New era begins as HCFA implements lab fee schedule Essay

Congress has finally set the Government on course for a national feeschedule covering diagnostic laboratory services in physicians’offices, independent laboratories, and hospital outpatient facilities.

The launch came with the Deficit Reduction Act of 1984, whoseMedicare reforms included a directive that the Health Care FinancingAdministration begin immediately paying for non-inpatient testsaccording to regionally calculated fee schedules. The agencyinstructing each carrier and intermediary to establish a fee scheduletied to area prevailing charges, with the new payment standards to takeeffect as soon as possible. The Deficit Reduction Act was signed July 18.

Early in August,HCFA has assurances that the fee schedules would be in effect in allcarrier areas by the middle of that month. Less certain was thetime-table for the intermediaries, who needed to install a new codingsystem (CPT-4) and make the transition from reasonable costreimbursement. During the changeover, according to HCFA officials, intermediarieswill pay for hospital-based outpatient laboratory services bycalculating a “relatively high” percentage of hospital-basedoutpatient laboratory charges.

“The intermediaries know what thecharges have been, more or less,” a HCFA official said. “Theyare to continue to pay, for instance, 80 to 90 per cent of that, thoughit could be lower or higher, to keep th dollars flowing. Once the feeschedules are established, the bills will be processed, and anynecessary adjustments made.” While the Government wants to avoid payment delays, it clearlydesires to reduce overall outlays for diagnostic testing. The interimpercentage-of-charges plan for hospitals, for instance, was installed toapproximate the fee schedule’s anticipated impact. Lawmakersestimated the fee schedule would save Medicare $960 million over thenext four years.

Many observers believe hospitals will be hardest hit. Wheninpatient laboratory services were swept into the prospective paymentprogram, administrators and laboratorians alike looked to outpatientservices as a counterbalancing revenue source. Although the new rulesdon’t place the hospital-based services at a competitive paymentdisadvantage with other laboratory facilities, they nevertheless dictatethe fee structure and probably preclude strategies for recapturingdollars lost to DRGs.

Hospital lobbyists hammered this point home during the legislativeprocess, and won some small victories that are reflected in thelegislation. Here’s a rundown: * The schedule applies to tests performed in independentlaboratories, phhysicians’ office labs, and hospital labs. Thepayment level for hospital laboratories will be 62 per cent of theprevailing charge level for services provided to hospital outpatients.When a hospital-based lab performs tests for non-hospital outpatients,it will be paid at the lower fee schedule rate Congress set forindependent and physicians’ office labs–60 per cent of theprevailing charge level. The legislation calls for HCFA to convert the carrierwide screensfor physicians’ office laboratories and independent laboratories ineffect this year to a national fee schedule beginning July 1, 1987. HCFAofficials probably won’t know for months just how they’llaccomplish that task. The agency could make gradual adjustments,narrowing differences among carrier schedules each year before thedeadline. Or they may adjust schedules only once, in July 1986.

Hospital laboratory treatment differs sharply. Rather thanmandating conversion to a national fee schedule, the law says thathospital-based services will revert to the cost reimbursement system inJuly 1987 unless Congress says otherwise. The Health and Human Services Department is to advise lawmakers onthe feasibility of extending the fee schedule for hospital-basedlaboratories serving hospital outpatients. * Assignment now is mandatory for independent and hospitallaboratories, but remains optional for physicians.

Moreover, wheneverassignment is in effect, the deductibles and coinsurance are waived, andMedicare pays 100 per cent of the schedule fee. * The new rules further require that carriers and intermediariespay only the entity actually performing the tests. (This precludesphysician billing for tests sent to an outside laboratory.

) However, anexception is allowed. An independent laboratory can bill for all testsperformed for a patient, even if some of those tests were referred toanother laboratory better equipped to handle them. * A provision that is especially pleasing to independentlaboratories directs the Health Care Financing Administration tosimplify billing requirements, so long as the alterations don’tsimplify efforts at fraud and abuse. An agency spokesman said that willprobably mean an end to requiring beneficiaries’ addresses anddiagnoses. “We’re working now on making those changesadministratively,” said Charles Booth, special assistant toHCFA’s deputy administrator. Overall, Booth said, “our objective, and that of Congress, wasto insure that the Government pays for what a test is worth, regardlessof who performs it or where. A blood test should be worth x amount ofdollars. If it costs Hospital A x to perform it, and Hospital B x plus1, the Government shouldn’t have to bear the difference.

HospitalB’s greater cost is not the Government’s problem.” Booth pointed out that HCFA and legislators zeroed in on the 60 percent prevailing charge level because “that seemed the point atwhich the Government could, in fact, reach some savings without beingdraconian.” Hospitals won the 2 per cent differential after arguing vigorouslythat their laboratories should be excluded altogether due to thefinancial uncertainities of switching from cost-based reimbursement.

“Historically, hospital laboratories and other hospital departmentshave had overhead built into their costs, so it is difficult to judgethe impact,” Booth said. “But the question was whether toallow an exclusion and risk giving hospital laboratories an unfaircompetitive edge. Ultimately, Congress decided that the hospitals wouldhave to participate, but they could have a few more dollars.” Hospitals also secured a victory of sorts by persuading lawmakersto review their fee schedule experience after three years, rather thanautomatically convert to the national system. The institutions thuswill enjoy an opportunity to re-argue their case before Congress even asHCFA presents its findings concering the schedule’s impact onhospital-based laboratories. Currently, HCFA is preparing regulations to implement severalprovisions of the act where it has some discretion.

Among the mattersthe regs will address: the mechanism for moving from carrierwide tonational fee schedules; whether wage differences in various regions ofthe country will be a factor in the national schedule; how to handlecollection fees; and how to pay for low-volume, high-cost tests. The legislation allows a collection fee per encounter to thelaboratory or office that actually draws the specimen. “The House-Senate conference report addresses the fee forvenipuncture and urnalysis via catheterization, and we are allowingpayments for those right away.

” Booth said. “However, we aregoing to take the regulatory route, with the opportunity for publiccomments, to decide on collection fees for specimens taken otherways.” As for low-volume, high-cost tests, “we recognize that many oftoday’s routine tests began as very expensive tests, and wedon’t want to impede advances in technology by discouraging newdevelopments and not paying a premium for them. When we make adecision, others give it a hard look.

So we know we have an influenceon more than just our portion of the market.” At this writing, it appeared HCFA would not be proposing the feeschedule regulations until late fall at best.

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