for Disease Control and Prevention or other guidelines recommending respiratory tests of COVID-19 patients with respiratory symptoms won’t be enough; and

  • There’s documentation showing that the ordering physician or NPP actually used the results of each test performed to diagnose and treat the particular patient.

8. Biden administration lays the groundwork for AI regulation

Looking to 2024, labs should keep a close eye on what happens with regulation of AI. “Use of the technology has significant implications for clinical labs on both the diagnostics and business operations side,” ACLA president Van Meter notes, while adding that the organization has been reaching out to members while working with senators Bill Cassidy, MD (R-LA), Chuck Schumer (D-NY), and other lawmakers from both parties and chambers on legislation. She characterizes this work as “at a very high level at this point” but expects AI to play a growing role in the ACLA’s future agenda.

In fact, a major development in AI occurred this year on October 30 when President Biden signed a first-of-its-kind executive order (EO) laying out a “coordinated, Federal Government-wide approach” to regulating AI.22 A wide-ranging document aimed at protecting consumers and national security, the “Executive Order on the Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence” includes provisions addressing health care.

Takeaway

“The EO is a useful playbook indicating what the administration plans to do about AI in the future,” says Van Meter. Specifically, Section 8(b) of the EO requires the Secretary of HHS to take measures to “ensure the safe, responsible deployment and use of AI” in healthcare, including with regard to:22

    • healthcare delivery and financing, including quality measurement, performance improvement, program integrity, benefits administration, and patient experience;

    • long-term safety and real-world performance monitoring of AI-enabled health technologies;

    • incorporation of equity principles and safety, privacy, and security standards into AI-enabled health technologies; and

  • use of AI “to promote workplace efficiency and satisfaction in the health and human services sector, including reducing administrative burdens.”

References:

    1. https://www.congress.gov/bill/118th-congress/house-bill/6363/text

    1. https://www.congress.gov/bill/118th-congress/senate-bill/1000/text

    1. https://www.congress.gov/bill/118th-congress/house-bill/2377/text?s=1&r=36

    1. https://www.acla.com/

    1. https://www.acla.com/letter-from-leading-provider-organizations-on-passing-the-saving-access-to-laboratory-services-act/

    1. https://www.congress.gov/bill/117th-congress/senate-bill/2209/text

    1. https://www.federalregister.gov/documents/2023/10/03/2023-21662/medical-devices-laboratory-developed-tests

    1. https://www.acla.com/fda-proposed-rule-to-regulate-ldts-as-medical-devices-would-slow-development-of-critical-lab-tests-and-should-be-withdrawn-acla-urges/

    1. https://www.supremecourt.gov/opinions/22pdf/21-1052_fd9g.pdf

    1. https://www.g2intelligence.com/granston-memo-whistleblower-dismissals-may-be-tougher-than-doj-thought-2/

    1. https://www.federalrulesofcivilprocedure.org/frcp/title-vi-trials/rule-41-dismissal-of-actions/

    1. https://oig.hhs.gov/oas/reports/region9/92103006.pdf

    1. https://www.g2intelligence.com/compliance-perspectives-how-to-comply-with-the-cms-60-day-overpayment-repayment-rule/

    1. https://oig.hhs.gov/documents/advisory-opinions/1109/AO-23-03.pdf

    1. https://www.uspreventiveservicestaskforce.org/uspstf/recommendation/colorectal-cancer-screening

    1. https://www.cancer.org/cancer/types/colon-rectal-cancer/about/key-statistics.html

    1. https://oig.hhs.gov/oas/reports/region9/92203010.pdf

    1. https://www.justice.gov/opa/pr/justice-department-announces-results-nationwide-covid-19-fraud-enforcement-action

    1. https://www.justice.gov/opa/pr/woman-pleads-guilty-359m-fraud-involving-claims-unnecessary-respiratory-tests-submitted

    1. https://www.justice.gov/criminal-fraud/file/1580161/download

    1. https://www.g2intelligence.com/cms-to-crack-down-on-unnecessary-covid-19-add-on-tests/

    1. https://www.whitehouse.gov/briefing-room/presidential-actions/2023/10/30/executive-order-on-the-safe-secure-and-trustworthy-development-and-use-of-artificial-intelligence/

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