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New era begins as HCFA implements lab fee schedule.

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

The launch came with the Deficit Reduction Act of 1984, whose Medicare reforms included a directive that the Health Care Financing Administration begin immediately paying for non-inpatient tests according to regionally calculated fee schedules. The agency instructing each carrier and intermediary to establish a fee schedule tied to area prevailing charges, with the new payment standards to take effect 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 all carrier areas by the middle of that month. Less certain was the time-table for the intermediaries, who needed to install a new coding system (CPT-4) and make the transition from reasonable cost reimbursement.

During the changeover, according to HCFA officials, intermediaries will pay for hospital-based outpatient laboratory services by calculating a "relatively high" percentage of hospital-based outpatient laboratory charges. "The intermediaries know what the charges have been, more or less," a HCFA official said. "They are to continue to pay, for instance, 80 to 90 per cent of that, though it could be lower or higher, to keep th dollars flowing. Once the fee schedules are established, the bills will be processed, and any necessary adjustments made."

While the Government wants to avoid payment delays, it clearly desires to reduce overall outlays for diagnostic testing. The interim percentage-of-charges plan for hospitals, for instance, was installed to approximate the fee schedule's anticipated impact. Lawmakers estimated the fee schedule would save Medicare $960 million over the next four years.

Many observers believe hospitals will be hardest hit. When inpatient laboratory services were swept into the prospective payment program, administrators and laboratorians alike looked to outpatient services as a counterbalancing revenue source. Although the new rules don't place the hospital-based services at a competitive payment disadvantage with other laboratory facilities, they nevertheless dictate the fee structure and probably preclude strategies for recapturing dollars lost to DRGs.

Hospital lobbyists hammered this point home during the legislative process, and won some small victories that are reflected in the legislation. Here's a rundown:

* The schedule applies to tests performed in independent laboratories, phhysicians' office labs, and hospital labs. The payment level for hospital laboratories will be 62 per cent of the prevailing 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 for independent and physicians' office labs--60 per cent of the prevailing charge level.

The legislation calls for HCFA to convert the carrierwide screens for physicians' office laboratories and independent laboratories in effect this year to a national fee schedule beginning July 1, 1987. HCFA officials probably won't know for months just how they'll accomplish that task. The agency could make gradual adjustments, narrowing differences among carrier schedules each year before the deadline. Or they may adjust schedules only once, in July 1986.

Hospital laboratory treatment differs sharply. Rather than mandating conversion to a national fee schedule, the law says that hospital-based services will revert to the cost reimbursement system in July 1987 unless Congress says otherwise.

The Health and Human Services Department is to advise lawmakers on the feasibility of extending the fee schedule for hospital-based laboratories serving hospital outpatients.

* Assignment now is mandatory for independent and hospital laboratories, but remains optional for physicians. Moreover, whenever assignment is in effect, the deductibles and coinsurance are waived, and Medicare pays 100 per cent of the schedule fee.

* The new rules further require that carriers and intermediaries pay only the entity actually performing the tests. (This precludes physician billing for tests sent to an outside laboratory.) However, an exception is allowed. An independent laboratory can bill for all tests performed for a patient, even if some of those tests were referred to another laboratory better equipped to handle them.

* A provision that is especially pleasing to independent laboratories directs the Health Care Financing Administration to simplify billing requirements, so long as the alterations don't simplify efforts at fraud and abuse. An agency spokesman said that will probably mean an end to requiring beneficiaries' addresses and diagnoses. "We're working now on making those changes administratively," said Charles Booth, special assistant to HCFA's deputy administrator.

Overall, Booth said, "our objective, and that of Congress, was to insure that the Government pays for what a test is worth, regardless of who performs it or where. A blood test should be worth x amount of dollars. If it costs Hospital A x to perform it, and Hospital B x plus 1, the Government shouldn't have to bear the difference. Hospital B's greater cost is not the Government's problem."

Booth pointed out that HCFA and legislators zeroed in on the 60 per cent prevailing charge level because "that seemed the point at which the Government could, in fact, reach some savings without being draconian."

Hospitals won the 2 per cent differential after arguing vigorously that their laboratories should be excluded altogether due to the financial uncertainities of switching from cost-based reimbursement. "Historically, hospital laboratories and other hospital departments have had overhead built into their costs, so it is difficult to judge the impact," Booth said. "But the question was whether to allow an exclusion and risk giving hospital laboratories an unfair competitive edge. Ultimately, Congress decided that the hospitals would have to participate, but they could have a few more dollars."

Hospitals also secured a victory of sorts by persuading lawmakers to review their fee schedule experience after three years, rather than automatically convert to the national system. The institutions thus will enjoy an opportunity to re-argue their case before Congress even as HCFA presents its findings concering the schedule's impact on hospital-based laboratories.

Currently, HCFA is preparing regulations to implement several provisions of the act where it has some discretion. Among the matters the regs will address: the mechanism for moving from carrierwide to national fee schedules; whether wage differences in various regions of the country will be a factor in the national schedule; how to handle collection fees; and how to pay for low-volume, high-cost tests.

The legislation allows a collection fee per encounter to the laboratory or office that actually draws the specimen.

"The House-Senate conference report addresses the fee for venipuncture and urnalysis via catheterization, and we are allowing payments for those right away." Booth said. "However, we are going to take the regulatory route, with the opportunity for public comments, to decide on collection fees for specimens taken other ways."

As for low-volume, high-cost tests, "we recognize that many of today's routine tests began as very expensive tests, and we don't want to impede advances in technology by discouraging new developments and not paying a premium for them. When we make a decision, others give it a hard look. So we know we have an influence on more than just our portion of the market."

At this writing, it appeared HCFA would not be proposing the fee schedule regulations until late fall at best.
COPYRIGHT 1984 Nelson Publishing
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Copyright 1984 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Health Care Financial Administration
Publication:Medical Laboratory Observer
Date:Sep 1, 1984
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