Category: Industry News

The financial impact of PAMA to your laboratory depends largely on the type of testing you perform.  With the recent publication of the 2018 Medicare CLFS reimbursement rates, it is clear that high-volume clinical laboratory testing is facing substantial downward pricing pressure while much of the advanced molecular diagnostics and genomic testing market reimbursement is neutral to positive.  Because of this, it is not surprising that two influential industry groups, the American Clinical Lab Association (ACLA) and Coalition for 21^st Century Medicine (C21), have issued opposing statements about the implementation of PAMA. Notwithstanding a successful last-minute legal challenge by those opposing PAMA, the industry must prepare for the likelihood and reality of an implementation on January 1^st, 2018.  If you haven’t done so already, knowing how PAMA will impact your lab’s revenue is a critical next step in this preparation.

The Protecting Access to Medicare Act of 2014 (PAMA) revised the payment methodology for clinical diagnostic laboratory tests paid under the Medicare Clinical Laboratory Fee Schedule (CLFS). Final Payment rates released November 17, 2017 will be implemented effective January 1, 2018. Studying Medicare’s new market-based payment system for laboratory services, there are areas of opportunity. Preliminary analysis indicates that molecular and genetic diagnostic testing services may benefit from the new rates. Other clinical testing services may experience a decrease in rates, in which case it becomes very important to understand which claim populations are impacted. may need to apply more complex financial models. All laboratories should also consider PAMA’s secondary impact on commercial payers (both contracted and non-contracted) who derive their allowed amounts from the prevailing Medicare CLFS. Trying to determine the exact impact PAMA will have on your lab can be its own challenge.

Quadax has developed a proprietary modeling tool that is helping our laboratory clients plan and prepare for PAMA’s initial and on-going impact. By using this tool to identify and quantify areas of greatest challenge and opportunity, our client service teams provide the data to help drive our customer’s decision-making process. To deliver the best results, we collaborate with our clients bringing together our joint expertise in the analysis and interpretation of the data, reporting requirements, and clinical aspects of the tests. If you are interested in learning more about our proprietary PAMA modeling tool and how we can use it to benefit your lab, please contact us. We are here to help.

As your lab considers future opportunities—from enhanced operating efficiencies to test menu diversification—an optimized revenue cycle management solution is key. One that solves for both tactics and strategy so that reimbursement efforts maximize revenue in the new world of PAMA-driven pricing.

In the face of PAMA’s substantial cuts to the Part B Clinical Laboratory Fee Schedule (CLFS) on January 1, 2018, many hospitals are reassessing the value proposition of their laboratory service offering.

Before deciding to sell or outsource portions of your lab program, your health system may want to consider the laboratory’s contribution to an enhanced patient experience and the powerful patient management decision support afforded by mining laboratory data. Though such a decision to divest your laboratory operation may produce short-term benefits, it may limit long-term growth strategies and competitiveness for your health system.

The PAMA Impact

The Protecting Access to Medicare Act of 2014 (PAMA) revised the payment methodology for clinical diagnostic laboratory tests paid under the Medicare Clinical Laboratory Fee Schedule (CLFS). With the implementation of PAMA just months away, hospitals are reevaluating their laboratory business. Just how big an impact will PAMA have on your lab’s revenue? In the context of a hospital lab program’s possible three business segments – inpatient, outpatient, and outreach (e.g. non-hospital patient) – it appears only outpatient and outreach will be affected by PAMA, with the greatest impact on outreach.

• Inpatient lab services, governed by Part A, are not impacted by PAMA cuts targeting Part B. Also, Medicare reimburses hospitals for inpatient lab services as part of Diagnosis Related Group (DRG) bundled payments and therefore does not use the CLFS for payment rates.
• Outpatient lab services, governed by Part B, are most often paid by Medicare within Ambulatory Payment Classifications (APC) payment bundles. Medicare has bundled the majority of CLFS and the technical component of most anatomic pathology procedures from the Physician Fee Schedule (PFS) into the Evaluation and Management (E&M) service payment. However, PAMA rates will still apply to a small subset of CLFS CPT codes that are still paid fee-for-service (e.g. molecular diagnostics).
• Outreach lab services performed on non-hospital patients will be the segment most impacted by PAMA.

Gain Operational Efficiency

Hospitals expect their labs to be efficient, productive, and competitive. Can hospital labs gain the efficiency to offset anticipated losses expected with PAMA? Do they have the right equipment? Are they doing the right tests on site? Are they staffed appropriately and processing specimens in an efficient manner? Are test menus optimized across multiple hospital campuses?  Is your lab increasing the number of patients served and tests performed, while decreasing the need to repeat tests through improved specimen handling and result reporting? Operational efficiency benefits from continuous improvement efforts. Track your lab’s success in this area by using key performance indicators (KPIs) such as turnaround time (TAT), count of unresulted or canceled lab tests, reagent and material cost per accession, and labor costs.  While operational efficiency is important, defining your lab program’s value still requires a wider view.

Separate Your Lab’s Financials, Claim Management and Reimbursement Processing

A health system’s lab financials are often rolled-up to combine with hospital figures. As part of a merged Profit and Loss, it can be difficult to track the true financial performance of the lab program. The lab’s financial performance can also be impacted by the sharing of hospital billing and reimbursement resources. Viewed as a secondary initiative by shared resources, lab programs may experience a higher incident of bad debt due to inefficient collections and low net revenue. Lab testing services reimbursement efforts may benefit from separation through the implementation of a lab-centric revenue cycle solution.

Another reason to consider separation, is the unique pre-claim requirements of specialized testing. As health systems bring genetic and molecular testing to their hospital lab program to drive personalized medicine, the steps needed to get reimbursed correctly require expert knowledge and processing. Cutting-edge molecular and genetic tests must meet payers’ medical necessity and prior authorization requirements.

Many hospitals now find themselves in a Medicare Administrative Contractor (MAC) Jurisdiction that has implemented the MolDx program.  In order to be considered for reimbursement, all Part A and Part B claims for molecular diagnostics testing, whether performed in-house or by a reference laboratory, must be submitted to the MAC with the appropriate Diagnostics Exchange (DEX) Z-Code assigned to the test.  Given these and other MolDx billing requirements, your hospital lab program may want to consider laboratory business process outsourcing options to receive maximum reimbursement for specialized testing since many legacy hospital billing systems are unable to adapt to the special billing requirements of the MolDx program.  Even for a mid-sized hospital, hundreds of thousands of dollars may be left on the table because of the inability to submit Z-Codes on your claims for molecular diagnostics testing to your MAC.

Alternative Value Proposition

Using cost containment as the sole basis for determining a hospital lab program’s worth may be too limiting. How does your hospital outreach lab contribute to your health system’s patient experience? Balancing service and return-on-investment, health systems may want to consider the value of quality testing done onsite with rapid turnaround times.

What about serving the increasing number of hospital-employed physicians? As physician provider’s become hospital employees, labs are jockeying for position. Hospital labs have a unique advantage… location, location, location. But to leverage that advantage, hospital labs need to sell their service, speed, and quality to the ordering physicians. Is your hospital lab program creating valuable connections with hospital employed physicians? Can your outreach lab compete solely on a cost basis? Or is there additional value to be considered?

Laboratory data is actionable and has predictive value. As hospitals and health systems move toward value-based health care, their lab programs could provide a major source of information. What if your hospital lab was viewed as a collaborative partner offering innovative data analytics, utilization management, and diagnostic decision support? What if your lab could gather information on and provide an understanding of referral patterns, helping physicians order the right tests?

Defining Your Hospital Lab’s Future Value

Many health system executives feel forced to sell off the lab program because it is not viewed as a core fundamental service. Without a process in place to measure the profitability or value of their lab’s business, hospitals tend to undervalue their worth. You can respond by communicating your lab’s value. You can start by optimizing your lab’s revenue cycle. Quadax, an expert in laboratory billing, can help. With service options sized to fit (Business Process Outsourcing, Software-as-a-Service, Hybrid), your lab can maximize reimbursement and demonstrate its value. Learn more about Quadax services, visit Understanding Your Lab’s Revenue Cycle.

Centers for Medicare & Medicaid Services (CMS) released Transmittal 3881 on Friday, Oct. 13, 2017 requiring the submission of data for lab tests processed with “unlisted” codes effective beginning January 16, 2018. Medicare Contractors (MACs) will report to CMS specific laboratory tests and associated claims data for any test paid under the Clinical Laboratory Fee Schedule (CLFS) as a Not Otherwise Classified (NOC), Not Otherwise Specified (NOS), or an Unlisted Service or Procedure code, including but not limited to the following: 81099, 81479, 81599, 84999, 85999, 86849, 86999, 87999, 88749 and 89398. Claims that fail to follow the new procedures will be returned as unprocessable.

Know Your Payer Requirements.

When it comes to preauthorization, it is important to know what your payers require. Some prior authorization programs may require test registration and/or genetic counseling and may limit or discontinue retro-authorization options. The latest payers to adopt such programs are Anthem Blue Cross and UnitedHealthcare.

Define Your Lab’s Financial Goals.

Before you can determine the best strategy for managing pre-test authorization, you need to define your lab’s financial goals and establish your lab’s identity, including the willingness to trade reimbursement for market share and volume. Start by analyzing your historic revenue data. Analytics will help you understand and anticipate what the new pre-test requirements will cost your lab. A good revenue cycle system can help you identify which of your tests, patient populations, providers, and payers perform best financially and which do not. Investigate under-performing product-market segments. Is it a volume issue, a cost issue, or both? Are the right tests being ordered and performed? Engage in a low-cost, high-impact educational campaign targeting providers and patients as well as your own sales team and back-office support.

To Test or Not To Test – Things to Consider.

When you are sure the right tests are being properly ordered, you need to decide whether or not your lab should perform the tests. Delivering rapid turnaround in the midst of rigorous payer pre-test requirements adds complexity and cost to your lab’s operations. What level of calculated risk to reimbursement is your lab willing to accept in order to maintain market share and deliver rapid turnaround? Here are some things to consider during your decision-making process.

• With certain exceptions, Medicare defines Date of Service (DOS) as the date the specimen is collected, making it virtually impossible for the laboratory to obtain prior authorization after the specimen has been received. Some commercial and Medicare Advantage plans may allow the DOS to be the date the test report is signed. It is in the lab’s best interest to have all pre-test requirements before starting the test. Pre-test requirements include not only payer prior authorization, but also basic coverage determination. In the event the test is not a covered benefit, the payer may require patient consent through the use of an Advance Beneficiary Notice (ABN) form in order to bill for the test. How will the need for prior authorization and ABN impact your accession process? Consider deploying a client-facing ordering portal that will include the payer pre-test requirements so that the ordering physician has the necessary information at the time of ordering.
•  Another strategy is to revisit your payer contracts. If during payer negotiations your lab cannot eliminate a payer’s requirement for prior authorization, then you may want to attempt to negotiate the terms. Some labs have been successful in negotiating a 2-week window from specimen collection in which to secure pre-test requirements. If granted, it would be the lab’s decision whether or not to go to testing during this time, tailoring accession operations based on product-market segment performance. Specimens from high-performing segments would move to testing immediately, while specimens from other segments could be held until all pre-testing requirements are met.
• Consider the demands of proper specimen handling. Many biological specimens (blood, urine, bone marrow) do not have long viability. Define your lab’s specimen handling requirements to ensure the integrity of your test results. Identify these procedures and protocols in your negotiations with payers stating the adverse effects of testing delays. Plan for these operations in your accession workflow strategies.

Choose Your Next Move.

The choices you make for how your lab moves forward in the midst of today’s rigorous pre-testing requirements depends on your lab’s ability to optimize its revenue cycle while delivering quality test results. Achieve operational success and maximize reimbursement efforts by understanding the payer’s requirements and then deploying an optimized, prioritized workflow.

In less than three short years (2014-2017), narrow and ultra-narrow networks have increased from 48% to 53% of all networks. With their majority influence, these networks are reshaping the healthcare industry. To survive, labs of all kinds will need to understand the implications of narrow healthcare networks on their ability to access patients and collect reimbursement.

To begin, it is important for laboratory managers and pathologists to understand the reasons behind insurers’ creation of narrow networks and their perceived value by consumers and employers.

How do plans with limited networks provide cost savings for health insurers and health consumers?

The goal is to deliver increased patient volume (and revenue) to the provider in return for lower costs to the insurer (and ultimately the patient) achieved through reduced rates. Insurers limit the number of doctors, hospitals, and other providers a patient can visit in order to negotiate a lower cost for services with networked providers in return for a higher volume of patients. Insurers also promote to consumers that narrow networks allow insurers to influence the delivery of coordinated healthcare by offering targeted in-network solutions to help physicians and providers give patients more personalized care.

Looking for value, consumers prefer health plans with lower premiums over higher-priced health plans that offer access to more providers—22% and 19% respectively. Similarly, employers prefer the benefit of lower health plan premiums with 56% of employers considering narrow networks as a way to reduce medical costs. The level of savings could be a very good deal for consumers and employers, but whether these health plans can deliver value depends on whether or not the insurer’s selected network can provide adequate care.

With limited accessibility and availability, can narrow networks provide adequate care?

While narrow network plans might save money for insurers, consumers, and employers, they could make it harder for patients to get the care they need, where and when they need it. The plans may not include enough nearby providers and the providers they do include may be too busy to take new patients in a timely fashion. This could be problematic if a patient is unable to obtain the timely healthcare they need within their network. It can be further compounded if the plan provides limited or no out-of-network benefits.

Network Adequacy Standards

Federal and state regulations qualitatively state that networks should provide for reasonable access, without unreasonable travel or delay. Regulation of health plan provider networks often includes quantitative standards that may review the number of providers, provider-to-enrollee ratios, the mix of provider types, and the distribution/location of providers from whom enrollees may reasonably be expected to obtain services. Encouraging network transparency, regulation may also require that provider directories are updated at least once each month. The key to any successful regulation is compliance and enforcement. Without means to measure and enforce Network Adequacy Standards proactively, federal and state regulators are limited to respond after-the-fact to patient complaints regarding network compliance.

Implications laboratory providers may want to consider

Whether your laboratory pursues an in-network or out-of-network strategy, it is important to consider the effect narrow provider networks will have on your lab’s ability to access patients and collect reimbursement.

• If your lab is seeking to be an in-network provider in a limited network plan, it may be helpful to learn about the network’s size, mix, and distribution/location as well as any governing Network Adequacy Standards that may be in effect. This information can help you communicate how your lab will fit within and add value to the network’s model. Also, be prepared to discuss price. It may be helpful to approach the topic of price from a value-based perspective. Payers will be interested to learn how your lab testing services can contribute to improve patient outcomes and reduce the cost per episode of care. You may want to demonstrate your lab’s value by sharing relevant statistics. For additional network negotiation strategies, reference Developing Clinical Laboratory Strategies to Gain Network Access.
• If your lab remains an out-of-network provider, your lab will need to balance offering a low price through the narrow health network with preparing for patients to be responsible for paying the entire cost of the test. Be aware that out-of-network providers face new constraints on their ability to balance bill members of government-funded and commercial plans, while commercial payers are continuing to sue out-of-network providers to stop improper referrals and cost-sharing waivers.

Regardless of your network strategy, it is important to know the implications of narrow healthcare networks on your lab’s business model and to have available your lab’s performance statistics so you can negotiate value and drive efficiency and cost containment measures. Learn how Quadax can help; visit Reveal Opportunities. Analyze Impact. Deliver Results.