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Grassley Asks CMS to Explain Potential Unnecessary Spending on Lab Tests

NEW YORK (GenomeWeb) – Senator Charles Grassley, R-Iowa, wrote to the Centers for Medicare & Medicaid Services and the US Department of Health and Human Services this week asking how it plans to rein in government overspending on lab tests.

The Protecting Access to Medicare Act of 2014 created a market-based pricing system where labs that met certain criteria had to report to CMS what commercial payors were paying them for lab tests. Based on that information, CMS would peg Medicare payments to the volume-weighted median of those rates. Final lab payment rates calculated under PAMA went into effect in 2018 and were estimated to save CMS $670 million, a 10 percent discount to the $7 billion the agency spends annually on lab tests.

However, the US Government Accountability Office concluded in a November 2018 report that CMS' methodology in calculating rates resulted in higher than necessary payments and the government payor could have saved more. Based on this report, Grassley asked HHS to explain why it had implemented the provisions of PAMA in a way that could lead to unnecessary spending on lab tests. "The Administration ought to be doing all it can to ensure fiscal responsibility prevails when it comes to Medicare payments," he wrote.

The GAO's findings and the assertions in Grassley's letter push up against the American Clinical Laboratory Association's efforts to educate lawmakers about the deleterious impact CMS' implementation of the law has had on the industry. The interest group has an online campaign to encourage its members to let representatives in Congress know that "HHS is putting seniors' health at risk by reducing access to vital lab tests," and that they are "relying on them to #protectlabaccess." Industry stakeholders expect that PAMA-associated payment cuts will hinder smaller labs' operations and drive further consolidation in the space.

However, the GAO's conclusions suggest that the pricing reductions could have been deeper if CMS had calculated the rates using average Medicare payments as the baseline, instead of maximum rates. Medicare paid $7.1 billion for 433 million laboratory tests in 2017, but for 88 percent of these tests, the maximum Medicare payment was higher than the weighted median of commercial payor rates.

Under PAMA, CMS can reduce payment for lab tests by 10 percent annually from 2018 to 2020, but according to the GAO, the government payor is losing out on savings by phasing in these pricing cuts based on the maximum amount it paid for lab tests previously. CMS could have saved $733 million, the GAO said, if it had based reductions on the average amount it paid for tests in 2016.

The GAO also found problematic that some labs that should have reported commercial payor rates to CMS didn't, indicating that the agency's pricing calculations were based on incomplete data. And CMS could continue to overspend, the GAO said, if it unbundles payments for panels of tests. According to the report, CMS could end up paying as much as $10.3 billion more from 2018 to 2020 if it continues to pay for the individual components of panel tests compared to if it bundled payments.

CMS stopped paying bundled rates for panel tests after PAMA went into effect because certain provisions of the law hindered bundling if a specific panel code didn’t exist. But the agency has since told the GAO that it is looking for other ways to legally reinstate bundled payments, for example, by introducing new codes. "Given the significant expense associated with paying individual rather than bundled rates for panel tests, it is unclear why HHS did not undertake this analysis sooner," Grassley wrote in his letter.

In his letter, Grassley asked whether CMS can add new CPT codes for panel tests and enforce existing panel codes to continue making bundled payments while remaining in compliance with PAMA. The senator further asked HHS to explain how CMS will ensure that all labs that must report commercial payor pricing under PAMA are doing so and whether CMS plans to amend a rule so it can base pricing reductions on average instead of maximum Medicare payment rates.

Meanwhile, the lab industry has also been expressing its concerns to legislators about how CMS has implemented PAMA, and hoping for the opposite result: to reduce pricing pressures on labs.

"For the last two years, clinical laboratories have sustained year-over-year multi-million dollar cuts as a result of a haphazard data collection process from CMS," ACLA President Julie Khani said in a statement on the GAO report last week. "It's time for the Administration and Congress to address these persistent and glaring PAMA data issues that continue to threaten access to the lifesaving tests and diagnostics for seniors."

CMS calculated 2018 rates based on data it received from nearly 2,000 labs. The agency said the collected data represents 96 percent of lab tests on the clinical lab fee schedule and accounts for more than 96 percent of Medicare spending on lab tests in 2016. ACLA has argued that CMS' rules about which labs could report commercial payor prices ensure that pricing would be based on data from less than 1 percent of labs.

The lab industry group last year sued CMS alleging the agency established rates through a process that didn't capture the entire lab market and, therefore, "failed to follow a congressional directive to implement a market-based laboratory payment system." A US District Court judge dismissed the lawsuit in September 2018 stating that it didn't have jurisdiction over the matter.

ACLA has said it will explore other avenues to try to mitigate the negative consequences of PAMA on its members and decried the GAO's suggestion that the government is paying labs more than it should. "GAO's conclusions on overbilling of laboratory services in the Medicare program are fundamentally flawed and inaccurate," Khani said. "The underlying assumptions for GAO's analysis and recommendations reflect a serious misunderstanding of standard industry practice for laboratory reimbursement and ignore unprecedented cuts to lab tests that pose serious harm to beneficiaries."

ACLA specifically challenged the suggestion in the GAO report that labs are inappropriately billing panel tests to bolster payment. In its statement last week, the group claimed that a survey of 20 million lab claims shows that labs are billing for tests as required by guidelines. The "GAO concocts a hypothetical scenario that suggests labs are unbundling these tests and receiving higher reimbursement," Khani said. "This is grossly inaccurate."

The details are sparse on the survey ACLA referenced, although a spokesperson for the organization said that effort included information on the billing practices of a broad collection of labs, both ACLA members and non-members. The GAO focused solely on organ and disease panel codes and no other panels, the spokesperson noted.

However, in line with the GAO’s report, some lab industry stakeholders have expressed concerns that their peers aren't following CMS and Medicare contractors' guidance about how to bill for panel tests, and have criticized CMS for inconsistently enforcing existing CPT codes for panels. For hereditary breast and ovarian cancer risk testing, for example, Medicare contractor Palmetto has asked labs to bill CPT code 81432 and 81433 (reimbursed at around $1,300) when analyzing a panel of 10 or more genes, including BRCA1 and BRCA2. However, not all labs follow Palmetto's guidance, and instead bill CPT code 81162 for analysis of BRCA1 and BRCA2 and priced at more than $2,000, even when they perform a panel test including additional genes.

For example, Invitae, a molecular diagnostics lab that is not an ACLA member, uses 81432 and 81433 as directed, despite the lower bundled rate, and has noted that competing labs are billing codes to garner higher payment at taxpayer cost. The company supports the GAO's recommendation that CMS should continue to bundle payments and reduce unnecessary spending.

"We welcome any effort to make reimbursement for laboratory testing fair and uniform across the US, whether by retiring outdated codes or enforcing panel coding policies," said Lee Bendekgey, Invitae's chief operating officer. "By addressing these inconsistencies, CMS could reduce costs lost to over-paying for some tests, such as hereditary breast cancer panels, and instead invest in protecting access to genetic information for patients who can benefit from it."

In a letter to the GAO, CMS has indicated it will update its claims processing system so it can flag when labs aren't using a CPT code for a panel but should be. In December, CMS issued instructions on the 2019 clinical lab fee schedule, and explained that before PAMA went into effect, it applied a bundled rate to pay for certain chemistry tests using automated tests panels and wouldn't pay more than the rate attached to the relevant panel code if labs billed the tests individually. PAMA doesn't support this claims processing logic, but CMS said it can still use existing CPT codes that group tests into organ- and disease-specific panels and instructed labs to bill these panel codes instead of billing separately the components of the panel.

The agency also updated its National Correct Coding Initiative Policy Manual to specify that when there are specific codes for multigene next-generation sequencing panels labs should bill them, and when there aren't, labs should bill CPT 81479 describing "an unlisted molecular procedure."