Considerations for Lab Leaders on the GAO Report Suggesting PAMA Rates May Lead to Billions in Excess Medicare Payments

The Government Accountability Office (GAO) released a report in November 2018 entitled, “Medicare Laboratory Tests Implementation of New Rates May Lead to Billions in Excess Payments.” While the report acknowledges that the Centers for Medicare and Medicaid Services (CMS) mismanaged the data collection for establishing market-based prices for lab tests under Protecting Access to Medicare Act of 2014 (PAMA), it also makes flawed assertions that the initial PAMA fee schedule reductions should have been more severe. Among other things, the GAO report appears to ignore statutory requirements, such as that initial PAMA fee schedule reductions were not to exceed 10 percent over the prior year. The report also appears to demonstrate a misunderstanding of how price and panel bundling work in laboratory billing and reimbursement.

Recommendation 2 of the GAO report asserts that CMS should have phased-in PAMA cuts using “average” Medicare payment rates, as opposed to the 2017 national limitation amounts as the starting benchmark. 

Rina Wolf, Vice President Commercialization Strategies, Consulting & Industry Affairs, XiFin

As stated above, this recommendation ignores the statutory requirement under PAMA that restricted any fee reductions in the first three years of implementation to no greater than 10 percent compared to the prior year. By the nature of an “average,” half of the local Medicare fee schedules were above the average, thus suggesting that many laboratories should have been cut by greater than the statutory limit in 2018. It also is misaligned with the intent of the Act, which is to achieve “market-based” pricing for Medicare lab tests. Nowhere does the Act say that pricing adjustments will only be made if the result is a decrease in pricing!

Perhaps even more concerning is the report’s coverage on the billing of panel tests under PAMA. The report appears to suggest that American Medical Association (AMA) panels, such as the basic metabolic, comprehensive metabolic, lipid, renal, and electrolyte panels have been unbundled under PAMA, resulting in Medicare vastly overpaying for panel tests. While it’s true that CMS stopped paying a bundled payment rate for certain panel tests, because they have not yet clarified its authority to do so under PAMA, the primary fallacy in the report is that the industry, in general, is vacating the use of the Medicare CPT billing requirements and guidelines established by the AMA, and instead inappropriately billing for individual component tests.

In fact, labs continue to bundle automated chemistries consistent with the AMA panels in accordance with the CPT billing guidelines and there are severe penalties for submitting misrepresentation on claims. The American Clinical Laboratory Association (ACLA) conducted a research study that found essentially no relevant test panel billing changes between the last year pre-PAMA (2017), and the first year under PAMA (2018).

It’s worth noting that the right revenue cycle management solution partner can help laboratories stay clear of any issues regarding bundling. For example, XiFin RPM customers can automatically optimize bundling across ordered tests by using advanced consolidation rules. CMS used to have built-in edits to automatically screen for any bundling-related errors, but under PAMA those edits have been eliminated – at least for now. This bundling issue can be especially tricky for hospitals, which tend to have less sophisticated RCM systems not built to address laboratory-specific needs.

We encourage you to reach out to your legislators. It is only by continuing to educate lawmakers about the impact of ill-informed recommendations that we will continue to thrive as an industry.