As of January 1, CMS has begun accepting private payer market price data from certain medical laboratories required to report this information

Only 12 months remain before clinical laboratories in the United States face the ticking financial time bomb set to explode on January 1, 2018. That time bomb is the cuts to Medicare Part B clinical laboratory test fees that the federal Centers for Medicare and Medicaid Services (CMS) will implement on that date.

The Dark Report, Dark Daily’s sister publication, predicts that the Protecting Access to Medicare Act of 2014  (PAMA) private payer market price reporting final rule—if implemented by CMS as currently written—has the potential to be the single most financially disruptive event to hit the clinical laboratory industry during the past 25 years. At greatest risk are the nation’s smaller community laboratories and rural hospitals that rely on revenue from Medicare Part B lab testing to remain financially viable.

This important story has been under-reported by news sources covering the clinical laboratory industry. Consequently, many lab owners and hospital laboratory administrators are unaware of the potential financial harm that their labs will experience when the fee cuts become effective on New Year’s Day in 2018.

To fill this news vacuum, The Dark Report published two expanded special issues devoted exclusively to PAMA private payer lab test market price reporting on November 7 and November 28, 2016. Both issues are available at


Community and Rural Clinical Laboratories at Extreme Risk

The coming financial crisis can be blamed on the section of the PAMA legislation that directs CMS to collect data on the prices paid for clinical laboratories by private health insurers, and then use that data to set the fees Medicare pays for clinical laboratory testing. Both CMS and the Office of the Inspector General (OIG) have stated publicly that the fee cuts planned by CMS will reduce the cost of Medicare lab testing by $5.4 billion over 10 years. In fact, just during 2018, the two federal agencies expect those fee cuts to reduce spending on lab tests by $400 million!

The labs at the highest risk of financial crises, if not outright bankruptcy, are the nation’s community laboratories, and the labs of small and rural hospitals that depend on Medicare Part B lab test revenues from outreach patients to stay financially solvent. Both types of labs operate at razor-thin financial margins, and as much as 40% to 70% of their specimen volume comes from Medicare patients.

The PAMA private payer lab test price data-collection effort designed by CMS will be disruptive for four main reasons:

1. The complexity of the data-reporting requirements set out by the CMS final rule is a burden for many of the medical laboratories required to collect and submit this data;

2. The risk from Medicare audits because of errors and omissions that are certain to be in the data labs submit, due to the high rate of health insurers’ errors and claims-handling omissions;

3. The probability—recognized by a number of experts—that the results of the data-collection and analysis effort as defined by the CMS final rule will be skewed in favor of large labs at the expense of smaller, independent labs; and

4. The expected large cuts in the amounts CMS pays to labs as a result of all these factors.

Clinical Laboratories Expect a Burdensome and Costly Process

The process of gathering and reporting the private payer lab test price data under the PAMA final rule is complex. It will be burdensome and costly for clinical lab administrators and finance departments, according to experts quoted in The Dark Report. Before doing any data collection, each lab needs to determine if it is what CMS defines as an “applicable” lab under the PAMA final rule.

“To determine that, you must answer two questions: Between January 1 and June 30, 2016, did your lab receive from the CLFS more than $12,500 in Medicare revenue?” stated Mark Birenbaum, PhD, administrator of the National Independent Laboratory Association (NILA). If no, then your lab would be excluded from reporting. If yes, the calculations get more complicated and would be based on each laboratory’s national provider identifier (NPI) number, he added.

Errors in Payment Data Could Lead to Federal Audits and Steep Fines

In an interview with The Dark Report, XIFIN Inc. of San Diego, a revenue cycle management company for clinical labs, stated that the data being collected and sent to CMS by most labs will be rife with errors and omissions. Those errors and omissions mean CMS will make decisions based on inaccurate data. This inaccurate and incomplete private payer price data may also lead federal auditors to scrutinize clinical labs more closely and possibly fine those labs found to have submitted inaccurate data.

“Because the price data from many hospitals will be excluded, as outlined in the regulation, this will bias the data collected by CMS in ways unfavorable to the clinical lab industry,” asserted Mark Birenbaum, Administrator for National Independent Laboratory Association (NILA) in the November 7, 2016, issue of The Dark Report. (Image copyright: Dark Intelligence Group.)

“Because the price data from many hospitals will be excluded, as outlined in the regulation, this will bias the data collected by CMS in ways unfavorable to the clinical lab industry,” asserted Mark Birenbaum, Administrator for National Independent Laboratory Association (NILA) in the November 7, 2016, issue of The Dark Report. (Image copyright: Dark Intelligence Group.)

“One major issue that all labs reporting price data need to address is the accuracy of the data they get from payers,” declared XIFIN Founder and CEO Lale White. Payers make many mistakes in how they process and pay claims and, even with electronic payments, both labs and payers make multiple errors, she added.

Therefore, clinical laboratories need well-trained billing staff to recognize and fix these errors and to audit payment data regularly. If labs submit data to CMS that contain errors, PAMA calls for federal regulators to conduct audits and levy heavy fines as needed.

Excluding Physician Office Labs (POLs) and Hospital Labs Will Skew the Results

A related problem with the data being collected is that it will not include what private health plans pay to hospitals and many smaller laboratories, meaning most of the data will come from larger labs. This factor is likely to skew the results downward. Unwarranted deep cuts in Medicare Part B lab test fees will work in favor of large labs at the expense of smaller labs, XIFIN’s analysis showed.

Clinical laboratory directors and pathologists should note, however, that in December, the members of the Freedom Caucus of the US House of Representatives, issued a report on what they propose for the first 100 days of the new administration. One recommendation is a proposal to repeal the Medicare Clinical Diagnostic Laboratory Tests Payment System Final Rule, which implemented Section 216 of PAMA.

Pathologists and clinical laboratory directors familiar with the law are concerned that CMS has included certain classes of labs in the reporting mandate, while deliberately excluding a class of labs that are paid higher prices by private health insurers and would thus send the weighted market price average that CMS calculates downward.

An OIG report states that CMS will base new payment rates for lab tests on data provided by only 5% of labs, and those 5% of labs got 69% of Medicare payments for clinical laboratory tests in 2015. Also, about half of all independent labs will need to report what private payers paid them for clinical laboratory tests. Notably, the final rule excludes all but a small portion of physician office labs and a handful of hospital labs from the data-reporting requirement. Excluding these clinical laboratories from the pool of reported private payer price data will cause CMS to pay less for clinical lab tests in 2018, experts say.

Deeper Cuts to Medicare Clinical Lab Test Fees Expected than Previously Reported

Medicare officials have regularly stated their desire to adjust the fees on the Medicare Part B clinical laboratory fee schedule (CLFS). Those medical laboratory professionals who have studied the PAMA statute, and the final rule for private payer lab test market price reporting, have raised legitimate concerns.

One concern is that the private payer price data that CMS is gathering has a serious bias because it excludes a large proportion of the nation’s laboratories—the very ones recognized by private health insurers as being smaller, having higher costs, and thus getting higher prices because payers know these smaller labs provide local and rural coverage that ensures patient access to lab testing. The critics claim that, by excluding price data from these labs, CMS knows the data will be dominated by the lowest test prices that private payers pay the nation’s biggest labs. In turn, the analysis of this data will be used to enact deeper cuts to Medicare clinical laboratory fees than might otherwise occur.

—Joseph Burns

Related Information:

PAMA Regulations

National Independent Laboratory Association (NILA) Applauds House Freedom Caucus Recommendation on Immediate Repeal of Medicare Laboratory Payment Reform Rule

Medicare Program; Medicare Clinical Diagnostic Laboratory Tests Payment System A Rule by the Centers for Medicare & Medicaid Services on 06/23/2016

At Long Last, CMS Issues Final Rule for Lab Fee Schedule Changes

CMS Issues PAMA Final Rule That Aims to Cut Medicare’s Clinical Laboratory Test Price Schedule Sharply Beginning in 2018

Webinar: CMS Prepares to Cut Medicare Fees: Smart Steps Labs and Hospital Outreach Programs Can Take to Anticipate Lost Revenue, Protect Market Share, and Sustain Physician Satisfaction

Webinar: PAMA Lab Test Market Price Reporting: What EVERY Lab Must Know, Which Labs Must Submit Data, and Why Reporting Labs Are at Risk!