Once again, the Centers for Medicare and Medicaid Services (CMS) is looking to make cuts to Medicare laboratory reimbursement. It never makes a great deal of sense why the federal government looks to medical tests as a way to cut costs. According to CMS’ own “National Health Care Expenditures Projections: 2007-2017,” laboratory tests account for only about 2.3 percent of National Expenditures on Health Services. According to Health and Human Services’ Office of the Inspector General (OIG), lab tests account for about 3 percent of Medicare Part B payments. Hospital Care, Physician Services, Nursing Home & Home Health, and Prescription Drugs all account for a significantly higher percentage of national health expenditures.
Perhaps the reason is that laboratory tests are “low-hanging fruit,” an easily identified place to make cuts by looking at the Clinical Laboratory Fee Schedule (CLFS). Perhaps it’s that the clinical lab industry as a whole does not have the kind of political and lobbying power of physicians, hospitals, and pharmaceutical companies. Whatever the reason, the clinical lab industry faces reimbursement cuts that could be devastating.
Proposed Rule for the 2014 Physician Fee Schedule
On July 8, 2013, CMS published its “Revisions to Payment Policies under the Physician Fee Schedule, Clinical Laboratory Fee Schedule & Other Revisions to Part B for CY 2014.” The point of this yearly revision is to “ensure that our payment systems are updated to reflect changes in medical practice and the relative value of services, as well as changes in the statute.” One of the key ideas is that technology, in theory, has decreased (or possibly increased) the cost of performing some tests, so they should be re-evaluated regularly.
The way Medicare determines reimbursement rates is fairly convoluted. The recently published proposal states: “The system relies on national relative values that are established for work, PE, and MP, which are then adjusted for geographic cost variations. These values are multiplied by a conversion factor (CF) to convert the RVUs into payment types.” RVU stands for relative value units; PE in this case refers to the part of reimbursement associated with practice expense, which includes reimbursement for supplies, equipment, and non-physician staff; MP stands for “malpractice,” in other words, the amount of reimbursement associated with malpractice expenditures.
In a 605-page document, CMS published its plans to reevaluate how it intends to reimburse Part B Medicare expenditures; within those 605 pages, approximately eight pages focus on proposed changes to the Clinical Laboratory Fee Schedule.
Proposed Changes to the Clinical Laboratory Fee Schedule
One of the unusual things about the CLFS is that, for the most part, once the payment rate is set for a lab test, the base rate doesn’t change much, although subsequent changes are typically reflections of the Consumer Price Index for all Urban Consumers (CPI-U), along with a multifactorial productivity adjustment. The new proposal states, “Once the reconsideration process is complete, payment is not further adjusted (except by a change in the CPI-U, the productivity adjustment, and any other adjustments required by statute), regardless of any shift in the actual costs incurred to perform the test.”
The proposal puts forth a plan to adjust payment amounts based on changes in technology. The proposal cites a shift to point-of-care testing, such as at-home drug tests and portable lab test kits (presumably for things like strep throat, etc.), citing technological changes in genetic and genomic tests. It specifically says, “The cost of sequencing a genome has dropped dramatically since the early inception of this technology in 2001 from more than $95 million per genome to approximately $5,700 in early 2013.” It also notes the growth of laboratory-developed tests (LDTs), which are often proprietary and do not have their own test codes.
The bottom line is that CMS intends to evaluate the 1,250 tests on the CLFS, starting with the oldest first, over the next five years. The first adjusted rates will appear in the 2015 proposed rules.
In June 2013, the Department of Health and Human Services’ Office of Inspector General published a report, “Comparing Lab Test Payment Rates: Medicare Could Achieve Substantial Savings.” OIG analyzed three months’ worth of Medicare payment rates for the 20 most common lab tests and compared those rates with state Medicaid payments and Federal Employee Health Benefits payment amounts. OIG concluded that in 2011, “Medicare paid between 18 and 30 percent more than other insurers for 20 high-volume and/or high-expenditure lab tests. Medicare could have saved $910 million, or 38 percent, on these lab tests if it had paid providers at the lowest established rate in each geographic area.”
The Pathology Blawg cites a few examples of test codes and their proposed reductions. They include:
CPT 88307—70% reduction of Technical Component (TC) for global reduction of 50%
CPT 88309—46% reduction of TC for global reduction of 30%
These are fairly dramatic examples of how significant cuts in lab testing could be.
38 Percent of 3 Percent
Though saving money, improving patient care, and providing broader access to health care are the broad goals of health care reform, the clinical lab industry is struggling with increased competition and stagnant profits already. A report, “Overview of 2012-2013 Laboratory Industry Transactions,” published by Haverford Healthcare Advisors, points out that large commercial labs’ physician client base is eroding due to physician practices being bought up by hospitals. The report also says that this benefits hospitals now, but it expects that to decrease over the medium term, and large labs like LabCorp and Quest already are fighting decreasing volumes: LabCorp cites Q1-2013 volume growth of only 1.1 percent and Quest cites a decrease in volume of 1.9 percent in the same period. Significant across-the-board reimbursement cuts could be devastating to the lab industry.
Although it makes sense from the government’s and taxpayer’s point of view to evaluate where money is being spent and work to decrease that, a little perspective would help, too. Certainly a decrease of nearly a billion dollars in health care-related costs is a good thing. But it accounts for only 38 percent of 3 percent of Part B spending, which is to say only about 1.14 percent savings on only a portion of national health care spending. It’s worth considering whether that level of savings is worth the potential economic impact on an entire industry.
So what does your laboratory need to do to remain competitive in an environment where reimbursement is constantly being cut? One way is to use a business intelligence solution like Viewics that allows you quick access to the key performance indicators that matter most to you. Reimbursement monitoring ensures your lab is notified the moment reimbursement drops and is able to respond appropriately. Viewics helps increase clinical, financial, and operational efficiencies while fine-tuning client relationships with easy to share interactive dashboards and reports. Viewics provides your entire team, from sales to administration, a 360-degree view of your laboratory’s processes & operations. And with pre-built reports and dashboards designed to monitor your reimbursement rates, your lab will have the data you need, when you need it, and in a format that allows you to take action.
Now is your chance to see for yourself how Viewics’ business intelligence and analytics solutions are enabling laboratories to generate ad-hoc analyses with no day-to-day IT involvement and without capital constraints.