The Centers for Medicare & Medicaid Services (CMS) issued a final rule on November 1, 2018 that updates physician fee schedule (PFS) payments for calendar year (CY) 2019 and finalizes several policies. The final rule includes amendments to the regulations promulgated under Section 216 of the Protecting Access to Medicare Act of 2014 (“PAMA”) intended to increase the number of clinical laboratories that qualify as an “applicable laboratory” for reporting purposes; specifically (1) removal of payments received from Medicare Advantage (MA) Plans for determining applicable laboratory status and (2) the use of the Form CMS-1450 14x Type of Bill (TOB) to define an applicable laboratory.

Before the start of the next data collection period (starting January 1, 2019) clinical laboratories will need to determine how these amendment may have impacted their applicable laboratory status.  Epstein Becker Green is working with our clients to provide counsel how to comply with these amendments and determine how to record and report its billing data to CMS.

Medicare Advantage (MA) Plan Payments. The first amendment is simple and straight forward.  CMS has removed MA Plan payments to laboratories from the calculation of total Medicare revenues.  The change would remove such Medicare revenue from the denominator of the fraction that is used to determine whether a laboratory received more than 50 percent of its revenues from PFS and Clinical Laboratory Fee Schedule (CLFS) services.  CMS explained that it was not logical to consider MA Plan payments in calculating Medicare revenues received by a laboratory, while also requiring the applicable laboratory to report such payments as an MA Plan is defined as a private payor under PAMA (42 C.F.R. § 414.502).  As such, laboratories that furnish Medicare services to a significant number of beneficiaries enrolled in MA plans may now meet the majority of Medicare revenues threshold criterion, and therefore, qualify as an applicable laboratory.

CMS 1450 14X Type of Bill (TOB).   This amendment is more complicated. The definition of an “applicable laboratory” now includes clinical laboratories that receive at least $12,500 of Medicare revenues from the CLFS for claims submitted using the CMS 1450 14X bill type, which is used by some hospital outreach laboratories to bill for laboratory services provided to non-patients.  CMS has essentially created a de facto entity (“hospital outreach laboratory”) that meets the definition of an applicable laboratory based on how the hospital laboratory bills Medicare Part B for a sub-set of test services.

The problem is that the 14X bill type is a billing mechanism for claim submission to Medicare Party B and is not used by all private payors. This poses the question of how a hospital laboratory will correctly identify and collect applicable information associated solely with this de facto entity (hospital outreach laboratory). CMS does not adequately address in the final rule how the term “non-patient” is defined for purposes of determining private payor rates that the hospital laboratory must report.  CMS needs to provide clarity in sub-regulatory guidance and provider education materials on this issue.

Interestingly, in its response to the proposed rule, the American Hospital Association included data that showed hospital outpatient claims reported using 14X bill type was only 12.20%, whereas the percentage of hospital outpatient claims billed using the 13X bill type represents was 87.37% of all hospital outpatient claims.

In 2014, CMS created narrow exceptions for circumstances when hospitals function as independent laboratories and instructed hospitals to use the 14X TOB to obtain separate payment only in the following circumstances: (1) non-patient (referred specimen), (2) hospital collects a specimen and furnishes only the outpatient labs on a given date of service; or (3) hospital conducts outpatient lab tests that are clinically unrelated to other hospital outpatient services furnished for the same day. “Unrelated” means the laboratory test is ordered by a different practitioner than the one who ordered the outpatient services and for a different diagnosis.  However, CMS permits hospitals to bill under 13X TOB in circumstances (2) and (3) above when non-referred laboratory tests are eligible for separate payment.  Most hospitals likely opt to bill under 13X TOB when eligible as those revenues are not taxed as income, as compared to revenues under a 14X TOB which are taxable income as an unrelated business expense.

Ironically, CMS has argued in a federal lawsuit and proposed rules that Congress did not intend hospital outreach laboratories to qualify as applicable laboratories.  Moreover, CMS has repeatedly argued in a federal lawsuit and the final rule that there is no reason to believe that increasing the level of participation would result in a measurable cost difference under the Medicare Part B CLFS payment rate.  In the final rule, however, CMS states “[w]e believe that we will only know the impact of the data on CLFS rates by collecting data from hospital outreach laboratories. . . . [h]owever, if it becomes apparent that data from hospital outreach laboratories do not result in a significant change in the weighted median of private payor rates, we will revisit the use of the CMS-1450 14x TOB through future rulemaking.”   Ultimately, CMS suggests that these amendments were actually made to placate stakeholder concerns regarding the number of applicable laboratories reporting applicable information from the initial data reporting period.