A lmost three months after the statutory deadline for

Transcription

1 Medical Devices Law & Industry Report Reproduced with permission from Medical Devices Law & Industry Report, 9 MELR 647, 10/14/2015. Copyright 2015 by The Bureau of National Affairs, Inc. ( ) MEDICARE Diagnostic Tests CMS Proposal for Clinical Laboratory Fee Schedule Overhaul Raises Questions BY JOYCE E. GRESKO AND PETER M. KAZON A lmost three months after the statutory deadline for issuing a final rule, the Centers for Medicare and Medicaid Services (CMS) on September 25, 2015 finally released a proposed rule to implement Section 216 of the Protecting Access to Medicare Act of 2014 (PAMA). 1 That provision of the law revamps the way that clinical laboratory tests are priced on the Medicare Clinical Laboratory Fee Schedule (CLFS), the first major overhaul of the fee schedule in its three decades in existence. Going forward, Medicare prices for clinical laboratory tests are to be based on rates paid by private payors, as reported by laboratories, which is a significant departure from the existing reimbursement system and Medicare policy as a whole Fed. Reg (Oct. 1, 2015) (9 MELR 590, 9/30/15). The legislative text of the Protecting Access to Medicare Act of 2014, Pub. L , may be accessed here: beta.congress.gov/113/bills/hr4302/bills-113hr4302enr.pdf. Certain aspects of CMS s proposal for implementing Section 216 of PAMA raise more questions than they answer. In some sense, this is expected, in that it still is a proposed rule, and stakeholders are supposed to have the opportunity to weigh in and to help establish the contours and requirements of a final rule. In this case, however, CMS has proposed that certain parts of the private payor rate reporting system are to be put into place even before it will be possible for the agency to issue a final rule. This makes an understanding of the proposed rule, and its grey areas, more important than in a typical rulemaking. Statutory Authority for the Proposed Rule The CLFS was established in the Deficit Reduction Act of 1984 and currently has more than 1,200 distinct codes. 2 Effective July 1, 1984, laboratories were reimbursed the lower of submitted charges or the relevant fee schedule rate. In 1985, Congress mandated the establishment of a National Limitation Amount (NLA) for Joyce E. Gresko and Peter M. Kazon are attorneys with Alston & Bird LLP. Kazon is a member of the advisory board for the Bloomberg BNA Medical Devices Law & Industry Report. 2 In reality, there is not one national fee schedule; rather, there are 56 state- and territory-based fee schedules. The differences in prices on each of the fee schedules often are negligible. Further, all of the fee schedules are capped by the NLA, which currently is set at 74 percent of the median of the fee schedules. Because of the broad application, the NLA often functions as a de facto national fee schedule. COPYRIGHT 2015 BY THE BUREAU OF NATIONAL AFFAIRS, INC. ISSN

2 2 clinical laboratory fees, which gradually has decreased from 115 percent of the median of all local fee schedule amounts to 74 percent of the median (100 percent of the median for new tests performed on or after January 1, 2001). 3 In 2013, CMS used the Medicare Physician Fee Schedule (PFS) rulemaking cycle to propose adjustments to prices on the CLFS based on technological changes that have occurred since each test first appeared on the fee schedule, statutory authority that the agency had not exercised in the past. 4 CMS proposed adjusting prices based on this authority because payment amounts are essentially locked in place and do not change when the cost of the test changes, and it said it had no other way to adjust fee schedule prices. 5 Before CMS could adjust CLFS rates based on technological changes, Congress passed PAMA and President Obama signed it into law. Section 216 of PAMA removed CMS s authority to adjust the CLFS based on technological changes after April 1, 2014, and added a new section 1834A to the Social Security Act, which provides the outline of a process CMS is to use to collect data from laboratories on private payor rates paid to them for individual laboratory tests and to develop new market-based prices for 2017 and beyond. It specifies that until December 31, 2016, CMS is to use methodologies that currently are in place for pricing, coding, and coverage of laboratory tests. However, beginning January 1, 2016 and every three years thereafter, an applicable laboratory will have to report applicable information to CMS about each rate paid by each private payor during a data collection period, along with the volume of such tests for each payor for the reporting period (other than for advanced diagnostic laboratory tests, or ADLTs, which are described below). Medicare reimbursement for most clinical diagnostic laboratory tests furnished on or after January 1, 2017 will be equal to the weighted median of private payor rates for the most recent data collection period, and those prices are to stay in effect until the year after the next data collection (generally every three years). Congress established a separate pricing mechanism for ADLTs. The statute defines an ADLT as a test that is offered and furnished only by the developing lab and that meets one of the following criteria: (1) the test is an analysis of multiple biomarkers of DNA, RNA or proteins combined with a unique algorithm to yield a single patient-specific result; (2) the test is cleared or approved by the FDA; or (3) the test meets other similar criteria established by the Secretary. ADLTs are to be paid initially based on the actual list charge, and then CMS will use private payor data submitted by the lab to develop Medicare rates in the same way it does for other tests. Other new tests that are not ADLTs would be priced initially under the current crosswalking and gapfilling system. Analysis of the Proposed Rule Stakeholders who are reviewing CMS s proposed rule are looking for answers to important questions that must be answered before private payor rate reporting begins: which laboratories will have to report data to 3 Centers for Medicare and Medicaid Services, Clinical Laboratory Fee Schedule Fact Sheet (April 2013). 4 See 42 U.S.C. 1395l(h)(2)(A)(i) (2013) Fed. Reg , (Jul. 19, 2013). CMS, what must they report, when and how will they report data, and other questions. Who would have to report payor rates to CMS? Congress defined the term applicable laboratory the entity that is to report its private payor rates to CMS as a laboratory that, with respect to its [Medicare revenues], a majority of such revenues are from [the Medicare PFS or CLFS]. 6 Congress also gave CMS the authority to establish low-expenditure or low-volume thresholds that would exclude some labs from reporting. CMS s proposal for which entities would be applicable laboratories would have the effect of removing nearly all hospital outreach laboratories and physician office laboratories and even about half of all independent laboratories from reporting their private payor rates, which raises questions about how reflective of the private payor market the data collection would be. CMS has proposed that the majority of Medicare revenues test would be applied across an entire entity that is represented by a taxpayer identification number ( TIN ) with all of its associated National Provider Identifiers ( NPIs ), rather than applying the test to the laboratory, as is called for in the statute. CMS said that it heard from stakeholders that the TIN represents the entity negotiating prices and is in the best position to collect and report data from across its NPIs. In the case of an independent laboratory, in most cases the majority of the TIN-level entity s Medicare revenue would be from the PFS or CLFS. But what about a hospital outreach laboratory that serves patients who are not registered inpatients or outpatients of the hospital? In some instances, a significant portion of a hospital laboratory s Medicare revenue could come from the PFS or CLFS, but unless that hospital laboratory has its own TIN, the majority of Medicare revenues test would be applied to the hospital as a whole, effectively excluding the hospitals from reporting. CMS acknowledged this, saying we believe that the statute intends to limit reporting primarily to independent laboratories and physician offices...and not include other entities (such as hospitals, or other health care providers) that do not receive a majority of their revenues from PFS or CLFS services. 7 Congress was explicit, though, that payment amounts established for laboratory tests through private payor rate reporting will apply to hospital laboratories when tests are paid separately through the CLFS. 8 While the agency declined to exercise its authority to establish a low-medicare claims volume threshold that would trigger the reporting requirements, it did propose to include a low-medicare CLFS revenue threshold. It would exclude from reporting those entities that otherwise would be applicable laboratories but that received less than a certain amount of Medicare revenue from the CLFS in a data collection period. 9 CMS said it was able to substantially reduce the number of entities that are required to report...while retaining a high per U.S.C. 1395m-1(a)(2) Fed. Reg U.S.C. 1395m-1(b)(2). 9 For the first data collection period, which CMS proposes to be six months, the low-revenue threshold would be $25,000 in CLFS revenue, and for data collection periods that span 12 months, it would be $50, COPYRIGHT 2015 BY THE BUREAU OF NATIONAL AFFAIRS, INC. MELR ISSN

3 3 centage of Medicare utilization. CMS estimates that the proposed low-expenditure threshold would remove 94 percent of physician office laboratories and 52 percent of independent laboratories from reporting, while retaining 96 percent of CLFS spending on physician office laboratories and 99 percent of CLFS spending on independent laboratories. 10 If CMS s proposal were finalized, entities reporting their private payor rates to the CMS would include less than half of independent labs and very few other entities performing lab tests for Medicare beneficiaries. Oddly, the proposed rule would not simply relieve entities that are not applicable laboratories from the obligation to report private payor rates to CMS it actually would prohibit them from doing so. While the proposed rule does not address how CMS would enforce this prohibition, it is unlikely that an entity that does not have to report would do so. What would have to be reported to CMS? An applicable laboratory is to report applicable information about private payor rates for clinical laboratory tests. The proposed rule leaves many questions unanswered about exactly what rates a lab will report, and CMS has not accounted for the many complexities of how labs get paid. Congress defined applicable information as (1) the payment rate paid by each private payor for a test during the data collection period, and (2) the volume of each such test for each such payor during the collection period. 11 Payment rates are to reflect discounts, rebates, coupons, and other price concessions. Congress also specified that when there is more than one payment rate for the same test or more than one payment rate for different payors in the same data collection period, a lab is to report all such rates and each associated volume. 12 Under the statute, private payors include health insurance issuers, group health plans, Medicare Advantage Plans, and Medicaid Managed Care Organizations. 13 In the preamble to the proposed rule, CMS does not address whether it intends for an applicable laboratory to report private payor rates only for those claims that actually were paid during a data collection period. For example, the first data collection period would be July 1, 2015 through December 31, CMS s proposed definition of a private payor rate would be the amount that was paid by a private payor for a [laboratory test] after all price concessions were applied. 15 This past-tense definition could be interpreted that a laboratory would report only what it actually got paid by private payors between July 1 and December 31, 2015, even if the date of service for the lab test was before the start of the data collection period. Adjudication of claims for laboratory services can be messy, and it can take months of back-and-forth with a private payor and oftentimes requires requests for reconsideration and appeals of denied claims, before a laboratory is paid an amount. The lag in payment can be particularly pronounced for an out-of-network laboratory that Fed. Reg U.S.C. 1395m-1(a)(3) U.S.C. 1395m-1(a)(5) U.S.C. 1395m-1(a)(8) Fed. Reg Id. at does not have a contract with a private payor. It also is not unheard of for the amount paid to be wrong, even if only by a few dollars, and CMS does not give any direction on whether a laboratory would have to report an erroneous amount it got paid. CMS is proposing that an applicable laboratory would report private payor rates inclusive of all patient cost-sharing amounts. For example, if a private payor paid a laboratory $80 for a particular test, but the payor required the patient to pay 20 percent of the cost of the test as coinsurance, meaning the private payor actually paid the laboratory only $64, the laboratory would report a private payor rate of $80 (not $64), to reflect the patient coinsurance. 16 That concept is fairly straightforward when a laboratory has an in-network contract with a private payor. When a laboratory is out-ofnetwork, determining the private payor rate can be trickier, if a laboratory gets paid at all. A laboratory might submit a claim with a charge of $100, but as an out-of-network lab, it may be paid only $20, with the insured individual responsible for the balance. The every-day complexities of how laboratories get paid for the services they furnish will only compound the already difficult task of reporting every rate paid by every private payor for every laboratory service during a data collection period, and the volume of tests at each of those payment rates. This reporting burden is not CMS s fault; after all, it was Congress that chose this approach, rather than calling for laboratories to report their average private payor rate for each test, as an example. 17 In CMS s proposal for how Congress s plans ought to be implemented, however, it has not offered much in the way of concrete proposals for making the reporting burden more manageable for laboratories. When would information first need to be reported? One of the most confounding aspects of the proposed rule is CMS s plan for the timing of the first data reporting period. Congress originally called for applicable laboratories to begin reporting private payor data to CMS beginning on January 1, However, it also called for CMS to have issued a final rule by June 30, Since the agency did not issue even a proposed rule by that date, other deadlines that Congress included in PAMA make less sense. CMS proposes that the first data reporting period would be January 1, 2016 through March 31, 2016, and it said that it would specify the form and manner of reporting applicable information in guidance prior to the first data reporting period. 18 The comment period on the proposed rule ends on November 25, 2015, and given stakeholder interest in the proposed rule and the number of comments the agency will receive, it is highly unlikely that CMS will be able issue a final rule until sometime during the first months of 2016 at the earliest. It is difficult to understand how CMS could issue subregulatory guidance on the form and manner of reporting data to CMS before it issues a final rule. The Fed. Reg The statute does allow that beginning on January 1, 2019, CMS may establish rules to aggregate reporting when a lab receives more than one rate from the same payor or more than one rate for the same test from different payors. See 42 U.S.C. 1395m-1(a)(6) Fed. Reg MEDICAL DEVICES LAW & INDUSTRY REPORT ISSN BNA

4 4 agency itself will not know how some aspects of the proposed rule will turn out before it is able to review comments from the public and develop its responses and adjustments. Until CMS issues a final rule, a laboratory cannot be certain about whether or not it even qualifies as an applicable laboratory and therefore whether or not it is prohibited from reporting, what would be included in its private payor rates, and several other issues. The law s data certification provisions also are implicated by the timing that CMS has proposed for reporting information. The statute requires that an officer of the laboratory has to certify to the accuracy and completeness of the information reported, and CMS may impose civil monetary penalties for each misrepresentation or omission in a laboratory s report. 19 CMS proposes that a laboratory president, CEO, or CFO, or a person who reports directly to one of those officers, must sign a certification statement and be responsible for assuring that the applicable information reported is accurate, complete, truthful, and meets all reporting parameters. 20 Very few laboratory presidents, CEOs, or CFOs would be comfortable signing such a certification before it is clear what the reporting parameters are, especially with the risk of civil monetary penalties for incomplete or inaccurate reporting. In addition to the logical problem posed by CMS s plan to issue subregulatory guidance before it issues a final rule, many labs are concerned about CMS s proposal for a data reporting period that comes right on the heels of a data collection period. Given how complicated it can be for laboratories to get paid for claims, especially when they are out of network with private payors, determining the rate paid by each private payor is not always a straightforward task. Each laboratory s IT team will need time to understand what data it must extract from the lab s billing system and, in some cases, program and test software to produce accurate and complete information. This is a task that cannot be completed until a final rule is issued, and it will take some time for laboratories to be able to collect the information. A data reporting period that begins on the day after the data collection period ends is unworkable. It is questionable whether there is any legal obligation to report any private payor rate information to CMS prior to the issuance of a final rule, in any event. Unlike statutes that are self-implementing, Congress left some important details to CMS to develop through rulemaking, such as the span of the data collection period. Moreover, the term laboratory is not defined in the Medicare statute, nor is the term revenues, so without a final rule, it is not possible for a laboratory to know whether it is an applicable laboratory that receives a majority of its Medicare revenue from the PFS or CLFS. Without firm answers to such issues, and without definitions and parameters established in regulations, laboratories cannot be expected to comply with the reporting requirements of Section 216 of PAMA. Which tests would qualify as advanced diagnostic laboratory tests? The parameters that CMS proposes for advanced diagnostic laboratory tests (ADLTs) may make it unlikely that very many tests would be able to clear the bar. Congress created a special pricing mechanism for this kind of cutting-edge test that a laboratory expends a great deal of resources developing and marketing. Medicare eventually would pay for an ADLT like other laboratory tests, based on private payor market rates; however, initially, Medicare would pay for these tests based on a laboratory s list charge. Section 216 of PAMA establishes the outline of how a test would qualify as an ADLT, but CMS s proposal potentially would disqualify a number of laboratory tests that otherwise would be ADLTs. Other parts of CMS s proposal, if finalized, simply may dissuade some labs from pursuing designation as ADLTs for their tests. While the statute includes a test that is an analysis of multiple biomarkers of DNA, RNA or proteins combined with a unique algorithm, CMS would limit ADLTs to only those that analyze biomarkers of DNA or RNA. Also, if the developing lab has more than one Clinical Laboratory Improvement Amendments (CLIA) certificate, then its test could not be an ADLT, regardless if the lab developed and offers the test in only one of the CLIA-certified labs. A laboratory claiming to have an ADLT also would have to show that the test provides new clinical diagnostic information that cannot be obtained from any other existing test on the market or combination of tests. 21 A laboratory developing a test also would have to submit an application to CMS for an ADLT, the specifics of which the agency would release at a later date. CMS goes to great lengths to state that, while it does not expect to make information in an ADLT application available to the public, that information is not explicitly protected from disclosure. 22 For example, it is possible that some of this information could be discoverable through a Freedom of Information Act request. This is important because a laboratory submitting an ADLT application would have to provide evidence of any empirically-derived algorithms used in the test and show how the test yields new actionable clinical diagnostic information that cannot be obtained elsewhere. This is extremely sensitive and valuable information for laboratories that have sunk millions of dollars into development of a test and, sometimes, into approval or clearance by the FDA. The risk of disclosure to a competitor may outweigh any benefits of designation as an ADLT. Next Steps for Laboratories Comments on the proposed rule are due to CMS on November 25, 2015, and many laboratories and other stakeholders have started to prepare comments already. Laboratories can contribute to the rulemaking process by commenting on the proposed rule and educating CMS about the processes by which they are paid by private payors and the many wrinkles that can make determining a private payor rate anything but straightforward. The agency also could benefit from hearing about the amount of time it is likely to take after issuance of a final rule for a laboratory to extract payment data from a billing system, organize the data, verify it, and put it in to whatever format CMS eventually requires for reporting U.S.C. 1395m-a(7), 1395m-1(a)(9) Fed. Reg Id. at Id COPYRIGHT 2015 BY THE BUREAU OF NATIONAL AFFAIRS, INC. MELR ISSN

5 5 Given the logical impossibility of complying with regulations that are not yet final, it is likely that some will advocate for Congress to delay implementation of the law for six months or a year. This would give CMS more time to issue a final rule and allow laboratories time to determine how to comply and prepare their internal reporting systems. Without some sort of delay, the new CLFS pricing system is bound to get off on the wrong foot. When the California legislature enacted similar reporting requirements to set MediCal prices, many laboratories had difficulty assembling the required data by the first deadline, and the data submission deadline had to be extended. In that case, laboratories were required to report rates paid for only a fraction of the number of codes that appear on the Medicare CLFS, and generally for only the lab s top five payors. CMS s reporting requirements are far more extensive by comparison and may cause even more trouble for labs. The way that CMS sets rates under the CLFS is going to change, one way or another. The proposed rule adds some structure to the outlines established by Congress. It remains to be seen how much of what CMS has proposed will be finalized and how much the agency simply will not be able to implement, either because of logistical challenges or because the proposals prove to be too unpopular with important sectors of the laboratory industry. MEDICAL DEVICES LAW & INDUSTRY REPORT ISSN BNA