College of American Pathologists
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cap today

IOM lab recommendations right on the money

Why the report and what CAP argued
What the IOM recommends

February 2001
Mary Jane Gore

Among the Institute of Medicine’s 12 recommendations for revising the system of outpatient Medicare laboratory payments, one is critically important for pathologists and laboratories. The IOM’s final report calls for an "open, timely, and accessible process" for incorporating new tests into the Medicare laboratory fee schedule, and it specifically calls for pathologist expertise.

"This recommendation is our No.1 priority," says Mark S. Synovec, MD, of the CAP’s IOM Work Group on the Clinical Laboratory Fee Schedule and chair of the Professional and Economic Affairs Committee. With input from pathologists on how best to set relative values and fees for new technologies, laboratories will be able to achieve fair reimbursement without long delays, offer tests to more patients, and improve patient care and health.

The report, in general, is "a very good assessment of the state of the system. Many of their conclusions were rational," says Stephen N. Bauer, MD, chair of the IOM Work Group and a pathologist at Mercy San Juan Hospital, Carmichael, Calif. (See "What the IOMrecommends," page 10.)

The recommendations in "Medicare Laboratory Payment Policy: Now and in the Future," released in December, preserve the fee-for-service component of the fee schedule and confirm that other parts of the system are valuable.

CAPTODAY’s sources perceive the IOM recommendations as positive for laboratories, with no major shakeups to the current system. Some wish, however, that the recommendations had gone further to relieve the financial burdens laboratories face in certain settings and to address the uneven payment cuts laboratories have suffered since the outpatient fee schedule was instituted in the early 1980s.

The IOM Work Group discussed the report after its release, but it has not yet determined a formal course of action.

Commenting on the recommendations informally, Dr. Synovec says, "Overall, the outcome of the report was a relief. Last year, the IOM study on the magnitude of medical errors had a tone of sensationalism about it, and it got a lot of press. We were concerned about the potential for catastrophic changes to the payment system. It was, however, a positive report and a factual representation."

CAP president-elect Paul Raslavicus, MD, says the recommendations are, for the most part, wise and well reasoned, particularly those that open the payment system to formal channels for industry input. Important points of his testimony before the IOM committee in 2000 were preserved in the final recommendations. (See "Why the report, and what CAPargued," page 6.)

John M. Matsen, MD, professor emeritus of pathology and pediatrics at the University of Utah, is one of 12 members of the IOM committee and a CAP member.

"I don’t think there is anything negative to pathologists in the report," Dr. Matsen says. "It is forward-looking and optimistic about what could be accomplished. I think these recommendations present a wonderful opportunity for the College and could be used as an agenda for the future."

Eleanor Travers, MD, a CAP member and the only other pathologist on the IOM panel, stresses that the panel considered only outpatient testing and laboratory medicine for its report-not anatomic or surgical pathology. Thus, physicians who are specialists in clinical laboratory medicine may have a particular interest in the IOM’s recommendations.

All pathologists, however, should understand the importance of changing the system of determining proper codes and the fee schedule, a system that is outdated and broken, says Dr. Travers, a physician executive and health care system administrator at the U.S. Department of Veterans Affairs, Washington, DC.

"This report," she adds, "does everything possible to point out why laboratory payments are denied, given the panel’s short time frame. It may help many laboratories experiencing reimbursement losses."

Recommendation 6 calls for pathology input in the process used to work new tests into the laboratory fee schedule. Pathologists are hailing it as a wise recommendation-one that can speed up reimbursement for valuable technologies.

Dr. Bauer says College leaders are concerned about timely updates to the fee schedule for new technologies. "Absent that," he says, "there are disincentives for people in laboratories to adopt new technologies that may be very beneficial to patients."

Others agree. "As a laboratorian, I have certainly been frustrated with the problems we have of getting new technologies reimbursed," says Dr. Synovec, president of Topeka Pathology Group and laboratory medical director of the Stormont-Vail Regional Health Center in Kansas. "The lag time it takes to get adequate compensation not only limits access to the technology, it inhibits the new technology itself. We can’t afford a lot of expensive tests, especially when there is no reimbursement. We don’t have a lot of loss leaders in the laboratory."

Dr. Synovec considers pathologists’ input in such decisions imperative. "HCFA needs someone in the trenches to be guiding them on what should or shouldn’t be reimbursed and what the level of reimbursement should be," he says.

Recommendation 7 surprised Dr. Synovec. It states that the Health Care Financing Administration should examine alternatives to the current system for coding laboratory services, including new technologies. The report says the CPT coding process often lengthens the process of adding new technologies into the Medicare laboratory payment system and that the CPT codes have "inadequate specificity."

Dr. Synovec says the IOM committee report did not acknowledge the recent work of the American Medical Association’s CPT-5 Work Group in creating a new coding system specifically for incorporating new technologies into CPT. "This creates a fast-track mechanism to incorporate technologies that wasn’t there before," he adds.

Dr. Travers acknowledges that the final report did not address the new coding system-an editorial decision made at the National Academy of Sciences. "CPT-5 was considered," she says. "However, it was the opinion of the committee, through their discussions, that it still did not provide the best solution for laboratories because it was not far enough along in its development for the committee to consider it as a solution or to recommend its use."

Dr. Synovec says the new emerging technologies section of CPT will provide new codes biannually. He feels the rate-limiting step will be acceptance of these codes by Medicare and other payers and the setting of appropriate payment for these services. "The real problem will not be getting the codes through CPT," he says.

Dr. Synovec remains concerned that this issue was not addressed in the IOM committee’s report. Still, he is pleased with the emphasis on new technologies. "Until we figure out what to do with new technology issues within our work group, we won’t be able to totally address a national fee schedule," he says.

Dr. Raslavicus is cautiously optimistic about the first and overarching recommendation of the report: establishing a single, rational, national fee schedule. "The IOM proposes making adjustments to the fee schedule, such as those for geographic location of the laboratory," he says. "These adjustments should reflect a relative resource requirement, and the fee schedule should be set at a level that is not confiscatory."

Dr. Raslavicus and others, however, question the merit of the recommendation that relative payments for laboratory services be based on the current national limitation amounts, or NLAs. These are the national fee caps for the schedule that are based on a region’s median charges.

"The IOM says the fee schedule even could be reduced by one to two percent of the current NLAs, but historically the fee schedule has not kept pace with the costs of the consumer price index," Dr. Raslavicus says. Add to that the number of freezes and reductions that have been imposed since the fee schedule took effect, and it amounts to unfairly low payments for many laboratories.

"It may be that the fee schedule already is too low to provide fair access to testing, particularly in rural settings," Dr. Raslavicus says. "The IOM assumes the current fee schedule is accurate and adequate. Not everyone would agree." Smaller hospitals and rural facilities are under great cost constraints, and the cost of performing tests in these low-volume settings is considerable.

Asked about the prospect of even lower Medicare payments, Dr. Bauer says: "I don’t think that was part of what the IOM was charged with. The Medicare discussion has been about how the pie is cut among all health care providers. The IOM was supposed to address how you would divide the laboratory portion among the labs, rather than how much the laboratory would get overall from the Medicare budget."

As part of its examination of the fee schedule, the IOM commissioned three background papers and a study on costs and payments for laboratory services. The IOM concluded that HCFA needs to evaluate new ways of gathering data for refining the fee schedule, including such options as micro-costing studies, a competitive bidding demonstration, a negotiated fee demonstration, or an examination of charge data. The IOM, however, is uncertain how current charges reflect actual costs and suggested using other methods with charge examination.

The IOM committee concluded fee schedule adjustments should not be made based on the setting in which tests are performed. Yet Dr. Raslavicus insists the system needs to address the disparity of costs in different circumstances.

In writing its report, the IOM found it was difficult to obtain cost data on laboratory testing on a micro-costing basis and thus gain information about the cost of tests in various settings. "If that were easy to do, it would have been done a long time ago," Dr. Bauer says. The industry might be better served, he adds, if adjustments for testing are made on the basis of whether a test is provided on a stat or routine basis, rather than on the basis of setting.

CAPTODAY’s sources cheered the IOM’s recommendation to abandon ICD-9 diagnosis codes as a way to prove medical necessity for testing. Dr. Travers says this recommendation is of great importance to laboratory medicine professionals because ICD-9 code requirements lead to waste, inefficiency, and high costs. "It is important, because dropping ICDcode requirements could markedly change a local carrier’s approach when deciding to reimburse a test," she says.

It is the behavior of the ordering practitioner that should be modified, adds Dr. Synovec, but Medicare has been doing this through the laboratory. HCFA should instead conduct post-payment reviews, not hinder health care delivery with pre-payment medical necessity requirements. One solution is for the Medicare program to devise a way to examine the complete record and what all providers are submitting for one patient.

"If you have six different providers reporting the patient’s primary diagnosis as X, and one other provider is providing additional services for a primary diagnosis of Y on a large number of patients, you likely have a condition where HCFA may want to conduct a focused review," Dr. Synovec says.

Dr. Synovec is optimistic that the ICD-9 codes may disappear, but "the question is," he says worriedly, "what will HCFA do instead?"

Dr. Travers considers another recommendation important to the future of laboratory medicine: consolidating the number of Medicare carriers and thus reducing the number of fee schedules used nationwide.

"If we consolidate the number of carriers, we will have greater equity in payments across the country because local carriers will be forced to listen to HCFA’s policy rather than use their own punitive denials on a local basis," she says. A system of almost 60 carrier regions is too decentralized, she adds, and HCFA cannot afford to police all of them, so they have been free to create their own rules.

Dr. Synovec worries that physician office and hospital-based laboratories may be subject to major new billing procedures if carriers are consolidated. There would be few advantages to this system if a national fee schedule and national coverage policies, including new technology assessment and payment, were enacted.

Another plus in the list of recommendations: the IOM’s continued support for not requiring Medicare patient copayments for clinical lab services.

"They recognized it would add a lot of complexity and cost," Dr. Bauer says. "Most labs have a relatively low dollar price on tests. If someone is billed repeatedly for a copayment on a $30 test, the burden of collecting that copayment doesn’t make sense."

The College wants incremental change in existing systems to accommodate the new technologies and resources expended. "This report certainly supports the College’s position," Dr. Bauer says, "and I think that the recommendations coming from the College in the future will reflect that position."

Dr. Matsen, of the IOM panel, says he foresees the College working with other laboratory groups to help turn the recommendations into reality. "I think the IOM recommendations have a lot of credibility, and the report is an appropriate reflection of the reality of the way things are in the laboratory."

Cooperation with other laboratory professionals is essential, Dr. Travers notes, because in Washington, "nothing is accomplished unless people speak with one voice."

David Sundwall, MD, president of the American Clinical Laboratory Association, likewise has told ACLA members that while "the recommendations are constructive, they are nothing more than recommendations unless all of us in the industry pull together." It is unlikely that "any one point of view is going to push federal or national policies. We must pull together to come up with a strategy."

Because the 107th Congress is still coming together, a meeting of the Lab Budget Coalition, an industry group that tries to coordinate its lobby, is one route through which laboratory professionals can work cooperatively. Dr. Synovec says the lull, as the Bush Administration takes shape and Congress regroups, provides time for laboratories to digest the IOM report and start working together.

"What will help us," says Dr. Sundwall, "is the credible information in the report that will bolster the arguments we make year after year-that copayment is not the way to go, that further cuts should not be enacted."

Dr. Sundwall, who serves on a Medicare payment advisory panel and who has also worked for Congress, says he thinks the IOM changes will be made in the context of a budget. "If Congress is inclined to seek cuts in laboratory areas, these recommendations may be very useful when creating arguments against the proposed cuts," he says.

"If they create new legislation for a new relative value scale or coverage policy, that would happen as part of Medicare reform," he adds. Thus, there may be two avenues for implementing the IOM recommendations: as part of the congressional budget process or as part of a larger Medicare reform package.

Whatever the recommendations’ future, the bottom line, says Dr. Travers, is that the system is broken. The laboratory "should not be held accountable for actions that are not under its control."

Mary Jane Gore is a freelance writer in Charlottesville, Va.