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MedPAC Exploring Simpler Ways for Labs to Report PAMA Data

NEW YORK – The federal advisory body Medicare Payment Advisory Commission in a briefing on Friday reported that it is exploring alternative ways to report data from the Protecting Access to Medicare Act of 2014 that are less burdensome for laboratories. 

One of those alternatives could be surveying only a representative sample of laboratories for their data, instead of all laboratories performing tests. Congress has required MedPAC to report on the least burdensome data collection process that would result in a representative sample of private payor rates from all laboratory market segments.

PAMA was created and implemented to decrease Medicare spending for laboratory tests. It mandates that Medicare Clinical Fee Schedule payment rates will be determined based on the average reimbursement that labs have received from private payors. The system began in 2018, but the implementation of rate reductions was delayed in 2019 and 2020. Reductions in payment rates as a result of the collection of private payor rates will be fully phased in by 2025, and MedPAC Senior Research Assistant Carolyn San Soucie said payment rates will decrease by an estimated 24 percent once the rates are implemented.

Private payor rates reported by laboratories were generally lower than Medicare's 2017 average payment rates for 77 percent of tests, but higher for about 23 percent of tests. MedPAC noted that although laboratory test utilization was stable overall from 2017 to 2019, there were "sharp increases in the use of new, high-cost tests," such as complex genetic tests, MedPAC Senior Policy Analyst Brian O'Donnell said. As a result, Medicare laboratory spending increased from $7.1 billion to more than $7.5 billion. 

Spending on chemistry tests declined 14 percent, in line with the expectations under PAMA, while molecular pathology spending increased due to higher use of the tests. Panel test spending did not decline as expected, which O'Donnell credited to unbundling and a "generous phase-in of payment rate reductions under PAMA."

The commission investigated ways to reduce the reporting burden on labs and asked a third-party contractor, RTI, to perform an analysis. RTI looked at different survey methodologies that could be used to collect representative and statistically valid samples of independent, hospital outpatient, and physician office laboratories. The commission focused on these three types of labs because they furnished "nearly all" laboratory tests from the Clinical Fee Schedule, and the prices they received varied, O'Donnell said. Primarily, RTI looked at using a representative set of labs to model the reimbursement data.

RTI concluded that setting Medicare payment rates using a survey "is feasible and could substantially reduce the reporting burden on laboratories," O'Donnell said. A survey could produce accurate estimates of private payor rates for these three types of labs, he continued. A survey could also reduce the number of labs that would be required to report private payor data by up to 70 percent. RTI and the commission noted that "the analysis should be considered a proof of concept" and further testing will be needed. 

Setting Medicare's payment rates on a representative sample of laboratories would increase program spending by 10 to 15 percent, relative to the spending that would result from Medicare's current rates, O'Donnell said. This increase varied depending on different parameters for different laboratories, such as only including tests from hospital outpatient laboratories that were furnished to non-patients.

Although the estimates "should not be considered precise point estimates," he noted that going from rates based largely on independent laboratories to rates based on data from a broader assortment of labs will likely increase Medicare spending significantly.

The commission also noted examples where basing payment rates on a sample of private payor rates may not be ideal, namely for routine tests and genetic tests. For routine tests, RTI found that policymakers should exclude high private payor rates resulting from negotiating power rather than the actual costs of providing the test. Medicare should instead "set payment rates to ensure beneficiary access while maintaining incentives on laboratories to make better use of taxpayer and beneficiary resources," O'Donnell said. Policymakers could focus on "efficient laboratories" instead of all labs to exclude these high private payor rates. 

For high-cost tests, O'Donnell said private payors may have a limited ability to negotiate rates because they are more complex and proprietary. As a result, he said in the future the commission would "consider alternative ways to set payment rates for new, high-cost technologies, including certain pharmaceuticals, devices, and laboratory tests."

The commission is seeking feedback on the information it presented, and that feedback will be included in the final report to Congress in June.