Medicare Reimbursement for Clinical Laboratory Services

Background

Prior to 1984, Medicare reimbursement for laboratory services was paid on a reasonable charge basis, and 80 percent of laboratory services were billed by physicians. A significant share of lab services was performed by independent laboratories that billed physicians who in turn billed Medicare. Before 1984 Medicare required that beneficiaries be charged a co-payment for lab services, and in most cases physicians collected the co-payment easily because they had face-to-face contact with patients.

Legislation enacted in 1984 made several changes to Medicare reimbursement for lab services based on HCFA (now CMS) Task Force recommendations. The Deficit Reduction Act of 1984 required laboratories to bill Medicare directly, created a fee schedule for lab services that capped payments, and eliminated beneficiary co-payments for laboratory services. Congress expressly repealed the co-payment requirement because it realized that collecting co-payments from patients would be difficult for labs who do not have a billing relationship with patients. Also, the costs of billing and collecting such small amounts would be financially and administratively burdensome. Congress also recognized that labs would be paid based on the new fee schedule and would not be able to build collection and bad debt costs into their charges.

Since the Medicare Clinical Laboratory Fee Schedule was created in 1984, reimbursement for lab services has been systematically reduced. The limits—or ceilings—on payments for each test, which were originally set at 115 percent of the average fee across all carriers, have been declining over the past 20 years. The most recent reduction occurred in 1997, when these limits were set at 74 percent, where they stand today. In addition, the inflationary (CPI) update that was established as part of the new fee schedule has been completely eliminated or reduced in 13 of the past 15 years. The recently enacted Medicare Prescription Drug, Improvement and Modernization Act (PL 108-173) again freezes the CPI update for lab services through 2008.

In 2003, the Senate version of the Medicare prescription drug bill included a provision requiring laboratories to bill and collect a 20 percent co-payment on laboratory services under Medicare (the House version included no such provision). If this provision had become law, significant costs would have been shifted to beneficiaries and to laboratories. In many cases the cost of billing and collecting the co-payment would have exceeded the amount of the co-payment itself. ACLA strongly opposed a Medicare laboratory co-payment, and the provision was ultimately rejected by the Medicare Conferees.

ACLA Position

ACLA remains opposed to adding a co-payment for Medicare laboratory services and to additional cuts in Medicare reimbursement for laboratory services. Medicare payments for lab services should be updated to keep pace with inflation. Further reductions in reimbursement have the potential to affect the quality of and access to testing for millions of Medicare beneficiaries.