After several years of delayed reductions under the Protecting Access to Medicare Act (PAMA), the Center for Medicare & Medicaid Services (CMS) has released the preliminary 2027 Clinical Laboratory Fee Schedule (CLFS) rates based on updated private-payer reimbursement data.

Many common, high-volume tests are facing reductions of up to 15% in 2027, with further reductions possible in 2028 and 2029. For labs already dealing with rising costs, these changes could add significant financial pressure.

While labs cannot control Medicare reimbursement rates, they can take steps to understand how these reductions may affect their bottom line and where they may be able to offset potential losses. That starts with developing a clear picture of the lab’s financial position.

Most laboratories know which tests they perform and what supplies and equipment they use, but calculating the actual cost per test is more difficult. Reagents, quality control, staffing, equipment depreciation, maintenance and overhead all contribute to the total cost of testing. Understanding these expenses is an important part of analyzing test costs and laboratory performance.

Reimbursement is also complex and varies by payer, contract terms, patient status, service location and reimbursement methodology. Hospital laboratories may receive payment under the CLFS, through outpatient or inpatient payment rules or according to payer contracts. Independent laboratories have their own commercial contract complexities.

Simply multiplying the number of tests performed by a published Medicare fee schedule rate does not necessarily reflect what a lab should expect to collect. Lab leadership needs a clear understanding of the relationship between testing costs and reimbursement.  Otherwise, how can they make sound decisions about staffing, equipment, test offerings or future investment?

The Visibility Gap: When Departments Operate in Silos

Revenue cycle management and how healthcare organizations approach reimbursement has changed significantly over the years. Revenue cycle teams used to often work behind the scenes, handling billing, insurance follow-up and collections while clinical departments focused on patient care. However, as payer requirements and denials became more complicated, those departments increasingly needed one another. Revenue cycle teams needed better clinical information to bill correctly, while clinical departments needed to understand how their work translated into payment.

Laboratory leadership may know precisely what goes into performing a test but have limited visibility into what the organization actually receives in reimbursement.  Revenue cycle teams may have access to payments, adjustments and denials without fully understanding the operational costs or clinical requirements associated with the testing. Finance may understand departmental expenses and profitability, while managed care or contracting teams understand the reimbursement methodologies and contractual terms that determine payment.

No single department holds all the answers. Each holds part of the answer, and bringing that information together can help laboratory leadership make better financial decisions.

Consider an expensive test that routinely costs more to perform than it brings in.  That may warrant a closer look at workflow, payer contracts, utilization or testing alternatives. But if reimbursement information never reaches laboratory leadership, those conversations may never happen.

The same is true in reverse. Revenue cycle teams may identify a recurring denial pattern without realizing that a relatively simple change in the laboratory’s ordering or documentation workflow could help resolve it. Sharing information across departments helps organizations understand not only where problems exist but also what may be causing them and how they can be addressed through revenue cycle and billing optimization.

You Don’t Need Sophisticated Analytics to Get Started 

Smaller laboratories may not have sophisticated reporting tools or dedicated analysts, but that should not prevent them from getting started. Sometimes a basic Excel spreadsheet and a pivot table are enough to begin asking the right questions. 

A practical first step is to ask the revenue cycle team or IT for line-level claims data: CPT/HCPCS codes, units, payer information, charges, payments, adjustments and service dates. With this information, labs can identify the highest-volume tests and the tests generating the most reimbursement. Then, look at the payment patterns by payer and CPT code. 

For hospital laboratories, additional information about patient status, service location and billing methodology may be necessary to distinguish services reimbursed separately under the CLFS from those paid through other arrangements.

Another valuable exercise is comparing tests ordered and performed in the laboratory with tests actually billed.  The numbers may differ for legitimate billing reasons, but the differences can also point to charge capture gaps or workflow problems worth investigating. 

Claims data alone won’t answer every question. It won’t necessarily tell you the full cost of performing a test, and a payment amount by itself doesn’t establish whether the payer reimbursed correctly.  Additional information, including cost data, contract terms and reimbursement rules, may be needed to understand the full picture.

Expect gaps and assumptions in the first report. Document them, then determine what information would make the analysis stronger. The goal isn’t to have perfect data before you begin. The goal is to start understanding what available data revals and what still needs to be investigated.

Protecting Reimbursement When Rates Decline

Laboratories cannot control Medicare rates, but they can examine how efficiently they operate and whether they collect the reimbursement they are owed.  Reviewing existing workflows is a good place to start, as targeted performance improvements and lean methods may help reduce costs without sacrificing quality.

Reviewing denial patterns is another useful starting point. Medical necessity requirements, documentation issues and appropriate use of Advance Beneficiary Notices (ABNs) are all areas worth evaluating for traditional Medicare claims.

Commercial payer contracts also deserve attention. Some contracts establish reimbursement as a percentage of the current Medicare fee schedule, while others have separately negotiated terms. Depending on the contract language, reductions in Medicare CLFS rates could also affect commercial reimbursement. Labs should review their payer contracts and reimbursement agreements to find out which contracts are tied to Medicare rates and which have independent reimbursement terms.

Input from frontline staff is also valuable. The people performing the work every day often know where processes get stuck. Ask them what slows them down and what they would change.  Their answers may uncover savings that would never appear in a financial report. 

Understanding the Numbers Is the First Step

Laboratories cannot eliminate every challenge created by lower reimbursement rates, but they can better understand their exposure and make informed decisions on how to respond. Test volumes, costs, payment terms and denial trends tell a more useful story when they are examined together. 

That requires laboratory leadership, finance, revenue cycle, managed care/contracting and administration to share what they know, question what they assume and look at the full financial picture.

The 2027 CLFS changes make that work more urgent, but the benefit lasts well beyond one fee schedule update. A clearer understanding of laboratory finances can help organizations prepare for reimbursement changes, make better operational decisions and plan for long-term financial sustainability.

How Colaborate Can Help

Understanding how reimbursement changes affect a laboratory’s bottom line is the first step toward determining the best course of action.

Colaborate helps laboratories assess the financial impact of reimbursement changes, analyze testing costs and reimbursement and recommend beneficial operational improvements while these changes are occurring.

Contact Colaborate to learn how its lab consulting services can help your laboratory evaluate its options and make informed decisions in response to lower reimbursement rates.

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