OIG: Improve Medicare rate-setting for clinical diagnostic lab tests

April 12, 2024 - CMS’ procedures for setting Medicare rates for clinical diagnostic lab tests could improve for future public health emergencies, according to a new report from the Office of the Inspector General (OIG).

OIG said in the report that, during the COVID-19 public health emergency, current Medicare rate-setting procedures “did not allow the [Medicare Administrative Contractors] to set rates that were adequate to cover the cost of conducting COVID-19 viral tests for all laboratories during a time when CMS was working to increase testing capacity.”

As a result, CMS may have missed opportunities to gather important information that could have enhanced its response to COVID-19 from laboratory associations. The process may have also overlooked information from pricing set by Medicare Administrative Contractor (MAC) coordinators when CMS made decisions about new rates for clinical diagnostic lab tests, the report stated.

OIG recommended that CMS establish procedures to improve communication among stakeholders involved in the process of setting new rates for clinical diagnostic lab tests during a public health emergency. CMS should also enhance its procedures for setting and adjusting rates for the new tests under public health emergencies, although this may require new legislative authority, OIG added.

CMS had to take additional action beyond its standard Medicare rate-setting procedures for new clinical diagnostic lab tests during the COVID-19 public health emergency because neither the Clinical Laboratory Fee Schedule statute nor its implementing regulations address how MAC coordinators can quickly set and adjust rates for new tests needed during an emergency. Normally, the process for setting and adjusting rates for clinical diagnostic lab tests is a “length public consultation rate setting process,” OIG explained.

At the time, OIG found that hospitals had to rely on external laboratories for COVID-19 viral testing, which contributed to significant delays in responding to the public health emergency. Laboratories were reportedly overwhelmed with tests to process, creating backlogs among the limited number of laboratories that could process COVID-19 viral tests at the start of the public health emergency.

Laboratories complained about increased costs in obtaining the necessary equipment and supplies to conduct necessary testing, leading CMS to quickly establish billing codes for new Medicare clinical diagnostic lab tests to alleviate the pressures on these external laboratories. The agency also increased the payment rate for high-throughput-testing technology that could boost testing capacity after initial payment rates set by MAC coordinators were to blame for many laboratories not performing the tests.

OIG acknowledged that CMS took steps to ensure access to COVID-19 testing for Medicare beneficiaries, but improvements can be made to better prepare the healthcare industry for future public health emergencies.

The federal watchdog found during its audit of Medicare rate-setting procedures for clinical diagnostic lab tests that MAC coordinators and laboratory associations felt they did not have enough communication with CMS during the interim rate-setting process and when CMS issued rulings adjusting rates.

MACs also told OIG that additional flexibilities, such as allowing MACs to develop and adjust payment rates for tests during a public health emergency, could also have avoided additional rulings to increase payment rates after initial rate-setting did not incentivize additional testing. Expanding MAC rate-setting capacity during COVID-19 could also have helped cover the costs of providing testing service across all laboratories, the report stated.

In response to the report, CMS said it “will take our findings and recommendations into consideration for future [public health emergencies].”