CCLA2015 Annual Conference

Washington Update for Labs:Key Reimbursement and Regulatory Policies & Outlook

Westin South Coast Plaza Costa Mesa, CA

November 5, 2014

Dennis Weissman, President, Dennis Weissman & Associates, LLCWashington, DC

Today’s Presentation

• Medicare Reimbursement Update • Federal Regulatory Initiatives• Proposed PAMA rule • Q & As

Bundling Payment for Hospital Outpatient TC Services

• Effective Jan. 1, 2015, reimbursement for TC of pathology services provided to hospital outpatients no longer paid separately by Medicare

• All pathology TC codes are bundled except 88309, 88348 & 88333

• Proposed OPPS for 2016 to expand packaging to include three now exempted codes

2016 Medicare CLFS Holds Steady

• No change for Clinical Laboratory Fee Schedule in 2016

• No further automatic cuts under ACA in 2016• Inflation adjustment of 0.1% expected while

productivity adjustment estimated to be 0.6%• No change projected since PA can’t reduce the

inflation adjustment below zero

Major Cuts Proposed for Drug Tests

• Medicare payment for drug testing codes to drop in 2016 under proposed CLFS changes

• Cuts of 25% or more for definitive drug tests under preliminary determinations by CMS

• For presumptive drug testing, 3 new G codes p• For definitive drug tests, 4 new HCPCS codes

crosswalked to CPT 82542 • Final CMS determinations due in November

Pathology Payment Update for 2016

• Pathologists & independent path labs due sizable payment increases in 2016 resulting from Misvalued Coding Initiative, including establishing RVUs for new & revised codes

• CMS estimates overall increase of 8% for pathology services – 4% increase based on changes in relative value units used to calculate PC plus 4% increase in practice expense used in TC & global payments

• Final Physician Fee Schedule due in November

Medicare Sequester Extended • White House & Capitol Hill leaders negotiate 2-year

budget & debt ceiling deal • Raises debt limit and evenly boosts defense and

discretionary domestic spending by $80 billion thru 2017

• Once enacted, deal would extend Medicare sequester including 2% cut for providers including labs through 2025 plus make additional changes to Medicare & Social Security programs

• Agreement would take contentious spending & debt ceiling issues off the table for 2016 election

Regulatory Updates • Transition to ICD-10 effective October 1 – CMS

applies 1 year grace period for Part B claims for physician & other practitioner but not clear if this applicable to labs under CLFS

• Status of FDA’s draft guidance to regulate laboratory developed tests -- no final action in 2015 with policy outlook unclear in 2016 election year – Alan Mertz to focus on details

• CMS proposes rule for data collection in repricing lab tests under CLFS based on private payer rates beginning in 2017

Proposed PAMA Rule• CMS released a proposed rule (131 pages) on Sept

25 to revise the Medicare Clinical Laboratory Fee Schedule (CLFS) as required by the Protecting Access of Medicare Act of 2014 (PAMA)

• PAMA represents the first major reform of the CLFS since 1984 – will it mean disruptive change?

• Creates a market-based lab payment system under Medicare to be calculated via the weighted median of private payer rates (based on lab volume) for each test on CLFS

• Final comments due to CMS by Nov. 24, 2015

Definition of Applicable Lab Required to Report Payment Data

• Entity is either a laboratory or has at least one component that is a lab as defined by CLIA

• Reports tax-related income to IRS under unique Tax ID Number (TIN)

• Lab receives more than 50% of all Medicare revenues from fee-for-service Medicare as well as applicable co-pays, co-insurance & deductible amounts (includes CLFS or PFS)

• At least $50,000 of Medicare revenues come from CLFS per annual collection period

Many Labs Excluded

• All health system & hospital labs having same TIN as parent organization – major problem area

• Most physician office labs & many independent labs don’t receive $50K annually in CLFS revenues

• CMS estimates only 6% pf POLS and 48% of independent labs will have to report

• CMS claims reporting labs will account for bulk of all Medicare CLFS data – 99% of independent lab revenue and 96% of POL of Medicare payment

Lab Collection & Reporting Requirements

• Initial data collection period from July 1 thru Dec. 31, 2015 with reporting period set from Jan. 1. 2016 thru March 31, 2016

• Thereafter, reporting every 3 years with collection period constituting entire year

• For example, for collection period Jan. 1 thru Dec. 31, 2018, the reporting period would run from Jan. 1 thru March 31, 2019

• This means no new rates until 2020 after after initial changeover in 2017

Are Future Adjustments Allowed Under Market-Based Approach?

• No across-the-board, year-to-year adjustments including:

-- No inflation (CPI) updates -- No geographic, productivity or budget neutrality adjustments• Exception for new Advanced Diagnostic Tests

performed by a single lab whose rates to be revised annually

What Labs Must Report

• Specific HCPCS code for each test on the CLFS• Each rate every private payer paid for the test• Volume for each private payer rate• Capitation rates are excluded

NOTE: Applicable rate includes any patient- cost sharing amounts and is determined after all price concessions (discounts, rebates & coupons) are applied

How New CLFS Rates Are Calculated

• For each test on CLFS, CMS will use required data reported from all applicable labs

• CMS will array the data from all labs by rate, from low to high

• Each rate will be weighted by the volume of tests furnished at that rate

• CMS will calculate the middle rate in this array (volume-weighted median) which becomes the new Medicare payment rate (still subject to sequester, if applicable)

Definition of Private Payer

• Health insurance issuer• Group health plan• Medicare Advantage Plan• Medicaid managed care organization• Excluded are Medicaid fee-for-service and

other government payers

What’s At Stake?• In 2014, Medicare Part B spent $7 billion to

63,730 labs for performing 451 million tests for 27 million Medicare beneficiaries

• $4 billion went to independent labs• $1.7 B went to hospital-based labs• $1.3 B went to physician office labs • Top 3 labs (Quest, LabCorp & BRL) paid $1B• On average, labs paid $109,898 each in 2014• Half of all labs received less than $1,019 each

Payment Reductions Under PAMA• 10 percent a year per test code for first 3 years

is maximum under PAMA• Law allows up to 15 percent cut per year for

each code in the following 3 years • CMS estimates 4.5% decline for 2017 ($360M)• CMS projects 5-yr reduction of 7.4% (2.94B)• Estimated 10-yr cut of 6.4% ($5.14B decrease)• For tests on CLFS prior to implementation, six-

year phase-in of any reduction of payment

Example of New CLFS Rates

• For a CLFS test whose rate is $20 in 2016, the maximum reduction would be $2 (10% of $20) in 2017, making the new rate $18

• For 2018, the maximum reduction would be $1.80 (10% of $18), for a test price of $16.20

• For 2019. the maximum reduction would be $1.62 (10% of $16.20) for a revised test price of $14.58

Special Calculations for Certain Tests

• Cross-walking or gap-filling method will be used to set initial payment rates for new or existing tests when no payer data is available

• This method will also be used for tests where no payer data is reported because they are only reported by non-applicable labs

• Advanced Diagnostic Laboratory Tests paid using list price at launch for three calendar quarters (details below)

What is a Advanced Diagnostic Laboratory Test (ADLT)?

• Test that provides new clinical diagnostic information that can’t be obtained from any other procedure or combination of tests

• May include other assays• Covered under Medicare Part B• Marketed and performed only by a single lab • Not sold for use by a lab other than the one

that designed the test or a successor lab

Definition of ADLT

• Must meet one of the two following criteria: -- Cleared or approved by the FDA or -- The test must be a molecular pathology

analysis of DNA or RNA and -- When combined with an empirically

derived algorithm, yields a result that predicts the probability of a specific individual patient will develop a certain condition(s) or respond to a particular therapy (ies)

Reporting Requirements for New ADLTs

• Labs performing new ADLTs must report by end of second calendar quarter of “initial period” all private payer rates for the first and second quarters

• “Initial period” begins on the first day of the first full calendar quarter on which the ADLT is performed

Reporting Requirements for Existing ADLTs

• Data collection period is a full annual period• Reporting musr occur every year• Reporting period of Jan. 1 thru March 31 of

each year for the prior year’s collection period• For the data collection period of Jan. 1 thru

Dec. 31, 2016, the reporting period will run from Jan. 1 thru March 31, 2017

Calculation of New ADLT Payment Rates

• Payment rate for a new ADLT during the initial three calendar quarters is equal to the actual list charge of the applicable laboratory

• List charge is defined as the publicly available rate on the first day on which the test is available for purchase by a private payer

• Payment rate is based upon first two quarters

New ADLT Recoupment Process

• If Medicare payment during the initial period is more than 130% of the calculated weighted median, the government will recoup the difference between the paid amounts and calculated weighted median

• CMS says it will issue further guidance in the future on the recoupment process involving new ADLTs

Calculating Existing ADLT Rates

• Based on the weighted median of all private payer rates for each test for the most recent data period

• Not subject to annual CPI update or any geographic, productivity or budget neutrality adjustments

• For ADLTs for which CMS has payment rates prior to Jan. 1, 2017, ADLT is subject to the same phase-in of payment reductions as existing CLDTs

Lab Compliance

• Data provided are accurate, complete and truthful, and meet all the reporting parameters

• Must be certified by lab president, CEO or CFO, or designee who reports to one of these officials and who has appropriate delegated authority

Lab Penalties

• CMS may impose penalties if it determines that an applicable lab has failed to report, or made a misrepresentation or omission in reporting requirement information

• A civil monetary penalty of up to $10,000 per day per violation may apply

Confidentiality of Lab Data

• CMS may not disclose lab private payer and volume data in a manner that explicitly identifies a specific payer or laboratory or prices charged or payments made to a lab

• Exceptions include permission to disclose to GAO, CBO or MedPAC

• Data supporting application for ADLT status is not explicitly protected from disclosure

Lab Coding Changes• CMS to assign HCPCS code for each new ADLT and

FDA approved oe cleared test• CMS must assign a unique code for each existing

FDA approved or cleared tests if one does not already exist

• CMS to assign temporary G codes using the existing HCPCS process

• Labs or manufacturers may request a unique identifier for ADLTs or FDA approved or cleared tests

Local Coverage Requirements

• PAMA requires Medicare Administrative Contractors (MACs) to use established practice for issuing and reconsidering local coverage determinations toimplement local coverable policies for lab tests

• Process includes public comment period, public meetings in local area and 45-day period before final determination takes effect

MAC Consolidation for Coverage & Claims Policies

• CMS authorized to designate one to four MACs to establish lab coverage policies and process claims

• CMS requests comments on pros and cons of proposed consolidation of MACs

Top PAMA Problems

• CMS missed 2015 final rule deadline with reporting by labs due first quarter of 2016 even as final rule won’t be out until next year

• Details of process for reporting data not specified in proposal but will be in separate guidance yet to be issued

• Congressional intent not met by exempting hospital-based labs thereby endangering accurate market pricing though all labs will be equally affected by new rates

More Issues & Questions• ADLT definition omits protein-based tests, contrary

to statutory language• Though many labs have multiple CLIA certificates,

CMS proposes single lab is one with only single CLIA number

• Are payment rates just for contracted amounts or also include non-contracted amounts for non-network labs

• Is rate after appeals or initial payment amounts• Are $0 payments/allowables to be factored in• What date does CMS want: DOS or date paid?

PAMA Regulatory Timeline

• Sept, 25 2015 – CMS publishes proposed rule• July 1 – Dec. 31, 2015 – data collection period• Jan. 1 – Mar. 31, 2016 – data reporting period• Nov. 2016 – CMS publishes new rates• Jan. 1, 2017 – New CLFS rates take effect NOTE: Dates not known for either CMS

reporting guidance or publishing final PAMA Rule

Comments to CMS on Proposed Rule • Comments due to CMS by Nov. 24, 2015• Refer to File Code CMS-1621-P when

commenting• Regular mail should be sent to: Centers for Medicare & Medicaid Services Department of Health & Human Services Attn: CMS-1621-P P.O. BOX 8016 Baltimore, MD 21244-8016

Comment Options on Proposal

• Comments may also be submitted electronically by following the “submit a comment” instructions at http://www.regulations.gov

• Send comments by express or overnight mail to following address:

Centers for Medicare & Medicaid Services Department of Health & Human Services Attn: CMS-1621-P / Mail Stop C4-26-05 7500 Security Blvd. Baltimore, MD 21244-1850

Questions & Answers