Late on Friday afternoon the Centers for Medicare & Medicaid Services (CMS) announced publication of the proposed rule (the “Proposed Rule”) implementing substantial changes to the Medicare Clinical Laboratory Fee Schedule (MCLFS) made by the Protecting Access to Medicare Act of 2014 (PAMA). PAMA significantly revised how CMS will pay for clinical laboratory testing by tying reimbursement amounts to private payor rates as of January 1, 2017.

CMS would require “applicable laboratories” to report their rates received for clinical laboratory diagnostic tests (CLDTs) from private payors (including managed Medicare and Medicaid plans) and the volume of tests reimbursed at each rate. Reported rates must reflect all discounts, rebates, coupons, and other price concessions as well as patient cost-sharing amounts. CMS will use the data submitted to update the MCLFS based on the weighted median of private payor rates. The data reporting process and the resulting revisions to the MCLFS will occur every three years. For advanced diagnostic laboratory tests (ADLTs), reporting and revisions will take place annually. Failure to report could subject a laboratory to civil monetary penalties.

The Proposed Rule sets the initial data collection period as July 1, 2015 to December 31, 2015, with reports submitted to CMS between January 1, 2016 and March 31, 2016. CMS would then publish the updated proposed MCLFS in early September 2016 with a 30-day public comment period before the final rates for calendar year 2017 are published on November 1, 2016. Going forward, the data collection period would be a full calendar year. Under PAMA, the Medicare payment amount for any test cannot be reduced by more than 10% compared to the prior year’s amount during the first three years of implementation (2017-2019) and cannot be reduced by more than 15% in the following three years (2020-2022).

One hot-button issue is the definition of “applicable laboratory.” PAMA defined an applicable laboratory as one that receives a majority of its Medicare revenues under the MCLFS or the Medicare Physician Fee Schedule (MPFS), under which Medicare pays for anatomic pathology and other professional laboratory services. CMS proposes to base reporting on a taxpayer identification number (TIN) rather than on a national provider identifier. As such, an entity comprised of multiple provider types, including a laboratory, with a single TIN would qualify as an applicable laboratory if, in the aggregate, more than 50% of its Medicare revenues were received under the MCLFS or the MPFS. Additionally, the Proposed Rule excludes from the definition any entity that is paid less than $50,000 per year on the MCLFS. For the initial stub reporting period, an entity that receives less than $25,000 on the MCLFS from July 1, 2015 to December 31, 2015 would not qualify as an applicable laboratory.

The Proposed Rule also addresses the implementation of changes to the MCLFS for ADLTs. An ADLT is defined as a clinical laboratory test covered under Medicare Part B that is marketed and performed by a single laboratory and not sold for use by another laboratory that is either cleared or approved by the Food and Drug Administration or meets the following criteria: (a) the test is a molecular pathology analysis of multiple biomarkers of DNA or RNA; (b) when combined with an empirically derived algorithm, the test yields a result that predicts the probability a specific individual patient will develop a certain condition(s) or respond to a particular therapy; (c) the test provides new clinical diagnostic information that cannot be obtained from any other test or combination of tests; and (d) the test may include other assays. Payment for ADLTs would be based on the weighted median or private payor rates reported by the laboratory that performs the ADLT. For new ADLTs for which payment has not been made under the MCLFS prior to January 1, 2017, laboratories would be reimbursed based on their actual list charge amount for the first three quarters the ADLT is on the market.

The American Clinical Laboratory Association (ACLA) has expressed disappointment with the definition of “applicable laboratory,” noting that it believes that the proposed definition does not permit CMS to receive the information it needs to accurately update the MCLFS. In a statement issued prior to the Proposed Rule, ACLA advocated for a broad definition of “applicable laboratory” that would encompass, for example, hospital outreach laboratories receiving payments under the MCLFS as well as physician office laboratories. However, CMS noted in a fact sheet summarizing the Proposed Rule that it does not expect any hospital laboratory to meet the definition of “applicable laboratory” and that more than 50% of independent laboratories and more than 90% of physician offices would likely be excluded based on the $50,000 threshold.

Comments on the Proposed Rule are due on November 24, 2015.