tals not yet covered by a prospective system. Medicare pays for physicians’ services on a prospective basis and for laboratory services, defacto, on a prospective basis.

Comparative Assessment

A retrospective payment system gives providers greater influence over payment rates than they generally have under PPS. In turn, it reduces the payers’ ability to constrain expenditure growth. The use of prospective payment leads to more predictable payment levels for payers, patients, and providers and is typically associated with simpler administrative systems. Prospective payment systems also provide an opportunity for the payer to exercise some control over total spending through such mechanisms as constraints on updates and volume adjustments.

Unit of Payment

The committee concludes that the risks of a capitated payment for laboratories outweigh its advantages of administrative simplicity and efficiency and that payment per service or test is preferable.


The unit of payment for laboratory services can be defined in several ways. It can reflect a single test or service, a group of services, or all potential services used by a beneficiary in a specified period (capitation). Under the current payment per test or service, tests are identified and classified through specific HCFA Common Procedural Coding System (HCPCS) codes, which encompass the American Medical Association’s (AMA’s) Current Procedural Terminology (CPT). A dollar amount is then set for each coded service. Under a method that groups services for payment purposes, related laboratory services are bundled. For example, panels of automated tests are bundled into groups and a payment amount is set for each group of tests. Under capitated payment, the provider is paid a fixed amount per beneficiary for a list of covered tests that may be medically necessary during a given time period. The payment is provided whether or not beneficiaries use any services.


Payment per Test. Each test or service has an assigned CPT code or HCPCS code in the case of Medicare. For most tests and services, it is clear to the laboratory which HCPCS code to use. Multiple testing methodologies for a single analyte or similar methodologies testing different analytes may be represented by a single code number, so assigning an appropriate payment amount can sometimes be problematic.

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