SALSA and CHIPs Anyone?

The latest information related to how the new federal budget act will impact PAMA, and what that means for you and your customers.

Perhaps a different SALSA and CHIPs that you had in mind, based on the headline? In this case, it’s about the Protecting Access to Medicare Act (PAMA) and potential changes coming to its implementation based on new legislation proposed on July 22, 2022, by Richard Burr, Republican Senator of North Carolina. The catchy acronym for this proposed law is SALSA (Saving Access to Laboratory Services Act).

By Jim Poggi

Overall, the SALSA act proposed several changes to PAMA implementation intended to lessen the impact of PAMA in the future. How does CHIP fit in? CHIP (Children’s Health Insurance Plan) is one of the beneficiary groups covered by the Clinical Lab Fee Schedule (CLFS). In summary, any changes to the CLFS impact the reimbursement paid to laboratories for tests performed for beneficiaries of Medicare and other federally funded health care programs.

Spoiler alert: there is important information to follow, but the key elements of the SALSA bill have been incorporated into the 117th Congress’ budget act (H.R. 2617) right before its recess. This is a significant step forward for all laboratories as well as the U.S. healthcare system overall. It will also impact how distributors and our key lab manufacturing partners message our lab customers in the coming years.

A refresher

Just exactly how did we get here?

We need to go back to 2014 when PAMA was first enacted into law. Its premise was that Medicare was paying a premium for laboratory services of up to 20% compared to private insurance. The intent of PAMA was to align CLFS reimbursement with private payer rates by having “applicable laboratories” collect data from their private insurance payment rates and provide this information to the Centers for Medicare and Medicaid Services (CMS). CMS’ task, then, was to compare these rates to those of the CLFS and make downward adjustments to align CLFS with private pay. PAMA legislation called for cuts of up to 10% in each of the first three years and 15% in the following three years to achieve this alignment at the individual CPT code level. The original intent of the legislation was to trim $2.5 billion in lab spending over 10 years. In 2018, year one of PAMA, 996 CPT codes, about 88% of all the lab CPT codes, experienced a reduction to meet this mandate. CMS estimated that the first-year impact of PAMA reductions would be at least $390 million. It turned out to be approximately $670 million. Additional cuts to many of the tests covered under the CLFS took place in 2019 and 2020. As a result of cuts experienced since inception of PAMA, an estimated $4 billion in lab reimbursement cuts have occurred, far more than the original intent of the legislation. Reductions to most CPT codes took place in 2018, 2019 and 2020, but further cuts have been suspended since then due to legislation enacted during the COVID pandemic. Ironically, despite reductions in Medicare spending for routine lab testing due to PAMA, testing due to COVID actually increased total

Medicare spending for lab tests in the past three years.

Since PAMA was proposed, major laboratory organizations including the American Association for Clinical Chemistry (AACC), American Clinical Laboratory Association (ACLA), the National Independent Laboratory Association (NILA) and others including medical societies have cautioned that PAMA legislation included several flaws and could lead to the closure of some laboratories reducing access to lab care especially in rural areas. The most significant flaw has been believed to be the mix of hospital, physician office and independent laboratories designated as “applicable laboratories” to report their private payer rates for lab tests. Over 90% of the data reported to the definition of applicable laboratories to expand the percentage of hospital outreach laboratories and physician laboratories designated as “applicable laboratories,” but the ratio remained highly skewed to larger independent laboratories.

Several pieces of legislation have been enacted since 2019 that have suspended the first round of 15% cuts proposed under PAMA. These include the Laboratory Act for Beneficiaries (LAB Act) in 2019, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) in 2020 and the Protecting Medicare and American Farmers from Sequester Cuts Act in 2021. However, 2023 was scheduled to be the first year of 15% cuts as mandated under PAMA. This is where SALSA comes in.

Jan. 1, 2023. In addition, there would have been no further changes in the definition of “applicable laboratory” and the skew toward large private laboratories would have remained. However, due to the SALSA enactment in the broader budget bill, there are sweeping changes in how PAMA is implemented with positive impact to hospital and physician office laboratories. Changes to PAMA due to SALSA elements include: ʯ Stopping the 2023 CLFS cuts ʯ Permitting annual decreases OR increases in reimbursement of specific tests by 5% maximum ʯ Increasing the data collection interval from 3 to 4 years ʯ Requiring CMS to re-evaluate the definition of applicable laboratory to level the playing field for physician office and hospital outreach labs which are presently under-represented. In and of itself, this would decrease the sharpness of reductions. ʯ Expanding the implementation timetable indefinitely; PAMA only addressed 6 years

CMS was from independent laboratories, while these laboratories only performed 48% of the tests reimbursed by the CLFS. In addition, since private payer rates for lab tests from these laboratories are lower than hospital and POL laboratories, reporting these private payer rates artificially increased the difference between private pay and CLFS reimbursement. In 2019, CMS made some concessions to

Where we go from here

SALSA legislative elements have been incorporated into the final budget bill of the 117th Congress. What is the impact of the SALSA budget elements? If SALSA had not been enacted into law, PAMA would have stayed in place as written with planned cuts of up to 15% for tests still above private pay reimbursement beginning with the new CLFS schedule which would have gone into effect

Over the past three years there have been a number of initiatives, both due to legislation mentioned above and intense lobbying efforts by both laboratory and medical societies to respect the intent of PAMA to assure spending on lab services is monitored and kept in line with private insurance while also making sure that the balance of large private reference labs, hospital labs and physician office labs is appropriately represented in data collection. The changes in data collection as well as definition of “applicable laboratory” due to the recently enacted budget bill seem to be key steps in assuring both of these goals. By assuring that private lab reimbursement is represented closer to its percentage of total Medicare lab spend, a fairer balance of private pay rates for lab tests can be created. This is a major step forward. While its impact needs to be assessed over time, the general consensus is that it will reduce pressure on physician office labs and hospital outreach labs, lessen the number of these labs going out of business or being acquired by large private labs and maintain

Legislation ABCs

access to lab services – especially in rural areas. To some extent, I also expect it to impact the messaging of the three elements of value represented by lab: economic, workflow and clinical. With some pressure removed from the economic value of lab, the balance of these three elements comes back somewhat to its traditional ratio. ʯ PAMA (Protecting Access to Medicare Act). First enacted in 2014, its premise was that Medicare was paying a premium for laboratory services of up to 20% compared to private insurance. ʯ CHIP (Children’s Health Insurance Plan) is one of the beneficiary groups covered by the Clinical Lab Fee Schedule (CLFS). ʯ SALSA (Saving Access to Laboratory Services Act). The SALSA act proposed several changes to PAMA implementation intended to lessen the impact of PAMA in the future.

At this point, my best advice is to stay in communication with your home office and trusted lab manufacturers who have also closely followed developments and await a plan to implement a communication strategy with them at a corporate level to assist our customers in understanding the future of CLFS reimbursement. With change comes opportunity and those who understand the evolving market will be most prepared to effectively consult their customers.