On July 8, 2013, the Centers for Medicare & Medicaid Services (CMS) released a pre-publication version of the 2014 Medicare Physician Fee Schedule and the 2014 Medicare Hospital Outpatient Prospective Payment System Notices of Proposed Rulemaking.  The proposed rules will be officially published in the Federal Register on July 19, 2013, but these pre-publication versions include proposed changes to the Clinical Laboratory Fee Schedule intended to address the rapid technological changes in the clinical diagnostic lab environment.

Since 1984 Medicare has paid for most clinical diagnostic laboratory services based on the Clinical Laboratory Fee Schedule (CLFS).  The CLFS methodology sets Medicare payment rates at the lesser of the amount charged, the fee schedule amount in the state or local geographic area  in which the service was performed, or the national limitation amount.

With the exception of modest inflation adjustments, payment rates set under the CLFS do not adjust.  While a reconsideration process was established, this process allows only for a one-time review of newly priced codes and does not include an adjustment mechanism for existing codes.  As a result, Medicare payments under the CLFS are essentially locked in place and unable to adjust based on changes to the cost of the test.

The Centers for Medicare & Medicaid Services (CMS) is proposing a process under its existing authorities in 1833(h)(2)(A)(ii) that would allow for the systematic examination of payment amounts.  This examination would seek to identify those codes that had undergone “technological changes” affecting the price of the test.  CMS cites the increased use of point of care testing, genetic and genomic testing, and laboratory developed tests as rationale for developing this process

CMS defines a technological change as any change to the tools, machines, supplies, labor, instruments, skills, techniques and devices that results in changes to the resources required to perform the test, the types of personnel required to perform the test and/or the volume, frequency and site of service of the testing.

Notably absent from the proposal is a review of the costs of the resources needed and used to develop tests.  This is a significant cost associated with developing certain newer tests that is generally not accounted for in CLFS payment rates.

Under its proposal CMS would review all CLFS codes over a five-year period, beginning with the oldest codes, reviewing a portion of the total codes each year and making appropriate adjustments.  CMS notes that adjustments could result in increases to payment amounts, but expects most adjustments to result in decreases.  After the initial review of the codes, CMS will allow the public to nominate codes for review; however, these codes must have been on the CLFS for at least five years.  Public nominations must include sufficient rationale describing the technological changes and how those changes affect payment and delivery.

In addition to its proposal to modernize the rate-setting process under the CLFS, CMS proposed in the CY2014 Hospital Outpatient Prospective Payment System (OPPS) Notice of Proposed Rulemaking to bundle clinical laboratory payments into the OPPS payments.

CMS believes that clinical laboratory tests essentially support the underlying outpatient encounter.  CMS argues that, because the OPPS is meant to be an all-inclusive payment system and not a fee schedule, bundling clinical laboratory payments into the OPPS payment is appropriate. 

CMS proposes two exceptions to this policy: if a lab test is unrelated to the primary service, that is, if the test was ordered for purposes unrelated to the OPPS encounter, it would continue to be paid separately.  Lab tests meeting this exception criterion would also need to be ordered by a physician other than the physician ordering the OPPS service.  CMS would also exempt from this policy molecular diagnostic tests, citing the novelty and different use patterns for these tests.  CMS does suggest that it reserves the right to revisit this decision in the future.

While CMS does not believe its proposal would affect beneficiary cost sharing, it is welcoming comments on how such a proposal may effect beneficiary financial obligations.

The full list of codes that CMS is proposing to package is available on CMS' website (Addendum P).

A third proposal would limit Medicare payments for non-facility based services paid under the Physician Fee Schedule to the amount paid when the service is performed in the facility setting.  CMS believes that anomalies in data and the way that data is used in the resource-based Practice Expense (PE) methodology leads to inaccurate payments for certain services.  CMS believes that PE input data voluntarily submitted by the Relative Value Scale Update Committee (RUC) may be inaccurate, incomplete or biased.  Further, the lack of a comprehensive review and evaluation of PE inputs is believed to contribute to these discrepancies.  For most services, this proposed policy change will have a small impact (-2 percent to +1 percent); however, for clinical laboratories, CMS estimates that this proposal will reduce payments by 25 percent.

Interested stakeholders should review this Proposed Rule in the broader context of the evolving reimbursement landscape for clinical laboratory services.