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Lab Industry Group Asks CMS to Extend PAMA Implementation Timeline to 2019

WASHINGTON, DC – The American Clinical Laboratory Association has asked the Centers for Medicare & Medicaid Services to delay implementation of a new market-based payment system by another year.

CMS is aware that labs have encountered technical challenges in reporting the data the agency needs to publish a fee schedule based on private payor rates and implement the Protecting Access to Medicare Act by Jan. 1, 2018, as planned. The agency is considering labs' request for an extension, according to an agency official.

Members of the lab industry group have been taking a hard look at how CMS is implementing PAMA, and ACLA recently conveyed to the government payor that its "support for a market-based system for Medicare reimbursement for laboratory services was not quite there," President Julie Khani said during the organizations' annual meeting yesterday.

Khani explained in an email that the goal of the requested delay is to redefine the term "applicable laboratories" so that it "represents a true snapshot of the actual laboratory industry." The delay would also ensure that "CMS has the capacity to accept and analyze the enormous data files laboratories will be submitting," she said, and "allow laboratories time to actually gather, format, and validate the data for submission."

Last June, CMS issued its final rule for implementing PAMA, which would retire the current system by which Medicare pays for lab tests, relying on Medicare contractors to "crosswalk" or "gapfill" pricing, and begin paying for tests base on private payor rates. Specifically, "applicable labs" will report to CMS payment rates and test volumes from private payors over a period of time, and using this information, CMS will calculate a weighted median payment amount for each test. For new and existing tests that don't have the necessary information to calculate a weighted median of private-payor rates, the gapfill and crosswalking methods will still apply.

According to CMS, the agency paid $7 billion in 2015 for 1,300 clinical diagnostic lab tests. Under the new market-based payment system, CMS has projected savings of $3.9 billion over a decade.

When CMS had initially proposed its plan to implement PAMA in 2015, labs were concerned about the timeline to move to this new payment system, originally slated to go into effect Jan. 1, 2017. And even then, industry players had strong objections to CMS's definition of "applicable labs," in particular that the proposed criteria would exclude hospital labs.

Listening to the lab industry's appeals, in its final rule CMS amended the timeline so the private-payor-based fee schedule would take effect Jan. 1, 2018. The agency also tweaked the definition of "applicable labs" so that a lab would qualify if by using its National Provider Identifier it receives more than 50 percent of its Medicare revenues from lab and physician services and gets more than $12,500 in Medicare revenues from lab services. Under this definition, hospital outreach labs that had separate NPIs would be able to report.

Despite this adjustment, the Office of Inspector General estimated in a report last September (see PDF below) that "new payment rates will be based primarily on private payor data from independent labs," or put another way, be based on data provided by 5 percent of labs that received 69 percent of Medicare payments in 2015. According to the OIG, around half of the more than 3,200 independent labs, a small portion of the physician office labs, and a few hospital outreach labs that obtain an NPI, will be required to report data.

"For clinical lab fee schedule rates to accurately reflect and follow market prices, CMS must ensure that the applicable laboratory definition allows hospital outreach laboratories to report private market rates," Khani said over email. "Only through adequate sampling of all significant laboratory market sectors can we be assured that new CLFS rates under PAMA accurately reflect the market."

Carol Blackford, director of CMS's Hospital and Ambulatory Policy Group, noted at the meeting yesterday that one of the most common questions CMS is getting from labs is whether they qualify as an applicable lab. CMS cannot make a determination for a lab as to whether it meets the critieria for reporting, she said, but noted that the agency has resources – an inquiries mailbox and a frequently asked questions section on its clinical lab fee schedule website – to help labs understand the "applicable laboratory" definition and the data they would need to collect to figure out if they qualify. 

As for the timeline, ahead of the new 2018 PAMA implementation date, CMS has given labs from January to June 2016 to collect private payor data and until March 31, 2017, to report that information to Medicare. CMS plans to post new Medicare rates in November of this year before they go into effect at the start of 2018.

Blackford acknowledged that CMS has received a number of requests from individual labs and major industry organizations for an extension to the reporting period. "What we have heard is that they've encountered many unexpected issues with compiling the data, having vendor software that may not be updated, and the large volume of manual remittances lacking [Healthcare Common Procedure Coding System] billing codes," she said. "So, it's turned out to be a bit more cumbersome than was anticipated."

Within CMS's web-based data reporting portal, through which labs are submitting data, Blackford said labs have reported payment rates for a majority of the HCPCS codes "but the volume is overall lower than what we had expected."

Another reason for this may be because labs are finding the data reporting portal hard to navigate. According to Khani, ACLA members worked with CMS to test its web-based data reporting portal at the end of last year, which revealed "significant problems," and many labs were unable to submit data during the testing period. "These flaws have remained in place during the data reporting period, as labs have attempted to submit private payor data," Khani said.

Blackford noted there have been a few periods of "down time" for the data collection system that were "quickly resolved." For example, a few days ago several labs had received errors when their files were being uploaded in the data collection system. "For some reason files were rejected based on a valid HCPCS code 81162," she said. "That issue has been fixed and files can now be uploaded."

But for the most part, Blackford said, labs are seeing their files rejected due to formatting errors. For example, labs are trying to submit pricing for billing codes for which CMS is not collecting data.

CMS has provided labs with a user manual and formatting guidelines that provide instructions on this. There is also a helpdesk that labs can call for assistance in accessing the system. Blackford further reminded that labs should submit their data using instructions based on the size of their lab – medium, large, or very large.

During the PAMA implementation process, labs have also objected to CMS's definition of advanced diagnostic laboratory tests (ADLTs). In its final rule, CMS describes an ADLT as a test that analyzes multiple DNA, RNA, or protein markers based on a unique algorithm and yields a single result. The test must also be cleared or approved by the FDA, or meet other regulatory criteria established by the HHS Secretary. Under PAMA, ADLTs will be paid based on its list price for the first three quarters, then a weighted median of private payor rates every year after.

Despite industry objections, CMS has largely stuck with its demand that in order to qualify as an ADLT, the test must provide new clinical diagnostic information that no other test can provide. "We will be requiring labs to submit documentation to support their application for ADLT status, including evidence of their empirically derived algorithms, and how their test provides new clinical diagnostic information that cannot be obtained from any other test or combination of tests," Blackford said. She noted that CMS has created an ADLT application that will become available after review by general counsel.

Regarding the requests to delay PAMA implementation, however, Blackford was more conciliatory. She and others have discussed this with senior leadership at CMS, and "we're hoping to be able to make a determination as quickly as possible," she said. "We are committed to implementing the statutory requirement and are committed to working together to assure that our lab fee schedule payments are accurate and transparent."

Though many in the lab industry are hoping for an extension, Khani said, "ACLA members are making every effort to meet the data reporting deadline."

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