Updates on Clinical Laboratory Reimbursement and Enforcement – Fall 2014

Global Life Sciences: U.S. Healthcare Update

In recent weeks, the Centers for Medicare and Medicaid Services (CMS) released several significant updates affecting reimbursement for clinical laboratory tests in 2015 and beyond. In particular:

  • CMS announced two important updates related to Molecular Diagnostic (MolDx) tests;
  • Removed a regulation related to clinical laboratory payment made obsolete by Congress’ enactment of Section 216 of the Protecting Access to Medicare Act of 2014 (PAMA, Pub. L. 113-93, April 1, 2014); and
  • Declined to finalize certain proposed changes to the Local Coverage Determination (LCD) process used by Medicare Administrative Contractors (MACs) to make coverage decisions at the local level.

In addition, the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) announced that, using data mining techniques, it will increase its scrutiny of laboratory billing in 2015, and pursue enforcement actions against laboratories showing unusual claims and billing patterns. These actions demonstrate HHS’s ongoing efforts to modernize the clinical laboratory payment system as laboratory diagnostic testing, particularly in the genetic and genomic realm, becomes an even more critical component of patient care.

Payment for MolDx Codes in 2015

On November 25, 2013, CMS released its Clinical Laboratory Fee Schedule (CLFS) Final Determinations related to developing payment levels for new and reconsidered laboratory codes for 2015. Among other things, CMS indicated it plans to use the “gapfill” regulatory process, rather than the “crosswalking” process typically favored by industry, to determine prices for certain new Tier 1 codes (genetic tests) as well as for 21 new Tier 2 codes (also referred to as genomic tests, “Next Generation Sequencing (NGS)” or “Genomic Sequencing Procedures (GSP)”) being priced for 2015. Industry has generally favored cross-walking, i.e., using prices of existing similar laboratory tests to price new tests, but CMS continues to believe that the MACs are in the best position to develop appropriate prices for these novel tests through the more labor-intensive gapfilling process using data obtained from laboratories and other payors, as well as the MAC’s internal expertise, to set prices. Tier 1 genetic tests that were priced last year under the gapfill process were generally priced at lower than expected values for most tests, raising some concern that use of the gapfill process for Tier 1 and Tier 2 codes this year will produce similarly low payment rates.

With respect to certain new oncology tests classified as Multianalyte Assays with Algorithmic Analysis (MAAAs), CMS indicated that MACs will continue to individually review codes classified as MAAAs for coverage and payment purposes in 2015. CMS continues to question whether every MAAA code will qualify as a clinical diagnostic laboratory test subject to the CLFS, and thus is leaving these tests under the purview of the MACs at this time.

CMS is expected to release its final 2015 payment determinations for these genetic, genomic and MAAA codes prior to the end of 2014 to enable payments to be made under the CLFS in 2015. Laboratories will then have to avail themselves of regulatory processes to seek reconsideration of the payment decisions.

Palmetto Policy on Billing for MolDx Panels

Palmetto GBA, the MAC administering the MolDx Program governing coverage and payment for molecular pathology tests, announced that laboratories performing test panels (i.e., tests for multiple molecular biomarkers ordered together and completed on a single sample, whether the test requisition form lists the tests individually or as a panel) must begin to register each panel under the MolDx Program. Laboratories now must obtain a unique MolDx identifier for each panel and bill such panels with a single CPT code and the applicable unique MolDx identifier. Currently, many laboratories submit these multiple biomarker “panels” as individual tests, providing a CPT code for each biomarker included in the panel. Palmetto’s action here is consistent with its movement away from the “stacking” methodology used by laboratories prior to development of the Tier 1 and Tier 2 MolDx CPT codes, but these changes will require many laboratories and pathologists to adjust their MolDx test billing practices for many tests, likely resulting in reduced payments.

Palmetto began notifying affected laboratories on November 17, 2014, and laboratories will have 30 days to obtain unique MolDx identifiers for their panels in accord with this new Palmetto guidance. Beginning January 1, 2015, claims will be rejected for tests performed as panels and registered and submitted with CPT codes for each biomarker in the panel rather than with a single CPT code and a unique MolDx identifier for each such panel.

Medicare Physician Fee Schedule Final Rule Updates

On November 13, 2014, CMS issued its 2015 Medicare Physician Fee Schedule Final Rule (2015 PFS Final Rule) which includes updates related to payments for clinical laboratory services applicable to calendar year 2015. Consistent with the revisions to laboratory payment methodology mandated by Congress in Section 216 of PAMA, CMS removed 42 CFR §414.511 from its regulatory scheme. Section 414.511 would have authorized CMS to adjust payments for various clinical laboratory tests based on “technological changes” beginning in the 2015 PFS Final Rule. Instead, CMS will use its rule-making process to develop a data collection and reporting system to enable PAMA’s market-based payment methodology for laboratory tests which is scheduled to take effect in 2017. CMS did not specify a timeframe for issuance of this proposed rule, but PAMA does require that such rulemaking be finalized by June 30, 2015 in order to permit reporting to begin in 2016. CMS is in the process of assembling an Advisory Group consisting of outside laboratory experts to assist with the development of this new market-based reimbursement system, but has not released any further PAMA guidance at this time. Laboratories should continue to watch for CMS’ issuance of the PAMA proposed rule in the coming months, and should submit comments to CMS on the data collection, reporting and fraud and abuse aspects of the rule in order to ensure a new payment methodology that is functional and manageable for the laboratories who must report, and other stakeholders who will be affected by the new payment rates.

In addition, CMS declined to adopt its proposed changes to the Local Coverage Determination (LCD) process for clinical diagnostic laboratory testing, which had included, among other things, shortened timelines and public comment periods, as well as the elimination of the requirement that MACs hold open stakeholder meetings. PAMA requires that MACs may only issue laboratory coverage policies through the LCD process effective January 1, 2015, purportedly as one means to ensure that MACs use a more consistent process to regulate MolDx tests. Stakeholders should monitor any changes to the LCD process to ensure they will have the level of input and recourse needed as CMS implements the new market-based payment system under PAMA and new coverage and payment policies under the MolDx Program.

Fraud and Abuse — OIG Work Plan Includes Review of Clinical Lab Billing

The OIG announced plans to review Medicare payments to independent clinical laboratories in its recently released “Work Plan Fiscal Year 2015.” The OIG did not specify particular billing practices subject to review, instead offering a general reference to its various audits, investigations and inspections that have identified compliance risk areas, but did indicate that it will focus on laboratories with claims that may be at risk for overpayments. Given the proliferation of laboratories, especially smaller genetic and genomic testing laboratories, a highly competitive environment, the multitude of changes to laboratory billing rules, and the increased scrutiny reflected in the OIG Work Plan, laboratories should carefully analyze their billing and coding data and practices, NPI enrollment and reporting, physician and patient relationships, and sales and marketing arrangements to ensure compliance with applicable law.

If you have any questions regarding this update, please contact the Sidley lawyer with whom you usually work or

Barbara Cammarata



bcammarata@sidley.comRichard D. Raskin

Partner +1.312.853.2170


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