Medicare Laboratory Payment Policy: Now and in the Future (2000)

ABN

Advanced Beneficiary Notice

ACLA

American Clinical Laboratory Association

AHRQ

Agency for Healthcare Research and Quality

AMA

American Medical Association

AST

aspartate transominase

BBA

Balanced Budget Act, 1997

BBRA

Balanced Budget Refinement Act, 1999

CAC

Carrier Advisory Committee

CAGR

compound annual growth rate

CBO

Congressional Budget Office

CDC

Centers for Disease Control and Prevention

CHPS

Center for Health Policy Studies, Columbia, Maryland

CK

creatine kinase

CLIA

Clinical Laboratory Improvement Act, 1967; Clinical Laboratory Improvement Amendments, 1988

CLMA

Clinical Laboratory Management Association

COBRA

Consolidated Omnibus Budget Reconciliation Act, 1985

CPEP

Clinical Practice Expense Panel

CPI

Consumer Price Index

CPK

creatine phosphokinase

CPT

Current Procedural Terminology

CSC

Central Statistical Carrier

CY

calendar year

DEFRA

Deficit Reduction Act, 1984

DHHS

Department of Health and Human Services

DME

durable medical equipment

DNA

deoxyribonucleic acid

DRG

diagnosis-related group

EIA

enzyme immunoassay

EKG

Electrocardiogram

ESRD

end-stage renal disease

FDA

Food and Drug Administration

FI

fiscal intermediary

FMR

focused medical review

FY

fiscal year

GAO

General Accounting Office

GGT

γ-glutamyl transferase

HCFA

Health Care Financing Administration

HCG

human chorionic gonadotropin

HCPCS

HCFA Common Procedural Coding System

HIMA

Health Industry Manufacturers Association, now AdvaMed

HIV

human immunodeficiency virus

HMO

health maintenance organization

HPSA

health professional shortage area

ICD-9-CM

International Classification of Diseases, Ninth Revision,

Clinical Modification

Ig

Immunoglobulin

IOM

Institute of Medicine

IT

information technology

LIS

Library Information System

LMRP

local medical review policy

MCAC

Medicare Coverage Advisory Committee

MedPAC

Medicare Payment Advisory Commission

MFN

most favored nation

MIC

minimum inhibitory concentration

Neg

Reg negotiated rulemaking process

NLA

National Limitation Amount

OBRA

Omnibus Budget Reconciliation Act of 1980

OIG

Office of Inspector General, (DHHS)

OMB

Office of Management and Budget

OSHA

Occupational Safety and Health Administration

PCR

polymerase chain reaction

PMA

Pre-Market Approval (FDA)

POCT

point-of-care testing

POL

physician office laboratory

POS

point of service

PMPM

per member per month

PPE

personal protective equipment

PPM

provider performed microscopy

PPO

preferred provider organization

PPRC

Physician Payment Review Commission

PPS

prospective payment system

PRO

peer review organization

PSA

prostate-specific antigen

PT

proficiency testing

QA/QC

quality assurance/quality control

RBC

red blood cell

RBRVS

Resource-based relative value scale

RLC

regional laboratory carrier

RUC

RVS Update Committee

RVC

relative value scale

SGOT

serum glutamic-oxalvacetic transaminase

SGPT

serum glutamic-pyruvic transaminase

SGR

sustainable growth rate

SIC

Standard Industrial Classification

SNF

skilled nursing facility

SSA

Social Security Act, Social Security Administration

TAT

turnaround time

TSH

thyroid-stimulating hormone

UCR

usual, customary, and reasonable

VA

Department of Veterans Affairs

WBC

white blood cell

Accession:

The process of identifying a specimen and entering a unique specimen identifier into laboratory records.

Accredited laboratory:

A laboratory that has voluntarily applied for and been accredited by a private, nonprofit accreditation organization approved by HCFA in accordance with 42 CFR Part 493.

Add-on test:

A test ordered on the same sample after the initial tests have been conducted.

Advanced Beneficiary Notice:

A written form used to notify a beneficiary, prior to being tested, that Medicare may deny payment if the test is not medically necessary and the beneficiary will be financially responsible.

Aliquot:

The small portion of a specimen taken for an assay.

Analyte:

A substance or constituent for which a laboratory conducts testing.

Approved State Laboratory Program:

A licensure or other regulatory program for laboratories in a state, whose requirements are imposed under state law, that have received HCFA approval based on the state’s compliance with 42 CFR Part 493.

Assay:

The analysis of the purity of a substance or determination of the amount of any particular constituent in a mixture.

Assignment:

An agreement by a provider (physician or supplier) to accept a Medicare beneficiary’s rights to benefits under Supplementary Medical Insurance (Part B), to bill the Medicare carrier rather than the patient, and to accept Medicare’s approved charge paid by the carrier as payment in full (excluding the beneficiary’s 20 percent coinsurance and the deductible). The provider may then bill the beneficiary only for any applicable coinsurance and deductible.

Balance billing:

A type of cost sharing under Medicare whereby a beneficiary is responsible for the difference between the physician’s submitted charge and the Medicare-allowed charge on unassigned claims, up to a maximum permitted by Medicare.

Beneficiary:

An individual entitled to receive Medicare services.

Budget neutrality:

Adjustment of payment rates when policies change so that total spending under the new rules is the same as it would have been under the previous payment rules.

Bundling:

The use of a single payment for a group of related services.

Capitation payment:

A method of paying for medical care by a prospective per capita payment that is independent of the number of services received.

Carrier:

An organization that has contracted with DHHS to process and pay approved physician and supplier claims, and perform other services under Medicare Part B.

Case mix:

A measure of the mix of cases being treated by a particular health care provider that is intended to reflect the patients’ different needs for resources. Case mix is generally established by estimating the relative frequency of various types of patients seen by the provider in question during a given period and may be measured by factors such as diagnosis, severity of illness, utilization of services, and provider characteristics.

Central Statistical Carrier:

Mandated by the 1997 BBA, the CSC would be designated from the consolidated regional laboratory carriers to conduct analyses of claims data. This has yet to be implemented.

Charge-based relative value scale:

A value scale based on the relationship between current charges for various services.

Chemical hygiene plan:

A plan for addressing the specific hazards found in a laboratory and its approach to dealing with them which is required of any laboratory that uses hazardous chemicals.

Clinical Laboratory Improvement Act/Amendments, 1988:

Passed in 1967 and amended in 1988, the purpose of CLIA is to ensure the accuracy, reliability, and timeliness of patient test results regardless of where the test is performed. The statute defines a laboratory as any facility that examines human specimens for the diagnosis, prevention, or treatment of any disease or impairment of, or the assessment of the health of, human beings. Any facility

that meets this definition must have the appropriate CLIA certificate to perform laboratory tests if it wants to participate in Medicare or Medicaid. To obtain the certificate, state or federal inspectors must survey the laboratory. All suppliers and providers that perform laboratory testing, even if no laboratory per se is part of the facility, must also hold the appropriate valid CLIA certificate and meet applicable CLIA requirements for the testing offered.

CLIA-exempt laboratory:

A laboratory that has been licensed or approved by a state where HCFA has determined that the state has enacted laws relating to laboratory requirements that are equal to or more stringent than CLIA requirements and where the state licensure program has been approved by HCFA in accordance with subpart E of 42 CFR Part 493.

Clinical laboratory services:

A subset of overall laboratory services, these are tests conducted to diagnose a disease, screen a patient to identify abnormalities, or monitor a patient’s condition.

Coinsurance:

Also called copayment, the percentage of covered hospital and medical expenses, after subtraction of any deductible, for which an insured person is responsible. Under Medicare Part B, after the annual deductible has been met, Medicare will generally pay 80 percent of approved charges for covered services and supplies; the remaining 20 percent represents the coinsurance, which the beneficiary pays. Laboratory services are currently exempt from coinsurance.

Competitive bidding:

A pricing method that elicits information on costs through a bidding process to establish payment rates that reflect the costs of an efficient health plan or health care provider.

Compliance Program Guidance:

Revised version of the Model Compliance Plan for Clinical Laboratories, published by the DHHS Office of Inspector General (63 Fed. Reg. 45076, Aug. 24, 1998).

Conversion factor:

The multiplier used to translate relative value units into dollar amounts for payments under a fee schedule.

Copayments:

Flat fees, typically modest, that insured persons must pay for a particular unit of service, such as an office visit, an emergency room visit, or having a prescription filled. (See coinsurance.)

Cost sharing:

The generic term that includes copayments, coinsurance, and deductibles; also, out-of-pocket payments.

Cost shifting:

Increasing revenues from some payers to offset losses and lower net payments from other payers.

Cross-walking:

When HCFA determines that a new test is sufficiently similar to an existing code, it may assign a National Limitation Amount for payment based on payment data from an existing code.

Current Procedural Terminology code:

A code indicating the particular procedure that is performed, based on the Physicians’ Current Procedural Terminology, published by the American Medical Association. CPT codes for laboratory services range from 80049 through 89300.

Diagnosis-related groups:

Entries in a taxonomy of types of hospitalization based on groupings of diagnostic categories drawn from the International Classification of Diseases and modified by the presence of a surgical procedure, patient age, presence or absence of significant morbidities or complications, and other relevant criteria. DRGs have been mandated for use in establishing payment amounts for individual admissions under Medicare’s prospective hospital payment system as required by the Social Security Amendments of 1983 (Public Law 98–21).

Diagnostic test:

A test that searches for the presence of an infectious organism, such as a virus or parasite, may find pathology such as cancerous cells, or may help distinguish between different possible causes of a symptom.

DNA marker:

A specific gene sequence within a chromosome, indicating the inheritance of a certain trait.

Episode of care:

This term is most often used in reference to the monetary costs of an individual’s sickness. It includes length of care in special care unit or hospital, nursing care costs in the hospital, professional and technical services, physician services, respiratory services, respiratory therapy, pharmaceuticals, intravenous therapy, collateral diseases, and complications.

Esoteric test:

A relatively uncommon test that is often complex and expensive to conduct or depends on specialized interpretative skill. Laboratories that specialize in esoteric testing are usually affiliated with a university or research institution but may also be independent.

Federal Advisory Committee Act:

Section 15 of the Federal Advisory Committee Act, signed into law in 1997, clarifies public disclosure requirements that are applicable to the National Academy of Sciences (NAS). Under these amendments, the NAS is required to implement measures that make its processes more accessible to the public while still preserving its independence from government control.

Fee-for-service:

A type of plan under which the provider is paid for each service or bundle of services provided.

Fee schedule:

A method of paying for medical care that prospectively sets out the fees to be paid for each service provided.

Fiscal intermediary:

An organization (usually an insurance company) that has an agreement with HCFA under Medicare Part A to process claims and perform related functions.

Focused medical review:

Designed to identify patterns of inappropriate or unnecessary testing, this evaluation could be targeted at particular laboratories and physicians, selected geographic areas, or specific tests that are expected to yield a high return.

Gap-filling:

The process of collecting data on the amount that labs are charging in order to establish the payment rate for a new code.

Genetic test:

A test that is able to detect a gene mutation, either inherited or caused by the environment.

HCFA Common Procedural Coding System:

In popular usage, a national code established by the Health Care Financing Administration. HCPCS include three tiers: Level I consists mainly of CPT codes; Level II, national codes assigned by HCFA; and Level III, codes that are locally assigned.

Health Care Financing Administration:

The federal agency within the U.S. Department of Health and Human Services that administers the Medicare and Medicaid programs.

Health maintenance organization:

An organization that delivers and manages health services under a risk-based arrangement. The HMO usually receives a monthly premium or capitation payment for each enrollee that is based on a projection of what the typical patient will cost.

Health professional shortage area:

An urban or rural geographic area, population group, or public or nonprofit private medical facility that the Secretary of Health and Human Services determines is being served by too few health professionals.

Hospital laboratory:

A laboratory located in or operated by a hospital or its organized medical staff.

ICD-9-CM code:

A five-digit code indicating a patient’s diagnosis that is based on the International Classification of Diseases, Ninth Revision, Clinical Modification. Contractors may require ICD-9 codes as evidence of medical necessity for specific testing.

Independent laboratory:

A laboratory that is independent of both an attending and consulting physician’s office and a hospital.

Inflation factor:

The variable used for updating fee schedules, which Congress determines during the budget reconciliation process. It can be used to reflect changes in the general economy and in the input costs for producing laboratory services.

Laboratory:

A facility for the virological, microbiological, serological, chemical, immunohematological, hematological, biophysical, cytological, pathological, or other examination of materials derived from the human body for the purpose of providing information for the diagnosis, prevention, or treatment of any disease or impairment of, or the assessment of the health of, human beings. These examinations also include procedures to determine, measure, or otherwise describe the presence or absence of various substances or organisms in the body. Facilities that only collect or prepare specimens (or both) or only act as a mailing service, and do not perform tests are not considered laboratories.

Local medical review policy:

A policy developed by a carrier or fiscal intermediary that establishes the circumstances under which a particular procedure, such as a laboratory test, will be considered medically necessary.

Managed care organization:

Any third-party payer that employs cost-control or utilization-control mechanisms to direct the use of health care services.

Medicare Carrier Jurisdiction:

One of 56 carrier regions or jurisdictions, each of which is roughly equivalent to a state, with some larger states divided into smaller regions.

Medicare contractor:

A commercial insurance company or a Blue Cross/Blue Shield plan that contracts with HCFA to process claims. For Part A providers, contractors are called “fiscal intermediaries;” for Part B providers they are called “carriers.”

Medicare Part A:

The portion of Medicare that covers services provided by hospitals, skilled nursing facilities, hospices, and some home health services.

Medicare Part B:

The portion of Medicare that covers physician services, hospital outpatient services, laboratory services, and others.

Medicare Part C (Medicare+Choice):

A new part of Medicare authorized by the Balanced Budget Act of 1997, intended primarily to expand managed-care coverage options for beneficiaries. It replaced the existing system of Medicare risk and cost contracts. It enables beneficiaries to enroll in a coordinated care plan (HMO, PPO), a private fee-for-service plan, or a high-deductible plan with a medical savings account.

Model Compliance Plan:

Original version of the guidance for laboratories on compliance issues promulgated in 1997 by the OIG.

Monitoring test:

A test that is used to track disease progression or improvement, identify side effects and complications, monitor drug levels, or assess prognosis.

Most favored nation:

A title borrowed from the language of international trade. It refers to a system whereby laboratories would provide services to Medicare beneficiaries for the lowest rate they accept from any other payer.

Nanotechnology:

The science of building miniature devices out of small particles such as individual atoms, molecules, viruses, or cells.

National Fee Schedule:

An idea proposed to replace the 56 current Medicare laboratory fee schedules.

National Limitation Amount:

A percentage of the median of all carriers’ fees that is used as a cap for Medicare reimbursement.

Negotiated rulemaking:

An innovative rulemaking process that brings the government together with interested parties in an attempt to agree on the terms of a proposed rule. Use of this process was mandated by the 1997 BBA to establish uniform coverage, payment, and administrative policies for clinical laboratory services under Medicare Part B.

Outreach testing:

Testing conducted in a hospital laboratory for nonhospital patients.

Personal protective equipment:

Gear worn by health care workers and laboratory personnel to minimize the transmission of infectious diseases.

Pharmacogenomics:

A method of prescribing based on the following: because an individual’s genes affect the response to medications, a physician may base prescribing decisions on the patient’s genetic makeup.

Phenotype:

The physical expression of a trait or characteristic as determined by an individual’s genetic makeup, or genotype.

Physician office laboratory:

A clinical laboratory in a physician’s office.

Point-of-care test:

A test conducted by a health professional during a patient encounter. Test results are typically available a few minutes after the specimen is collected.

Polymerase chain reaction:

An esoteric test that uses specialized techniques to amplify the amount of DNA in the sample specimen.

Preferred provider organization:

An arrangement between a provider network and a health insurer or a self-insured employer. Providers generally accept payments less than the traditional fees-for-service payments in return for a potentially greater share of the patient market.

Prospective payment system:

Payment for medical care on the basis of rates established before the period in which they apply. The unit of payment may vary from individual medical services to broader categories, such as hospital case, episode of illness, or person (capitation).

Provider:

A facility, clinical laboratory, supplier, or physician who furnishes medical services to beneficiaries.

Pull-through:

A situation in which a laboratory undercuts its own pricing structure to win capitated managed care contracts in the hope that participating managed care physicians will also use the laboratory’s services for their non-managed care patients.

Reference laboratory:

A laboratory that conducts tests for other laboratories; reference laboratories are usually large and may be independent or hospital based.

Reflex test:

A test reordered by a physician after an abnormal test result.

Relative value scale:

An index that assigns weights to each medical service; the weights represent the relative amount to be paid for each service.

Research test:

A test in which specimens are examined for the purpose of understanding a condition better or developing a clinical test.

Resource based relative value scale:

A system that bases payment on the relative amount of resources required to provide a service—a common payment method for physicians’ services.

Retrospective payment system:

One in which the actual payment amount is based on costs or charges and is not known at the time of service.

Screening test:

A test that helps a physician find abnormalities, regardless of whether the patient exhibits symptoms.

Sole community hospital:

A hospital that is located 25–35 miles from other similar hospitals, serves at least 75 percent of the local residents needing

such inpatient care, and meets the detailed criteria contained in 42 C.F.R., Part 412.92.

STAT:

Literally, at once. Medically, this refers to tests that are expedited for immediate processing and return of results.

Sustainable growth rate:

The target rate of expenditure growth set by the SGR system incorporated in the Medicare fee schedule for physicians.

Sustainable growth rate system:

A revision to the volume performance standard system, enacted as part of the BBA of 1997, that serves as the mechanism for setting fee updates for the Medicare fee schedule. It uses a single conversion factor and bases target rates of growth on growth of gross domestic product and other factors.

Technical laboratory personnel:

Highly trained or technically certified individuals capable of advanced processing or evaluation of laboratory tests.

Turnaround time:

The amount of time that elapses from the initiation of a laboratory test until results from that test are reported to the clinician or patient.

Unbundling:

Charging individually for tests that should be billed as a panel at a lower aggregate rate.

Update factor:

The year-to-year increase in the Medicare base payment amounts for providers such as PPS hospitals and dialysis facilities and in the target amounts for PPS-excluded hospitals and units.

Venipuncture:

Surgical puncture of a vein, generally to draw a blood sample for testing.

Waived test:

A laboratory test defined by CLIA standards that can be conducted with minimal chance of error.

Health Care Financing Administration. Health Standards and Quality Bureau. 1994. Laboratory Surveyor Training Manual. Washington, DC.

Kazon, P.M. 1999. Doing Business with Medicare: A Policy Guide for Clinical Laboratory Testing, Washington, DC: Washington G-2 Reports.

U.S. Congress, MedPAC, 1999. Report to the Congress: Medicare Payment Policy. Washington, DC: Medicare Payment Advisory Commission.

U.S. Congress, Office of Technology Assessment. 1986. Payment for Physician Services: Strategies for Medicare. OTA-H-294. Washington, DC: U.S. Government Printing Office.