CMS Changes to the Clinical Laboratory Fee Schedule

by Christine Park Song, John Warren and Eric Zimmerman

On Friday July 19, 2013, the Centers for Medicare & Medicaid Services (CMS) published the 2014 Medicare Physician Fee Schedule and the 2014 Medicare Hospital Outpatient Prospective Payment System Notices of Proposed Rulemaking.  The proposed rules are available in the Federal Register at pages 43282 and 43534, respectively.   These notices include three proposed changes to Medicare payment for Clinical Laboratory services that would address the rapid technological changes in the clinical diagnostic lab environment.

First, CMS is proposing a process that would allow for the systematic examination of payment amounts on the Clinical Laboratory Fee Schedule (CLFS).   The process would:

  • Identify those CLFS codes that had undergone “technological changes” affecting the price of the test. 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;
  • Review all CLFS codes over a five-year period, beginning with the oldest codes, reviewing a portion of the total codes each year; and,
  • Make appropriate adjustments to payment rates on the CLFS whenever necessary.  CMS anticipates that most adjustments will be decreases; however, they note that the process could result in increased payments as well.

Notably absent from their review is an analysis of the costs of the resources needed and used to develop tests,  including intellectual property costs, which can be a significant portion of the costs of newer tests and costs which are generally not accounted for under the CLFS.

The full list of codes that CMS is proposing to package is available on CMS' website (Addendum P).

The second proposal involves proposed changes to the Hospital Outpatient Prospective Payment System (OPPS) for CY 2014.  Specifically, the Notice of Proposed Rulemaking includes a proposal to bundle clinical laboratory payments into the OPPS payments for related services.  CMS believes that, in general, clinical laboratory tests essentially support the underlying outpatient encounter. CMS argues that, because the OPPS is meant to be an all-inclusive payment system and not a fee schedule, bundling clinical laboratory payments into the OPPS payment is appropriate.

CMS proposes two exceptions to this policy: 

  • If a lab test is unrelated to the primary service, that is, if the test was ordered for purposes unrelated to the OPPS encounter, it would continue to be paid separately. Lab tests meeting this exception criterion would also need to be ordered by a physician other than the physician ordering the OPPS service. 
  • Exempt molecular diagnostic tests, citing the novelty and different use patterns for these tests. 

The third proposal would limit Medicare payments for non-facility based services paid under the Physician Fee Schedule (PFS) to the amount paid when the service is performed in the facility setting. CMS believes that anomalies in data used to set rates under the PFS and the way that data are used in the PFS’s resource-based Practice Expense (PE) methodology leads to inaccurate payments for certain services. CMS believes that PE input data voluntarily submitted to the Relative Value Scale Update Committee (RUC) may be inaccurate, incomplete or biased. Further, the lack of a comprehensive review and evaluation of PE inputs is believed to contribute to these discrepancies. For most services, this proposed policy change will have a small impact (-2 percent to +1 percent); however, for clinical laboratories in particular, CMS estimates that this proposal will reduce payments by 25 percent.

If finalized, these three proposals would operate to substantially affect Medicare payment for clinical laboratory services, and could likewise affect market demand for some tests.

CMS Issues Final Rule on Incorrectly Classified SCHs

by Amy Hooper Kearbey and Eric Zimmerman

The Facts

On August 1, 2012, the Centers for Medicare & Medicaid Services (CMS) posted the Inpatient Prospective Payment System (IPPS) final rule for fiscal year 2013.  In the rule, CMS finalized a revision to its regulations to address situations where a hospital was incorrectly classified as a Sole Community Hospital (SCH).  Under the revised regulation, an SCH is required to report “any factor or information that could have affected its initial classification [as an SCH].”  If a hospital makes such a report, and CMS subsequently determines that the hospital should not have been classified as an SCH initially, CMS will revoke SCH status effective 30 days after CMS’s determination.  If the hospital fails to report, CMS may recoup overpayments consistent with existing reopening rules  (i.e. for cost reporting periods that are within the 3-year reopening period).

CMS’s proposed rulemaking drew a number of comments from stakeholders.  Although CMS addressed several concerns raised in the comments, CMS did not respond to questions regarding the level of due diligence that a hospital is expected to exercise to discover errors in its initial classification as an SCH status or the extent to which a hospital should be able to rely on CMS’s final determination regarding SCH status.  In particular, stakeholders requested that CMS incorporate an express “awareness” requirement into the regulatory language, such that a hospital has a duty to report only if it becomes aware of a factor or information that could have affected its initial classification as an SCH, but CMS declined to do so.  CMS instead instructed that a hospital must report if it “suspects that it should not have qualified as an SCH,” without addressing what standard would be used to determine whether a hospital should have had a suspicion about its SCH classification.  Stakeholders also requested that CMS expressly clarify that only the regulations and interpretations that were effective at the time of the initial classification are relevant.  CMS confirmed this in the preamble, but it did not incorporate this concept into the regulatory language.

What’s at Stake

The new regulation calls into question whether a hospital can rely on CMS’s determination that the hospital qualifies for SCH status.  The regulation also creates a meaningful incentive to report any suspicion regarding SCH status because the financial implications of not reporting are significant – the potential for retrospective revocation for all cost reports subject to reopening. 

While this issue is of particular concern to SCHs, all hospitals should take note of CMS’s view that a hospital may not always rely on a final determination rendered by the Agency.

Steps to Consider

SCHs that have reason to suspect that they may not have initially satisfied all of the qualification criteria required for SCH status should consider investigating that suspicion, and making a report to CMS to avoid severe recoupments for failing to report.  Because of the significant legal and reimbursement implications associated with these investigations and reports, it is advisable to conduct these activities under the oversight of legal counsel.

In addition to the new regulatory requirement regarding initial classifications, SCHs should continue to be mindful of existing regulations at 42 C.F.R. § 412.92 that require the hospital to monitor certain changes to the circumstances under which it qualified for SCH status, such as the opening of a new hospital in the area or a change to the hospital’s geographic classification, and to report such changes to CMS.

CMS Issues Proposed Rule Implementing the "Federal Sunshine Law" Reporting Requirements

by Bernadette M. Broccolo, Emily J. Cook, Lesley N. DeRenzo, Susan S. Lee and Joan Polacheck

The U.S. Centers for Medicare & Medicaid Services (CMS) released a proposed rule implementing the "Sunshine" provisions of the Affordable Care Act (ACA) that requires annual public reporting by certain drug and device manufacturers of payments made by them to physicians and teaching hospitals and of physician ownership interests in such manufacturers.  The "Sunshine" provisions of the ACA also require group purchasing organizations to make annual public reports of physician ownership interests in such organizations.  CMS is accepting comments on its proposed rule through February 17, 2012.

To read the full article, please click here

CMS Releases its 2012 ACO Application; Pioneer ACOs Advance

by J. Peter Rich and Lesley DeRenzo

Medicare MSSP ACOs

Pursuant to the Medicare Shared Savings Program (MSSP) final rule released on October 20, 2011, the Centers for Medicare and Medicaid Services (CMS) has released its 2012 Accountable Care Organization (ACO) application.  Organizations interested in participating as an ACO in the MSSP created under the Patient Protection & Affordable Care Act may now move forward with the application process. 

Organizations must submit a brief Notice of Intent (NOI) to CMS by 5:00 p.m. EST on January 6, 2012.  A link to the NOI is accessible here.

Once CMS receives and processes an applicant’s NOI, the applicant will receive an acknowledgement letter from CMS that contains the applicant’s ACO ID.  Additionally, CMS will provide the applicant with detailed information on how to obtain a CMS user ID (which is necessary to apply for the MSSP). 

After an applicant has obtained an ACO ID and CMS user ID, the applicant should submit the MSSP application to CMS by no later than 5:00 pm EST on January 20, 2011, for the April 1, 2012 contract start date.  Applicants wishing to participate starting July 1, 2012, should submit the MSSP application to CMS by no later than 5:00 pm EST on March 30, 2012.  

For more information about the MSSP application process click here

Separate ACO Development - Pioneer ACOs Advance

In a separate ACO development, CMS has recently pursued partnerships with ACOs through its Pioneer ACO model, led by the Center for Medicare & Medicaid Innovation (CMI) within CMS.  The Pioneer ACO program has been designed for health care providers that have relatively more experience with an integrated delivery system model, and thus, greater readiness to contract with CMI as an ACO.  Approximately 40-50 of the Pioneer ACO applicants were offered contracts, and approximately 25-30 Pioneer ACOs are expected to enter into contracts with CMI.  CMI’s collaborations with Pioneer ACOs are aimed at achieving better care for individuals, better health for populations, and reduced expenditures for Medicare, Medicaid, and CHIP beneficiaries.

For more information about CMI click here.

CMS Issues Final Rule to Streamline Hospital and CAH Credentialing of Telemedicine Providers

by Amanda Jester

The Facts
On May 2, 2011, CMS released a final rule (the Final Rule) revising the conditions of participation (CoPs) for both hospitals and critical access hospitals (CAHs), scheduled to be published in the Federal Register on May 5, 2011. The Final Rule is an attempt to streamline the credentialing and privileging process for practitioners who provide telemedicine services to hospital or CAH patients. Currently, the CoPs require all practitioners providing services to patients to go through the same credentialing and privileging process, even if those practitioners are only providing services remotely through telemedicine capabilities. The Final Rule allows hospitals and CAHs to rely on the credentialing and privileging process of the facility where the practitioner is located (the distant cite), provided that the hospital or CAH and the distant cite have an agreement in place and the distant cite meets CMS standards (even if it is not a Medicare-participating provider). The Final Rule will take effect 60 days from publication, July 4, 2011, assuming a May 5, 2011, publication date.

What’s at Stake
CMS anticipates that the removal of unnecessary barriers to the use of telemedicine may improve access to and quality of care by enabling patients to receive medically necessary interventions in a more timely manner and enhancing patient follow-up in the management of chronic disease conditions. These revisions may also provide some relief to small hospitals and CAHs in rural areas with a shortage of primary care and specialized providers, by providing easier access to these practitioners through telemedicine. 

Steps to Consider

  • If a hospital or CAH does not already access practitioners via telemedicine, consider whether there are “gaps” in services available to patients that could be alleviated through telemedicine.
  • Identify a distant cite that may be a source of practitioners.
  • Keep in mind that the distant cite must meet CMS standards with regard to its credentialing and privileging process.
  • Develop thoughtful arrangements with distant cites to facilitate telemedicine services.

Upcoming CMS Regional Listening Sessions on ACOs, CMMI and Health Reform

Next week CMS is continuing to hold sessions in its series of regional listening sessions on the subject of “Health Care Delivery System Reform.”

The stated purpose of the listening sessions is to highlight CMS’s reform efforts and also to gain input from stakeholders. CMS organized the regional sessions stating that the Affordable Care Act (ACA) has given it new opportunities to improve the care delivery and payment system, including Accountable Care Organizations (ACOs) under the ACA’s Shared Savings Program. (For information on a prior CMS listening session regarding ACO waivers under the Shared Savings program read McDermott’s On the Subject here.)

Each listening session throughout the country, will spotlight these three areas:

  • Shared Savings Program for ACOs
  • Center for Medicare and Medicaid Innovation (CMMI)
  • Federal Coordinated Health Care Office (FCHCO)

Some of the upcoming listening sessions may be attended via call in numbers.  Other listening sessions are only open for in-person attendance and subject to advanced registration.  The following is the schedule of listening sessions to be held next week according to the CMMI calendar and circulars provided by the Division of Partner Relations at CMS:

Monday, December 13, 2010
Event: Region 10 Listening Session
Time: 12:00 - 2:00 pm PST
Hosts/Panel: Co-hosted by HHS Regional Director Susan Johnson and CMS Regional Administrator John Hammarlund. Dr. Don Berwick, CMS Administrator, will provide opening remarks and Dr. Richard Gilfillan, Acting Director of the CMMI will solicit ideas and feedback from attendees.
Call in Information (if any): None. In person attendance only. Subject to availability, register here.
Location:  Hilton Seattle Airport and Conference Center, 17620 International Blvd, Emerald Ball Room, Seattle, WA 98188

Tuesday, December 14, 2010
Event: CMS Region 2 Listening Session
Time: 2:30 - 4:00 pm EST
Hosts/Panel: Co-hosted by CMS Consortium Administrator James T. Kerr and DHHS Regional Director Dr. Jaime Torres, featuring Dr. Rick Gilfillan, Acting Director, CMMI and Cheryl Powell, Deputy Director for the FCHCO.
Call in Information (if any): +1 800 837 1935; ID Code: 28948644

Thursday, December 16, 2010
Event: Region 4 CMS Listening Session
Time: 1:00 - 2:30 pm EST
Hosts/Panel: Hosted by CMS Regional Administrator, Dr. Renard Murray, featuring Dr. Richard Gilfillan Acting Director, CMMI, and Sharon Donovan, FCHCO; and including Anton Gunn, HHS Regional Director.
Call in Information (if any): +1 800 837 1935; ID Code: 28950540

Friday, December 17, 2010
Event:  Listening Session (last currently scheduled in the series)
Time: 9:30 - 11:30 am CST
Hosts/Panel: Hosted by Dr. Renard Murray, Ph.D., CMS Regional Administrator and featuring Dr. Richard Gilfillan, M.D, Acting Director, CMMI.
Call in Information (if any): None.  In person attendance only. Those interested in attending must register here no later than close of business Wednesday, December 15, 2010.
Location:  Richardson Civic Center, 411 W. Arapaho Road, Ste. 102, Richardson, TX 75080
Questions: CMMI’s website states that questions regarding this session may be directed to the voicemail box at +1 303 844 7130.

Some details of each event are available on the website for CMMI.

A calendar showing the various regional sessions also is on CMMI website.

AMA Establishes New Principles for ACOs

The American Medical Association has established new principles to guide the development and operation of accountable care organizations, which emphasize physician leadership and patient participation.

To read the full article, click here.

Workshop Examines Effects of Waiver Authority on Development of ACOs

The FTC, CMS and OIG hosted a public workshop on October 5, 2010, featuring panel and listening discussions on regulatory issues surrounding how the development and operation of accountable care organizations would be affected by the use of waivers, safe harbors and other exceptions to various fraud and abuse laws.

Click here for more information.

CMS Posts Self-Referral Disclosure Protocol

The U.S. Centers for Medicare & Medicaid Services posted its Medicare self-referral disclosure protocol describing how to disclose actual or potential violations of the Stark law and the associated Medicare overpayment.

Click here to read the full article.

Accountable Care Organizations: FTC, CMS, OIG Hosting Public Workshop on October 5, 2010

On October 5, 2010, the FTC, CMS and OIG will host a public workshop featuring a listening session on various legal issues related to ACOs, including antitrust, physician self-referral, anti-kickback and civil monetary penalty laws.  Registration for the workshop is currently closed, but the listening session is available to all.

Click here to view the full article.

President to Nominate Don Berwick to Head CMS

The Facts

President Obama is reportedly poised to nominate Don Berwick, M.D., M.P.P., to head the Centers for Medicare & Medicaid Services (CMS).  Since 2006, when Dr. Mark McClellan left, CMS has been without a permanent administrator. 

Berwick is the current president and CEO of the Institute for Healthcare Improvement, a Cambridge, Massachusetts, organization that seeks to improve health care by "building the will for change, cultivating promising concepts for improving patient care, and helping health care systems put those ideas into action."  In its work, the institute seeks to "accelerate the measurable and continual progress of health care systems."  For more information about the institute, visit  Berwick is also a clinical professor of pediatrics at Harvard Medical School and a professor of health care policy at the Harvard School of Public Health.  Berwick served as vice-chair of the U.S. Preventive Services Task Force, and chair of the National Advisory Council of the Agency for Healthcare Research and Quality.  He also served two terms on the Institute of Medicine’s governing council.

Berwick would have the difficult job of managing and improving Medicare, Medicaid and the Children's Health Insurance Program, while simultaneously implementing much of the recently enacted health reform legislation.  While Medicare currently covers 46 million Americans, Medicaid currently covers 43.5 million Americans and is slated to expand to cover an additional 16 million individuals through expanded eligibility in health reform legislation.  However, in light of Berwick’s vast experience in the area of health quality improvement, he seems well-positioned to lead CMS as the agency positions itself to increasingly focus on paying for value as opposed to volume.

What’s at Stake

As the new head of the largest medical payer in the nation, Berwick’s leadership and decisions would significantly affect almost everyone in the health care sector.  With the enactment of health reform legislation, implementation is the primary focus of the Obama administration.  Berwick would have a vital role in determining how this reform is rolled out and ensuring that this reform meets U.S. Department of Health and Human Services Secretary Kathleen Sebelius’s goal of HHS becoming “the face of competent government — the face of a help desk that can really respond to personal issues and questions.”

Steps to Consider

The post of CMS administrator requires U.S. Senate confirmation, a process that may reignite the deep political and philosophical divisions about the newly passed health reform legislation.  Thus, all in the health care sector should monitor the nomination and Senate confirmation process.

CMS Releases Proposed 2010 Medicare Physician Fee Schedule Update

On a parallel track with health reform initiatives, the Centers for Medicare and Medicaid Services (CMS) continues its annual process of proposing changes to the existing Medicare payment systems.  The proposed 2010 Medicare Physician Fee Schedule Update, published in the July 13, 2009, Federal Register (74 Fed. Reg. 33520), includes a number of important changes to physician reimbursement, including a significant reduction in physician fees (unlikely to survive the final rule intact) as well as the "usual" array of technical revisions to the Medicare Physician Fee Schedule.  Click here for a brief summary of key proposals.

HIT Policy Committee Announces Proposed "Meaningful Use" Definition

The Facts
The American Recovery and Reinvestment Act authorizes the Centers for Medicare & Medicaid Services (CMS) to provide incentives to certain physicians and hospitals who achieve “meaningful use” of a certified electronic health record (EHR) system.

The act established the Health Information Technology (HIT) Policy Committee, which issued a draft definition of “meaningful use” at its June 16, 2009, meeting.  The committee recommended a progressive definition, where “meaningful use” is ultimately linked to achieving measurable outcomes in patient engagement, care coordination and population health.  The 2011 objectives are intended to establish a foundation for affecting a more comprehensive set of health outcomes in the future.  By 2015, the objectives are to achieve and improve performance and support care processes.  A matrix including the full proposed definition of “meaningful use” is available at

The committee has asked a workgroup of the committee to submit a new set of recommendations for “meaningful use” at the committee’s July meeting.  The committee is currently accepting comments regarding the proposed draft, but it is not clear whether it will offer a comment period after the revised draft.  The committee’s recommendations are non-binding, but will provide guidance to CMS, which will ultimately establish the definition for “meaningful use.”

What’s at Stake
Beginning in 2011, those physicians and hospitals who can demonstrate “meaningful use” of a certified EHR system will receive incentive payments through additional Medicare reimbursement.  Beginning in 2015, those who have not achieved “meaningful use” will be subject to certain downward adjustments in their Medicare reimbursement rates.

Steps to Consider

  • Consider submitting comments to the Department of Health and Human Services (HHS) on the draft definition of “meaningful use.”  Comments are due by 5 pm Eastern time, June 26, 2009.
  • If your organization does not have an EHR system, consider options for EHR technology that fit within your organization’s structure and that will assist you in capturing data to meet evolving “meaningful use” requirements.
  • If your organization already has an EHR, examine the systems and consider internal and external steps necessary to implement flexibility in capturing data required for an evolving definition of “meaningful use.”
  • Obtain contractual commitments from EHR system vendors to assist you in achieving “meaningful use.”