The Centers for Medicare & Medicaid Services (“CMS”) released a proposed rule [CMS-1621-P] in accordance with Section 216 of the Protecting Access to Medicare Act of 2014 (“PAMA”), which establishes a new payment methodology for determining the Medicare Clinical Laboratory Fee Schedule (“CLFS”) and implements other significant changes to the Medicare payment system for lab services. The proposed rule is scheduled to be published in the Federal Register on October 1, 2015, and public comments must be submitted to CMS by November 24, 2015.[1]

Pursuant to Section 216 of PAMA, beginning January 1, 2017, the Medicare CLFS payment rate will be derived from a volume-weighted median of private payor rates for lab services. In order to calculate the CLFS rate, PAMA requires an “applicable laboratory” to report “applicable information” for a “data reporting period” to CMS. The proposed rule defines such terms and establishes the time frames for collecting and reporting payment information. The proposed rule also addresses the treatment of certain lab services distinguished under PAMA as “advanced diagnostic laboratory tests” (“ADLTs”) and other statutory provisions affecting coding, coverage, and oversight of the CLFS.

CMS proposes to meet the January 1, 2017, implementation date for the new payment methodology set forth under PAMA and require “applicable laboratories” to collect and report “applicable information” to CMS no later than March 31, 2016. This shortening window for the data collection and reporting periods has been a significant concern of the clinical lab industry, which has been exacerbated by CMS’s failure to release the proposed rule on or before June 30, 2105 (as required under PAMA).

CMS acknowledges that the potential time commitment and costs associated with the projected recordkeeping, reporting, and other compliance requirements of the proposed rule could be substantial, based on the potential volume of information a given lab entity may be required to report. Moreover, CMS acknowledges that the agency has insufficient information to determine the appropriate collection methods or financial impact on applicable laboratories to meet such reporting obligations.

It is anticipated that many clinical labs will wish to submit public comments on this issue, especially to question how CMS can propose an appropriate data reporting period without fully understanding the actual time commitment and financial impact of the collection and reporting obligation. It is unknown whether CMS will postpone the initial data reporting period that is proposed to begin January 1, 2016, if the final rules have not been published to date.

In addition, CMS specifically requests public comments on the following:

• Alternative definitions of a “laboratory” and an “applicable laboratory”
• The impact of using the Clinical Laboratory Improvement Amendments of 1988 (“CLIA”) certificate to designate a “single laboratory” related to the definition of an ADLT, and the definition of a “successor owner” for retaining ADLT status
• Whether CMS should reduce the number of Medicare Administrative Contractors (“MACs”) to four or fewer with the responsibility of both writing local coverage determinations (“LCDs”) for lab tests and processing all claims and any alternatives to such a reduction in compliance with PAMA

Definition of “Applicable Laboratory”

Section 216 of PAMA requires an “applicable laboratory” to collect and report to CMS private payor rates for each clinical diagnostic laboratory test (“CDLT”) and the corresponding volumes of such tests by payment rate. PAMA defines an “applicable laboratory” as an entity that derives a majority of its Medicare revenue under the CLFS (42 U.S.C. 1395l and 42 U.S.C. 1395m-1) and the Physician Fee Schedule (42 U.S.C. 1395w–4).

CMS proposes to use the CLIA definition of “laboratory” and identify the lab entity by Taxpayer Identification Number rather than by National Provider Identifier (“NPI”), which is broad enough to encompass every independent lab and any entity that includes a lab component, such as a physician office or hospital. However, to meet the definition of an “applicable laboratory” the entity must receive the majority of its total Medicare revenue from CLFS or Physician Fee Schedule (“PFS”) services in the “data collection period” (which CMS proposes to define as more than 50 percent). Of course, some lab entities will not know whether they exceed the threshold until after the data collection period is over and the information is compiled.

Note that an applicable laboratory is not required to report individual claims and not permitted to report personally identifiable patient information or the name of the private payors.

Furthermore, CMS proposes to exercise its statutory authority to establish a minimum revenue threshold to exclude a lab entity from the definition of an “applicable laboratory” if it does not receive at least $50,000 from the Medicare CLFS in the data collection period (CMS does not propose a minimum volume threshold). It is important to note that CMS proposes to reduce the minimum revenue threshold to at least $25,000 from the Medicare CLFS, in conjunction with the proposed shortened data collection period related to calendar year (“CY”) 2017 (discussed below).

CMS recognizes that the revenue thresholds under PAMA and the proposed rule are intended to limit reporting primarily to independent labs and certain physician offices and exclude other entities, such as hospitals or other health care providers. For instance, Medicare payments made to hospital labs for tests furnished for admitted hospital inpatients or registered hospital outpatients would not be included because such CDLTs are included as hospital services paid under 42 U.S.C. 1395ww. Nevertheless, while most physician offices and hospitals will not meet the definition of an “applicable laboratory” required to report to CMS, all lab entities will be impacted by any payment adjustments to the Medicare payment rates for CLFS or PFS services.

Definition of “Applicable Information”

The term “applicable information” is defined as the payment rate that was paid by each private payor for each CDLT and the respective volume of tests furnished at each rate. The statute defines a “private payor” as: (i) a health insurance issuer and a group health plan, (ii) a Medicare Advantage plan under Part C, and (iii) a Medicaid managed care organization.

CMS proposes that the “private payor rate” is the amount that was paid by a private payor for the CDLT, inclusive of any patient cost-sharing amounts (i.e., co-insurance, deductible, and/or copayment), if applicable, after all price concessions are applied. The definition of “applicable information” under PAMA and the proposed rule does not include any private payor rates for which payment is made on a capitated basis or other similar payment basis because the payment amount for a CDLT would not be determinable and, therefore, is excluded from the reporting requirements.

CMS proposes that the following “application information” must be reported in the form and manner to be specified by CMS:

• the specific HCPCS code associated with each lab test,
• the private payor rate(s) associated with the HCPCS code, and
• the volume of each lab test performed by the lab at each private payor rate.

Note that an applicable laboratory is not required to report individual claims and not permitted to report personally identifiable patient information or the name of the private payors.

Furthermore, CMS proposes that the President, CEO, or CFO of an applicable laboratory, or an individual who has been delegated authority to sign for, and who reports directly to, such an officer, would have to sign a certification statement and be responsible for assuring that the applicable information provided is accurate, complete, and truthful, and meets all the reporting parameters set forth under regulation.

Definition of “Advanced Diagnostic Laboratory Tests”

Section 216 of PAMA distinguishes a category of lab services referred to as “advanced diagnostic laboratory tests” from other CDLTs for purposes of reporting, coverage, and other requirements. The statute defines an ADLT as a CDLT covered under Medicare Part B that is offered and furnished only by a “single laboratory” and not sold for use by a lab entity other than the original developing lab entity (or a successor owner) and meets one of the following criteria: (1) the test is an analysis of multiple biomarkers of DNA, RNA, or proteins combined with a unique algorithm to yield a single patient-specific result (i.e., molecular pathology analysis of DNA or RNA); (2) the test is cleared or approved by the U.S. Food and Drug Administration (“FDA”); or (3) the test meets other similar criteria established by the Secretary of the U.S. Department of Health and Human Services (“HHS”). CMS proposes to establish guidelines for lab entities to apply for ADLT status and submit documentation with their application to support meeting criteria 1 or 2.

CMS proposes that an entity with multiple CLIA certificates associated with its multiple testing locations would not satisfy the definition of a “single laboratory,” and, therefore, the CDLT would not be eligible for ADLT status, even if the test met all other ADLT criteria. Moreover, under this proposed definition, the CDLT would not be eligible for ADLT status if a referring lab billed for a test performed by a reference lab because then more than one lab entity would be engaged in the testing activities and required to report applicable information related to the test.

CMS proposes to define an “existing ADLT” as any ADLT paid under the Medicare CLFS prior to January 1, 2017, and would determine the CLFS rate for existing ADLTs in accordance with the new payment methodology for CDLTs (discussed below).

Note that labs may mark information provided to demonstrate ADLT status as confidential and proprietary; however, the information may still be subject to disclosure under PAMA, the Freedom of Information Act, and other applicable federal laws.

Collection and Reporting

The proposed rule defines the “data collection period” for existing and new CDLTs as the 12-month period prior to the “data reporting period.” However, to meet the implementation date of January 1, 2017, set forth under PAMA, CMS proposes that the “initial data collection period” will be July 1, 2015, through December 31, 2015, with a data reporting period from January 1, 2016, to March 31, 2016.

In conjunction with the shortened data collection period for determining the CLFS rate for CY 2017, CMS proposes to reduce the minimum revenue threshold for determining an “applicable laboratory” from $50,000 to at least $25,000 of the lab entity’s Medicare CLFS revenues. The next “data collection period” would be from January 1, 2018, to December 31, 2018, with a data reporting period from January 1, 2019, to March 31, 2019, for determining the CLFS rate for CY 2020.

For “existing ADLTs,” CMS proposes the “initial data collection period” will be July 1, 2015, through December 31, 2015, with a data reporting period from January 1, 2016, to March 31, 2016. The subsequent data collection periods would be on an annual basis with the next “data collection period” being from January 1, 2016, to December 31, 2016, with a data reporting period from January 1, 2017, to March 31, 2017, for determining the CLFS rate for CY 2018.

For “new ADLTs,” the CLFS rate during the “initial period” (defined as the first three quarters of the CY in which the test is available for purchase by a private payor) will be based upon the “actual list charge” made publicly available by the lab entity. Thereafter, the CLFS rate will be based on the applicable information to be reported not later than the last day of the Q2 of the initial period. The next “data collection period” for new ADLTs would be on an annual basis using the 12-month period immediately prior to the data reporting period. CMS provides the following chart for reference:

In summary, an “applicable laboratory” is either itself a “laboratory,” as defined under CLIA regulations, or has at least one component that is a lab. In a data collection period, a lab entity must receive, collectively with its associated NPI entities, more than 50 percent of its total Medicare revenues from either the CLFS or PFS and meet the minimum revenue threshold to be an applicable laboratory. For the shortened data collection period from July 1, 2015, through December 31, 2015, for purposes of calculating CY 2017 payment rates, the applicable laboratory must receive, collectively with its associated NPI entities, at least $25,000 of its Medicare revenues from the CLFS, and, for all subsequent data collection periods, at least $50,000 of its Medicare revenues from the CLFS. The initial data collection period is from July 1, 2015, through December 31, 2015, and, for all subsequent data collection periods, the 12-month period immediately prior to the data reporting period. The data reporting period will be every three years for CDLTs and every year for ADLTs (with specific conditions for new ADLTs).

Civil Monetary Penalties

The HHS Secretary has the discretionary authority to impose a civil monetary penalty in an amount of up to $10,000 per day if it is determined that an applicable laboratory has failed to report, or made a misrepresentation or omission in reporting, applicable information to CMS. CMS proposes that the provisions for civil monetary penalties that apply in general to the Medicare program under 42 U.S.C. 1320a–7b would apply in the same manner to the laboratory data reporting process.

Volume-Weighted Median Rate

Under the new payment methodology, the CLFS rate for each test would be determined by calculating a weighted median of private payor rates and associated volume (number of tests) reported by applicable laboratories. The CLFS rate would not be subject to any adjustment (including any currently utilized adjustments, such as geographic, budget neutrality, annual update, or other adjustment) or any administrative or judicial review of the established amount.

In the example used by CMS, weighting private payor rates by volume changed the median private payor rate from $5.00 to $4.00 for Test 1, from $23.50 to $18.00 for Test 2, and resulted in no change ($41.00 both unweighted and weighted) for Test 3.

The CLFS rate for each test would remain in effect for a period of one calendar year for ADLTs and three calendar years for all other CDLTs, until the year following the next data reporting period. CMS proposes to publish the final CLFS rates for CY 2017 no later than November 1, 2016, and at least 60 days prior to the beginning of the next calendar year in subsequent years.

If the weighted-median amount is less than the CLFS rate in CY 2016, the CLFS rate for CY 2017 would not be reduced to the weighted-median amount, but rather, any potential payment reduction would be phased-in on an annual percentage basis pursuant to a methodology defined under PAMA. This statutory provision does not apply to new ADLTs or new CDLTs.

The potential payment reduction amount is not more than 10 percent from the prior year CLFS rate for each of 2017 through 2019, and not more than 15 percent from the prior year CLFS rate for each of 2020 through 2022. In the example used by CMS, if the weighted median rate for Test 1 is lower than the CLFS rate of $20.00 in CY 2016, the maximum payment reduction amount permitted for CY 2017 is $2.00 (or 10 percent of the $20.00 CLFS rate from the prior year). The following year, a 10 percent reduction from the CLFS rate for CY 2017 of $18.00 would equal $1.80, lowering the total CLFS rate to $16.20 for CY 2018.

CMS recognizes that there will be new and existing CDLTs provided to Medicare beneficiaries for which CMS does not receive applicable information to establish a CLFS rate, because the lab entity that performs the CDLT does not meet the definition of an “applicable laboratory.” In such an event, on or after January 1, 2017, CMS proposes to use crosswalking and gapfilling methodologies to establish a CLFS rate for such CDLTs, which would remain in effect until the year following the next data reporting period.

Payment Rate for New CDLTs

The HHS Secretary must set the CLFS rate for a CDLT (excluding ADLTs) that is assigned a new or substantially revised HCPCS code on or after April 1, 2014, until CLFS rates are established under the new payment methodology. In conjunction, the HHS Secretary must utilize crosswalking or gapfilling methodologies, as well as consider recommendations from a newly created Clinical Laboratory Payment Advisory Panel, in determining the CLFS rate for such CDLT tests. The advisory panel would provide input to CMS on the establishment of CLFS rates for new CDLTs, the factors to determine coverage and payment for new CDLTs, and other matters.

The HHS Secretary is also required to make available to the public an explanation of the CLFS rate for a new CDLT, including an explanation of how the gapfilling criteria, if applicable, are applied and how the recommendations of the advisory panel are applied. CMS proposes to publish such information via the existing CMS CLFS website.

Payment Rate for New ADLTs

Section 216 of PAMA provides that for a “new ADLT” the CLFS rate during the “initial period” (defined as the first three quarters of the CY in which the test is available for purchase by a private payor) will be based upon the “actual list charge” made publicly available by the lab entity. CMS proposes that the initial period would start and end on the basis of a calendar quarter, so that the first day of the initial period would be the first day of a calendar quarter after the test is available for purchase by a private payor, and the last day of the initial period would be the last day of a calendar quarter (i.e., January 1 and March 31, April 1 and June 30, July 1 and September 30, or October 1 and December 31).

After the initial period, the CLFS rate would be based on the applicable information received by CMS from applicable laboratories in accordance with the data reporting requirements for all ADLTs. This payment amount would continue to apply until the year following the next data reporting period.

Note that PAMA requires CMS to recoup a proportionate amount of Medicare payments for new ADLTs after the initial period if the actual list charge is greater than 130 percent of the weighted-median rate that is calculated based on the applicable information reported.

Temporary Codes (G Codes) for New and Existing CDLTs

CMS proposes to assign a “G code” to each new CDLT or ADLT that is FDA cleared or approved is not already assigned a CPT code or HCPCS level II code. The temporary codes would be in effect for up to two years until a permanent HCPCS code is established, except if the Medicare program continues to have a need to pay for the test as described by the G code.

CMS proposes to assign a “G code” to each “existing CDLT” (including ADLTs) that is cleared or approved by the FDA and has not already been assigned a HCPCS code. Section 216 of PAMA requires a “unique HCPCS code” to be assigned and the CLFS rate of the test publicly reported, no later than January 1, 2016. For purposes of this requirement, the term “existing CDLT” means a test for which payment is made under Medicare Part B as of April 1, 2014.

CMS proposes to utilize a mechanism such as a HCPCS code or modifier as a means to uniquely track and monitor CDLTs upon a request from a lab entity or a manufacturer to assign a “unique identifier” for existing CDLTs (including ADLTs) that are cleared or approved by the FDA.

Since applicable laboratories must report a HCPCS code for each test to specifically identify the test being reported, CMS proposes to define the term “specific HCPCS codes” as a HCPCS code that does not include an unlisted CPT code, as established by the American Medical Association, or a NOC code, as established by the CMS HCPCS Workgroup.

Local Coverage Determinations

The HHS Secretary has the discretionary authority to consolidate the number of MACs and task four or fewer MACs with the responsibility of both writing LCDs for CDLTs and processing all CDLT claims. CMS does not propose to consolidate the number of MACs in the proposed rule, but rather makes a specific request for public comment on the benefits and disadvantages of implementing the new discretionary authority in the final rule.

Section 216 of PAMA mandates that after January 1, 2015, a MAC may issue coverage policies for laboratory services only in accordance with the existing LCD development and implementation process set forth, not in statute or regulation, but rather in agency guidance (Medicare Program Integrity Manual, Chapter 13). The manual outlines the steps in LCD development, including the posting of a draft LCD, a public comment period, and issuance of a final LCD followed by at least a 45-day notice period prior to the policy becoming effective. The manual also outlines an appeals and review process; however, only an aggrieved party may challenge an LCD or LCD provision in effect at the time of the challenge. An “aggrieved party” is defined as a Medicare beneficiary (or the estate of a Medicare beneficiary) and does not include a health care provider.

ENDNOTE

[1] A copy of the proposed rule is available at http://src.bna.com/nX.