The CMS has finalized a rule under which it will begin paying the same as private insurance rates for clinical diagnostic laboratory tests.
The cost-saving changes will begin Jan. 1, 2018, a year later than previously proposed. An earlier report from HHS' Office of Inspector General found that Medicare paid between 18% and 30% more than other insurers for some lab tests.
Cost benefits are more modest than previously thought. Additional analysis has found that the rule is expected to save $390 million in its first year of implementation and $3.93 billion over 10 years. Earlier estimates pegged savings at $360 million in the first year and $5.14 billion over 10 years.
Medicare's current fee schedule for lab tests has been in place since 1984 and has been largely unchanged, according to the agency. Under the current system, each lab determines its own payment rates on the basis of prevailing charges for lab tests in its region.
The program paid approximately $7 billion a year for clinical diagnostic laboratory tests in 2014.
The change was called for in the Protecting Access to Medicare Act of 2014, which also requires clinical laboratories to report on private insurance payment amounts and lab testing volumes.
Medicare-enrolled laboratories are a mix of national chains that perform a large menu of tests and small regional operations that concentrate on a specific population, such as nursing home residents. Physician offices also perform some tests that are reimbursed by Medicare.
Laboratories must collect private payer data from Jan 1, 2016 through June 30, 2016, with reports due to the CMS by March 31, 2017. The CMS will post the new Medicare rates by Nov. 1, 2017.
Hospital stakeholders were pleased with the final rule because the agency widened the base of labs—including some hospital labs—that will be analyzed for payment trends.
In the proposed rule, hospital-based laboratories were not going to be evaluated as part of the CMS' process to determine new rates. Hospitals criticized the provision, saying they would have been paid under the new rates based on skewed data, given that large independent laboratories often charge much lower rates due to larges volumes, according to the American Hospital Association.
Reduced payments would lead to lab closures and lack of patient access, AHA Executive Vice President Thomas Nickels said in a comment letter.
“Excluding hospital labs from the data also excludes innovative--and expensive--laboratory tests developed at academic medical centers,” said Michelle Cooper, senior vice president and corporate responsibility officer at Catholic Health Initiatives, the nation's second-largest not-for-profit health system.
“Including hospital-based labs will better reflect market trends and lead to more appropriate reimbursement,” Nickels said in a statement on the final rule.
Amid growing reimbursement pressures, including this rule, many health systems are reevaluating the benefit of running their own labs. Lab giants such as Quest and LabCorp have increasingly turned toward acquiring health system labs or engaging in partnership deals with systems. Labs operations are expensive and don't necessarily bring significant revenue into the hospital.
Because of the company's volume, Quest says it can shave 10% to 20% off of a hospital's lab costs.
