Life Science Compliance Update

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.

February 24, 2017

Are the Safe Harbors Still Safe? - OIG Issues Final Rule


The Department of Health and Human Services Office of Inspector General published a final rule, after considering various comments from stakeholders, about safe harbor provisions of the Anti-Kickback statute. This article goes into detail of what the changes were, and how they affect various health care providers.

On December 7, 2016, the Department of Health and Human Services (“HHS”) Office of Inspector General (“OIG”) published a final rule, revising safe harbors under the Anti-Kickback Statute (“AKS”). At the same time, the OIG revised the definition of “remuneration” under the Civil Monetary Penalty (“CMP”) rules regarding beneficiary inducements. As has always been the case, the safe harbor revisions will prevent certain initiatives of doctors, hospitals, and pharmacies from being treated as fraudulent kickbacks by Medicare and Medicaid. The final rule took effect January 6, 2017.

Read the full article in the February 2017 issue of Life Science Compliance Update

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January 09, 2017

OIG Report Addresses High Federal Spending on Catastrophic Part D Coverage


The Department of Health and Human Services (HHS) Office of Inspector General (OIG) today released a report examining federal spending on drugs in the catastrophic portion of the Medicare Part D prescription drug benefit. Although the optional benefit is provided by private companies, the federal government pays 80 percent of drug costs in a catastrophic coverage portion of the benefit after a beneficiary’s out-of-pocket costs exceed a certain threshold.

OIG focused on federal spending from 2010 through 2015, relying on federal drug spending data. According to the report, federal spending on the catastrophic portion of the benefit in 2015 was greater than $33 billion, a more than three-fold increase from the $10.8 billion spent in 2010. OIG noted that higher payments in recent years reflect a significantly higher growth in spending compared to prior years of the program, with the highest growth coming in 2014 and 2015.

In the report, OIG noted that “spending for high-price drugs were responsible for almost two-thirds of the total drug spending in catastrophic coverage” in 2015, as compared to only one-third of the spending in 2010. OIG also noted that the increase in spending was also driven by an increase in beneficiaries receiving high-priced drugs and an increase of beneficiaries who received catastrophic coverage.

According to the report, ten high-price drugs accounted for nearly one-third of all drug spending for catastrophic coverage in 2015, most of which cost thousands of dollars per month. These ten drugs treat conditions such as hepatitis C, cancer, and multiple sclerosis, ranging in price from $1,200 to almost $34,000 per month. This leads to high out-of-pocket costs for some beneficiaries in catastrophic coverage. OIG also stated that even for drugs that have been on the market for awhile, steep price increases have happened since 2010.

Some Beneficiaries Face High Out-of-Pocket Costs

High-price drugs mean high out-of-pocket costs for some beneficiaries. In catastrophic coverage, beneficiaries who do not receive the low-income subsidy typically pay five percent of each drug’s price. These costs are on top of the out-of-pocket costs they face before entering catastrophic coverage.

From 2010 to 2015, beneficiaries’ out-of-pocket costs for high-price drugs in catastrophic coverage increased 47 percent. In 2015, beneficiaries paid an average of $257 a month for each high-price drug in catastrophic coverage, up from $175 in 2010.

Some beneficiaries faced even higher out-of-pockets costs, especially if they were taking hepatitis C drugs. For two hepatitis C drugs, beneficiaries paid more than $1,300 a month. For example, beneficiaries in catastrophic coverage paid an average of $1,556 a month for Harvoni. This means that, on average, beneficiaries paid $4,669 for a typical 3-month course of treatment.


OIG concludes that “securing the future of the Part D program while ensuring beneficiaries have access to needed drugs is a complex issue that calls for a multifaceted approach.” CMS recently published information about certain drugs with substantial increases in price, noting that action is necessary to address rising drug costs and asked the industry to partner with the agency to find solutions that allow for both innovation and affordability.

In the future, CMS will likely look for additional tools to address and meet those goals. Some potential tools mentioned include restructuring the Part D benefit so that sponsors have more incentives and opportunities to lower costs, creating more transparency about drug pricing, promoting value-based options, and revising the law to allow the Federal Government to negotiate prices for certain drugs. OIG recommend that CMS “carefully assess these and other options and should, working with Congress, make any needed changes to the Part D program.”


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