Physician office labs leverage information systems to prepare for more fee schedule cuts

Jan. 23, 2017

Physicians and their laboratories are adaptable folks, and the technology that they employ must also be adaptable. In recent years, physicians and physician office laboratories (POLs) have been affected by multiple market and regulatory forces that directly impact their business and livelihoods. At one time, required adoption of new healthcare information technology (HIT) brought disruptive change to the physician office. Now, in a climate of massive financial change, that HIT, specifically the laboratory information system (LIS), will provide support while POLs adjust their practices in order to survive and see the next great change.

The American Recovery and Reinvestment Act of 2009 (ARRA) and its incorporated Health Information Technology for Economic and Clinical Health (HITECH) Act, which authorized incentives for the adoption and Meaningful Use (MU) of certified Electronic Health Record (EHR) technology, created a challenge for physicians bringing on new information technology while adopting the workflow changes that came with it. Physicians and POLs rose to the challenge, implemented the measures (including incorporation of electronically received laboratory results), and are now preparing for the Merit-based Incentive Payment System (MIPS).

Physicians and POLs have persevered through the implementation of The Patient Protection and Affordable Care Act (PPACA) of 2010, commonly called the Affordable Care Act (ACA), which required hospitals and primary care physicians to transform their practices financially, technologically, and clinically to drive better health outcomes, lower costs, and improve methods of distribution and accessibility. The ACA significantly restructured how healthcare is delivered and how providers are compensated.

Facing new challenges

Even in the context of all those changes, however, the Protecting Access to Medicare Act (PAMA) of 2014 may be the legislation that will most impact physician offices with laboratories. That is because section 216 of PAMA will significantly reduce the reimbursement rates of the clinical laboratory fee schedule (CLFS). Under the final rule, laboratories, including POLs, are required to report private payor rate and volume data if they have more than $12,500 in Medicare revenues from laboratory services on the CLFS and receive more than 50 percent of their Medicare revenues from laboratory and physician services during a data collection period.

Some representatives of the laboratory industry have expressed great consternation over the methodology of the repricing plan, arguing that the data is skewed toward large national reference labs that offer high-volume, low-cost testing. By exempting those with less than $12,500 in Medicare revenues, the data is weighted to larger labs. As many as 95 percent of all POLs, 50 percent of independent laboratories, and many hospital outreach labs will not need to report private payor prices.

Despite objections, the Centers for Medicare and Medicaid Services (CMS) is expected to post the new Medicare CLFS rates (based on weighted median private payor rates) in November 2017, to be effective on January 1, 2018. Industry reports predict double digit reduction, up to 30 percent, in the CLFS based on the current imposed laws.

PAMA restructuring is in addition to the 2016 reimbursement cuts already implemented including, according to the list posted on the National Independent Laboratory Association (NILA) webpage1: five consecutive 1.75 percent direct reductions from 2010-2014 under the ACA; a productivity adjustment every year under the ACA; a two percent reduction from the Middle Class Tax Relief and Job Creation Act of 2012 (SGR patch); and a two percent reduction beginning in FY 2013 and ongoing from the Budget Control Act of 2011

More positive notes

The prospects for POLs are not entirely gloomy ones. For laboratory services provided to skilled nursing facilities and home health sites, CMS will increase the draw fee by $2 starting in 2017, and price cuts will be less impactful on Advanced Diagnostic Laboratory Tests.2 Further, value-based reimbursement models pay doctors based on clinical and financial outcomes, which is a great reason to have a POL, since faster turnaround times can improve treatment plans.

Financial incentives, carrots and sticks, from health plans and employers encourage patients to shop for lab tests based on price, quality, and service. This fact, and other factors, are intensifying the outward shift in care to the ambulatory setting. This positions POLs well to address more lab testing. POLs can grow by extending test menus or even reaching outside the office for volume. Molecular testing is available in CLIA waived tests, such as flu/strep/RSV, and CLIA non-waived, such as women’s health and sexual health testing. Test menus tailored to the practice will ensure the highest utilization of resources and lowest cost per unit test.

POLs must contend with competition from urgent-care centers and retail health clinics that offer an array of in-house diagnostic laboratory tests. POLs can compete when it comes to convenience; when the order is placed by the physician, the patient can be directed to draw immediately. Also, physicians have a diagnostic advantage when it comes to interpretation of results since they have a more complete history on the patient than the walk-in clinics have. Competing with other ambulatory and convenient providers will require POLs to focus on quality and cost-efficiency.

Optimizing performance

An LIS that is well-suited to the lab’s needs is a necessity to ensure that maximum efficiencies and improved patient care are being realized in order to minimize cost and maximize reimbursement. For the POL, an effective LIS is more important than ever. What are some of the benefits of an appropriate LIS?

Positive patient identification and accurate patient demographics: Hand-written names that are incomplete or illegible are eliminated, resulting in accurate identification. Since Meaningful Use, it is most common for a lab order to be generated as part of Electronic Medical Records (EMR). When the order is received in the LIS, a label is printed with demographic information received from the EMR. The use of barcode-printed labels ensures accurate labeling on the specimen and accurate programming on the instrument.

Monitoring result discrepancies: The LIS includes delta checking, allowing laboratorians to alert a provider to changes in a patient’s condition.

Management review: The LIS can store proof of review by the managerial staff for the analytical review of the test systems for defined tests or selected personnel. In larger POLs, management review is useful when training new staff, as the new employee can complete the review but the supervisor is allowed to review what the employee did and evaluate where the new employee might need additional training.

Quality control: The LIS stores values, graphs, corrective action, and proof of review. The LIS documents QC failures and corrected reports so the documentation is readily available for inspections. A Scheduler creates paperless schedules for the staff on external QC, maintenance, and assignments. The LIS assists with ensuring the QC is acceptable and can disable release of results if certain criteria are not met.

Automated test reflex or testing cascade: In the physician office setting, lab staff must work closely with providers to develop the practice’s best test utilization testing using rules and sequence of testing, enabling providers to order a test while the rules will automatically order the appropriate tests based on the initial results. Auto-Verification Rules allow rapid flow of results within the pre-defined ranges into the patient chart, eliminating the need for review of test results. The user can set up ordering rules and automatic reflex testing rules based on results, eliminating the risk of forgetting to do a reflex test and generating the electronic billing change.

Standing order and call documentation: These features in the LIS keep track of orders and document attempts and outcomes of contact with a patient, enabling better patient outcomes.

Result dissemination: Labs must ensure that results are reliably sent to the final report destination in a timely manner. Electronic bidirectional interfaces with EMRs, Practice Management Systems, and reference lab systems enable accurate, up-to-date information in the LIS and all systems.

The LIS is more critical than ever in the POL setting. Labs will need a strong LIS partner that is able to adapt as testing menus and workflows shift. The LIS must continually advance to meet the testing requirements, including new molecular testing, and assist the lab in delivering the data required to ensure maximum efficiency and the best possible patient care.


  1. National Independent Laboratory Association.  Medicare payment for Part B laboratory services.
  2. American Clinical Laboratory Association. CLFS reform.

Megan Schmidt, Vice President of Product Management at CompuGroup Medical US LAB Division, is engaged in defining product strategy and development roadmap, providing information and business solutions to clinical laboratories of all sizes. Previously, Megan held the positions of Director of Product Strategy at Sunquest Information Systems, Inc., Product Manager in the division of Molecular Imaging at Carestream Health Inc., and Business Manager at PerkinElmer Inc.

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