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Medicare reimbursement to clinical laboratories would be severely reduced under preliminary payment amounts for laboratory tests paid under a new market-based Clinical Laboratory Fee Schedule (CLFS) as required by the Protecting Access of Medicare Act of 2014 (PAMA). The bombshell Sept. 22 proposal was published by the Centers for Medicare & Medicaid Services (CMS) and following a 30-day comment period, the proposed rates will be finalized sometime this November for implementation starting January 1, 2018.

What’s the bottom-line for labs? About three quarters of all test codes on the revised CLFS would have their payment amounts reduced under the weighted median of private payor rates while a mere 10% would be raised. Even worst for labs, the preliminary market-based CLFS rates would result in a cumulative reduction averaging roughly 35% for the majority of high volume tests over the next few years. These cuts will be phased in, with a maximum 10% per year for each of the first three years (2018-2020) and no more than a 15% cut per year for the following three years (2021-2023).

Underscoring the severe nature of the proposed cuts for labs, CMS estimates that Medicare spending on lab testing would be slashed by a whopping $670million in 2018 alone — nearly 10% of the estimated $6.8B that Medicare Part B would have spent on lab testing in 2018 without PAMA. When corresponding cuts in Medicaid and other government programs as well as commercial plans that set their payments in line with Medicare rates, U.S. labs could suffer catastrophic cuts totaling one billion or more starting next year.

The one bright spot in the revised CLFS involves advanced testing where certain molecular codes particularly proprietary tests would see stable to increasing prices under the market-based approach.
Not surprisingly, industry reaction is sharply negative with calamitous impact forecast by some analysts for nursing home and community labs. “The preliminary rate calculations are flawed due to the way the exercise was designed, resulting in lack of true market and industry participation in the rate setting,” stated XIFIN CEO Lale White. In fact, CMS used privatepayer data collected from 1942 reporting labs, of which only 21 were hospital labs, to calculate new rates for each lab test. Only about 34 percent of the lab market is represented according to White, with two major labs — Quest Diagnostics and Lab Corp — representing 80 percent of the volume used to calculate the rates. One leading industry group, the American Clinical Laboratory Association, is reportedly actively considering a lawsuit to block the government from proceeding with the new market-based payment system.