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Medicare weighs options to gain lower test prices.

Medicare weighs options to gain lower test prices

Medicare officials are considering their administrative options to address findings that independent clinical laboratories unfairly charge the Government program more than they do physicians.

The claims, contained in a recent report from Health and Human Services Department Inspector General Richard Kusserow, say Medicare pays nearly twice as much as doctors do for the same tests. The report also states that the amount labs charge Medicare (above what is actually paid according to carrier fee schedules) is more than triple the tab for physicians.

The most severe action being pursued by the Health Care Financing Administration is the Medicare "death penalty" - exclusion from the program for labs found to be engaged in discriminatory pricing. HCFA officials would also like to move ahead with a competitive bidding demonstration project, but an internal memo shows the agency doubts that Congress will relent in its opposition to this plan.

Complaints over the dual pricing structure used by labs are nothing new. The IG's office alerted HCFA to implications of the practice as early as 1982, and shared preliminary report findings with the agency early last year.

Kusserow recently noted that Medicare payments for lab services totaled about $3.9 billion in 1987 and are increasing rapidly. "Thus, opportunities exist for significant program savings if Medicare were to pay competitive market prices for clinical testing," he said.

For the study, auditors obtained Medicare payment rate data and reviewed claims processing procedures used by 41 carriers in 38 states. They also surveyed pricing practices at 26 labs in those states. The final report's main conclusions, however, hinged on a detailed review of claims from seven large commercial labs, including units of five of the industry's leading chains.

The "judgmentally selected" facilities were National Health Laboratories, Inc., and Medical Laboratory Network in California; Damon Clinical Laboratories and SmithKline Bio-Science (now SmithKline Beecham) Laboratories in Florida; MetPath Laboratories in New Jersey; and National Health Laboratories, Inc., and International Clinical Laboratories, Inc., in Texas. Investigators pulled a total of 4,120 billings to 211 physicians for comparison with Medicare payments.

The report focused on two key aspects of reimbursement differentials: amounts labs billed Medicare versus what they billed physicians, and the amounts actually paid by each.

On the latter issue, investigators found that Medicare reimbursement was, on average, about 90 per cent greater than the amounts paid by doctors. In other words, Medicare rates would have to be cut nearly in half to make them equivalent to physician payments.

Much of the difference was attributed to the way Medicare pays for standardized profile tests ordered as a group by physicians. For the 1,525 profiles listed in the IG's sample, Medicare was paying an average of 176 per cent more than doctors.

The IG showed, for example, that one lab charged doctors $9.50 for a profile consisting of automated chemistry, complete blood count, thyroxine, and T[.sub.3]. The Medicare-allowed payment was nearly five times higher, at $45.19 (based on 1988 allowable rate data). The report states that because Medicare paid for profiles as individual tests at full fee-schedule rates, the program "generally did not benefit when standard test packages were ordered from the laboratories."

The findings demonstrated that Medicare rates did not exceed physicians' prices in the case of all tests. In fact, the Medicare rate was lower for at least one test ordered less frequently than others: the detection of HIV antibodies. "This suggests that Medicare needs to make both upward and downward adjustments to its fee schedule allowances," the report said. The IG's findings drew no response in comments solicited from HCFA.

The other key issue of reimbursement policy that was addressed - discriminatory pricing - may seem like little more than a moot bookkeeping matter to laboratorians. Yet it could have the greatest impact on lab billing practices in the years ahead.

Kusserow's staff found that the seven labs reviewed charged Medicare more than three times what they asked doctors to pay for the same tests. The labs each billed at least twice the physician amount and one charged five times more.

Laboratory representatives interviewed for the study defended their practices by noting that it simply costs more to do business with Medicare. One, pointing to a stack of checks just received from Medicare, explained that a billing for 500 patients filed on a single computer tape had drawn 500 separate payments from the carrier. Physician customers, it was noted, generally issue one check for an entire billing.

Another aspect of the labs' defense was that carriers sometimes demand information that is difficult for them to obtain, such as the patient's diagnosis. Lab spokesmen said that, assuming the diagnosis is required to check the medical necessity for the services, it would be more logical to obtain that information directly from the physician.

While acknowledging a need for carriers to simplify claims processing and payment, IG officials suggested that some consideration should be given to the Government as a valued customer. "Because Medicare is such a large-volume payer of tests, we believe a strong case could be made for Medicare paying less than physicians. Certainly the program should not be asked to pay more," they wrote.

It was further noted that Medicare has historically allowed pricing differentials. Previously, HCFA had instructed carriers to ignore lab charges to physicians when establishing "customary" charges, mainly out of fear that labs would balance-bill patients. That concern, however, was rendered moot via a mandatory assignment provision in 1987, and HCFA now appears ready to tackle the issue anew.

The IG recommended that HCFA seek legislation to bring fee schedule amounts into line with what doctors pay for the same test, develop policies to see that profiles are more appropriately reimbursed, and work with carriers to simplify billing.

After reviewing the IG report prior to public release, HCFA Acting Administrator Louis B. Hays expressed doubts that Congress would give the agency greater authority to seek "marketplace prices," given previous moves to thwart a competitive bidding demonstration.

Hays noted that budget efforts to further ratchet down national fee schedule limits may prove most effective at narrowing the gap between amounts paid to labs by doctors and Medicare. "This sort of incremental reduction is probably the best course of action when the interplay of cost and profits in two market sectors is not clear and fully understood," he wrote in a memo to Kusserow.

Another memo from Hays said HCFA would instruct carriers to insure that the amount paid for a profile does not exceed the sum of fee schedule amounts for the individual tests. Carriers will also be asked to report the test makeup and payment allowance for common profiles, with the possible result that HCFA will set national limits on those batteries with standard definitions.

Even more dramatic, some HCFA officials believe the IG should initiate a legislative proposal expanding its power to exclude providers from Medicare. At issue is a section of the Social Security Act that calls for excluding providers who charge Medicare "substantially in excess of usual charges."

In Hays's view, lawmakers had anticipated the problem of discriminatory pricing and enacted a remedy. "Congress did not call for adjusting payment allowances; rather, it called for the much more severe consequence of program exclusion," he wrote to Kusserow.

"The aggressive application of [the exclusion provision] would resolve most of the problems identified in this report. We believe laboratories will not risk losing all Medicare business in order to continue such discrimination and the market would soon adjust to a uniform pricing policy."

Officials from the two branches of HHS will apparently be working together to determine what constitutes a breach of the Federal statute, and what additional authority might be needed from Congress to enforce it.

On the brighter side, HCFA has indicated it will investigate some of the inefficient carrier practices mentioned in the report and take corrective action if the contractors are not in compliance with current operating guidelines. Moreover, the agency said it would consider any suggestions the IG might have for streamlining the process, although the report did not list any specific recommendations.

At this writing, HCFA was still evaluating the final report before formally notifying the IG's office of any related actions taken or planned. It was uncertain what, if any, change of direction the agency might pursue under the leadership of new Administrator Gail Wilensky, Ph.D., who took office in February.
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Publication:Medical Laboratory Observer
Article Type:column
Date:Apr 1, 1990
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