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The Centers for Medicare and Medicaid Services (CMS) is proposing more than $600 million in cuts to laboratory reimbursements beginning January 1, 2018, with total cuts rising to as much as $1.5 billion annually compared to current reimbursement levels by 2020. These cuts are part of a flawed implementation of the Preserving Access to Medicare Act (PAMA) passed in 2014.

Over ten years, the cuts may total as much as $13 billion, which is more than three times the estimate of $3.9 billion Congress originally anticipated.
The impact of cuts to the Clinical Laboratory Fee Schedule (CLFS) will fall disproportionately on nursing homes served by local hospitals, small independent laboratories, and laboratories in physician offices, as well as Medicare-dependent hospitals and community hospitals in rural areas. 
Having committed the agency to a deeply-flawed data collection process, CMS has now drafted a distorted fee schedule built on questionable data collected from just five percent of the laboratories in the United States. CMS admits that just 1.85 percent of data was collected from laboratories serving rural areas.
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Large, national laboratories efficiently deliver an important component of laboratory services, but function using entirely different models of care and reimbursement than laboratories serving local communities. Smaller, local, independent, physician office and hospital laboratories, functioning closest to the patient and clinician, provide services for nursing home residents, patients requiring frequent testing for management of chronic conditions like diabetes and hypothyroidism, same day information for oncologists to treat their patients undergoing chemotherapy or those suffering from infections that require rapid detection and identification for proper monitoring and treatment. 
To serve the needs of their patients, local laboratories provide more rapid results drawn from more specialized test menus without economies of scale. The methods used by CMS to collect and interpret an incomplete dataset without validation excluded the possibility of measuring those differences.
Cuts to the CLFS will have a ripple effect through private insurers and other government payors like Medicaid, which use the CLFS to set their own rates. The outpatient laboratory service system in the United States could see a reduction in total annual reimbursements by as much as 25 percent over the next three years. 
The result will be a dramatic reduction in available testing and access to laboratory services for patients and clinicians. The cuts will also result in a near elimination of capital investment in the latest technologies needed to improve care.
While these cuts directly impact outpatient services, because some of these laboratories share resources within hospitals, there will be a spillover effect to inpatient care because laboratories will no longer be able to afford the breadth of testing offered now, especially in rural areas. 
Last year, the 21st Century Cures Act passed Congress with broad, bipartisan support, to usher in the advent of precision medicine. Implementation of PAMA, as it is currently structured, will cut off access to the vital laboratory data that underpins this emerging approach to delivering healthcare.
Congress must act to prevent their constituents from losing access to these critical, life-saving medical services.

Deeply Flawed Approach by CMS

Based on the implementation by CMS, Congress could have called this law the Preventing Access to Medicare Act.  Choices made by the agency throughout this process were designed to lock out entire service sites and limit patient access to appropriate laboratory services. CMS chose to:
  • Define which laboratories would report data in the narrowest possible terms, resulting in 90% of reported data coming from independent laboratories. Hospitals and physician office laboratories provide 44% of Medicare services but represent just 8.5% of the reporting entities. Less than 1 percent of hospitals and physician office laboratories reported data. In 2016, HHS Office of Inspector General predicted 3,500 laboratories would report data, but 55% of that number actually did.
  • Change reporting requirements and deadlines multiple times and then ignore concerns that reported data lacked any verification process, resulting in a data set that includes erroneous data points, dramatic outliers and magnitudes of difference between the calculated mean and median. 
  • Ignore the intent of Congress and publish rates for some highly used codes that will cut actual reimbursement by as much as 40% next year. For those HCPCS codes without a National Limitation Amount (e.g. 80061 Lipid Panel), CMS failed to set a reasonable benchmark for what laboratories are currently being reimbursed, and instead, proposes implementing the full cut in a single year.
The laboratory community has warned CMS and Congress during this entire process that the implementation was improperly managed. The agency’s own analysis shows significant numbers of reporting entities don’t appear to meet the definition of applicable laboratories. The analysis also show entities that submitted inaccurate data. CMS exhibited a pattern of excluding data that would have increased the weighted median, but included questionable data that lowered the weighted median.
In September 2016, The Department of Health and Human Services Office of Inspector General shared its concern about a lack of data validation. “Absent processes to verify whether applicable labs report their data or to verify the quality of data that labs report, CMS may set inaccurate Medicare payment rates for lab tests. PAMA required CMS to set Medicare payments rates for lab tests by using a market-based approach… If CMS does not have appropriate safeguards to ensure that all applicable labs report complete and accurate data, it may result in new Medicare payment rates that are inaccurate.” (OEI-09-16-00100)
It is worth noting that CMS, trying to blunt criticism, performed “simulations” of broader reporting of data and claims that additional reporting would have not made a “significant impact.” However, the simulations ignore the fact that unreported data would likely be at higher payment rates, making the simulations entirely useless as a predictor of the actual market. The reported “simulations” are designed to distract Congress and the public from the mistakes the agency made during implementation.
Congress may have anticipated these issues. Within the law, Congress directs the General Accounting Office (GAO) to perform a study of the PAMA implementation that examines payment rates across laboratory settings (including laboratories that furnish low volume services), the response from private payors, the impact on beneficiaries, and whether the data “accurately reflects market prices.” Congress should accelerate the timeline for this report.
The wide-ranging impact these cuts will have on the entire healthcare system are too grave to base them on incomplete and unverified data. Congress must seek a delay and direct GAO to study the implementation immediately.


Through the chairs of the Senate Finance, House Ways and Means and House Energy and Commerce committees, Congress must communicate to the Administration that these misguided cuts must not be implemented. Delay is critical until CMS can work with stakeholders to demonstrate the agency can properly collect and validate data that accurately reflects the market.

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