Medicare could overspend billions for lab tests

Medicare may still spend more money than it should for clinical lab tests because the CMS hasn't gathered complete data on what private insurers pay for the same tests, even though the agency changed its laboratory fee schedule.

The Government Accountability Office found that if the agency doesn't tweak its phase-in of the pay cuts for these tests — where Medicare has been outspending commercial payers — the federal government could end up paying billions more than is necessary through 2020, according to a report released Friday.

For some tests, the CMS has already ended up temporarily paying higher rates than before as the agency started its reductions.

In 2014, Congress through the Protecting Access to Medicare Act required the CMS to overhaul the pay rates for laboratory tests for the first time in three decades. The CMS finalized its reductions last year and they went into effect Jan. 1 2018, spurring a lawsuit from labs as they faced hundreds of millions of dollars of lost revenue. The labs expect to see $4 billion in cuts over the next decade.

Ultimately, the federal judge presiding over the case said the court couldn't interfere because Congress "expressly precluded judicial review of issues such as these."

But the GAO wants HHS to take additional steps to safeguard Medicare funds under the new system, starting with the data on what private insurers are paying. The CMS has been relying on the labs facing the cuts to get an accurate financial picture of what the tests should cost.

"CMS relied on laboratories to determine whether they met data reporting requirements, but agency officials told GAO that CMS did not receive data from all laboratories required to report," the report said. "CMS did not estimate the amount of data it should have received from laboratories that were required to report but did not."

While the agency took precautions against inaccurate payment data, the GAO said it isn't clear that the CMS has enough information to make sure the Medicare rates will fully capture all the rate reductions authorized by Congress.

In addition, the CMS used Medicare's maximum pay rates from 2017 rather than the actual pay rates as the baseline to start the phase-in of the cuts, the watchdog said.

Subsequently, some labs actually saw an average pay boost rather than a reduction. For 2018 through 2020, Medicare may pay out $733 million more than it would if the CMS had used average pay rates from 2016 as the benchmark instead.

The agency also dropped its bundled payments for some panel tests — which are groups of laboratory tests typically conducted together — even though that's how Medicare had paid for them before the overhaul.

CMS officials said the agency hadn't clarified that it had the authority to maintain these bundled payments under the 2014 law,and GAO noted that the CMS is "currently reviewing" whether it can claim that authority.

HHS said in a response included in the report that officials are also looking at other ways they can reinstate bundles under current law, such as adding codes to the fee schedule.

If these payments remain unbundled, however, GAO estimates they could hike Medicare costs by as much as $10.3 billion this year through 2020.

HHS told GAO it will work on more complete data-gathering. But the department said any change to the way the CMS phases in the reductions would need to be done through additional rulemaking, and did not indicate whether it would take this step.

The size of the U.S. clinical laboratory market isn't known. The Healthcare Fraud Prevention Partnership estimated the industry garnered $87 billion in 2017, and a separate market report estimated revenues were $75 billion in 2016.

Estimates also vary over how the three most lucrative lab types split the money Between 37% and 54% of the total lab revenue has gone to independent labs in recent years, according to GAO. Between 21% and 35% goes to hospital-outreach labs, and 4% to 11% go to physician-office labs.