On September 25, 2015, CMS released proposed rulemaking that would extensively revise payment and reporting requirements for clinical diagnostic laboratory tests (CDLTs), as paid on the Clinical Laboratory Fee Schedule (CLFS).  Under the proposed rule, certain laboratories would be required to report to CMS private payor payment rates and test volume for CDLTs.  Ultimately, CMS would use the data to set CLFS payment rates to the weighted median of private payor rates. CMS estimates a Medicare Part B savings of $2.94 billion over 5 years and $5.14 billion over 10 years. 

The rulemaking would implement a portion of the Protecting Access to Medicare Act of 2014, which added section 1834A to the Social Security Act and requires a phase-in of certain reductions in CLFS payments through 2022.  Maximum reductions are limited to 10 percent for each of 2017 through 2019, and 15 percent for each of 2020 through 2022.  No such reduction limit exists for subsequent updates, and no other adjustments (annual update, budget neutrality, or geographic variation) will apply. 

Under the proposal, CMS would require data reporting from certain laboratories on a calendar year basis.  However, CMS proposes a shortened initial period, by which data would be collected from July 1, 2015 through December 31, 2015 and reported to CMS by March 31, 2016.  CMS would use that data to update CLFS rates effective January 1, 2017.  Data reporting would then generally be required every third subsequent calendar year, with corresponding updates to the CLFS occurring again on January 1, 2020 based on data collected during calendar year 2018 and reported by March 31, 2019.  Prior to the finalization of any payment updates, the public will have the opportunity to provide comments.

As proposed, “applicable laboratories” must report, by HCPCS code, the private payor payment rate for each CDLT and the volume of tests performed, by private payor.  By statute, private payors include Medicare Advantage plans and Medicaid managed care organizations.  From this data, CMS will calculate the weighted median private payor payment rates to adjust CLFS rates.

“Applicable laboratories” are defined as those entities receiving more than 50 percent of their Medicare revenues under the CLFS or Physician Fee Schedule during the data collection period.  This threshold applies by Taxpayer Identification Number (TIN)-level entity, rather than by National Provider Identifiers (NPI), such that even NPI entities that are not laboratories would count towards the TIN-level entity’s revenue total.  Medicare revenue includes payments under Parts A, B, C, and D, as well as any associated beneficiary deductible or coinsurance.

TIN-level entities receiving less than $50,000 in Medicare revenues ($25,000 during the initial shortened reporting period) would be excluded.  CMS estimates that this low expenditure threshold will exclude approximately 50 percent of independent laboratories and 90 percent of physician offices.  Applicable laboratories that fail to report, or make a misrepresentation or omission in reporting, will be subject to a civil monetary penalty under the proposed rule.

CMS proposes differing reporting requirements for advanced diagnostic laboratory tests (ADLTs), which are CLTS furnished by a single laboratory meeting certain other criteria.  Applicable laboratories must report on ADLTs annually, rather than every three years under the proposed rulemaking.  Further, new ADLTs (for which Medicare payment was not made prior to January 1, 2017) would report for three quarters by actual list charge, setting the payment rate until the following ADLT data collection period.  If the initial payment rate is 130 percent or greater than the eventual ADLT payment rate based on the weighted median of private payor rates, CMS proposes to recoup the difference.  As proposed, new CDLTs would be priced based on crosswalking (if a similar test exists) or gapfilling (if no comparable test exists) until weighted median information can be established.

The proposed rulemaking is available here.  CMS’s factsheet is available here and its press release is here.  The proposed rule is expected to be published in the Federal Register on October 1, and interested parties may submit comments through November 25.

Reporter, Elizabeth N. Swayne, Washington, D.C., + 1 202 383 8932, eswayne@kslaw.com.