You are given two reports by the government agency.  

Report 1:
Medicare pays for laboratory tests that are performed individually or in a group. For individual tests, laboratories submit claims to Medicare for each test they perform that is on the CLFS; tests are identified using a billing code. Prior to the implementation of PAMA in 2018, the payment rates on the CLFS were based on rates charged for laboratory tests in 1984 through 1985 adjusted for inflation. Additionally, 57 geographic jurisdictions had their own fee schedules for laboratory tests. CMS used the 57 separate fee schedules to calculate a national limitation amount, which served as the maximum payment for individual laboratory tests. Thus, the payment rate for an individual test was the lesser of the amount claimed by the laboratory, the local fee for a geographic area, or the national limitation amount for a particular test. Medicare pays bundled payment rates for certain laboratory tests that are performed as a group, called panel tests. Panel tests can be divided into two categories—those without billing codes and those with billing codes. Panel tests without billing codes are composed of at least 2 of 23 distinct component tests. Additionally, there are 7 specific combinations of these 23 component tests that are commonly used and have their own billing code. Prior to 2018, Medicare paid for both types of panel tests (those without or with a billing code) using a bundled rate based on the number of tests performed, with modest payment increases for each additional test conducted. For example, in 2017, Medicare paid $7.15 for panel tests with two component tests and $9.12 for panel tests with 3 component tests, with a maximum bundled payment rate of $16.64 for all 23 component tests. Prior to 2018, the Medicare Administrative Contractors would count the number of tests performed before determining the appropriate bundled payment rate. For those panel tests with a billing code, the payment rate was the same if laboratories used the associated billing code for the panel test or listed each of the component tests separately. After PAMA’s implementation in 2018, the 57 separate fee schedules for individual laboratory tests were replaced with a single national fee schedule. The payment rates for this single national fee schedule were based on private-payer rates for laboratory tests paid from January 1, 2016 through June 30, 2016. Specifically, the payment rate for an individual test was generally based on the median private-payer rates for a given test, weighted by test volume. Payment for panel tests also changed in 2018. For panel tests without billing codes, Medicare Administrative Contractors no longer counted the number of component tests performed to determine the bundled payment rate; instead, Medicare paid the separate rate for each component test in the panel. For panel tests with a billing code, the payment rate depended on how the laboratory submitted the claim. If a laboratory used the billing code associated with the panel test, Medicare paid the bundled payment rate for that billing code. If a laboratory submitted a claim for the panel test, but listed each of the component tests separately instead of using the panel test’s billing code, Medicare paid the individual payment rate for each component test. Table 1 below summarizes the changes to payment rates before and after 2018. Multiple types of laboratories receive payment under Medicare. The three laboratory types that received the most revenue from the CLFS in 2016 were independent laboratories, hospital-outreach laboratories, and physician-office laboratories. (See table 2.) Estimates of the size of the total U.S. laboratory market vary. For example, the Healthcare Fraud Prevention Partnership estimated that the laboratory industry received $87 billion in revenue in 2017, while another market report estimated the laboratory industry received $75 billion in revenue in 2016. Similar to Medicare, the three laboratory types that generally receive the most revenue overall are independent laboratories, hospital-outreach laboratories, and physician-office laboratories, when laboratory tests performed in hospital inpatient and outpatient settings were excluded. Estimates of revenue received by these laboratories also vary. For example, in recent years, estimates of the share of laboratory industry revenue generated by independent laboratories ranged from 37 percent to 54 percent. Additionally, estimates of revenue generated by hospital- outreach laboratories recently ranged from 21 to 35 percent, and physician-office laboratories ranged from 4 to 11 percent of total laboratory industry revenue. Private-payer rates for laboratory tests conducted by the three largest laboratory types generally vary by type and other characteristics, according to market reports and the laboratory industry officials we interviewed. Independent laboratories. These laboratories generally receive lower private-payer rates than other types of laboratories, according to industry officials we interviewed. Market reports we reviewed noted that about half of the independent laboratory market is dominated by two national laboratories and that these national laboratories provide more competitive pricing by performing a large volume of tests at one time. Medicare accounted for a smaller proportion of the revenue earned by these two national laboratories (12 percent), compared to other laboratories, according to another market report we reviewed. In contrast, a different market report noted that smaller, independent laboratories tend to earn more of their revenue from Medicare (34 percent). Hospital-outreach laboratories. These hospital-affiliated laboratories typically receive relatively higher private-payer rates, according to industry officials we interviewed. Although hospital- outreach laboratories perform tests similar to other laboratories, they can obtain above-average payment rates by leveraging the market power of their affiliated hospital when negotiating rates with private payers, according to industry officials and market reports. Hospital-outreach laboratories generally receive about 25 to 30 percent of their revenue from the Medicare CLFS. Physician-office laboratories. Physician-office laboratories typically receive higher private-payer rates than independent laboratories, according to a recent analysis by a laboratory industry association. This industry association also noted that the cost structure to operate in a setting such as a physician-office laboratory is different than in large independent laboratories, as the physician-office laboratory is unable to conduct a large number of tests at one time. Officials from another industry association we interviewed said that payment rates for these laboratories are generally dependent on the size of the physician practice group. These same officials told us that larger physician groups (e.g., 10 or more physicians) typically negotiate higher rates from private payers than smaller physician groups. Most physician-office laboratories received less than $25,000 in revenue per year from Medicare, according to CMS. Additionally, in 2013, the Department of Health and Human Services Office of Inspector General found that Medicare’s payment rates on the CLFS were higher than rates paid by some private health insurance plans. Specifically, it found that Medicare rates for laboratory tests were 18 percent to 30 percent higher than rates paid by certain insurers under health benefits plans for federal employees. Definition of Applicable Laboratories Required to Report Private-Payer Data to CMS CMS defined applicable laboratories as those meeting four criteria: (1) they met the definition of laboratory under regulations implementing the Clinical Laboratory Improvement Amendments of 1988; (2) they billed Medicare Part B under their own Medicare billing number, also called the national provider identifier; (3) more than 50 percent of their total Medicare revenues came from the Clinical Laboratory Fee Schedule (CLFS) and/or the Physician Fee Schedule; and (4) they received at least $12,500 in Medicare revenue from the CLFS from January 1, 2016, through June 30, 2016. CMS analyzed private-payer data it collected from about 2,000 laboratories to develop new payment rates for individual laboratory tests on the CLFS. PAMA defined laboratories required to report private-payer data, called applicable laboratories, as laboratories that meet certain criteria. (See sidebar.) Applicable laboratories with their own specific billing number, the NPI, submitted these data to CMS. If one organization operated multiple applicable laboratories, each with its own NPI, then the organization could report data to CMS for multiple applicable laboratories. CMS collected data from applicable laboratories on payments they received from private payers during the first half of 2016. Specifically, CMS collected data on (1) the unique billing code associated with a laboratory test; (2) the private-payer rate for each laboratory test for which final payment was made during the data collection period (January 1, 2016, through June 30, 2016); and (3) the volume of tests performed for each unique billing code at that private- payer rate. For the data CMS collected between January 1, 2017, and May 30, 2017, CMS relied on the entities reporting to CMS to attest to the completeness and accuracy of the data they submitted. CMS relied on each laboratory to identify whether or not it was an applicable laboratory and took steps to assist laboratories in meeting reporting requirements. According to CMS officials, they relied on laboratories to self-identify as applicable laboratories because they were unable to accurately identify the number of laboratories required to report. To assist laboratories, CMS issued multiple guidance documents to the industry outlining the criteria for being an applicable laboratory and describing the type of data CMS intended to collect. CMS also conducted educational calls when the proposed and final rules were issued and prior to the data collection period. CMS officials told us they conducted additional outreach activities, including holding conference calls with national laboratory associations and attending professional conferences. Officials said they used these outreach activities in addition to the guidance issued to inform laboratories of the reporting requirements for applicable laboratories, for example. In addition, CMS established a revenue threshold of $12,500 in an effort to reduce the reporting burden for entities that receive a relatively small amount of revenues under the CLFS. In its final rule, CMS noted that it expected that many of the laboratories that would be below this revenue threshold and, thus exempt from reporting data to CMS, would be physician-office laboratories. CMS also chose to use the NPI in its definition of applicable laboratory in the final rule to allow hospital- outreach laboratories that use their own NPI to submit data to the agency. In its proposed rule, CMS suggested using an alternative identification number to the NPI. However, according to the final rule, CMS chose to use the NPI in its definition of applicable laboratory to allow those hospital-outreach laboratories billing using their own NPI to submit private-payer data to the agency. According to CMS, at the end of the 5-month submission period, the agency had received data from approximately 2,000 applicable laboratories, representing a volume of almost 248 million laboratory tests; these data accounted for about $31 billion in revenue from private payers. CMS reported that the data it collected included private-payer rates for 96 percent of the 1,347 eligible billing codes on the CLFS. CMS used these data to calculate a median, private-payer rate, weighted by volume and phased in this change by limiting payment-rate reductions to 10 percent per year. Beginning in 2018, these new payment rates served as the single, national payment rate for individual laboratory tests. These payment rates were also used for the individual, component tests that make up panel tests and were used when laboratories billed Medicare for panel tests by listing the component tests separately. In general, the median payments rates, weighted for volume, that CMS calculated were lower than Medicare’s previous payment rates for most laboratory tests. According to our analysis, these median payment rates were lower than the corresponding 2017 CLFS national limitation amounts (the maximum that CMS would pay for laboratory tests) for approximately 88 percent of tests. Figure 1 below describes the percentage difference between these median payment rates and Medicare’s 2017 national limitation amounts for laboratory tests. The final payment rates that CMS calculated, which included the 10- percent, phased in, payment-rate reductions, will remain in effect until December 31, 2020; PAMA requires CMS to calculate new payment rates for the CLFS every 3 years. Reporting entities will next be required to submit data on private-payer rates to CMS in early 2020, for final payments made from January 1, 2019 through June 30, 2019. PAMA capped any reductions for the second 3-year cycle after implementation to a maximum of 15 percent per year. CMS did not collect private-payer data from all laboratories required to report this information and did not estimate how much data was not reported by these laboratories, according to agency officials. CMS relied on laboratories to determine whether they met data reporting requirements and submit data accordingly. CMS emphasized the importance of receiving data from all laboratories required to report by stating that it is critical that CMS collect complete data on private-payer rates in order to set accurate Medicare rates. However, agency officials told us that CMS did not receive data from all laboratories required to report. They also told us that CMS did not have the information available to estimate how much data was missing because not all laboratories reported or the extent to which the data collected were representative of all of the data that laboratories were required to report. Prior to collecting private-payer data, CMS estimated that laboratories subject to reporting requirements would receive more than 90 percent of CLFS expenditures to physician-office laboratories and independent laboratories. Specifically, based on its analysis of 2013 Medicare expenditures, CMS estimated that reporting requirements would apply to the laboratories that received 92 percent of CLFS payments to physician- office laboratories and 99 percent of CLFS payments to independent laboratories. After laboratories reported private-payer data, we analyzed the share of CLFS expenditures received by the laboratories that reported. Our analysis found that CMS collected data from laboratories that received the majority of CLFS payments to physician-office, independent, and other non-hospital laboratories in 2016. However, the laboratories that reported private-payer data received less than 70 percent of CLFS expenditures to physician-office, independent, and other non-hospital laboratories. Specifically, using Medicare claims data, we calculated that CMS collected data from laboratories that received 68 percent of 2016 CLFS payments to physician-office, independent, and other non-hospital laboratories. Although it did not collect complete data, CMS concluded that it collected sufficient private-payer data to set Medicare payment rates and that collecting more data from additional laboratories that were required to report would not significantly affect Medicare expenditures. This conclusion was based, in part, on a sensitivity analyses that CMS conducted of the effects that collecting certain types and amounts of additional data would have on weighted median private-payer rates and the effects those rates could have on Medicare payment rates and, thus, expenditures. Results from these analyses showed that Medicare expenditures based on the CLFS would have changed by 2 percent or less after collecting more data from the various types of laboratories. For example, CMS estimated that doubling the amount of private-payer data from physician-office laboratories would increase expenditures by 2 percent and collecting ten times as much data from hospital outreach laboratories would increase expenditures by 1 percent. (See fig. 2.) PAMA’s 10-percent limit on annual payment-rate reductions likely reduced the effect that incomplete private-payer data could have on the CLFS because this limit applied to most Medicare payment rates for laboratory tests. As demonstrated in figure 1, while 59 percent of tests had median private-payer rates that were at least 30 percent less than their respective 2017 national limitation amounts, CMS published Medicare rates for these tests for 2018 through 2020 that were reduced by only 10 percent per year as a result of this limit. For example, a hypothetical laboratory test with a 2017 CLFS national limitation amount of $10.00 and a median private-payer rate of $7.00 would result in CLFS rates of $9.00 in 2018, $8.10 in 2019, and $7.29 in 2020. Changes to median private-payer rates due to collecting more complete data or eliminating inaccurate data would have no effect on Medicare payment rates from 2018 through 2020 for this hypothetical test if they resulted in new median rates of $7.29 or less. Our analysis of the potential effects that collecting data from additional laboratories could have had on Medicare payment rates and expenditures found that the effect of CMS not collecting complete data would likely have been greater absent PAMA’s limits on annual reductions to Medicare payment rates. As a result, CMS may face challenges setting accurate Medicare rates if it does not collect complete data from all laboratories required to report in the future when PAMA allows for greater annual payment-rate reductions. To conduct this analysis, we used the private-payer data CMS collected to analyze the range of effects that collecting additional data could have on Medicare expenditures, assuming 2016 utilization rates remain constant. The extent of these effects depends on the amount of additional data CMS would need to collect to obtain complete data and whether the payment rates in these additional data would have been greater or less than the medians of the rates reported. For example, we estimated that if CMS needed to collect 20 percent more data for its collection to be complete, doing so could increase Medicare CLFS expenditures from 2018 through 2020 by as much as 3 percent or reduce them by as much as 3 percent depending on the payment rates in these additional data. However, if annual limits to Medicare payment-rate reductions were not applied, collecting these additional data could increase CLFS expenditures by as much as 9 percent or reduce them by as much as 9 percent. (See fig. 3 and app. II for additional information about these estimates.) As demonstrated in figure 2, CMS did analyze how collecting certain types and amounts of data from additional laboratories would affect Medicare expenditures. However, without valid estimates of how much more data these additional laboratories were required to report and how much these data would change median payment rates, it remains unknown whether CMS’s analyses estimate the actual risk of setting Medicare payment rates that do not reflect private-payer rates from all applicable laboratories, as mandated by PAMA. CMS could have compared the data it collected with independent information on the payment rates laboratories were required to report, for example. The independent information could be estimated by auditing a random sample of laboratories or could be estimated using data from third-party vendors, if these vendors could supply relevant and reliable information. We found that CMS mitigated challenges to setting accurate Medicare payment rates by identifying, analyzing, and responding to potentially inaccurate private-payer data. CMS addressed potentially inaccurate private-payer data and other data that CMS determined did not meet reporting requirements. CMS removed or replaced data from four reporting entities that appeared to have or confirmed having reported revenue—which is the payment rate multiplied by the volume of tests paid at that rate—instead of payment rates. We estimated that if CMS had included these data that CLFS expenditures from 2018 through 2020 would have increased by 7 percent. CMS removed data it determined were reported in error including duplicate submissions and submissions with payment rates of $0.00. We estimated that removing these data will change CLFS expenditures from 2018 through 2020 by less than one percent. CMS identified four other types of potentially inaccurate data that it determined would not significantly impact Medicare payment rates or expenditures and did not exclude them from calculations of median private-payer rates. CMS considered the following potentially inaccurate data to have met its reporting requirements: 1. data from 57 entities that reported particularly high rates in at least 60 percent of their data, 2. data from 12 entities that reported particularly low rates in at least 50 percent of their data, 3. data with payment rates that were 10 times greater than the 2017 national limitation amounts or 10 times less than these amounts, and 4. data from laboratories that may not have met the $12,500 low- expenditure threshold or that reported data from a hospital NPI instead of a laboratory NPI. We found that each of these four types of potentially inaccurate data would have changed estimated Medicare CLFS expenditures from 2018 through 2020 by 1 percent or less if CMS had instead excluded the data. To conduct this analysis, we recalculated Medicare rates after excluding each type of data and estimated Medicare expenditures assuming 2016 rates of utilization. Although weighted median private-payer rates were lower than Medicare’s 2017 national limitation amounts for 88 percent of tests, we estimated the total Medicare expenditures based on the 2018 CLFS would likely increase by 3 percent ($225 million overall) compared to 2016 expenditures, assuming test utilization remained at 2016 levels. This increase in estimated expenditures is due, in part, to CMS’s use of above-average payment rates as a baseline to calculate payment rates for those laboratory tests affected by PAMA’s annual payment-rate reduction limit of 10 percent. (See fig. 4.) When applying the 10-percent payment-rate reduction limit, CMS used as its starting point the 2017 national limitation amounts in order to set a single, national payment rate for each laboratory test. Thus, the Medicare payment rate for a test in 2018 could not be less than 90 percent of the test’s 2017 national limitation amount. However, prior to 2018, some payment rates were commonly lower than the national limitation amounts because they were based on the lesser of (1) the amount billed on claims, (2) the local fee for a geographic area, or (3) a national limitation amount, and because panel tests had different bundled payment rates. As a result, by reducing payment rates from national limitation amounts, CMS did not always reduce rates from what Medicare actually paid. Panel tests, in particular, frequently received bundled payment rates that differed substantially from national limitation amounts associated with their billing codes prior to 2018. We compared national limitation amounts, which represent maximum Medicare payment rates for tests, with the average amounts Medicare allowed for payment in 2016, which reflect actual Medicare payment rates. For example, figure 5 below shows that the 2017 national limitation amount for comprehensive metabolic panel tests ($14.49) was substantially higher than both the average amount Medicare allowed for payment in 2016 ($11.45) and the median payment rate laboratories reported receiving from private payers ($9.08). As a result, using the 2017 national limitation amount as a basis for payment reductions caused Medicare’s payment rate to increase from an average allowed amount of $11.45 in 2016, to a payment rate of $13.04 in 2018, instead of decreasing towards a lower median private- payer rate of $9.08. By increasing average payment rates rather than phasing in reductions to rates, CMS’s implementation may lead to paying more than necessary for some tests. Federal standards for internal control for information and communications require agency management to use quality information to achieve its objectives. Basing reductions on national limitation amounts rather than more relevant information on how much Medicare actually paid—such as the average allowable amounts in 2016, for example—could result in Medicare paying more than necessary by $733 million from 2018 through 2020, according to our estimates. In implementing PAMA, CMS eliminated bundled rates for panel tests that lack billing codes and started paying separately for each component test instead. CMS also implemented the 2018 CLFS in a manner that could lead to unbundling payment rates for panel tests with billing codes. If payment rates for all panel tests were unbundled, we estimated that Medicare expenditures could increase by $218 million for panel tests that lack billing codes and by as much as $10.1 billion for panel tests with billing codes from 2018 through 2020. CMS also estimated that there could be significant risks of paying more than necessary associated with unbundling and has taken initial steps to monitor these risks and explore possible responses, but had not yet responded to these risks as of July 2018. CMS Unbundled Payment Rates for Panel Tests without Billing Codes Beginning in 2018, CMS no longer uses bundled payment rates for panel tests without billing codes and instead pays laboratories individual payments for each component test that comprises these panel tests. However, CMS staff and members of its advisory panel discussed concerns with this approach. At an advisory panel meeting in 2016, CMS staff relayed concerns from stakeholders that CMS would not be able to collect valid data on private-payer rates for these panel tests. According to agency staff, stakeholders had informed CMS that private payers commonly use bundled payment rates for these panel tests, but laboratories would only be able to report unbundled payment rates for individual component tests. We estimated that unbundling these payment rates would increase Medicare expenditures from 2018 through 2020 by $218 million in comparison to the estimated Medicare expenditures over the same time period based on Medicare’s 2016 utilization and allowable amounts. For example, under the 2016 CLFS, Medicare paid approximately 435,000 claims for panel tests that included the laboratory tests assay of creatinine (HCPCS code 82565) and assay of urea nitrogen (HCPCS code 84520) at an average bundled payment rate of $6.82. In contrast, under the 2018 CLFS, these two component tests are reimbursed individually at $6.33 and $4.88, respectively, or $11.21 combined—a 63 percent increase. Despite concerns about the validity of available private-payer data on component tests for panel tests without billing codes, CMS used these data to set payment rates for component tests. CMS officials told us that they stopped using bundled payment rates for these panel tests because it is not clear that CMS has the authority to combine the individual component tests into groups for bundled payment as it did before 2018 due to PAMA’s reference to payments for each test. However, in July 2018, CMS officials told us the agency was reviewing its authority regarding this issue. CMS officials told us they are exploring alternative approaches that could limit increases to Medicare expenditures but had not yet determined what additional legal authority would be needed, if any, and did not know when CMS would make this determination. Agency officials told us that CMS has taken initial steps to monitor unbundling and explore possible responses, including the following: Monitoring unbundling: CMS has begun monitoring changes in panel test utilization, payment rates, and expenditures associated with its implementation of PAMA, according to officials. For example, CMS officials told us that preliminary data indicated that Medicare payments for individual component tests of panel tests has increased substantially in 2018, but, as of July 2018, it was too early to draw conclusions from these data because laboratories have up to one year to submit claims for tests. Collecting input on alternatives: In 2016, a subcommittee of an advisory panel that CMS established reviewed Medicare’s use of bundled payment rates for panel tests and published different approaches for CMS to consider implementing in combination with other changes to implement PAMA. CMS’s Implementation of PAMA May Have Allowed Unbundling of Payment Rates for Panel Tests with Billing Codes Beginning in 2018, laboratories that submit claims for any of the seven panel tests with billing codes by using the billing codes for the individual component tests now receive the payment rate for each component test, rather than the bundled rate. Prior to 2018, laboratories could submit claims for these panel tests either by using the specific codes for panel tests or by billing separately for each of the component tests, and, regardless of how laboratories submitted claims, Medicare Administrative Contractors would pay bundled payment rates based on how many of the 23 component tests were conducted. However, CMS instructed Medicare Administrative Contractors to stop bundling payment rates for tests that are billed individually on claims rather than billed on claims using codes for panel tests, beginning in 2018. CMS did so because it was not clear that CMS had the authority to combine the individual component tests into groups for bundled payment as it did before 2018 due to PAMA’s reference to payments for individual tests, according to agency officials. This change could potentially have a large effect on Medicare spending. For example, if a laboratory submitted a claim individually for the 14 component tests that comprise a comprehensive metabolic panel it would receive a payment of $81.91, a 528 percent increase from the 2018 Medicare bundled payment rate of $13.04 for this panel test. (See fig. 6.) Improving how reductions to payment rates for panel tests are phased in could mitigate, but not completely counteract, the effect of unbundling these payment rates. For example, for the comprehensive metabolic panel test described in figure 6, basing maximum reductions on 2016 average allowable amounts would result in a 2018 Medicare bundled payment rate of $10.31 instead of $13.04 and individual payment rates for the 14 component tests that total $56.06—a 32 percent decrease from $81.91 that Medicare would otherwise pay. If the payment rate for each panel test with a billing code were unbundled, we estimated that Medicare expenditures for these tests from 2018 through 2020 could reach $13.5 billion, a $10.1 billion increase from the $3.3 billion we estimated Medicare would spend using the bundled payment rates in the CLFS. Similarly, prior to implementing PAMA, CMS estimated that Medicare expenditures to physician-office, independent, and other non-hospital laboratories could potentially increase as much as $2.5 billion in 2018, alone if it paid for the same number of panel tests with billing codes as it did in 2016 but paid for each component test individually. These estimates represent an upper limit on the increased expenditures that could occur if every laboratory stopped using panel test billing codes and instead used the billing codes for individual component tests. We do not know the extent to which laboratories will stop filing claims using panel test billing codes. CMS officials also told us that they were aware of the risks associated with paying for the individual component tests instead of the bundled payment rate for a panel test with a billing code. However, CMS guidance, which was effective in 2018, continued to allow laboratories to use the billing codes for individual component tests rather than the billing code for the panel. CMS officials explained that this was due to PAMA’s reference to payments for individual tests, similar to CMS’s decision to stop paying bundled rates for panel tests without billing codes. At the time we did our work, CMS had not implemented a response to these risks but had taken some initial steps to monitor unbundling and consider alternative approaches to Medicare payment rates for these tests. HHS provided additional information on planned activities to address these risks in its written comments on a draft of this report. (See app. III.) CMS collected data on private-payer rates from laboratories that were required to report these data, but not all laboratories complied with the reporting requirement, and the extent of noncompliance remains unclear. PAMA’s provision directing CMS to phase in payment-rate reductions to Medicare payment rates likely moderates the potential adverse effects of incomplete private-payer data. However, in the future, failing to collect complete data could substantially affect Medicare payment rates because private-payer rates alone will determine Medicare payment rates. In addition, we estimated that Medicare expenditures on laboratory tests will be $733 million higher from 2018 through 2020, because CMS started phasing in payment-rate reductions from national limitation amounts instead of more relevant data on actual payment rates, such as average allowable amounts. Finally, changes to payment rates, billing practices, and testing practices could increase Medicare expenditures by as much as $10.3 billion from 2018 through 2020, if CMS does not address the risks associated with unbundling payment rates for panel tests. Agency officials indicated that it was unclear if PAMA limited CMS’s ability to combine individual component tests into groups for bundled payment, and, as of July 2018, CMS was reviewing this matter but did not know when it would make a determination. We are making the following three recommendations to CMS: The Administrator of CMS should take steps to collect all of the data from all laboratories that are required to report. If only partial data can be collected, CMS should estimate how incomplete data would affect Medicare payment rates and address any significant challenges to setting accurate Medicare rates. (Recommendation 1) The Administrator of CMS should phase in payment-rate reductions that start from the actual payment rates Medicare paid prior to 2018 rather than the national limitation amounts. CMS should revise these rates as soon as practicable to prevent paying more than necessary. (Recommendation 2) The Administrator of CMS should use bundled rates for panel tests, consistent with its practice prior to 2018, rather than paying for them individually; if necessary, the Administrator of CMS should seek legislative authority to do so. (Recommendation 3) We provided a draft of this report to HHS for review and comment. HHs provided written comments, which are reproduced in appendix III. HHS also provided technical comments, which we incorporated as appropriate. HHS concurred with our first recommendation to take steps to collect all data from laboratories required to report and commented that it is evaluating ways to increase reporting. In particular, in a November 2018 final rule, HHS changed the definition of an applicable laboratory, which it expects will increase the number of laboratories required to report data on private-payer rates to the agency. HHS neither agreed nor disagreed with our second recommendation to phase in payment-rate reductions that start from the actual payment rates Medicare paid prior to 2018. HHS noted that any changes to the phasing in of payment-rate reductions would need to be implemented through rulemaking. We estimated that by using the national limitation amounts as a starting point for these reductions, Medicare expenditures would increase by $733 million from 2018 through 2020. For this reason, we continue to believe CMS should revise these rates as soon as practicable and through whatever mechanism CMS determines appropriate. HHS neither agreed nor disagreed with our third recommendation to use bundled rates for panel tests. However, HHS commented that it is taking steps to address this issue. More specifically, for panel tests with billing codes, HHS is working to implement an automated process to identify claims for panel tests that should receive bundled payments, similar to the process used to bundle payment rates for these panel tests prior to PAMA’s implementation and anticipates implementing this change by the summer of 2019. In addition, HHS posted guidance on November 14, 2018, stating that the panel tests with billing codes, laboratories should submit claims using the corresponding code rather than the codes for the separate component tests beginning in 2019. To reduce the potential of paying more than necessary, we believe it is important that CMS implement its proposed automated process to allow for these payments as soon as possible. In contrast, for panel tests without billing codes, HHS commented that it is continuing to review its authority and considering other approaches to payment for these panel tests, such as adding codes to the CLFS. We estimate that unbundling the payment for these panel tests could increase Medicare expenditures by $218 million from 2018 through 2020 compared to expenditures based on Medicare’s 2016 utilization, and the actual amount could be higher if utilization increases. For this reason, we believe CMS should implement bundled payment rates for these panel tests to avoid excess payments. We are sending copies of this report to the appropriate congressional committees and the Administrator of CMS. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7114 or cosgrovej@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. Appendix I: Table of Key Dates Related to Developing the New Payment Rates for the 2018 Clinical Laboratory Fee Schedule Event Centers for Medicare and Medicaid Services (CMS) issued the CLFS proposed rule. CMS issued responses to frequently asked questions regarding the CLFS proposed rule. CMS issued the CLFS final rule. CMS issued responses to frequently asked questions regarding the CLFS final rule. CMS held the joint Annual Laboratory Public Meeting and Medicare Advisory Panel on Clinical Diagnostic Laboratory Tests meeting. CMS issued laboratory billing codes subject to data collection and reporting. CMS issued guidance to laboratories for collecting and reporting data. CMS held a Medicare Advisory Panel on Clinical Diagnostic Laboratory Tests meeting. CMS issued the CLFS data reporting template. CMS collected data on (1) the billing code associated with a laboratory test; (2) the private-payer rate for each laboratory test for which final payment was made during the data collection period (i.e., January 1, 2016, through June 30, 2016); and (3) the volume of tests performed for each billing code at that private-payer rate. CMS issued additional guidance for laboratories as the data collection period began. CMS issued the CLFS fee-for-service data collection user’s manual. CMS issued revised guidance to laboratories for collecting and reporting data. CMS held a Medicare Advisory Panel on Clinical Diagnostic Laboratory Tests meeting. CMS released the proposed CLFS rates. CMS held a Medicare Advisory Panel on Clinical Diagnostic Laboratory Tests meeting. Deadline for stakeholders to submit comments on the proposed CLFS rates to CMS. CMS issued the final CLFS rates. New CLFS rates became effective. Table 4 below demonstrates the challenges the Centers for Medicare & Medicaid Services (CMS) faces in setting accurate Medicare payment rates to the extent it does not collect complete data from laboratories on private-payer rates. Specifically, the table shows the potential effect that collecting additional data for each laboratory test could have on Medicare expenditures and how this effect could vary depending on (1) the amount of additional data collected, (2) payment rates in the additional data, and (3) limits to annual reductions in Medicare payment rates. These limits are in place from 2018 through 2023 to phase in changes to payment rates. In addition to the contact named above, Martin T. Gahart, Assistant Director; Gay Hee Lee, Analyst-in-Charge; Kaitlin Farquharson, Sandra George, Dan Lee, Elizabeth T. Morrison, Laurie Pachter, Vikki Porter, and Russell Voth made key contributions to this report.

 

 Report 2:
B anks play a critical role in the United States economy, channeling money from savers to borrowers and facilitating productive investment. Among other things, banks provide loans to businesses, help individuals finance purchases of cars and homes, and offer services such as checking and savings accounts, debit cards, and ATMs. In addition to occupying a central role in the American economy, the banking industry is a perennial subject of political interest. While the nature of lawmakers' interest in bank regulation has shifted over time, most bank regulations fall into one of three general categories. First, banks must abide by a variety of safety-and-soundness requirements designed to minimize the risk of their failure and maintain macroeconomic stability. Second, banks must comply with consumer protection rules intended to deter abusive practices and provide consumers with complete information about financial products and services. Third, banks are subject to various reporting , recordkeeping , and anti-money laundering requirements designed to assist law enforcement in investigating criminal activity. The substantive content of these requirements remains the subject of intense debate. However, the division of regulatory authority over banks between the federal government and the states plays a key role in shaping that content. In some cases, federal law displaces (or "preempts") state bank regulations. In other cases, states are permitted to supplement federal regulations with different, sometimes stricter requirements. Because of its substantive implications, federal preemption has recently become a "flashpoint" in debates surrounding bank regulation, with one commentator observing that preemption is "[t]he issue at the center of most disputes between state and federal banking regulators." This report provides an overview of banking preemption. First, the report discusses general principles of federal preemption. Second, the report provides a brief history of the American "dual banking system." Third, the report discusses the Supreme Court's decision in Barnett Bank of Marion County, N.A. v. Nelson , where the Court held that federal law preempts state laws that "significantly interfere" with the powers of national banks. Fourth, the report reviews two Supreme Court decisions concerning the extent to which states may exercise "visitorial powers" over national banks. Fifth, the report discusses the Office of the Comptroller of the Currency's (OCC's) preemption rules and provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act concerning the preemption of state consumer protection laws. Finally, the report outlines a number of current issues in banking preemption, including (1) the extent to which non-banks can benefit from federal preemption of state usury laws, (2) the OCC's decision to grant special purpose national bank charters to financial technology (FinTech) companies, and (3) proposals to provide legal protections to banks serving marijuana businesses that comply with state law. The doctrine of federal preemption is grounded in the Supremacy Clause of Article VI of the Constitution, which provides that "the Laws of the United States . . . shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding." The Supreme Court has explained that "under the Supremacy Clause . . . any state law, however clearly within a State's acknowledged power, which interferes with or is contrary to federal law, must yield." The Court has identified two general ways in which federal law can preempt state law. Federal law can expressly preempt state law when a federal statute or regulation contains explicit preemptive language—that is, where a clause in the relevant federal statute or regulation explicitly provides that federal law displaces certain categories of state law. The Employee Retirement Income Security Act, for example, contains a preemption clause providing that some of the Act's provisions "shall supersede any and all State laws insofar as they may now or hereafter relate to any [regulated] employee benefit plan." Federal law can also impliedly preempt state law "when Congress' command is . . . implicitly contained in" the relevant federal law's "structure and purpose." The Supreme Court has identified two subcategories of implied preemption. First, "field preemption" occurs "where [a] scheme of federal regulation is so pervasive as to make reasonable the inference that Congress left no room for the States to supplement it." Second, "conflict preemption" occurs where "compliance with both federal and state regulations is a physical impossibility," or where state law "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." In Crosby v. National Foreign Trade Council , for example, the Court held that a federal law imposing sanctions on Burma impliedly preempted a Massachusetts law that prohibited state entities from doing business with Burma. The Court reached this conclusion after determining that the state statute posed an obstacle to the federal statute's purposes of (1) providing the President with "flexible" authority over sanctions policy, (2) limiting economic pressure against the Burmese government to the specific range reflected in the federal statute, and (3) granting the President the ability to speak for the country "with one voice." Some federal banking laws expressly preempt state law. Section 521 of the Depository Institutions Deregulation and Monetary Control Act of 1980, for example, expressly grants federally insured state banks the right to charge the highest interest rate allowed by the states in which they are located, even when lending to borrowers in other states with stricter usury laws. Other federal banking laws impliedly preempt state law. Specifically, the Supreme Court has held that the National Bank Act impliedly preempts state laws that "significantly interfere" with the powers of national banks. However, all banking preemption issues are heavily influenced by the regulatory architecture surrounding the banking system. The following section of the report accordingly outlines the development of the American "dual banking system." Disputes over the federal government's role in regulating the financial system have been a feature of American politics since the country's inception. In 1791, Congress approved the creation of the First Bank of the United States over fierce opposition from many of the nation's leaders, including James Madison and Thomas Jefferson. In addition to accepting deposits and making loans to the public, the First Bank acted as the federal government's fiscal agent by collecting tax revenues, securing the government's funds, and paying the government's bills. The First Bank's proponents argued that the Bank would facilitate economic growth by extending credit to private businesses and establishing a uniform national currency in the form of the Bank's notes. By contrast, the First Bank's critics argued that the concentration of financial power in a single federal institution threatened state sovereignty and undermined the operations of state-chartered banks. This debate culminated in a victory for the First Bank's critics when Congress refused to renew the Bank's charter by a single vote in 1811. But disputes over the federal government's role in the banking system did not end with the demise of the First Bank. After the War of 1812 generated significant economic turmoil, Congress chartered the Second Bank of the United States for a twenty-year term in 1816. The Second Bank performed many of the same functions as the First Bank and attracted similar criticism, eventually becoming the target of populist fury led by President Andrew Jackson. In 1832, President Jackson vetoed legislation to extend the Second Bank's charter, leading to its demise in 1836. After the Second Bank's charter expired, bank regulation was wholly entrusted to the states. Inspired by the Jacksonian attack on concentrated economic power, a number of states dispensed with the requirement that banks obtain a charter via a special act of the state legislature. Instead, banks in these states could obtain charters from state banking authorities as long as they met certain general conditions. During this "Free Banking era," the country lacked a uniform national currency and relied instead on notes issued by state banks, which circulated at a discount from their face value that reflected the issuing bank's location and credit quality. In some states, so-called "wildcat banks" in remote areas issued notes back by minimal specie (gold or silver), assuming that noteholders would be unlikely to travel long distances to redeem them. These wildcat banks failed at a far higher rate than their urban rivals. Economic historians continue to debate the merits and drawbacks of the Free Banking era. According to the standard narrative, Free Banking was largely a failure, resulting in a large number of bank failures, financial instability, and inefficiencies that accompanied a heterogeneous currency. However, a number of revisionist scholars have questioned this assessment, arguing that despite the high rate of bank failures during the Free Banking Era, total losses to bank noteholders during the period were in fact relatively small. Whatever its virtues and vices, the Free Banking Era came to an end during the Civil War. After the Treasury Department's efforts to finance the war by borrowing from Northern banks led to a shortage in specie, Congress enacted the National Currency Act in 1863 and the National Bank Act (NBA) in 1864. Under the Acts, banks were offered the opportunity to apply for a national charter from the newly created OCC, creating a "dual banking system" in which both the federal government and the states chartered and regulated banks. As a condition of obtaining a national charter, the Acts required banks to purchase United States government bonds, giving the federal government a new source of revenue to fight the war. Once national banks deposited those bonds with the federal government, they were allowed to issue national banknotes up to 90 percent of the market value of their bonds. These national banknotes functioned as a uniform national currency and gave the federal government significant control over the nation's money supply. The creation of a dual banking system was not intended by the proponents of the NBA, who assumed that all state-chartered banks would convert to national charters. In order to incentivize state-chartered banks to make this switch, Congress enacted a ten percent tax on state banknotes in 1865. But the tax did not accomplish its intended purpose. While the number of state-chartered banks fell significantly after the enactment of the NBA, state banks eventually skirted this tax by issuing paper checks in lieu of banknotes. And in the late 19th century, state banking authorities contributed to this regulatory arbitrage by offering their banks laxer regulations than the OCC. As a result, state-chartered banks have outnumbered national banks since 1895, and the dual banking system has survived to this day. Under the contemporary dual banking system, the OCC serves as the primary regulator of national banks and has broad powers to regulate their organization, examination, and operations. Section 24 of the NBA grants national banks a number of powers, including: (1) "discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt," (2) "receiving deposits," (3) "buying and selling exchange, coin, and bullion," (4) "loaning money on personal security," and (5) "obtaining, issuing, and circulating notes." Section 24 also grants national banks "all such incidental powers as shall be necessary to carry on the business of banking." Federal court and OCC decisions have identified roughly 80 activities that fall within the "incidental powers" of national banks, including the ability to broker annuities charge customers non-interest fees. By contrast, state banking authorities are the primary regulators of state-chartered banks. While state banking laws are by no means uniform, they typically provide state-chartered banks with the power to engage in activities similar to those listed in the NBA and activities that are "incidental to the business of banking." While the OCC and state banking authorities figure prominently in the dual banking system, the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) also play important roles in the bank regulatory regime. Congress created the Federal Reserve in 1913 in response to a 1907 banking panic that highlighted the need for a "lender of last resort" to replenish banks' reserves when they experience liquidity shortfalls. Today, the Federal Reserve also conducts the nation's monetary policy, manages certain elements of the country's payment systems, and regulates bank holding companies, financial market utilities, and banks that join the Federal Reserve System (FRS). The Federal Reserve Act requires all national banks to join the FRS and gives state banks the option of joining. The Federal Reserve accordingly serves as the principal federal regulator of state-chartered banks that become members of the FRS. The FDIC serves as the principal federal regulator of state-chartered banks that do not join the FRS. Congress created the FDIC in 1933 after a wave of bank failures generated a self-reinforcing cycle of "contagion," leading depositors to "run" from other banks and cause additional failures. In order to minimize the risk of these types of bank runs, the FDIC insures deposits at regulated institutions up to certain limits and regulates those institutions to ensure their safety and soundness. Because federal law requires national banks to obtain FDIC insurance and all states impose that same requirement on the banks they charter, the FDIC plays a key role in regulating the banking system. This complex regulatory architecture has resulted in "symbiotic system" with both state regulation of national banks and federal regulation of state banks. In the modern dual banking system, national banks are not wholly immune from generally applicable state laws, and state banks are not wholly immune from generally applicable federal laws. The Supreme Court has explained that "general state laws" concerning "the dealings and contracts of national banks" are valid as long as they do not "expressly conflict" with federal law, "frustrate the purpose for which national banks were created," or impair the ability of national banks to "discharge the duties imposed upon them" by federal law. National banks are accordingly "governed in their daily course of business far more by the laws of the State than of the nation" because their contracts, ability to acquire and transfer property, rights to collect debts, and liability to be sued for debts "are all based on State law." The OCC has attempted to synthesize the relevant case law as establishing a general principle that state regulations of national banks are valid as long as they "do not regulate the manner, content or extent of the activities authorized for national banks under federal law, but rather establish the legal infrastructure around the conduct of that business." Similarly, state-chartered banks are not wholly immune from federal law. Rather, state banks are subject to certain federal consumer protection, tax, and antidiscrimination laws, in addition to a range of Federal Reserve and FDIC regulations. A number of other legal developments have caused the regulatory treatment of national banks and state banks to converge. Beginning in the 1960s, many states passed so-called "wild card" statutes granting their banks the power to engage in any activities permitted for national banks. Statutes extending the powers of the Federal Reserve and the FDIC have also ensured competitive equality in the opposite direction. In 1980, Congress enacted legislation requiring all state-chartered banks—including those that do not join the FRS—to abide by reserve requirements set by the Federal Reserve, eliminating the competitive advantage conferred by lower state-law reserve requirements. Similarly, in 1991, Congress enacted legislation prohibiting FDIC-insured state banks from engaging as a principal in activities that are not permitted for national banks absent permission from the FDIC. Because all states require the banks they charter to obtain FDIC insurance, the legislation "had the ultimate effect of unifying the state and the federal banking systems." Finally, some federal statutes either explicitly or implicitly preempt state laws in ways that eliminate unequal regulatory treatment for national and state banks. In Marquette National Bank of Minneapolis v. First Omaha Services Corporation , the Supreme Court held that the NBA grants national banks the power to "export" the maximum interest rates allowed by their "home" states, even when lending to borrowers in other states with stricter usury laws. In that decision, the Court considered whether a national bank headquartered in Nebraska—which permitted banks to charge credit-card holders up to 18 percent interest per year on certain unpaid balances—could charge its Minnesota customers more than the 12 percent maximum interest allowable under Minnesota law. Specifically, the Court evaluated whether an NBA provision allowing national banks to charge interest rates allowed by the states "where the bank[s] [are] located" applies even when national banks extend credit to customers in other states with stricter usury laws. The Court held that the NBA provision indeed afforded national banks this power, concluding that the national bank was permitted to charge the maximum interest rate allowable under Nebraska law even when lending to Minnesota customers. Two years after the Marquette decision, Congress enacted legislation to extend the same power to federally insured state banks, preempting contrary state law and equalizing the regulatory treatment of national and state banks vis-à-vis "interest rate exportation." While the regulatory treatment of national and state banks has accordingly converged, federal preemption nevertheless confers certain unique benefits on national banks. Under the Supreme Court's decision in Barnett Bank of Marion County, N.A. v. Nelson , federal laws that grant national banks the power to engage in specific activities impliedly preempt state laws that "significantly interfere" with the ability of national banks to engage in those activities. In Barnett Bank , the Court held that a federal law granting national banks the authority to sell insurance impliedly preempted a state law that prohibited banks from selling insurance, subject to certain exceptions. In reaching this conclusion, the Court explained that the state law posed an obstacle to the federal statute's purpose of granting national banks the authority to sell insurance "whether or not a State grants . . . similar approval." The Court inferred this purpose from the principle that "normally Congress would not want States to forbid, or to impair significantly, the exercise of a power that Congress explicitly granted." Lower courts have followed Barnett Bank 's rule that absent indications to the contrary, federal statutes and regulations that grant national banks the power to engage in specific activities preempt state laws that prohibit or "significantly interfere" with those activities. In Wells Fargo Bank of Texas N.A. v. James , for example, the Fifth Circuit held that an OCC rule granting national banks the power to "charge [their] customers non-interest charges and fees" preempted a state statute prohibiting banks from charging a fee for cashing checks in certain circumstances. Similarly, in Monroe Retail, Inc. v. RBS Citizens, N.A. , the Sixth Circuit held that this rule preempted state law conversion claims brought against a class of national banks based on fees they charged for processing garnishment orders. Specifically, the Sixth Circuit reasoned that under Barnett Bank , "the level of 'interference' that gives rise to preemption under the NBA is not very high," and that the relevant conversion claims "significantly interfere[d]" with national banks' ability to collect fees. Finally, the Ninth Circuit employed similar reasoning in Rose v. Chase Bank USA, N.A. , where it held that an NBA provision granting national banks the power to "loan money on personal security" preempted a state statute imposing various disclosure requirements on credit card issuers. In arriving at this conclusion, the Ninth Circuit reasoned that "[w]here . . . Congress has explicitly granted a power to a national bank without any indication that Congress intended for that power to be subject to local restriction, Congress is presumed to have intended to preempt state laws." Federal courts have also adopted broad interpretations of an NBA provision authorizing national banks to dismiss officers "at pleasure." In Schweikert v. Bank of America , N.A. , the Fourth Circuit held that this provision preempted a state law claim for wrongful discharge brought by a former officer of a national bank. Similarly, the Ninth Circuit has held that this provision preempted a claim brought by a former officer of a national bank for breach of an employment agreement, reasoning that "[a]n agreement which attempts to circumvent the complete discretion of a national bank's board of directors to terminate an officer at will is void as against [federal] public policy." Finally, in Wiersum v. U.S. Bank, N.A. , the Eleventh Circuit relied on Barnett Bank and the Fourth Circuit's reasoning in Schweikert to conclude that this "at pleasure" provision preempted a wrongful-termination claim brought by a former officer of a national bank under a state whistleblower statute. While federal courts have accordingly adopted expansive views of the circumstances in which state laws "significantly interfere" with national banks' powers, they have also recognized certain general limits on the preemptive scope of federal banking statutes and regulations. In Gutierrez v. Wells Fargo Bank, NA , for example, the Ninth Circuit held that federal banking regulations did not preempt a generally applicable state law prohibiting certain types of fraud. The Gutierrez litigation involved a national bank's use of a bookkeeping method known as "high-to-low" posting for debit-card transactions, whereby the bank posted large transactions to customers' accounts before small transactions. In Gutierrez , customers of the bank brought a variety of state law claims based on the theory that the bank adopted high-to-low posting for the sole purpose of maximizing the overdraft fees it could charge customers. In response, the bank argued that OCC regulations preempted the state law claims. The Ninth Circuit held that the OCC regulations preempted some, but not all, of the customers' claims. Specifically, the court held that an OCC regulation authorizing national banks to establish the method of calculating noninterest charges and fees "in [their] discretion" preempted claims premised on the theory that high-to-low posting was an unfair business practice. The court also held an OCC regulation providing that national banks may exercise their deposit-taking powers "without regard to state law limitations concerning . . . disclosure requirements" preempted the customers' claims that the bank failed to affirmatively disclose its use of high-to-low posting. However, the court held that federal law did not preempt claims that the bank defrauded its customers by making misleading statements about its posting method. Specifically, the court reasoned that these claims survived preemption because they were based on "a non-discriminating state law of general applicability that does not conflict with federal law, frustrate the purposes of the [NBA], or impair the efficiency of national banks to discharge their duties." In reaching this conclusion, the court rejected the argument that federal law preempted the customers' fraud claims because those claims "necessarily touche[d] on" national banks' authority to provide checking accounts. The court rejected this argument on the grounds that such an expansive preemption standard "would swallow all laws." The Ninth Circuit accordingly allowed the customers' fraud claims to proceed because they did not "significantly interfere" with national banks' ability to offer checking accounts. While the implications of Barnett Bank have been fleshed out most thoroughly in the lower federal courts, the Supreme Court has also applied that decision's reasoning in two cases concerning an NBA provision prohibiting states from exercising "visitorial powers" over national banks. In Watters v. Wachovia Bank, N.A. , the Court held that this provision—together with an OCC regulation providing that national banks may conduct authorized activities through operating subsidiaries—preempted state licensing, reporting, and visitation requirements for the operating subsidiaries of national banks. Specifically, the Court reasoned that the proper inquiry in analyzing whether state law interferes with federally permitted bank activities "focuse[s] on the exercise of a national bank's powers , not on its corporate structure." The Court accordingly concluded that the operating subsidiaries of national banks should be treated "as equivalent to national banks with respect to powers exercised under federal law." And because "duplicative state examination, supervision, and regulation would significantly burden" national banks' ability to engage in authorized activities, the Court held that those same regulatory burdens also unacceptably interfere with the ability of national bank subsidiaries to engage in those activities. However, as discussed later in this report, Congress has abrogated Watters 's holding that states may not examine or regulate the activities of national bank subsidiaries. While the Court adopted a broad view of preemption in Watters , it cabined the preemptive effect of the relevant NBA provision two years later in Cuomo v. C learing House Association, LLC. In that decision, the Court held that this NBA provision did not preempt an information request that the New York Attorney General (NYAG) sent to several national banks. Specifically, the NYAG had sent letters to several national banks requesting nonpublic information about their lending practices in order to determine whether the banks had violated state fair lending laws. In response, a banking trade group and the OCC argued that the relevant NBA provision—together with an OCC regulation interpreting that provision to mean that "[s]tate officials may not . . . prosecut[e] enforcement actions" against national banks, "except in limited circumstances authorized by federal law"—preempted the information request. The Supreme Court rejected this interpretation of the NBA's visitorial powers provision, drawing a distinction between (1) "supervision," or "the right to oversee corporate affairs," which qualify as "visitorial powers," and (2) "law enforcement." Because the Court concluded that the NYAG had issued the information requests in his "law enforcement" capacity—as opposed to "acting in the role of sovereign-as-supervisor"—it held that the NBA did not preempt the requests. As the above discussion makes clear, OCC regulations have figured prominently in litigation over the preemptive scope of federal banking law. While some commentators have contended that the NBA's text and legislature history implicitly provides the OCC with the authority to promulgate preemption rules, Congress formally recognized that the OCC has such authority in the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (Riegle-Neal Act). Specifically, Section 114 of the Riegle-Neal Act provides that "[b]efore issuing any opinion letter or interpretive rule . . . that concludes that Federal law preempts the application to a national bank of any State law" concerning certain specified subjects, the OCC must give the public notice and an opportunity submit written comments. In the 1990s and early 2000s, the OCC exercised this authority in a number of interpretive letters and legal opinions. In these documents, the OCC took the position that federal law preempted state laws that limited the ability of national banks to: advertise; operate offices within a certain distance from state-chartered bank home offices; operate ATM machines; engage in fiduciary activities; finance automobile purchases; sell annuities; sell repossessed automobiles without an automobile dealer license; and conduct Internet auctions of certificates of deposit. In 2004, the OCC expanded upon these interpretive letters and legal opinions by issuing what one commentator has described as "sweeping" preemption rules. The OCC's 2004 preemption rules articulated a general preemption standard according to which "state laws that obstruct, impair, or condition a national bank's ability to fully exercise" its federally authorized powers "are not applicable to national banks" except "where made applicable by Federal law." This general standard accordingly expanded on Barnett Bank 's "significant interference" test in two ways. First, the OCC's 2004 standard omitted the intensifying phrase "significantly" from the Barnett Bank test. Second, the 2004 standard by its terms required that national banks be able to "fully" exercise their authorized powers—a phrase that does not appear in Barnett Bank . However, despite these facial differences with the Barnett Bank test, the OCC explained that it intended the phrase "obstruct, impair, or condition" to function "as the distillation of the various preemption constructs articulated by the Supreme Court, as recognized in Hines [ v. Davidowitz ] and Barnett Bank , and not as a replacement construct that is in any way inconsistent with those standards." Beyond this general preemption standard, the OCC's 2004 rules concluded that the NBA preempted certain categories of state laws. First, the rules provided that national banks "may make real estate loans . . . without regard to state law limitations concerning": licensing and registration (except for purposes of service of process); "[t]he ability of a creditor to require or obtain private mortgage insurance, insurance for other collateral, or other credit enhancements or risk mitigants, in furtherance of safe and sound banking practices"; loan-to-value ratios; terms of credit; "[t]he aggregate amount of funds that may be loaned upon the security of real estate"; escrow accounts; security property; access to and use of credit reports; disclosure and advertising; processing, origination, servicing, sale or purchase of, or investment or participation in, mortgages; disbursements and repayments; rates of interest on loans; due-on-sale clauses, with certain exceptions; and "[c]ovenants and restrictions that must be contained in a lease to qualify the leasehold as acceptable security for a real estate loan." Second, the rules provided that national banks "may make non-real estate loans without regard to state law limitations concerning" many of the same matters identified in the regulation concerning real estate lending. Finally, the rules provided that national banks "may exercise [their] deposit-taking powers without regard to state law limitations concerning": (1) abandoned and dormant accounts, (2) checking accounts, (3) disclosure requirements, (3) funds availability, (4) savings account orders of withdrawal, (5) state licensing or registration requirements (except for purposes of service of process), and (6) special purpose savings services. The OCC's 2004 rules also identified general categories of state law that the agency interpreted as surviving preemption. Specifically, the rules provided that the NBA does not preempt state laws that are consistent with federal law and involve (1) contracts, (2) torts, (3) criminal law, (4) rights to collect debts, (5) the acquisition and transfer of property, (5) taxation, (6) zoning, and, with respect to real estate lending, (7) certain homestead laws. According to the OCC's 2004 rules, such laws survive preemption so long as they "do not regulate the manner, content or extent of the activities authorized for national banks under federal law." The OCC's 2004 preemption rules proved controversial. In 2008, the United States experienced a financial crisis caused in part by reckless subprime mortgage lending and a collapse in the real estate market. In the wake of the crisis, commentators debated the role that federal preemption of state predatory lending laws played in generating the pre-2008 housing bubble. Some commentators contended that national banks played a significant role in the predatory lending that preceded the crisis, and that federal preemption "effectively gut[ted] states' ability to legislate against predatory lending practices." By contrast, others rejected the contention that preemption played a significant role in causing the crisis, arguing that national banks and their subsidiaries accounted for only a small share of subprime mortgage lending. In 2010, Congress responded to concerns over federal preemption of state consumer protection laws in Section 1044 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). Section 1044 provides that federal law preempts such laws only if: (A) application of a State consumer financial law would have a discriminatory effect on national banks, in comparison with the effect of the law on a bank chartered by that State; (B) in accordance with the legal standard for preemption in the decision of the Supreme Court of the United States in [ Barnett Bank ], the State consumer financial law prevents or significantly interferes with the exercise by the national bank of its powers; and any preemption determination under this subparagraph may be made by a court, or by regulation or order of the Comptroller of the Currency on a case-by-case basis, in accordance with applicable law; or (C) the State consumer financial law is preempted by a provision of Federal law other than title 62 of the Revised Statutes. Beyond this general preemption standard, Section 1044 contains a number of other provisions narrowing the OCC's preemption authority. First, Section 1044 provides that courts reviewing OCC preemption determinations should accord those determinations only Skidmore deference, under which courts assess an agency's interpretation of a statute "depending upon the thoroughness evident in the consideration of the agency, the validity of the reasoning of the agency, the consistency with other valid determinations made by the agency, and other factors which the court finds persuasive and relevant to its decision." Before the enactment of Dodd-Frank, certain courts had afforded OCC preemption determinations a more permissive form of deference known as Chevron deference, according to which courts defer to agency interpretations as long as they are reasonable. Section 1044 accordingly requires that courts take a less deferential posture toward OCC preemption determinations. Second, Section 1044 provides that no OCC preemption determination "shall be interpreted or applied so as to invalidate, or otherwise declare inapplicable to a national bank, the provision of the State consumer financial law, unless substantial evidence, made on the record of the proceeding, supports the specific finding regarding the preemption of such provision in accordance with the legal standard" established by Barnett Bank . This "substantial evidence" standard is often used in cases involving the Administrative Procedure Act, which provides that courts shall hold unlawful an agency's formal rules and other determinations made on the basis of a formal hearing when they are "unsupported by substantial evidence." The Supreme Court has explained that "substantial evidence" entails "more than a mere scintilla" of evidence, and requires "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." Third, Section 1044 provides that the OCC shall (1) "periodically conduct a review, through public notice and comment, of each determination that a provision of Federal law preempts a State consumer financial law," (2) "conduct such review within the 5-year period after prescribing or otherwise issuing such determination, and at least once during each 5-year period thereafter," and (3) "[a]fter conducting the review of, and inspecting the comments made on, the determination, . . . publish a notice in the Federal Register announcing the decision to continue or rescind the determination or a proposal to amend the determination." Fourth, Section 1044 provides that the OCC must submit to Congress a report addressing its decision to continue, rescind, or propose an amendment to any preemption determination. Finally, Section 1044 abrogated the Supreme Court's decision in Watters , providing that "State consumer financial laws" apply to the subsidiaries and affiliates of national banks "to the same extent" that they apply "to any person, corporation, or other entity subject to such State law." After Dodd-Frank's enactment, commentators debated the meaning of Section 1044's general preemption standard. As discussed, Section 1044's preemption standard provides that federal law preempts "State consumer financial laws" that "prevent[] or significantly interfere[]" with the powers of national banks "in accordance with the legal standard for preemption in the decision of the Supreme Court of the United States in [ Barnett Bank ]." Some commentators have argued that this language simply codifies the Barnett Bank standard and was not intended to significantly modify pre-existing law. However, others have argued that Section 1044 was intended to pare back the OCC's 2004 preemption rules, which interpreted the NBA as preempting state laws that "obstruct, impair, or condition" the powers of national banks. According to this latter group of commentators, the OCC's "obstruct, impair, or condition" standard was more expansive than Barnett Bank 's "significant interference" test, meaning that a codification of that test would modify pre-existing law. In 2011, the OCC responded to the enactment of Section 1044 by issuing a notice of proposed rulemaking that reaffirmed its pre-Dodd-Frank preemption decisions while deleting the "obstruct, impair, or condition" language from its preemption rules. While the OCC acknowledged that this language "created ambiguities and misunderstandings regarding the preemption standard that it was intended to convey," it maintained that the specific preemption determinations reflected in its 2004 rules were nevertheless consistent with Barnett Bank . The OCC accordingly proposed reaffirming the specific preemption determinations in its 2004 rules while removing the "obstruct, impair, or condition" standard. The OCC's proposal quickly generated controversy. After the OCC issued the notice, the Treasury Department's General Counsel wrote a letter to the Comptroller of the Currency arguing that the OCC's proposed rule was "inconsistent with the plain language of [Dodd-Frank] and its legislative history." Specifically, the Treasury Department argued that interpreting Section 1044 as making no significant changes to existing preemption law conflicted with "basic canons of statutory construction" and legislative history indicating that the provision was intended to "revise[]" the OCC's preemption standard. Senator Carl Levin also expressed disagreement with the proposed rules in a letter to the Comptroller, arguing that "[i]f [Congress] had wanted to leave the OCC's purported federal preemptive powers unchanged, [it] could have engaged in a very simple exercise—do nothing." Other Senators expressed support for the OCC's proposed rules. Senators Tom Carper and Mark Warner criticized the Treasury Department's letter for "ignor[ing] the clear legislative history indicating that [Section 1044] is intended to codify the Barnett case." In responding to the Treasury Department's argument that Section 1044 was intended to "revise" the OCC's preemption standards, Senators Carper and Warner argued that the OCC's proposed rules would effectuate the contemplated revision by removing the potentially troublesome "obstruct, impair, or condition" language from the agency's 2004 rules. The OCC ultimately agreed with Senators Carper and Warner. In July 2011, the OCC published a final regulation revising its preemption rules. In the final rule, the OCC concluded that "the Dodd-Frank Act does not create a new, stand-alone 'prevents or significantly interferes' preemption standard, but, rather, incorporates the conflict preemption legal standard and the reasoning that supports it in the Supreme Court's Barnett decision." The OCC's 2011 rule also deleted the phrase "obstruct, impair, or condition" from the relevant preemption standard, noting that preemption determinations based "exclusively" on that language "would need to be reexamined to ascertain whether the determination is consistent with the Barnett conflict preemption analysis." However, the rule indicated that the OCC had not identified any preemption determinations that in fact relied "exclusively" on the relevant language. The final rule also noted that all future OCC preemption determinations would be subject to Section 1044's requirement concerning "case-by-case" determinations. Since the enactment of Dodd-Frank, a number of courts have interpreted Section 1044 as codifying the Barnett Bank standard. Some courts have accordingly concluded that Barnett Bank demarcates the boundaries of the OCC's 2011 preemption rules, reasoning that those rules do not preempt any state laws that would survive preemption under the Barnett Bank test. One court has also addressed the appropriate level of judicial deference towards the OCC's 2011 preemption determinations. As discussed, Section 1044 provides that courts "shall" assess OCC preemption determinations "depending upon the thoroughness evident in the consideration of the agency, the validity of the reasoning of the agency, the consistency with other valid determinations made by the agency, and other factors which the court finds persuasive and relevant to its decision"—a standard commonly known as " Skidmore deference." In 2018, the Ninth Circuit concluded that the OCC's 2011 preemption determinations are "entitled to little, if any, deference" under Skidmore . Specifically, the Ninth Circuit reasoned that because the OCC's 2011 preemption determinations represent the agency's "articulation of its legal analysis" under Barnett Bank (as opposed to being grounded in expert factual findings), those determinations would not warrant significant deference even in the absence of Section 1044. Whether other federal circuit courts will follow the Ninth Circuit in affording minimal deference to the OCC's 2011 preemption rules remains to be seen. As the debates over Section 1044 of Dodd-Frank make clear, a number of banking preemption issues remain the subject of active debate. This final section of the report discusses three additional current issues involving banking preemption and related federalism questions. A number of recent judicial decisions have generated debate over the circumstances in which non-bank financial companies can benefit from banks' ability to "export" the maximum interest rates of their "home" states. As discussed, the Supreme Court has held that national banks may charge any interest rate allowable under the laws of their home states even when lending to borrowers in other states with stricter usury laws. After this decision, Congress extended the power to export maximum interest rates to federally insured state banks. Recently, courts have grappled with whether this exportation power extends to non-bank financial companies and debt collectors that purchase loans originated by federally insured banks. That is, courts have addressed the circumstances in which loans originated by federally insured banks remain subject to the usury laws of the banks' home states even when the loans are (1) made to borrowers in other states with stricter usury laws, and (2) subsequently purchased by non-banks, which do not possess the exportation power when they originate loans themselves. A number of courts have concluded that in certain contexts, a loan that is non-usurious when originated remains non-usurious irrespective of the identity of its subsequent purchasers—a principle that some commentators have labeled the "valid when made" doctrine. However, in 2015, the Second Circuit rejected the application of this rule in Madden v. Midland Funding , holding that non-bank debt collectors that had purchased debt originated by a national bank could not benefit from the bank's exportation power. In Madden , a New York resident brought a putative class action under New York usury law against debt collectors that had purchased her credit card debt from a Delaware-based national bank. In response, the debt collectors argued that federal law preempted the New York usury claims because the credit card debt had been originated by a Delaware-based national bank and was not usurious under Delaware law. The Second Circuit rejected this argument, reasoning that the application of New York usury law to the debt collectors did not "significantly interfere" with the national bank's powers under Barnett Bank . Specifically, the court reasoned that because the debt collectors were not national banks and were not acting "on behalf of" a national bank, the New York usury claims did not interfere with the national bank's power to export the maximum interest rates of its home state. The Second Circuit's decision in Madden has generated significant debate. In an amicus brief supporting the debt collectors' petition for re-hearing before the Second Circuit, industry groups argued that the decision threatened to seriously disrupt lending markets. Specifically, these groups argued that the court's decision would "significantly impair" banks' ability to manage their risk by selling loans in secondary credit markets—a result that would ultimately inhibit their capacity to originate loans. Similarly, in an amicus brief submitted to the Supreme Court, the OCC and the Office of the Solicitor General (OSG) argued that the Second Circuit's decision was "incorrect," reasoning that "[a] national bank's federal right to charge interest up to the rate allowed by [the NBA] would be significantly impaired if [a] national bank's assignee could not continue to charge that rate." In response, the plaintiff in Madden argued that the Second Circuit's decision is unlikely to significantly affect credit markets. Specifically, the Madden plaintiff argued that the court's decision will not disrupt credit markets because non-banks that purchase loans originated by banks retain the right to collect the balances of those loans within applicable state law usury limits. While the Second Circuit ultimately denied the debt collectors' petition for re-hearing and the Supreme Court denied their petition for a writ of certiorari, the Madden decision has attracted congressional interest. The Financial CHOICE Act—comprehensive regulatory reform legislation that passed the House of Representatives in June 2017 but did not become law—would have codified the "valid when made" doctrine and abrogated Madden . A more limited bill directed solely at codifying the "valid when made" doctrine ( H.R. 3299 ) also passed the House in February 2018 but did not become law. Echoing the arguments made by industry groups, the bill's sponsor contended that the Second Circuit's decision will harm credit markets and impede financial innovation. By contrast, the bill's critics argued that it would facilitate predatory lending by allowing non-banks to evade state usury laws. These proposals have not been re-introduced in the 116th Congress. In a number of cases involving the scope of the exportation doctrine, non-bank financial companies have played a more active role in the origination process than the debt collectors in Madden . Specifically, a number of these cases have involved arrangements in which a non-bank financial company solicits borrowers, directs a partner bank to originate a high-interest loan, and purchases the loan from the bank shortly after origination in order to benefit from the bank's exportation power. Some courts have held that non-banks employing these so-called "rent-a-charter" schemes are not eligible for federal preemption, reasoning that preemption depends on a transaction's economic realities rather than its formal characteristics. Specifically, these courts have concluded that non-banks do not assume their partner banks' exportation power when the economic realities surrounding a transaction indicate that the non-banks are the "true lenders." According to this "true lender" doctrine, non-banks that have established these types of relationships qualify as the "true lenders" when they possess the "predominant economic interest" in the relevant loans when the loans are originated. In these circumstances, some courts have concluded that the non-banks are not entitled to the benefits of federal preemption. Like the Second Circuit's decision in Madden , these "true lender" decisions have attracted Congress's attention. In the 115th Congress, H.R. 4439 would have abrogated this line of decisions by making clear that a loan's originator is always the "true lender" for purposes of the exportation doctrine. The bill's supporters argued that the "true lender" decisions threaten to undermine partnerships between banks and FinTech companies —a broad category of businesses offering digital financial products that some commentators have hailed for their innovative potential. The bill's opponents, by contrast, contended that the legislation would allow non-banks to circumvent state usury laws and questioned the value of bank-FinTech partnerships designed with that purpose in mind. H.R. 4439 was referred to the House Committee on Financial Services during the 115th Congress but has not been re-introduced in the 116th Congress. Congress is not alone in considering whether to extend the benefits of federal preemption to FinTech companies. In July 2018, the OCC issued a Policy Statement announcing that it will begin accepting applications for "special purpose national bank charters" (SPNB charters) from FinTech companies that are engaged in "the business of banking" but do not take deposits. In the Policy Statement, the OCC explained that the NBA provides it "broad authority" to grant national bank charters to institutions that engage in the "business of banking"—a category that includes paying checks and lending money. The OCC accordingly concluded that it has the statutory authority to grant national bank charters to FinTech companies that engage in these core banking activities. According to the OCC, SPNB charters will help foster responsible innovation and promote regulatory consistency between FinTech companies and traditional banks. The OCC further explained that it will use its existing chartering standards and procedures to evaluate applications for SPNB charters, and that FinTech companies that receive such charters "will be supervised like similarly situated national banks, including with respect to capital, liquidity, and risk management." While the OCC touted the ability of SPNB charters to "level the playing field with regulated institutions" without explicitly mentioning federal preemption, commentators have observed that preemption represents "the central benefit" offered by such charters. The OCC's decision to accept applications for national bank charters from FinTech companies has generated debate. Critics of the policy have contended that FinTech companies' interest in such charters "is virtually entirely about avoiding state consumer protection laws," and that "[f]ederal chartering should not be a move to eviscerate" such laws. State regulators have also filed lawsuits challenging the OCC's authority to charter non-depository FinTech companies. In the spring of 2017, the Conference of State Bank Supervisors (CSBS) and the New York Department of Financial Services (NYDFS) responded to an early OCC proposal to charter FinTech companies by filing suits in the U.S. District Court for the District of Columbia and the U.S. District Court for the Southern District of New York, respectively. The CSBS and NYDFS made substantially similar claims, arguing that (1) the NBA does not give the OCC the authority to charter non-depository institutions, (2) the Administrative Procedure Act requires the OCC to follow notice-and-comment rulemaking procedures before issuing SPNBs, (3) the OCC's decision was arbitrary and capricious, and (4) the OCC's decision violated the Tenth Amendment by invading states' sovereign powers. Both district courts dismissed the lawsuits on jurisdictional grounds, reasoning that the organizations failed to identify any imminent injuries to their members and that the case was not ripe for resolution because the OCC had not issued any SPNBs. However, after the OCC issued its Policy Statement in July 2018, both organizations filed new lawsuits that remain pending. Policymakers have also turned their attention to how federal law affects traditional banks' responses to changes in state law—namely, state-level efforts to legalize marijuana. While a number of states have legalized marijuana for medical or recreational use, federal law criminalizes the drug's sale, distribution, and possession, in addition to the aiding and abetting of such activities. Federal law also criminalizes money laundering, making it unlawful to: conduct a financial transaction involving the proceeds of a specified unlawful activity —a category that includes the sale or distribution of marijuana—"knowing that the transaction is designed . . . to conceal or disguise the nature, the location, the source, the ownership or the control of the proceeds . . . or to avoid a transaction reporting requirement under State or Federal law"; or knowingly engage in a monetary transaction in criminally derived property of a value greater than $10,000 that is derived from specified unlawful activity . Finally, the Bank Secrecy Act (BSA) and associated regulations require that financial institutions report illegal and suspicious activities to the Financial Crimes Enforcement Network (FinCEN) and maintain programs designed to prevent money laundering. Federal banking regulators have broad powers to discipline banks for violations of these laws. The Federal Reserve regularly conducts examinations of member banks that include evaluations of BSA compliance, and the FDIC has the authority to terminate a bank's deposit insurance for violations of law. Because of marijuana's status under federal law, many banks have refused to serve marijuana businesses even when those businesses operate in compliance with state law. While some small banks have offered accounts to marijuana businesses, an estimated 70 percent of marijuana businesses remain unbanked. Because of this inability to access the banking system, many marijuana businesses reportedly operate entirely in cash, raising concerns about tax collection and public safety. These perceived problems have attracted congressional interest. In March 2019, the House Committee on Financial Services approved legislation intended to minimize the legal risks associated with banking the marijuana industry. The proposed bill— H.R. 1595 , the SAFE Banking Act of 2019—would create a "safe harbor" under which federal banking regulators could not take various adverse actions against depository institutions for serving marijuana businesses that comply with applicable state laws ("cannabis-related legitimate businesses"). The legislation would also provide that for purposes of federal anti-money laundering law, the proceeds from transactions conducted by cannabis-related legitimate businesses shall not qualify as the proceeds of unlawful activity "solely because the transaction[s] [were] conducted by a cannabis-related legitimate business." Finally, H.R. 1595 would require FinCEN to issue guidance concerning the preparation of suspicious activity reports for cannabis-related legitimate businesses that is "consistent with the purpose and intent" of the bill and "does not significantly inhibit the provision of financial services" to cannabis-related legitimate businesses. Variations on some of the SAFE Banking Act's provisions have been incorporated into broader marijuana-related legislation. The Responsibly Addressing Marijuana Policy Gap Act of 2019 ( S. 421 and H.R. 1119 ) would eliminate federal criminal penalties for persons who engage in various marijuana-related activities in compliance with state law and create a "safe harbor" from adverse regulatory action for depository institutions that serve marijuana businesses. Another Senate bill— S. 1028 , the STATES Act—would provide that the Controlled Substances Act's (CSA's) marijuana-related provisions do not apply to persons acting in compliance with state marijuana regulation s, subject to certain exceptions. While the bill does not have the type of "safe harbor" for depository institutions in H.R. 1595 , S. 421 , or H.R. 1119 , it contains a "Rule of Construction" clarifying that conduct in compliance with the legislation shall not serve as the basis for federal money laundering charges or criminal forfeiture under the CSA.

Question: Write a one-page summary of the report 1.

Answer: Medicare paid $7.1 billion for 433 million laboratory tests in 2017. These tests help health care providers prevent, diagnose, and treat diseases. PAMA included a provision for GAO to review CMS's implementation of new payment rates for these tests. This report addresses, among other objectives, (1) how CMS developed the new payment rates; (2) challenges CMS faced in setting accurate payment rates and what factors may have mitigated these challenges; and (3) the potential effect of the new payment rates on Medicare expenditures. GAO analyzed 2016 Medicare claims data (the most recent data available when GAO started its work and the year on which new payment rates were based) and private-payer data CMS collected. GAO also interviewed CMS and industry officials. The Centers for Medicare & Medicaid Services (CMS) within the Department of Health and Human Services (HHS) revised the Clinical Laboratory Fee Schedule (CLFS) for 2018, establishing new Medicare payment rates for laboratory services. Prior to 2018, these rates were based on historical laboratory fees and were typically higher than the rates paid by private payers. The Protecting Access to Medicare Act of 2014 (PAMA) required CMS to develop a national fee schedule for laboratory tests based on private-payer data. To revise the rates, CMS collected data on private-payer rates from approximately 2,000 laboratories and calculated median payment rates, weighted by volume. GAO found that the median private-payer rates were lower than Medicare's maximum payment rates in 2017 for 88 percent of tests. CMS is gradually phasing in reductions to Medicare payment rates, limited annually at 10 percent over a 3-year period (2018 through 2020), as outlined in PAMA. CMS relied on laboratories to determine whether they met data reporting requirements, but agency officials told GAO that CMS did not receive data from all laboratories required to report. CMS did not estimate the amount of data it should have received from laboratories that were required to report but did not. CMS took steps to exclude inaccurate private-payer data and estimated how collecting certain types and amounts of additional private-payer data could affect Medicare expenditures. However, it is not known whether CMS's estimates reflect the actual risk of incomplete data resulting in inaccurate Medicare payment rates. GAO found that PAMA's phased in reductions to new Medicare payment rates likely mitigated this risk of inaccurate Medicare payment rates from 2018 through 2020. However, GAO found that collecting incomplete data could have a larger effect on the accuracy of Medicare payment rates in future years when PAMA allows for greater payment-rate reductions. CMS's implementation of the new payment rates could lead Medicare to pay billions of dollars more than is necessary and result in CLFS expenditures increasing from what Medicare paid prior to 2018 for two reasons. First, CMS used the maximum Medicare payment rates in 2017 as a baseline to start the phase in of payment-rate reductions instead of using actual Medicare payment rates. This resulted in excess payments for some laboratory tests and, in some cases, higher payment rates than those Medicare previously paid, on average. GAO estimated that Medicare expenditures from 2018 through 2020 may be $733 million more than if CMS had phased in payment-rate reductions based on the average payment rates in 2016. Second, CMS stopped paying a bundled payment rate for certain panel tests (groups of laboratory tests generally performed together), as was its practice prior to 2018, because CMS had not yet clarified its authority to do so under PAMA, according to officials. CMS is currently reviewing whether it has the authority to bundle payment rates for panel tests to reflect the efficiency of conducting a group of tests. GAO estimated that if the payment rate for each panel test were unbundled, Medicare expenditures could increase by as much as $10.3 billion from 2018 through 2020 compared to estimated Medicare expenditures using lower bundled payment rates for panel tests. GAO recommends that the Administrator of CMS (1) collect complete private-payer data from all laboratories required to report or address the estimated effects of incomplete data, (2) phase in payment-rate reductions that start from the actual payment rates rather than the maximum payment rates Medicare paid prior to 2018, and (3) use bundled rates for panel tests. HHS concurred with GAO's first recommendation, neither agreed nor disagreed with the other two, and has since issued guidance to help address the third. GAO believes CMS should fully address these recommendations to prevent Medicare from paying more than is necessary.