GAO: New payment rates for Part B lab tests may lead to billions in overpayments

Medicare’s new method of calculating payment rates for laboratory tests, intended to reduce Medicare spending by $360 million in the first year, could cost the agency billions in overpayments, according to a recent report from the U.S. Government Accountability Office. 

CMS established new payment rates for Medicare Part B laboratory services, effective in 2018. CMS was required under the Protecting Access to Medicare Act of 2014 (PAMA) to base the new rates on private payer data rather than on historical laboratory fees, which were typically higher than the rates paid by private payers. CMS is gradually phasing in reductions to Medicare payment rates, limited annually at 10% from 2018 to 2020, as outlined in PAMA.

The GAO examined the potential effect of the new payment rates on Medicare expenditures using 2016 and 2017 Medicare claims data and private payer data collected by CMS. The GAO also compared Medicare bundled payment rates from 2016 to CMS’s estimated payment rates for component tests from 2018 through 2020.

According to the GAO’s findings, Medicare may overspend on laboratory tests under the new reimbursement system for two reasons. First, when phasing in payment rate reductions, CMS used above-average payment rates from 2017 as a baseline to calculate new rates. This resulted in excess payments and higher payment rates in 2018 for some lab tests.

The GAO also found that incomplete data could have had a large effect on the accuracy of Medicare payment rates and may impact calculated rates in the years after 2020 when PAMA allows for greater payment-rate reductions.

Second, in 2018, CMS instructed Medicare Administrative Contractors to stop bundling payment rates for some panel tests, which are groups of tests typically performed together. CMS was unsure whether it had the authority to combine the individual component tests into groups for bundled payment, which was its practice before 2018. Its authority to do so is currently under review.

CMS’s decision to unbundle payment rates for panel tests could potentially have a large impact on Medicare spending, says the GAO. For example, if a laboratory submitted a claim for component tests compromising a comprehensive metabolic panel, it would receive payment for each test, billed using 14 CPT codes.

According to the GAO report, if CMS were to charge for each test separately, this would result in an overall payment rate of $81.91, which is a 528% increase from the Medicare bundled payment rate of $13.04 for a comprehensive metabolic panel, billed using all-encompassing CPT code 80053. 

Based on their findings, the GAO recommends that CMS:

• Collect private-payer data from all laboratories required to report the estimated effects of incomplete data
• Phase-in payment rate reductions that start from the actual payment rates rather than the maximum payment rates paid prior to 2018
• Bundle rates for certain laboratory tests consistent with its billing practices prior to 2018 by working with lawmakers to expand its authority to do so