Regulators and lawmakers are considering proposed changes to CLIA and PAMA involving medical laboratory services
Clinical laboratories and pathology groups should monitor a series of federal regulatory developments underway this fall. The proposals and documents will potentially affect how lab managers and staff do their jobs and how much Medicare reimbursement medical laboratories receive for certain diagnostic tests next year.
Among the initiatives under consideration are the following:
Below are details about these laboratory-related federal bills and regulatory documents that observant laboratory managers will want to track in the coming months.
“Clinical laboratories need to make sure that they have proper requisitions and documentation for genetic testing that involves telemedicine.” Danielle Tangorre, JD (above), a partner at law firm Robinson and Cole LLP in Albany, NY, told Dark Daily. (Photo copyright: Robinson and Cole LLP.)
CLIA Fee Increases and Testing Personnel Changes
The federal Centers for Medicare and Medicaid Services (CMS) is examining fee and personnel changes for CLIA. Officials from CMS are reviewing public comments on the proposal ahead of publishing a final rule.
Among other changes, the proposal would:
Institute a 20% across-the-board increase on existing fees.
Establish a biennial increase of CLIA fees for follow-up surveys, substantiated complaint surveys, and revised certificates.
Add doctoral, master’s, and bachelor’s degrees in nursing to qualify testing personnel for high and moderate complexity testing.
“The Practitioner does not have sufficient contact with or information from the purported patient to meaningfully assess the medical necessity of the items or services ordered or prescribed.
“The Telemedicine Company compensates the Practitioner based on the volume of items or services ordered or prescribed, which may be characterized to the Practitioner as compensation based on the number of purported medical records that the Practitioner reviewed.
“The Telemedicine Company only furnishes items and services to Federal health care program beneficiaries and does not accept insurance from any other payor.
“The Telemedicine Company does not expect Practitioners (or another Practitioner) to follow up with purported patients nor does it provide Practitioners with the information required to follow up with purported patients (e.g., the Telemedicine Company does not require Practitioners to discuss genetic testing results with each purported patient).”
And more.
“In the telehealth space, the issue the OIG has flagged is that genetic tests are being ordered without patient interaction or with only brief telephonic conversations,” Danielle Tangorre, JD, a partner at law firm Robinson & Cole LLP in Albany, N.Y., told Dark Daily.
New Bill May Eliminate 2023 Medical Laboratory Payment Cuts Under PAMA
Medical labs and pathology groups face payment cuts of up to 15% for 800 lab tests on the Medicare Clinical Lab Fee Schedule (CLFS) on Jan. 1, 2023, as part of PAMA.
The bill proposes to move regulatory oversight of LDTs from CLIA to the federal Food and Drug Administration (FDA). Champions of the bill argue that FDA regulation is needed for in vitro clinical tests (IVCTs) because they are similar to medical devices and bring with them patient safety concerns.
The bill seemed ready for a Senate vote over the summer but stalled. On Sept. 30, Congress passed a short-term resolution to keep the federal government funded. During negotiation, the VALID Act was removed from the larger spending package, according to Boston law firm Ropes and Gray.
Expect discussion to renew in Congress about the VALID Act after the mid-term elections.
Clinical laboratory leaders and pathology group managers will want to closely monitor the progress of these four federal legislative and regulatory developments. Each of the possible actions described above would significantly change the status quo in the compliance requirements and reimbursement arrangements for both clinical laboratory testing and anatomic pathology services.
Limited availability of COVID-19 clinical lab tests is major topic at federal briefings and news stories, yet many of nation’s labs are laying off staff and at point of closing
Cash flow at the nation’s clinical laboratories has crashed, with revenues down by more than $5 billion since early March. This is the biggest financial disaster for the nation’s clinical laboratory industry in its 100-year history and it couldn’t come at a worse time for the American public and the US healthcare system.
At the precise moment when the nation needs clinical laboratories to begin performing millions of tests for SARS-CoV-2, the coronavirus that causes the COVID-19 illness, those same labs are watching their cash flow collapse.
Data from multiple sources gathered by The Dark Report, sister publication of Dark Daily, confirm that—beginning in early March and continuing through last week—clinical laboratories in the United States saw incoming flows of routine specimens decline by between 50% and 60%. During this same time, lab revenue fell by similar amounts.
Clinical Lab Industry Currently Losing $800 to $900 Million Weekly
To give this decline context, the healthcare system spends about $80 billion annually on medical laboratory testing. Thus, labs across the US generated about $1.5 billion in revenue each week during 2019 and into 2020. By April 5, the decline in routine lab specimen volumes reached 55% to 60%. Since then, the clinical lab industry now loses between $800 million and $900 million each week. Total revenue loss from previous levels is already estimated to be $5.2 billion, and it is growing by an additional $800 million to $900 million every week that patients stay away from hospitals and physicians’ offices.
In the eight weeks since the COVID-19 pandemic caused patients to cease coming to hospitals and visiting their doctors, incoming routine specimens and revenue fell by 60%, causing cumulative lost routine revenue of $5.2 billion for the clinical laboratory industry in the United States. Each week that the existing shelter-in-place directives are effective, labs lose another $800 million to $900 million. The Dark Report based these estimates on data provided by multiple companies working with lab billing/claims, middleware analytical solutions, and customer relationship management (CRM) and electronic health record (EHR) products. (Chart copyright: The Dark Intelligence Group, Inc.)
The recent dire financial condition of labs small and large has gone unremarked by federal healthcare officials at the daily White House COVID-19 Task Force briefings. National news sources have yet to report on this development and its implications for successfully expanding the availability and numbers of COVID-19 tests in response to the pandemic.
The rapid and deep decline in specimens and revenue is not limited to clinical laboratories. Biopsy cases referred to anatomic pathology groups have declined by 50% to 60%. Some subspecialty pathology labs saw case referrals drop by 80% or more.
The nation’s two biggest clinical laboratory companies confirmed similar declines in their normal daily flow of routine specimens. Both companies recently reported first-quarter earnings (which included the month of March).
Quest Diagnostics, LabCorp Each Disclose Volume Declines of 50% to 60%
During its Q1 2020 earnings conference call, Chairman, President, and CEO of Quest Diagnostics (NYSE:DGX), Steve Rusckowski, stated, “In April, volume declines continue to intensify as we are seeing signs that volume declines are bottoming out at around 50% to 60%.”
The drop-off in routine lab test referrals was the similar at LabCorp (NYSE:LH). “In our diagnostics business, at the end of the quarter, we experienced reductions in demand for testing of 50% to 55% versus the company’s normal daily levels,” explained Glenn Eisenberg, Executive Vice President and CFO during LabCorp’s Q1 2020 earnings call. “This reduction in demand impacted testing volume broadly but was more heavily weighted towards routine procedures.”
Interviews with independent clinical lab owners and the administrative directors of hospital and health system labs further confirm this rapid and dramatic decline in the number of routine specimens arriving in their labs. Fewer specimens mean fewer claims, which means less revenue to laboratories.
Two Different Financial Futures for ‘Have’ Labs and ‘Have Not’ Labs
What happens next to the clinical laboratory industry in the United States—and to its ability to continue ramping up the availability of adequate numbers of COVID-19 tests in major cities, small towns, and rural areas—will be a story of “haves” and “have nots.”
The “haves” are clinical labs that have access to money. These are publicly-traded lab companies, academic medical center labs, and the sophisticated labs of health networks that operate multiple hospitals. In each case, these organizations have capital reserves and access to loans that will probably enable them to sustain COVID-19 lab testing services at the large volumes required to respond to the pandemic.
clinical labs operated by community hospitals and rural hospitals that were not financially robust before the onset of the pandemic; and,
specialty lab companies that perform a specific number of proprietary diagnostic tests (and for which demand has collapsed as patients stopped seeing their doctors).
Medicare Led Payers in the ‘Lab Test Price Race to the Bottom’
Prior to the onset of the SARS-CoV-2 pandemic, the finances of the “have-not” labs were already shaky, with many on the verge of filing bankruptcy, closing, or selling to a bigger lab company. Much blame for the deteriorating finances at a large proportion of community lab companies, community hospital labs, and rural hospital labs can be attributed to the deep, multi-year price cuts to the Medicare Part B clinical laboratory fee schedule as mandated by the Protecting Access to Medicare Act of 2014 (PAMA).
Medicare’s multi-year cuts to lab test prices were immediately copied by most state Medicaid programs. During this period, private payers followed Medicare’s lead and enacted their own deep cuts to the prices they paid labs for both routine tests and molecular/genetic tests.
That is why—when the pandemic intensified in early March—the 50% to 60% drop in specimens and revenue that hit these labs starved them of essential cash flow. When polled, the owners and directors of these labs acknowledge layoffs of the majority of their staff in all departments. They also reported substantial delays—both in submitted lab test claims and in getting payment for those claims—because claims-processing departments at the labs and private health insurers are understaffed due to shelter-in-place directives.
COVID-19 Test Revenue Helps Only Labs Performing Those Tests
Revenue from COVID-19 testing is helping certain labs offset the revenue loss from fewer routine specimens. XIFIN, Inc., a San Diego company that provides revenue cycle management (RCM) services for clinical laboratories and pathology groups, analyzed the lab test claims for COVID-19 rapid molecular tests. It determined that labs performing these tests are generating enough revenue from these test claims to equal about 20% of their pre-pandemic revenue.
The chart above was prepared by XIFIN, Inc., of San Diego and is based on the changes XIFIN observed in the volume of routine clinical laboratory test claims generated by client labs on a weekly basis. In the first two months of 2020, routine lab test claims ran at expected levels until the first week of March. During the rest of March, routine lab test claims declined by 60%. During April, incoming routine lab test claims remained 55% to 60% below pre-pandemic levels. The shaded area shows the number of COVID-19 test claims coming into clinical labs. XIFIN says COVID-19 test claims make up about 20% of the decline in routine test specimens for those labs performing COVID-19 tests. The Dark Report estimates that the clinical laboratory industry has lost $800 million to $900 million in routine test revenue each week since March 23. Weekly revenue losses will continue at this rate until patients begin visiting their physicians and hospitals again perform elective services. (Chart copyright: XIFIN, Inc.)
Many CLIA-certified community laboratories and hospital labs have the diagnostic instruments and experience to perform rapid molecular tests for COVID-19. But when contacted, they tell us that their suppliers do not ship them even minimal quantities of the COVID-19 kits, the reagents, and the consumables. Thus, they cannot meet the needs of their client physicians. Instead, they watch as these physicians refer COVID-19 tests to the nation’s largest labs. The supply shortage prevents these smaller labs from doing larger numbers of COVID-19 test for the patients in the communities they serve. It also prevents them from earning the revenues from COVID-19 testing that currently helps the nation’s “have” labs offset the decline in revenue from routine testing.
Congress, national healthcare policymakers, and state governors need to immediately address this situation. Each week that passes during the COVID-19 pandemic and the shelter-in-place directives drains another $800 million to $900 million in revenue from routine lab testing that previously flowed into the nation’s clinical laboratories.
‘Have-not’ Clinical Labs in Small Towns Will Quietly Shrink and Disappear
Without timely intervention and financial support, the nation’s network of ‘have not’ labs, which have so capably served towns away from big metropolitan centers and rural areas, will quietly begin shrinking. One at a time, labs in small towns will close or sell. Local lab facilities will be shuttered and specimens from small-town patients will be transported to big labs hundreds or thousands of miles away.
It is also true that the financial disaster besetting the nation’s clinical laboratory industry will have comparable dramatic consequences for the in vitro diagnostics (IVD) manufacturers that sell them automation, analyzers, reagents, and other supplies. Since early March, IVD manufacturers watched as the pandemic caused orders for new instruments to collapse. During these same weeks, their clinical lab customers ceased ordering routine test kits at pre-pandemic levels. Dark Daily will cover the challenges confronting the IVD and other diagnostics industries in future e-briefings.
Announcing Free COVID-19 STAT Intelligence Briefings for Clinical Labs
With the COVID-19 pandemic creating chaos in nearly every aspect of healthcare, business, and society, clinical labs and their suppliers need timely intelligence and analysis about the innovations and successes achieved by their peers. This week, Dark Daily and The Dark Report are launching COVID-19 STAT Intelligence Briefings (Copy and paste this URL into your browser: https://www.covid19briefings.com). This comprehensive service is free and will cover four basic areas of needs for clinical laboratories as they ramp up COVID-19 testing:
Daily and weekly COVID-19 testing dashboards to guide every lab’s short-term planning;
Proven steps for labs to introduce and validate COVID-19 tests (both rapid molecular tests and serology tests);
Getting paid for COVID-19 testing to ensure every lab’s financial stability and clinical quality; and
Legal and regulatory updates for labs doing COVID19 tests to ensure full compliance.
Also, to help clinical laboratory leaders deal with the coming wave of COVID-19 serology tests, we are producing a free webinar led by James O. Westgard, PhD, FACB, and Sten Westgard, Director of Client Services and Technology, of Westgard QC, Inc.
Each week that the SARS-CoV-2 pandemic continues, and strict shelter-in-place directives are in place, the clinical laboratory industry loses another almost $900 million in revenue from lower volumes of routine testing. No industry can survive when its incoming revenue collapses by 50% to 60% for sustained periods of time.
Will Congress Recognize the Need for a Financial Rescue of ‘Have-not’ Labs?
Thus, it is incumbent on Congress, elected officials, and healthcare policymakers to recognize the financial consequences of the pandemic to the nation’s clinical laboratories. That is particularly true of the ‘have-not’ clinical labs. They do not have the same access to decisionmakers in government as billion-dollar lab companies.
And yet, these labs located in small communities and rural areas often are the only local labs that can do STAT testing in a couple of hours, and where clinical pathologists are personally familiar with local physicians and patients.
These “have-not” labs are vital healthcare resources. They should receive the help they need to get through this unprecedented crisis that is the COVID-19 pandemic.
How medical laboratories can show value through process improvement methods and analytics will be among many key topics presented at the upcoming Lab Quality Confab conference
Quality management is the clinical laboratory’s best strategy for surviving and thriving in this era of shrinking lab budgets, PAMA price cuts, and value-based payment. In fact, the actions laboratories take in the next few months will set the course for their path to clinical success and financial sustainability in 2020 and beyond.
But how do medical laboratory managers and pathologists address these challenges while demonstrating their lab’s value? One way is through process improvement methods and another is through the use of analytics.
Clinical pathologists, hospital lab leaders, and independent lab executives have told Dark Daily that the trends demanding their focus include:
Ensuring needed resources and appropriate tests,
while the lab is scrutinized by insurance companies and internally by hospital
administration;
“Our impact on patient care, in many cases, is very
indirect. So, it is difficult to point to outcomes that occur. We know things
we do matter and change patient care, but objectively showing that is a real
struggle. And we are being asked to do more than we ever had before, and those
are the two big things that keep me up at night these days,” he added.
This is where process improvement methods and analytics are
helping clinical laboratories understand critical issues and find opportunities
for positive change.
“You need to have a strategy that you can adapt to a changing landscape in healthcare. You have to use analytics to guide your progress and measure your success,” Patricia Nortmann, System Director of Laboratory Services at St. Elizabeth Healthcare, Erlanger, Ky., told Dark Daily.
Clinical Laboratories Can Collaborate Instead of Compete
Prior to a joint venture with TriHealth in Cincinnati, St. Elizabeth lab leaders used data to inform their decision-making. Over about 12 years preceding the consolidation of labs they:
Implemented front-end automation outside the core area and in the microbiology lab.
“We are now considered a regional reference lab in the state
of Kentucky for two healthcare organizations—St. Elizabeth and TriHealth,”
Nortmann said.
Thanks to these changes, the lab more than doubled its
workload, growing from 2.1 million to 4.3 million outreach tests in the core
laboratory, she added.
Christopher Doern, PhD (left), Director of Microbiology and Associate Professor of Pathology at Virginia Commonwealth University Health System; Patricia Nortmann (center), System Director of Laboratory Services at St. Elizabeth Healthcare; and Joseph Cugini (right), Manager Client Solutions at Health Network Laboratories, will present practical solutions and case studies in quality improvement and analytics for clinical laboratory professionals at the 13th Annual Lab Quality Confab, October 15-16, 2019, at the Hyatt Regency in Atlanta, Ga. (Photo copyright: The Dark Report.)
Using Analytics to Test the Tests
Clinical laboratories also are using analytics and information technology (IT) to improve test utilization.
At VCH Health, Doern said an analytics solution interfaces
with their LIS, providing insights into test orders and informing decisions
about workflow. “I use this analytics system in different ways to answer
different questions, such as:
How are clinicians using our tests?
When do things come to the lab?
When should we be working on them?
“This is important for microbiology, which is a very delayed
discipline because of the incubation and growth required for the tests we do,”
he said.
Using analytics, the lab solved an issue with Clostridium
difficile (C diff) testing turnaround-time (TAT) after associating it with
specimen transportation.
Inappropriate or duplicate testing also
can be revealed through analytics. A physician may reconsider a test after discovering
another doctor recently ordered the same test. And the technology can guide
doctors in choosing tests in areas where the related diseases are obscure, such
as serology.
Avoiding Duplicate Records While
Improving Payment
Another example of process
improvement is Health Network Laboratories (HNL) in Allentown, Pa. A team there established an enterprise master patient index (EMPI) and implemented digital tools to find and eliminate
duplicate patient information and improve lab financial indicators.
“The system uses trusted sources of data to make sure data is clean and the lab has what it needs to send out a proper bill. That is necessary on the reimbursement side—from private insurance companies especially—to prevent denials,” Joseph Cugini, HNL’s Manager Client Solutions, told Dark Daily.
HNL reduced duplicate records in its database from 23% to
under one percent. “When you are talking about several million records, that is
quite a significant improvement,” he said.
Processes have improved not only on the billing side, but in
HNL’s patient service centers as well, he added. Staff there easily find
patients’ electronic test orders, and the flow of consumers through their
visits is enhanced.
Learn More at Lab Quality Confab Conference
Cugini, Doern, and Nortmann will speak on these topics and more during the 13th Annual Lab Quality Confab (LQC), October 15-16, 2019, at the Hyatt Regency in Atlanta, Ga. They will offer insights, practical knowledge, and case studies involving Lean, Six Sigma, and other process improvement methods during this important 2-day conference, a Dark Dailynews release notes.
Register for LQC, which is produced by Dark Daily’s sister publication The Dark Report, online at https://www.labqualityconfab.com/register, or by calling 512-264-7103.
Operational efficiencies, strong management teams, and successful outreach business are key clinical laboratory success in today’s era of mergers and acquisitions
Fierce economic headwinds are taking aim at the entire pathology industry, as shrinking Medicare reimbursement rates, shifting federal regulations and compliance requirements, and changing care models squeeze profit margins and threaten valuations of most clinical laboratories and anatomic pathology groups.
The reimbursement rate changes mandated by the Protecting Access to Medicare Act of 2014 (PAMA), which took place January 1, 2018, loom as the most immediate danger to the long-term financial health and viability of medical diagnostic laboratories.
“Medicare reimbursement rates to labs providing essential testing services are estimated to drop by $670 million this year, and additional reductions scheduled for 2019 and 2020 will cut payments by nearly 30% for many tests critical to caring for Medicare beneficiaries,” noted Julie Khani, President of the American Clinical Laboratory Association (ACLA), in “Patient Care Is Put to the Test as Clinical Laboratory Services Are Hit With a One-Two Punch in Rate Cuts,” an article she penned for the ACLA website.
“For some labs, such as rural hospitals and labs serving patients in skilled nursing facilities—which already have significantly higher operating costs—this could be a death knell that would precede a devastating loss of patient access to necessary testing services,” she concluded.
Assessing Financial Solvency to Survive Impending Mergers and Acquisitions
The ACLA has filed a lawsuit against the U.S. Department of Health and Human Services (HHS) for what it called a “flawed and misguided” implementation of the law. For now, however, the roll out of reimbursement rates cuts will continue, an ACLA blog post reports.
As a result, post-PAMA pressures combined with other factors are forcing clinical laboratory leaders to consider their strategic options, including:
Reorganizing;
Restructuring;
Merging/consolidating with another laboratory; and,
Selling.
As GenomeWeb pointed out prior to PAMA’s implementation, “All clinical labs in the U.S.—from the largest reference labs to in-hospital labs to physician-practice labs—will be touched by the changes to varying degrees.” The future, GenomeWeb predicts, “may be a market with fewer independently operated small and regional labs, as well as fewer outreach labs owned by hospitals. Instead, such operations could become part of [Quest Diagnostics’] and LabCorp’s networks.”
This changing landscape means laboratories need to be assessing their financial solvency and maximizing their valuation even if they are not currently candidates for either side of the merger and acquisition equation. Failing to anticipate and respond to unfolding changes could leave laboratory executives courting a financial reckoning.
One speaker is Vicki DiFrancesco, Chief Strategy Officer, XIFIN, San Diego. DiFrancesco has an insider’s understanding of mergers and acquisitions and 25 years of executive leadership experience. Prior to joining XIFIN, DiFrancesco served as President and CEO of Pathology Inc., the West Coast’s premier women’s health laboratory, which was acquired by LabCorp in March 2016.
The other speaker is David Nichols, Founder and President at Nichols Management Group (NMG) in York Harbor, Maine. NMG provides laboratory consulting services for healthcare organizations. Since its founding in 1988, NMG has provided expertise in improving overall effectiveness and in implementing such strategies as sales force development, market planning, compliance/financial auditing, and in selected cases, hands-on management responsibilities by working onsite with senior personnel in each area of need.
During their 90-minute presentation, you will learn:
Market factors creating financial challenges for your laboratory;
How revenue compression and compliance issues are driving merger and acquisition activity;
Steps to optimizing your lab’s reimbursements, a key to improving financial performance;
Revenue cycle management’s importance as a valuation driver;
Strategies to significantly improve your market position;
Components of an effective compliance program and why compliance is so important to laboratory valuation;
Value drivers that attract buyers, such as profitable growth, a strong compliance program, competent management teams, EBITDA, cash flow and gross margins; and,
Specific challenges that should be addressed in any merger or consolidation plan.
David Nichols (left), Founder and President at Nichols Management Group (NMG); and Vicki DiFrancesco, Chief Strategy Officer, XIFIN, will share vital insights and share critical strategies that clinical laboratories can immediately use to drive valuations and prepare for current and future financial challenges. (Photo copyright: Dark Daily.)
To register for this critical webinar, use this link (or copy and paste this URL into your browser: https://www.darkdaily.com/product/the-pathway-to-driving-valuation-for-your-laboratory-your-roadmap-to-achieving-success-and-how-to-sustain-growth-despite-a-changing-lab-environment/.)
Despite the financial pressure on many existing laboratories, the medical laboratory industry continues to play a vital role in the healthcare system, with clinical laboratory tests guiding more than 70% of all medical decisions made by healthcare providers, according an ACLA fact sheet.
The industry also contributes more than $100 billion in annual economic impact and produces more than 622,400 jobs. While the role of diagnostic laboratories will continue to grow in an era of personalized medicine, only laboratories that optimize their strategic position in response to the changes taking place may be left standing when the predicted industry consolidation is complete.
In filing Monday, lawsuit seeks to force HHS to comply with PAMA’s statutory requirements and to withhold applying the new Clinical Laboratory Fee Schedule until HHS has revised the final rule appropriately
Many clinical laboratory executives will welcome the news that a lab industry trade association has filed a lawsuit in federal court in an effort to delay and fix the final rule for Protecting Access to Medicare Act of 2014 (PAMA) private payer lab test market price reporting that Medicare officials used to lower prices on the Medicare Part B Clinical Laboratory Fee Schedule (CLFS) that is scheduled to take effect on Jan. 1, 2018.
The ACLA asked the US District Court for the District of Columbia to force HHS to comply with PAMA’s statutory requirements, to withhold applying the new CLFS until HHS has revised the final rule appropriately. The CLFS is due to take effect on Jan. 1.
Final Prices for the 2018 Part B Clinical Laboratory Fee Schedule
Last month, the federal Centers for Medicare and Medicaid Services (CMS) issued the final CLFS rates and said at the time that it did so in compliance with the 2016 final rule implementing changes to the Medicare clinical laboratory fee schedule under PAMA section 216.
“We have repeatedly advised CMS that there are significant, substantive deficiencies in the final rule, which fail to follow the specific commands of the PAMA statute,” said ACLA President Julie Khani in an ACLA press release. “Contrary to Congress’ intent, instead of reforming Medicare reimbursement rates to reflect the broad scope of the laboratory market, the Secretary’s final rule will disrupt the market and prevent beneficiaries from having access to the essential laboratory services they need.”
Shown above is Julie Khani, President of the American Clinical Laboratory Association (ACLA) speaking at the Executive War College on Laboratory and Pathology Management last May in New Orleans. In a press release announcing ACLA’s lawsuit against the Department of Health and Human Services, Khani emphasized that many clinical laboratories had advised officials at the federal Centers for Medicare and Medicaid Services (CMS) about the “significant, substantive deficiencies in the final rule” for private payer market price reported that CMS designed. (Photo copyright: The Dark Report.)
22 Healthcare Organizations Opposed Cuts to Clinical Laboratory Test Prices
The ACLA, the American Hospital Association (AHA), and more than 20 other organizations had urged CMS to suspend implementation of the new CLFS rates, which are scheduled to take effect Jan. 1. The organizations cited concerns over the data-collection process used to establish the rates, and the fact that the rates would cause clinical laboratories to struggle financially and possibly close. If the rates set under PAMA affect Medicare beneficiaries’ access to clinical lab testing, the law would have the opposite effect of its intent.
To bring the lawsuit, ACLA retained Mark D. Polston, JD, of the Washington, DC, law firm of King and Spaulding. A specialist in representing healthcare systems seeking to navigate Medicare regulations, Polston is the former Chief Litigation counsel for CMS and specializes in complicated Medicare reimbursement litigation. Recently, he successfully challenged Medicare’s so-called “two-midnight” rule that imposed a 0.2% rate cut on hospitals billing for some patients.
Medicare Program Prohibited Most Medical Laboratories from Reporting
Contrary to Congress’ directives, most laboratories were prohibited from reporting private payer data under CMS’ market-rate data-collection process, ACLA said in a prepared statement. “As a result, CMS failed to protect access to laboratory services for Medicare beneficiaries. This flawed process could cause serious financial harm to potentially thousands of hospitals, independent and physician office laboratories, and make it harder for Medicare beneficiaries to get access to medical testing, particularly in remote rural areas and in nursing homes that depend on laboratory testing services,” ACLA said.
In the lawsuit, ACLA alleged that more than 99.3% of hospitals were prohibited from reporting their market-rate data. It is believed that this is the first time this figure has been reported. In 2015, the lawsuit charged, more than 261,500 entities received Medicare payment for laboratory services but only 1,942 laboratories reported market-rate information in 2016 under the PAMA final rule. The 1,942 labs that reported market-rate data is about 0.7% of the total number of laboratories that serve Medicare beneficiaries, the lawsuit said.
Only 21 of 7,000 Hospital Laboratories Reported Data
“Moreover, contrary to Congress’ intent, the laboratories that did report information are not representative of the market as a whole,” the lawsuit added. “For example, although approximately 7,000 hospital laboratories billed Medicare for laboratory services in 2015—accounting for 24% of the Medicare payments made under the Clinical Laboratory Fee Schedule—no more than 21 hospital laboratories (and probably even fewer) reported information to the secretary, leaving hospital laboratories effectively unrepresented in the data collected by the secretary.
“Hospital laboratories are often the only laboratories available to patients in certain areas of the country, and the private payer rates they receive are often much higher than other laboratories, due to differences in competitive markets, volumes of services, and other factors,” the lawsuit charged.
The Dark Report, Dark Daily’s sister publication, provided a compelling example of the serious flaws in the market price study conducted by CMS. Writing about the state of Michigan, The Dark Report noted: “At Joint Venture Hospital Laboratory Network (JVHL), CEO John Kolozsvary said Michigan’s hospitals serve 70% of the office-based physicians in the state with outreach lab testing services. Included among these hospitals are the 120 JVHL member laboratory facilities.”
“Since our network, plus the outreach programs of another 25 or 30 hospitals, hold a significant share of outreach lab testing in Michigan, how can CMS conduct an accurate, representative market study of what private insurers pay for lab tests in Michigan if it doesn’t collect data on what private payers reimburse hospital lab outreach programs in Michigan?” stated Kolozsvary in his interview with The Dark Report.
Did CMS ‘Disregard and Violate’ PAMA Statute?
In the ACLA’s announcement of the lawsuit, Polston said, “CMS clearly disregarded and violated the statute’s specific, unambiguous directives requiring commercial rate information to be reported and collected from a broad, diverse group of market participants. Instead, information was collected from less than 1% of US laboratories.”
In the press announcement, ACLA Board Chair Curt Hanson, MD, Chief Medical Officer of Mayo Medical Laboratories said, “This lawsuit reflects our obligation to those who are providing critical testing services, and to those millions of Americans who rely on the services our industry provides.” Others supporting the lawsuit include Laboratory Corporation of America and Quest Diagnostics.
Compliance with PAMA Law’s Statutory Requirements
In the lawsuit, ACLA seeks to require HHS to comply with the statutory requirements and to set aside the provisions in the final rule, “that unlawfully exempts thousands of laboratories from the reporting obligations that Congress imposed” under PAMA. A central feature of PAMA Section 216 is that laboratories must report market rate data so that HHS can ensure that Medicare reimbursement rates closely reflect the rates laboratories receive from private payers, the lawsuit said.
“ACLA was a strong supporter of Congress’ market-based reforms, which resulted in the most extensive changes to the system for reimbursing clinical laboratories since 1984,” the lawsuit said.
In challenging the final regulations, the lawsuit said HHS disregarded and violated, “the statute’s specific, unambiguous directives requiring that all applicable laboratories report relevant data.”
Congress Specified Which Medical Laboratories Are Obligated to Report
“In imposing these requirements, Congress took care to specify which laboratories would be obligated to report market data to ensure that information would be collected from a broad, diverse group of market participants,” the lawsuit said. “Congress made clear that any ‘laboratory’ would be required to report data if, ‘with respect to its revenues under [the Medicare program], a majority of such revenues are from’ the Physician Fee Schedule or the Clinical Laboratory Fee Schedule,” the lawsuit charged.
In promulgating the regulations, however, HHS, disregarded Congress’ instructions and “unreasonably and arbitrarily exempted significant categories and large numbers of laboratories that meet the statutory definition from the reporting requirements that Congress imposed,” the lawsuit said.
“The secretary’s final rule fatally undermines one of PAMA’s purposes, which is to require a broad spectrum of Medicare-participating laboratories to report market information to the secretary. Instead, in ultra vires (Latin for “beyond the powers”) fashion, the secretary has carved out large categories of laboratories—ultimately resulting in the exclusion of some 99.3% of the laboratory market—from the statutory reporting requirements,” the lawsuit charged. Ultra vires acts fall outside the authority of the organization in question.
In the lawsuit, the ACLA claims under:
count 1: ultra vires agency action not in accordance with law, in excess of statutory authority;
count 4: violation of the Administrative Procedure Act, injunctive and declaratory relief.
Seeking an Injunction to Have HHS Secretary to Withhold or Suspend Final Rule
In its final section, “Prayer for Relief,” the lawsuit asks the court to vacate, “any agency action found to be arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law;” to require the Secretary of HHS to comply with the statutory requirements, “including faithfully implementing the statutory definition of ‘applicable laboratory;’” and enter an “injunction that (1) directs the Secretary to withdraw or suspend his final rule until such time as it can be brought into compliance with the statute, and (2) directs the Secretary to withhold applying the new Clinical Laboratory Fee Schedule until such time as the Secretary has made appropriate revisions to his final rule.” The lawsuit also asked the court to award to the ACLA “costs and disbursements of this action and reasonable attorneys’ fees.”
