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Once Critical of Medicare Lab Payment Rates, HHS OIG Now Prepares to Monitor Effects of Change

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NEW YORK (360DX) – A report monitoring Medicare payments for lab tests will serve as a key reference point for monitoring the effects of payment reform when current rates are replaced by new prices starting in January, officials said.

The report, the third annual data brief monitoring Medicare payments for lab tests, was released last month by the Department of Health and Human Services Office of Inspector General.

"We have done all this baseline work to be able to then really look closely at what changes once the new rates go into effect," said Blaine Collins, regional inspector general for evaluation and inspections in the San Francisco regional office, referring to the Protecting Access to Medicare Act's new reimbursement rates, which are scheduled to take effect on January 1, 2018.

As part of PAMA's reform of the payment system for clinical lab tests, OIG was mandated to release annual assessments on an ongoing basis of the top 25 lab tests based on Medicare payments. Along with that assessment, OIG is charged with providing analysis, as it deems appropriate, of the implementation and effects of the new payment system. For OIG, assessing the effects of changes is particularly pertinent, given the office's vocal criticism of Medicare payments for lab tests in 2013, before PAMA went into effect, Collins noted.

In its 2013 report, OIG estimated that in 2011, Medicare paid between 18 and 30 percent more than other insurers for 20 high-volume and/or high expenditure lab tests, and estimated that Medicare could have saved $910 million if it had paid providers at the lowest established rates in each geographic area, according to the 2013 report. The 2013 OIG report specifically recommended that the Centers for Medicare & Medicaid Services seek legislation that would allow it to establish lower payment rates for labs tests and consider seeking legislation to institute lab test copays and deductibles.

"In the long run, what goal do we want? Effective rates," Collins said. "We are now going to monitor and see as things come out, did it have the intended effect of having realistic market-based rates? That is the goal."

The data brief released last month measured Medicare payment for labs tests in 2016, and found that payments for the top 25 tests totaled $4.3 billion and accounted for 60 percent of Medicare payments for all tests.

"Changes in the Medicare payment rates for these 25 tests could have a significant impact on overall Medicare spending for lab tests when the new payment system for lab tests goes into effect in 2018," the OIG noted in the report.

The recent data brief found that the top six lab tests for 2016, which remained consistent with the top six from the previous two years, totaled $2.4 billion in Medicare payments, versus a total of $6.8 billion spent by Medicare on all lab tests. In total, Medicare paid 58,593 different labs for a total of 437 million tests under 1,173 procedure codes from Medicare's Clinical Lab Fee Schedule. Three lab companies, each of which had multiple locations, received a combined total of $1.1 billion in 2016, while half of all labs received less than $1,055 each. Among the top 25 tests, more than half of Medicare payments for lab tests went to 1 percent of labs.

The data brief identified four unique trends compared to past years of baseline Medicare lab payment data. Two categories of tests saw notable increases in payment. The emerging category of multianalyte assays with algorithmic analyses, or MAAA, saw a 665 percent rise in Medicare payments from 2015 to 2016, and payments for microbiology tests increased by 10 percent from 2015 to 2016.

In the MAAA category, the sharp rise is attributed to growth in the category and the cost of the tests. Medicare began paying for 10 new tests in the MAAA category and included an MAAA colorectal cancer screening on the Clinical Laboratory Fee Schedule in 2016, the first test in the category to be added to the fee schedule. Payment for the CLFS test more than doubled from $28 million in 2015 to $62 million in 2016. At an average of $890 per test, MAAA tests are the most expensive category on the CLFS. The other category with a notable upward trend, microbiology tests, has risen steadily in price over the past three years, starting with $472 million in 2014, and rising to $517 million in 2015 and $570 million in 2016.

The other two notable trends for 2016 were the drops in payments for drug tests and molecular pathology tests. Drug test payments decreased by more than 25 percent from 2015 to 2016 reversing the increase in payments that occurred between 2014 and 2015. The reversal is attributed to a change in payment method for those tests. In 2015 CMS paid separately for drug tests for each drug class, but in 2016 CMS began paying a set rate for a panels that contained a certain amount of different tests. Medicare drug test payments had increased from $910 million in 2014 to $1.1 billion in 2015, but after the new payment method Medicare payments dropped to $808 million for 2016.

Molecular pathology tests have decreased consistently from $466 million in 2014 to $260 million in 2015, dropping further to $165 million in 2016. The decrease coincides with efforts by CMS, OIG and the Department of Justice to crack down on unnecessary genetic testing.

Aside from those four trends, no other lab test category experienced a change of more than 5 percent from the previous year.

The first three data briefs of baseline lab payment data have not included calls for change like OIG's 2013 report comparing lab test payment rates, but Collins would not rule out the possibility that future reports could take a more active advisory role.

"In the last three years these reports have not had recommendations but that does not mean in the future we can't make them," he said. "As we move forward we are not in any way inhibited from making recommendations either through these reports or through additional work."