As of January 1st of this year, the rate-setting scheme for nation-wide payment rates from the Centers for Medicare & Medicaid Services (CMS) has been rejiggered in an attempt at allowing CMS to benefit from the type of rate contracting that private payers have long been able to do. While CMS has historically set rates for laboratory tests, with private payers then typically using that price as a starting point for negotiation, the new system, as established by the Protecting Access to Medicare Act of 2014 (PAMA), flips the roles of the two, and instead uses the private-payer rates to set Medicare pricing. PAMA is one attempt to cut CMS in on the action and allow it to benefit from free-market based negotiations that private payers do as a natural course of business.
Despite the four-year lead time from the passage of PAMA to implementation of the rule (which was even one year later than it was supposed to be, by statute), there were still surprises once the final rates were released, and perhaps more importantly, leaves questions about what the new status quo could and/or should be with respect to the elaborate choreography of rate setting, negotiating, and contracting.
Under PAMA, labs are required to report to CMS the private payer rates they pay for particular tests. CMS then determines a weighted median amount by test in order to set the new prices. This is not a one-time submission – labs will be required to continue submitting payment data in future years. However, rates cannot be reduced by more than 10% each year for the first few years, and no more than a 15% reduction in the following few years, as a means of setting a floor on pricing expectations to protect labs. CMS has by and large been excluded from negotiating with manufacturers of all kinds on cost, and instead has had to accept list prices across the board.
One of the biggest criticisms around the implementation of PAMA is the criteria used to determine exactly which labs are meant to submit their data to CMS. One estimate has only 34% of the lab market represented, with two major labs representing 80% of the volu