Comparing Lab Test Payment Rates: Medicare Could Achieve Substantial Savings

WHY WE DID THIS STUDY

Medicare is the largest payer of clinical laboratory (lab) services in the Nation. It paid approximately $8.2 billion for lab tests in 2010, which accounted for 3 percent of all Medicare Part B payments. Prior to this evaluation, there had not been a comparison of Medicare payment rates to those of other health care service payers. Such a comparison will help ensure that Medicare is a prudent purchaser of lab services.

HOW WE DID THIS STUDY

We collected payment data from 50 State Medicaid programs and 3 Federal Employees Health Benefits (FEHB) plans that pay for lab tests on a fee-for-service basis. We requested the payment rates in effect from January 1 through March 31, 2011, for 20 lab tests. For each lab test in each geographic area represented on the Medicare Clinical Laboratory Fee Schedule (CLFS), we compared Medicare paid claims with the State Medicaid program fee schedule amount and FEHB plan median claim payment amounts. We surveyed State Medicaid programs and FEHB plans to determine how their lab test fee schedules or payment rates were formulated, whether a copayment was charged to the patient, and whether lab test charges counted towards a member's deductible.

WHAT WE FOUND

In 2011, Medicare paid between 18 and 30 percent more than other insurers for 20 high-volume and/or high-expenditure lab tests. Medicare could have saved $910 million, or 38 percent, on these lab tests if it had paid providers at the lowest established rate in each geographic area. State Medicaid programs and 83 percent of FEHB plans use the Medicare CLFS as a basis for establishing their own fee schedules and payment rates, although most pay less. However, unlike Medicare, FEHB programs incorporate factors such as competitor information, changes in technology used in performing lab tests, and provider requests in their payment rates. Some State Medicaid programs and FEHB plans required copayments for lab tests, which, in effect, lowered the costs of lab tests for the insurer.

WHAT WE RECOMMEND

We recommend that CMS seek legislation that would allow it to establish lower payment rates for lab tests and consider seeking legislation to institute copayments and deductibles for lab tests. In its comments, CMS stated that it is exploring whether it has authority under current statute to revise payments for lab tests consistent with OIG's recommendation and that a proposal to establish "deductibles and coinsurance" for lab tests is not included in the fiscal year 2014 President's Budget.