One way to interpret these results is to use them to anticipate the implications of an NLA-based fee schedule. Based on these estimates, an across-the-board NLA reduction of about 1.5 percent would be necessary to create a budget-neutral lab fee schedule based on current NLAs. Conversely, Medicare outpatient lab spending would increase about 1.5 percent if all payments were raised to the NLA.

This estimate is based only on those high-cost or high-volume services that account for most of Medicare spending. The unweighted estimate for all services implies that a reduction of about 4 percent would be necessary, but this is an upper bound that is likely to dramatically overstate the correct amount. Although 1.5 percent is a lower bound, the correct adjustment will lie much closer to 1.5 than to 4 percent, because of the large share of spending accounted for by the services studied. More accurate estimates could be calculated easily from data on total spending for all codes or, better still, service volumes for each code in each region. The present estimates, however, provide fairly strong evidence that Medicare’s present payment policy is, in effect, an NLA-based fee schedule.

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