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Labs hit with cuts under final budget accord.

In the end, weary Congressmen extracted a pound of flesh from nearly everyone to reach mandated 1988 budget targets. And that means clinical laboratories, hospitals, and physicians will all do some belt tightening this year.

It certainly wasn't pretty, but lawmakers limped home for a holiday break after President Reagan signed an omnibus budget reconciliation package with $23 billion in new taxes and spending cuts. The accord reduces Medicare spending by $2.1 billion for the fiscal year that began last October, and by more than $3 billion in fiscal 1989.

Lab representatives seem to agree it could have been much worse. They managed to fight off the most severe proposals when it finally became clear that labs--although they represent a relatively small share of the budget--would hit by Federal money hunters.

Because Congress was late in finishing the package, laboratories must continue to live with Gramm-Rudman automatic reductions through March 31. Those cuts work out to about 2.3 per cent for all provider payments.

The new law includes a downward rebasing of clinical laboratory fee schedules by five percentage points. Thus payments will now be 55 per cent of the prevailing charges for independent labs and 57 per cent of those charges for hospital facilities. The 2 per cent differential for most hospitals ends in April with the exception of sole-community and rural institutions.

Upper limits on the fee schedules will fall from 110 per cent to 100 per cent of the national median, also effective April 1. A 1.4 per cent Consumer Price Index update that had been set for Jan. I was eliminated. Total savings is estimated at $200 million, including reimbursement that would have gone to physician office test sites.

The rebasing will affect automated, multichannel tests and 11 other procedures that previously have been limited by Medicare's lowest charge level (LCL) methodology. The latter are blood cholesterol, blood sugar, blood urea, blood uric acid, CBC, hematocrit, hemoglobin, leukocyte count, prothrombin time, sedimentation rate and urinalysis.

Analysts project the rebasing will reduce Medicare reimbursement for those 11procedures between 8 and 9 per cent. Preliminary estimates by the College of American Pathologists, however, show the reductions could be as high as 17 per cent in areas of the country that are above the national median.

Al Ercolano, director of CAP's Washington office, allows that the final agreement was "an improvement" over some earlier possibilities, which included a fee-schedule rebasing down to 50 per cent of prevailing charges for independent labs.

But, Ercolano states, "As the Government continues to squeeze down on Medicare payments, at some point they will reduce both access to care and the availability of labs providing high-quality services...There has been a continuing cry from the media pointing out that poor-quality lab work exists. As payments are reduced, you have to ask whether providers will go out of business or will they trim their expenditures on quality control. "

Other laboratory industry leaders voice an equally measured response to the budget outcome. Harry Groom, president of the American Clinical Laboratory Association, comments: "Reducing the Federal budget deficit was a badly needed action. And it was imperative that everyone did their part to meet that objective. I do think, however, that the proportion taken away from laboratories is out of line with what other health care providers have been asked to contribute."

Groom adds that the cuts probably "aren't the end of the world" for larger laboratories, although smaller facilities and those heavily dependent on Medicare may find them more onerous.

Some observers believe one bright spot in the fee schedule cuts--if there is a benefit to be found among the many cuts-might be that they will deter the growth of physician office testing.

According to Groom, whose association represents large independent laboratory interests, "We haven't completed our analysis yet, but the early feeling is that the tests affected by rebasing are those frequently done in physician offices and that they may become less attractive to doctors as a result."

Another provision of the budget law will definitely affect some physician office laboratories, albeit not until Jan. 1, 1991. At that time, Medicare standards will be applied to high-volume office labs that perform at least 5,000 tests each year.

Lawmakers did finally agree to enact a relative-value fee schedule for radiologists by 1989. They ordered development of a similar system for pathology services in the same year. As expected, an Administration proposal to impose DRGs on radiologists, anesthesiologists, and pathologists (RAPs) was defeated.

In an additional tab-related part of the bill, Congress extended a moratorium on HCFA's competitive bidding demonstration project through Dec. 31 of this year.

Following is a further roundup of how health care providers fared under the budget package:

* Through a mechanism designed to improve the Government's cash flow, all Medicare payments will be held for at least 10 days in 1988 and for 14 days in 1989. The payment slowdown is expected to affect hospitals more than Part B recipients.

* Following expiration of the Gramm-Rudman cuts, hospitals will receive a prospective payment update that will vary by facility type and location. Rural hospitals will gain 3 per cent, while those in urban areas with one million persons or more get a 1.5 per cent hike. All others receive 1 percent.

* Hospital capital expenditures continue on cost-based reimbursement, the system that pegs payment to the proportion of Medicare treatments performed. However, those rates will be cut by 12 per cent through Sept. 30, and by 15 percent in fiscal 1989.

* Congress's tardiness made a mess of the process whereby doctors choose whether to be "participating" providers (that is, whether they agree to accept 100 per cent assignment on Medicare claims). A new sign-up period will be held prior to the April 1 implementation of new payment rules.

Those rules spell out four different categories of fee updates. Participating primary care physicians will receive the full 3.6 per cent update that had originally been scheduled for Jan. 1, 1988, plus 3 percent in 1989. Non-participators in primary care get 3. 1 per cent this year and 2.5 per cent next year.

Participating doctors in other specialties will be updated 1 per cent this year and by the same amount in 1989. Those not participating gain a slim 0.5 per cent in both years.

Further, Congress will implement across-the-board cuts in prevailing charge ceilings for 14 "overpriced" surgical procedures, without regard to a physician's participation status, The cuts will be at least 2 per cent and could go as high as 15 per cent, depending on how individual physician charges compare with weighted national averages. The reductions could have an indirect effect on laboratories by placing pressure on the utilization of some services.

The cited procedures are cataract extractions, prostatectomies, heart bypass, hip replacement, diagnostic dilation and curettage, carpal tunnel release, arthroscopy, arthroplasty, bronchoscopy, pacemaker insertions, and upper gastrointestinal endoscopies.

Legislators were preparing to address a number of other health care bills as they returned from winter recess in January. Chief among the unfinished business: catastrophic illness insurance.

The House and Senate both have passed a version of the proposal to expand catastrophic illness coverage, and reconciliation was expected to be a top priority. Remaining areas of disagreement include how fast a prescription drug benefit should take effect and whether to specify ways to prohibit the program's cost from exceeding premium levels.

Interest in oversight hearings on clinical laboratories also has heated up. Sen. William Cohen (R-Maine), who chairs the Governmental Affairs Committee, first suggested a review last fall when CLIA celebrated its 20th birthday.

Media coverage has played a role in attracting other lawmakers' attention. The Washington affiliate of NBC recently aired results of its four-month study of East Coast laboratories entitled "Deadly Mistakes." The theme was that the Government's laboratory regulation is slipshod, and that serious errors in medical diagnoses result. Senator Cohen was featured, saying Congress has an obligation "to determine whether the problem is as real and deep and far-reaching as it seems to be."

The half-hour program had a special screening on Capitol Hill in December. And in Washington, today's local news reports have a way of becoming tomorrow's national headlines.
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Title Annotation:medical laboratories; Washington Report
Publication:Medical Laboratory Observer
Date:Feb 1, 1988
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