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PAMA lab reimbursement changes

Implemented in 2018, lab reimbursement rates will continue to change under the Protecting Access to Medicare Act (PAMA) regulations mandated by CMS.

What happened?

  • Enacted in 2014 and implemented January 1, 2018, Section 216(a) of the Protecting Access to Medicare Act (PAMA) mandated laboratories to report private payer rates for specific clinical laboratory tests to the Centers for Medicare & Medicaid Services (CMS). Prior to the enactment of PAMA, the existing Clinical Laboratory Fee Schedule (CLFS) methodology had not undergone significant reform since the 1990's
  • Under PAMA, CMS updated the Medicare fee schedule to be more aligned with commercial rates and removed the geographical variation calculation in the prior fee schedule
  • For the first 3 years, new rates were intended to be phased in with a 10% reduction limit and a 15% reduction for each of the next 3 years, but timelines have been adjusted to maintain reduction caps through 2024
  • In December 2019, the LAB Act postponed the typical 3-year reporting cycle for all CDLTs by one year. As a result, the rates for CY 2021 will be based on a previous cycle's data
  • Rates for 2023 are determined by what's paid in 2019:
    • Data collection period, January-June 2019: The time period from which the applicable labs will pull payment information
    • Analyze data, July-December 2019: The applicable labs will pull payment information from the data collection period and prepare to report to CMS
    • Report data, January-March 2021: Reporting entities must report to CMS certain private payer rate information for their component applicable labs

What's the difference between ADLT and CDLT?

Under PAMA, CMS designated a subset of clinical diagnostic laboratory tests (CDLT) as "advanced diagnostic laboratory tests" (ADLT), which have different initial payment methodologies and reporting timelines than CDLT.

Who's affected by these reimbursement changes?

  • Laboratories that meet the definition of an applicable laboratory are affected by PAMA and must report their private payer rates for certain clinical laboratory tests. An applicable laboratory is a laboratory1 that:
    • Bills Medicare Part B under its own National Provider Identifier (NPI);
      • or, for hospital outreach laboratories, bills Medicare Part B on the Form CMS-1450 under type of bill (TOB) 14x;
    • AND meets the "majority of Medicare revenues" threshold (that is, receives more than 50 percent of its Medicare revenues from one or a combination of the CLFS or the Physician Fee Schedule (PFS) in a data collection period;
    • AND meets or exceeds the low expenditure threshold (that is, it receives at least $12,500 of its Medicare revenues from the CLFS in a data collection period)
  • Laboratories meeting this definition and are required to collect and report their private payer data will thus receive a payment amount for most tests that is equal to the weighted median of the private payer rates
    • However, critical access hospitals (CAH) are generally paid for outpatient laboratory tests on a reasonable cost basis, instead of by the fee schedule, as long as the lab service is provided to a CAH outpatient  
    • Example labs:

What are the collection & reporting timelines now?

FCAA and the CARES Act2 resulted in changes to the next rate reporting period for CDLT that are not ADLT. Additional changes were also made to the phase-in of payment reductions under the Medicare private payer rate-based CLFS. The changes are: 

  • Following the next data reporting period (January 1, 2022- March 31, 2022), data reporting cycles will occur triennially (that is 2025, 2028, etc.)
  • There is no payment reduction for CY 2021
  • Payment will not be reduced more than 15 percent per year after CY 2022 extending through 2024; after 2024, there will be no reduction cap in place
CDLT Rates Based in Data Collection Period Based on Reporting Period Reduction Cap
2020 January 1, 2016 - June 30, 2016 January 1, 2017 - May 30, 2017 10%
2021 January 1, 2016 - June 30, 2016 January 1, 2017 - May 30, 2017 0%
2022 January 1, 2016 - June 30, 2016 January 1, 2017 - May 30, 2017 15%
2023 January 1, 2019 - June 30, 2019 January 1, 2022 - March 31, 2022 15%
2024 January 1, 2019 - June 30, 2019 January 1, 2022 - March 31, 2022 15%
2025 January 1, 2019 - June 30, 2019 January 1, 2022 - March 31, 2022 0%


What is the 14-day rule & MPFS Proposed Rule & what does it impact?

Under CMS's Laboratory Date of Service Policy, all laboratories must bill the hospital directly for the clinical laboratory services and the corresponding technical components of the tests administered to Medicare patients that are ordered fewer than 14 days after the patient was released from the hospital.

This rule shifted laboratories from billing to Medicare in the outpatient setting, which has been the standard since 2014, to now billing directly to the hospital from which the services were ordered. The rule is contingent on the date of sample (DOS) from when the hospital or outpatient clinic collected it from the patient. In the instance that a sample is stored longer than 30 days, the DOS will be the date that the sample was removed from storage.

An update to the DOS rule in the 2018 CMS OPPS Final Rule established an additional exception under which the 14-day rule does not apply to certain tests. Tests that are exempt under this new update include all Tier 1 and Tier 2 pathology tests and designated ADLT tests that meet the criteria of a DNA- and RNA- based Multianalyte Assay with Algorithmic Analyses (MAAAs).

How should you prepare for this PAMA regulation?

Laboratory testing plays a significant role in healthcare decisions, patient satisfaction and increased operational efficiency. Seventy percent of physician decisions rely on a lab test for diagnosis and treatment.

If you are an independent or physician office lab that receives significant portions of your revenue from the CLFS, you may wish to work with your McKesson Medical-Surgical Account Executive to perform a business review to help ensure the health of your lab and practice.

Here are some ways to help prepare your lab:

  • Value-based care: Physician office labs can recover some or all reimbursement decreases in improved patient satisfaction and quality that in-office testing can bring - two indicators that comprise reimbursement under new MIPS/MACRA incentive payments
  • Automate reporting requirements: Implement software systems that automate reporting to CMS for the test reimbursement data you receive from your payers to make compliance easier and more cost efficient
  • Improve your lab's efficiency: Perform a lab optimization analysis to help improve staff efficiency, and to determine the appropriate mix of diagnostic tests you should be performing for optimal reimbursement 

For more details about PAMA, visit CMS's PAMA Regulations webpage.

*Assumes each laboratory in these examples is a physician or independent lab with its own NPI, or is a hospital outreach lab that either has its own NPI or uses the hospital's NPI and uses the CMS-1450 14x Type of Bill to identify non-patient services to determine applicability

1: As defined under the Clinical Laboratory Improvement Amendments (CLIA) regulatory definition of a laboratory in 42 C.F.R. § 493.2

2: Section 105 (a) of the Further Consolidated Appropriations Act, 2020 (FCAA) and section 3718 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act

Be advised that information contained herein is intended to serve as a useful reference for informational purposes only and is not legal advice. This information is intended for use only by competent healthcare professionals exercising judgment in providing care. McKesson cannot be held responsible for the continued currency of or for any errors or omissions in the information.