Medicare Laboratory Test Expenditures Increased in 2018, Despite New Rate Reductions

WHY WE DID THIS STUDY

Effective in 2018, the Medicare program changed the way it sets payment rates for clinical diagnostic laboratory tests (lab tests). CMS replaced the previous payment rates with new rates based on private payer data collected from labs. This is the first reform in 3 decades to Medicare's payment system for lab tests. As part of the same legislation reforming Medicare's payment system, Congress mandated that OIG monitor Medicare payments for lab tests and the implementation and effect of the new payment system for those tests.

HOW WE DID THIS STUDY

We analyzed claims data for lab tests that CMS paid for under the Medicare Clinical Laboratory Fee Schedule (CLFS) in 2018. These tests are covered under Medicare Part B and do not include tests that Medicare paid for under other payment systems, such as the payment system for critical access hospitals or the Hospital Outpatient Prospective Payment System. We examined Medicare Part B spending for lab tests in 2018 as compared to 2017 and identified key factors that contributed to increased spending. We identified notable changes to test payment rates and categories and examined factors that affected Medicare spending in certain geographic areas of the lab test marketplace. Additionally, we identified the top 25 tests based on total spending in 2018 for each lab test procedure code.

WHAT WE FOUND

Medicare spent $7.6 billion for lab tests in 2018, a $459 million increase from $7.1 billion for 2017. Although payment rates for most tests decreased in 2018, savings that resulted from lower rates were overtaken by increased spending on other tests. Spending on genetic tests increased from $473 million in 2017 to $969 million in 2018 because of new and expensive tests entering the CLFS, as well as an increase in the volume of existing genetic tests. Spending on certain chemistry tests also increased by $82 million in 2018 following the end of a discount on these tests. Finally, a one-time spending increase on some tests occurred in cases in which the national rate was higher than the local payment rates that it replaced.

WHAT WE RECOMMEND

We recommend that CMS seek legislative authority to establish a mechanism to control costs for automated chemistry tests. Although CMS does not currently have statutory authority to restore the discount that it had previously used to ensure efficient pricing for these tests, CMS should seek legislative change to regain such authority. CMS neither agreed nor disagreed with our recommendation. Instead, CMS stated that it would monitor utilization and spending associated with these codes and take OIG's recommendation into consideration when determining appropriate next steps.