Medicare Laboratory Payment Policy Now and in the Future (2000) / Chapter Skim
Currently Skimming:
4 Description of the Current Medicare Payment System and Its Historical Roots
4 Description of the Current Medicare Payment System and Its Historical Roots
Pages 75-99
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From page 75... ...
INTRODUCTION This chapter provides a guide to the current payment methodology and its historical roots, as well as a foundation for further analytical work in later chapters. Because payment policy for laboratory services is so deeply entwined with other policy issues such as how new tests are approved for marketing, assigned billing codes and Medicare coverage, and how claims are processed, the committee found that changes are needed in these areas to support the recommendations it makes about payment policy.
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From page 76... ...
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, 20004. 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)
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From page 77... ...
Tests that receive 510K approval from the FDA are more likely to be assigned an existing code. If a manufacturer believes a new test is significantly different from existing technology or has a significantly different cost than current payment rates for existing codes, the manufacturer is free to request a new code for the test from the AMA's CPT Editorial Panel.
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From page 78... ...
Based on industry urging, Congress included language in the 1997 Balanced Budget Act (BBA) requiring HCFA to consolidate its contractor functions for laboratories into four or five regional laboratory carriers (RLCs)
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From page 79... ...
MEDICARE COVERAGE POLICY Coverage policy is separate and distinct from payment policy, but directly affects the operation of the payment systems Payment for a particular service depends on Medicare recognition that the service is covered- that it is within the legislative mandate to provide medically necessary diagnostic and treatment services. Medicare specifically excludes some categories of health care, such as "A Medicare coverage decision, whether made nationally or locally, is a prospective, population-based, policy that applies to a clinical subset or class of Medicare beneficiaries and describes the clinical circumstances and setting under which an item or service is available (or is not available)
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From page 80... ...
About 10 percent of new Medicare items and services receive coverage decisions at the national level; the remaining 90 percent are handled locally by HCFA's contractors. Without coding and coverage decisions at the national level, contractors usually determine coverage policy for laboratory services.
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From page 81... ...
Laboratory personnel spend a considerable amount of time calling physicians to collect diagnostic information required for Medicare billing. Coverage determinations for new laboratory tests are a potpourri of statutory constraints, national coverage determinations, and local carrier decision making.
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From page 82... ...
Even if payments cover the costs of individual tests, they will not compensate for claims denials, which increase administrative costs, reduce the aggregate Medicare revenue for laboratories, and create bad debt. Medicare's national claims denial rates for the top 100 laboratory tests in terms of dollar volume ranged from 6 to 39 percent, according to 1998 HCFA claims data (Appendix E)
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From page 83... ...
Another complication is the legal ambiguity of physicians billing patients. Negotiated Rulemaking In an attempt to rationalize some of the variations in LMRPs, in 1998-1999 HCFA conducted a negotiated rulemaking, as directed by the 1997 Balanced Budget Act.3 The appointed committee developed national coverage policies for 3In a negotiated rulemaking process, a committee of representatives of stakeholders that may be affected by the rule, including agency representatives, is formed with the aim of reaching consensus on the content and text of a proposed rule.
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From page 84... ...
Prior to that time, covered laboratory services ordered by a physician and performed in the physician's office or in an independent laboratory were paid by Part B on a "reasonable charge" basis. Medicare payments to these laboratories were based on charges, not costs.4 Four primary calculations were used to determine the reasonable charge; the lowest of these four calculations was the "reasonable charge": 1.
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From page 85... ...
introduced radical changes to the payment methodology for Medicare Part B clinical laboratory services, including (1) establishment of area-wide fee schedules, (2)
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From page 86... ...
mandated that HCFA impose National Limitation Amounts (NLAs) for clinical laboratory fees beginning in July 1986.
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From page 87... ...
The answers to these questions determine the financial incentives that affect how health services are produced and consumed. An additional factor complicating the incentive structure for laboratory services is the fact that patients use services based on a referral from their physician.
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From page 88... ...
Under the Medicare outpatient clinical laboratory benefit, laboratory services are paid per service or test or per group of tests (panel)
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From page 89... ...
9A conversion factor is used to translate the relative values for Medicare's physician fee schedule into payment amounts. The initial conversion factor was set at a level expected to maintain aggregate Medicare physician payments at the same level physicians would have received under the prior system.
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From page 90... ...
, it appears that as much as 98 percent of all Medicare dollars paid for outpatient laboratory services are paid at the NLAs. In other words, NLAs may be the pricing amounts for more than 98 percent of laboratory claims' dollars; the NLAs appear to constrain more than 98 percent of Medicare's laboratory spending.
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From page 91... ...
Because the individual test pricing amounts are already limited by the NLAs, HCFA does not follow the standard test formula and select the median of the sums from all 56 carriers and reduce it by 26 percent; therefore, there are no NLAs designated for these panels. Congressionally Set Test Payment Levels Although Congress' main concern with the appropriateness of the level of allowed laboratory payments has been exhibited through reductions in the NLAs (changing the percentage of the median of carrier fees to be used as a cap)
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From page 92... ...
In addition to raising payment levels for specific tests, Congress can also reduce them. The administration's original FY 2001 budget included a proposal to reduce, by 30 percent, the NLAs for four very high volume tests that HCFA believes are currently overpaid: (1)
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From page 93... ...
When a new technology is assigned an existing code, the payment amount that is attached to that code will apply to the new technology. Alternatively, if HCFA determines that the new technology is similar to two existing codes, it may combine the existing payment amounts for those codes and apply it to the new test.
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From page 94... ...
and the physician fee schedule, both rely on administratively set update amounts that are supposed to reflect similar sets of legislatively prescribed factors. Lithe process of developing and recommending update factors is discussed in the March annual reports of the Physician Payment Review Commission (PPRC, 1990)
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From page 95... ...
a sole community hospital adjustment. Geographic Adjustment There is no explicit geographic adjuster in the current laboratory payment methodology because it is inherent in the use of 56 state-based carrier fee schedules.
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From page 96... ...
. Sole Community Hospital Adjustment Fees for laboratories based in qualified sole community hospitals currently receive a special adjustment.~3 Each year, the new fee schedules are published at the 60 percent level with separate instructions to carriers on how to calculate the fees at 62 percent for the qualified hospitals in their area.
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From page 97... ...
Although the BBA expanded the Secretary's authority for inherent reasonableness to include outpatient clinical laboratory fees and simplified the process, it has yet to be applied. The proposed process allows consideration of issues such as whether the payment amount reflects changing technology, increased facility with that technology, or reductions in acquisition or production costs; the Medicare amount is substantially higher or lower than the payment made for the item or service by other purchasers; the marketplace is not competitive; there are grossly inappropriate geographic variations in payment amounts; and there have been increases in payment amounts that cannot be explained by inflation or technology.
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From page 98... ...
The SGR applies only to physician payments and does not affect the outpatient clinical laboratory payment methodology, the calculation of laboratory payment rates, or Medicare spending on laboratory services in any way. CONCLUSION This chapter has examined the elements of the Medicare clinical laboratory payment system in some detail.
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From page 99... ...
2000a. Proposed Rule: Medicare Program; Negotiated Rulemaking: Coverage and Administrative Policies for Clinical Diagnostic Laboratory Services.
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