Prepare Your Clinical Laboratory for Long-term Changes in Medicare Reimbursements

In an effort to cut costs, the Centers for Medicare and Medicaid Services (CMS) are proposing drastic cuts to laboratory reimbursements. Changes are being proposed to the Medicare Physician Fee Schedule and the Clinical Laboratory Fee Schedule (CLFS). These revisions to the CLFS could put the lab industry at risk, but understanding the changes is the first step to overcoming these foreseeable obstacles.

We know that laboratory testing is critical for proper diagnosis, treatment, and assessment of a disease or condition. Over the past few decades, laboratory testing has advanced tremendously. The industry continues to show great strengths in research and development which leads to overall better quality of care. We also know that compared to other Medicaid expenditures like prescription drugs and physician services, lab testing expense are much less. In this light, lab tests are extremely valuable because they cost less and yield high rewards. The laboratory industry is not being rewarded for decreasing costs, or increasing performance of tests from technological advances– instead reimbursements will be lowered drastically, putting laboratories at risk.

If you own or operate a clinical laboratory, you need to know the proposed rules like the back of your hand. Unfortunately, the changes will be ongoing and often, are not as easy to understand– especially when you have a laboratory to operate.

The proposed changes to the Clinical Laboratory Fee Schedule (CLFS) will assign new reimbursement payments to lab tests based on the value of resource inputs. The value of resource inputs will ignore the site-of-service and decrease based on technological advances in medical diagnostics. This overlooks differences in the way laboratories operate. We know that an acute care services laboratory and an independent laboratory are not one and the same, but where a test is performed will no longer be a factor when considering value inputs.

As technology advances, reimbursement payments will decrease. If the rule passes, every test code will be reevaluated and adjusted, starting with the oldest. This is drastically different than the locked-in costs that the laboratories are familiar with. This methodology overlooks the sunk costs experienced from training technicians to perform new tests and costs associated with technological advances. These reductions are not something that healthcare professionals will be able to ignore. Reductions to the technical component (TC) of testing might be as high as 70 percent after the rule goes into effect.

While the future may seem unsettling for hospital outreach programs and independent laboratories, there are still ways to prepare and overcome the negative impact of these changes.  Laboratory consultancies can help laboratories surpass their potential through organizational development, operational improvement, long-term strategic solutions and identifying improvements that will deliver measurable returns. Above all else, laboratories need to locate points of potential and help prepare for the impact of reimbursement cuts before they go into effect. This is not a time to be reactive to changes, it is a time to understand changes and prepare for the future of the laboratory industry. Take a moment to frame these changes as an opportunity to grow and succeed in the healthcare industry.

Colaborate is a full-service laboratory consultancy focused on growing healthcare organizations through long-term strategic solutions. Colaborate has over 25 years of industry experience with expert leadership in business intelligence solutions for clinical laboratories.