New Reimbursement Rates for Labs Go Into Effect in 2017

The passage of the Protecting Access to Medicare Act (Act) of 2014 ushered in a new era for Medicare laboratory reimbursement rates not seen in three decades. 

The Act requires the Centers for Medicare & Medicaid Services (CMS) to begin collecting private-payer rate information from labs in 2016. Private payors include health insurances issuers, Medicare Advantage plans and Medicaid managed care organizations. In 2017, CMS is expected to update Medicare’s Clinical Laboratory Fee Schedule using the collected payment information from private payers. The new Medicare lab rates will be based on the volume-weighted median of the private payors rates.

Payment reductions as a result of the new payment methodology will be phased in as follows: reductions cannot be more than 10 percent for years 2017 through 2019, and 15 percent for years 2020 through 2022.

The new reimbursement rates differ from the current reimbursement methodology where each Medicare contractor establishes its own laboratory fee schedule based on local jurisdiction laboratory charges to Medicare dating back to 1984 and 1985 (adjusted annually for inflation). As a result, there are, in total, fifty-seven laboratory fee schedules. To contain costs, Medicare also caps payment rates for each test (national limitation amount or NLA). The NLA is 74% of the median of all local fee schedule amounts for tests for which the NLA was established before January 1, 2001.This means that for each jurisdiction, Medicare pays either the jurisdiction’s payment rate or seventy-four percent of the median rate for each laboratory test across the 57 schedules.

The new law aims to simplify the laboratory reimbursement methodology. There will be a single national fee schedule based on private pay data (starting in 2017) which will be updated once every three years.

According to the Congressional Budget Office, reimbursement rates under the new system are projected to save the Federal government $2.5 billion over ten years.

The Office of Inspector General (OIG) has indicated that it plans to monitor Medicare payments for lab tests and the implementation of the new payment system.

Update: Following public comments to the proposed rule, in its final rule (to be published on June 23, 2016), CMS has decided to delay the implementation of the new payment system from January 1, 2017 until January 1, 2018 to allow laboratories additional time to develop systems necessary to collect, review, and verify data before reporting it to CMS. Similarly, in response to public comment, the final rule includes provisions to ease administrative burdens for physician office laboratories and smaller independent laboratories.

If you have questions regarding the new laboratory fee schedule and rates or have other healthcare law questions, please contact our office.