If Washington takes a short-sighted view, seniors will pay the price

When Congress passed the Protecting Access to Medicare Act (PAMA) in 2014, it included an important provision related to clinical laboratory services. Section 216 of the law ended use of a static fee schedule, replacing it with a plan to utilize private sector prices to set Medicare reimbursement rates. 

The American Clinical Laboratory Association (ACLA) supported this shift, recognizing that reimbursement for some laboratory tests would be reduced, but believed the use of laboratory market data to set Medicare rates would provide the sustainable, predictable reimbursement system that Medicare beneficiaries need.

At its core, the promise of a market-based payment system should work for all clinical laboratory services, from routine tests to cutting edge molecular diagnostics. But the first few years of PAMA have not yielded this result. 

Rather than collecting private payor data from a broad cross section of laboratories, CMS instead limited reporting to less than one percent of labs. Not surprisingly, in most cases, market-based pricing has not been achieved, and reimbursement cuts are wildly beyond what Congress ever intended. 

That’s why a recent proposal from Roger Klein highlighted in The Hill, to disregard private payor data and instead impose a spending cap for some tests, is so troubling. Such a plan would further erode PAMA’s clear goal of moving to a market-based system in Medicare and would undermine the assurances of a predictable reimbursement system that is needed in order for laboratories to continue to innovate.

Diagnostic testing is a vital tool for early disease prevention and diagnosis and provides a significant return on investment at a surprisingly low cost. Spending on laboratory tests constitutes a fraction of health care costs overall, accounting for less than 3 percent of Medicare Part B spending. Yet that relatively small spend drives significant savings for the broader health system by supporting early diagnosis, monitoring, treatment and preventative care.

Any proposal that suggests clinical laboratories are receiving “excessive payments” under PAMA ignores fundamental market realities. The misleading assumptions peddled by Klein are based on a fundamentally flawed and discredited Government Accountability Office (GAO) report in which the agency proposed hypothetical scenarios to suggest labs are unbundling certain panel tests and receiving higher reimbursement. 

Since the report’s numbers simply didn’t add up, GAO received considerable pushback from a number of stakeholders across the health care community. Finally, when forced to grapple with actual Medicare claims data that refuted its hypothesis, GAO actually conceded that the conclusions included in the report were not based on current industry practices. 

Using the flawed GAO report as a starting point, Klein’s proposal goes one step further, suggesting that CMS should abide by the PAMA guidelines for a market-based system, but only in cases where the agency likes the result. 

Klein correctly points out that 75 percent of tests on the Clinical Laboratory Fee Schedule (CLFS) faced cuts in the first year of implementation. Other tests, ranging from the routine to the revolutionary, received price increases. Klein suggests a two-tiered system, where some tests are worthy of an increase in reimbursement. In the case of other tests however, he suggests CMS should ignore the principles of PAMA and a market-based system, and set up an alternative system, guaranteeing rate reductions.

That two-tiered system should concern laboratories of all types, clinicians and patients. 

Klein misstates the most basic elements of PAMA and the Medicare program. He incorrectly states that PAMA’s net effect could be “the redistribution of Medicare funds from more innovative, appropriately priced laboratory procedures to overpriced tests.” 

But that’s not how PAMA works. The goal of PAMA is simply to align reimbursement for Medicare lab tests more closely with market rates. There is no “redistribution” of funds — PAMA is meant to apply the same market-based principle to all tests on the fee schedule, affecting innovative diagnostic tools as well as the routine tests that millions of seniors use to monitor their diabetes, heart disease, liver disease, kidney disease, cancer, anemia and countless other common diseases and conditions. 

It’s no surprise that there is now widespread agreement CMS’s data collection missed the mark. Last year, with seniors’ access to benefits on the line, more than 30 organizations urged Congress to take immediate action to protect seniors. The recently introduced “Laboratory Access for Beneficiaries Act (LAB Act)” would take a critical step to delay the data reporting period for one-year in order for CMS to get it right. 

Medicare beneficiaries are already at risk due to reduced access to clinical laboratory services as a result of PAMA. These essential services provide effective roadmaps for improving patient care, consistently supporting better outcomes for patients and for the health system. If we are seeking to improve patient care, spending reductions must not be the endpoint, in and of themselves. Rather, we must work together to ensure seniors maintain reliable access to lifesaving clinical tools. 

Julie Khani is president of the American Clinical Laboratory Association.