Medicare Payments for Clinical Diagnostic Laboratory Tests in 2015: Year 2 of Baseline Data

WHY WE DID THESE STUDIES

Clinical diagnostic laboratory (lab) tests provide information integral to preventing, diagnosing, and treating disease in millions of Medicare beneficiaries every year. The Protecting Access to Medicare Act of 2014 (PAMA) requires reform of Medicare's payment system for lab tests-the first such reform in 3 decades. Beginning in 2018, Medicare payment rates-which are currently based on inflation-adjusted lab charges-will be replaced with new rates based on current charges in the private health care market. In response to a mandate contained in PAMA, OIG is monitoring Medicare payments for lab tests and CMS's implementation of the new payment system.

HOW WE DID THESE STUDIES

Inwe analyzed Medicare Part B claims data for lab tests performed in 2015 and reimbursed under the Clinical Laboratory Fee Schedule. For comparison, we also reviewed the same claims data from 2014. We analyzed the claims data by procedure code, beneficiary, lab, lab type, ordering provider, test category, and reporting status to describe Medicare Part B payments for lab tests in 2015.

In Changing How Medicare Pays for Clinical Diagnostic Laboratory Tests: An Update on CMS's Progress, we assessed CMS's progress in its implementation of the new payment system. We conducted interviews with CMS staff and contractors and reviewed documentation regarding six key implementation tasks. For each task, we interviewed individuals responsible for implementing the task and collected documentation about the completed activities (as of August 2016), remaining tasks, future plans, and any challenges encountered.

WHAT WE FOUND

Medicare Part B paid $7 billion for lab tests in 2015, a total that did not change from 2014. The top 25 lab tests by Medicare payments totaled $4.1 billion in 2015, slightly less than in 2014. Payments for two categories of tests changed significantly from 2014 to 2015, among all tests as well as among the top 25 tests. Among all tests, Medicare payments for drug tests increased by 19 percent and payments for molecular pathology tests decreased by 44 percent.

CMS has made significant progress toward implementing the new payment system. CMS has completed most or all parts of several key implementation tasks and has plans to complete the remaining tasks before the new rates become effective in January 2018. For example, CMS has issued the final rule for how it will implement the new payment system, has established the PAMA-required advisory panel for the new payment system, and has built a Web-based system for labs to report data from private payers.

Nonetheless, two aspects of CMS's implementation plans particularly warrant monitoring. First, although CMS requires certain labs to report data, it does not plan to verify whether they do so. Labs that will be required to report their data, which CMS will use to set new Medicare payment rates, represent a projected 5 percent of all labs and received 69 percent of Medicare payments for lab tests in 2015. Second, CMS does not plan to independently verify the completeness or accuracy of the data that labs report. Although CMS has limited time and resources to carry out such quality assurance activities, a lack of these activities could result in inaccurate Medicare payment rates for lab tests.

Further, certain aspects of the new payment system that could limit Medicare savings also warrant monitoring. First, Medicare could pay more for certain lab tests when it switches from the current payment system to a single national fee schedule-although Medicare payment rates are expected to decrease overall, rates for some tests will increase in certain locations under the new payment system. Second, Medicare may pay more for specific sets of lab tests because it can no longer pay using "bundled" rates for these sets under the new payment system. Finally, the exclusion of some pricing data from the new payment system could lessen cost savings if the excluded data are systematically lower than the data that CMS will use to set new payment rates.

WHAT WE CONCLUDE

The new payment system required by PAMA represents a major undertaking for CMS, with significant implications for the lab industry and Medicare spending. Our studies highlight both the significant progress that CMS has made toward implementing new Medicare rates in 2018 and concerning aspects of the new system and its implementation that could affect future Medicare spending. We will continue to monitor CMS's implementation of the new payment system, as well as its effects on Medicare payments.