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New lab fee schedule may overbill Medicare, Grassley warns


The Senate’s veteran watchdog is taking HHS’ top officials to task over a report that Medicare’s new laboratory fee schedule could cost the federal government billions of dollars more than is necessary.

Senate Finance Chair Chuck Grassley (R-Iowa) this week pressed HHS Secretary Alex Azar and CMS Administrator Seema Verma on a November Government Accountability Office report that questioned the CMS’ methods in calculating the new lab payment rates.

The CMS launched its new fee schedule at the start of last year after a 2014 mandate from Congress to cut the payment rates. The overhaul was supposed to save Medicare money since the government was paying far more for lab tests than commercial insurers.

Grassley demanded detailed answers on the CMS’ plans to tweak the fee schedule, and asked Azar and Verma to respond by Feb. 6.

The senator highlighted the GAO’s biggest projected cost within the new system: newly unbundled payments for panel tests. Now that the CMS has dropped bundled payments, Medicare could overspend by as much as $10.3 billion, according to GAO.

“The estimated cost to taxpayers as a result of that decision is staggering,” Grassley said.

The CMS told the GAO the agency was still trying to determine it had the authority to keep that model.

Another issue Grassley focused on was the CMS’ decision to base its new rates on the maximum Medicare payments rather than an average. The GAO had found that because of this decision the federal government is already paying more for some tests than it did under the old system.

On top of this, the CMS built the new fee schedule on an incomplete financial picture after the agency wasn’t able to collect payment data from all the laboratories it was supposed to. HHS appears to be trying to remedy this with more stringent reporting requirements, Grassley wrote, but “it is unclear whether or not these efforts are yet underway.”

Clinical laboratories unsuccessfully sued last year over their projected $4 billion revenue cut over the next decade.

After the GAO released its report in November, the head of a trade group representing these laboratories blasted the findings as “fundamentally flawed and inaccurate,” reflecting “a serious misunderstanding of standard industry practice for laboratory reimbursement.”

In response to a request for comment on Grassley’s interest in the issue, the American Clinical Laboratory Association referred to this statement from the group’s president Julie Khani.

“For the last two years, clinical laboratories have sustained year-over-year multi-million dollar cuts as a result of a haphazard data collection process from the Centers for Medicare and Medicaid Services,” Khani said. “It’s time for the administration and Congress to address these persistent and glaring PAMA data issues that continue to threaten access to the lifesaving tests and diagnostics for seniors.”

The size of the U.S. clinical laboratory market isn’t known. The Healthcare Fraud Prevention Partnership estimated the industry garnered $87 billion in 2017, and a separate market report estimated revenues were $75 billion in 2016.

Estimates also vary over how the three most lucrative lab types split the money Between 37% and 54% of the total lab revenue has gone to independent labs in recent years, according to GAO. Between 21% and 35% goes to hospital-outreach labs, and 4% to 11% go to physician-office labs.