Healthcare Finance Magazine just published a blog post, authored by L. Eleanor J. Herriman, MD, MBA and John A. Kolozsvary, BS, MSA, sounding the alarm over the implications of the Centers for Medicare & Medicaid Services’ (CMS) newly proposed rule regarding reimbursement for laboratory testing.
Threat to hospital lab operations and profits
In the first change to Medicare’s fee schedule for lab tests in more than 30 years, this rule would set new reimbursement rates based on the average cost of testing across independent, commercial laboratories — with criteria that excludes hospital laboratories from being factored into the average, yet still subjects them to the new fee schedule starting in 2017. (Currently, each laboratory determines its own reimbursement rates based on regional lab test fees.)
This will result in an estimated $5 billion reduction in laboratory spending over the next 10 years, posing a major threat to hospital laboratory outreach operations, which stand to absorb a staggering majority (82%) of the proposed cost reduction.
Smaller labs face going out of business
But it’s not just hospital laboratory leaders who should be up in arms. Diagnostic industry thought leader and consultant Dennis Weissman predicts that the PAMA changeover will put smaller laboratories with high Medicare census out of business in the near future.
“It could be devastating, especially to a fairly small community lab that might have 80 – 90% Medicare census.” If you have a small operation and you’re on a tight margin, and you’re mostly Medicare, and all of a sudden Medicare is cut 10, 15, 20% over a multiple year period, that could be devastating to a small operation,” Weissman said. “The big guys are going to be able to survive — the Quests and LabCorps. Their Medicare census is fairly small compared to their total operation. They’ll be able to sustain those cuts. And if anything, they’ll actually be able to take over a bigger piece of the market because some of their current competitors might not be there in the next three to five years.”
“The big guys will be able to take over a bigger piece of the market because some of their current competitors might not be there in the next three to five years.”
Industry-wide unease over proposed rule
The opinion among professional organizations, according to the article, is that the proposed rule raises serious concerns. With 63% of all lab industry revenues coming from hospitals, CMS would be doing away the source of the majority of the revenue for the entire industry, which is certainly worrisome.
In an interview with FierceHealthFinance, Alan Mertz, president of the American Clinical Laboratory Association, expressed concerns “‘that the pricing won’t reflect the true marketplace’ as a result of excluding hospital laboratories.”
As we’ve written previously, organizations may be able to mitigate the devastating effects of this legislative disruption with advance preparation. But Weissman thinks “it’s very difficult. I’m not going to sugar coat it. I don’t think a certain number of them will be around in three to five years. I just don’t think they’ll be here,” he said.
He believes the keys to survival for Medicare-heavy laboratories will be optimizing efficiency and finding new revenue streams. “Have they wrung every bit of their costs and gotten them down to the bare minimum? Have they been able to bring in other work other than just Medicare? They may have to look to bring in revenues from additional sources,” said Weissman.
What you can do
To urge CMS to modify the proposed rule to include hospital laboratories in the equation by which appropriate laboratory testing reimbursement will be determined, submit your comment on the eRulemaking website, Regulations.gov, by Tuesday, Nov. 24. There you will also find instructions on alternate ways to comment.
Learn ways to drive revenue
For information on revenue potential opportunity in laboratory outreach, attend our webinar on Dec. 15, “Where Do We Go From Here? Laboratory Outreach in a Value-Based Era.” Kathy Murphy, PhD, CEO of Chi Solutions, and Sonny Varadan, MBA, PMP, Director for IT Strategy and Client Connectivity at Pacific Diagnostic Laboratories, will talk candidly about key industry trends in laboratory outreach operations across the country.