Effective January 1, 2018, the Centers for Medicare and Medicaid Services ushered in a new clinical laboratory fee schedule (CLFS), which could cut Medicare payments up to 30% over the next 3 years.  “As labs now see the 2018 rates reflected in their books, the real effects of the Protecting Access to Medicare Act (PAMA) that called for the new market-based payment scheme are coming into sharp relief,” writes Kimberly Scott in the March issue of Clinical Laboratory News.

Scott reports that labs with the most financial security, operational efficiencies, and strategic diversifications are the ones most likely to survive the new CLFS, which reflects lower private sector fees. Some that offer proprietary testing may have a leg up over other labs, but these returns may diminish over time as private payers become less willing to pay as much as nearly $4,000 for a breast cancer test.

Advanced Diagnostic Laboratory Tests (ADLTs), which use a unique algorithm to analyze multiple DNA, RNA, or protein markers and are developed and offered by just one lab, are another type of assay that could see favorable prices under the CLFS. However, the advantage these tests hold may also be short-lived. “New ADLTs will be paid the actual list charge for the first 3 quarters after being introduced. After the initial period is over, payment for a new ADLT will be based on the weighted median private payer rate like all other tests on the fee schedule,” Scott writes.

Smaller labs, along with those that serve nursing homes and thereby receive most of their testing payments from Medicare and Medicaid may face a tough road ahead, experts predict. Some labs anticipate that they may be out of business in a few years. Aculabs, which conducts tests for skilled nursing and assisted living facilities in several East Coast states, is expecting a 30% reduction in total revenue over the next 3 years.

To survive PAMA, labs need to do a better job of managing their finances and improving on their operational efficiencies. PAMA has highlighted how poor most labs’ financial systems are, Lâle White, CEO of XIFIN Inc., a health information technology company, tells CLN. As a result, White estimates that many labs fail to collect between 5 to 10% of their revenues. “A strong financial system that captures the level of detail needed for PAMA reporting—volume and payment by contract rather than just by payer—provides labs a wealth of data they can use to negotiate contracts and ultimately to collect monies owed,” Scott writes.

Suzanne Carasso, director of business solutions consulting at ARUP Laboratories, advises that labs invest in process improvements. “Labs need to take a hard look at themselves … Does your lab have the right equipment, is it performing the right tests, are you staffed appropriately, is there redundancy in the system?”

Pick up the March issue of  CLN to learn more about what the diagnostics landscape will look like under PAMA.