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CMS May Decide to Permit Labs to Bill for Certain Tests Provided to Outpatients

In the recently published proposed rule related to the CY 2018 Hospital Outpatient Prospective Payment System (OPPS), the Centers for Medicare & Medicaid Services (CMS) announced that it is considering changes to the regulation governing the date of service (DOS) for clinical laboratory and pathology specimens.  The DOS rules are important to laboratories and hospitals because they dictate which party must bill Medicare for certain laboratory testing performed on stored specimens collected during a hospital procedure but ordered after the patient has left the hospital.  If revisions are ultimately finalized, the proposal could have significant business implications for independent laboratories and hospitals.

With few exceptions, the Medicare payment amount associated with an outpatient encounter covers all services provided during the outpatient stay, including any clinical laboratory diagnostic test (CDLT) as well as the technical component (TC) of anatomic pathology (AP) services (the professional component is one of the aforementioned exemptions).   Prior to CY 2014, a hospital could bill Medicare for CDLTs ordered during an outpatient stay if the corresponding CPT codes appeared on the Medicare Clinical Laboratory Fee Schedule (CLFS).  As explained in a previous post, this policy changed in CY 2014 when CMS decided to package certain CDLTs under OPPS.  Under this policy, a hospital can receive separate reimbursement for CDLTs associated with an outpatient stay only if the CDLT at issue is:

  • the only service provided to a beneficiary on a claim;
  • a preventive service;
  • a molecular pathology test; or
  • an advanced diagnostic laboratory test (ADLT), as defined under the Protecting Access to Medicare Act of 2014 (see this post for more information about the definition of ADLT).

The packaging policy does not, however, cover the TC of AP services provided to a hospital outpatient.  In most circumstances, Medicare has required a laboratory to bill the TC back to the hospital, but the hospital can bill Medicare for the TC under OPPs.  In a previous post, we discussed a legislative exception to this rule that Congress declined to extend back in June 2012.

Depending on the DOS, CDLTs and the TC of AP services may be subject to the packaging policy even if ordered after the patient has left the hospital.   Generally speaking, the DOS for a CDLT and the TC of AP services is the date of collection, but a different set of rules apply to stored specimens (e.g., tissue collected during biopsy procedures occurring in the hospital).   For a test performed on a specimen that has been stored for 30 calendar days or less, the DOS is the date the test was performed only if:

  • the test was ordered by the patient’s physician at least 14 days after discharge;
  • the specimen was collected during a hospital surgical procedure;
  • collection of the specimen at any other time would have been medically inappropriate;
  • the results of the test were not used to guide treatment provided during the hospital stay; and
  • the test was reasonable and medically necessary for the treatment of an illness.

This regulatory provision, implemented in CY 2007, is known in the lab industry as the “14-Day Rule.”   All other testing associated with specimens stored for less than 30 calendar days is subject to the packaging policy, which means that the laboratory must bill the hospital rather than Medicare for those services.

The proliferation of molecular pathology testing technology, coupled with the implementation of the packaging policy a few years ago, has strained relationships between many hospitals and laboratories.  What often happens is that an oncologist or other physician sees a patient following a biopsy procedure conducted during an outpatient stay, and that physician orders molecular pathology testing in an effort to determine the patient's course of cancer treatment based on his or her genetic markers.  Upon receipt of the test order, the laboratory obtains the stored specimen from the hospital.  In some cases, the test order meets the requirements of the 14-Day Rule, and the laboratory can bill Medicare directly for the testing.  But for various reasons that is not always the case, and the laboratory has no choice but to bill the hospital for the services.  The hospital is then unhappy about bearing the expense of testing that is ordered after, and is unrelated to, the outpatient stay.

With this backdrop in mind, laboratory stakeholders have provided feedback to CMS regarding the "operational issues the current laboratory DOS policy creates for hospitals and laboratories with regard to molecular pathology tests and laboratory tests they expect will be designated by CMS as ADLTs."  While these particular tests are not subject to the packaging policy (and thus hospitals can bill and receive payment at CLFS rates), laboratories still cannot seek payment from Medicare directly for any testing ordered within 14 days of discharge, and many hospitals are resistant to billing Medicare for testing performed by an unaffiliated laboratory.  The proposed rule details a number of additional concerns with the current DOS policy, including decreased beneficiary access to necessary laboratory tests and therapies that could result from a hospital delaying the submission of test orders to avoid application of the 14-Day Rule.

In recognition of the issues raised by stakeholders, CMS is considering potential modifications to the DOS policy that would allow laboratories to bill Medicare directly for certain laboratory tests excluded from the packaging policy.  CMS proposed three potential approaches:

  • creating an exception to the DOS rules that would allow laboratories to bill separately for molecular pathology tests and ADLTs, even if ordered within 14 days of the patient’s discharge, as long as certain other conditions are met;
  • applying the above exception ONLY to ADLTs because the same “access to care” concerns may not exist for molecular pathology tests (which, according to CMS, hospitals may perform); and
  • adding an exception to the "under arrangements" rules for molecular pathology tests and ADLTs excluded from the OPPS packaging policy.

Comments on the proposed rule are due by September 11, 2017.  CMS will issue the final OPPS rule for CY 2018 before the end of CY 2017, but it is unclear whether it will include final changes to the DOS policy.

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Ryan Cuthbertson

Karen S. Lovitch

Chair, Health Law Practice & Co-Chair, Health Care Enforcement Defense Practice

Karen advises industry clients on regulatory, transactional, operational, and enforcement matters. She has deep experience handling FCA investigations and qui tam litigation for laboratories and diagnostics companies.