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Final PAMA Rates Better Than Expected for 2018, Quest Says, But Longer View is Dim

NEW YORK (360Dx) – Modest increases in some Medicare clinical lab testing prices for 2018 will take the edge off the final price cuts for laboratory tests stemming from the Protecting Access to Medicare Act in its first year, but will cut more strongly into profits in 2019 and 2020, Quest Diagnostics said on a conference call on Tuesday.

The final prices for lab tests, which take effect on Jan. 1, 2018, were issued by the Centers for Medicare & Medicaid Services Friday afternoon. In doing so, CMS announced that tests that did not have 2017 National Limitation Amount, or NLA prices, which are national limits on laboratory payment rates, will have the proposed price cuts phased in, with a 10 percent cut on prices for the first year, consistent with the cap on yearly cuts dictated by the PAMA legislation. For Quest, this means the company avoids sharp cuts in 2018 particularly in high-volume lipid panels.

"CMS had proposed immediately implementing a roughly 40 percent cut to lipid panels in 2018. This is the fourth-largest code reimbursed by CMS in terms of 2016 clinical lab fee schedule payments," said Quest executive vice president and chief financial officer Mark Guinan on the call.

In addition, CMS announced Friday that tests that previously received' bundled payments as automated testing profiles, or ATPs, will now be paid individually. In all, there are 23 clinical chemistry tests that are deemed ATPs, including albumin, direct bilirubin, calcium, cholesterol, and potassium tests. In a research note today, Barclays analyst Jack Meehan said that with these tests being paid based on a new CPT code pricing starting Jan. 1, there could be "significant payments increases for these tests."

On Quest's call, Guinan said, "For these commonly bundled chemistry panels today, we are currently paid far below the aggregate individual code amount. We will generally get meaningful increase for these tests in 2018, followed by subsequent reductions as the NLA moves down to the PAMA survey volume-weighted median."

As a result of the changes announced last week, Quest now estimates PAMA to have a minus-4 percent impact on revenues in 2018, and a minus-10 percent impact in 2019 and 2020, Guinan said.

Quest CEO Stephen Rusckowski noted that the company remains deeply disappointed in the pricing, and will continue to push CMS to delay implementation of the new rates. He said that Quest, the American Clinical Lab Association, and other labs, have been lobbying legislators to push for more "market-based" pricing. Legislators in the US Senate and House of Representatives have written letters to CMS to advocate for changes to the new pricing schedule on behalf of the industry, he said, adding that the industry, through ACLA, continues to explore legal options.

"We have engaged a law firm to think about that, and we considering those options going forward, as well," he said.

Rusckowski noted that the company has several initiatives in the works that may have the potential to offset the impact of cuts. One week ago, the company applied to New Jersey for financial assistance in building a new facility in the state. Rusckowski said the company has support for the project and the request is currently awaiting the governor's signature. If approved, Quest will "invest as a company in a new first class facility here in New Jersey, which will afford us an opportunity to consolidate more of an operational presence here in one of our biggest states," he said.

In addition, the company continues to work on "harmonization" of IT systems to lower IT costs, and continues find savings in digitizing services. For example, the company is eliminating costly calls to the call center for getting test results by making test results available online.