October 2, 2015

Medicare Proposes New Payment System for Clinical Lab Tests, But Leaves Many of Labs' Questions Unanswered


On September 25, 2015, the Centers for Medicare and Medicaid Services (CMS) released a proposed regulation that describes the agency's plan for implementing § 216 of the Protecting Access to Medicare Act of 2014 (PAMA). PAMA makes significant changes to Medicare's payment rates to clinical laboratories on the Clinical Lab Fee Schedule (CLFS). It requires applicable laboratories, a set of laboratories defined in the proposed rule, to report to the federal government information on the payments they receive from private payers for tests on the CLFS. CMS will use the private payer data to calculate a weighted median payment for each test, which will replace Medicare's current CLFS rates beginning January 1, 2017. For most tests, clinical laboratories will report private payer information every three years, and CMS will update those CLFS rates accordingly. However, for a subset of molecular diagnostic tests called Advanced Diagnostic Laboratory Tests (ADLTs), sponsors would report data on private payer rates, and Medicare payment would be updated, every year.

Proposed Schedule for Initial Implementation

Step Timing
"Data collection period" - Information on laboratory services delivered during this period will be reported and reflected in rate setting July 1 to December 31, 2015
"Data reporting period" during which laboratories will report data to CMS January 1 to March 31, 2016
CMS will develop new rates April 1 to November 2016
CMS will publish new rates November 2016
New rates go into effect January 1, 2017


CMS suggests that it may make available preliminary rates for comment in September 2016, but it does not discuss this possibility in any detail.

Under the new system, Medicare's payments for clinical diagnostic laboratory tests (CDLTs) will be tied to rates paid by private insurers and Medicare and Medicaid managed care plans, rather than to providers' costs (which are used as inputs to determine Medicare payment rates for most other healthcare services). It is generally expected that Medicare payment rates for CDLTs, which, under pre-PAMA law, are generally static and based on outdated cost data, will fall over time because private payer rates are determined by competition among laboratories and reflect current cost and resource requirements as well as economies of scale. It is also believed that some laboratories may have been able to negotiate payments from private payers based on the value of their tests. For example, some molecular diagnostic tests (e.g., detection of genetic mutations) have the potential to result in lower downstream healthcare costs by helping doctors choose the most effective treatments for each patient and avoiding the cost of therapies likely to be ineffective.

The intent of the law is to achieve savings for Medicare without creating disincentives for the development of innovative tests that can improve care. CMS estimates that Medicare spending on CLFS services would decrease by US$360 million in FY 2017, a cut of 4.5 percent.

This proposed rule is significantly delayed, as the statute required CMS to release a final rule implementing the data reporting requirements of PAMA by June 30, 2015. The proposed rule was published in the Federal Register on October 1, and comments will be accepted from stakeholders until November 24.

The delay in establishing the data collection and reporting parameters has created an awkward schedule; for example, CMS proposes a data collection period that started on July 1, 2015, well before the proposed rule was released. The scheduling constraints are likely to lead to pressures on  CMS to delay both the collection and reporting requirements and, ultimately, the rates that would be set based on the reported data.  

Below we describe provisions of the proposed rule in greater detail and identify open issues and potential concerns for the industry.

1. Definition of an Applicable Laboratory

§ 216 of PAMA defines an 'applicable laboratory' as one that receives the majority of its Medicare revenue from either the Physician Fee Schedule (PFS) or the CLFS. The Secretary is given authority to establish a low volume or low expenditure threshold for excluding a laboratory from the definition of applicable laboratory, but is not required to do so.

In its proposed regulations defining an applicable laboratory, CMS sought to balance the need for robust data on private payor rates with the burden of reporting. CMS states that it believes "the statute intends to limit reporting primarily to independent laboratories and physician offices (other than those that meet the low expenditure or low volume threshold…) and not include other entities (such as hospitals, or other health care providers) that do not receive the majority of their revenues from PFS or CLFS services."

CMS proposes to define a "laboratory" as an entity that is a laboratory as defined in regulations under the Clinical Laboratory Improvement Amendments (CLIA),1 but not all CLIA-certified laboratories would be applicable laboratories for reporting purposes. CMS also notes that this definition includes entities that are only laboratories as well as multicomponent entities of which a laboratory is one (e.g., a hospital system). Of the 249,000 entities with a CLIA certificate, about 6,000 are independent laboratories, and 9,000 are hospitals.

CMS proposes to have labs report applicable information by Taxpayer Identification Number (TIN). A single TIN may include a single lab, multiple labs, and/or other types of providers or suppliers as identified by National Provider Identifiers (NPIs).2 Since discounts to laboratories' payment rates are typically negotiated with private payers at the TIN level, CMS believes reporting at the TIN level rather than at the level of the CLIA laboratory would be less burdensome while not risk losing data important for accurate rate calculations.

CMS proposes that only TINs which receive, collectively from all its associated NPI entities/individuals, more than 50 percent of Medicare revenues3 from either the CLFS or the PFS will be considered applicable laboratories for reporting purposes under PAMA.4 Hospital labs are typically part of a larger TIN entity that receives the bulk of its Medicare payments under the inpatient and outpatient prospective payment systems; CMS believes that hospital labs would not qualify as applicable labs.5 An entity could be an applicable lab in one data reporting period but not in the next one, but CMS expects this situation to be rare.

CMS also proposes that an applicable laboratory must have Medicare revenue in excess of a specified threshold to report applicable information under PAMA. CMS proposes that if an applicable lab receives less than US$50,000 in Medicare revenue from the CLFS in a calendar year (US$25,000 for the initial data collection period from July 1 to December 31, 2015), it would not be required to report applicable information. CMS proposes to determine whether or not a lab is an applicable lab based on all services provided during the data collection period; this means that a lab may not know before the data collection period begins whether or not it is an applicable lab.

According to CMS, establishing a US$50,000 threshold for Medicare revenue would substantially reduce the number of entities reporting, without materially affecting the quality and sufficiency of the data needed to set rates. CMS estimates that 94 percent of physician office laboratories and 52 percent of independent laboratories would be excluded by the threshold, while still capturing 96 percent of CLFS spending on physician office laboratories and 99 percent of CLFS spending on independent laboratories.

CMS seeks comments on the definition of an applicable laboratory, as well as on whether data should be reported at a higher level of aggregation (such as a corporate parent TIN on behalf of subsidiary TINs) or at a lower level (e.g. NPI).

2. Process and Timelines for Reporting and Compliance Monitoring

Data Reporting Requirements for Applicable Laboratories

Applicable laboratories, as defined above, are required to report, during the collection period, applicable information for each CDLT that the laboratory furnishes. The proposed rule defines "applicable information" as: (1) the specific HCPCS code associated with the test; (2) each private payor rate paid for the test; and (3) the associated volume of tests performed corresponding to each private payor rate.

Information about tests for which payment is made on a capitated basis is excluded from the reported data. Labs will report this data every three years for all CLDTs.

The statute defines the data collection period as "a period of time, such as a previous 12 month period, specified by the Secretary." CMS proposes for the data collection period to be the calendar year during which an applicable laboratory collects applicable information and that immediately precedes the data reporting period. CMS proposes an exception to this definition for the first data collection period which CMS proposes to be the six-month period of July 1, 2015, through December 31, 2015. The proposed rule does not discuss whether the data collected is for services performed during the data collection period or for services for which it receives payment during the data collection period. This is an important distinction, as payment for many tests may not be received for weeks after the service is performed.

CMS proposes to define the data reporting period as the three-month period during which an applicable laboratory reports applicable information to CMS and that immediately follows the data collection period. CMS is silent on whether applicable laboratories must report payment adjustments or recoupments (e.g., based on appeals of denied or allegedly improperly paid claims), which could occur during or after the data reporting period.

CMS proposes to define a private payor as (1) a health insurance issuer, (2) a group health plan, (3) Medicare Advantage plan, and (4) Medicaid managed care organization. A private payor rate is the amount that was paid by a private payor for a CDLT after all price concessions are applied. These rates include any patient cost-sharing amounts, if applicable. The proposed rule is silent as to how laboratories should allocate single copayments across multiple tests and whether laboratories should report all patient cost-sharing that was due, or only that which was actually paid. The proposed rule also does not address situations where a laboratory is out-of-network for a particular plan and how differences in payment and copayments are to be reflected in the reported data.

Price Concessions. In the proposed rule, CMS notes that the statute lists specific price concessions in section 1834A(a)(5) of the Act-discounts, rebates, and coupons; as well as referencing section 1847A(c)(3) of the Act, which includes volume discounts, prompt pay discounts, cash discounts, free goods that are contingent on any purchase requirement, chargebacks, and rebates (except for Medicaid rebates under section 1927 of the Act). The agency notes that these lists are examples of price concessions, and other price concessions that are not described, but that might be applied to the amounts paid by private payers, should be reported also.

Certification by Executives. To certify data integrity, the President, CEO, or CFO of an applicable laboratory or an individual with appropriate delegated authority must sign a certification statement that the data provided are accurate, complete, and truthful, and meet all the reporting parameters.

Civil Monetary Penalties. If the Secretary of Health and Human Services determines that an applicable laboratory has failed to report, or made a misrepresentation or omission in reporting, applicable information, the Secretary may apply a civil monetary penalty (CMP) in an amount of up to US$10,000 per day for each failure to report or for each misrepresentation or omission. CMS proposes to implement this provision in a manner similar to the implementation of like provisions regarding CMPs related to reporting of average sales price data by drug manufacturers.

Confidentiality and Disclosure. CMS will not disclose applicable information reported to CMS in a manner that would identify a specific payor or laboratory, or prices charged or payments made to a laboratory. However, the statute permits CMS to disclose data to the Comptroller General, the Director of the Congressional Budget Office, and the Medicare Payment Advisory Commission, and CMS proposes to add the HHS Office of Inspector General and the Department of Justice to this list on the basis that such disclosure is necessary to administer and enforce the new payment system. The name of an applicable laboratory will be exempt from disclosure under the Freedom of Information Act (FOIA).

Determination of Medicare Payment Rate. Each test furnished on or after January 1, 2017, will be paid for using the weighted median payment from private payers for the test. CMS will calculate a weighted median for the test, by "arraying the distribution of all payment rates reported for the period for each test weighted by volume for each payor and each laboratory."

Once established, the payment rates for CDLTs will be updated every three years based on the next collection and reporting period. PAMA prohibits any other updates such as for inflation. These rates also will apply to tests furnished by a hospital laboratory if the test is paid for separately, and not as part of a bundled payment under Sec. 1833(t).

CMS proposes to publish final payment rates at least 60 days before they are implemented, which would be around November 1, 2016, for rates effective January 1, 2017. CMS does not propose to establish a notice and comment period for "proposed" payment rates but suggests that the tentative rates may be made available in September. In contrast to other payment systems where CMS makes the data upon which payment rates are established (e.g., claims data), CMS does not propose to make available to the public the laboratory reported private payer payment data that is used to establish payment rates. Therefore, it is unclear whether or how laboratories could validate the calculations used to set the median private payer rates.

3. Definition of ADLT and Pathways for ADLT Designation

PAMA includes special provisions for advanced diagnostic laboratory tests (ADLTs). The statute defines an ADLT as a CDLT covered under Medicare Part B that is marketed and performed only by a single laboratory or its successor owner and not sold for use by a laboratory other than the laboratory that designed the test and that meets the following criteria:

i) is an analysis of multiple biomarkers of deoxyribonucleic acid (DNA), ribonucleic acid (RNA), or proteins combined with a unique algorithm to yield a single patient-specific result;

ii) is cleared or approved by the FDA; or

iii) the test meets other similar criteria established by the Secretary.

CMS proposes definitions of some of the elements of an ADLT and adds requirements that would limit the types of tests that could theoretically qualify under (i) above.

Single Laboratory. CMS proposes to define a "single laboratory" as a facility with a single CLIA certificate, since "We view the statute as intending to award special payment status to the one laboratory that is expending the resources for all aspects of the test-developing it, marketing it to the public, performing it, and selling it."6 CMS proposes to define a "successor owner" as "a single laboratory that has assumed ownership of the laboratory that designed the test" that meets specific criteria.7 By limiting the "single laboratory" and its "successor owner" to a single CLIA certificate, the proposed rule appears to prevent an entity with several CLIA certificates, such as the campus of an academic medical center, from receiving ADLT status for its tests.

CMS expects laboratories that receive ADLT status for their tests to document changes in ownership. The agency expects to monitor compliance by confirming that (1) applicable information for an ADLT is reported by only one applicable laboratory, and (2) that each applicable laboratory that reports applicable information for an ADLT has a single CLIA certificate.

In addition to being performed by a single laboratory or its successor owner, an ADLT must meet the criteria of one of two pathways: (i) the non-FDA pathway or (ii) the FDA pathway.

i. The Non-FDA Pathway

To be designated as an ADLT under the non-FDA pathway (that is, the pathway for tests that have not been approved or cleared by the FDA), CMS proposes that the test must meet certain requirements. Under the non-FDA pathway, a test must analyze multiple biomarkers of DNA or RNA, which could consist of one test that analyzes multiple biomarkers or of multiple tests that each analyze one or more biomarkers. Under CMS' proposal, an ADLT could also, but is not required to, include assays that analyze proteins.

The test's information on DNA or RNA must be "combined with a unique algorithm to yield a single patient-specific result." CMS proposes that the algorithm must be empirically derived. The test must also provide new clinical diagnostic information that cannot be obtained from any other existing test on the market or combination of tests. The decision as to whether a test provides new clinical diagnostic information that cannot be obtained elsewhere would be made by CMS. Therefore, it appears that no "me too" tests would qualify as an ADLT under the non-FDA pathway.

ii. The FDA Pathway

Tests approved by FDA under a Premarket Approval Application or cleared under section 510(k) of the Food, Drug and Cosmetic Act could be considered ADLTs under the FDA pathway. CMS notes that FDA regulations exempt certain low-risk devices from approval or clearance, and CMS does not intend for this criterion to cover any devices exempt from FDA approval or clearance.

Application for ADLT Status. Laboratories that wish to receive ADLT status must apply to CMS. The agency plans to establish guidelines for laboratories to apply for ADLT status and submit documentation to support their application. This process will be outlined through sub-regulatory guidance. A laboratory seeking new ADLT status for its test will have to attest to the actual list charge and the date the new ADLT is first performed and laboratories using pathway (ii) would have to submit documentation of their FDA clearance or approval for the test. However, the proposed rule is silent on a number of important aspects of the application process for pathway (i), including the contents of the application and the level of detail requested about the test protocol; the types of medical evidence that should be included in the application; the criteria CMS will use to evaluate ADLTs against the proposed requirements; who will review the application; the ability of applicants to communicate or meet with CMS during this process; and whether there will be a mechanism to appeal denied applications.

Confidentiality. CMS says that while the agency does not expect to make information in an ADLT application available to the public, the information is not explicitly protected from disclosure under the confidentiality provisions of the statute, nor is it explicitly protected from disclosure in response to a FOIA request. An ADLT applicant "should be aware" that information in an ADLT application may not be protected from public disclosure even if it is marked as confidential and proprietary as the information may be subject to disclosure under FOIA unless, consistent with FOIA exemption (b)(4), the information relates to trade secrets and commercial or financial information that is exempt from disclosure. The ADLT applicant would need to substantiate this confidentiality by expressly claiming and demonstrating that substantial competitive harm would occur from the disclosure. This issue is especially important for pathway (i) applications.

At this time it is unclear whether either pathway is inherently more attractive than the other; so test developers may need to make decisions about the best pathway on a test-by-test basis. For example, under pathway (i), where the review process appears to be a "black-box," it is unclear whether the proposed requirement to provide new diagnostic information not otherwise obtainable is really a difficult-to-demonstrate "superiority" requirement, and there are potential confidentiality concerns. On the other hand, under pathway (ii), FDA data requirements and the length and complexity of FDA review could be substantial and may make that pathway less appealing.

Payment for ADLTs. For new ADLTs, that is, ADLT's  that have not been paid off the clinical lab fee schedule prior to January 1, 2017, Medicare will pay based on the actual list charge, or the publicly available rate on the first day that the test is available for purchase by a private payer. This rate based on actual list charge will be in effect for the first three full calendar quarters that the test is on the market.

The first day a test is available means the date a test is obtainable by a patient who is covered by private insurance or marketed to the public as a test a patient can receive, even if the test has not yet been performed on that date. Publicly available rate means the lowest amount charged for an ADLT that is readily accessible in such forums as a company website, test registry, or price listing.

Because its payment systems are updated quarterly, CMS proposes that the first day of this three-quarter period will begin on the first day of the next calendar quarter after the first day the test becomes available. For example, if a test becomes available on Feb 4, the three quarter-period begins on April 1. CMS proposes that the Medicare Administrative Contractor (MAC) with jurisdiction over the laboratory will set the payment rate before the three-quarter period begins.

Laboratories performing ADLTs must report private payer payment data not later than the last day of the second full quarter after the first day the test become available. Starting at the beginning of the fourth full calendar quarter, Medicare's payment rate for the ADLT would be based on the private payer data reported. 

Recoupment for Overpayments. If the Medicare payment amount during the new ADLT's initial three-quarter period (that is, the rate based on the actual list charge) is more than 130 percent of the Medicare payment amount determined using the weighted median of private payor rates that is applicable after the initial period, CMS will recoup the entire difference between the Medicare payment amounts during the initial period and the Medicare payment amount based on the weighted median of private payor rates.

Payment for New CDLTs that are not ADLTs. CMS proposes to define new CDLTs as those tests that are assigned a new or substantially revised Healthcare Common Procedure Coding System (HCPCS) code and that do not meet the definition of an ADLT. For CDLTs that are assigned a new or substantially revised HCPCS code after the date of enactment of PAMA until private payer data is available, payment will be determined in the same manner historically used to set payment rates for new tests; that is, by either cross-walking the new code to the rate established for a comparable existing test or by gapfilling the rate for a new code for which there is no comparable test. For gapfilling, the following sources of information must be taken into account, if available: (a) charges for the test and routine discounts to changes; (b) resources required to perform the test; (c) payment amounts determined by other payers; (d) charges, payment amounts, and resources required for other tests that may be comparable; and (e) other criteria that the Secretary determines to be appropriate. The Secretary is required to make available to the public an explanation of the payment rate for the test, including an explanation of how those criteria were applied.

Payment for Tests When no Private Payer Payment Data is Available. Labs that do not meet the definition of an applicable lab would be prohibited from submitting applicable information for the purpose of rate setting. CMS estimates that there are 17 tests whose utilization is completely attributed to laboratories that would not be reporting because they fell below the US$50,000 threshold. It is also possible that laboratories that develop new ADLTs could otherwise meet the criteria for an applicable laboratory, but have Medicare revenues of less than US$50,000 in a year, and thus exempt from reporting applicable information.

After noting that PAMA is silent on payment for such tests, CMS proposes to make payment for tests for which no private payer data is reported based on crosswalking or gapfilling. CMS would use this approach even if private payer data was available for a previous data collection period.

4. Coding Provisions

PAMA requires that, not later than January 1, 2016, the Secretary shall assign a unique HCPCS code and publicly report the payment rate for the test for each existing ADLT and each existing CDLT that is cleared or approved by the FDA for which payment is made as of PAMA's enactment date (April 1, 2014), if such test has not already been assigned a unique HCPCS code. In this case, CMS proposes to adopt temporary HCPCS Level II codes (G codes) that would be effective for up to two years, until a permanent HCPCS code is established, unless CMS believes it is appropriate to continue to use the G code. The proposed rule is silent on what happens to the coverage and/or payment for the test at the two-year mark if the agency decides not to extend the G code.

CMS is also required to assign a unique identifier for an ADLT or CDLT that is cleared or approved by the FDA if a laboratory or a manufacturer requests one. Currently, the same HCPCS code is used for both FDA-approved laboratory tests and lab-developed tests that detect the same analyte (e.g., KRAS). CMS believes the existing HCPCS coding process would suffice for this process. If a laboratory requests a unique HCPCS code for tracking or monitoring an FDA-approved or cleared test, CMS would assign an HCPCS Level II code.

Both PAMA and the proposed rule appear to be ambiguous with respect to the connection between HCPCS code assignment and payment rate. For example, applicable labs will report payment rates for "tests" by HCPCS code and CMS will establish payment for a "test" based on this reported data. In cases where multiple codes are assigned to tests for the same analyte (e.g., because some tests are FDA-approved/cleared and others are not, and/or because a lab or manufacturer has requested a unique identifier), aside from the potential for inaccurate reporting due to code confusion, it is unclear whether there is a requirement for CMS to establish different payment rates for codes that describe "tests" for the same analyte.

Issues on which the proposed rule is silent include: (1) How will CMS ensure it identifies all FDA-cleared or approved CLDTs that do not have HCPCS codes? (2) Will CMS assign a unique HCPCS code to each test for a single analyte or assign a single HCPCS code to all FDA-approved/cleared tests for a single analyte? (3) How will labs "report" the payment rate for tests that have heretofore not been identifiable? (4) Will assignment of a code to an FDA-approved/cleared test, or group of tests, affect the payment rate (e.g., will Medicare establish different payment rates for FDA-regulated tests as opposed to lab-developed tests for the same analyte)?

5. Impact on Lab Spending

CMS estimates that the new system will result in aggregate payment reductions of US$360 million (or -4.5 percent of total spending under the CLFS) in 2017. Program payments would be reduced by an estimated US$2.94 billion, or -7.35 percent, over the first five years, and savings over ten years are estimated to total US$5.14 billion, or -6.43 percent. In comparison, the Congressional Budget Office estimated savings of US$2.5 billion over a ten-year period when PAMA was enacted in 2014.8

CMS does not present estimates on a code-by-code or other disaggregated basis because it lacks data from private payers that would be needed to make precise, code-specific estimates. The agency based its aggregate estimates on results of a 2013 study by the Department of Health and Human Services Office of Inspector General of 20 high-volume and/or high-expenditure codes, which showed Medicare paying between 18 and 30 percent more than other insurers. In estimating the proposed rule's impact, CMS assumes the ultimate average reduction in payment for across all tests would be 20 percent.

For any individual test, any payment reduction from existing rates in a particular year resulting from the new payment methodology would be subject to limits specified in the statute. CMS proposes to specify a test's limit starting from the National Limitation Amount (NLA) in 2016, rather than on 2016 payment rates, which in some localities may be below the NLA. Reductions in 2017 would be limited to 10 percent of the NLA in 2016; reductions for 2018 and 2019 would be limited to 10 percent of the prior year's rate; and reductions for 2020 through 2022 would be limited to 15 percent of the prior year's rate.

Medicaid payment rates may also be affected by the new payment system, though CMS does not present any estimate of these effects. The State Medicaid Manual states that "Medicaid reimbursement for clinical diagnostic laboratory tests may not exceed the amount that Medicare recognizes for such tests." The OIG found that Medicaid generally paid less than Medicare for most tests, but it is not clear how the Medicaid program rates compare to the amounts paid by other payers.

6. Administrative Issues

Local Coverage Process. Starting January 1, 2015, PAMA requires CMS and its Medicare Administrative Contractors (MACs), including Palmetto GBA, to issue coverage policies for laboratory tests in accordance with the process established for MAC local coverage determinations (LCDs) and for reconsiderations of those decisions. This process includes a public comment period, a 45-day notice period before an LCD takes effect, and public meetings. It is likely CMS will receive comments as to how this requirement will affect Palmetto's MolDx program.

"Lab MACs." The statute gives the Secretary the authority to designate up to four MACs to either establish coverage policies or to establish coverage policies and to process claims. CMS does not propose to implement either of these possibilities at this time, but might do so through notice and comment rulemaking in the future. CMS believes that reducing the number of MACs issuing LCDs for CDLTs could be finalized within two to four years but that reducing the number of MACs processing claims for CDLTs would take much longer and involve significantly more complex, programmatic, and operational issues, for which CMS would need additional funding.

Will Implementation of this Proposed Rule be Delayed?

As noted, Congress set a statutory deadline of June 30, 2015, for CMS to establish parameters for data collection under PAMA. CMS missed this deadline, releasing a proposed rule almost three months after final provisions were to have been established. The delay in establishing the data collection and reporting parameters has created an awkward schedule; for example, CMS proposes a data collection period that starts July 1, 2015, well before the proposed rule was released and for which no notice was provided. The comment period for the proposed rule runs through November 24, 2015, making it highly unlikely that CMS will release a final rule before the end of the year even though the proposed data reporting period is scheduled to start January 1, 2016.

This timing is further complicated by CMS' statement that it will issue sub-regulatory guidance providing further clarification on numerous issues, including the form and manner for reporting applicable information; application of civil monetary penalties for applicable labs that do not report required data; and the processes for certifying data and applying to be an ADLT. For example, CMS indicates that it intends to issue guidance on reporting applicable information before the reporting period begins on January 1, 2016. It is not clear how CMS could issue sub-regulatory guidance before CMS finalizes the data collection and payment parameters, which means that CMS could only issue its promised guidance if it can also issue a final rule in December 2015, a scenario which seems highly unlikely given the delays in releasing the proposed rule.

The scheduling constraints are likely to lead to pressures on CMS to delay both the reporting requirements and, ultimately, the rates that would be set based on the reported data.

What Effect will PAMA Implementation Have on Regulation of LDTs?

FDA has issued controversial draft guidance on the regulation of LDTs which has spawned a series of counterproposals from affected stakeholders, including draft legislation that would require FDA to regulate certain LDTs while prohibiting FDA regulation of others.

While it is not possible to do anything but speculate at this time, the extent to which favorable payment under PAMA is facilitated, or inhibited, by obtaining FDA approval or clearance could significantly affect test developers decisions to undergo FDA review, whether required or not, and should be considered in any legislative proposals that would require or prohibit FDA regulation of certain LDTs.

  1. 42 CFR § 493.2.

  2. TIN is defined as "a Federal taxpayer identification number or employer identification number as defined by the Internal Revenue Service in 26 CFR § 301.6109-1."

  3. Including fee-for-service payments under Medicare Parts A, B, C (Medicare Advantage), and D (prescription drugs).

  4. Note that although Physician Fee Schedule payments are an element of the test of what is an applicable laboratory, the PAMA provision affects only CLFS tests. Payments under the Physician Fee Schedule for diagnostic tests, such as pathology tests, are unaffected by this reform.

  5. CMS estimates that of the 68,000 unique TINs that are enrolled in Medicare and bill the CLFS, 94 percent are physician office laboratories, 3 percent are independent laboratories, and the rest serve nursing homes and other niche markets.

  6. Proposed rule, p. 40.

  7. The criteria are (1) the removal or addition of a member of a partnership, (2) transfer of title and property of an unincorporated sole proprietorship, (3) merger or consolidation of a corporation, or (4) leasing of all or part of the facility that originally developed the test.

  8. Congressional Budget Office, Cost Estimate for the Protecting Access to Medicare Act of 2014.

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