CLFS Reform

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Signed into law on April 1, 2014, the Protecting Access to Medicare Act of 2014 (PAMA) includes the most extensive reform of the Medicare Clinical Laboratory Fee Schedule (CLFS) since it was established in 1984. Section 216 of PAMA creates a new Section 1834A of the Social Security Act, which contains many of the CLFS reforms. Starting on January 1, 2018, most rates on the CLFS will be derived from private payor rates for laboratory services. PAMA also designates certain tests as “advanced diagnostic laboratory tests” (ADLTs); includes provisions affecting coding, coverage and oversight of the CLFS; and makes some changes to CMS’s review of mis-valued codes in the Physician Fee Schedule (PFS) affecting anatomic pathology services provided by laboratories.

The Centers for Medicare and Medicaid Services (CMS) is working on rules to implement these provisions. In particular, CMS must finalize rules by June 30, 2015 that explain how the agency will collect private market data and set new CLFS rates. ACLA is working with the agency, our laboratory membership, and other lab industry stakeholders to ensure that the rules result in a workable and transparent process and fee schedule that ensure adequate patient access to the highest quality clinical laboratory services and that enable physicians and patients to lower costs and achieve higher quality health care outcomes.

Highlights of the CLFS reform provisions included in PAMA are as follows:

  • Medicare Rates Derived from Private Payor Rates – Beginning in 2016, “applicable laboratories” will report to CMS virtually all private payor rates and test volumes for all laboratory services.  An “applicable laboratory” is one that receives a majority of its Medicare revenue under the CLFS, the Physician Fee Schedule, or the newly created Section 1834A of the Social Security Act.  From the rates reported by applicable laboratories, CMS will determine the weighted median prices for tests on the CLFS, and these weighted medians will be the Medicare rates that are effective beginning on January 1, 2018.  For most tests, private payor rate and volume reporting and Medicare rate development will occur every three years.  Rates on the CLFS no longer will be subject to geographic adjustments, budget neutrality adjustments, annual updates or “other adjustments.”
  • Exemption from Reporting for Certain Laboratories – PAMA allows CMS to create exemptions from reporting for laboratories with either low test volume or low test expenditures or both.
  • Penalties for Failure to Report – If a laboratory fails to report its private market rates, CMS may apply a civil monetary penalty up to $10,000 per day for each failure to report.
  • Phase-In of New Rates – Any reduction in the payment rate for an individual laboratory test on CLFS that exceeds 10% will be phased in during the first six years of the new fee schedule from 2018 through 2023.  The year-to-year payment reductions are limited as follows:

­   2018: Not more than a 10% from the prior year

­   2019: Not more than a 10% from the prior year

­   2020: Not more than a 10% from the prior year

­   2021: Not more than a 15% from the prior year

­   2022: Not more than a 15% from the prior year

­   2023: Not more than a 15% from the prior year

  • Skilled Nursing and Home Health Sample Collection Adjustment – For laboratory services provided to skilled nursing facilities and home health sites, CMS will increase the draw fee by $2.00 starting in 2018.
  • Advanced Diagnostic Laboratory Test (ADLT) Defined – As defined by PAMA, an ADLT is a laboratory service that is offered and furnished by only the developing lab and that meets one of the following criteria:

“The test is an analysis of multiple biomarkers of DNA, RNA, or proteins combined in a unique algorithm to yield a single patient specific result,” OR

“The test is cleared or approved by the FDA,” OR

­ “Meets other similar criteria established by [CMS].”

  • ADLT Pricing – For a new ADLT, the price for the “initial period of three quarters” will be the “list charge” or “the publicly-available rate on the first day [on] which the test is available for purchase by a private payor.”  By the end of the second quarter, the laboratory must begin reporting the private market rates for the ADLT.  After the initial period of three quarters, the rate will be the weighted median of the reported private payor rates.  If the initial list charge is greater than 130% of the eventual weighted median rate, CMS shall recoup the difference.  The laboratory will report private market rates for the ADLT annually thereafter, allowing CMS to reset the price annually (as compared to tests that are not ADLTs, which will have their rates and volumes reported and adjusted, if necessary every three years).
  • Payment for New Non-ADLT Tests – For new tests that are not ADLTs, CMS will establish prices through existing cross-walking or gapfilling methods.  Cross-walkingis used if it is determined that a new test is comparable to an existing test, multiple existing test codes, or a portion of an existing test code. When gapfilling new tests that are not ADLTs, CMS may consider: charges for the test and routine discounts to charges; resources required to perform the test; payment amounts determined by other payers; charges, payment amounts, and resources required for other tests that may be comparable or otherwise relevant; input and recommendations the new clinical laboratory payment advisory committee (discussed below); or other criteria CMS deems appropriate.
  • Coding – CMS will be required to establish temporary Healthcare Common Procedure Coding System (HCPCS) codes for new ADLTs.  The temporary codes will be effective for two years, unless extended by the agency.  CMS also must establish codes for existing ADLTs.
  • Unique Identifiers for Certain Tests – A laboratory or manufacturer of a test kit may request a unique identifier for an ADLT or a test cleared or approved by the FDA for purposes of tracking and monitoring the laboratory service.  The unique identifier may be a HCPCS code or other modifier.
  • Clinical Laboratory Payment Advisory Panel – By January 1, 2015, CMS must establish an expert advisory panel, subject to the requirements of the Federal Advisory Committee Act, to provide input to the agency on the establishment of payment rates for new tests, the factors to determine coverage and payment for new tests, and other matters.  The panel is to include a variety of experts in areas such as molecular pathology, researchers, laboratory economists, and those with expertise in laboratories and laboratory tests.
  • Coverage of Laboratory Tests – After January 1, 2015, a Medicare Administrative Contractor (MAC) may issue coverage policies for laboratory services only in accordance with the process for making Local Coverage Determinations (LCDs), including the appeals and review process.  This does not affect National Coverage Decisions (NCDs).  Additionally, CMS may designate one to four MACs to establish coverage polices or to establish coverage policies and process claims for payment for clinical laboratory services.
  • GAO and OIG studies – PAMA requires the Government Accountability Office (GAO) to conduct an analysis by October 1, 2018 of the implementation and impact of the CLFS reform provisions described above.  PAMA also directs the HHS Office of Inspector General (OIG) to conduct an annual analysis of the top 25 laboratory tests and expenditures under Medicare and other appropriate analyses of the CLFS.

Information Collection and Misvalued Codes on the Physician Fee Schedule 

  • Information Collection – PAMA gives CMS the authority to collect information on direct and indirect resources for furnishing services on the PFS, including time, practice expense inputs, and overhead.
  • Misvalued Codes – PAMA expands existing criteria for examining PFS codes as misvalued to include: codes that account for the majority of spending under the PFS, codes for services that have experienced a substantial hospital length of stay or procedure time, codes for which there may change in the typical site of service since the code was last valued, codes for which there are anomalies in relative values within a family of codes, codes for services where there may be efficiencies when a service is furnished at the same time as other services, codes with high Practice Expense (PE) Relative Value Units (RVUs), and codes with high cost supplies.  Significant reductions of 20% or more (as compared to the previous year) would be phased in over a two-year period.  PAMA also gives CMS the authority to “smooth” RVUs within groups of services.

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