U.S. Department of Health and Human Services 
Office of Inspector General 
 
Medicare 
Laboratory Test 
Expenditures 
Increased in 2018, 
Despite New Rate 
Reductions 
 
OEI-09-19-00100 
Suzanne Murrin 
August 2020 
Deputy Inspector General 
 
for Evaluation and Inspections 
oig.hhs.gov  Report in Brief  U.S. Department of Health and Human Services 
August 2020 
Office  of Inspector General 
OEI-09-19-00100 
 
 
Medicare Laboratory Test Expenditures 
Why OIG Did This Review 
Increased in 2018, Despite New Rate  Effective in 2018, the Medicare 
program changed the way it sets 
Reductions 
payment rates for lab tests.  CMS 
replaced the previous payment rates 
What OIG Found  Key Takeaway 
with new rates based on payments 
Medicare Part B spending for 
Total Medicare spending for clinical  made by private insurers.  This is the 
laboratory tests increased by 
diagnostic laboratory (lab) tests increased  first reform in 3 decades to 
$459 million (6 percent) in 2018, 
in 2018, despite lower payment rates for  Medicares payment system for lab 
although payment rates for 
most tests.  Medicare spent $7.6 billion  tests.  
most tests decreased under the 
for lab tests in 2018, a $459 million 
increase from $7.1 billion in 2017.  new payment system.  The  As part of the same legislation 
spending increase was driven  reforming Medicares payment 
Although payment rates for 75 percent of  by (1) increased spending on  system, Congress mandated that the 
tests decreased in 2018 under the new  genetic tests, (2) the end of the  Office of Inspector General (OIG) 
payment system, savings that resulted  discount for certain chemistry  monitor Medicare payments for lab 
from lower rates were overtaken by  tests, and (3) the move to a  tests and the implementation and 
increased spending on other tests,  single national fee schedule.  effect of the new payment system for 
including genetic tests and certain    those tests.  This report also provides 
chemistry tests.  Spending on genetic tests increased from $473 million in 2017  the fifth annual analysis of the top 
to $969 million in 2018 because of new and expensive tests entering the Clinical  25 lab tests by Medicare spending.  
Laboratory Fee Schedule (CLFS), as well as an increase in the volume of existing 
genetic tests.  Spending on certain chemistry tests also increased by $82 million  How OIG Did This Review 
in 2018 following the end of a discount on these tests.  Finally, a one-time  We analyzed claims data for lab tests 
spending increase on some tests occurred in cases in which the national rate  that CMS paid for under the 
was higher than the local payment rates that it replaced.  Medicare CLFS in 2018.  These tests 
are covered under Medicare Part B 
What OIG Concludes and Recommends 
and do not include tests that 
Clinical lab tests play a critical role in delivering necessary health care to 
Medicare paid for under other 
Medicare beneficiaries.  Although the Protecting Access to Medicare Act of 
payment systems, such as the 
2014 (PAMA) resulted in lower payment rates, the resulting savings were 
payment system for critical access 
overtaken by increased spending in other areas. 
hospitals or the Hospital Outpatient 
Prospective Payment System.  We 
Genetic tests can provide valuable information to providers and help to 
examined Medicare Part B spending 
identify appropriate treatments for Medicare beneficiaries, but even a small 
for lab tests in 2018 as compared to 
number of inappropriate tests could expose Medicare to extremely high 
2017 and identified key factors that 
spending.  As the spending on genetic tests and the volume of these tests 
contributed to increased spending.  
continue to grow, oversight of these tests becomes more important. 
We identified notable changes to 
Spending on automated chemistry tests increased because a discount that  test payment rates and categories 
the Centers for Medicare & Medicaid Services (CMS) had previously applied  and examined factors that affected 
to these tests was not allowed under PAMA.  To address this ongoing risk to  Medicare spending in certain 
cost savings, we recommend that CMS seek legislative authority to establish  geographic areas of the lab test 
a mechanism to control costs for these tests.  Although CMS does not have  marketplace.  Additionally, we 
statutory authority to restore the discount that it previously used, CMS  identified the top 25 tests based on 
should seek legislative change to regain such authority.  CMS neither agreed  total spending in 2018 for each lab 
nor disagreed with our recommendation.  test procedure code. 
Full report can be found at oig.hhs.gov/oei/reports/oei-09-19-00100.asp 
   
TABLE OF CONTENTS 
BACKGROUND  1 
Methodology  3 
   
FINDINGS   
Total Medicare spending for lab tests increased in 2018, despite lower payment rates for  4 
most lab tests  
Spending on genetic tests drove much of the increase in total Medicare spending on lab  6 
tests in 2018   
Ending discounts for automated chemistry tests contributed to Medicare spending  7 
increases in 2018  
Moving to a single national fee schedule in 2018 resulted in a one-time increase in  8 
payments for some lab tests   
 
CONCLUSION AND RECOMMENDATION   
CMS should seek legislative authority to establish a mechanism to control costs for  10 
automated chemistry tests 
 
AGENCY COMMENTS AND OIG RESPONSE  12 
   
APPENDICES   
A: Detailed Methodology  13 
B: Medicare Part B Spending on Genetic Testing  15 
C: Changes to Payment Rates for Automated Chemistry Tests  16 
D: Prior Office of Inspector General Reports on Medicare Spending and Payment Rates for  17 
Lab Tests 
      E: Agency Comments  18 
 
ACKNOWLEDGMENTS  20 
 
   
BACKGROUND 
Objective 
To examine the effects of the new payment system required under the 
Protecting Access to Medicare Act of 2014 (PAMA) and identify factors that 
affected Medicare spending for lab tests in 2018. 
 
Effective January 1, 2018, the Centers for Medicare & Medicaid Services (CMS) set 
new rates for clinical diagnostic laboratory (lab) tests to adhere to PAMA.1  This 
new rate-setting method replaced the previous system, which set rates based on 
lab charges from 1984 and 1985 and adjusted for inflation.  In 2013, the Office of 
Inspector General (OIG) found that Medicare paid more for lab tests than other 
payers because the payment methodology based on historical lab charges was 
outdated.  OIG recommended that CMS seek legislation to establish lower 
payment rates for lab tests.2 
In 2014, PAMA required CMS to set payment rates for lab tests using private 
payer data collected from labs.3  When CMS published the new fee schedule in 
2017, it estimated that the new payment system would generate about 
$670 million in savings for lab payments in 2018.4 
The set of payment rates established under the new payment system and the 
system it replaced are known as the Clinical Laboratory Fee Schedule (CLFS).  The 
CLFS comprises the published fee schedule rate for each test, which is the 
maximum amount that Medicare is allowed to pay for each lab test.  Prior to 
PAMA, the fee schedule rate was the national limitation amount (NLA), and 
Medicare paid the lowest of the following: the amount billed, the local fee 
schedule rate for a geographic area, or the NLA.  In other words, Medicare paid 
the NLA, unless the local fee schedule rate or the labs charge was lower.  Under 
the new payment system, the fee schedule rate is based on the weighted median 
of private payer rates determined for each test and applies nationally, replacing 
the NLA and 57 separate local fee schedules.  Because Medicare pays the lower of 
the amount billed or the fee schedule rate, it pays the fee schedule rate unless 
the labs charge is lower. 
PAMA also mandated that OIG monitor Medicare payments for lab tests and the 
implementation of the new payment system.  Specifically, PAMA requires OIG to 
publicly release an annual analysis of the top 25 tests based on Medicare 
spending, and to conduct analyses that OIG determines appropriate regarding 
the implementation and effect of the new payment system.  This report analyzes 
payments made in 2018, the first year that Medicare paid for lab tests under the 
new system. 
Medicare Laboratory Tests Expenditures Increased in 2018, Despite New Rate Reductions  1 
OEI-09-19-00100   
Lab test payment rates under the Protecting Access to Medicare Act 
On January 1, 2018, Medicare began paying for lab tests under the system 
mandated by PAMA.  CMS issued the 2018 fee schedule in November 2017.5  To 
establish a new payment rate for each test on the fee schedule, CMS uses the 
median of private payer rates for that test, weighted by the volume of payments 
reported.6  These new payment rates for 2018 through 2020 were based on 
private payments that labs received during the first half of 2016 and reported to 
CMS in 2017.  Payment rates for 2021 through 2023 were to be based on private 
payments that labs received during the first half of 2019 and were to report to 
CMS in 2020.7 
PAMA also limited how much payment rates for tests could fall during the first 
6 years that the new payment system was in effect.8  For the first 3 years, from 
2018 through 2020, payment rate reductions were to be limited to 10 percent 
each year.  For the following 3 years2021 through 2023payment rate 
reductions were to be limited to 15 percent each year.  Beginning in 2024, there 
was to be no limit to how much payment rates may decrease. 
Legislative changes since 2018.  Since 2018, Congress has twice delayed the data 
reporting cycleonce as a result of the Further Consolidated Appropriations Act, 
2020 (enacted in December 2019), and once as a result of the Coronavirus Aid, 
Relief, and Economic Security (CARES) Act (enacted in March 2020).  Under the 
CARES Act, labs will not be required to report private payer data from the first 
half of 2019 to CMS until 2022.9  Payment rates based on the volume-weighted 
median of data reported in 2017 will be in effect through 2022.  The 3-year data 
reporting cycle will resume in 2025. 
The same two pieces of legislation also twice delayed the annual limits to 
payment rate reductions.  In 2021, reductions to payment rates will not be 
permitted, and rates will remain consistent with those paid in 2020.  From 2022 
through 2024, reductions will be limited to 15 percent each year.10  Beginning in 
2025, there will be no limit to how much rates may decrease. 
Oversight of laboratory tests 
CMSs Center for Program Integrity (CPI) provides oversight of lab tests, including 
genetic tests, to prevent inappropriate or fraudulent use.  CPI uses a variety of 
tools to identify patterns of inappropriate use and prevent improper payments.  
When inappropriate use is identified, CPI partners with law enforcement agencies, 
including OIG, to investigate fraudulent activity.  Additionally, CPI conducts 
outreach activities to educate providers and beneficiaries about ways to guard 
against inappropriate use. 
 
Related OIG work  Since Congress passed PAMA, OIG has issued several reports analyzing Medicare 
payments for lab tests and monitoring CMSs efforts to implement the law.11  See 
Appendix D for a list of related reports. 
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Fraud takedowns by OIGs Office of Investigations.  In 2019, OIG collaborated with 
law enforcement partners to investigate a pattern of fraudulent genetic tests that 
were ordered using samples collected during free cheek-swab screenings.12  
Investigations of fraudulent genetic testing resulted in charges against 
35 individuals who fraudulently billed Medicare more than $2.1 billion for genetic 
tests.13 
 
Methodology  We analyzed claims data for lab tests in 2018 that CMS paid for under the CLFS.  
These tests are covered under Medicare Part B and do not include tests that 
Medicare paid for under other payment systems, such as the payment system for 
critical access hospitals or the Hospital Outpatient Prospective Payment System.  
We examined Medicare spending for lab tests and identified key factors that 
contributed to increased spending in 2018 as compared to 2017.  We identified 
notable changes to test payment rates and categories and examined factors that 
affected spending in certain areas of the lab test marketplace.  We also identified 
the top 25 tests based on total spending in 2018 for each lab test procedure 
code.  See Appendix A for a Detailed Methodology. 
 
Standards  We conducted this study in accordance with the Quality Standards for Inspection 
and Evaluation issued by the Council of the Inspectors General on Integrity and 
Efficiency.   
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OEI-09-19-00100   
FINDINGS 
Total Medicare  In 2018, payment rates for 75 percent of tests decreased as a result of the new 
payment system.  However, 2018 had the largest increase in Medicare lab test 
spending for lab 
spending since the passage of PAMA in 2014, as shown in Exhibit 1.  Medicare 
tests increased in 
spending for lab tests on the CLFS increased by $459 million, or about 6 percent, 
2018, despite lower  from $7.1 billion in 2017 to $7.6 billion in 2018.14 
payment rates for 
Exhibit 1: Medicare Part B spending on lab tests reached $7.6 billion 
most lab tests 
in 2018, its highest point since 2014.
  $7.6B
$7.1B
$7.0B
$7.0B
$6.8B
2014 2015 2016 2017 2018
 
Source: OIG analysis of Medicare Part B lab test spending, in billions, 2019. 
Note: Dollar values for Medicare spending are rounded.  
 
Although the new payment system resulted in lower payment rates 
for 23 of the top 25 lab tests, spending on many of the top 25 tests 
increased in 2018 
Payment rates decreased for 23 of the top 25 lab tests in 2018 and increased for 
60% 
of spending  1 test.  The remaining test was new to the CLFS in 2018 and therefore did not 
on lab tests goes to the  have a prior fee schedule rate.  For 15 of the top 25 tests, these lower payment 
top 25 tests  rates resulted in lower Medicare spending, as shown in the far right column of 
Exhibit 2 on the next page.  Exhibit 2 displays key statistics for the top 25 lab tests 
by Medicare spending. 
Medicare spending increased for 9 of the top 25 tests in 2018.  Increased 
spending resulted primarily from an increase in the volume of six tests, as well as 
the higher fee schedule rate for one test.  In addition, total payments increased 
for two tests, despite a decrease in both the payment rates and claims volume.  
These particular tests were affected by the changes made by the payment system, 
as this report discusses later. 
   
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OEI-09-19-00100   
Exhibit 2: Medicare Part B spent $4.57 billion on the top 25 lab tests in 2018, including 
3 expensive genetic tests. 
2017 Fee  2018 Fee  2018 Test  2018 Medicare  Change from 
Schedule   Schedule   Volume  Spending  2017 Spending 
Test Description (Procedure Code) 
Rate   Rate   (Millions)  (Millions)  (Millions) 
   
1  Blood test, comprehensive group of blood  $14.49  $13.04  41.64  $537.10    $64.37 
chemicals (80053) 
2  Blood test, lipids (cholesterol and triglycerides)  $18.37  $16.53  28.58  $463.58    $48.66 
(80061)     
3  Blood test, thyroid stimulating hormone (TSH)  $23.05  $20.75  21.39  $434.71    -$49.26 
(84443) 
4  Complete blood cell count (red cells, white blood  $10.66  $9.59  41.14  $391.09  -$41.09 
cell, platelets), automated test (85025)   
5  Vitamin D-3 level (82306)  $40.61  $36.55  8.94  $318.95    -$28.97 
6  Drug test(s), definitive, 22 or more drug class(es),  $253.87  $246.92  1.30  $313.43    $6.90 
including metabolite(s) if performed (G0483) 
7  Testing for presence of drug (80307)  $79.81  $71.83  3.38  $236.07    -$3.74 
8  Hemoglobin A1C level (83036)  $13.32  $11.99  19.68  $232.32    -$24.34 
9  Genetic test: Gene analysis (colorectal cancer)  $512.43  $508.87  0.34  $167.67    $50.66 
( 81528) 
10  Drug test(s), definitive, per day; 15-21 drug class(es),  $204.34  $198.74  0.82  $159.32    -$2.96 
including metabolite(s) if performed (G0482) 
11  Blood test, basic group of blood chemicals (80048)  $11.60  $10.44  12.72  $132.52    $2.70 
12  Genetic test: Molecular pathology procedure level 9  NA  $2,000.00  0.06  $117.92  New to the 
( 81408)  CLFS 
13  Parathormone (parathyroid hormone) level (83970)  $56.62  $50.96  2.34  $115.90    -$9.34 
14  Drug test(s), definitive, per day; 1-7 drug class(es),  $117.65  $114.43  1.05  $113.94    $3.69 
including metabolite(s) if performed (G0480) 
15  Cyanocobalamin (vitamin B-12) level (82607)  $20.68  $18.61  5.63  $102.53    -$11.32 
16  Drug test(s), definitive, per day; 8-14 drug class(es),  $160.99  $156.59  0.64  $96.59    -$4.08 
including metabolite(s) if performed (G0481) 
17  PSA (prostate specific antigen) measurement (84153)  $25.23  $22.71  4.30  $95.57    -$9.64 
18  Thyroxine (thyroid chemical) measurement (84439)  $12.37  $11.13  7.26  $79.42    -$6.76 
19  Genetic test: Test for detecting genes associated  $3443.30  $3,873.00  0.02  $76.62    $16.48 
with breast cancer (81519) 
20  Bacterial colony count, urine (87086)  $11.07  $9.96  7.40  $73.31    -$9.08 
21  Blood test, clotting time (85610)  $5.39  $4.85  14.84  $72.69    -$19.48 
22  Ferritin (blood protein) level (82728)  $18.70  $16.83  3.94  $65.12    -$4.80 
23  Natriuretic peptide (heart and blood vessel protein)  $46.56  $41.90  1.56  $64.79    -$5.68 
level (83880) 
24  Detection test for digestive tract pathogen (87507)   $571.72  $514.55  0.12  $56.79    $22.57 
25  Detection test for organism (87798)   $48.14  $43.33  1.23  $52.09    $22.68 
    Total 2018 Medicare Payments:  $4.57 Billion   
Sources: OIG analysis of Medicare Part B lab test spending, 2019.  Fee schedule rates are from the 2017 and 2018 CLFS.  See endnote 15 for the American 
Medical Association (AMA) copyright notice.  
Note: The column for Medicare spending for lab tests is highlighted in blue. 
 
   
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Spending on genetic  Medicare paid $969 million for genetic tests in 2018, a $496 million increase from 
2017, as shown in Exhibit 3.  Total spending on genetic tests accounted for 
tests drove much of 
13 percent of Medicare spending for lab tests in 2018, as compared to 7 percent 
the increase in total 
of spending in 2017.  The spending increase results from an increase in the 
Medicare spending  volume of claims for genetic tests, as well as new and expensive tests entering 
the market.  The volume of Medicare claims for genetic tests almost doubled, 
on lab tests in 2018 
from 950,000 units in 2017 to 1.76 million units in 2018.  The number of genetic 
tests for which Medicare made payments also increased dramatically in 2018, 
almost doubling from 110 in 2017 to 199 in 2018. 
Exhibit 3: Total spending on genetic tests more than doubled to 
Genetic tests identify 
changes in a beneficiarys  $969 million in 2018 following a steady increase since 2015. 
chromosomes, genes, or 
proteins.  They are used to 
confirm or rule out a  $969M
genetic condition and 
determine a chance of 
developing or passing on a 
genetic condition.  Three 
categories of genetic tests 
$473M
$466M
are on the CLFS:  $393M
$289M
Molecular Pathology tests 
detect variants in genetic 
material and often help 
doctors determine how 
their patients will respond 
2014 2015 2016 2017 2018  
to treatment.   
Source: OIG analysis of Medicare Part B lab test spending, in millions, 2019. 
Multianalyte Algorithmic 
 
Assays (MAAAs) combine 
Increased volume of claims for high-priced genetic tests contributed to the 
multiple test results with 
increase in payments for lab tests in 2018, as did payments for genetic tests that 
patient information to yield 
were new to the CLFS in 2018.  For example, 3 genetic tests are among the top 
a predictive score, such as 
recurrence of a cancer or a  25 tests by spending, including 1 new test that entered the CLFS in 2018.  Volume 
treatment response.  for a colorectal cancer test (line 9 in Exhibit 2) increased for the third year in a row, 
and a breast cancer gene detection test (line 19 in Exhibit 2) increased for the 
Genomic Sequencing 
second year in a row.  Both tests entered the top 25 in 2016.  
Procedures (GSPs) identify 
structural changes in 
In 2018, more new genetic tests were added to the CLFS than in any year since 
genetic material and are 
OIG began monitoring payments for lab tests in 2014.  In 2018, 106 new genetic 
often used to diagnose or 
tests were added to the CLFS, increasing the number of genetic tests on the CLFS 
manage inherited diseases.  
to 216, up from 110 tests in 2017.16  One of those tests, a genetic panel test, 
 
became the number 12 test by Medicare spending. 
Most of the growth in genetic test spending was in a particular category of tests: 
molecular pathology tests.  Molecular pathology tests are the most established 
category of genetic tests on the CLFS.  Spending on molecular pathology tests 
increased from $162 million in 2017 to $488 million in 2018, which accounted for 
50 percent of Medicare spending on genetic tests.  The increase in spending was 
Medicare Laboratory Tests Expenditures Increased in 2018, Despite New Rate Reductions  6 
OEI-09-19-00100   
driven by increased volume, which more than doubled from 556,000 units in 
2017 to 1.2 million units in 2018.  The number of molecular pathology test codes 
that Medicare paid for also increased, from 79 in 2017 to 149 in 2018. 
Two other categories of genetic testsmultianalyte algorithmic assays (MAAAs) 
and genomic sequencing procedures (GSPs)also contributed to the overall 
spending increase for genetic tests in 2018.  Spending on MAAAs grew from 
$291 million in 2017 to $422 million in 2018, reflecting a similar increase in claims 
for these tests.  Although GSPs are a much smaller category of tests, spending 
nearly tripled in 2018, from $20 million for 25,800 units in 2017 to $59 million for 
61,185 units.  See Appendix B for historical trends in genetic tests.  
 
Ending discounts for  As a result of changes required by PAMA, Medicare paid more in 2018 than in 
2017 for certain chemistry tests, although volume decreased.  Beginning in 2018, 
automated 
CMS ended the practice of applying a discount to a set of 23 automated 
chemistry tests  chemistry tests.17  Without the discount, Medicare paid $82 million more for the 
contributed to  same set of tests, increasing spending on these chemistry tests to $194 million in 
2018.  Concurrently, the volume of these 23 tests decreased by 52,804 units in 
Medicare spending 
2018. 
increases in 2018 
PAMA required CMS to change its policy when reimbursing labs for these tests.  
Prior to PAMAs implementation, Medicare paid for these tests by applying a 
discount when multiple codes were billed for the same beneficiary on the same 
date of service.  However, PAMA bars CMS from applying discounts or bundling 
tests.18  Rather than applying discounts, Medicare began paying either the labs 
charge or the fee schedule rate for each test, as it does with other tests on the 
CLFS. 
Exhibit 4 provides an illustration of the effect of ending discounts for the group 
Automated Chemistry 
of 23 tests. 
Tests measure the levels 
of chemicals such as    In 2017, the actual average payment amount for the 23 tests, after 
cholesterol, glucose, or  discounts, was $3.49, which was lower than the average fee schedule rate  
potassium in a patients  of $7.40. 
system.  Labs may    In 2018, however, the actual average payment amountwithout the 
obtain multiple results 
discountwas $6.08, much closer to the 2018 average fee schedule rate 
from a single sample.  
of $6.66. 
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Exhibit 4: Ending the discount for automated chemistry tests 
narrowed the gap between the average payment per test and the 
average fee schedule rate. 
Source: OIG analysis of Medicare Part B lab test spending, 2019.   
Note: The 2017 average fee schedule rate is the average of the NLA, not of all 57 local rates.  
 
The 2018 average fee schedule rate was lower because of the new rate-setting 
method required by PAMA, but any savings on these 23 automated chemistry 
tests were more than offset by the PAMA requirement that ended discounts.  See 
Appendix C for a complete list of the 23 automated chemistry tests, including the 
2017 and 2018 fee schedule rates and average payments. 
 
Moving to a single  The one-time change from low local payment rates to a single national fee 
schedule limited cost savings in the first year of PAMAs implementation.  Prior to 
national fee 
PAMAs implementation, some areas of the United States had lower local 
schedule in 2018 
payment rates that Medicare paid instead of the national fee schedule rate.  
resulted in a one- Starting in 2018, PAMA replaced 57 local fee schedules with a single payment 
rate that applies nationally.  As a result, 22 of the top 25 tests saw a national 
time increase in 
payment rate in 2018 that was higher than at least 1 of the 57 local fee schedule 
payments for some 
rates from 2017.  This one-time policy change is not expected to limit Medicare 
lab tests   savings in future years. 
Exhibit 5 provides an example of how replacing local payment rates with a single 
national rate resulted in higher payments for the top two tests by Medicare 
spending, despite the decrease in national fee schedule rates.  The fee schedule 
rates for these tests each decreased by 10 percent in 2018, the maximum allowed 
that year. 
  The fee schedule rate for the comprehensive blood chemical test (code 
80053) decreased by $1.45 per test, from $14.49 in 2017 to $13.04 in 
2018.  However, 4 of the 57 local payment rates were lower than the 
national payment rate that replaced them.  The lowest of these local rates 
was $11.53, which was $1.51 less than the new national rate.  As a result, 
total Medicare spending for this test increased by about $64 million 
despite the rate reduction. 
  The fee schedule rate for the lipid panel (code 80061) decreased by 
$1.84 per test, from $18.37 in 2017 to $16.53 in 2018.  However, 7 of the 
57 local payment rates were lower than the national payment rate that 
replaced them.  The lowest of these local rates was $13.44, which was 
Medicare Laboratory Tests Expenditures Increased in 2018, Despite New Rate Reductions  8 
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$3.09 less than the new national rate that replaced it.  As a result, total 
Medicare spending for this test increased by about $49 million in 
2018 despite the rate reduction.  See Exhibit 2, lines 1 and 2, for detailed 
spending data on these tests. 
 
Exhibit 5: The lowest 2017 local rates for the top two tests were 
replaced by a higher 2018 fee schedule rate, even when it was lower 
than the 2017 fee schedule rate.
 
Source: OIG analysis of Medicare Part B lab test spending, 2019. 
 
By contrast, some tests that did not have notable variation across local fee 
schedules saw Medicare spending decrease under the new payment system.  For 
example, Medicare spending for the number three test by Medicare spending 
decreased as a result of the lower 2018 payment rate.  The fee schedule rate for 
the thyroid stimulating hormone test (code 84443) decreased by $2.30 per test, 
from $23.05 in 2017 to $20.75 in 2018.  Because 2017 local rates were consistent 
with the national fee schedule rate, total Medicare spending for this test 
decreased by about $49 million. 
The spending increase caused by moving to a single national fee schedule will 
not continue in 2019.  In 2019, all fee schedule rates applied nationally and rates 
decreased by 10 percent unless the volume-weighted median was reached.  For 
example, in 2019, the fee schedule rate for the comprehensive blood chemical 
test fell by 10 percent, to $11.74, which could lead to savings of up to $48 million 
if volume remained consistent. 
   
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CONCLUSION AND RECOMMENDATION 
Each year, Medicare beneficiaries and their health care providers use clinical lab 
tests to diagnose health conditions and to make informed treatment decisions.  
Given the critical role that lab tests play in health care, it is essential that 
Medicare ensure beneficiary access to these vital services and protect the 
integrity of the Medicare trust fund. 
PAMA established a way for CMS to tie Medicare payment rates to those paid by 
private payers and update rates on a regular basis, which resulted in lower 
payment rates for most tests.  However, the resulting savings on some individual 
lab tests were overtaken by increased spending in other areas. 
Medicare spending on genetic tests increased in 2018 as a result of an increased 
volume of Medicare claims for existing genetic tests and the addition of many 
new and expensive genetic tests.  These tests can provide valuable information 
for providers and help to identify appropriate treatments for Medicare 
beneficiaries.  However, given how expensive many of these tests are, even a 
small number of inappropriate tests could expose Medicare to extremely high 
spending.  As spending on genetic tests and the volume of these tests continue 
to grow, oversight of these tests becomes more important.  OIG will continue to 
monitor payments for genetic tests and encourages CMS to continue oversight 
efforts to identify and prevent improper payments. 
Although the increase in spending on genetic tests was a result of growth in this 
aspect of the lab test market, spending on automated chemistry tests increased 
because a discount that CMS had previously applied to these tests was not 
allowed under PAMA.  To address the ongoing risk to cost savings, OIG 
recommends the following: 
CMS should seek legislative authority to establish a mechanism to 
control costs for automated chemistry tests 
CMS should seek legislative authority to establish a way to avoid paying the full 
fee schedule rate for individual tests when a provider orders multiple results from 
a single beneficiary sample.  Labs that perform automated chemistry tests benefit 
from the efficiency of obtaining multiple results from a single sample. 
The practice of discounting multiple results for a single beneficiary on the same 
date of service ended due to PAMAs prohibition of discounts and resulted in an 
$82 million increase in spending on these tests.  Because these tests provide 
bundled results from a single sample, Medicare should consider methods for 
incorporating test efficiencies when paying for these tests.  Although CMS does 
not currently have statutory authority to discount payments for automated 
chemistry tests, CMS should consider seeking legislative authority to establish a 
method of controlling costs, such as: 
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  reinstating the previous systems policy of discounting automated 
chemistry tests;  
  paying the volume-weighted median immediately for automated 
chemistry tests instead of phasing in reductions to payment rates until 
they reach the volume-weighted median of lab-reported data; or 
  establishing new test codes that bundle multiple results, similar to how 
CMS established new tiered bundles for drug tests.19 
   
Medicare Laboratory Tests Expenditures Increased in 2018, Despite New Rate Reductions  11 
OEI-09-19-00100   
AGENCY COMMENTS AND OIG RESPONSE 
CMS did not explicitly agree or disagree with our recommendation that it seek 
legislative authority to establish a mechanism to control costs for automated 
chemistry tests.  Instead, CMS stated that it would monitor utilization and 
spending associated with these codes and take the OIGs recommendation into 
consideration when determining appropriate next steps. 
We ask that CMS specify in its Final Management Decision the steps it has taken 
or plans to take to mitigate excessive spending for the 23 automated chemistry 
tests.  We appreciate the steps that CMS took in 2019 to ensure accurate 
payments for test panels with specific Current Procedural Terminology (CPT) 
codes.20  However, most combinations of automated chemistry tests are not 
associated with an established test panel.  Spending for the set of 23 automated 
chemistry test codes increased in 2018 because of PAMAs prohibition of 
discounts, which had previously been applied to these tests.  We recommend that 
CMS seek legislative authority to control costs for these tests when multiple tests 
are ordered for the same beneficiary on the same date of service. 
For the full text of CMSs response, see Appendix E. 
   
Medicare Laboratory Tests Expenditures Increased in 2018, Despite New Rate Reductions  12 
OEI-09-19-00100   
APPENDIX A: Detailed Methodology 
We based this report on our analysis of Medicare claims data for lab tests 
performed in 2018 and reimbursed under the CLFS.  We compared our analysis 
for 2018 analysis to results for 20142017.  For 2014, 2015, and 2018, we 
analyzed the 16-month file, and for 2016 and 2017, we analyzed the 
17-month file.  As a result, analysis for 2016 and 2017 used a set of claims that 
was marginally more complete than sets used for other reports and therefore the 
totals for 2016 and 2017 are marginally higher than those reported for other 
years. 
The claims data were from the National Claims History Physician/Supplier 
Part B claim files and National Claims History Outpatient files.  The 
Physician/Supplier Part B files primarily include claims from independent labs and 
physician office labs.  The Outpatient files primarily include claims from hospital 
labs.  We did not include tests paid for under other payment systems, such as the 
payment system for critical access hospitals or the Hospital Outpatient 
Prospective Payment System.21  We did not include claims for physician 
interpretation of tests. 
We analyzed claims data to identify key statistics and emerging trends for 
Medicare Part B payments for lab tests.  We also analyzed Medicare payments 
and test volume by procedure code and category.  Test volume is based on the 
number of units for which labs billed.   
We calculated total spending for 2018 and compared that to similar results from 
past studies.  To identify lower rates, we analyzed the 2018 CLFS and compared 
2018 payment rates to 2017 payment rates. 
Top 25 lab tests.  We identified the top 25 lab tests based on total spending for 
each procedure code in 2018 and calculated total spending for these tests.   
Analysis by category.  We used Current Procedural Terminology (CPT) categories 
for all tests on the CLFS.  For Healthcare Common Procedure Coding System 
(HCPCS) Level II codes that are unique to the CLFS, we had CMS assign CPT 
categories to those codes.  We identified total payments and volume for each 
category of tests.  We used CPT category definitions to identify genetic tests. 
Automated Multi-Channel Chemistry Tests.  We used the set of 23 Automated 
Multi-Channel Chemistry Tests for which Medicare pays.  We calculated total 
volume and total spending for each test code and compared spending to 
2017 results. 
Local fee schedule variation.  Using the 2017 fee schedule, we identified the tests 
within the top 25 where there was variation across fee schedules.  We compared 
the lowest 2017 fee schedule rates to the 2018 fee schedule rates.  We also 
compared average payment per test for 2017 and 2018.  We did not identify 
Medicare Laboratory Tests Expenditures Increased in 2018, Despite New Rate Reductions  13 
OEI-09-19-00100   
whether payments made below the 2017 fee schedule rate resulted from lower 
lab charges, lower local fee schedule rates, or Medicares discount policy. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Medicare Laboratory Tests Expenditures Increased in 2018, Despite New Rate Reductions  14 
OEI-09-19-00100   
APPENDIX B: Medicare Part B Spending on 
Genetic Testing 
Molecular Pathology Tests 
What they are: These tests detect variants in genetic material  The number of molecular pathology tests on the   
CLFS almost doubled to 160 in 2018 
and often help doctors determine how their patients will 
respond to treatment.22 
160
 
 
  Spending increase: More than 200 percent, from   
$162 million in 2017 to $488 million in 2018, a $326 million   
increase.   80 81
65 67  
  Volume increase: 118 percent, from 556,235 in 2017 to 
 
1.2 million in 2018. 
  One test in the top 25: Molecular pathology procedure,   
level 9 (81408).  It entered the CLFS in 2018 and costs   
Medicare $2,000 per test.23    2014 2015 2016 2017 2018    
 
Multianalyte Algorithmic Assays (MAAAs) 
What they are: These tests combine multiple test results with  The number of MAAAs on the CLFS more than   
doubled to 28 in 2018 
patient information to yield a predictive score, such as   
recurrence of a cancer or a treatment response.24  28  
 
 
  Spending increase: 45 percent, from $291 million in 2017 to 
 
$421 million in 2018, a $130 million increase.  
  Volume increase: 32 percent, from 365,851 in 2017 to  13  
483,912 in 2018.    
  Two tests in the top 25: Gene analysis for colorectal cancer 
4  
(81528) and breast cancer detection test (81519).  In 2018, 
 
the payment rate for the breast cancer detection test 
 
increased by 12 percent.  2014 2015 2016 2017 2018  
 
Genomic Sequencing Procedures (GSPs) 
 
What they are: These tests identify structural changes in  The number of GSPs tests on the CLFS almost 
doubled to 28 in 2018   
genetic material and are often used to diagnose or manage 
inherited diseases.25  28  
   
  Spending increase: 200 percent, from $20 million in 2017 to 
 
$59 million in 2018, a $39 million increase.   16
 
  Volume increase: 137 percent, from 25,800 in 2017 to 
 
61,217 in 2018. 
  GSPs did not appear in the top 25 for 2018.  4  
 
2014 2015 2016 2017 2018  
 
  
Source: OIG analysis of Medicare Part B lab test spending, 2019.  
Medicare Laboratory Tests Expenditures Increased in 2018, Despite New Rate Reductions  15 
OEI-09-19-00100   
APPENDIX C: Changes to Payment Rates for 
Automated Chemistry Tests 
Prior to PAMAs implementation, CMS paid for certain chemistry tests by discounting sets of these codes when 
multiple results were ordered from a single beneficiary sample.  Payment rates for each of these 23 tests, 
known as Automated Multi-Channel Chemistry Tests or Automated Test Panels, decreased as a result of the 
new payment system.  However, the average payment per test increased because of the end of the discount 
policy.  See below for a list of automated chemistry tests, along with the fee schedule rates in 2017 and 2018 
and the average payments for each year. 
  2017 fee  2018 fee  2017 payment  2018 payment  Change in per-
schedule rate  schedule rate  per test  per test  test payment 
Albumin (82040)  $6.79  $6.11  $2.22  $5.87  $3.65 
Alkaline phosphate (84075)  $7.10  $6.39  $1.82  $6.09  $4.26 
ALT (SGPT) (84460)  $7.27  $6.54  $3.77  $6.36  $2.59 
AST (SGOT) (84450)  $7.10  $6.39  $2.64  $6.18  $3.54 
Bilirubin, total (82247)  $6.88  $6.19  $2.53  $5.86  $3.39 
Bilirubin, direct (82248)  $6.88  $6.19  $1.66  $5.91  $4.20 
Calcium (82310)  $7.08  $6.37  $3.17  $6.16  $3.00 
Calcium ionized (82330)  $18.76  $16.88  $7.24  $16.47  $9.23 
Chloride (82435)  $6.31  $5.68  $1.14  $5.46  $4.32 
Cholesterol (82465)  $5.97  $5.37  $3.26  $5.24  $1.98 
CK, CPK (82550)  $8.93  $8.04  $5.11  $7.94  $2.83 
CO2 (bicarbonate) (82374)  $6.70  $6.03  $1.50  $5.82  $4.32 
Creatinine (82565)  $7.03  $6.33  $3.47  $6.15  $2.68 
GGT (82977)  $9.88  $8.89  $3.79  $8.58  $4.80 
Glucose (82947)  $5.39  $4.85  $3.89  $4.72  $0.84 
LDH (83615)  $8.28  $7.45  $4.37  $7.26  $2.89 
Phosphorus (84100)  $6.50  $5.85  $3.35  $5.66  $2.31 
Potassium (84132)  $6.31  $5.68  $3.55  $5.45  $1.90 
Protein (84155)  $5.03  $4.53  $2.89  $4.35  $1.46 
Sodium (84295)  $6.60  $5.94  $2.06  $5.74  $3.69 
Triglycerides (84478)  $7.88  $7.09  $3.61  $6.87  $3.27 
Urea nitrogen (84520)  $5.42  $4.88  $2.12  $4.74  $2.62 
Uric acid (84550)  $6.20  $5.58  $3.81  $5.44  $1.63 
All automated chemistry tests  -  -  $3.49  $6.08  $2.59 
Source: OIG analysis of Medicare Part B lab test spending, 2019.  
   
Medicare Laboratory Tests Expenditures Increased in 2018, Despite New Rate Reductions  16 
OEI-09-19-00100   
APPENDIX D: Prior Office of Inspector General 
Reports on Medicare Spending and Payment 
Rates for Lab Tests 
Medicare Payments for Clinical Diagnostic Laboratory  OEI-09-18-00410  September 2018 
Tests in 2017: Year 4 of Baseline Data 
Setting Medicare Payment Rates for Clinical Diagnostic  OEI-09-17-00050  July 2018 
Laboratory Tests: Strategies to Ensure Data Quality 
Medicare Payments for Clinical Diagnostic Laboratory  OEI-09-17-00140  September 2017 
Tests in 2016:  Year 3 of Baseline Data 
Medicare Payments for Clinical Diagnostic Laboratory  OEI-09-16-00040  September 2016 
Tests in 2015:  Year 2 of 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 Laboratory Tests in 2014:  OEI-09-15-00210  September 2015 
Baseline Data 
Comparing Lab Test Payment Rates: Medicare Could  OEI-07-11-00010  June 2013 
Achieve Substantial Savings 
 
Variation in the Clinical Laboratory Fee Schedule   OEI-05-08-00400  July 2009 
 
 
Medicare Laboratory Tests Expenditures Increased in 2018, Despite New Rate Reductions  17 
OEI-09-19-00100   
APPENDIX E: Agency Comments 
 
Medicare Laboratory Tests Expenditures Increased in 2018, Despite New Rate Reductions  18 
OEI-09-19-00100   
   
Medicare Laboratory Tests Expenditures Increased in 2018, Despite New Rate Reductions  19 
OEI-09-19-00100   
ACKNOWLEDGMENTS 
Chelsea Samuel served as the team leader for this study.  Others in the Office of 
Evaluation and Inspections who conducted the study include Kira Evsanaa.  OIG 
staff who provided support include Christine Moritz, Berivan Demir Neubert, and 
Michael Novello.  
We would also like to acknowledge the contributions of other OIG staff, including 
China Tantameng.   
This report was prepared under the direction of Blaine Collins, Regional Inspector 
General for Evaluation and Inspections in the San Francisco regional office, and 
Abby Amoroso and Michael Henry, Deputy Regional Inspectors General.  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
To obtain additional information concerning this report or to obtain copies, 
contact the Office of Public Affairs at Public.Affairs@oig.hhs.gov.  
Medicare Laboratory Tests Expenditures Increased in 2018, Despite New Rate Reductions  20 
OEI-09-19-00100   
ENDNOTES 
1 81 Fed. Reg. 41036, 41097 (June 23, 2016) (final rule implementing PAMA, P. L. No. 113-93 
(April 2014),  216(a)).  See also 42 CFR 414.507(a).  
2 OIG, Comparing Lab Tests Payment Rates: Medicare Could Achieve Substantial Savings (OEI-07-11-
00010), June 2013.  See also OIG, Variation in The Clinical Laboratory Fee Schedule (OEI-05-08-
00400), July 2009.  
3 81 Fed. Reg. 41036, 41097 (June 23, 2016) (final rule implementing PAMA,  216(a)). 
4 CMS, Summary of Data Reporting for the Medicare Clinical Laboratory Fee Schedule (CLFS) Private 
Payor Rate-Based Payment System, https://www.cms.gov/Medicare/Medicare-Fee-for-Service-
Payment/ClinicalLabFeeSched/Downloads/CY2018-CLFS-Payment-System-Summary-Data.pdf.  
Accessed on February 21, 2020. 
5 CMS, Information Regarding the Final CY 2018 Private Payor Rate-Based Clinical Laboratory Fee 
Schedule (CLFS) Payment Rates.  Accessed at https://www.cms.gov/Medicare/Medicare-Fee-for-
Service-Payment/ClinicalLabFeeSched/Downloads/CY2018-CLFS-HCPCS-Median-Calculations.pdf 
on May 27, 2020. 
6 42 CFR 414.507(a) and (b). 
7 81 Fed. Reg.  41036, 41066 (June 23, 2016) (see Table 3, Final Data Collection and Reporting 
Periods for CDLTs). 
8 Originally, SSA  1834A(b)(3)(A) and (B), 42 U.S.C. 1395m-1(b)(3)(A) and (B), as set forth in PAMA 
216(a)), provided that clinical diagnostic laboratory test payment would not result in payment 
reduction greater than the applicable percentage within the first 6 years.  See also 81 Fed. Reg. 
41036, 41079, and 41100 (June 23, 2016) (changing the phasing in of the payment-reductions 
timetable to reflect the revised January 1, 2018, implementation date and memorializing the change 
at 42 CFR 414.507 (d)). 
9 Coronavirus Aid, Relief, and Economic Security Act, P.L. No. 116-136 (March 2020),  3718(a) 
(amending SSA 1834A(a)(1)(B), 42 U.S.C. 1395m-1(a)(1)(B), which was added by Further 
Consolidated Appropriations Act, 2020, P.L. No. 116-94, Division N,  105(a)(1)(A)(iii)).  
10 SSA  1834A(b)(3)(B), 42 U.S.C. 1395m-1(b)(3)(B) (as amended by Further Consolidated 
Appropriations Act, 2020, Division N,  105(a)(2) and, subsequently, by the Coronavirus Aid, Relief, 
and Economic Security Act,  3718(b)). 
11 PAMA also required that the Government Accountability Office (GAO) study a number of aspects 
of the new payment system, including the implementation of new payment rates.  GAO issued the 
report Medicare Laboratory Tests: Implementation of New Rates May Lead to Billions in Excess 
Payments (GAO-19-67) in November 2018. 
12 OIG, Fraud Alert: Genetic Testing Scam, https://oig.hhs.gov/fraud/consumer-
alerts/alerts/geneticscam.asp, September 2019. Accessed on February 21, 2020. 
13 Department of Justice, Federal Law Enforcement Action Involving Fraudulent Genetic Testing 
Results in Charges Against 35 Individuals Responsible for Over $2.1 Billion in Losses in One of the 
Largest Health Care Fraud Schemes Ever Charged, https://www.justice.gov/opa/pr/federal-law-
enforcement-action-involving-fraudulent-genetic-testing-results-charges-against, September 27, 
2019.  Accessed on February 21, 2020. 
14  The percent change was calculated using actual spending totals rather than the rounded dollar 
values in Exhibit 1.  The total Medicare spending for 2017 was $7,129,419.570, and the total 
Medicare spending for 2018 was $7,588,026,555. 
15 Labs bill for each test on the CLFS using a Healthcare Common Procedure Coding System 
(HCPCS) code, which we refer to as a procedure code.  The HCPCS is divided into two subsystems, 
referred to as Level I and Level II.  Level I HCPCS codes are composed of CPT codes.  The 
 
Medicare Laboratory Tests Expenditures Increased in 2018, Despite New Rate Reductions  21 
OEI-09-19-00100   
 
five-character codes and descriptions included in this study are obtained from Current 
Procedural Terminology (CPT), copyright 2018 by the American Medical Association 
(AMA).  CPT is developed by the AMA as a listing of descriptive terms and five character 
identifying codes and modifiers for reporting medical services and procedures.  Any use of 
CPT outside of this study should refer to the most current version of the Current Procedural 
Terminology available from AMA.  Applicable FARS/DFARS apply.  Level II HCPCS codes are 
established by CMS primarily for items, supplies, and nonphysician services not covered by CPT 
codes. 
16 The number of tests on the CLFS includes all tests eligible for payment, and therefore is slightly 
higher than the number of tests for which Medicare made payments. 
17 These tests are also known as Automated Panel Tests.  
18 SSA  1834A(b)(4)(B), 42 U.S.C. 1395m-1(b)(4)(B). 
19 In 2015, CMS established four new HCPCS Level II codes (G0480, G0481, G0482, and G0483) that 
group multiple drug classes into a single tier, representing multiple codes.  For example, 
G0480 represents 1-7 drug tests, and G0481 represents 8-14 drug tests.  CMS could explore 
establishing similar grouped codes for automated chemistry tests.  
20 See Endnote 15 regarding CPT codes. 
21 Many of the lab tests performed in outpatient settings (such as hospitals, skilled nursing facilities, 
and dialysis facilities) are paid for under Medicare payment systems other than the CLFS.  As we 
have noted, our analysis included only lab tests paid for under Medicares CLFS. 
22 Molecular pathology tests analyze DNA or RNA to determine gene variants.  These tests are often 
used to diagnose cancers (e.g., breast and cervical) and detect hereditary and infectious diseases 
(e.g., HIV, hepatitis B and C).  College of American Pathologies, Molecular Pathology Resource Guide, 
http://webapps.cap.org/apps/docs/membership/md_resource_guide.pdf. Accessed on February 21, 
2020. 
23 Molecular pathology procedures level 9 (procedure code 81408) perform full DNA sequence 
analysis to diagnose or manage diseases such as kidney disease, Parkinsons disease, and age-
related macular degeneration. BioPortal, Molecular Pathology Procedure, Level 9, 
https://bioportal.bioontology.org/ontologies/CPT?p=classes&conceptid=81408.  Accessed on 
February 21, 2020. 
24 MAAAs combine genetic and demographic information into an algorithm to determine a numeric 
risk score or probability.  MAAAs are commonly used to generate diagnostic or predictive 
information for certain cancers, such as ovarian, breast, and prostate cancer. Clinical Laboratory 
News, Multianalyte Assays with Algorithmic Analysis in Womens Health, 
https://www.aacc.org/publications/cln/articles/2018/july/multianalyte-assays-with-algorithmic-
analysis-in-womens-health. Accessed on February 21, 2020. 
25 GSPs identify structural changes to DNA or RNA and are used to diagnose and manage inherited 
diseases.  These tests are less frequently used that other genetic tests but are among the most 
complex and labor-intensive types of tests.  NIH, A Survey of Current Practices for Genomic 
Sequencing Test Interpretation and Reporting Processes in US laboratories, 
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5415437/. Accessed on February 21, 2020. 
Medicare Laboratory Tests Expenditures Increased in 2018, Despite New Rate Reductions  22 
OEI-09-19-00100   
ABOUT THE OFFICE OF INSPECTOR GENERAL 
The mission of the Office of Inspector General (OIG), as mandated by 
Public Law 95-452, as amended, is to protect the integrity of the 
Department of Health and Human Services (HHS) programs, as well as the 
health and welfare of beneficiaries served by those programs.  This 
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either by conducting audits with its own audit resources or by overseeing 
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evaluations to provide HHS, Congress, and the public with timely, useful, 
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