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HHS OIG Report Finds Lab Spending Increased in 2018 Despite PAMA Rate Reductions

NEW YORK – The US Department of Health and Human Services' Office of Inspector General released a report earlier this month detailing the increases in laboratory spending in 2018 despite rate reductions under the Protecting Access to Medicare Act.

OIG analyzed 2018 claims data for tests that the Centers for Medicare and Medicaid Services paid under the Medicare Clinical Laboratory Fee Schedule and compared the data to 2017 spending. PAMA was implemented in 2018 and under the legislation, the agency is required to monitor payments for lab tests and implementation of the new payment system, along with releasing a list of the top 25 tests based on CMS spending.

The agency found that CMS paid $7.6 billion for lab tests in 2018, an increase of $459 million, 6 percent, from the $7.1 billion CMS paid in 2017. 2018 marked the largest increase in Medicare lab test spending since the passage of PAMA in 2014, the agency said.   

According to the report, savings from the decreased payment rates of 75 percent of tests were overtaken by increased spending on new tests, such as genetic tests and certain chemistry tests. The agency also noted that 2018 marked the end of a discount for certain chemistry tests, leading to higher spending. Spending increased for nine of the top 25 tests in 2018 due to an increase in the volume of six tests, a higher fee schedule rate for one test, and the move to a national fee schedule.

The transition to a single national fee schedule increased spending in cases where the national rate was higher than the local payment rates it replaced, but it was a one-time policy change that will no longer affect payment rates going forward.

Spending on genetic tests increased to $969 million from $473 million due to new and expensive tests entering the fee schedule and an increase in volume of existing genetic tests, the report said. Total spending on genetic tests increased to 13 percent of Medicare spending for lab tests in 2018 from 7 percent in 2017. The volume of claims for genetic tests increased from 950,000 units to 1.76 million and the number of tests that Medicare reimbursed increased to 199 from 110.

The agency said that "even a small number of inappropriate tests could expose Medicare to extremely high spending" and recommended increased oversight of the tests. The three genetic tests listed in the top 25 were a gene analysis test for colorectal cancer, a molecular pathology procedure level 9, and a test for detecting genes associated with breast cancer. Most of the growth in spending was driven by molecular pathology tests, which accounted for 50 percent of Medicare spending on genetic tests, the report said. 

Spending on automated chemistry tests increased by $82 million due to the removal of a previous discount on the tests that was no longer allowed under PAMA. OIG recommended in the report that CMS "seek legislative authority to establish a mechanism to control costs for automated chemistry tests." In response, CMS "neither agreed nor disagreed" with the recommendation and said it would "monitor utilization and spending associated with these codes and take OIG's recommendation into consideration when determining appropriate next steps."