Health Law News From Arnold & Porter

Health Law News From Arnold & Porter

August 08, 2016
4 min read

Physicians with in-office clinical laboratories should prepare for new mandates

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Jennifer B. Madsen

Jennifer B. Madsen, MPH

From international law firm Arnold & Porter LLP comes a timely column that provides views on current regulatory and legislative topics that weigh on the minds of today’s physicians and health care executives.

Performing laboratory tests in your office and billing Medicare? If so, you could be required to comply with a new federal mandate to report information on your revenue from laboratory testing.

The Protecting Access to Medicare Act of 2014 (PAMA) set in motion a new mechanism for determining the rates Medicare will pay for laboratory tests. Starting Jan. 1, 2018, rates on the Medicare Clinical Laboratory Fee Schedule (CLFS) will be based on the national volume-weighted median payment rate paid by private payers. Private payers typically pay less than the CLFS rates for the same test, and Medicare expects to save $5.2 billion over the next decade as a result of this change.

CMS will determine the new payment rates by analyzing payment information that certain clinical laboratories (called “applicable laboratories”) will be required to report to the federal government on a tight timetable, in the first quarter of 2017. “Applicable laboratories” may be independent laboratories, hospital-based laboratories and physician office laboratories. Because more than 90% of the potentially applicable laboratories are located in physicians’ offices, determining whether you’re in or out — and documenting your rationale — is a critical action to take before Jan. 1, 2017.

How do you know if your office-based laboratory is an “applicable laboratory?”

CMS issued a Final Rule (81 Federal Register 41036) on June 23 that defines an applicable laboratory as one that meets all of the following criteria:

1. The laboratory has a CLIA certificate of compliance or waiver. Physician office laboratories that only perform CLIA-waived tests may be applicable laboratories if they meet the other legal standards below. For entities with multiple locations (and CLIA certificates), the “applicable laboratory” determination is made at the level of the National Provider Identifier (NPI), but data reporting for a group of NPIs that share a Taxpayer Identification Number (TIN) must be performed by the TIN-level “reporting entity.”

2. The CLIA-certified laboratory bills Medicare Part B under its own NPI. CMS guidance refers to the “billing NPI” as the entity for which an “applicable laboratory” determination is made. If an organization with five CLIA-certified laboratories bills under five different NPIs, they are considered to be five separate laboratories, but if they all bill under the same NPI, they are considered to be a single laboratory with the combined revenue of all five.

3. The laboratory’s NPI has $12,500 or more Medicare CLFS revenue from claims with final payments made in the Jan. 1, 2016, to June 30, 2016, period. This “low expenditure threshold” will exclude many physicians’ offices that perform laboratory tests. The 6-month time period refers to when final payments occurred (including payments for appealed claims), not to when tests were performed. Note that anatomic pathology procedures are paid on the Physician Fee Schedule (PFS), not the CLFS. CMS has posted a list of the CLFS HCPCS codes on its website.

4. Of the total Medicare revenue received by the CLIA-certified laboratory’s billing NPI from all sources, more than half (50%) came from the CLFS or the PFS. Here, “all sources” includes Medicare revenue from hospital DRGs, outpatient APCs and Medicare Advantage plans, as well as the CLFS and PFS. Note that this “majority of Medicare revenues” test counts revenue from both the PFS and the CLFS, while the low expenditure threshold in No. 3 above only counts CLFS revenue.

For most physician offices, it is likely that the PFS or CLFS make up the vast majority of Medicare revenue, while many hospitals receive most of their Medicare revenue through the DRG and APC bundled payments, which are not included in the numerator.

If your laboratory meets all of the four criteria above, it is an applicable laboratory, and your practice will be required to submit payment data to CMS. If you determine that it is not, you are not required to participate in this reporting process; further, CMS’ rules prohibit voluntary reporting.

If you have concluded that yours is an “applicable laboratory,” what is required?

Prepare to collect “applicable information” for the initial data collection period of Jan. 1, 2016, through June 30, 2016. Applicable information includes 1) a specific HCPCS code, 2) the final payment rate(s) paid by each private payer (net of price concessions) for that code, and 3) the volume of tests that were paid at each private payer rate. Private payers include group and individual market health plans, Medicare Advantage plans and Medicaid managed care plans, and should include payments from secondary payers. If patients paid cost-sharing, these amounts also must be reported, but the names of the plans or of patients should not be reported.

Applicable laboratories are not required to report denied claims (“zero payments”), capitated payments and remittances in which the payer grouped test-level payments into a single encounter-level payment. If a test is paid using an unlisted or Not Otherwise Classified (NOC) code, it cannot be reported, either.

Once gathered, report applicable information to CMS during the “data reporting period” of Jan. 1 to March 31, 2017.

A senior executive (the president, CEO, CFO or their direct report) must certify that the information is accurate, complete and truthful, and meets all of the reporting parameters. Failure to report, or mistakes or omissions in reporting, is punishable by a civil monetary penalty of up to $10,017 per day, per violation, and could be the basis for prosecution under the False Claims Act.

More information will be forthcoming.

For example, CMS is reportedly building a data collection system with a Web portal for laboratories to upload their data, but the desired format for the data is unknown at this time. CMS is expected to issue further guidance on the reporting requirements this fall.

Jennifer B. Madsen, MPH, health policy advisor at Arnold & Porter LLP, can be reached at