Medicare Using Private Payor Prices to Set Payment Rates for Clinical Diagnostic Laboratory Tests Starting January 2018

On June 17, 2016, CMS announced the release of its final rule implementing section 216(a) of the Protecting Access to Medicare Act of 2014 (PAMA). This final rule requires reporting entities to report private payor rates paid to laboratories for lab tests, which will be used to calculate Medicare payment rates. Starting in 2016 reporting entities reported private payor rates and test volumes to set payment rates for Clinical Diagnostic Lab tests used by Medicare.  

Who is Required to Report?

A laboratory, (as defined in CMS’s Clinical Laboratory Improvement Amendments of 1988 (CLIA) regulations) is required to report if the lab received at least $$12,500 in Medicare revenues, or if more than 50 percent of its total Medicare revenues are received from payments under the CLFS and physician fee schedule (PFS).

For the first year laboratories collect private payor data from Jan 01, 2016 through June 30, 2016, and report it between January 01, 2017 and March 31, 2017. CMS will use these fees to calculate and post new rates by Early November 2017 (equal to the weighted median of private payor rates for each test). This will take effect January 01, 2018.

Payment Reductions 

With the Federal rule and PAMA Regulations, there is a payment reduction required that will change each year. In 2018 CMS updated their lab fees to one national standard amount. 

The following example shows how CMS will implement the payment reduction limit:

If an existing test under the CLFS for CY 2017 has a payment rate of $20, but the weighted median private payor rate calculated during CY 2017 for CY 2018 (using January 1, 2016, through June 30, 2016, data) produces a payment rate of $15, then for CY 2018, the CLFS payment rate for the test becomes $18 ($20 minus $2), the maximum 10 percent reduction allowed from the prior year’s price.

The following year, a 10 percent reduction would equal $1.80, lowering the total payment to $16.20 for CY 2019. The maximum reduction percentage allowed by the statute would continue to apply to the prior year’s payment until the reduction becomes less than the applicable percentage (10 percent or 15 percent), after which the fee schedule payment will reflect the weighted median of the private payor rates for the test.

There were 60 codes which had a zero value and/or insufficient data was reported, therefore, there was no change or a way to calculate a private payor rate, some due to new codes and some codes had nothing reported.   

Codes that are cross-walked or gap filled. 

List of codes with no Data reported or insufficient data to calculate a weighted median private payor rate.

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