Setting Medicare Payment Rates for 
Clinical Diagnostic Laboratory Tests
Strategies To Ensure Data Quality
OEI-09-17-00050
July 2018 About Medicare payments for lab tests
 Medicare paid $6.8 billion under Part B for 
Why we did this review lab tests in 2016.
 More than 60% of Part B payments in 2016 
This review focuses on the Centers for Medicare & 
were for the top 25 tests, based on Medicare 
Medicaid Services (CMSs) initial implementation of 
payments.
Medicares new payment system for clinical diagnostic 
laboratory (lab) tests.
 Medicare Part B covers most lab tests ordered 
 This new system was mandated by the Protecting Access to Medicare 
by physicians and pays 100% of allowable 
Act of 2014 (PAMA).
charges.
 This review follows up on the 2016 OIG report Changing How 
Medicare Pays for Clinical Diagnostic Laboratory Tests, which evaluated   Beneficiaries do not have a copay for lab 
CMSs progress through August 2016.
tests under either the new payment system or 
 This review focuses on CMSs implementation activities in 2017 and  the old one.
the new payment rates that took effect on January 1, 2018.
 A list of prior OIG work is included in Appendix A.
Setting Medicare Payment Rates for Clinical Diagnostic Laboratory Tests  July 2018
Strategies To Ensure Data Quality OEI-09-17-00050 PAMA ties Medicare payment rates  About the Protecting Access to 
Medicare Act of 2014
for lab tests to those paid by private 
payers
 PAMA is the first reform to the Clinical 
Laboratory Fee Schedule since 1984.
Before PAMA, rates were based on historical lab charges 
 PAMA sets payment rates on the 
and adjusted for inflation. 
volume-weighted median of private payer data 
 Previous OIG studies found that before PAMA, Medicare rates  reported by labs that meet certain criteria.
were 18-30% higher than rates paid by other payers.
 Under PAMA, rates for most tests are updated 
New rates are based on lab-reported data: rates paid by 
every 3 years.
private payers such as private health insurers, Medicaid 
managed care organizations, and Medicare Advantage plans.
 PAMA mandates that OIG conduct analyses it 
determines appropriate with respect to the 
 Although only certain labs are required to report data, new 
payment rates apply to all labs paid through Medicare  implementation and effect of the new 
Part B. payment system.
Setting Medicare Payment Rates for Clinical Diagnostic Laboratory Tests  July 2018
Strategies To Ensure Data Quality OEI-09-17-00050 Contents
Results of CMSs initial implementation of PAMA 
and description of new payment rates
Challenges and risks of CMSs initial 
implementation of PAMA
Strategies to address challenges and ensure that
future payment rates are based on complete data
Setting Medicare Payment Rates for Clinical Diagnostic Laboratory Tests  July 2018
Strategies To Ensure Data Quality OEI-09-17-00050 Results of CMSs initial implementation of PAMA 
and description of new payment rates
Challenges and risks of CMSs initial 
implementation of PAMA
Strategies to address challenges and ensure that 
future payment rates are based on complete data
Setting Medicare Payment Rates for Clinical Diagnostic Laboratory Tests   July 2018
Strategies To Ensure Data Quality OEI-09-17-00050 PAMA and CMS established the criteria 
that labs used to determine whether 
Labs use two criteria to determine 
they should report private-payer data
whether they must report their data
 Majority criterion: PAMA established that 
reporting requirements apply only to labs 
The majority criterion excludes labs that operate as part 
that receive the majority of their Medicare 
of larger systems, such as hospitals, that receive most of 
revenues from lab and physician services.
their Medicare revenues from other services.
 Low-expenditure threshold: CMS 
 Many hospital labs bill for lab services using the providers NPI 
established that labs with less than $12,500 
rather than a unique lab-specific NPI.
of Medicare revenues from lab services during 
The low-expenditure threshold exempts small physician  the 6-month data collection period are 
exempt from reporting requirements.
offices and rural labs from reporting requirements, reducing 
their reporting burden.
 CMS selected the NPI as the identifier that 
 CMS established the low-expenditure thresholdas  labs should use to determine revenues.
authorized by PAMAthrough the rulemaking process.
 NPI: National Provider Identifier, the number 
that providers use to bill Medicare.
Setting Medicare Payment Rates for Clinical Diagnostic Laboratory Tests   July 2018
Strategies To Ensure Data Quality OEI-09-17-00050 PAMAs initial implementation  How CMS set new payment rates
resulted in lower Medicare payment 
 JanuaryJune 2016: Labs collected private 
payer rates during the data collection period.
rates for most lab tests
 JanuaryMarch 2017: Labs reported their 
10% of 
 CMS analysis shows  data to CMS via a web-based portal during 
rates 
that new rates,  the data reporting period. 
increased
effective January 2018,  15% of 
 CMS extended the 2017 data reporting 
could save an  rates did 
period through May 2017 with a 60-day 
estimated not change
enforcement discretion period.
75% of rates 
$670 million for the 
 Labs certified the accuracy and completeness 
calendar year. decreased
of their data, as required by PAMA, during 
the reporting process.
 Through 2020, 
decreases to payment   CMS received data from 1,942 labs.
rates are limited to 
10% each year, as   In 2020, labs will report data collected from 
required by PAMA. JanuaryJune 2019.  
Source: CMS Summary of Data Reporting for the Medicare Clinical 
Laboratory Fee Schedule, September 2017.
Setting Medicare Payment Rates for Clinical Diagnostic Laboratory Tests   July 2018
Strategies To Ensure Data Quality OEI-09-17-00050 Results of CMSs initial implementation of PAMA 
and description of new payment rates
Challenges and risks of CMSs initial 
implementation of PAMA
Strategies to address challenges and ensure that 
future payment rates are based on complete data
Setting Medicare Payment Rates for Clinical Diagnostic Laboratory Tests   July 2018
Strategies To Ensure Data Quality OEI-09-17-00050 CMS provided outreach and guidance to 
Labs reported difficulty in 
help labs determine whether they met 
determining whether they met 
criteria and needed to report
criteria and needed to report data
 CMS issued the final rule in June 2016, finalizing 
the criteria and reporting requirements.
Although some labs reported difficulty in interpreting 
reporting requirements, CMS modeling demonstrated that   After publishing the final rule, CMS provided 
increased reporting from more labs would not have had a 
additional outreach and guidance:
meaningful effect on 2018 payment rates.
 Offered two outreach calls in 2016
 OIG identified at least 20 high-volume independent labs that likely   Published subregulatory guidance documents in 
met the majority criterion but did not report their data in 2017.
2016 and 2017
 CMS determined that 37% of reporting labs may have been exempt   Updated a Frequently Asked Questions document 
because they may not have met the low-expenditure threshold. in 2016 and 2017
 Updated the PAMA page of the CMS website
Limited reporting may not have had a meaningful effect on 
2018 rates; however, it remains a risk in future data   Established the Inquiries Mailbox for PAMA-related 
questions and clarification
reporting periods.
Setting Medicare Payment Rates for Clinical Diagnostic Laboratory Tests   July 2018
Strategies To Ensure Data Quality OEI-09-17-00050 CMS relied on labs self-certification  CMS issued the final rule toward the 
end of the data collection period, giving 
of their reported data and performed 
labs limited time to prepare their data
limited quality assurance checks 
 CMS published the PAMA regulation on 
June 23, 2016, 7 days before the end of the 
Labs reported difficulty in retroactively removing excluded 
payment rates from their data systems before the end of  data collection period (JanuaryJune 2016).
the data reporting period.
 PAMA excludes certain payment rates, such as 
 CMS data quality assurance activities included identifying 
those made under bundled or capitated 
outliers and removing inaccurate data reported by four labs. 
arrangements.
 CMS did not take steps to determine whether labs reported 
payment rates that were excluded by PAMA.  As required by PAMA, labs certify the accuracy 
and completeness of their reported data.  CMS 
Labs experienced some one-time challenges in complying 
relied on labs self-certification and used 
with a new policy, but CMSs limited quality assurance 
certified data to set new payment rates.
efforts present an ongoing risk.
Setting Medicare Payment Rates for Clinical Diagnostic Laboratory Tests   July 2018
Strategies To Ensure Data Quality OEI-09-17-00050 Results of CMSs initial implementation of PAMA 
and description of new payment rates
Challenges and risks of CMSs initial 
implementation of PAMA
Strategies to address challenges and ensure that
future payment rates are based on complete data
Setting Medicare Payment Rates for Clinical Diagnostic Laboratory Tests  July 2018
Strategies To Ensure Data Quality OEI-09-17-00050 Strategies that CMS could use to ensure that future 
payment rates are based on complete and accurate data
CHALLENGES STRATEGIES OUTCOMES
Enhance outreach to labs to 
Labs reported difficulty in  CMS actions result in 
ensure that labs know 
determining whether they  payment rates based on 
1
whether they meet criteria 
met criteria and needed to  data from the labs required 
and that they report as 
report data. to report.
required.
CMS performed limited quality  Enhance data quality 
CMS actions result in 
2 assurance checks and relied on  assurance activities to help 
payment rates based on 
labs self-certification of their  ensure that labs report as 
complete and accurate data.
reported data. required.
Setting Medicare Payment Rates for Clinical Diagnostic Laboratory Tests   July 2018
Strategies To Ensure Data Quality OEI-09-17-00050 Strategy 1: Enhance outreach to labs  For the initial implementation, CMS did 
not independently verify the accuracy of 
to ensure that labs know whether they 
labs self-determination
meet criteria and report as required
 Labs used CMS guidance to determine whether 
they met reporting criteria and what data to 
 CMS could create targeted methods to reach out 
collect and report.
to high-volume labs that did not report in 2017 and 
ensure that they report during the 2020 data   Although 37 percent of reporting labs may 
reporting period. not have met the low-expenditure threshold, 
CMS relied on labs attestation that they met 
 CMS could use feedback from labs and industry  reporting criteria.
associations to create responsive guidance to 
 OIG identified more than 20 high-volume labs 
ensure that labs know about and understand 
that did not report their data in 2017.
reporting requirements.
 CMS has stated that it does not have the 
information necessary to identify all labs that 
were required to report.
Setting Medicare Payment Rates for Clinical Diagnostic Laboratory Tests  July 2018
Strategies To Ensure Data Quality OEI-09-17-00050 Strategy 2: Enhance data quality  For the initial implementation, CMS did 
not exercise authority to issue civil 
assurance activities to help ensure that 
monetary penalties
labs report as required
 PAMA gives CMS the authority to issue civil 
 CMS could assess the effectiveness of its data quality 
monetary penalties if labs fail to report data, 
assurance activities and adjust as necessary.
or if they misrepresent or omit reported data.
 For future data reporting periods, CMS could   CMS stated in 2016 that it did not intend to 
develop a process to address labs that do not comply  issue civil monetary penalties for the first 
with reporting requirements.  This process may  data reporting period.
include a plan to issue civil monetary penalties, as 
 CMS did allow labs more time to collect and 
appropriate.
report their data by adding a 60-day 
enforcement discretion period to the end of 
the data reporting period.
Setting Medicare Payment Rates for Clinical Diagnostic Laboratory Tests   July 2018
Strategies To Ensure Data Quality OEI-09-17-00050 Conclusion
Complete and accurate data are essential to setting 
payment rates for lab tests, and CMS should address 
challenges from 2017 to ensure data quality in the future.
 Effective outreach can help ensure that all required labs 
report data for future data reporting periods.
 CMS can help ensure data quality by assessing quality 
assurance efforts and compliance activities.
Setting Medicare Payment Rates for Clinical Diagnostic Laboratory Tests July 2018
7/16/S2t0r1a8tegies To Ensure Data Quality OEI-09-17-00050 OIGs next steps
To provide oversight, PAMA mandated that OIG monitor 
Medicare payments for lab tests and the implementation 
of the new payment system.
OIG will continue to issue:
 An annual analysis of the top 25 lab tests, based on Medicare 
Part B payments.
 Other analyses that OIG determines appropriate regarding 
the implementation and effect of the new payment system.
Setting Medicare Payment Rates for Clinical Diagnostic Laboratory Tests   July 2018
Strategies To Ensure Data Quality OEI-09-17-00050 To obtain additional information concerning 
this report or to obtain copies, contact the 
Acknowledgments and contact 
Office of Public Affairs at 
information
Public.Affairs@oig.hhs.gov.
Prepared by the Office of Inspector General, Office of 
Evaluation and Inspections San Francisco Regional Office:
 China Tantameng, team leader 
 Chelsea Samuel, lead analyst
 Blaine Collins, Regional Inspector General 
 Abby Amoroso, Deputy Regional Inspector General This analysis was conducted in 
 Michael Henry, Deputy Regional Inspector General accordance with the Quality Standards 
for Inspection and Evaluation issued 
Office of Evaluation and Inspections central office staff who 
provided support include Joe Chiarenzelli, Michael Novello, Althea  by the Council of the Inspectors 
Hosein, and Christine Moritz.
General on Integrity and Efficiency.
Setting Medicare Payment Rates for Clinical Diagnostic Laboratory Tests   July 2018
Strategies To Ensure Data Quality OEI-09-17-00050 Appendix A: Prior OIG reports
Variation in the Clinical Laboratory Fee Schedule  OEI-05-08-00400 July 2009
Comparing Lab Test Payment Rates: Medicare Could  OEI-07-11-00010 June 2013
Achieve Substantial Savings
Medicare Payments for Clinical Laboratory Tests in 2014: OEI-09-15-00210 September 2015
Baseline Data
Changing How Medicare Pays for Clinical Diagnostic  OEI-09-16-00100 September 2016
Laboratory Tests: An Update on CMS's Progress 
Medicare Payments for Clinical Diagnostic Laboratory Tests  OEI-09-16-00040 September 2016
in 2015:Year 2 of Baseline Data 
Medicare Payments for Clinical Diagnostic Laboratory Tests  OEI-09-17-00140 September 2017
in 2016: Year 3 of Baseline Data
Setting Medicare Payment Rates for Clinical Diagnostic Laboratory Tests  July 2018
Strategies To Ensure Data Quality OEI-09-17-00050 Appendix B: Implementation timeline
 2014: PAMA is enacted 
 PAMA, P. L. No. 113-93,  216(a) (adding Social Security Act,  1834A, 42 U.S.C. 1395m-1)
 September 25, 2015: CMS issues proposed rule
 November 10, 2015: CMS holds listening session on the proposed rule
 June 17, 2016: CMS issues final rule
 June 23, 2016: CMS publishes final rule at 81 Fed. Reg. 4103641101 (June 23, 2016)
 JanuaryJune 2016: Retrospective data collection period
 JanuaryMarch 2017: Data reporting period
 AprilMay 2017: 60-day enforcement discretion period
 November 2017: CMS issues 2018 fee schedule
 January 1, 2018: New fee schedule takes effect
 2020: Second data reporting period
 January 1, 2021: Second fee schedule takes effect
CMS guidance documents may be found at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ClinicalLabFeeSched/PAMA-Regulations.html
Setting Medicare Payment Rates for Clinical Diagnostic Laboratory Tests  July 2018
Strategies To Ensure Data Quality OEI-09-17-00050 Appendix C: Methodology
To provide an update on the 2017 data reporting period, we:
 conducted four interviews with CMS staff (FebruaryJune 2017)
 conducted one interview with representatives from lab industry associations 
(June 2017)
 reviewed CMS guidance and other documentation regarding lab outreach
 analyzed Medicare claims data to identify the biggest labs by Medicare 
payments that likely met criteria but did not appear in the raw set of lab-
reported data
 synthesized CMS analysis of lab-reported data and final payment rates
This report describes CMSs activities as of February 2018.
Setting Medicare Payment Rates for Clinical Diagnostic Laboratory Tests   July 2018
Strategies To Ensure Data Quality OEI-09-17-00050