New Medicare rates could boost lab costs by $11B, GAO warns

The implementation of CMS' new clinical lab payment rates in Medicare could increase costs by $11 billion between 2018 and 2020, according to a new report from the Government Accountability Office.

Before the fee schedule implemented this year, payment rates were based on historical laboratory fees, and Medicare often paid more than private payers.

CMS was mandated to revise the clinical lab fee schedule under the Protecting Access to Medicare Act of 2014. To revise the rates, CMS collected data on private payer rates from 2,000 U.S. laboratories and found the median rate, weighted by volume.

GAO found that the median private payer rates were lower than Medicare's maximum payment rates in 2017 for 88 percent of tests. CMS planned to phase in reductions to the maximum Medicare payment rates by 10 percent annually over a three-year period to reduce expenditures on lab testing. But while the new payment schedule's intent was to save Medicare billions, the GAO found that instead it may instead lead to higher costs.

The first problem is CMS' use of  the maximum Medicare payment rates in 2017 as a baseline to start the payment reductions, according to the GAO. Using that baseline rate this year resulted in excess payments for some lab tests, and in some cases, higher average payment rates than Medicare paid in the past.

As a result, the GAO estimates that, "Medicare expenditures from 2018 through 2020 may be $733 million more than if CMS had phased in payment rate reductions based on the average payment rates in 2016."

Another change in the fee schedule enables labs to charge significantly more for panel tests by billing for each component individually. Previously, Medicare paid a bundled rate for these panel tests. If every panel test remains unbundled, the GAO estimates it will cost Medicare an extra $10.3 billion between 2018 and 2020.

The GAO recommends that CMS return to paying bundled rates for panel tests and phase in payment reductions that start from the actual median payment rates rather than the maximum Medicare payment rates of 2017.  

CMS is aware of the risks associated with paying unbundled claims but is "currently reviewing whether it has the authority to bundle payment rates for panel tests," according to the report.

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