CLFS reform: the better alternative for the clinical lab industry

June 19, 2014

The recently enacted “doc fix” bill was passed by both the U.S. House and Senate in the final days before Medicare would have been required to deal a harsh blow to physician payments in the form of a 24% cut. Congress elected to once again extend the “cut off” date and give physicians a reprieve. That is something doctors are used to, as this legislative fix has been repeated over and over. 

For the clinical lab industry, reductions in Medicare reimbursement for clinical lab services are nothing new. In fact, labs faced across-the-board cuts from Congress and additional cuts from the Centers for Medicare & Medicaid Services (CMS) before President Obama signed the Protecting Access to Medicare Act of 2014 (PAMA) into law. PAMA staved off almost certain lab cuts by Congress and test-by-test “adjustments” that were scheduled to take place under CMS’ direction in January 2014. The new law may also provide some protection from additional cuts as a “pay for” for future physician payments extensions or the repeal of the so-called “SGR” (sustainable growth rate) which threatens physician payments time and again. While PAMA was a much better alternative to these likely cuts, it is a complex law that raises many unanswered questions that will need to be resolved before the new prices for lab tests go into effect in January 2017.

How did clinical labs avoid significant cuts from both Congress and CMS? The American Clinical Laboratory Association (ACLA) and other stakeholders engaged with Congress and worked with key committees, fighting for key principles of reform for the Clinical Laboratory Fee Schedule (CLFS). Some but not all of these concepts were included in the new legislation.

The overhaul of the CLFS will reduce some of the uncertainty that existed before PAMA with respect to reimbursement pricing, especially over the next two to three years. PAMA also provides more transparency, and allows more time for laboratories and other stakeholders to prepare for changes they otherwise would have had with the CMS adjustment process previously underway. While reductions in reimbursements to clinical lab services remain likely down the road, a phased-in approach, rather than a process that frontloads cuts, affords some practical planning time for labs to adjust budgets and develop strategies to maintain business viability.  

This is an improvement over the CMS adjustment process, which was unlimited, provided little time for input, and lacked openness, all of which can severely undermine stakeholders invested in policy and the regulation of clinical lab reimbursement. Further unrestricted adjustments by CMS threatened innovation and patient access to important laboratory services. When considering that clinical laboratories provide the critical information needed for 70% of physician decisions and aid early diagnosis and treatment of chronic diseases that, when caught early, prevent years of increasing costs to the healthcare system, an unfettered ability to implement deep and repeated cuts to reimbursements simply disregards the critical role labs play in the diagnosis and treatment of disease.  

Specifically, the reform proposal repeals CMS authority to alter the CLFS based on technological changes that were due to impact labs in January 2015 and replaces it with a process to adjust reimbursement based on market rates, provides a per test phase-in of reductions in reimbursement, creates a payment adjuster for laboratories serving the most vulnerable Medicare beneficiaries, and requires a clearly defined, transparent process for reconsideration of CLFS rates.

To determine Medicare payment rates for lab services, the new law requires labs to report payment rates for each code by private payors to CMS. Included in the reporting are payments from health insurance issuers, group health plans, Medicare Advantage plans, and Medicaid-managed care organizations. Many questions have arisen about the total breadth of data to be reported, the time period, whether there will be a standard format, etc. Those are among the major details that need to be worked out during the regulatory process—starting now. ACLA and other organizations are already working hard to make sure that the implementation of PAMA’s CLFS reform is done in a way that ensures that “market pricing” is based on the true market for laboratory payments, including hospital and non-hospital laboratories, thereby preventing “cherry-picking” of segments of the laboratory reimbursement “market.” Fortunately, PAMA provides more than a year for CMS to conduct the rulemaking process that determines how the market is reported.  

Accordingly, as the rulemaking process begins, now is the critical time for our industry to demonstrate leadership, provide insight, debate solutions, and engage with policymakers and regulators. The ACLA is committed to continuing its work with Congress, CMS, and other stakeholders in reforming the CLFS while ensuring that the process reflects the actual broad scope of the laboratory market, recognizes the value of laboratory services, and protects access for Medicare beneficiaries.  

The PAMA CLFS reform provision is far from perfect. But, as ardently as the ACLA has advocated for no additional cuts to the CLFS in the future, that was not an option included in policy negotiations. In fact, the choice was this: 1) a market-based system starting in 2017, with limits on the reductions and a process and time to work on the implementation of the law (PAMA); or 2) a combination of four different reductions starting in 2015, including Congressionally mandated across-the-board cuts, CMS “adjustments” (cuts) code by code, the strong possibility of additional annual cuts from future SGR extensions or repeal bills, and potential for “market-based pricing” later on.   

There are real numbers associated with these two options. The Congressional Budget Office estimated that the PAMA provisions would “save” (cut) $2.5 billion over ten years. Just one of the four options listed under “2” above was estimated to cut the CLFS by $8 billion over ten years.   

When considered in this context, it is clear that PAMA is the better alternative.

Alan Mertz, MA, is president of the American Clinical Laboratory Association.