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Laboratories Look for Cost Savings in a Time of Declining Reimbursement


Last summer, the Dark Daily sites reported that they are fielding a growing number of inquiries from clinical laboratory managers who want information on how to cut costs, due to independent and hospital laboratories experiencing flat or declining revenue and shrinking budgets.[1]  Since then, CMS published the final prices for molecular codes and released the 2014 Clinical Laboratory Fee Schedule (CLFS) Final Rule, continuing the trend of lower clinical lab fees.

The final CMS rules for 2014 have major changes that will affect laboratory reimbursement. The situation would have been worse, as much as 25% in additional cuts, if CMS had finalized the controversial proposed cap on non-facility Practice Expense Relative Value Units (“PE RVUs”) based on hospital outpatient payment rates. Fortunately, this cap has not been implemented, at least for 2014.

Reimbursement Projections

Molecular Code Fees

Although the final fee structure for the new molecular codes are 26% higher than first projected by CMS, labs are taking a cut from the stacked code system used in 2012 and earlier. In addition, Medicare contractors have determined that some molecular tests are non-covered services, denying coverage for tests that physicians had been using and billing for years.  Under the stacked code system, payers only viewed line items of inputs and processes for each test, not showing which analyte the test examined or how physicians used it.  The new coding introduced analyte-specific codes that identify individual tests.

As everyone knows, this caused havoc with Medicare contractors over the prices of these tests in 2013 when CMS allowed contractors to use the “gap-fill” process to price the codes.  For 2014, the new molecular code mean prices increased by 15% compared to the old code stacks, due to a few outliers that rose sharply, but the median price for the new codes dropped 15%.  Some codes dropped by more than 50% which could affect companies that service niche markets and now bill for only a few codes.[2]

Reductions Under the CLFS & OPPS

The CLFS Fee schedule final rule projects an across-the-board 0.75% reduction effective January 1, 2014, based on an inflation update of 1.80% minus a productivity adjustment of 0.80% and a 1.75% reduction as described under the Affordable Care Act.

Pricing of Codes – CMS finalized the process to systematically review and potentially revise the pricing of laboratory codes reimbursed under the CLFS due to test technological changes. CMS defines a technological change as any change to the tools, machines, supplies, labor, instruments, skills, techniques and devices that results in changes to the resources required to perform the test, the types of personnel required to perform the test and/or the volume, frequency and site of service of the testing.

The first series of lab tests with revised pricing is expected to be announced in July when the 2015 proposed Clinical Laboratory Fee Schedule will be released.  CMS will identify the test code, discuss how it has been impacted by technological changes, and propose an associated adjustment to the payment amount for the test code as appropriate to reflect the impact of such technological changes.  Although, the definition of “technological changes” is broad, it does include such things as point of care testing, genetic/genomic testing and laboratory developed tests. According to CMS, although adjustments could potentially increase payments for some codes as new high-cost technologies are a potential source of increased fee schedule amounts, it will like reduce overall reimbursement to clinical laboratories with many tests experiencing reductions in payment due to advances in technology that have reduced their costs.

Bundled Payments – In the second major change under the OPPS Final Rule, CMS finalized package payments for lab tests designated to support a primary service provided in the hospital outpatient setting with the Ambulatory Payment Classification (APC) for that primary service. This means certain laboratory tests provided in the hospital outpatient setting will no longer be paid for separately under the CLFS but instead are packaged when they are integral, ancillary, supportive, dependent, or adjunctive to a primary service or services provided in the hospital outpatient setting  (See our article in the December edition of the Washington News).

What is a Lab to do?

As both government and private payers look for ways to save money, reimbursement will continue to be reduced for clinical lab testing.  Physicians are ordering more tests to improve patient outcomes, so specimen volume will increase.  How does a lab balance more tests but lower reimbursement per test?  Some may say, “lay off employees.”  But there is a strong belief that laying off good lab technicians could affect patient safety.  Laboratories need to find ways to cut costs that generate better medicine and to make systems work more efficiently.

Lab Consultants

An article in DarkDaily described several companies that may help clinical laboratories find ways to improve their outcomes and contain costs.[3]  The article suggests that laboratories look to consultants who:

  • Are experienced in quality management that will help labs and pathology groups create a cultural transformation within the lab focused on continuous improvement and a system of error prevention.
  • Were among the first-movers and early-adopters in the lab-testing industry in the use of Lean, Six Sigma, and ISO 9001/ISO 15189.
  • Identified high-performing lab clients willing to share their successes and experiences with the broader lab industry in a public forum, thus giving a public validation of the credibility of the consultants who helped these labs succeed in their cost cutting and quality improvement efforts.

Learning from others at the Lab Quality Confab conference

Several case examples were presented at the LabQuality Confab conference this past fall that showcased how labs can find creative ways to cut costs and still maintain quality.  The presentations were well-attended and gave hope to many labs that they too, can save money and operate a profitable lab.

Following are some of the case examples given at the conference.

  • Esoteric test approval procedures were implemented for assays that cost more than $1,000
  • Reduced volume of send-out tests based on use of formularies and ordering algorithms developed in tandem by the lab and the hospital’s physicians
  • Using formularies and algorithms to help reduce in-house lab test utilization
  • Platelet waste reduction efforts generated cost savings as a result of greater adherence to utilization criteria supported by computerized physician order entry (CPOE)
  • Reduction in red blood cell utilization due to better education on “best practices” that led to reduced utilization of blood products
  • New diagnostic testing technologies for infectious diseases with active collaboration between the hospital lab team and hospital physicians saved the hospital $3 million and substantially reduced the number of hospital-acquired infections.  The goal was to develop new diagnostic and treatment protocols specifically designed to take advantage of rapid molecular testing in support of testing for MRSA and Clostridium difficile

If you are interested in other ideas presented at the conference, visit to find audio recordings and slides from the presentations.