Medicare Dx Payment System Will Be Market-Based, More Transparent Under New Law

Article preview from "The Gray Sheet"- April 3, 2014

A new law makes vast changes to how clinical laboratory tests will be reimbursed by Medicare over the long term. Although the changes ultimately may lead to payment reductions, both test kits makers and laboratories applaud the new provisions. Reimbursement will better reflect the value that lab tests bring to the health care system, they say.

Medicare Dx Payment System Will Be Market-Based, More Transparent Under New Law

Article preview from "The Gray Sheet"- April 3, 2014

Major reforms to the Medicare system for diagnostic tests signed by the president April 1 are expected to reduce overall payments for tests in the coming years, but both test kit manufacturers and clinical laboratories are optimistic about the new law.

Their reasoning: the new provisions include protections from overly drastic cuts, while greatly expanding transparency and public input into a historically opaque reimbursement process. Fundamentally, industry stakeholders say, the law now provides more opportunity for diagnostic tests to distinguish themselves based on value.

“I don’t think it is overstating to say that this is an historic change,” said Andrew Fish, executive director of AdvaMedDx, in an interview. Fish noted that it is the first time Congress has made changes “to better reimbursement for diagnostics” since the clinical laboratory fee schedule was established in 1984.

The provisions were inserted into a broader physician payment bill soon before the legislation passed the House and Senate in the final days of March. But many of the provisions had been circulating in Congress for years, including some language that first showed up the MODDERN Cures Act, which surfaced in 2011. AdvaMedDx played a major role in developing the diagnostic portions of that earlier bill in collaboration with the National Health Council. 

One fundamental change in the new law, however, was not included in MODDERN Cures. The legislation transforms the lab reimbursement process to a market-based system, where the rates paid by private payers to labs are periodically reported to CMS and then used to by the agency to directly calculate Medicare rates. This will replace the current system where annual national test payment updates are established based on a combination of inflation, local rates and other factors, and have, in the past, often been frozen or cut by Congress.

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