Tired of talking, labs sue CMS over planned cut

Clinical labs are suing the CMS over a planned multibillion-dollar cut to their reimbursement.

They expect to lose $670 million next year as part of a CMS effort to pay the same rate for tests as private payers.

Medicare's fee schedule for lab tests has been largely unchanged since it was established in 1984. Each lab determines its own rates based on market prices. Medicare has historically paid 18% to 30% more than other insurers for some tests, HHS' Office of Inspector General found. The program shells out about $7 billion a year for clinical diagnostic laboratory tests.

The change in reimbursement was mandated by the Protecting Access to Medicare Act of 2014. The switch was made final in a rule released last year and is effective Jan. 1. The CMS estimated the change will save nearly $4 billion over 10 years.

The clinical labs have taken issue with the CMS' decision to exempt many labs from reporting what private insurance companies were paying for tests. The CMS made that decision in an effort to reduce regulatory burdens. HHS' Office of Inspector General initially estimated the rule would apply to approximately 12,000 laboratories, but only around 2,000 reported data.

The lawsuit, filed in the U.S. District Court for the District of Columbia on Monday, asserts that the CMS ignored congressional intent and instituted a flawed data-reporting process in advance of setting market rates under the law.

Hospitals are also now suing the CMS in the same court over planned cuts to the federal drug discount program known as 340B.

Calling the process used to set the rates faulty, Julie Khani, president of American Clinical Laboratory Association, said the change could cause serious financial harm to potentially thousands of 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.

"We have repeatedly advised CMS that there are significant, substantive deficiencies in the final rule, which fails to follow the specific commands of the PAMA statute," Khani said in a comment. "Contrary to Congress's 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."

Industry groups have argued that the CMS collected data from labs with the biggest test volumes receiving the highest discounts from test manufacturers. Had the CMS surveyed more labs, the forthcoming cuts would be much smaller than they are now.

The Congressional Budget Office, assuming that a larger universe of labs would be surveyed, estimated that the Protecting Access to Medicare Act would cut Medicare spending by $100 million in the first year of the new rates and by $2.5 billion over 10 years. That's much lower than the $670 million in first-year losses and $3.9 billion over 10 years that labs now face based on the CMS' smaller sample size.

The new rates would still hold up even if more labs were surveyed, according to the CMS. In analyzing the reported data, it ran multiple simulations on the impact of increasing laboratory participation and the results showed no significant impact.

A CMS spokesman said the agency doesn't comment on pending litigation.