2018 PAMA Pricing Draft: How to Take Action

As XiFin predicted, the PAMA reporting exercise has resulted in significant proposed laboratory fee cuts. In fact, the multi-year decrease for the top 20 laboratory tests is 28%–4% higher than the 24% projected by XiFin’s analysis using a “weighted average” calculation. Now that the rates have been posted and the commentary period is open, it’s critical for laboratories to use this window to voice concerns and challenge the flawed data collection process.

Even laboratories who do not service large Medicare populations need to be mindful of the impact of these reduced prices on commercial payors and therefore should also comment. And, given that CMS has stated that 75% of the considered HCPCS codes had median rates lower than the current fee schedule, many more independent labs—including those with more limited menus—will be affected and need to respond during the commentary period.

Fundamental Flaws in the Process

Our preliminary analysis of the 2018 PAMA pricing draft rates highlight some fundamental issues with the entire exercise:

• With so many laboratories excluded (as Quest’s CEO has pointed out, while hospitals and physician office labs comprise half of Medicare CLFS volume, they were only 8.5% of the reported data used by CMS to calculate rates), the PAMA reporting exercise was far from a market-based analysis.
• Further, the weighted median calculation in place of a weighted average further distorts market value.  We have repeatedly presented data to demonstrate how radically pricing can be skewed with a weighted median calculation based solely on the mix of submitting providers.
• Worse than failing to reflect the market accurately, there is clear evidence that submitted data was flawed in its own right. After making many PAMA presentations, a number of executives have told us privately that they inadvertently submitted inaccurate data because they lacked the source data from which to audit their billing system and lacked an adequate understanding of payor errors, such as miss reported units, that can greatly alter the unit allowable. A key driver of these errors is CMS’ delay in publishing reporting criteria and guidelines for data collection until after the data collection period had closed, making it impossible for labs to retrieve source data from payors.  This alone is grounds for challenging the flawed reporting process.
• G-code data in particular looks to be most flawed. The G-Codes for definitive testing were dropped by the initial 10% in 2018 and will see the maximum allowed decreases in subsequent years. The claim from CMS is that the market-based data submitted for the definitive G-code procedures showed payments anywhere from 23%-59% lower than the Medicare rates for the same procedures. With XiFin having some of the most robust data sets on these codes, it appears to us that there were significant data reporting errors since our (accurate) data shows that the Medicare rates were 15% lower than the commercial market average. Even in our own data sets, we could identify the potential for wildly different calculations using a weighted median if the information wasn’t aggregated and consolidated correctly.  While we worked diligently with our clients to properly capture remittance advice data on these newly adopted codes by private payors, most other laboratories were not able to recognize the importance of these nuances and ensure correct reporting. 
• Participation simulations run by CMS could not include data from hospitals that didn’t report and therefore cannot accurately assess whether a lack of participation skewed the data. Our analysis demonstrated that hospital labs not categorized as “applicable labs” and that did not report had higher private payor reimbursement rates than hospital labs that qualified as “applicable labs,” so any of the analyses described by CMS would not be accurate without considering the (higher) fee schedule data from nonreporting entities. This “data” check is also fundamentally flawed.

A cursory review of the data presented in the 2018 PAMA pricing draft indicates that pricing on the top volume tests was driven by the large labs and skewed further downward by using a weighted median instead of weighted average; while pricing for lower volume tests was distorted by reporting errors that were further exacerbated by the weighted median exercise. 

Tests that fared well were those proprietary tests performed by a single lab that had better control over their market pricing; however, we continue to have concerns over pricing methodologies for new multianalyte, GSP, and PLA assays. CMS, and the advisory panel, still appear to be struggling with the added value and purpose of algorithms and focus on what they perceive to be similar methodologies, regardless of the number of markers that are included and the additional clinical value and use of resources, these entail.

A market based reimbursement strategy, while appropriate for the introduction of a newer assay, is not reflective of true market value for test pricing that has been exploited through coding and coverage sophistry and non-market based reimbursement manipulation over decades by both public and private payors. 

Circumvention of legislative intent

Taken altogether, the information 2018 PAMA pricing draft exposes just how far away from a market based analysis we are and how the legislative intent of market based pricing was artfully crafted to optimize a price cutting exercise. There is no doubt this will have serious ramifications for many laboratories, and for the healthcare industry as a whole. As ACLA president Julie Khani put it, “These rates will devastate many of our members and create severe disruptions in access to laboratory services, particularly for the most vulnerable Medicare beneficiaries.”

 We agree with many others who argue these rates should not be finalized. The clear intent of Congress under PAMA was to insure payments on the CLFS reflected private market rates. Congress did not expect the agency to develop methodology that would result in the reporting of incomplete and inaccurate data, that was extremely costly and burdensome to produce, and that does not reflect market prices. The agency has discretion to determine if the data submitted is accurate and reflective of true market pricing and should promulgate regulations as needed to properly implement PAMA. XiFin urges you to use this comment period to voice your concerns regarding the flawed exercise. 

Four Key Issues to Challenge

1. The CMS definition of “applicable lab” resulted in the exclusion of the majority of hospital labs which perform half of all lab testing. The narrow definition of size also excludes many POLS, comprising 7% of the lab market, leaving the exercise to just 34% of the lab market, where the two major labs represent 80% of the volume.
2. The prior administration’s decision to impose a retrospective data collection period through rulemaking did not allow labs to make arrangements to collect data accurately or in totality.
3. The current regulation does not provide a clear and transparent mechanism for aggregation of each clinical test’s payment data and a means for stakeholders to validate the accuracy of the final payment amount.
4. The legislation indicates calculation of a “weighted median” vs. a “weighted average.” Because the “applicable lab” definition has skewed the submitting labs to be primarily the two major labs, a weighted median resulted in high volume tests skewing to private payor pricing to only those two labs without the benefit of weighting payments made to the greater majority of the lab industry.

CMS is accepting comments on the 2018 PAMA pricing draft until October 23. Submit yours electronically by this date to this CMS mailbox: CLFS_Annual_Public_Meeting@cms.hhs.gov