MEDICARE  REIMBURSEMENT  FOR 
OUTPATIENT  LABORATORY 
SERVICES 
OFFICE  OF  INSPECTOR  GENERAL 
OFFICE  OF ANALYSIS  ANDkVSPECTIONS 
MARCH  1989  MEDICARE  REIMBURSEMENT  FOR 
.OUTPATIENT  LABORATORY 
SERVICES 
Richard  P. Kusserow 
INSPECTOR  GENERAL 
OAI-04-88-01080  MARCH  1989 
 EXECUTIVE SUMMARY 

PURPOSE 
This inspection assessesthe effects on Medicare program costsof adopting a national fee 
schedulefor the payment of outpatient lab servicesfor Medicare beneficiaries. 
BACKGROUND 
Medicare paid nearly $1.3 billion  for outpatient lab servicesin 1986 and nearly $1.6 billion  in 
1987 according to Part B Medicare Annual Data (B-MAD).  Expenditures are expectedto rise 
to $2.4 billion  by 1990. 
Payments are now made at the lowest of threerates: the amount indicated on a carrier-wide 
fee schedule (the area rate); the amount imposed by a national fee limitation;  or the amount 
actually billed. 
Under current law, starting in 1990 arearates will  be discontinued and all reimbursement will 
be basedon a national fee schedule. 
FINDINGS 
Conversion of the National Limitation  to a National  Fee Schedule Could be Costly 
Area rates for reimbursement of lab servicesvary significantly among Medicare carriers. The 
Medicare program benefits from thesevariancesin caseswhere the arearate is lower than the 
national limitation. 
Implementation of a national fee schedulewithout thesearearates could be costly. For ex-
ample, using the current national fee limitation  asthe national fee schedulewould increase 
Medicare costs by $82 million  in 1990 for the 62 most frequently reimbursed tests. The total 
cost for all Medicare lab testswould be much higher. 
RECOMMENDATION 
The Health Care Financing Administration  (HCFA) should request that Congressrepeal the re
quirement to baselab reimbursement on a national fee schedulebeginning in 1990.  Health Care Financing  Administration  Comments 
The HCFA concurs with the OIG recommendation, noting the Office of Inspector Generals 
(OIG) projected savingsof $82 million  for the 62 most frequently reimbursed lab tests. The 
HCFA suggeststhat the OIG could haveprojected savingsof about $145 million  if all tests 
were included instead of the 62 testsusedin the calculation. 
The HCFA itself estimatespotential savingsof $190 million,  by a completely different 
method:  basing a national fee scheduleon Medicares 1984 lab chargedata. The HCFA sug
geststhat OIG consider its methodology for calculating prospective savingsor that the OIG ex
trapolate to the entire volume of Medicare lab tests. 
Further, the HCFA suggestsseveralrelated lab issuesfor future OIG program inspections. 
They particularly  requestedthat we analyze the 60 lab testswhich representthe greatestout
patient dollar volume under Medicare. 
The HCFA also recommended replacement of the term area rates with carrier-wide fee 
schedules and the term national fee limitation  with median cap or ceiling amount.  (See 
appendix E for the HCFA memo commenting on the draft report). 
Office of Inspector General Response 
The OIG appreciatesHCFAs concurrencewith the recommendation and its favorable com
ments on the report.  The suggestionsof related topics for future study are also appreciated. 
We concur with HCFA that the $82 million  savingsdocumented in the report is conservative. 
However, the methodology employed by this inspection will  not permit extrapolation to the 
full  volume of Medicare reimbursed lab tests. We do acknowledge, however, that the total 
figure is much higher than $82 million  (seepage 9 of the report), and could well be as high as 
the $190 million  HCFA supports. 
We did not change the terms arearates and national fee limitation  as suggestedby HCFA. 
An important audience of this report is the general public.  We have chosento retain the more 
common terms to describe the lab reimbursement processbecausewe believe theseterms are 
more understandableto readersoutside the Department. 
As requestedby HCFA, we are undertaking an analysis of the 60 lab testsrepresenting the 
greatestoutpatient dollar volume under Medicate. 
ii  TABLE  OF CONTENTS 
EXECUTIVE  SUMMARY 
INTRODUCTION  .......................................................................................................  1 

Background  ......................................................................................................  1 

Purpose  ............................................................................................................  5 

Met hods ............................................................................................................  5 

FINDINGS .................................................................................................................  6 

National  Limitation  Reduces  Medicare  Costs  ..............................................  6 

Area  Rates  Vary  Greatly  ..................................................................................  6 

Variation  in Area  Rates  Saves  Medicare  Money ...........................................  9 

National  Fee Schedule  Could  Be Costly  .......................................................  9 

RECOMMENDATION  ................................................................................................  10 

Repeal  National  Fee Schedule  Requirement  ................................................  10 

APPENDICES 
Appendix  A:  Summary  of Lab  Reimbursement  Legislation  .......................11 

Appendix  B:  List  of 62 Most  Frequently  Reimbursed  Lab Tests ...............13 

Appendix  C:  Ten Most  Common  Lab Tests: 

Variation  in Payment  Amounts  .......................................................................17 

Appendix  D:  Outpatient  Lab  Procedures  With 

Greatest  Variation  in Payment  Amount  .....................................*................... 18 

Appendix  E:  The  HCFA Comments  on the  Draft  Report  ............................19 
 INTRODUCTION 

BACKGROUND 
What Are Outpatient Clinical  Laboratory Services? 
Clinical laboratory (lab) servicesinclude a wide range of chemical and other types of examina
tions of materials derived from the human body to assistin diagnosis, prevention, or treatment 
of illness.  Medicare pays for more than 1,000 types of lab tests. Some of the most common 
are complete blood counts, urinalyses and glucose tolerance tests. 
Outpatient clinical lab servicesare thoseprovided outside the hospital inpatient setting. They 
are reimbursed through Part B of the Medicare program. 
How Much Money Is Involved? 
Payments for all lab servicesin the United Statesare estimated to be $20 billion  annually. 
About $10.8 billion  (54 percent) of that amount is spenton outpatient lab services. The fol
lowing chart illustrates the size of the lab servicesrnarket and the proportions attributable to 
inpatient and outpatient services. 
Figure  A 

PAYMENT  FOR LAB  SERVICES 

UNITED  STATES  - 1986 

Inpatient  46% 
$9.2  Billion 
m  Outpatient  54% 
$1 0.8  Billion 
$20  BILLION 
 Medicare payments for outpatient lab servicesconstitute about 12 percent of the total out-
patient lab market.  In 1986, thosepayments were nearly $1.3 billion,  and in 1987, nearly 
$1.6 billion.  The Health Care Financing Administration (HCFA) estimatesthat Medicare out-
patient lab expenditures wilI  reach $2.4 billion  in 1990. 
This report addressesonly outpatient lab expenditures.Inpatient  lab services,those provided 
to hospital and skilled nursing facility  inpatients, are generally reimbursed through Medicares 
Part A coverage. In the caseof hospital inpatients, no separateMedicare payment is made for 
lab services. The diagnosis related group (DRG) payment to the hospital must cover lab costs 
along with all other costsof the patients hospitalization. 
Some outpatient lab testing for Medicare beneficiaries is performed by hospital-basedor nurs
ing home-basedlabs (8.2 percent), but most is done by physician office labs (50.6 percent) 
and freestanding or independent labs (41.2 percent). 
The following  charts illustrate Medicares proportion of the outpatient lab market (figure B) 
and the proportion of Medicare lab payments going to independent labs, physician office labs 
and labs basedin hospital and other settings (figure C). 
Figure  B 

OUTPATIENT  LAB  SERVICES 

1986 

Non MedIcare  88% 
$9.5 Billion 
m  Medicare  12% 
$1.3 Billion 
Figure  C 
PROVIDERS  OF LAB  SERVICES 
10.8 BILLION 
Physician  Oflica 51% 
a  Independent  Labs 41% 
m  Hospilals/other  8% 
fl.3  BILLION 
2 
 How Does Medicare Reimburse for  Lab Services? 
The amount Medicare pays for specific outpatient lab servicesis the lowest of: 
.  the amount billed by the lab; 
.  the amount indicated on the arearate; or 
.  the national limitation  for the billed service. 
The arearate is basedon the carriers historical prevailing chargedata. The national limitation 
is the median of all the arearatesfor each test. It is applied asa nationwide payment ceiling. 
When Medicare is billed for a specific lab service,the carrier compares the billed amount to 
the arearate and the national limitation  and reimburses at the lowest of thesethree figures. 
How Has Lab Reimbursement Changed? 
Over the past 8 years, the Congresshas made a number of changesin Medicare lab reimburse
ment in order to stem the rising cost of lab services. The table on the following  page sum
marizes those legislative actions. (Seeappendix A for a narrative summary of the legislation). 
Recognizing that a system basedon the amount labs charge for their servicesis inherently in
flationary, the Congressimposed a national payment ceiling for each lab test in 1986. In 
January 1990, Medicare lab reimbursement is due for another major change. The Omnibus 
Budget Reconciliation Act of 1987 requires Medicare to begin in 1990 to pay for lab services 
according to a uniform national fee schedule,without using arearates.  Figure  D 
LEGISLATIVE  HISTORY 
PRE - 1980  OBRA  1980  DEFRA 1984  COBRA 1986  OBRA 1987 
Payment for Lab  .  Reimbursement  based  .  Eliminated  physician  .  Established  area  fee  . 	 Imposed  a 3- month 
Services  on usual,  customary  markups  for tests  per- schedules  at 60% of  freeze  on area  rates 
and  reasonable  char- formed  by other  prevailing  charges.  .  Effective  April  1, 1988, 
ges  providers  Limited  POL reimbur- imposed  an 8.3 % 
sement  to 80% of the 
.  Limited  payment  to  reduction  in area  rates 
fee schedule  plus co

lowest  charge  at which  for most common  tests 
w. 

a physician  could  have 
secured  the service  .  Built in automatic  in-

creases  based  on Con
sumer  Price  Index  (CPI) 
. 	 Imposed  a national  . 	 Reduced  national 
National  Fee  ceiling  at 115 % of the  limitation  amounts 
A  Limitation  median  of all area  further,  to 100% of the 
rates  effective  July  1,  median  as of April  1, 
1986.  On January  1,  1988. 
1988, reduced  ceiling  . 	 Eliminated  CPI 
to  110 %. 
Increase 
. 	 Required  estab . 	 Postponed  estab . 	
Postponed  estab
National  Fee  lishment  of a national  lishment  of a national  lishment  of a national 
fee schedule  by  fee schedule  to  fee schedule  to 
Schedule 
July  1. 1987  January  1988  January  1990 
. 	 Required  independent  . 	 Required  POLs to ac
Medicare  labs and hospitals  to  cept  assignment 
Assignment  accept  assignment; 
POLs  exempt 
Other  . 	 Eliminated  beneficiary  . 	 Prohibited  competitive 
deductible  and 20%  bidding  demonstra
co-pay,  except  POLs  tions  until  1989. 
(Subsequently 
extended  to 1990.)  PURPOSE 
This inspection assessesthe effects on Medicare program costsof adopting a national fee 
schedule for the payment of outpatient lab services. 
Two major issuesare addressed: 
.  What have been the effects of the present national limitation  on Medicare outlays? 
.  What are the probable effects of Medicare adopting a national fee schedule? 
METHODS 
The inspection team analyzed existing statistical data, examined legislation and supporting 
documents, and reviewed other studiesof lab reimbursement. 
The HCFA data base(B-MAD)  for 1986 and 1987 provided information on total Medicare ex
penditures for outpatient lab services,as well asbilling  frequencies and payments for in
dividual lab services. These data were analyzed by type of test and by carrier, yielding the 
comparisons discussedin this report. 
Other documents examined included the Medicare Carriers Manual, the national fee limita
tion levels, current legislation and legislative proposals, and reports by the Office of Inspector 
General (OIG) and the General Accounting Office (GAO).  FINDINGS 

National  Limitation  ReducesMedicare Costs 
The current law requires that Medicare reimburse for outpatient lab servicesat the lowest of 
the arearate, the national limitation  or the actual amount billed.  Medicare savesmoney in 
every casewhere the national limitation  is lower than the arearate, which would have been 
paid in the absenceof a payment limitation. 
Before July 1986, there was no national limitation.  Medicare reimbursement was basedon the 
lower of the actual chargeor the arearate. Had the national limitations which were in effect 
in 1988 been applied to 1986 Medicare lab billings,  Medicare would have savednearly $71 
million--g.6  percent--on the 62 most frequent outpatient lab tests. (Seeappendix B for a list
ing of those tests.) These 62 testsrepresentabout 75 percent of all outpatient lab procedures 
reimbursed by Medicare, and about 57 percent of the total 1986 Medicare expenditures for out-
patient lab services. 
The $71 million  in savings was calculated as follows: 
Area rate for 62 

testsX areafrequency  = $739.7m 

Lowest of the arearate 

or the national limitation  X 

areafrequency  = $668.8m 

IMPACT  OF NATIONAL  LIMITATION  = $70.9m 

Area Rates Vary Greatly 
Examination of the arearates for the 62 most frequently billed lab testsreveals significant 
variation among carriers. Figure E illustrates the extent of variance for the 10 testsmost fre
quently billed to Medicare.  (Seeappendix C for a listing of each test, its highest arearate, 
lowest arearate, and national limitation.) 
6 
 Figure  E 

MEDICARE  LAB  REIMBURSEMENT  - VARIANCE 
TEN  MOST  FREQUENTLY  BILLED  TESTS 
Dollars 
1 
16 
6 
Procedure  Code 
81000 - Urinalysis:  routine w/microscopy 

82947 - Glucose: except urine 

80019 - Auto tests: 19 or more chemistries 

85022 - Blood Count:  Hemogram, auto, CBC. Dif 

85610 - Prothrombin Time 

85031 - Blood Count:  Hemogram, manual, CBC 

82270 - Blood:  occult, feces screening 

84132 - Potassium: Blood 

85021 - Blood Count:  Hemogram, auto 

85650 - Sedimentation Rate: Wintrobe type 

The chart above shows the complete range of rates. The dividing  line between the dark and 
the light sections of each bar is the national limitation.  The light portion of the bar shows the 
difference between the national limitation  and the highest arearate. The dark portion shows 
the difference between the national limitation  and the lowest arearate. 
Since arearates are basedon historical chargesin the carrier service area, assumptionscannot 
be made about the reasonsfor the variations without examining the basis for individual  labs 
charges. Those chargesmay reflect the costs of laboratory operations, competitiveness of the 
local marketplace, or the labs own decisions on acceptableprofit levels. They may be based 
on factors which are not discernible by Medicare or other payers. 
Figure F illustrates the 17 testsfor which the variation in arearates is the greatest. (Seeappen
dix D for a listing of each test, its highest arearate, lowest arearate, and national limitation.) 
7 
 Figure  F 

GREATEST  VARIATION  AMONG  CARRIERS 

Dollars 
62552  63625  80016  67040  60016  a0019  67070  60006  60003 
66151  62607  64420  62746  6co12  04443  80005  60007 
82552 - Blood Crestine Phos.: Isoenzymes 

86151 - Carcinoembryonic antigen:  RIA 

83625 - Blood LDH:  Isoenzymes electrophoresis 

82607 - Cyanocobalamin, RIA 

80016 - Auto tests: 13-16 chemistries 

84420 - Theophylline, Blood or Saliva 

87040 - Def. Bacterial Culture, aerobic, blood 

82746 - Blood Folic Acid:  RIA 

80018 - Auto tests: 17-18 chemistries 

80012 - Auto tests: 12 chemistries 

80019 - Auto tests: 19 or more chemistries 

84443 - Thyroid Stimulating Hormone, RIA 

87070 - Bacteria Culture, aerobic, other source 

80005 - Auto tests: 5 chemistries 

80006 - Auto tests: 6 chemistries 

80007 - Auto tests: 7 chemistries 

80003 - Auto tests: 3 chemistries 

(Note that for  test 82746 the difference between the national limitation  and the combined area rate is too small 

to show in the chart.) 

8 
 As in the prior illustration,  the dividing line between the dark and light sectionsis the national 
limitation.  The dark portion of each bar representsarearates below the national limitation  and 
the light portion representsarearatesexceeding the national limitation. 
Variation in Area Rates SavesMedicare Money 
The variations illustrated in figures E and F are advantageousto Medicare.  Becausethe 
program reimburses at the lowest of the billed amount, the arearate or the national limitation, 
Medicare benefits from chargesand arearateswhich fall below the national limitation.  At the 
sametime, Medicare is not adversely affected by arearates which exceedthe national limita
tion. 
Concerning the 62 most frequently billed lab procedures,if Medicare had paid the national 
limitation  in all casesrather than paying the arearate when it was lower, the cost of laboratory 
serviceswould have been $40 million  higher in 1986. 
This amount is basedon the following  calculation: 
National limitation  for 62 testsX areafrequency  = $709m 
Lowest of the arearate 

or national limitation  X areafrequency 
 = $668.9m 
IMPACT  OF VARIATION  IN AREA RATES 
 = $40.lm 
National  Fee Schedule Could Be Costly 
The HCFA is presently required to implement a national fee schedulefor lab servicesby 1990. 
The effect on Medicare costs will  depend on where that schedule setsreimbursement rates. 
For the purpose of illustrating  this point, this  analysis hypothetically assumesthat the national 
fee schedule is set at the rates now indicated on the national limitation.  Under this scenario, 
Medicare costs would be significantly  higher in 1990. 
The $40 million  above is 6 percent more than Medicare would have paid under the current 
reimbursement system, which usesboth arearates and the national limitation.  If the same6 
percent factor is applied to estimated 1990 Medicare expenditures for these62 tests,the result 
would be $82 million  in increasedMedicare costs. 
The 62 lab proceduresfrom which this $82 million  cost is derived represent75 percent of 
Medicare outpatient lab volume and 57 percent of the total Medicare expenditure for all lab 
services. If all the testswere examined, the cost would be even higher. 
9 
 RECOMMENDATION 
Recommendation 
The HCFA should request that Congressrepeal the requirement to baselab reimbursement on 
a national fee schedulebeginning in 1990. 
HCFA Comment 
The HCFA responseto the reports recommendation is:  We concur with the OIG recommen
dation.  The recommendation is consistent with the Administrations Fiscal Year (FY) 1990 
legislative proposal to eliminate the statutory requirement that the Secretaryestablish a nation
al fee scheduleby January 1, 1990. 
10 
 APPENDIX  A 

SUMMARY  OF LAB  REIMBURSEMENT  LEGISLATION 
Prior to the 1980 Medicare and Medicaid Amendments, Medicare made payments to 
physicians, to independent labs or to patients for clinical lab services. Physicians could 
receive payment whether they actually performed the lab proceduresor sent the specimen to 
an independent lab which then billed the physicians for the work.  The General Accounting Of
fice documented that physicians sometimesbilled Medicare, or their patients, at rates which 
greatly exceededwhat independent labs chargedthe physicians for the sametests. This com
mon practice set the stagefor the first of severallegislative changes. 
Omnibus Budget Reconciliation  Act of 1980 
The 1980 amendmentsaddressedthe problem of substantial physician markups on bills for lab 
servicesactually performed by third party labs. In such cases,the amendmentsrequired 
physicians to identify  the lab which performed the servicesand the amount which it billed the 
physician.  The legislation authorized Medicare carriers to limit  payment to the lowest charge 
at which a physician could have securedthe servicesfrom a lab serving the applicable locality. 
On the other hand, when physicians did provide the required information, the allowed pay
ment was the lower of that labs reasonablecharge, or the amount actually billed the 
physician.  The reasonablecharge is described asthe lowest of:  (1) the physicians or lab 
providers customary charge for a given service; (2) the prevailing chargefor similar services 
in the locality;  (3) the actual charge submitted for the given service; or (4) the carriers usual 
amount of reimbursement for comparable servicesto its own policyholders under comparable 
circumstances. 
Deficit Reduction Act of 1984 (DEFRA) 
Under DEFRA, arearates were set for outpatient lab tests. The rates applied to lab services 
furnished by physicians, independent labs, and hospitals on an outpatient basis. The goals 
were to savedollars for Medicare and its beneficiaries and to standardizepayments for similar 
serviceswithin  a geographic area. The DEFRA provided that Medicare pay 100 percent of the 
arearate amount and eliminated all co-payment requirements for beneficiaries. The DEFRA 
also required that hospital and independent labs acceptassignment (which means that they 
agreeto accept the Medicare schedulefee as full payment.) 
The rate for each Medicare carrier was set at 60 percent of the prevailing charge level (i.e., 60 
percent of the amount calculated as the 75th percentile of the customary charges,weighted by 
frequency).  The rates were to be adjusted annually to reflect changesin the Consumer Price 
Index (CPI).  Another key provision of DEFRA required the Secretaryto establish a nation-
wide fee schedule by January 1, 1987; however, the Congresshas postponed implementation 
of this requirement until January 1, 1990. 
11 
 The Comptroller General was required to report to the Congressby January 1, 1987 on the ap
propriatenessof the arearates and the potential impact of a national fee schedule. The Comp
troller General found DEFRA savedbeneficiaries substantialamounts of money, but increased 
Medicare costs somewhat. Beneficiary savingsresulted from elimination of deductibles and 
co-payments, the responsibility for which was assumedby Medicare. 
Consolidated Omnibus Budget Reconciliation  Act of 1986 (COBRA) 
This law imposed a ceiling on the amount that may be paid for each test under an arearate. 
The limitation  was establishedas 115percent of the median of all arearatesfor a particular 
test in a particular lab setting (e.g., physician office labs or independent labs). The limitation 
was to be in effect from July 1, 1986 through December 31, 1987. After December 31, 1987, 
the limitation  was to be reduced to 110percent of the median. The COBRA also required that 
physician office labs acceptassignment. 
Omnibus Budget Reconciliation  Act of 1987 (OBRA) 
The OBRA of 1987 imposed a 3-month freeze on arearatesfrom January 1, 1988 through 
March 31, 1988. This provision rescinded the inflation  (CPI) increasescheduledby DEFRA 
for January 1, 1988. Further, effective April  1, 1988, it provided for an 8.3 percentreduction 
in the arearates for certain automated testsand other widely available testssuch ascholesterol 
blood testsand white blood cell counts. Finally, it provided for the 1987 national limitation 
amounts to be in effect through March 31, 1988. After that date, the national limitation 
amounts were reduced from  115percent to 100 percent of the median establishedby the area 
rates. 
12 
 APPENDIX  B 

LIST  OF  62 MOST  FREQUENTLY  REIMBURSED  LAB  TESTS 

Outpatient  Clinical  Lab  Tests 
HCPCS 
80003 	 Automated Multichannel Test: 
3 Clinical Chemistry Tests 
80004  Automated Multichannel Test: 
.  4 Clinical Chemistry Tests 
80005 	 Automated Multichannel Test: 
5 Clinical Chemistry Tests 
80006 	 Automated Multichannel Test: 
6 Clinical Chemical Tests 
80007 	 Automated Multichannel Test: 
7 Clinical Chemistry Tests 
80012 	 Automated Multichannel Test: 
12 Clinic Chemistry Tests 
80016 	 Automated Multichannel Test: 
13-16 Clinical Chemistry Tests 
80018 	 Automated Multichannel Test: 
17-18Clinical Chemistry Tests 
80019 	 Automated Multichannel Test: 
19or more Clinical Chemistry Tests 
(indicate instrument and number of testsperformed) 
81000 	 Urinalysis: 
Routine, with Microscopy 
81002 	 Urinalysis; 
Routine, without Microscopy 
82150  Amylase, Serum; 
* HCFA Common Procedure Coding System 
13 
 82270  Blood: 

Occult, Feces,Screening 

82435  Chlorides; 

Blood (Specify chemical or electrometric) 

82465  Cholesterol, Serum; 

Total 

82550  Creatine Phosphokinase(CPK), Blood; 

Timed Kinetic Ultraviolet Method 

82552  Creatine Phosphokinase(CPK), Blood; 

Isoenzyme 

82565  Creatinine; Blood 

82607  Cyanocobalamin (Vitamin B-12); RIA Immunoassay 

82643  Digoxin,  RIA-Immunoassay 

82644  Digoxin,  emit 

82746  Folic Acid (Folate), Blood; RIA-Immunoassay 

82947  Glucose; 

Except Urine (EG, Blood, Spinal Fluid, Joint Fluid) 

82948  Glucose; 

Blood, Stick test 

83615  Lactic Dehydrogenase(LDH), Blood; 

Kinetic Ultraviolet  Method 

83625  Lactic Dehydrogenase(LDH), Blood; 

Isoenzyme, Electrophoretic separationand quantitation 

84065  Phosphatase,acid; 

Prostatic fraction 

84066  Phosphatase,acid; 

Prostatic Fraction, RIA-Immunoassay 

84132  Potassium; Blood 
 84295  Sodium; Blood 
84420  Theophylline, Blood 
84435  Thyroxine, (T-4), CPB or resin uptake 
84443  Thyroid  Stimulating Hormone (TSH), RIA Immunoassay 
84450 	 Transaminase,Glutamic Oxaloacetic (SGOT), Blood; 
Timed Kinetic Ultraviolet  Method 
84460 	 Transminas, Glutamic Pyruvic (SGPT), Blood, 
Time Kinetic Ultraviolet  Method 
84478  Triglycerides, Blood 
84479  Triiodothyronine  (T-3), Resin Uptake 
84520  Urea Nitrogen, Blood (Bun); Quantitative 
84550  Uric Acid; Blood, Chemical 
85007 	 Blood count 
Differential  WBC count 
(includes RBC Microphology  and platelet estimation) 
85014 	 Blood count; 
Hematocrit 
85018 	 Blood count 
Hemoglobin, Calorimetric 
85021 	 Blood count 
Hemogram, Automated (RBC, WBC, HGB, HCI, and indicates only > 
85022 	 Blood count 
Hemogram, Automated, and differential WBC count (CBC) 
85028 	 Blood count 
Hemogram, Automated and differential WBC count 
(CBC) with platelet count 
.  85031 	 Blood count 
Hemogram, Manual, Complete CBC 
(RBC, WBC, HGB, HCI, differential  and indices) 
15 
 85044  Blood count; 

Reticulocyte Count 

85048  Blood count 

White blood cell (WBC) 

85580  Platelet; 

Count (Rees-Ecker) 

85595  Platelet; 

Electronic Technique 

85610  Prothrombin time; 

85650  Sedimentation Rate (ESR); 

Wintrobe type 

85651  Sedimentation Rate (ESR); 

Westergren type 

85730  Thromboplastin time, partial (PTT); 

Plasma or whole blood 

86151  Carcinoembryonic Antigen (CEA); 

RIA-Immunoassay  _ 

86592  Syphilis, precipitation or flocculation tests,Qualitative VDRL,  RPR, DRT 

87040  Culture Bacterial, Definitive  Aerobic; Blood (May include anaerobic screen) 

87070  Culture, Bacterial, Definitive,  Aerobic; and other  sources 

87086  Culture, Bacterial, Urine Quantitative, Colony Count 

87101  Culture, Fungi, Isolation; Skin 

87184  Sensitivity studies, Antibiotic;  Disc method, per plate (12 or lessdiscs) 

87205  Smear,Primary Source, with Interpretation Routine Stain For Bacteria, 

Fungi, or Cell Types 

88150  Cytopathology, Smears,Cervical or Vaginal (EG, Papanicolaou), 

Screening and interpretation, Up to three Smears 

16 
 APPENDIX  C 
TEN  MOST  COMMON  LAB  TESTS 

VARIATION  IN PAYMENT  AMOUNTS  IN  1986 

PROCEDURE  HIGHEST  LOWEST  NATIONAL 
CODE  AREA  RATE  AREA  RATE  LIMITATION 
81000  $ 6.06  $ 3.16  $4.83 
82947  7.57  4.64  6.03 
80019  21.22  9.01  16.92 
85022  10.55  6.53  8.41 
85610  7.57  3.92  6.03 
85031  11.36  3.90  9.06 
82270  4.43  1.96  3.85 
84132  7.99  4.36  6.96 
85021  9.82  4.64  8.54 
85650  6.79  2.95  5.41 
17  .  :.  . 
APPENDIX  D 

OUTPATIENT  LAB  PROCEDURES  WITH  GREATEST  VARIATION 

IN PAYMENT  AMOUNT-- 1986 

PROCEDURE  HIGHEST  LOWEST  CEILING 
CODE  AREA  RATE  AREA  RATE  AMOUNT 
82552  $23.09  $4.64  $ 20.08 
86151  33.34  16.44  28.99 
83625  22.67  6.54  19.71 
82607  26.55  11.81  23.08 
80016  20.43  6.39  16.29 
84420  24.73  10.75  21.50 
87040  18.18  4.24  15.82 
82746  25.52  12.12  12.19 
80018  20.46  7.72  16.31 
80012  17.34  5.12  13.82 
80019  21.22  9.01  16.92 
84443  29.58  17.77  25.72 
87070  15.16  4.24  13.18 
80005  15.16  4.30  12.09 
80006  15.03  4.30  11.99 
80007  15.69  5.27  12.52 
80003  14.01  4.30  11.17 
I8  _-...  --  -
DcEP.iRT.\iEST  OF HLALTH  b; HLMMAS SERVICES  Ftnancmg  Acmnlstr3t:on 
Oate  EB  1  1989 
William  L. Roper, .&D. 
Administrator 
OIC Draft  Report:  IMedicare  Reimbursement  for  Outpatient  Laboratory 
Subject 	
Services  - OAI-04-88-O  1080 
The  Inspector  General 
TO 	
Office  of the  Secretary 
We have  reviewed  your  draft  report  which  recommends  that  Congress  be requested 
to  remove  the  requirement  for  a laboratory  reimbursement  system  based on a 
national  fee  schedule.  The current  laboratory  reimbursement  system  requires 
payment  at  the  lowest  of  the  carrier  fee  schedule  amount,  the  national  median  fee 
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schedule  amount,  or  the  amount  actually  billed.  Current  law  requires  that,  starting 
in  1990,  reimbursement  be based on a national  fee  schedule,  rather  than  a carrier 
fee  schedule.  * 
We concur  with  the  OIC  recommendation.  The  recommendation  is consistent  with 
the  Administrations  Fiscal  Year  (FYI  1990 legislative  proposal  to  eliminate  the 
statutory  requirement  that  the  Secretary  establish  a nationa  fee  schedule  by 
January  1, 1990.  By extrapolating  the  savings  cited  in the  report  to  the  entire 
population,  it  appears  the  OIC  is assuming  a total  savings  of about  $145  million.  This 
is $45  million  less than  the  $190  million  savings  attributed  to  this  proposal  in the 
Presidents  Budget  for  FY  1990.  The  source  of this  discrepancy  seems  to be a 
differing  interpretation  of  the  law  by HCFA  and the  OIC.  While  OIC  makes  the 
assumption  that  a national  fee  schedule  would  be set  at  the  level  of  the  current 
national  limitation  amount  (resulting  in a 6 percent  savings  if  the  current  system  is 
maintained),  the  HCFA  interpretation  is that  the  national  fee  schedule  would  be 
built  from  1984 charge  data  (the  last  year  without  payment  caps).  This  would  result 
in savings  equivalent  to  17.4 p&cent  of  total  exRenditures  without  any  behavioral 
effect  being  taken  into  account.  When provider  behavior  is factored  in, savings  are 
reduced  by 35 percent,  resulting  in net  savings  equal  to  approximately  11.3 percent 
(or  $190  million  in  FY  1990).  We recommend  that  the  OIC  take  into  account  these 
factors  in calculating  prospective  savings  related  to  the  position  advocated  by the 
report. 
We have included  in an attachment  some suggestions  as to how  the  report  could  be 
strengthened  and made  more  useful.  -_ 
Thank  you  for  giving  us the  opportunity  to comment  on this  draft  report. 
Attachment  - ,  . . 
,..., 
Additional  HCF.4  Comments  on the  O[C  Draft  Report 
Medicare  Reimbutse:nent  for  autoatient  Laboratotv  Services 
OAK?%-33-01380 
The  following  changes  to  the  report  would  be useful: 
The degree  of variation  in  fee  schedule  amounts  for  tests  that  are  highly  or 
0  .
completely  automated  is of  particular  interest.  Some discussion  of  the  extent 
of  variation  found  for  different  kinds  of  tests  (more  vs. less automated)  would 
be very  useful  to  the  translation  of the  findings  into  future  policy  options. 
A list  of  the  62 tests included  in the analysis  should  be attached  as an appendix. 
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0 	 We found  the  introduction  of  new  terminology,  like  area  rates,  distracting  and 
confusing. 
+ 	 Area  rates  should, be replaced  by carrier-wide  fee  schedules  or 
carrier-wide  fee schedule  amounts. 
+ 	 Similarly,  the term nationaf  fee  limitation  should  be replaced. 
We suggest that  the  report  initially  define  the  limitation  (as 
100 percent  of  the  median  of  all  the  carrier  fee  schedule  amounts) 
and,  thereafter,  refer  to  the  median  cap  or ceiling  amount. 
0 	 The  report  provides  an estimate  of the  impact  the  national  fee  schedule 
requirement  on payments  for  the  62 tests  most  commonly  provided.  Could  the 
same analysis  be performed  for  the  60 tests that have the greatest  dollar 
volume?  Also,  any data  on the  distribution  of  these  high  volume  or high  dollar 
volume  tests  by setting  (i.e.,  the  percentage  of each  done  in  physicians  office 
laboratories,  independent  laboratories  and hospital  outpatient  laboratories) 
would  be very  useful. 
The carriers  with  the  lowest  and highest  fee  schedule  amounts  for  specified 
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tests  (or  overall,  if  meaningful)  could  be identified.  Likewise,  the  tables  in 
Appendices  3 and C would  be of  greater  interest  if  all  the  carriers  fee  schedule 
amounts  were  shown  with  the  highest  and lowest  value  for  each  test 
highlighted.