Clinical laboratories will see significant changes to their Medicare payments for clinical diagnostic laboratory tests (CDLTs) starting January 1, 2017, but the basis for new payment rates will come from “applicable data” reported by “applicable clinical laboratories” starting January 1, 2016. Failure to report data will subject the applicable laboratory to Civil Monetary Penalties in the amount of $10,000.00 per day.

Under the Protecting Access to Medicare Act of 2014 (“PAMA”), with certain exceptions, starting on January 1, 2017 the payments for CDLTs will be equal to the weighted median of private payor rates determined for the test, based on “applicable information” reported by “Applicable Laboratories.” This statutory language raised a number of “who/what/when” questions, answers to which were recently proposed by the Centers for Medicare & Medicaid Services (“CMS”).

Who are “Applicable Laboratories”?

The proposed rule defines “Applicable Laboratories” subject to the reporting obligations as follows:

• Each entity that (1) is a laboratory or has at least one component that is a laboratory, as defined by the Clinical Laboratory Improvement Amendments of 1988 (“CLIA”); (2) reports tax-related information to the IRS under a TIN with which all of the NPIs in the entity are associated; and (3) receives, collectively with any and all associated NPI entities, greater than 50% of its Medicare revenues from the Clinical Laboratory Fee Schedule (“CLFS”) or the Physician Fee Schedule (“PFS”).

• The proposed rule specifically excludes those entities meeting the above definition of “Applicable Laboratories” from reporting obligations if they have less than $25,000 in Medicare revenues from CLFS services paid on Form CMS 1500 (or its electronic equivalent) during the initial collection period (July 1, 2015 to December 31, 2015), and laboratories that have less than $50,000 of such revenues during a full year collection period.

According to CMS, it is intended that the reporting obligations would be limited primarily to independent laboratories and physician offices having significant levels of revenues from CDLTs, and would not include other entities (such as hospitals, or other health care providers) that do not receive the majority of their revenues from PFS or CLFS services. For smaller entities that may be considered “Applicable Laboratories,” the proposed rule requires that they keep a close eye on their CLFS revenues at year end and make a quick determination of whether they meet the $25,000 or $50,000, as applicable, threshold.

What is “Applicable Information”?

PAMA defines “Applicable Information” as (1) the payment rate that was paid by each private payor for a test during the data collection period, and (2) the volume of such tests for each such payor during the data collection period. Under PAMA, the payment rate reported must reflect all discounts, rebates, coupons and other price concessions, but must not include tests that are paid on a capitated basis or other similar payment basis.

Under the proposed rule, CMS defines “private payor rate” as the amount that was paid by a private payor for CDLT after all price concessions were applied, and includes any patient cost sharing amounts. CMS defines “private payor” as a health insurance issuer, a group health plan, a Medicare Advantage plan under Medicare Part C, or a Medicaid managed care organization.

CMS clarified that each Applicable Laboratory must report each private payor rate and associated volume for the CDLT. For example, if the entity is reimbursed by a private payor in the amount of $100 for the first 100 tests, and $90 for the 101^st test and beyond, the entity should report two payment rates for that payor and the volume under each payment rate.

Additionally, CMS clarified that Applicable Laboratories will be required to report the HCPCS codes that identify the CLFS tests. Applicable Laboratories are not allowed to report information with a NOC (not otherwise classified) or an unlisted CPT code.

All “Applicable Information” collected for the initial reporting period must be collected from reimbursements between July 1, 2015 and December 31, 2015.

When must Applicable Information be reported by Applicable Laboratories?

Applicable Laboratories must report “Applicable Information” to CMS for the initial reporting period between January 1, 2016 and March 31, 2016. Subsequent reporting periods for most Applicable Laboratories would be every three years (2019, 2022, etc.). For those subsequent periods, the data must be collected from the immediately preceding 12 month calendar year, and reported during the January 1 – March 31 reporting period.

It is important to note that there will be different payment and reporting obligations applicable to Advanced Diagnostic Laboratory Tests (“ADLTs”). An ADLT is defined as a test that analyzes multiple biomarkers of DNA, RNA or proteins combined with a unique algorithm to yield a single patient-specific result, is cleared or approved by the FDA and meets other similar criteria established by the Secretary of the Department of Health and Human Services.

Severe Penalties for Failure to Comply

Failure of an Applicable Laboratory to comply with its reporting obligations, or in the event that an Applicable Laboratory misrepresents “Applicable Information”, will subject the entity to Civil Monetary Penalties of $10,000.00 per day or $10,000 per misrepresentation.

Potential Costs for Compliance

CMS was unable to provide an estimate of the potential costs to Applicable Laboratories for complying with their reporting obligations. However, CMS indicated that such costs “could be substantial” given that there are over 1,300 CDLTs. CMS provided an example that if an applicable laboratory has 30 different private payor rates for a given test and received private payor payment for each test on the CLFS, it would be required to report 39,000 records and 117,000 data points.