Bundled payments can shape the financial futures of pathologists and clinical laboratories

May 24, 2015

Value-based payment, or bundled payment, is part of utilization control to redesign a fee-for-service system that traditionally rewards provision of services rather than achievement of outcomes and controlled costs. Reform initiatives have proposed a significant change in the delivery of healthcare that attempts to align the economic interests of the patient with those of both the provider and payer. This is done while attempting to solve the gap necessary to facilitate a collaborative effort in the continuum of care. In order to eliminate duplicate services and ensure medical necessity, diagnostic testing is being subjected to reform efforts.

In 2015, laboratories, pathologists and administrators have already been faced with changing regulatory, coding, billing, and reimbursement structures imposed by Medicare carriers and private health insurers. Coverage guidelines for both clinical laboratory and anatomic pathology services have been impacted in an effort to reduce their costs. The biggest contributing factor to this flood of change is the Protecting Access to Medicare Act of 2014 (PAMA).

PAMA is the first substantial change in laboratory reimbursement in more than 30 years. The last time the federal government made a major change in its payment model was when it introduced inpatient diagnosis-related groups (DRGs) in 1983. At that time, laboratories experienced a significant decline in reimbursement for certain clinical services due to a number of factors related to how the DRG was allocated to service lines.

To put that development—and this one—into perspective, healthcare in the United States has always been a dynamic business with complex reimbursement systems. Cost issues and the complexities of serving a diverse population have led to a continuing evaluation of the system by all stakeholders. As we move from fee-for-service systems to episode-based or pay-for-value care models, value in healthcare is increasingly being sought.

Bundled Payments for Care Improvement Initiative

It is in this broad context that the Centers for Medicare and Medicaid Services (CMS) has sought ways to accomplish three key goals: improving healthcare, bettering overall population health, and lowering costs. The CMS Bundled Payments for Care Improvement Initiative (BPCI) provides a single payment for services that patients receive across a continuum of care. That payment for a given episode is designed to incentivize caregivers to improve coordination of care for their patients.

The CMS began bundling reimbursements to hospitals and their laboratories for outpatient clinical laboratory tests under the Hospital Outpatient Prospective Payment System (OPPS) on January 1, 2014. Previously, clinical laboratory tests performed on outpatients were paid separately under the Clinical Laboratory Fee Schedule (CLFS).

According to the 2014 OPPS Final Rule, “CMS will bundle payment for a laboratory test when it is integral, ancillary, supportive, dependent or adjunctive to a primary service or services provided in the hospital outpatient setting.” The lab tests and primary services must have the same date of service and must be ordered by the same provider to be bundled. The only exemption from this rule is molecular pathology lab tests. They will continue to be paid on the CLFS.

Following the 2014 OPPS Final Rule, CMS posted Transmittal R2845CP on December 27, 2014, to offer further instructions on changes to the OPPS. According to the transmittal, hospitals should now bill most lab tests on a 13x bill type, except in certain circumstances when lab tests are allowed to be billed separately and paid at CLFS rates.

Separate billing

In circumstances when separate billing is allowed, a 14x bill type should be used. Separate billing on the 14x bill type is allowed in two situations: first, when a hospital provides only lab tests to the patient and the patient does not receive any other hospital outpatient services during the same encounter; and second, when a hospital provides lab tests that are clinically unrelated to other hospital outpatient services provided during the same encounter and the lab tests are ordered by a practitioner different than the one who ordered the original outpatient services. In this case, the lab tests are billed on a 14x bill type, and the other outpatient services are billed on a 13x bill type

.This requirement is made more onerous by the fact that the transmittal warns that it is the hospital's responsibility to determine when lab tests can be billed separately on a 14x claim as opposed to when they must be bundled on a 13x bill type. Hospitals must be vigilant in identifying the incorrect claims.

Meeting the challenge

So, what does this mean for laboratory administrators, pathologists, and clinical laboratories as a whole? Administrators will continue to be challenged with the task of tracking charges and developing methods for obtaining detailed information on expected reimbursements. Developing detail in support of these efforts will require a robust laboratory information system and billing system capable of handling ongoing coding and billing adjustments, as well as a method to determine how these will affect the bottom line.

Laboratories will be wise to begin, if they have not already started, some tracking and trending on what type of loss in revenue is being experienced and how they can begin working with internal billing departments to determine volumes and a way to do an impact analysis. Information on cost per test and associated payment is critical in order to evaluate whether a test will be viable and profitable in the future.

While the financial impact of these reimbursement changes remains uncertain, it may continue to lower reimbursement for some hospitals, depending on how many outpatient lab tests they perform. CMS assures that it has included the cost of lab tests in bundled OPPS rates, so the issue may not be whether hospitals will get paid, but rather, how hospitals will be able to budget and assess their laboratory's finances.

On the positive side: hospital outpatient bundling could give outreach labs an advantage. Outreach labs serve non-patients, and since tests provided to non-patients are still paid separately under the CLFS, now outreach labs and hospital labs will receive different reimbursement rates for the same tests. Additionally, outreach labs do not have to make drastic adjustments to their billing in order to conform to bundling rules.