Much of the research for this chapter is based on evidence provided by testimony to the committee, interviews and discussions with many individuals within the Health Care Financing Administration (HCFA), Medicare contractors, other federal regulators, and numerous members of the laboratory industry and their associations. In addition, it relies on reports and data from the committee’s consultants, the General Accounting Office (GAO), the Office of the Inspector General (OIG) of the Department of Health and Human Services (DHHS), and the Clinical Laboratory Improvement Act (CLIA) program.


Before Medicare considers a new technology, the new test or technology must be reviewed by the Food and Drug Administration (FDA) to determine whether it is safe and effective. The FDA approval process does not consider costs, impact on disease treatment, or patient outcomes. In granting approval, the FDA is simply approving marketing. No representation is made to Medicare or any other insurer about whether the test is worth covering in its benefit package or how it should be used.

Of the approximately 1,000 new clinical laboratory tests and technologies that come to the FDA for review annually, about 99 percent are considered substantially equivalent to existing tests (Silva, 2000). These receive an abbreviated review called a 510K Pre-Market Notification and are approved if their performance is approximately 90–95 percent the same as that of the existing, comparable test (Medical Device Act). The few new tests that are significantly different from existing tests go through a more extensive Pre-Market Approval (PMA) process. For a PMA, the manufacturer must prove, through clinical studies, that the new test or technology is safe and effective.


Laboratory services are billed using the HCFA Common Procedural Coding System (HCPCS). HCPCS codes include the physicians’ Current Procedural Terminology (CPT) codes, which are controlled and published by the American Medical Association (AMA), plus local and national temporary codes assigned by contractors and HCFA. Some of these codes are used for billing other payers besides Medicare.

Coding Updates

Each year, CPT code changes include the addition of new tests, new panels, or changes in the composition of panels including tests previously coded individually. HCFA receives the AMA’s CPT changes in July, although some are known months earlier. HCFA physicians and other staff review the code changes during the summer and begin “mapping” the changes, based on guid-

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