Life Science Compliance Update

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March 16, 2017

OIG Raises Concerns Regarding Accuracy of New Clinical Laboratory Payment System


In early October, the Office of Inspector General (OIG) released a report monitoring the progress made by the Centers for Medicare and Medicaid Services (CMS) on preparing for the implementation of the new payment system for clinical laboratory tests, which was mandated by the Protecting Access to Medicare Act of 2014 (PAMA).

The new payment plan requires, with certain designated exceptions, for payment of clinical diagnostic laboratory tests furnished on or after January 1, 2018, to be equal to the weighted median of private payor rates determined for the test, based on certain data reported by laboratories during a specified data collection period. Different reporting and payment requirements will apply to a subset of clinical diagnostic laboratory tests that are determined to be advanced diagnostic laboratory tests.

Though CMS has made significant progress towards the January 2018 implementation date, OIG has several concerns regarding how accurate CMS’ method of obtaining payment data for the new payment rates is. One such concern is that CMS has stated it will not verify whether required laboratories have submitted the payment data CMS will use to establish the new payment rates, another is that CMS does not plan to independently verify the reported payment data’s completeness or accuracy.

While the new payment system is slated to save Medicare $3.9 billion during the first ten years of implementation, OIG has cautioned that potential issues with the accuracy of the payment data for the new system may impact its effectiveness and expected savings.

For example, in 2015, Medicare Part B paid $7 billion for clinical laboratory tests. Those payments were largely based on laboratory charges from 1984 and 1985, which have been adjusted annually for inflation. PAMA charged CMS with the responsibility of replacing the historical payment system with a new payment system based on current charges in the private health insurance market. These new rates will be updated every three years, based on payment data reported by clinical laboratories.

CMS Final Rule

CMS released a final rule on June 23, 2016, detailing its plans to prepare for the implementation of the new payment system. According to OIG, CMS has built the reporting system that clinical laboratories will use to submit payment data, but that the next step is actually collecting payment data from the clinical laboratories.

As alluded to previously, while CMS does have some safeguards in place to mitigate inaccurate reporting by clinical laboratories, it does not plan to independently verify clinical laboratories’ data or whether the required clinical laboratories have even reported their data. This may result in CMS setting inaccurate payment rates for laboratory tests.

Additionally, according to the OIG, CMS defines an “applicable laboratory” in a manner that excludes most if not all hospital laboratories, potentially leading to an understatement of true clinical laboratory cost and payment data.

Reporting Dates

Clinical laboratories will start reporting their payment data in early 2017. CMS has set a target date of November 2017 to publish the rates that will be used in the new payment system.

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