Medicare is a path to potential major savings

Medicare is a path to potential major savings
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The U.S. Government Accountability Office (GAO) has designated Medicare as a high-risk program, in part because of its outsize impact on the federal budget. As the largest single purchaser of health care in the U.S., Medicare often pays lower prices than other purchasers. However, laboratory tests historically received higher payment rates from Medicare than they did from private payers. Since the federal government was paying so much, Congress directed GAO to review the implementation of new Medicare payment rates for laboratory tests. These new rates are intended to bring them in line with the rates private payers receive.

In an opinion piece, the author misrepresented the findings of a recent GAO report on the implementation of these new payment rates for clinical laboratory tests. Julie Khani stated that we “proposed hypothetical scenarios to suggest labs are unbundling certain panel tests and receiving higher reimbursement.” 

But the fact is we make no claims about actual improper reimbursements to laboratories in the report. Instead, we found that CMS’s implementation of the new rates led to Medicare payment vulnerabilities that, in the worst case, could expose Medicare to billions of dollars in overpayments. We stand by our conclusions. 


One of these vulnerabilities involves panel tests, groups of laboratory tests that are bundled together and paid at a single rate. The overall payment rates for the component tests billed individually are much higher than the bundled rate. 

We found that CMS instructed its payment contractors to stop bundling payment rates for tests that are billed individually starting in 2018. As a result, instead of paying a bundled rate of $13, Medicare could pay $82 — a difference of over 500 percent — for the same panel test if the group of tests that make up this panel were billed individually. Our estimations found that the payment rate for each panel test were unbundled, Medicare expenditures could increase by as much as $10 billion from 2018 through 2020. 

Our report states that this estimate represents an upper limit on the increased expenditures that could occur if every laboratory stopped using panel test billing codes. That is, we made no assumptions in the report about the degree of “unbundling” attributable to laboratories billing practices, although CMS officials told us that some unbundling had occurred in 2018. To mitigate this potential vulnerability, we recommended that CMS use bundled rates for panel tests. CMS agreed with our recommendation and committed to take action. 

We also found that CMS received incomplete private payer rates from laboratories that it used to calculate Medicare payment rates for 2018 through 2020. We noted that the provision directing CMS to phase in payment rate reductions likely moderated the potential adverse effects of incomplete data for the initial three-year period of payment rate reductions, but that these data limitations could have substantial impacts in the future. We recommended that CMS take steps to improve data collection, and CMS has taken some steps to do so, including clarifying its policies about which laboratories should report private payer payment rates. 

We believe taking action on the issues that we raised in our report is in the financial interest of the Medicare program, its beneficiaries and the American taxpayer.

A. Nicole Clowers is the managing director of health care at the Government Accountability Office.