Pathology/Lab Coding Alert

One way or another, the change will impact your lab.

If you’re an “applicable lab,” or a lab that performs “Advanced Diagnostic Laboratory Tests” (ADLTs), or just a lab that gets some payment from Medicare’s Clinical Laboratory Fee Schedule (CLFS), you can’t afford to ignore changes coming down the pike

That’s because section 216 of the Protecting Access to Medicare Act of 2014 (PAMA) requires Medicare to revise the payment system for clinical diagnostic laboratory tests.

Bottom line: The CLFS payment system overhaul will require your lab’s input — and/or impact your lab’s pay. Read on to learn how the June 23, 2016 CMS final rule affects you.

Get With PAMA’s CLFS Payment Goals

Since 1984, the statutory pricing mechanism for the CLFS hasn’t changed — but it will change beginning January 2018, to fulfill the PAMA law. The goal of the new pricing system is to set payment rates based on current market rates paid by private payers, and to periodically update lab test payments to stay aligned with market rates.

With Medicare outlays of approximately $7 billion annually for more than 1,300 types of clinical diagnostic lab tests, this CLFS pricing change will impact what your lab gets paid. The system revamp will affect you whether you’re a large independent lab with a broad test menu, a hospital lab, a small regional lab focusing on a limited test menu, or a Physician Office Lab (POL) — as long as you offer lab tests to Medicare beneficiaries.

Gear Up for Reporting Requirements, Schedule, Final Payment

To collect information on current market rates for lab tests, CMS will require you to report your lab’s data to them if you’re an “applicable lab” (which we’ll define in the next section). The first data collection period is January 1 through June 30, 2016; and the first data reporting period is January 1 through March 31, 2017. That means you’ll have to mine data you already have, and report it early next year.

You’ll be required to report the following data to CMS:

• HCPCS code for each test
• Final dollar amount (after negotiated reductions etc.) that each private payer (health insurer/group health plan, Medicare advantage plan, or Medicaid managed care organization) paid you for each test during the data collection period
• The volume of each test paid at that rate. 

Prepare for work: “We are concerned that the requirements imposed on applicable clinical laboratories are complex and extensive … [and] will require significant work by laboratories to hire and/or train staff, identify and resolve software issues, and review collected data to ensure its accuracy,” commented David N.B. Lewin, MD, FASCP, president of the American Society for Clinical Pathology (ASCP) in an open letter to the director of the Office of Management and Budget (OMB).

Pricing: Once the reporting period passes, CMS will establish payment for each HCPCS code based on the weighted median of private payer rates. CMS will publish the preliminary CLFS rates for calendar year (CY) 2018 in September 2017. By November 2017, you can expect to see the final 2018 CLFS payment rates, which will go into effect on January 1, 2018.

Repeat as necessary: CMS plans to repeat the data collection and price-update cycle for the CLFS once every three years.

Protection: What if payment for a test goes way down? The final rule asserts that CMS will phase in price reductions if they’re severe. The payment amount for a test won’t drop more than 10 percent per year for years 2018-2020, and not more than 15 percent per year for the subsequent three years.

New tests: When CMS needs to set the price for a new or substantially revised test, or when no private payer data is available for an existing test, CMS will use crosswalking or gapfilling methodologies to establish payment, said Craig Dobyski, from the Division of Ambulatory Services at CMS during a July 6 provider call to explain the final rule.

Penalty: If you’re required to report data to Medicare and don’t, you could be subject to civil monetary penalties of up to $10,000 per day. Read on to see if your lab needs to report data to Medicare.

Find Out if You’re an ‘Applicable Lab’

CMS uses a lab’s National Provider Identifier (NPI) to identify each lab entity, and considers your lab entity as an “applicable lab” if you meet the following criteria:

• You receive more than half of your total Medicare revenue from CLFS and Physician Fee Schedule (PFS) payments
• You receive $12,500 or more under the CLFS during the data collection period.

If you’re an applicable lab, CMS expects you to report private payer data as outlined above.

Because the final rule identifies applicable labs by the NPI rather than the Taxpayer Identification Number (TIN) (as CMS originally proposed), you can expect some hospital outreach labs to fall into the applicable lab category.

Here’s why: Using the TIN would mean that the lab tests paid on the CLFS and PFS would need to exceed 50 percent of all Medicare payments to the hospital (identified by the TIN), as opposed to exceeding 50 percent of all payments to the hospital lab (identified by the NPI).

Caveat: The hospital (identified by the TIN) is still the entity responsible for data collection and reporting.

Representative sample: CMS estimates that using the established criteria will capture data for about 92 percent of CLFS spending for physician office laboratories and approximately 99 percent of CLFS spending for independent laboratories. That’s even though CMS estimates that about 55 percent of independent laboratories and about 95 percent of physician office laboratories won’t qualify as applicable labs based on the low expenditure threshold of $12,500. CMS states that the intention of this threshold is to relieve the administrative data-reporting burden from smaller labs, while still capturing representative data.

Understand ADLTs

Under the final rule, a certain class of lab tests will undergo a different procedure to establish pricing. Those are “advanced diagnostic laboratory tests,” or ADLTs.

What it is: An ADLT is a clinical lab test that meets the following criteria:

• Furnished by a single lab
• Analyzes RNA, DNA, and/or proteins, combined with a unique algorithm to arrive at a single result
• Cleared by the U.S. Food and Drug Administration (FDA) OR
  
• other criteria, such as a test that provides new clinical diagnostic information the lab can’t provide from any other test or combination of tests

Pricing: CMS will pay the actual list charge, which is the “publically available rate on the first day a new ADLT is [available]” for three calendar quarters. Once the initial period passes, CMS will base the ADLT price on the weighted median of the private payer rate paid to the single lab that performs the test.

“For a laboratory that provides ADLTs, we waive the requirement that they must meet the $12,500 threshold for the ADLTs they furnish. They must also, however, still meet the majority of Medicare revenue thresholds for the ADLTs,” said Rasheeda Johnson, from the Division of Ambulatory Services at CMS during a July 6 provider call to explain the final rule

Rather than follow the three-year cycle for collecting payment data for these tests, CMS will update ADLT payment rates annually, based on the weighted median of the private payer rates for the test.