AACC asks for early studies of PAMA’s market-based reimbursement system 

Interview by Steve Halasey

James H. Nichols, PhD

James H. Nichols, PhD

The Protecting Access to Medicare Act of 2014 (PAMA) was signed into law on April 1 of this year. Primarily a vehicle for congress’s annual “doc fix” legislation to prevent severe cuts in the rates paid to physicians by Medicare, the act also embodies the first serious effort in 30 years to legislate a reform of the Centers for Medicare and Medicaid Services (CMS) Clinical Laboratory Fee Schedule.

PAMA will end the era of perceived arbitrary changes in the CMS fee schedule by establishing a market-based system, in which all laboratories will report their pricing data (beginning in January 2016), to be used as the basis for calculating CMS prices (beginning in January 2017). But relying on a competitive market to drive policy reform can be a two-edged sword. In a mid-June letter to CMS Administrator Marilyn Tavenner, the American Association for Clinical Chemistry (AACC) raised concern that PAMA would bring about dire consequences for many small clinical labs, and even result in some labs ceasing operation.

To find out more about AACC’s concerns about PAMA, CLP spoke with James H. Nichols, PhD, medical director of clinical chemistry at Vanderbilt University School of Medicine, and chair of the AACC government and regulatory affairs committee.

How Did We Get Here?

CLP: Prior to the enactment of PAMA, many professional and industry organizations had long voiced a need to reform the CMS Clinical Laboratory Fee Schedule. What has been AACC’s view over the years?

James H. Nichols, PhD: There have been updates to the fee schedule over the years—or at least changes that have been felt to be updates. But in fact, the fee schedule has never really been updated; it’s only been cut back. So we’re already starting with a very lean financial reimbursement system. An overhaul like PAMA, I think, is actually going to result in further cutbacks.

CLP: Were there particular elements of the old CLFS that AACC considered especially harmful? Were there any elements worth preserving?

Nichols: The big problem with the previous fee schedule was that it took a very long time to get updates to the reimbursement codes. When updates did come through, a lot of them didn’t take into account newer technologies—for instance, reimbursement for molecular testing, or for the use of mass spectrometry in the toxicology laboratory and endocrine areas. So it could take several years before updated codes would come through, and in the interim labs were being paid on the basis of a generic technology code that didn’t really reimburse for what it cost to do the test.

So the system was unsound, slow, and continuously being cut back. And rather than making adjustments to the actual market, the system was saddled with predetermined cutbacks that went into effect over time.

I believe the intent of the new act is to address reimbursement rates based on what the market is bearing. But that raises its own set of concerns.

CLP: AACC’s June letter to CMS Administrator Marilyn Tavenner questioned many of PAMA’s assumptions about the clinical laboratory marketplace. How did these problematic assumptions become part of the new legislation?

Nichols: In reading what is going to take place, I think the intent is to collect data from the laboratories and utilize that data to set a generalized reimbursement based on the entire market for each particular laboratory test. That in and of itself is an issue, I think, because what they’re going to take is the lowest of those markets, and not all laboratories are the same.

Each laboratory is different based on its volume of testing and the technologies it utilizes. Point-of-care testing technologies, or near-patient fast-turnaround technologies, are basically higher cost, because they are unit-use devices compared to a centralized laboratory analyzer that does automated, high-volume throughputs. These are orders of scale apart in terms of volume. The higher volumes that a laboratory does, the more likely they are to be able to make contracts with companies to get discounts on the reagents, and the latest in technologies.

Every laboratory is not the same. Some are physician office laboratories that are only providing point-of-care tests; others are reference laboratories that deal in high-volume, high-automation equipment. Comparing these two types of laboratories and their methods for delivering results to patients doesn’t put them on a level playing field.

CLP: On the backside, these distinctions seem self-evident. Is it an oddity that Congress acted without taking these differences into account?

Nichols: Most of the people involved in the processes of making laws and regulations don’t come from a laboratory or medical background. They’re looking at budgets, they’re looking at creating systems that are going to be cost-effective, and they may not understand the entire ramifications. Indeed, there is a requirement written into the legislation for the Government Accountability Office (GAO) to conduct a study looking at the impact of the legislation on patient access, and what effects this type of a reimbursement system would have on patient outcomes. As it’s written into the legislation, however, the study isn’t required to take place until after implementation has already occurred.

AACC’s other big concern is that once a system like this has been implemented, laboratories that do very little testing—like physician office laboratories that constitute more than 50% of the laboratories in America—will be unable to continue doing business. Patients who access their primary care physicians for preventive medicine types of care will have to go elsewhere. Because those office labs are going to go away, patients will have to go someplace else to have their blood drawn and sent away, possibly to a laboratory that can still stay in business under this type of a system.

What we’re really concerned about is access to care, and making sure that all laboratories and all areas that are doing laboratory testing can still continue to offer that delivery mode.

Where Did We Get?

CLP: AACC’s June letter requests that CMS submit the CLFS reform program to further study before implementation. Are there general concerns about the way that the legislation directs CMS, or about the agency’s capacity to implement the act as intended?

Nichols: There is concern on both CMS implementation as well as on the laboratory side, because the whole system is based on collecting data from the laboratory. Starting in 2016, laboratories have to submit data to CMS that includes, in essence, all of the tests that we do, the methodologies that we use, the volumes of those tests, and reimbursement from all of our different insurers and the rates. That is not something that we typically have at hand. It’s a specialized type of report that’s pulling from our financial systems and our laboratory system in combination.

It’s going to take resources for hospitals and laboratories to pull this data together, so we’re going to have to hire contractors or take resources for programming this type of report just to be able to submit the data to CMS. And once CMS has this data, the question is, how are they going to utilize it?

The way the law is written, actual reimbursement will be based on the market data that CMS collects. Data collected in 2016 will be used to set reimbursement rates for the period from 2017 through 2019, and CMS is permitted to cut back payments at 10% per year through that initial 3-year period. In the next cycle, data collected in 2019 will be used to set reimbursement rates for the period from 2020 through 2022, when the agency will be permitted to cut back payments another 15% per year. In effect, this means that payments for some or most laboratory tests could be cut by nearly three quarters, or 75%, off of today’s pricing.

All laboratories have to pay for reagents, for the labor to do the testing, and for information systems to be able to report test results. But if we can’t recover those costs, we can’t really stay in business to produce those results.

And this also leads to a patient care issue, because more than 70% of all medical decision-making is based on laboratory tests. So without access to tests and test results, physician decision-making and, ultimately, patient care are going to suffer.

CLP: In its June letter, AACC was very specific about several areas the agency should submit to study before implementation gets under way. Can you define AACC’s concerns leading to these specific requests for further study? The first area was the ability of various laboratories to provide the required information.

Nichols: Laboratories and hospitals differ in the types of information systems they use and the resources available to pull specifically what CMS is asking for: the lab’s menu of tests, the volume of each of those tests, and the reimbursement rates from each insurer. To answer these questions, labs need to know both the laboratory testing and the reimbursement sides of their business. All of that data has to be brought together. Some labs’ systems are going to be amenable to producing that type of data, but for many others, it’s going to be a very manual type of process.

For instance, some physician office practices are still on manual records, or they’re just now transitioning to electronic medical records. Many of those offices may not have the ability to pull this type of data.

So you’re looking at a variety of different systems. And the systems most likely to respond with ease are those of the bigger reference laboratories. They are also the labs most likely to skew the data toward cheaper or lower-cost testing.

CLP: That leads to the next area that AACC requested study on, which is the costs of upgrading provider billing systems and hiring additional personnel to provide the required data.

Nichols: Correct. As laboratory businesses, we’re going to end up having to pay for resources to produce the data, which is ultimately going to lead to lower reimbursement for the performance of our jobs. So we’re getting slammed on both sides.

CLP: AACC also asked CMS to study various effects of the new system. Specifically, how the new approach may alter the menu of testing services provided by different types of laboratories; the financial impact of the market-based payment system on the differing testing facilities; and what impact the new payment method may have on patient access to testing—particularly any geographic or population-based differences. In the first case, I imagine that some labor-intensive tests now being performed by small community labs or physician office labs might be in danger. Is that where the problem areas lie?

Nichols: I think that’s one concern. Certainly, if you’re performing a very labor-intensive test or a point-of-care-delivery type of test, like in a physician office practice, those tests cost more to deliver. And if you’re not reimbursed an amount greater than what it costs to perform the work, you can’t continue to offer that test.

About half of the laboratories registered under the Clinical Laboratory Improvement Amendments of 1988 (CLIA) are physician office laboratories or labs in community clinic settings, like nursing homes. So what’s going to happen if 50% of our laboratories go out of business? Where do patients get access to testing? It’s not going to be in their physicians office, so they’re going to have to go to a separate facility to have their blood drawn, and their blood is going to be sent away somewhere, and that’s going to delay the turnaround time of those tests. And what about patients who may not even be able to get out of their homes, such as underserved or elderly patients who can’t drive, or who may be in a nursing home setting? How are you going to collect blood from these patients? How are those patients even going to travel to the location to get their blood collected?

This may be an issue that arises especially in terms of poor and underserved populations, where they have to take a bus or something to go to a phlebotomy station and have their blood drawn, rather than going to a local clinic that they can walk to. This could create a further issue in terms of access to laboratory testing.

We won’t really know what the impact would be from implementing these types of changes until they are studied. So that’s the essence of AACC’s current suggestions, that CMS should study these changes before it actually implements them, to make sure that we’re not going to adversely affect specific populations and have differential care offered.

I work at Vanderbilt, and we’re a large intercity type of hospital. But we’re in the middle of Tennessee, which is a very rural area. Once you get outside of the city and into the state’s rural farming communities, there really aren’t any clinics. Patients have to drive an hour or two to visit a community hospital or a community clinic. And if those community clinics can’t offer laboratory testing, patients will have to travel even farther to reach a big city where they can have their blood drawn. What impact is that going to have on these rural populations?

The Big-Picture Fix

CLP: Some believe that PAMA threw out one flawed system in favor of another, equally flawed. Under the legislation, does CMS have the flexibility needed to address problem areas, or will it be necessary to have Congress revisit its own work?

Nichols: I think CMS can do this administratively. At this point, AACC is not asking CMS for additional resources. What they’re asking is that CMS actually look to doing a preliminary impact analysis before the implementation, rather than waiting until after the implementation. GAO is already mandated to conduct such a study. All we’re saying is that the study should be done earlier rather than later—before it’s too late and underserved populations are already affected.

CLP: Presuming CMS agrees to conduct an early study, and the findings suggest that the PAMA-mandated system is unworkable, what would be the next step? Would Congress need to revise the legislation?

Nichols: I think we have to wait and see what the data says. If the data indicates that there are advantages to the program, then CMS has what it needs to move forward. If the data shows that there are detriments and the potential for harm, then there will be an issue of regrouping, admitting that the system isn’t good, and redrafting a different type of system.

In any case, an early study will provide the hard data to help guide future implementation. Without those findings, the whole system is basically founded on the notion that, “We think this is a good idea; go with it, and let’s see what happens.”

CLP: Are there any safeguards that could be added to the market-based system to protect smaller labs and those with immovably high cost structures?

Nichols: Not at this point. There are maximum levels for the reimbursement cuts that can be implemented during each year from initial phase-in through 2022. But those are the only safeguards built into the system. Ultimately, if implementation continues to go forward and we start to see problems, by that point it’s sort of too late. Because by then the labs will have already folded, and they’ll no longer be providing service. It will be very tough then to hear patients complaining that they don’t have access to the healthcare they used to have before the new system went into effect.

CLP: How has CMS so far responded to AACC’s June letter? Do you have any clues about how the agency might respond, and when?

Nichols: Nope. At this point, I don’t know.

CLP: In the end, what further reforms to the CMS payment system would AACC like to see? What will be needed to accomplish those changes?

Nichols: I think at this point, we’re simply asking that there be a study. Then we’ll take a step back and look at the data before we make dramatic cuts. All that’s really being requested is for CMS to use a logical, scientifically based approach to this, rather than jumping in, implementing something, and suddenly suffering the consequences.

Steve Halasey is chief editor of CLP.