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Hospital laboratories nationwide are facing a challenging financial climate in the wake of sharp cuts in Medicare payment which became effective this year under the Protecting Access to Medicare Access (PAMA) of 2014 combined with ongoing market uncertainty in reaction to the Affordable Care Act (ACA) and the Trump Administration’s efforts to kill the federal law.

Overall, the hospital lab market consists of inpatient, outpatient and non-patient (i.e., outreach) work and represents the largest lab testing segment by revenue in the U.S. with an estimated market at around $47 billion

according to Laboratory Economics. Importantly, Medicare applies different prospective payment system (PPS) formulas for Part A hospital inpatient services ( via Diagnosis-Related-Groups or DRGs) and Part B outpatient services with some exceptions (via Ambulatory Payment Classifications or APCs.) Given that both inpatient and outpatient PPS applies to lab testing, the practical result is that labs have become cost centers for hospitals and have to compete for resources with other hospital departments.

This leaves the lab outreach market as the single remaining hospital segment permitted to bill Medicare directly under Part B. Beginning in 1984, Medicare paid for Part B lab services via a clinical lab fee schedule (CLFS) but this changed beginning in 2018 as a new market-based methodology required by PAMA took effect. This has resulted in reductions of 10% this year for virtually all high volume lab tests with the prospect of additional cuts of 10% per year set for 2019 and 2020.

Though there were some 3,000 hospital-based outreach labs that received $25,000 or more of Medicare CLFS payments in 2016 according to Laboratory Economics, virtually none of their payment data was represented in the government’s market-based rate calculations that ended up being based largely on private payor payments (often discounted) to the nation’s largest commercial independent labs. Yet today the nation’s outreach programs are subject to the severe cuts under Medicare’s new market-based payment approach.

In addition to Medicare’s steep payment reductions which are sure to impact Medicaid and commercial rates down the road, hospital lab executives must also develop strategies to deal with a range of other tough issues: ongoing pressure to reduce costs, billing and collection solutions, narrowing networks, prior authorization, and the need for more competitive pricing, service improvements and alternative revenue sources.

new financial challenges in the wake of deep Medicare reimbursement cuts that became effective this year and continuing market turbulence in reaction to the Affordable Care Act and the Trump Administration’s efforts to scuttle the federal law.
Particularly impacted by today’s unsettling climate is the $9 billion hospital outreach lab segment where to succeed labs must stay financially fit, operationally efficient and strategically nimble

Get strategic insights and tips on how to be successful in the outreach market from the industry’s leading experts during an interactive webinar that I’ll be moderating on August 7. For complete program and registration information please visit and for more details about this timely topic go to my blog at