College of American Pathologists
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What the IOM recommends

February 2001

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The 12 recommendations in the Institute of Medicine report on revising the system of outpatient Medicare laboratory payments can be grouped into two categories. The first six recommendations are about the national fee schedule and suggested adjustments; the final six take up other issues, such as reviewing coding procedures, consolidating contractors, and eliminating ICD-9 codes as a way to indicate medical necessity. The recommendations follow.

1. Medicare payments for outpatient clinical laboratory services should be based on a single, rational, national fee schedule.

2. On an interim basis, relative payments for Medicare outpatient clinical laboratory services should be based on the current National Limitation Amounts, or NLAs.

3. A data-driven consensus process for refining the new Medicare national fee schedule for outpatient clinical laboratory services should be developed. HCFA should explore alternative methods for gathering data to be used in the process.

4. Medicare national fees for outpatient clinical laboratory services should be adjusted for geographic location. HCFA should also evaluate the need to adjust for other circumstances, particularly those likely to affect beneficiary access, and make recommendations to the Congress.

5. Processes should be put in place to refine and periodically update the fee schedule for Medicare outpatient clinical laboratory services.

6. To incorporate new tests into the Medicare laboratory fee schedule, there should be an open, timely, and accessible process that is subject to challenge. HCFA should create a committee of laboratorians, pathologists, other physicians and scientific experts, health care policymakers, and economists to advise on setting relative values or national fees for new technologies. The process and fees produced should not impede clinical decision-making that is essential to providing appropriate care.

7. HCFA should review alternatives to the current system for coding outpatient clinical laboratory services for claims processing. More accurate, open, and timely coding processes for new technologies as well as tests and services should be sought.

8. The current policy of not requiring beneficiary cost sharing for Medicare outpatient clinical laboratory services should continue. Cost sharing is unlikely to significantly reduce overuse or increase the detection of fraud and abuse; it could create barriers to access for the most vulnerable Medicare beneficiaries; and it would be financially and administratively burdensome for laboratories, patients, and the Medicare program depending on its design.

9. HCFA should discontinue use of International Classification of Diseases, 9th Revision (ICD-9) diagnosis codes as the basis for determining the medical necessity of clinical laboratory tests. HCFA should assess the need for any approach to evaluating the medical necessity of individual laboratory tests prior to payment of a claim. In addition, HCFA should evaluate alternative approaches for identifying and reducing unnecessary or inappropriate laboratory testing.

10. In its policy formulation processes, HCFA should provide opportunities for stakeholder input and develop better communication with contractors and other stakeholders when policies are being developed and once they are adopted.

11.  FA should move promptly to consolidate the number of contractors processing all Medicare outpatient clinical laboratory claims, including claims from physician office and hospital-based laboratories. The design of this consolidation should ensure that claims processing by regional laboratory carriers will not require major new billing procedures for POLs or hospital-based laboratories. Efforts should be made to strengthen local provider services and relations between carriers and laboratories.

12. HCFA should collect the data needed to manage the performance of the Medicare outpatient clinical laboratory payment system.