Although deferral of the Sustainable Growth Rate’s provider payment cuts and ICD-10’s latest delay dominated news reports of the recently passed H.R. 4302, a lesser-known provision in the law could dramatically alter the way clinical laboratories are reimbursed in the years ahead by tying Medicare payments to the rates paid by private insurance firms.

The 2014 Physician Fee Schedule (PFS) final ruling had previously established a framework for laboratory reimbursement rate adjustments through a provision stating that the Centers for Medicare & Medicaid Service (CMS) would review current fee schedule codes to determine potential adjustments based on technological changes.

However, H.R. 4302 removed CMS authority to implement the 2014 PFS for clinical laboratory test reimbursement. Instead, the law requires that, beginning Jan. 1, 2017, Medicare payments will be determined through a complex system that takes into account rates paid for equivalent services by private payers. (See Section 216, pages 14 - 22 of the new legislation “Improving Medicare Policies for Clinical Diagnostic Laboratory Tests,” and also the Social Security Act Section 1834A).

The current method used for clinical laboratory pricing, coding and coverage – known as the crosswalk and gapfill approach -- will remain in effect through Dec. 31, 2016. However, beginning on Jan. 1, 2016, and every three years thereafter, laboratories will be required to provide CMS with the payment rates paid by each private payer during the specified reporting period as well as the volume of the lab tests for each payer for that period. The collection period for this data is left to the discretion of CMS.

According to the law, an officer of the laboratory must certify that that the pricing information provided to CMS is accurate. If it is later determined that a lab “failed to report or made a misrepresentation or omission in reporting information” for any reportable test, the lab could face a civil monetary penalty of up to $10,000 per day.

Payments for clinical lab tests furnished on or after Jan. 1, 2017 -- including those provided by hospital labs that are not bundled -- will be equal to the weighted median of Medicare payments for the tests done during the most recent data collection period. CMS will calculate that weighted median, and also develop a weighted median of private payer rates.

If the private payer rate is lower than the Medicare rate in effect at that time, CMS will reduce the Medicare rate to the private payer median. The lower rate will then remain in effect until a year after the next three-year collection period is completed.

Given the complexities of the new system, laboratories should begin developing a thorough understanding of the relevant portions of H.R. 4302. This knowledge will help ensure compliance with the new reporting requirements and also will likely be useful in developing new strategies for commercial payer negotiations.


About the author

McKesson Business Performance Services offers services and consulting to help hospitals, health systems, and physician practices improve business performance, boost margins and transition successfully to value-based care.