Of the several Medicare issues for labs looming in the New Year, two are uppermost in the minds of those in the clinical laboratory field: the physician fee schedule and competitive bidding. Both of these have the potential to substantially impact revenue for clinical labs, and there’s much frustration about them in the laboratory community. Medicare is a vital issue because with the first crest of the Baby Boom wave beginning to become eligible for the program, the system is about to be sorely challenged.

The proposed 2007 Medicare physician fee schedule, published in August, contains a number of important changes for clinical laboratories and pathologists, including curbs on abusive “pod” or “condo” labs’ (contractual joint ventures that have raised concerns among pathology labs and practitioners) billing arrangements, an end to “grandfathered” pathology TC billings, and increases for certain flow cytometry payments. But one big issue, says Elissa Passiment, executive director of the American Society for Clinical Laboratory Science (ASCLS), is that the physician fee schedule is due for a decrease in 2007.

Medicare’s Future

“Where we’re going with Medicare is a bleak picture,” says Jeff Jacobs, vice president for public policy, American Society for Clinical Pathology (ASCP), who also cites the primacy of the physician fee schedule as well as that of competitive bidding.

Passiment says, “Of course, physicians want the fee decrease negated and a possible update. But for Medicare to do so there would have to be an adjustment in the reimbursement schedules and a takeaway from someone else. That’s usually us.” The proposal is a 5.1% negative physician fee schedule update due to the sustainable growth rate (SGR) formula used by Medicare to calculate reimbursement to medical providers.

Jacobs says he’s very concerned about the August document issued by the Centers for Medicare and Medicaid Services (CMS) delineating its plans for fee reduction and its ripple effect on labs and pathologists. “Pathologists could see more than a 10% reduction in Medicare revenue,” he says.

The ASCP is working with the SGR formula, which Jacobs calls “complex but flawed. The SGR affects American Medical Association (AMA) members, the broader medical community, and we’re working with them on reform. It affects the entire field, not just pathologists, and it affects the entire health care of the nation.”

But with Medicare, the obvious concern is the effect on seniors, Jacobs says. The ASCP is also working on reform with Congress and the Bush Administration.

He says there’s good news out of the physician fee schedule, though: The CMS is finally allowing physician self-referral. This, he says, is an attempt to prevent pod and condo labs from engaging in abusive billing practices.

Jacobs explains that the practice involves fee splitting, which results in pathologists receiving reduced payments and splitting it with nonpathologist physicians. “This is a dangerous practice, and is demeaning to pathologists,” he says. But he adds that it also puts in danger reimbursement for all pathologists. If one pathologist is willing to take half a fee, the question for Medicare is, “Why pay pathologists when nonpathologists pocket some of the payment?” Jacobs says this practice is a violation of AMA practice.

So, within the fee schedule rules are a number of positive things, he says. “We believe this is a silver lining in the physician fee schedule and will help prevent such abusive billing practices.”

Jeff Boothe, Clinical Laboratory Management Association (CLMA) legal counsel, says 2006 is ending with the expectation of unfinished business to continue next year. Several Medicare issues, including the physician fee schedule, are on his radar, as are health IT issues and pay-for-performance. “It’s unlikely that Congress will finish working on these this year, so as a consequence, expect these issues to be taken up again in 2007,” Boothe says.

He agrees with Passiment about the physician fee schedule—that the big worry for labs is that Congress will look to them to address a lack of monies. “Labs could be targeted,” Boothe says, “and we’re keeping ever-vigilant so we don’t become an area they decide to focus on. We’re very concerned about that.”

Another concern is with the grandfather clause in lab billing, which is set to expire. And like others, Jacobs has big concerns about competitive bidding for lab services. He is concerned that there has been no update for the past 15 years, and he is working with others in the lab field to propose alternative methods and to educate the industry, as well as to advocate for an update to the fee schedule.

Competitive Bidding

Competitive bidding stands to be the other big Medicare issue in Congress in 2007. Legislation passed into law as part of the Medicare Modernization Act requires the CMS to conduct a competitive bidding demonstration project for outpatient clinical laboratory services under Medicare. The law requires the CMS to conduct a demonstration in two different metropolitan statistical areas.

There are some serious concerns that involve the lack of dialogue between the clinical lab industry and the CMS about competitive bidding, as well as concerns that the agency’s time line to request bids and announce winners might allow enough time to provide information about how to structure bids. There are also concerns about a lack of time for comment to the agency before the demonstration projects begin.

These concerns are shared by many in the lab industry, such as the American Clinical Laboratory Association (ACLA). “We expect that, unfortunately, a demonstration site will be chosen and CMS will put it out for bids,” says ACLA President Alan Mertz. Since only CMS-approved labs are eligible for Medicare reimbursement, and the new project will require labs to bid on every one of the thousand lab tests, it’s very worrisome to Mertz. “Medicare will pick the price points and if you’re not at or below the price points, you’re barred from doing business with Medicare,” he says. That’s forcing many smaller labs to quickly form relationships with specialty labs that perform tests the smaller labs cannot, which is a difficult situation for the smaller labs, he says. “No lab performs every test.

“The intent is to lower costs, but this will probably result in less competition because that’s what happens when you drive significant numbers of competitors out of the market,” Mertz continues. “The two demonstration areas will be announced and we’ve worked with CMS on this issue, but the [Bush] Administration hasn’t been forthcoming,” Jacobs says. He doesn’t believe that the Bush Administration has done the right thing, and the ASCP will continue to monitor the issue closely. The plan is impossible to implement, and it could adversely impact patient care, Jacobs adds.

The competitive bidding issue is becoming direr, Passiment adds. The CMS is preparing to announce its selection of the first model demonstration metropolitan area for competitive bidding, but this plan is enormously problematic for labs, she says. “CMS really thinks labs in the first area selected can put together a complete package of thousands of CPT codes for lab services and actually begin this project in April. This is our major concern. Rushing this is very bad.”

For one thing, it’s impractical, she says. The two metropolitan areas to be selected as demonstration areas for competitive bidding, one in April 2007 and the second a year later, “will be crippled because of the haste in putting this project together. Even with just these two test areas, the data they’ll get won’t be accurate,” Passiment says, adding that the CMS’s decisions on most lab issues were good ones for 2007 and that for the most part, the ASCLS got what it wanted. But the organization is still seeking better reimbursement for new lab technology, which takes more time to use than other lab procedures.

The ASCLS worked with the CLMA to introduce legislation to ask Congress for a demonstration project for pricing the new technologies, which include the area of molecular diagnostics.

Another issue for Mertz is that of medically unbelievable edits (MUEs); these are limits from the CMS placed on the number of units of services that can be billed per patient per day. The MUE proposal sets limits on almost 1,200 pathology and laboratory CPT codes. This was an effort in December 2005 by the CMS to curb what it saw as errors. Although these were really anatomical and surgical errors, Mertz says, the limits were applied to all CPT codes, “which made fewer procedures eligible for Medicare reimbursement.” But in November, the CMS released more reasonable MUEs, and Mertz says the ACLA appreciates that the CMS Phase 2 list of MUEs are now more consistent with the CMS’s stated purpose.

The CMS’s action came after a concerted effort by the ACLA and other medical specialty and health-provider groups to raise serious concerns about how the MUEs were originally developed and proposed for implementation. The ACLA was one of the first groups to meet with high-level CMS officials to raise concerns soon after the MUE proposal was first announced in January 2006. The ACLA was concerned that the originally proposed unit of service edits for pathology and clinical laboratory medicine were inconsistent with accepted medical practice; needed clearer explanation of the selection criteria; should include the opportunity to appeal the proposed edit; and, if implemented, would have had negative health care consequences for Medicare recipients.

After meeting with the CMS in May 2006, the ACLA was informed that the CMS would establish a more narrowly defined, reasonable set of pathology and clinical laboratory MUEs, and that the process would focus on truly abnormal situations where a provider bills for anatomic impossibilities or clearly outrageous or egregious situations. While the ACLA is still reviewing the Phase 2 MUE list, it appears that the list generally reflects that understanding and addressed the ACLA’s concerns. Mertz expressed his gratitude to the CMS and its contractor, Correct Coding Solutions LLC, Carmel, Ind, in revising the MUE edits to reflect current medical practice and thus not impose edits that would have negatively impacted patient care.

The flow cytometry issue was resolved as well. In early November, the ACLA announced that the CMS had, as part of the final 2007 physician fee schedule, accepted all of the ACLA’s recommendations for revisions to the technical component of flow cytometry services. This action partially restored payment for these important patient services and came as a result of a 2-year history of ACLA meetings and dialogue with senior CMS officials.

Following the significant payment reductions announced in 2004, the ACLA presented the CMS with updated information derived from laboratory members performing flow cytometry services. The data detailed clinical staff time involved with the procedure, as well as additional equipment and supply items. Flow cytometry technical component services will see increases from 14% to 25% despite the imposition of budget neutrality reduction adjustments.

Election Impact on Medicare Legislation

Passiment notes that much of what happens in Congress vis-à-vis Medicare legislation was hugely dependent on the 2006 elections’ outcome. “The Democrats seemed more interested in remedying competitive bidding and the fee schedule,” she says, and the ones running for office said they’d look at the competitive bidding process. Now that Democrats control Congress, they could ask the CMS to testify about competitive bidding; and if they do not like it, they can change the process. Some Democrats in Congress are long-standing advocates of this, including Sen Edward Kennedy (D-Mass) and Sen Barbara Mikulski (D-Md); and Rep John D Dingell (D-Mich), Rep Fortney (Pete) Stark (D-Calif), and Rep Charles B. Rangel (D-NY), who have intimate knowledge about lab issues, Passiment says.

Even if Congress had remained Republican, there was still some hope, as some Republicans have claimed interest in lab medicine, she adds. But with the House and Senate both going Democratic, the lab industry may get some support.

Mertz says, “We’re unlikely to see new legislation until 2007 that affects reimbursement, so the only major legislation to be expected in the latter part of 2006 will be about the physician fee schedule.” The new Congress will have to address the rest, he says.

Meanwhile, the various industry organizations’ efforts to affect the major pieces of Medicare legislation will continue. “As an industry, historically we’ve been a popular place for Congress to target its cost-cutting efforts on. And we’re keeping an eye on competitive bidding as well,” Boothe says.

At this point, it doesn’t appear that Congress has decided to go after labs yet. However, given Congress’s propensity to do so, the CLMA is keeping an eye on it. “We’re trying to protect ourselves and our interests,” he says.

“Medicare is a zero-sum game,” Jacobs says. It needs to be looked at carefully, and the system needs to be improved. Reimbursement of providers willing to accept Medicare has to be examined thoroughly. “The system will fall apart if we don’t fix it,” he says.

Gary Tufel is a contributing writer for  CLP. For more information, contact .

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