New Medicare regulations will decimate community laboratories
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With fewer laboratories to conduct clinical testing following a doctor's visit, the wait for test results to inform treatment and care will be significantly delayed or even impossible to attain.

It's something patients are expected to soon face due to a final regulation issued by the Centers for Medicare and Medicaid Services (CMS), which threatens to wipe out clinical laboratory market competition across the country.

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Small community and midsize regional independent laboratories are located throughout the country and serve physician practices, hospitals, outpatient care settings, skilled nursing and rehabilitation institutions, and long-term care facilities. They employ a skilled scientific workforce right in the community, providing timely, needed diagnostic testing services to Medicare beneficiaries in rural and other underserved communities.

These labs offer services directly to homebound patients and those in skilled nursing facilities. Without these laboratory testing providers, beneficiary access to testing that directs their care and treatment and ultimately streamlines healthcare costs would be in crisis. They are the hope and promise of true precision medicine, directly serving their communities.

In June, CMS released a final regulation outlining a process to rewrite how clinical laboratories will be paid under Medicare. The regulation is in response to legislation included in the law known as PAMA, the Protecting Access to Medicare Act of 2014, passed to avert cuts in Medicare physician pay due to the flawed sustainable growth rate formula (SGR). PAMA otherwise had nothing to do with clinical laboratory services.

Congress never held any hearings to address laboratory payment reform or understand the impact reform options could have on small businesses or Medicare beneficiary access to laboratory services. Neither the Government Accountability Office (GAO) nor the Medicare Payment Advisory Commission (MedPAC) had an opportunity to offer laboratory payment reform recommendations. It has taken CMS until now to release a regulation, and the agency has not bothered to test any reporting system to ensure laboratories, especially small laboratories can comply with the requirements.

Ultimately, PAMA placed a significant unfunded mandate on many clinical laboratories to report all of their private commercial payment rates to the government: on every private contract, on every individual test, for the entire volume of clinical tests each laboratory provides — a burden that is untenable for small businesses. The new law provided no resources to support small business in this effort.

Of serious concern is that it instructs CMS to take all of the payment data, find the weighted median and reprice the tests currently paid under the Medicare Clinical Laboratory Fee Schedule. The end result is supposed to be new "market rates." But based on the methodology, those new rates inherently will be flawed, inaccurate and inappropriate.

CMS's final rule says that laboratory reporting must begin Jan. 1, 2017. The problem is that the regulation lacks the detail needed to allow laboratories to prepare to report their data, something CMS acknowledges. The rule makes multiple mentions of subregulatory guidance that is forthcoming to help laboratories to comply with reporting requirements, yet as of September 2016, the laboratories continue to wait for all of the guidance promised.

At this point, the timeline for implementation is less than four months — essentially the same as when Congress cried foul last year, when CMS threatened to implement the rule in short order. The concerns are the same today, and members of Congress must protect the businesses in their districts and delay this flawed implementation.

Congress simply cannot allow CMS to put into place a regulation that sets these community businesses up for failure, and in the face of outrageous financial penalties up to $10,000 per error per day when they can't comply. We must protect the segment of the laboratory market that benefits our communities, individuals, and families and serves our most vulnerable.

PAMA was intended to adjust Medicare rates to reflect rates otherwise paid in the market. However, the National Independent Laboratory Association (NILA) that represents small and midsize independent laboratories says that CMS is not undertaking such an assessment.

Here's why: The real national laboratory market includes payments to hospital outpatient, hospital outreach, physician office and independent clinical laboratories. But CMS excludes nearly all hospitals from PAMA required reporting. By doing so, CMS is limiting reported payment rates to the sector of the industry dominated by the two largest national publicly traded laboratories. Those two laboratories make up more than 50 percent of the test volume in the U.S. and offer steep discounts on routine clinical diagnostic tests, attaining sole source contracts with private payers.

CMS's so-called market assessment will reassess all laboratory payment rates using just one segment of the laboratory market and have that assessment dominated by data from just two laboratories. The result: CMS takes an ax to the Medicare Clinical Laboratory Fee Schedule, no matter what the consequences.

The situation is reminiscent of the way mom-and-pop shops have felt the squeeze from big-box retailers over the past 20 years. But instead of someone traveling further away to buy milk because the grocery store in a rural community has closed, we're talking about a Medicare patient traveling hours for a critically important lab test because there are no more local labs to perform that service. As a retired physician, I know that doctors rely on quick, accurate test results to diagnose and treat health problems, particularly for chronically ill patients. With fewer laboratory facilities to process samples, doctors and patients will experience a delay in test results and therefore treatment.

Community laboratories also are a critical part of the nation's public health infrastructure and have played essential roles during natural disasters and other emergencies when air traffic is limited or not available. When national labs were unable to ship samples by air for processing in the wake of September 11, 2001, community laboratories provided necessary infrastructure to ensure that testing was available on the ground.

The timeline and terms outlined by CMS are anti-small business, anti-market, and contrary to the promise of personalized medicine. I urge Congress to stop this trainwreck before it occurs and delay the regulation. We need to ensure that CMS does not deviate from the statute and instead conducts a full and fair market assessment when setting Medicare rates for laboratory services. A fair assessment that preserves market competition is vital to ensuring Medicare beneficiary access to clinical laboratory services and to preventing a government-created diagnostic testing duopoly that Medicare ultimately cannot afford.

Gingrey, M.D., is a senior adviser at the District Policy Group, a boutique policy and lobbying practice within Drinker Biddle & Reath. Dr. Gingrey is a former U.S. congressman who served Georgia's 11th Congressional District from 2003 to 2015. The views expressed are the author's own and are not an endorsement of the legislation mentioned.


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