In enacting the Eliminating Kickbacks in Recovery Act of 2018 (EKRA) late last year, the U.S. Congress approved an unprecedented expansion of federal anti-kickback authority. EKRA adds an all payor anti-kickback rule to the health care fraud law concerning improper remuneration for patient referrals to, or in exchange for an individual using the services of, a recovery home, clinical treatment facility or clinical laboratory.

The problem for clinical laboratories is that the language of the statute is very broad with the term laboratory not limited to just those facilities associated with substance abuse services but potentially extending to all lab services.

Moreover, EKRA seems to implicate engagement of sales and marketing representatives, as such individuals are compensated for inducing referrals.

In short, EKRA now enables the government to monitor provider arrangements intended to generate business for any laboratory service paid by a federal health care program or commercial health insurer. So what’s the big deal? Well, the ERKA hammer is that a violation is punishable by a fine of up to $200,000 and/ or imprisonment of up to 10 years for each occurrence.

Many Washington observers expect either Congress to amend ERKA to clarify that it implicates only those lab services provided in a recovery home or clinical treatment facility or HHS to clarify whether it believes payments to sales personnel now permitted under the anti-kickback law safe harbors are prohibited by ERKA.

But legal opinion is mixed regarding what labs should do until there is some official clarification on how ERKA impacts lab business arrangements. A good many lab companies including the national labs appear to be taking a “wait and see” attitude for now but others are following the counsel of some legal experts who advise labs to review current compensation arrangements with sales personnel, including both its employees and independent contractors to ensure compliance with ERKA.

Get ready for some major market challenges ahead in the $97 billion U.S. laboratory industry according to a new research report, “The U.S. Clinical Laboratory Industry Forecast & Trends 2018-2020,” published by Laboratory Economics.

Among the counter intuitive findings: growth in the physician office labmarket is outpacing both hospital and independent labs. Some emerging market trends to watch out for: hospital-based labs may be in the strongest position to fend off pricing pressure from private payers given the substantial negotiating leverage they have as part of large health systems; and with

Medicare rate cuts of 10% per year from 2018-2020 putting growing pressure on their traditional lab business, look for the nation’s two largest commercial labs (Quest & LabCorp) to seek out additional acquisitions that diversify their revenues and lower risk.

Included in the 150+ pages of proprietary research are detailed analyses of lab markets in the 25 key MSAs, including Atlanta, Dallas, Los Angeles, Miami and New York City. For ordering information, visit www.laboratoryeconomics.com or call (845)463-0080.

Rising out-of-pocket costs by healthcare consumers are creating a major financial challenge for all types of providers including laboratories and anatomic pathology groups which are seeing growing bad debt directly attributable to the increasing numbers of patients in high-deductible health plans who are failing to pay their bills in full.

In 2016, health insurance deductibles rose by 12 percent in employer-sponsored insurance according to an analysis by the Kaiser Family Foundation. The dramatic increases occurred as a growing number of American workers shifted to plans with lower premiums but higher out-of-pocket costs. Average annual deductibles rose $159 to $1,478 last year.

President Trump’s recent executive order modifying rules under the the Affordable Care Act will serve to increase the number of high deductible insurance plans available to consumers. Specifically, the presidential action would ease rules on small businesses banding together to buy health insurance under so-called association plans and lift limits on short-term insurance plans that would now be extended for up a year.

Underscoring the seismic shift in patient self-pay, roughly 5 years ago patients paid only 10% of their hospital bills out-of-pocket whereas today patient responsibility make up 30% of hospital revenues. This same trend in payment mix is being felt by labs and AP groups which must start identifying new strategies for collecting directly from patients, including better ways of estimating patients’ out-of-pocket payments and collecting those amounts upfront.

Here are a few key steps labs and AP groups should consider for collecting the full amount owned by patients: improve the accuracy of patient cost-sharing responsibility, make earlier determinations on patient’s ability to pay, establish effective point-of-service collection programs by training and educating front-line staff, provide financial options to help patients pay bills and respond to consumer demand for greater price transparency.

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.