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Despite PAMA Delays, Lab Industry Stakeholders Fear Impact of Future Reimbursement Cuts

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NEW YORK – Although the 2022 implementation of reimbursement cuts related to the Protecting Access to Medicare Act has been delayed by Congress, stakeholders across the laboratory industry remain worried.

Cuts of up to 15 percent to nearly 600 clinical laboratory tests, along with comprehensive reporting requirements for payment data, were expected to go into effect starting in January 2022, but the Protecting Medicare and American Farmers from Sequester Cuts Act passed last week has delayed them by another year. The new bill continues the delay that was originally instated by the Laboratory Access for Beneficiaries Act in 2019 and continued by the Coronavirus Aid, Relief, and Economic Security Act in March 2020.

Through PAMA the Centers for Medicare and Medicaid Services is required to set prices for lab tests based on private payor rates that the agency collected from clinical labs with the aim of reducing Medicare spending on lab testing.

While news of the delay is a cause for celebration for laboratory stakeholders who were worried about the cuts, they remain cautious, with many noting that the new bill is merely a temporary mechanism — and that reimbursement cuts remain on the table for 2023 unless a long-term legislative fix is developed and passed.

Before the cuts were postponed, the American Clinical Laboratory Association released multiple statements calling on Congress to put them on hold, saying in a Nov. 18 release that the cuts "can have a drastic impact on labs across the country," and adding that the "extreme reductions in reimbursement also limit the types of tests a provider can offer."

And on Dec. 2, multiple stakeholder groups, including ACLA, the National Independent Laboratory Association, and the American Hospital Association, sent a letter to Congress requesting the scheduled cuts be delayed. In the letter, the organizations noted that "these cuts will undermine the basic public health and clinical laboratory infrastructure that is needed to quickly respond to emerging and future public health threats."

They added that previous PAMA cuts "have had a detrimental impact on clinical laboratory infrastructure, particularly labs who serve rural and underserved communities." Since PAMA went into effect in 2018, commonly ordered lab cuts have seen a cumulative reimbursement cut of 27 percent, ACLA noted.

When the final prices for the Medicare clinical lab fee schedule, or CLFS, went into effect in 2018, there were concerns from industry stakeholders that CMS' data collection process excluded key portions of the lab industry, such as hospital labs, from reporting private payor rates. That exclusion led to price cuts that didn't reflect the full laboratory testing landscape, which ACLA and other industry organizations objected to.

ACLA currently has an ongoing lawsuit against the US Department of Health and Human Services, which it filed in 2017, challenging the implementation of PAMA. The case was dismissed by the US District Court for the District of Columbia earlier this year, but ACLA filed an appeal in May.

For Sonny Naqvi, president and CEO of AIM Laboratories in Missouri, the "draconian" PAMA cuts have impacted his laboratory every year, and new ones "would destroy the independent lab industry," he said. The rate reductions put "small labs in a bind" and are "driving away private enterprise," as well as adding to payment problems these labs already face from private insurers, he said.

According to Naqvi, many private payors already treat his lab as an out-of-network provider, paying around 30 cents on the dollar for most of the tests he performs. If Medicare cuts payment rates further, smaller labs that are "operating under slim margins" as his lab is will no longer be able to function, he said.

The most widely ordered tests at AIM Laboratories, such as complete blood cell count tests, hepatitis assays, metabolic panels, and thyroid tests, have all been impacted by previous cuts, he noted.

Small and rural labs like his "serve [areas] where large labs don't want to go," and increased rate reductions will mean that those large labs — namely Quest Diagnostics and Laboratory Corporation of America — are the only ones available, apart from hospital labs, he said.

Naqvi added that he is "praying the cuts don't come back" and said he doesn't know how to prepare for rate reductions in 2023, since every test his lab does will be affected.

Naqvi's lab isn't the only one to have been affected by PAMA cuts. In 2019, after the first year of reduced prices from PAMA, many smaller labs reported that they were forced to cut services and staff to stay afloat.

While Omai Garner, the vice chair for clinical laboratory affairs at the University of California, Los Angeles' department of pathology and laboratory medicine, will not have his lab impacted by PAMA cuts, he said that, based on what he's seen, small or rural labs can't make up for the cuts by increasing testing volumes, which has led many of them to close.

Large-scale private laboratories likely won't be affected by the price cuts, since they see very high volumes and can regain any money lost from the cuts by further ramping up volumes, he said. Some of the smaller labs may end up having to send out specimens to Quest or Labcorp for testing, which could mean longer turnaround times for results and strain on both patients and laboratories, he added.

Garner noted that there are areas of significant waste in the clinical laboratory industry that need to be addressed by Medicare, but the PAMA cuts were applied to "tests everybody needs," which were "not where the problem was." Rate reductions to cut down on waste need to be handled "more surgically," rather than slashing prices "across the board," he said.

CMS must "focus in on where waste was or where payors were overcharging," but the process to determine which tests are responsible for the spending is difficult and would take years — years that the federal government is likely unwilling to spend to identify the underlying sources, he said.

Some of that waste comes from the CLFS rates not matching up with new technology changes, Garner said. When complex tests, such as respiratory pathogen panels, originally came onto the market, they were reimbursed at high rates befitting the difficulty of performing them, he said. But as technology has improved, particularly with automation shortening turnaround times, the cost of running the test "doesn't match up" with the reimbursement rate, he said.

Garner said he hopes that CMS will change its strategy and be more precise with reimbursement cuts, looking at individual tests to see where the waste is, but he noted that the "work to go one by one may take too long." CMS "went for the easier solution" when choosing which tests to cut reimbursement for, and because those cuts have technically led to money savings, there is no willpower to "do it another way," he said.

But beyond the laboratory industry, the current method of cuts also has an impact on patients, Garner said. By running small and rural labs out of business, the PAMA cuts are limiting patient access to necessary diagnostic tests and affecting patient care, he said.

Chris Martin, president of American Health Associates, a lab that serves patients in long-term care facilities, noted that specialized labs are also facing significant impacts from reimbursement cuts. Martin said that all of his lab's reimbursement has been affected by the cuts and that the nursing home lab sector has been halved since 2017, at least partially due to the negative effects of rate reductions.

He added that if the reimbursement cuts intended for January were put into place, he doesn't think "any labs that primarily serve nursing homes will be profitable." In addition to that, nursing home labs have already suffered due to the SARS-CoV-2 pandemic, facing the same routine test volume declines as other labs but unable to make up the difference with SARS-CoV-2 testing.

"We've reached the bottom of the barrel," Martin said. "If [price cutting] continues at this level, there won't be any labs left."

And though the cuts have been put off for another year, future cost-saving measures loom over the industry. Reimbursement cuts are "inevitable," said Michael Crossey, CEO of TriCore Reference Laboratories in New Mexico.

In Crossey's view, CMS went about developing the reimbursement cuts in the wrong way, relying too much on data from metropolitan areas and not taking into account the differences in reimbursement and demand in rural areas. The problems of "a regional lab in a rural state," such as the one he runs, and the "heterogeneity of the country" weren't reflected in PAMA, he said.

PAMA reimbursement cuts will hit TriCore "right between the eyes," Crossey said, because there's no way for the lab to shift its cost. Currently, the lab does 1 million tests per month and outsources less than 2 percent of that volume, but if it was unable to meet the demand and had to send specimens to Quest or Labcorp, the process would be expensive and time-consuming.

"There's only so much driving out waste we can do," he said. "At some point we're going to have to decrease services."

That decrease would likely involve reducing full-time staff at a time when laboratory staffing is already at an all-time low, Crossey said, noting that he is preparing for the seeming eventuality of PAMA cuts, saying that "something will go into effect" because CMS will "need to show cost-saving measures." He added that he hopes whatever steps it takes aren't as severe and take location into account. PAMA as it is "economically disadvantages rural America," and whatever reimbursement cuts are put in place "should be based on the real cost" of testing, he said.

Crossey suggested a sliding fee schedule based on a lab's location. He also noted that cuts based on commercial payor data, such as PAMA, don't take into account how many people are privately insured. In New Mexico, Crossey said between 60 percent and 70 percent of insured people are covered under federal or state insurance, which means private payor data isn't reflective of the actual costs of tests.

CMS should "take a more fair and measured approach," Crossey said, adding that he hopes rate reductions in 2023 are more thoughtful and based on accurate, reflective data.