CMS Medicare Physician Fee Schedule: Pathology Lab Changes

Right now, clinical laboratories and pathology practices are faced with the continuance of PAMA cuts and budgeting based on the proposed changes to the Medicare Fee Physician Fee Schedule. Both scenarios reinforce the need to be more aware of the financial implications of these updates as well as the general underlying cost of running laboratories.

While the mission of providing quality health diagnostics and helping patients is important, the fact is labs are businesses and need to be run as such. To counteract the fee schedule changes, pathology practices need to understand the cumulative effect on their business. In order to do so, impacts need to be evaluated by CPT code (due to large variations in some of the proposed rates), and it needs to include any commercial contracts and client bill agreements that are negotiated on “current year” Medicare terms. Even better would be to perform an impact analysis by referring physician for office work to understand impact by specialty. By doing so, laboratories will understand, by code, where their largest wins and loses exist and can modify budgets and business plans (e.g. sales initiatives) accordingly.

Based on an impact analysis performed on XiFin’s clients, below are highlights of the most significant revenue impacts:

• 17% decrease in overall FLOW revenue
• 4% decrease in overall FISH revenue. Despite 88365 having a 91% increase, a majority of FISH are billed using 88373, 88374, and 88377 – all of which have a proposed reduced reimbursement of 3-5%.
• 10% increase in overall IHC revenue, driven by a 112% increase to the 88360 and an 81% increase to the 88361; additionally, the 88342 stayed steady at just under a 1% increase, and the 88341 benefits from a 4% improvement.

The 88305, the largest volume pathology-related CPT code – making up nearly half of the volume billed by XiFin’s pathology clients, receives a 3% increase in reimbursement on the global, 9% on the technical component, and a decrease of 2% on the professional component. Since this code is billed with such tremendous volume, even the smallest of change to reimbursement can have a financial impact on a pathology practice. The 88305 (global, technical, and professional) has the largest overall revenue impact on XiFin’s pathology clients.

Labs impacted by PAMA need not forget that additional cuts are coming in 2019 and as such, additional downward pressures on reimbursements should be expected across the board. 

CMS is currently seeking comments on potential changes to PAMA reporting in the PFS rule. Based on proposed updates to the thresholds, there is a potential expansion in the number of reporting labs, though they will be smaller in size and primarily comprised of independent labs and doctor’s offices. With this said, although CMS is seeking comments, their current support for the existing methodology suggests there is no inclination to change. To stay updated on the changing trends regarding PAMA and the Fee Schedule visit our PAMA Headquarters section on our website.

It goes without question that the laboratory industry provides a critical component of the healthcare process and contributes greatly to healthcare data. Despite an overall decrease in reimbursements, with some improvements mixed in, the demand for these services will continue to drive new opportunities. The largest variance between businesses we see succeed and those we see fail is primarily driven by their ability to measure profitability, measurement of and efforts to improve the effectiveness of their revenue cycle management, and mine the tremendous amount of data available in order to determine opportunities for growth. All things considered, the most significant impact you can have on your business is the ability to access and understand, at a granular level, what drives your revenue.

For more information on the CMS Medicare Physician Fee Schedule changes check out our recent webinar with Pathology Webinars.