On Friday evening, June 17, 2016, CMS released the final PAMA rule. (For links see HERE).
While encyclopedic summaries are available at several websites - see HERE - below the break are my thoughts on ten or twelve aspects of the rule that may have particular interest.
Highlights of the Rule
Here I highlight some early key findings, surprises, or puzzles in the final rulemaking.
One Year Delay
The topline news is that CMS has deferred implementation from 1/1/2017 to 1/1/2018, and will use a data collection period of 1/1/2016 to 6/30/2016 (1H2016) and a reporting period from 1/1/2017 to 3/31/2017. This will allow CMS the middle part of 2017 to calculate medians, publish propose final prices in early fall 2017, and final prices by 11/1/2017, effective 1/1/2018.
ADLTs Also Delayed One Year
To avoid having some ADLT tests shift to a PAMA fee schedule early, CMS will commence PAMA prices for ADLTs on 1/1/2018 as well.
Reporting Entities Might Include Hospital Labs – But Accounting Pitfalls Remain
Reporting entities are defined somewhat differently than proposed through a method that may include some hospital outreach labs, but in a way that will probably still cause some confusion during implementation.
No Special Lab Test MAC
CMS will not adopt one or more special MACs for either lab test claims processing or lab test coverage decisions.
A Deeper Dive Into Some Quirks of the Rule
Handling Hospital Based Outreach Labs
CMS must define a “reporting entity” which is required to report under PAMA. This has several implications. For one, there are eye-poppingly heavy civil monetary penalties available under PAMA, so whether or not one is required to report, and report correctly, has large implications for lab managers. Second, there is widespread suspicion that hospital outreach labs have, at least historically, been paid at somewhat higher rates than larger commercial labs, in which case their inclusion will tend to raise the median of CMS lab fee schedules under PAMA market reporting.
PAMA law itself was clearly biased against hospital lab reporting, because it required a reporting lab to have over 50% of Medicare revenues (defined broadly, to include even Medicare Part D) come from Medicare CLFS or Medicare Part B. CMS had proposed to define the reporting level for this financial calculation to be a TIN. In an independent single lab, where one TIN = one NPI = one CLIA certificate, this would be easy. In a lab embedded in a hospital financial system, this is harder, and CMS proposed to use the top level TIN of a health system as the level for defining Medicare lab revenues. Thus, a TIN which was a health system that held three hospitals, two nursing homes, and a rehab clinic, with seven CLIA lab certificates amongst them, would never receive over 50% of its total Part A/B/C/D revenue from lab tests, no matter how large its outreach lab was. In addition, CMS foresaw the issue that inpatient labs would receive some share of their budget from Part A DRG-bundled or APC-bundled lab tests, but that it would be problematic or even impossible to assign dollar revenue numbers to these internal budgetary machinations.
In the final rule, CMS continues to roll up financial reporting to an overlying TIN (whether a health entity as just described or a lab corporation with one TIN but multiple NPIs and CLIA certificates), but define the 50% revenue at the level of the NPI. CMS surmises that some hospital outreach labs, if they bill CMS on Claim Form 1500 with their own NPI, may be qualifying labs now. While I am not a hospital accounting expert, I suspect this will not always leave a simple calculation unless a hospital has firewalled the entire management, revenue, and cost structure of the “outreach lab” from other aspects of the hospital so that its NPI and CLIA certificate truly represent a standalone entity for accounting purposes.
Claims Period and Reporting Period
The claims window will be moved forward to 1H2016 while giving labs 2H2016 to figure out to report, and to report it, in 1Q2017. Reporting are each different private payer rate for each test provided, with a volume for each rate. CMS requires reporting of fully adjucated rates, for example after any appeals or audits, and net of any discounts on the part of the lab and payer (not patient copay discounts). CMS does not require reporting of zero rate claims (e.g. denials) and CMS expects reporting of “allowed” rates (including copays or deductibles) from either contracted payers or out of network payers. The date of final adjucation must fall in the window, for example, a November claim appealed or audited to a final result in April would be in a 1H window. While discounted rates are to be reported, labs paid on a capitated rate are not reported. Claims paid en masse (e.g. you get a check from the payer but no line item rates) are not reported, on the simple reasoning, that they are not reportable on a line item basis.
The reporting period is 1Q2017. It’s never been clear to me what is gained by calling this a “reporting period” rather than a “3/31/2017 deadine.” For example, taxes are due April 15 – we don’t elaborate to call it a January 1 to April 15 “reporting period.” Enough said.
Definition of ADLT
Protein MAAAs In
CMS dropped its odd claim that an ADLT, which Congress defined as a test of “DNA, RNA, or protein” had to include DNA or RNA. (DNA only OK, RNA only OK, protein only not OK). No one thought this made sense as an interpretation of Hill language and CMS dropped its idea. All-protein MAAA tests are now in.
“ADLT = New Information”
However, CMS maintained an unusual insertion that the test must not only be a “unique algorithm” (in statute) but must also provide a “new clinical diagnostic information that cannot be obtained from any other test or combination of tests.” CMS maintains this must be the case for an ADLT to be “advanced” and thus meet the intention of Congress to reward innovation. Clearly, there are now going to be a couple of problems here. For example, is the “new information” defined by the indication – e.g. kidney cancer or glioblastoma prognosis? Must a MAAA be compared to any and all existing MAAAs before it can be guaranteed to provide “new information?” What if there is a MAAA in 2018 for glioblastoma prognosis, and another different MAAA for glioblastoma prognosis in 2019? CMS might disqualify the second test for not being “new information” but now the first test as well no longer provides information not available from any other test. I suspect CMS will decline to implement this concept much, because of the resulting bird’s nest of problems. CMS might use this clause to discourage classification of multiple gene report tests as “MAAAs” because they do not report a “single” patient specific result and report together a listing of individual gene reports – but there are probably circumstances where pharmacogenetics tests and some sophisticated tumor gene panel tests do bring together bioinformatics and new conclusions not available from the line-item gene results they contain.
Another argument against where CMS landed is that Congress explicitly requires sole-source FDA cleared or approved tests to be ADLTs, and makes no remark that their clearances or approvals must be unique in indication or intended use. It seems contradictory for Congress to include FDA endorsed sole source tests as ADLTs and for CMS to exclude them willy-nilly on its own discretion if it doesn’t think their indications are unique enough, and also to assume that doing so was the secret intent of Congress.
CMS Doesn’t Like Licensing
CMS does some hemming and hawing to implement the concept of “sole source lab.” It is little more lenient about an ADLT lab company holding more than one CLIA license (OK), or even opening a new site due to increased volume and demand (OK), and allowing the lab to retain a marketing sales force that is outsourced (OK). However, CMS also taketh away, saying that an algorithm licensed from a university prevents a lab from being an ADLT lab. It notes that the lab can still provide the test under CLDT rather than ADLT rules, and argues that beneficiary access should be unchanged.
Defining an ADLT
CMS will develop an application form for labs to apply for ADLT status. This should occur in the coming months. CMS notes that this information is not FOIA exempt by PAMA, but may be FOIA exempt if clearly labeled not merely as “FOIA Exempt” but labeled exempt by status as a trade secret with an explanation of some sort of why it is a damaging trade secret. An ADLT must be reviewed and approved by CMS. An ADLT payment period will not start until a lab has both been approved by CMS as an ADLT and approved for coverage by a MAC.
The 130% Recoupment Rule Softened
The law allows three quarters of initial payment for the ADLT at its initial list charge which should be a rate commonly available to the public for an uninsured patient. Later, after the third quarter, the CMS payment rate morphs into the median of the ADLT lab’s private payer rates, revised annually. PAMA allows CMS to recoup the difference when the CMS temporary rate is more than 130% of what turns out to be the private payer rate during the same period. CMS had proposed to recoup the entire difference between the median market rate and the CMS temporary rate, but in the final rule, will only recoup the difference above a threshold of 130% of the CMS rate. (E.g. if the CMS temporary rate is $150 list price, and the median during that period proves to have been $100, CMS will recoup the difference between $130 and $150, not the difference between $100 and $150.)
Gapfill and Crosswalk Continue
The gapfill and crosswalk processes will continue for new tests that are outside the ADLT and three-year-reporting system. These processes have existing for many years, with minor adjustments. CMS was required by the Medicare Modernization Act of 2003 to put the processing in regulation, which it did by basically cutting and pasting the manual text into regulation in 2006. The new PAMA statute essentially lifts the CMS regulation out of the Code of Federal Regulations and pastes it into the statute (meaning it can no longer be revised ad hoc by CMS rulemaking as an internally generated regulation). PAMA also requires CMS report the rationale of gapfill decisions by MACs, and CMS admits in the past it has posted but not explained MAC gapfill reasoning. It’s not clear yet, at least to me, whether that will be required until after 1/1/2017 or 1/1/2018.
Surprise Gift: Resources to Provide a Test Defined
Gapfilling encourages MACs to look to charges for the test, resources to provide the test, payments of private payers for the test (this was years before PAMA), and resources to provide tests similar to the test that is being priced. I have heard MAC policymakers argue about what “resources to provide the test” means – does it include R&D? If so, how is that amortized or accounted for? Does it include management? License costs? Overhead? Indirect costs? If so, how? Does it include profit? To me, it has been clear “resources” account for all costs – this is how other fee schedules like the PFS, the OPPS outpatient schedule, the DRG inpatient schedule are intended to be set up (even when they fall short of all costs, due to budget caps in the financial math). CMS states that Congress (in the context of ADLTs) intends for CMS to compensate for all resources – writing, “we view the statute as intending to award special payment status to the one laboratory that is expending the resources for all aspects of the test—developing it, marketing it to the public, performing it, and selling it.” While not smack dab in the middle of the gapfill discussion, it seems reasonable that this is how CMS views the meaning of the same term, “resources,” which also appears in the gapfill statute as how Congress intends the term “resources” to be interpreted.
CDLT/ADLT Coverage to be Defined by LCDs
Congress included a remark in PAMA that coverage (e.g. reasonable and necessary decisions) are to be defined by LCDs, which excludes defining them by articles. CMS states it need undertake no special rules to implement this, pointing to the existing Coverage Manual, which requires reasonable and necessary decisions applying in advance and across a MAC to be defined by LCDs. Still, CMS could do much to clear up confusion. For example, at least one MAC simply uses an excel spreadsheet to define tests not payable by statute, due to failing the statutory requirement to be reasonable and necessary. But this is exactly the one sole statutory reason for which an LCD is required by statute, regulation, and program manual. (Other types of “statutory exclusions” such as tests for screening, or exclusions like eyeglasses, or exclusion from payment due to bundling, are in fact statutory exclusions that don’t require an LCD. But “reasonable and necessary” is explicitly lifted from these other statutory exclusions and made special, requiring an LCD.)
CMS declined to make any move toward a special nationwide MAC or MACs for lab tests.
New Types of ADLTs
All ADLTs must be sole source lab tests. That being said, they may be either enumerated ADLTs, which are about the same as MAAAs, or they may be sole source FDA cleared or approved tests. Or – they may be a third category of “similar” tests defined at the discretion of CMS. CMS is doing nothing with the third category at this time.
Point of Care Tests
CMS has a couple paragraphs of comments that some stakeholders urged it to make special rules to account for point of care tests. The logic would be that point of care tests in physician offices may be paid at distinctive rates, about which information ought to be gathered, but that they will be lost due to the low-volume exclusion of most physician labs and the NPI level billing rule regarding “50%” of lab-based revenue. CMS isn’t doing anything special for POCT tests. It’s not clear exactly what it could have done – so far in the CPT, POCT tests such as an office based POC hemoglobin are paid at the same CPT codes and rates as all other hemoglobin tests, and thus, would have been completely swamped out in the current coding system alone, under PAMA. If there are ever POCT specific CPT codes, then they would need to be surveyed in physician (or E.R.) labs if their rates were to be determined.
The PAMA Advisory Panel
This panel will go on, much as did last year. CMS does announce that CMS will consider topics of interest to be brought to the panel’s agenda. Such topics should be submitted to CMS at the email, firstname.lastname@example.org .
Special HCPCS Codes
CMS will provide special HCPCS codes (presumably G codes) wherever CPT codes are not available and PAMA requires codes. These include ADLT tests of the MAAA type and FDA approved/cleared tests. CMS specifically states that PAMA requires it to cross a bridge that AMA CPT has never crossed, and provide different HCPCS codes for FDA approved tests, such as an FDA approved KRAS test versus an LDT KRAS test. (CMS notes it got some flack on this maneuver, but that it will do so as Congress clearly requires it). So look to an underdetermined number of FDA approved tests to surface as G codes in addition to the generic equivalent test co-existing as a CPT code.
AMA has been working on developing new quarterly administrative Category I CPT codes, which will probably appear in an Appendix as do administrative MAAA codes. CMS doesn’t refer to these explicitly, only that it must produce quarterly new codes and shall do so when CPT codes are not available. This language allows quarterly CPT codes (if produced) to insert themselves into the coding system with no further remarks from CMS, only the absence of a similar CMS HCPCS code.
CMS states that it considered adoption of McKesson Z identifiers but did not view them as part of the Category I CPT code or CMS alphanumeric/G code system, and they are not explicitly included in the implementation of PAMA. That said, some future arrangement between McKesson and CPT, incorporating Z type codes in CPT, might intervene, again without further remarks from CMS.