Medicare Laboratory Payment Policy Now and in the Future (2000) / Chapter Skim
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6 Alternative Payment Methodologies
6 Alternative Payment Methodologies
Pages 116-143
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From page 116... ...
2Very little literature exists on the issues surrounding payment methodologies for clinical laboratory services. This chapter, therefore, draws heavily from the literature on paying for other health services providers, particularly physicians, and on general health services research.
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From page 117... ...
ELEMENTS OF A PAYMENT SYSTEM Type of Payment The committee recognizes the general advantages of prospective paymer~t and did not examine in depth any retrospective payment methods for clinical laboratory services. Definition Payment amounts can be determined on a retrospective or prospective basis.3 Retrospective payment means that the amount paid is determined by (or based on)
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From page 118... ...
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.
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From page 119... ...
would get Medicare business, which in turn could have tremendous implications for the numbers and types of laboratories that survive in future years. Physicians 4A related payment option would be to integrate Medicare laboratory payments into the fee schedule for physicians providing care under fee for service, not managed care.
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From page 120... ...
It also carries the risk of providers' inappropriately using lower-quality tests that are less costly and limiting the number of tests ordered so as not to exceed the constraints of the per capita payment. Because several hundred million outpatient clinical laboratory tests are processed annually by Medicare, using a monthly capitation payment for each participating laboratory would mean a significant reduction in HCFA's administrative burden and costs.
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From page 121... ...
A single national fee schedule, however, has the potential to be simpler to administer, more understandable to stakeholders, and more equitable among laboratory service providers. Discussion The following sections review two market-oriented approaches for developing fee schedules—competitive bidding and MEN- and two administrative approaches NLAs and the establishment of a resource-based relative value scale (RBRVS)
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From page 122... ...
The key to competitive bidding as a strategy for developing appropriate rates is in how the auction is actually structured. There are several design issues discussed below that could affect the operation of competitive bidding as well as the results.5 For purchasing clinical laboratory services, HCFA has developed various competitive bidding models that typically have the following features: Multiple contracts would be awarded to avoid the risk of bad performance.
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From page 123... ...
Conventional economic analysis, if applied to this issue, would suggest that competitive bidding could encourage lower costs and innovation by limiting existing firms' market power. The government expects that these prices would, in most cases, be lower than those it pays under the current laboratory fee schedule and thus produce a net savings in total expenditures for Medicare, but this is not certain.
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From page 124... ...
Competitive bidding would likely result in multiple fee schedules across the country and possibly even within separate bidding areas. This could add administrative complexities to the program and has the potential for laboratories in different areas to be treated unequally.
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From page 125... ...
A single, national fee schedule would be simpler to manage and explain to stakeholders than multiple fee schedules such as the current 56 carrier fee schedules or laboratory-specific schedules.
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From page 126... ...
Data on some tests within groups of closely related codes could be used to estimate values for those codes lacking data. Such a scale could readily be converted to dollar amounts for a single national fee schedule by the use of a dollar conversion factor and adjusted as necessary.
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From page 127... ...
Regardless of the approach adopted to establish relative values, a resourcebased fee schedule also needs a dollar conversion factor to translate the RVS into payment amounts. This combination of the RVS and the conversion factor determines the fee schedule's level of payments.
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From page 128... ...
HCFA incorporated a modest, reasonably simple, cost survey administered by mail, with phone follow-up, as part of its efforts to develop new practice expense relative values for the Medicare Fee Schedule for physicians. HCFA discontinued the survey because of the low response rate of less than 30 percent to the first round of the study.
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From page 129... ...
Data drawn from venous sources including audits, competitive bidding and negotiations, and actual costs and charges~an inform, challenge, and validate the decisions of a consensus panel. This approach has been used to establish physician work and practice expense values under the physician fee schedule and is the basis for periodic review of the entire fee schedule.
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From page 130... ...
The demonstration could be structured to provide data for establishing initial relative values and would not necessarily be repeated annually or implemented in a manner that ultimately excluded laboratories in the demonstration sites. Although the resulting prices from this competitive bidding demonstration would be used only to establish relative values, not actual payment rates, they could provide information for assessing whether Medicare is paying too little for laboratory services or is a relatively generous payer.
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From page 131... ...
Under current budget and legislative requirements, Congress may mandate that implementation of a new fee schedule for clinical laboratory services not increase program spending. Maintaining budget neutrality—ensuring the same level of spending for laboratory services under the new system as would have occurred under the system it replaced would impose constraints on the level of the initial conversion factor.
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From page 132... ...
Different payment methods will pose different administrative challenges related to the way they are structured. For example, the relative values in the Medicare Fee Schedule for physicians are now subject to review every five years by AMA's RVS Update Committee (RUC)
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From page 133... ...
For example, under a national fee schedule, payments could be adjusted for local differences in costs in order to promote provider equity. Such an adjustment would require decisions about the geographic units within which laboratory payments would be equal and about the most suitable price index or indices to use for adjusting payments.
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From page 134... ...
Close monitoring of the medical necessity of these claims might be necessary. Cost Sharing The committee concludes that because of the administrative costs and burdens it would impose and the limited effect it would have on reducing excess testing, cost sharing for laboratory services is inconsistent with its goals for a laboratory payment system that ensures beneficiary access and maintains administrative simplicity.
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From page 135... ...
lathe cost-sharing requirement for laboratory services was removed in 1984 as part of a compromise that required laboratories to accept assignment, direct billing, and the imposition of fee schedules set at 60 percent of the prevailing charge. Tooth issues were raised in testimony to the committee.
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From page 136... ...
Disadvantages of Beneficiary Cost Sharing Although the rationale given for the cost-sharing budget proposal is to prevent overuse of services, this is not the expectation. In fact, the expected savings would come mainly from shifting costs from Medicare to beneficiaries and laboratories, not from more appropriate use of laboratory services that would produce real savings for the health care system.
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From page 137... ...
MAKING IMPROVEMENTS A REALITY Designing Payment Policies Any change in payment methods can cause major concerns since the economic well-being of so many players is involved, but the apprehension and disruption accompanying such changes can be minimized. During HCFA's implementation of the Medicare physician fee schedule, observers noted that there were a number of aspects of the design and implementation phase that contributed to an apparently smooth process (Oliver, 1993; Smith, 1992~: .
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From page 138... ...
Also, an increase in some fees and a decrease in others, which could happen with a move to resource-based relative values, would balance out in laboratories with average Medicare utilization of services. Nevertheless, any changes are likely to have some impact on the operations of individual laboratories.
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From page 139... ...
The alternative of totally maintaining the status quo, with no changes to the current payment methodology, also has costs both for today and, even more, for the future (see Chapter 5 for an assessment of the status quo)
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From page 140... ...
A system that began with the NLA would create the opportunity to simplify some administrative procedures by eliminating certain functions related to the 56 carrier fee schedules. Alternatives for refining relative values, for instance, could require policy decisions about research contracts and surveys, how to refine market-based demonstrations, how to structure stakeholders' meetings, and how to solicit public comments.
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From page 141... ...
In the absence of evidence of such problems, it is likely that the industr,v has accommodated whatever payment distortions there are relative to costs under current policy. In this case, the less expensive, more pragmatic approach of a national fee schedule based on the NLAs may be justifiable as a first step toward a more coherent Medicare laboratory payment policy with minimal shortrun implications for the industry or beneficiaries.
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From page 142... ...
1986. Competitive Bidding for Durable Medical Equipment and Clinical Laboratory Services: A Review of Related Literature.
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From page 143... ...
Statement to the IOM Committee on Medicare Payment Methodology for Clinical Laboratory Services. Washington, DC.
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