Department of Health and Human Services
 

OFFICE OF 

INSPECTOR GENERAL 

VARIATION IN THE CLINICAL 


LABORATORY FEE SCHEDULE
 

Daniel R. Levinson
 

Inspector General 


July 2009
 

OEI-05-08-00400
 
 

 

 

 

 

 

Office of Inspector General
 http://oig.hhs.gov 

The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as 

amended, is to protect the integrity of the Department of Health and Human Services 

(HHS) programs, as well as the health and welfare of beneficiaries served by those 

programs. This statutory mission is carried out through a nationwide network of audits, 

investigations, and inspections conducted by the following operating components: 

Office of Audit Services 

The Office of Audit Services (OAS) provides auditing services for HHS, either by conducting 

audits with its own audit resources or by overseeing audit work done by others. Audits 

examine the performance of HHS programs and/or its grantees and contractors in carrying 

out their respective responsibilities and are intended to provide independent assessments of 

HHS programs and operations. These assessments help reduce waste, abuse, and 

mismanagement and promote economy and efficiency throughout HHS. 

Office of Evaluation and Inspections 

The Office of Evaluation and Inspections (OEI) conducts national evaluations to provide 

HHS, Congress, and the public with timely, useful, and reliable information on significant 

issues. These evaluations focus on preventing fraud, waste, or abuse and promoting 

economy, efficiency, and effectiveness of departmental programs. To promote impact, OEI 

reports also present practical recommendations for improving program operations. 

Office of Investigations 

The Office of Investigations (OI) conducts criminal, civil, and administrative investigations 

of fraud and misconduct related to HHS programs, operations, and beneficiaries. With 

investigators working in all 50 States and the District of Columbia, OI utilizes its resources 

by actively coordinating with the Department of Justice and other Federal, State, and local 

law enforcement authorities. The investigative efforts of OI often lead to criminal 

convictions, administrative sanctions, and/or civil monetary penalties. 

Office of Counsel to the Inspector General 

The Office of Counsel to the Inspector General (OCIG) provides general legal services to 

OIG, rendering advice and opinions on HHS programs and operations and providing all 

legal support for OIG’s internal operations. OCIG represents OIG in all civil and 

administrative fraud and abuse cases involving HHS programs, including False Claims Act, 

program exclusion, and civil monetary penalty cases. In connection with these cases, OCIG 

also negotiates and monitors corporate integrity agreements. OCIG renders advisory 

opinions, issues compliance program guidance, publishes fraud alerts, and provides other 

guidance to the health care industry concerning the anti-kickback statute and other OIG 

enforcement authorities. 
 

 

ΔEXECUTIVE SUMMARY EXECUTIVE SUMMA RY 

 

 

 

 

 

 

Δ EXECUTIVE SUMMARY 

OBJECTIVE 

To determine the extent to which Medicare Clinical Laboratory Fee 

Schedule rates varied in 2007. 

BACKGROUND 

Medicare Part B covers most outpatient clinical diagnostic laboratory 

tests (hereinafter referred to as lab tests) and pays 100 percent of their 

costs because there are no beneficiary copayments or deductibles for lab 

tests. In 2007, lab tests accounted for 3 percent of all Medicare Part B 

payments. Each laboratory submits claims to the Medicare carrier 

responsible for the area in which the laboratory is located. Carriers 

process Medicare Part B payments in 56 carrier localities that 

correspond mostly with State borders. 

Medicare Part B payments for lab tests are determined by the Clinical 

Laboratory Fee Schedule. The Deficit Reduction Act of 1984 mandated 

that fee schedules be established for each lab test on a regional, 

statewide, or carrier basis. As a result, each carrier established its own 

fee schedule rates (hereinafter referred to as carrier rates), which are 

collectively known as the Clinical Laboratory Fee Schedule. The 

Consolidated Omnibus Budget Reconciliation Act of 1985 mandated a 

national limit amount (NLA) that capped carrier rates. The NLA is set 

at 74 percent of the median carrier rate for each lab test (or 100 percent 

of the median for new tests for which an NLA was not established 

before January 1, 2001). Carriers pay laboratories the lower of the 

laboratories’ charges or the carrier rate as capped by the NLA. 

To determine the extent of variation, we assessed carrier rates as well 

as utilization and payments for Medicare-covered lab tests in 2007. To 

do this, we used the 2007 Clinical Laboratory Fee Schedule and a 

1-percent random sample of 2007 Medicare Part B claims data for lab 

tests paid under the Clinical Laboratory Fee Schedule. 

FINDINGS 

Carrier rates for nearly all lab tests varied, but 83 percent of carrier 

rates were at the National Limit Amount. In 2007, 97 percent of lab tests 

had at least one carrier rate that varied from the NLA. However, 

83 percent of all carrier rates were at the NLA and 89 percent of lab test 

claims were paid at the NLA. 

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EXECUTIVE SUMMARY 

Variation in carrier rates did not appear to reflect geographic 

differences in cost. Variation from the NLA was inconsistent within 

each carrier and thus did not appear to reflect geographic differences in 

costs. For instance, we found that each carrier had rates dispersed at 

varying percentages below the NLA. If a geographic assessment of costs 

had been factored into the establishment of each carrier’s rates, each 

carrier might have been expected to have most, if not all, rates at the 

same percentage below the NLA. 

Methods for setting carrier rates created inconsistent variation 

across carriers. In 2007, all carriers had rates that varied from the 

NLA. Variation was greater for some carriers than others because of 

methods for setting and updating carrier rates. In establishing rates 

in 1985, carriers used laboratory charge data that may not have 

reflected lab tests’ costs. Since then, methods used to update carrier 

rates have incrementally added to the variation in carrier rates. 

Because carriers pay different rates for the same lab test, variation 

affects Medicare payments. Medicare paid over $3.4 billion for lab tests 

in 2007. Medicare payments would have been $3.5 billion if all lab tests 

had been paid at the NLA or $2.4 billion if the NLA had been reduced to 

50 percent of the median carrier rate. Setting all carrier rates at 

73 percent of the median carrier rate would have eliminated variation 

without a change in overall Medicare payments. 

RECOMMENDATION 

The Centers for Medicare & Medicaid Services should seek 

legislation that would allow it to set accurate and reasonable 

payment rates for lab tests. The Centers for Medicare & Medicaid 

Services (CMS) should request legislative authority to institute a new 

process for setting accurate and reasonable payment rates. CMS could 

use several methods to achieve this result. Whatever method CMS 

implements should be determined after careful consideration of the 

impact on Medicare costs and on the laboratory industry. 

One approach would be for CMS to seek legislation to set a base 

payment rate for each lab test. If a single base payment rate for each 

lab test is set, CMS should consider adjusting these rates to reflect any 

geographic differences in cost. 

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EXECUTIVE SUMMARY 
 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

CMS did not concur, at this time, with our recommendation to seek 

legislation that would allow it to set accurate and reasonable payment 

rates for lab tests. Although it did not concur at this time, CMS stated 

that it will consider our recommendation and that it is committed to 

improving payment policies for lab tests and to refining methodologies 

for establishing new payment rates. We encourage CMS to pursue 

legislation that would allow it to set accurate and reasonable payment 

rates for lab tests. 

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Δ TABLE OF CONTENTS 

EXECUTIVE SUMMARY ..................................... i 
 

INTRODUCTION ........................................... 1 
 

FINDINGS ................................................. 8 
 

Carrier rates for nearly all lab tests varied, but 83 percent of 

carrier rates were at the National Limit Amount .............. 8 
 

Variation in carrier rates did not appear to reflect geographic 

differences in cost ....................................... 9 
 

Methods for setting carrier rates created inconsistent variation 

across carriers ......................................... 10 
 

RECOMMENDATION ...................................... 13 
 

Agency Comments and Office of Inspector General Response . . . 14 

APPENDIXES ............................................. 15 
 

A: Rates Below the National Limit Amount by Carrier ........ 15 
 

B: Carrier Rates for the 10 Most Utilized Lab Tests .......... 17 
 

C: Agency Comments .................................. 19 
 

ACKNOWLEDGMENTS .................................... 21 
 
 

 

 

Δ INTRODUCTION 

OBJECTIVE 

To determine the extent to which Medicare Clinical Laboratory Fee 

Schedule rates varied in 2007. 

BACKGROUND 

Clinical diagnostic laboratory tests (hereinafter referred to as lab tests) 

are tests performed on specimens taken from the human body and 

provide information integral to preventing, diagnosing, and treating 

disease. Most lab tests are conducted in hospital, physician-office, or 

independent laboratories. 

Medicare Part B Coverage and Payment for Lab Tests 

Medicare Part B covers most outpatient lab tests and pays 100 percent 

of their costs because there are no beneficiary copayments or 

deductibles for lab tests.1 In 2007, lab tests accounted for 3 percent of 

all Medicare Part B payments.2 

Each laboratory submits claims to the Medicare carrier responsible for 

the area in which a laboratory is located.3 Carriers process Medicare 

Part B payments in 56 carrier localities that correspond mostly to State 

borders. By 2011, the 56 carrier localities are scheduled to be replaced 

by 15 Medicare Administrative Contractor (MAC) jurisdictions. 

However, MACs will not consolidate payment policies. MACs will 

continue to administer the same payment policies used in each of the 

56 carrier localities. 

The Clinical Laboratory Fee Schedule 

The Deficit Reduction Act of 1984 (DRA of 1984) mandated that fee 

schedules be established for each lab test on a regional, statewide, or 

carrier basis.4 Consistent with the DRA of 1984, each carrier 

established its own fee schedule rates based on the prevailing charges 

1 Social Security Act § 1866(a)(2)(A)(ii), 42 U.S.C. § 1395cc(a)(2)(A)(ii); Social Security Act 

§ 1833(b)(3), 42 U.S.C. § 1395l(b)(3). 

2 Centers for Medicare & Medicaid Services (CMS), “Data Compendium: Table II.3.” 

Available online at 

http://www.cms.hhs.gov/DataCompendium/downloads/2008Expenditures.zip. Accessed on 

February 26, 2009. 

3 Each hospital laboratory submits claims to the fiscal intermediary responsible for the 

area in which the hospital is located. Fiscal intermediaries use the same payment system 

as carriers. 

4 DRA of 1984, P.L. No. 98-369 § 2303(d). 

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INTRODUCTION 

for lab tests in its locality between 1984 and 1985.5 The fee schedule 

rates established by carriers (hereinafter referred to as carrier rates) 

are collectively known as the Clinical Laboratory Fee Schedule. 

Currently, the Clinical Laboratory Fee Schedule covers 1,105 unique lab 

tests. 

In addition to establishing the Clinical Laboratory Fee Schedule, the 

DRA of 1984 mandated two further changes. First, it mandated the 

establishment of a single national fee schedule after July 1, 1987.6 

Congress repealed this mandate in 1989 following an Office of Inspector 

General (OIG) report.7 The OIG report found that setting a national fee 

schedule at rates equal to 100 percent of the median carrier rate for 

each lab test would have been more costly than the range of carrier 

rates on the Clinical Laboratory Fee Schedule.8 Second, the DRA of 

1984 mandated the use of the Consumer Price Index for All Urban 

Consumers (CPI-U) to annually adjust carrier rates for inflation.9 In 

2003, Congress eliminated the CPI-U adjustments for 2004 through 

2008.10 In 2008, Congress reinstated the CPI-U adjustments but 

lowered the CPI-U by 0.5 percentage points for 2009 through 2013. 11 

The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) 

mandated a national limit amount (NLA) that capped carrier rates at 

115 percent of the median carrier rate for each lab test.12 For example, 

if the median carrier rate for a particular lab test was $100, the NLA 

capped carrier rates at $115. Over time, Congress incrementally 

lowered the percentage of the national median carrier rate used to 

calculate the NLA as part of a process to implement cost constraints.13 

Since 1998, the NLA has been set at 74 percent of the median carrier 

rate for each lab test (or 100 percent of the median for new lab tests for 

5 DRA of 1984, P.L. No. 98-369 § 2303(d). 

6 Ibid. 

7 The Omnibus Budget Reconciliation Act of 1989, P.L. No. 101-239 § 6111(a). 

8 OIG, “Medicare Reimbursement for Outpatient Laboratory Services,” OAI-04-88-01080, 

p. 9, March 1989. 

9 DRA of 1984, P.L. No. 98-369 § 2303(d). 

10 Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), 

P.L. No. 108-173 § 628. 

11 Medicare Improvements for Patients and Providers Act of 2008, P.L. No. 110-275 

§ 145(b). 

12 COBRA, P.L. No. 99-272 § 9303(b). 

13 Social Security Act, § 1833(h)(4)(B), 42 U.S.C. § 1395l(h)(4)(B). 

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INTRODUCTION 

which an NLA was not established before January 1, 2001).14 Under 

the Clinical Laboratory Fee Schedule, carriers pay laboratories the 

lower of the laboratories’ charges or the carrier rate as capped by the 

NLA.15 

In 2003, Congress mandated that CMS implement a demonstration 

project to explore whether competitive bidding could provide rates for 

lab tests below those on the Clinical Laboratory Fee Schedule.16 

However, a lawsuit brought by two laboratories resulted in a 

court-ordered preliminary injunction that stopped implementation of 

the demonstration project in April 2008.17 In July 2008, Congress 

repealed the authority for the demonstration, thereby eliminating the 

demonstration project.18 

Updating the Clinical Laboratory Fee Schedule 

To keep pace with industry changes, CMS annually determines which 

lab tests to cover under Medicare. As a result, CMS either adds or 

deletes lab tests from the Clinical Laboratory Fee Schedule. When CMS 

adds a new lab test to the Clinical Laboratory Fee Schedule, it must 

determine the appropriate carrier rates. CMS uses one of two methods 

to set the carrier rates for each new lab test: cross-walking or 

gap-filling.19 

Cross-walking new lab tests. CMS uses the cross-walking method to 

assign carrier rates when it considers a new lab test to be clinically or 

technologically similar to an existing lab test, multiple existing lab 

tests, or a portion of an existing lab test. Under this method, CMS 

assigns an existing lab test’s NLA and carrier rates to the new lab 

test.20 According to CMS staff, CMS uses this method to set carrier 

rates for the majority of lab tests. 

14 Social Security Act, § 1833(h)(4)(B)(viii), 42 U.S.C. § 1395l(h)(4)(B)(viii). 

15 Social Security Act, § 1833(a)(1)(D)(i), 42 U.S.C. § 1395l(a)(1)(D)(i). 

16 MMA, P.L. No. 108-173 § 302(b). 

17 Sharp Healthcare v. Leavitt, No. 08-CV-0170 W (POR), 2008 U.S. Dist. LEXIS 

28623 (S.D. Cal. Apr. 8, 2008). 

18 Medicare Improvements for Patients and Providers Act of 2008, P.L. No. 110-275 

§ 145(a). 

19 42 CFR 414.508; see also 73 Fed. Reg. 33825, 33825 (June 13, 2008) (describing the 

two methods). 

20 42 CFR 414.508(a). 

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INTRODUCTION 

Gap-filling new lab tests. CMS uses the gap-filling method to establish 

carrier rates for a new lab test if no similar lab test exists.21 Under this 

method, CMS assigns each carrier the responsibility for setting the new 

rates in the first year. Carriers may use several sources of information 

to set rates, such as lab test charges and payment amounts determined 

by other payers. Carriers may also consider other sources of 

information as appropriate.22 In the second year, CMS uses the 

carrier-specific amounts to establish the NLA.23 

Office of Inspector General and Related Work 

Previous OIG work on laboratories included studies that examined 

payment safeguards,24 Clinical Laboratory Fee Schedule rates 

compared to other payers,25 utilization and alternative payment 

approaches,26 and potential costs for establishing a national fee 

schedule for outpatient lab tests.27 

In 2000, the Institute of Medicine (IOM) of the National Academies 

published “Medicare Laboratory Payment Policy: Now and in the 

Future.”28 IOM found that the Clinical Laboratory Fee Schedule and 

methodology for setting rates have not evolved to account for 

technology, market, and regulatory changes. Among other 

recommendations, IOM recommended that Medicare payments for lab 

tests be based on a single, rational, national fee schedule that should be 

adjusted for geographic location to account for differences in costs of 

labor and supplies.29 

21 42 CFR 414.508(b). 

22 42 CFR 414.508(b)(1)(iv); CMS, “Medicare Claims Processing Manual,” 

Pub. No. 100-4, ch. 23 § 40.4. Available online at 

http://www.cms.hhs.gov/manuals/downloads/clm104c23.pdf. Accessed on September 15, 

2008. 

23 42 CFR 414.508(b)(2). 

24 OIG, “Common Working File Edits for Unauthorized Laboratory Tests,” 

OEI-05-00-00050, January 2002. 

25 OIG, “Follow-Up Report to Changes Are Needed in the Way Medicare Pays for Clinical 

Laboratory Tests,” A-09-93-00056, January 1996. 

26 OIG, “Ensuring Appropriate Use of Laboratory Services,” OEI-05-89-89150, 

October 1990. 

27 OIG, “Medicare Reimbursement for Outpatient Laboratory Services,” 

OAI-04-88-01080, March 1989. 

28 Dianne Miller Wolman, et al., Institute of Medicine of the National Academies, 

“Medicare Laboratory Payment Policy: Now and in the Future,” 2000. 

29 Wolman, et al.., op. cit., pp. 146–147. 

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INTRODUCTION 
 

METHODOLOGY 

This study assesses carrier rates and utilization of Medicare-covered lab 

tests in 2007 to describe variation in the 2007 Clinical Laboratory Fee 

Schedule. This study also assesses the effect of variation on Medicare 

Part B payments for lab tests. 

Data Sources 

To describe variation across lab tests and carriers for the 2007 Clinical 

Laboratory Fee Schedule, we obtained the corresponding 56 carrier 

rates and NLA for each of the 1,105 unique Medicare-covered lab tests. 

We defined lab tests using the Healthcare Common Procedure Coding 

System. To determine whether variation had changed over time, we 

obtained the 56 carrier rates and the NLA for each of the 1,059 unique 

Medicare-covered lab tests on the 2002 Clinical Laboratory Fee 

Schedule to contrast with those on the 2007 Clinical Laboratory Fee 

Schedule. We selected the 2002 Clinical Laboratory Fee Schedule to 

provide a historical perspective over a 5-year period. 

To determine utilization of and payment for lab tests, we obtained a 

1-percent random sample of 2007 Medicare Part B claims data for lab 

tests paid under the Clinical Laboratory Fee Schedule. The Part B 

claims data identify the paying carrier, the type of lab test performed, 

and the amount the carrier paid for each lab test. This sample includes 

a record for each lab test that a laboratory billed. It does not include 

claims from hospital outpatient laboratories. We chose not to obtain 

hospital outpatient laboratory claims because some hospital 

laboratories are paid with a special adjustment for outpatient lab tests 

or are paid on a reasonable-cost basis. 

Data Analysis 

We analyzed the 2007 Clinical Laboratory Fee Schedule by lab test and 

by carrier to determine the extent of variation in carrier rates. To 

determine whether the extent of variation changed over time, we 

compared the number of carrier rates for lab tests below the NLA in 

2002 to the number of carrier rates below the NLA in 2007. 

Determining the extent of carrier rate variation for lab tests. To determine 

the variation in carrier rates for each lab test, we calculated how far 

below the NLA all 56 carrier rates were for each lab test. We then 

calculated several measures of carrier rate variation across all lab tests. 

We determined the utilization of lab tests paid at or below the NLA. 

For lab tests paid below the NLA, we determined how much they were 

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INTRODUCTION 

paid below the NLA and the corresponding level of utilization. To do 

this, we identified the allowed lab tests paid below the NLA, determined 

the percentage of the NLA each of these allowed lab tests was paid, and 

grouped the allowed lab tests by the different percentages of the NLA 

that they were paid. We could not match the payment methodology to 

the corresponding claim or claims for less than 1 percent of allowed lab 

tests and therefore did not include them in our analysis. 

Determining the extent of variation in each carrier’s rates. To determine 

the extent of variation in each carrier’s rates, we assessed the range and 

distribution of all rates for each carrier at different percentages of the 

NLA. 

To provide an example of the variation in each carrier’s rates, we 

assessed the rates for the carrier with the highest lab test utilization. 

To identify the carrier with the highest lab test utilization, we summed 

the total number of allowed lab tests for each carrier. We then assessed 

the extent and range of variation in this carrier’s rates for lab tests. 

Determining the extent of variation across carriers and the effect of 

variation on Medicare payments. To determine the extent of variation in 

rates across carriers, we counted the number of rates that each carrier 

had below the NLA. We then calculated several measures of variation 

across all 56 carriers. 

To provide an example of the effects of variation on Medicare payments, 

we chose to use the claims and payments for the 10 most utilized lab 

tests nationally in 2007. We identified the 10 most utilized lab tests 

nationally by calculating the number of allowed lab tests for each claim 

and ranking each lab test by the number of allowed lab tests. We then 

assessed variation in their carrier rates. These 10 lab tests accounted 

for 48 percent of all lab test utilization in 2007. 

To see how variation across carriers affects Medicare payments, we first 

calculated the amount Medicare actually paid for lab tests in 2007. 

Then, we calculated how much Medicare hypothetically would have paid 

if variation had been eliminated. We calculated three examples: 

(1) a single payment rate based on the current NLA, (2) a single 

payment rate based on a cost-neutral NLA, and (3) a single payment 

rate based on an NLA set at a reduced percentage of the median carrier 

rate. To do so, we chose to reduce the NLA to 50 percent of the median 

carrier rate. 

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INTRODUCTION 

Standards 

This study was conducted in accordance with the “Quality Standards for 

Inspections” issued by the President’s Council on Integrity and 

Efficiency and the Executive Council on Integrity and Efficiency (now 

Council of the Inspectors General on Integrity and Efficiency). 

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FINDINGS 

 

Δ FINDINGS 

Carrier rates for nearly all lab tests varied, but 

83 percent of carrier rates were at the National 

Limit Amount 

In 2007, although 97 percent of lab 

tests had at least one carrier rate 

that varied from the NLA, most 

carrier rates for lab tests were at 

the NLA. Overall, 83 percent of carrier rates were set at the NLA. For 

the 17 percent of carrier rates below the NLA, carrier rates ranged from 

less than 1 percent to 93 percent below the NLA. On average, these 

carrier rates were 25 percent below the NLA. 

Similarly, most lab test utilization was paid at the NLA. Overall, 

89 percent of lab test utilization was paid at the NLA. In addition, most 

of the 11 percent of lab test utilization that was paid below the NLA was 

for lab tests that were paid near the NLA. For example, 47 percent of 

utilization for lab tests paid below the NLA was paid within 10 percent 

of the NLA. 

As illustrated in Chart 1, lab test utilization generally declined as the 

amount paid moved farther below the NLA, with a noticeable drop in 

lab test utilization when the amount paid was 25 percent or more below 

the NLA. In addition, Chart 1 demonstrates that carrier rates below 

the NLA were most prevalent where the percentage below the NLA was 

the smallest. The percentage of carrier rates below the NLA generally 

declined as the carrier rates moved farther below the NLA. 

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F NDINGS

Chart 1: Percentage of Lab Test Utilization and Carrier Rates at Different Percentages

Below the NLA

30% -----------

c(

..Z

:5 25%

~

Q¡ ai

Šni ii 20% "-el

"E

ni (J

i: -i Carrier Rates c:

ni

c: 15%

0 -+Lab Test

~

Utilization

§

$ 10% i-

~

..Õ

el

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~ ~ ~?~ ~~ ~ ~ ~d,~~dÆ~d~ ~ ~ ~ ~&* ~~ ~~&Ç&~&~&*~~&Ø& ~ ~ ~ ~ ~ ~ ~ ~ ~ v v v\\ ~ ~ ~ ~

Percenta e Below the NLA

Source: OIG analysis of the 2007 Clinical Laboratory Fee Schedule and Medicare Part B Claims data, 2008.

No carrier consistently had all

rates at the same percentage

below the NLA. Instead, each

carrier had rates dispersed at varying percentages below the NLA. For

example, Florida's carrier, the carrier with the highest utiization of lab

tests, ilustrates how carriers' rates were dispersed below the NLA.

Overall, 21 percent of Florida's carrier rates were below the NLA.

These rates ranged between less than 1 percent and 92 percent below

the NLA. See Chart 2 for the number of Florida's carrier rates at

different percentages below the NLA.

Variation in carrier rates did not appear to

reflect geographic differences in cost

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<1-5% 

5-10% 

10-15% 15-20% 20-25% 

25-30%

30-35% 35-40% 40-45% 

45-50%50-55%55-60% 60-65% 

65-70% 

70-75% 75-80%80-85% 85-90% 

90-95% 

FINDINGS 

Chart 2: Florida’s Carrier Rates Below the NLA 

0 

5 

10 

15 

20 

25 

30 

35 

40 

45 

50 

Number of Carrier Rates 

Percentage Below the NLA 

Source: OIG analysis of the 2007 Clinical Laboratory Fee Schedule and Medicare Part B Claims data, 2008. 

If a geographic assessment of costs had been consistently factored into 

the establishment of each carrier’s rates, each carrier might have 

been expected to have most, if not all, rates at the same percentage 

below the NLA. For example, under Medicare’s physician fee 

schedule and hospital outpatient prospective payment system, base 

rates from a single national fee schedule are adjusted to reflect 

geographic differences in costs, such as wages. As a result, rates for 

each physician or hospital outpatient service are adjusted by the same 

percentage from the corresponding fee schedule for each individual 

locality. 

Methods for setting carrier rates created Variation in carrier rates 

originates from the methods used inconsistent variation across carriers 

to establish and update the 

Clinical Laboratory Fee Schedule. When carriers established the 

Clinical Laboratory Fee Schedule in 1985, they used laboratory 

charge data from their localities to set payment rates. Although this 

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FINDINGS 

report did not assess the charge data used to establish the Clinical 

Laboratory Fee Schedule, evidence suggests that laboratory charge 

data may not have reflected the actual costs of performing lab tests.30 

In some cases, laboratory charge data may have reflected laboratories’ 

decisions on acceptable profit levels and market share. As a 

consequence, charge data may also not have reflected real differences 

in cost from carrier to carrier.31 

Since the establishment of the Clinical Laboratory Fee Schedule, the 

cross-walking and gap-filling methods used to update it have 

incrementally added to the variation in carrier rates. The cross-walking 

method builds upon existing variation because CMS assigns new lab 

tests the carrier rates of existing lab tests. Thus, if the existing lab test 

has variation, the new lab test has the same variation. The gap-filling 

method may also add to variation because CMS allows carriers, at their 

discretion, to use different sources of information to assign rates for new 

lab tests. 

If CMS continues to use these two methods for updating the Clinical 

Laboratory Fee Schedule, variation that does not reflect actual costs 

will remain and possibly increase over time. For example, between 

2002 and 2007, CMS added 70 new lab tests to the Clinical 

Laboratory Fee Schedule and deleted 24 lab tests. During this time, 

the variation in the Clinical Laboratory Fee Schedule increased 

slightly, from 16.8 percent of carrier rates below the NLA to 

17.1 percent. IOM found that about 15 percent of carrier rates were 

below the NLA in 2000.32 

Variation was greater for some carriers than others 

The methods used to establish and update the Clinical Laboratory Fee 

Schedule resulted in the proportion of rates below the NLA varying 

across carriers. At one end, Alaska’s carrier had 3 percent of its rates 

below the NLA. At the other end, Utah’s carrier had 31 percent of its 

rates below the NLA. Most carriers (34 of 56) had between 

10 and 24 percent of their rates below the NLA. See Appendix A for the 

proportion, average, and range of rates below the NLA for each carrier. 

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30 Wolman, et al., op. cit., p. 89. 

31 Wolman, et al., op. cit., p. 95. 

32 Wolman, et al., op. cit., p. 90. 

11 
 

 

FINDING 
 S 

Carriers also differed with respect to the amounts at which their rates 

were below the NLA. At the low end of the range of variation, 

Kentucky’s carrier had an average rate 16 percent below the NLA. At 

the high end of the range, Wisconsin’s carrier had an average rate of 

38 percent below the NLA. 

Variation of rates across carriers means that some carriers paid 

different amounts for the same lab test. For example, the carrier rate 

for one genetic test was $12.82 in California and $95.84 in Wyoming. 

Similarly, the carrier rate for one breath analysis test was $60.66 in 

New Jersey and $94.11 in Kentucky. Another example concerns the two 

most utilized tests. For the most utilized lab test, the carrier rate for 

Kentucky was at the NLA (the highest possible carrier rate), whereas 

the carrier rate for Kansas was 40 percent below the NLA (the lowest 

carrier rate for this lab test). However, the reverse was true for the 

second most utilized lab test. The carrier rate for Kansas was at the 

NLA, whereas the carrier rate for Kentucky was 21 percent below the 

NLA (the lowest carrier rate for this lab test). See Appendix B for 

examples of variation in the carrier rates for the 10 most utilized lab 

tests. 

Because carriers pay different rates for the same lab test, variation 

affects Medicare payments. Medicare paid over $3.4 billion using the 

current carrier rates for lab tests in 2007. If variation had been 

eliminated by setting all carrier rates at the current NLA, Medicare 

payments would have increased by $74 million, bringing the total to 

almost $3.5 billion. On the other hand, if variation had been eliminated 

using a single rate based on a reduced NLA, Medicare would have paid 

less. For example, if all lab tests had been paid at 50 percent of the 

median carrier rate, Medicare payments would have been reduced to 

$2.4 billion, a reduction of $1 billion. Only if carrier rates had been set 

at 73 percent of the median carrier rate would variation have been 

eliminated with no change in overall Medicare payments. 

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Δ RECOMMENDATION 

Although variation affected nearly all lab tests, most carrier rates were 

at the NLA and the majority of lab test utilization was for lab tests paid 

at the NLA. The variation that existed in 2007 did not appear to reflect 

geographic differences in cost. Instead, the variation originated from 

the methods used to establish and update the Clinical Laboratory Fee 

Schedule. Variation of rates across carriers means that some carriers 

paid different amounts for the same lab test. 

In light of our findings, we make the following recommendation for 

setting payment rates for lab tests. 

CMS should seek legislation that would allow it to set accurate and 

reasonable payment rates for lab tests 

CMS should request legislative authority to institute a new process for 

setting accurate and reasonable payment rates that would represent 

costs, adjusted for any geographic differences. Whatever method CMS 

implements to set rates accurately and reasonably should be 

determined after careful consideration of the impact on Medicare costs 

and on laboratories. 

One approach would be for CMS to seek legislation to set a base 

payment rate for each lab test. IOM also recommended moving to a 

single base payment rate as a first step to a simplified and more 

rational payment system.33 If a single base payment rate for each lab 

test is set, CMS should consider adjusting these rates to reflect any 

actual geographic differences in cost. In addition, CMS may wish to 

consider adjusting base payment rates to take into account other factors 

affecting the cost of providing lab tests. 

One way to establish a base payment rate for each lab test would be to 

pay all lab tests at the current NLA or at a reduced NLA. In an earlier 

report, OIG found that setting a base payment rate using the NLA could 

be costly because doing so would require increasing some carrier rates.34 

However, cost-neutral base payment rates could be achieved by 

adjusting all carrier rates to a percentage of the NLA. We estimate that 

in 2007, a single payment rate based on 73 percent of the median 

carrier rate would not have resulted in a change in overall Medicare 

payments. 

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33 Wolman, et al., op. cit., pp. 146–147. 

34 OIG, “Medicare Reimbursement for Outpatient Laboratory Services,” 

OAI-04-88-01080, March 1989. 

13 
 

 

 

 

 

RECOMMENDATION

While using the NLA as a base payment rate would eliminate the 

current variation, payment rates using this approach may not 

accurately reflect cost because the NLA would still be derived from the 

same suspect data used to establish and update the Clinical Laboratory 

Fee Schedule. 

In seeking legislation to set accurate and reasonable payment rates for 

existing lab tests, CMS should include a process to set accurate and 

reasonable payment rates for new lab tests. 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

CMS did not concur, at this time, with our recommendation to seek 

legislation that would allow it to set accurate and reasonable payment 

rates for lab tests. CMS noted that the President’s budget for fiscal year 

2010 does not propose amending the payment methodology for lab tests. 

CMS also noted that it does not have the authority to standardize 

payment rates across the Clinical Laboratory Fee Schedule without a 

legislative change. We have clarified the recommendation language to 

reflect this. 

Although it did not concur at this time, CMS stated that it will consider 

our recommendation and that it is committed to improving payment 

policies for lab tests and to refining methodologies for establishing new 

payment rates. CMS suggested that using the gap-filling method for 

establishing payment rates for new lab tests in place of the 

cross-walking methodology has the potential to establish rates more 

closely tied to cost, but it was uncertain of unintended consequences. 

CMS further noted that recently established annual meetings that 

invite public discussion on the payment rates for new lab tests may lead 

to more accurate rates for new lab tests. 

We encourage CMS to pursue legislation that would allow it to set 

accurate and reasonable payment rates for lab tests. 

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Δ APPENDIX~A APPENDIX~A

Rates Below the National Limit Amount by Carrier 

Table 1: The Percentage, Average, and Range of 

Rates Below the National Limit Amount* by Carrier 

Percentage Average Smallest Largest 

of Carrier Percentage Percentage Percentage 

Rates Below Below the Below the Below the 

Carrier the NLA NLA NLA NLA 

AK 3% 25% 0.92% 76% 

NV 4% 24% 0.12% 65% 

HI 4% 30% 1.51% 84% 

CT 6% 27% 2.88% 81% 

MT 6% 26% 0.37% 91% 

OR 6% 22% 0.04% 82% 

MN 7% 18% 0.42% 67% 

OK 8% 27% 0.37% 69% 

CA2 8% 24% 0.77% 87% 

CA1 8% 24% 0.77% 87% 

AZ 9% 21% 0.54% 62% 

NM 9% 26% 0.20% 82% 

PR 10% 18% 0.26% 86% 

ND 10% 25% 0.03% 78% 

NJ 11% 17% 0.39% 73% 

IL 12% 27% 0.05% 81% 

LA 13% 31% 0.62% 73% 

MO2 13% 31% 0.13% 88% 

WI 14% 38% 0.45% 77% 

CO 14% 29% 0.03% 88% 

RI 15% 25% 0.31% 73% 

WV 15% 26% 1.66% 86% 

WA 16% 26% 0.17% 84% 

DC 16% 19% 0.22% 80% 

OH 16% 27% 0.93% 86% 

PA 16% 20% 0.19% 87% 

ID 17% 20% 0.59% 75% 

VA 17% 21% 0.90% 76% 

* National Limit Amount = NLA. 

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APPENDIX ~ A 

Table 1: The Percentage, Average, and Range of 

Rates Below the National Limit Amount by Carrier 

(Continued) 

Percentage of Average Smallest Largest 

Carrier Rates Percentage Percentage Percentage 

Below the Below the Below the Below the 

Carrier NLA NLA NLA NLA 

AR 17% 28% 0.05% 77% 

DE 18% 19% 0.22% 83% 

GA 18% 30% 0.08% 83% 

IA 18% 30% 0.05% 91% 

TX 18% 31% 0.21% 75% 

KS 18% 30% 0.09% 84% 

SD 19% 27% 0.03% 84% 

MD 20% 25% 0.14% 92% 

KY 21% 16% 0.29% 88% 

FL 21% 26% 0.23% 92% 

MA 22% 23% 0.68% 74% 

ME 22% 23% 0.68% 74% 

MO1 23% 33% 0.41% 85% 

NH 23% 23% 0.68% 82% 

SC 24% 27% 0.12% 85% 

MS 24% 27% 0.37% 85% 

TN 24% 21% 0.37% 87% 

IN 24% 25% 0.50% 87% 

AL 25% 22% 0.24% 87% 

NC 25% 19% 0.15% 88% 

NY3 26% 28% 0.42% 86% 

NY2 27% 31% 0.42% 86% 

NE 27% 32% 0.05% 93% 

WY 28% 29% 0.03% 79% 

NY1 29% 20% 0.04% 92% 

VT 29% 22% 0.29% 77% 

MI 30% 25% 0.09% 90% 

UT 31% 27% 0.03% 92% 

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Source: Office of Inspector General analysis of the 2007 Clinical Laboratory Fee 

Schedule, 2008. 

16 
 

 

 

 

 

Δ APPENDIX~B

Carrier Rates for the 10 Most Utilized Lab Tests 

Below is a chart showing the National Limit Amount (NLA) and carrier 

rates for the 10 most utilized lab tests for 2007. Carrier rates below the 

NLA are bolded and underlined. 

Table 2: Carrier Rates for the 10 Most Utilized Lab Tests for 2007 

Carrier 

Basic 

Metabolic 

Panel 

Comp. 

Metabolic 

Panel 

Lipid 

Panel 

Urinalysis 

w/ Scope 

Urinalysis 

Automated w/ 

Scope 

Urinalysis 

w/out 

Scope 

Glycosylated 

Hemoglobin 

Assay 

Thyroid 

Stimulating 

Hormone 

Complete 

Blood Count 

w/ Automated 

Differential 

White Blood 

Cell Count 

Prothobin 

Time 

NLA $11.83 $14.77 $18.72 $4.43 $4.43 $3.57 $13.56 $23.47 $10.86 $5.49 

AK $11.83 $14.77 $18.72 $4.43 $4.43 $3.57 $13.56 $23.47 $10.86 $5.49 

AL $11.83 $14.77 $15.88 $4.43 $4.43 $3.57 $13.56 $23.47 $10.86 $5.49 

AR $11.83 $14.77 $17.77 $4.43 $4.43 $3.57 $13.56 $23.47 $10.86 $5.49 

AZ $11.83 $14.77 $18.72 $4.43 $4.43 $3.57 $13.56 $23.47 $8.97 $5.49 

CA1 $11.83 $14.77 $18.72 $4.43 $4.43 $3.57 $13.56 $23.47 $10.86 $5.49 

CA2 $11.83 $14.77 $18.72 $4.43 $4.43 $3.57 $13.56 $23.47 $10.86 $5.49 

CO $11.83 $14.77 $18.72 $4.43 $4.43 $3.57 $13.56 $23.47 $9.88 $5.49 

CT $11.83 $14.77 $18.72 $4.43 $4.43 $3.57 $13.56 $23.47 $10.86 $5.49 

DC $11.83 $14.77 $18.72 $4.43 $4.43 $3.57 $13.56 $23.47 $10.86 $5.49 

DE $11.83 $14.77 $18.72 $4.41 $4.41 $3.57 $13.56 $23.47 $10.86 $5.49 

FL $11.83 $14.77 $18.72 $4.43 $4.43 $3.57 $13.56 $23.47 $10.86 $5.49 

GA $11.83 $14.77 $18.72 $4.43 $4.43 $3.57 $13.56 $23.47 $10.86 $5.49 

HI $11.83 $14.77 $18.72 $4.43 $4.43 $3.57 $13.56 $23.47 $10.86 $5.49 

IA $11.83 $14.77 $18.72 $4.43 $4.43 $3.57 $13.56 $23.47 $10.86 $4.89 

ID $11.83 $14.77 $15.85 $4.43 $4.43 $3.57 $9.77 $21.98 $10.86 $5.49 

IL $11.83 $14.77 $18.72 $4.43 $4.43 $3.57 $13.56 $23.47 $10.86 $5.49 

IN $8.93 $14.55 $18.72 $4.43 $4.43 $3.57 $13.56 $23.47 $10.86 $5.49 

KS $11.83 $14.77 $18.72 $4.43 $4.43 $3.57 $13.56 $23.47 $6.50 $5.49 

KY $9.37 $11.74 $15.91 $4.43 $4.43 $3.37 $13.56 $23.47 $10.86 $5.49 

LA $11.83 $14.77 $16.69 $4.43 $4.43 $3.57 $13.56 $23.47 $10.86 $5.49 

MA $11.83 $14.77 $18.72 $4.43 $4.43 $3.57 $13.56 $23.47 $10.86 $5.49 

MD $11.83 $14.77 $17.05 $4.43 $4.43 $3.57 $13.00 $23.47 $10.86 $5.25 

ME $11.83 $14.77 $18.72 $4.43 $4.43 $3.57 $13.56 $23.47 $10.86 $5.49 

MI $11.83 $14.55 $17.85 $4.43 $4.43 $3.57 $13.56 $23.47 $10.85 $5.49 

MN $11.83 $14.77 $18.72 $4.43 $4.43 $3.57 $13.56 $23.47 $10.86 $5.49 

MO1 $11.83 $14.77 $18.72 $4.43 $4.43 $3.57 $13.56 $23.47 $10.86 $5.49 

MO2 $11.83 $14.77 $18.72 $4.43 $4.43 $2.92 $13.56 $23.47 $10.86 $5.49 

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APPENDIX ~ B 

Table 2: Carrier Rates for the 10 Most Utilized Lab Tests for 2007 (Continued) 

Carrier 

Basic 

Metabolic 

Panel 

Comp. 

Metabolic 

Panel 

Lipid 

Panel 

Urinalysis 

w/ Scope 

Urinalysis 

Automated w/ 

Scope 

Urinalysis 

w/out 

Scope 

Glycosylated 

Hemoglobin 

Assay 

Thyroid 

Stimulating 

Hormone 

Complete 

Blood Count 

w/ Automated 

Differential 

White Blood 

Cell Count 

Prothobin 

Time 

NLA $11.83 $14.77 $18.72 $4.43 $4.43 $3.57 $13.56 $23.47 $10.86 $5.49 

MS $11.83 $14.77 $18.72 $4.43 $4.43 $3.57 $13.56 $22.73 $10.86 $5.49 

MT $11.83 $14.77 $18.72 $4.43 $4.43 $3.57 $13.56 $23.47 $10.86 $5.49 

NC $11.20 $11.80 $18.72 $4.43 $4.43 $3.57 $13.56 $22.77 $10.86 $5.49 

ND $11.83 $14.77 $17.05 $4.43 $4.43 $3.57 $13.56 $23.47 $10.86 $5.49 

NE $11.83 $14.77 $18.72 $4.43 $4.43 $3.57 $13.56 $23.47 $6.50 $5.49 

NH $11.83 $14.77 $18.72 $4.43 $4.43 $3.57 $13.56 $23.47 $10.86 $5.49 

NJ $11.83 $13.36 $18.72 $4.43 $4.43 $3.57 $13.56 $23.47 $10.86 $5.49 

NM $11.83 $14.77 $17.16 $4.43 $4.43 $3.57 $13.56 $23.47 $10.86 $5.49 

NV $11.83 $14.77 $18.72 $4.43 $4.43 $3.57 $13.56 $23.47 $10.86 $5.49 

NY1 $11.20 $14.77 $18.72 $4.43 $4.43 $3.57 $13.56 $23.47 $10.79 $5.49 

NY2 $8.93 $13.36 $18.72 $4.43 $4.43 $3.57 $13.56 $23.47 $10.86 $5.49 

NY3 $8.93 $13.36 $18.72 $4.43 $4.43 $3.57 $13.56 $23.47 $10.86 $5.49 

OH $10.25 $14.77 $17.77 $4.43 $4.43 $3.30 $13.56 $23.47 $10.86 $5.49 

OK $11.83 $14.77 $18.72 $4.43 $4.43 $3.28 $12.08 $23.47 $10.86 $5.49 

OR $11.83 $14.77 $18.72 $4.43 $4.43 $3.57 $13.56 $23.47 $10.86 $5.49 

PA $11.83 $14.77 $18.72 $4.43 $4.43 $3.57 $13.56 $23.47 $10.86 $5.49 

PR $11.83 $14.77 $18.72 $4.43 $4.43 $3.57 $13.56 $23.47 $10.86 $5.49 

RI $11.83 $14.77 $18.72 $4.43 $4.43 $3.57 $12.22 $23.47 $10.86 $5.49 

SC $11.83 $13.36 $13.69 $4.41 $4.41 $3.57 $13.56 $23.47 $10.36 $5.49 

SD $11.83 $14.77 $18.72 $4.43 $4.43 $3.57 $13.00 $23.47 $10.86 $5.49 

TN $9.64 $12.05 $18.72 $4.43 $4.43 $3.57 $13.56 $23.47 $10.86 $5.49 

TX $11.83 $14.77 $18.72 $4.43 $4.43 $3.57 $13.56 $23.47 $10.86 $5.49 

UT $11.83 $14.77 $18.72 $4.43 $4.43 $3.57 $13.56 $23.47 $7.39 $5.49 

VA $11.83 $14.77 $18.72 $4.43 $4.43 $3.57 $13.56 $23.47 $10.86 $5.49 

VT $11.83 $14.77 $15.34 $4.43 $4.43 $2.49 $13.56 $23.47 $10.86 $5.49 

WA $8.93 $11.92 $18.72 $4.43 $4.43 $3.57 $13.56 $23.39 $10.86 $5.49 

WI $11.83 $14.77 $18.72 $4.43 $4.43 $3.57 $13.56 $23.47 $10.86 $5.49 

WV $11.83 $14.77 $18.72 $4.43 $4.43 $3.29 $13.56 $23.47 $10.86 $5.49 

WY $10.74 $14.77 $15.56 $3.57 $3.57 $2.87 $10.61 $22.93 $10.86 $4.44 

Source: Office of Inspector General analysis of the 2007 Clinical Laboratory Fee Schedule and Medicare Part B Claims data, 2008. 

 O E I - 0 5 - 0 8 - 0 0 4 0 0 VARIATION IN THE CLINICAL L ABORATORY F EE S CHEDULE 18
 

 

if-f/'ti'.,.,..HO'¥,'4.,

{ DEPARTMENT OF HEALTH & HUMAN SERVICES

~<5~

Gelllers '0' Medicare & Medicaid ServICO'

200 Il1depelldence Avell". SW

Washinglo". DG 20201

DATE:

TO:

FRO

S BJECT:

MAY 2 1 2009

Daniel R. Levinson

Inspector General

~A A,ld.AA{)AA

Veflaffene Fnzzera) '¥"

Acting Administrator

Office of Inspector General' Draft Report: "Variation in the Clinical Laboratory

Fee Schedule' (OEI-05·08-00400)

The Centers for Medicare & Medicaid Services (CMS) appreciates the opportunity to review and

provide comments 00 the Office of Inspector General's (OIG) draft report entitled "Variation in

the Clinical Laboratory Fee chedule." The report assessed carrier rates as well as utilization

and payments for Medicare-covered lab tests in 2007 and found variation across carriers that did

not appear to reflect geographic difference in cos!.

Medicare Part B payments for laboratory lests are determined by the Clinical Laboratory Fee

Schedule (CLFS). The Deficit Reduction Act of 1984 mandated that fee chedule be

established for each laboratory test on a regional, statewide, or carrier basis. As a result, each

carrier established its own fee schedule rates that are collectively known as the CLFS. The

Consolidated Omnibus Reconciliation Act of 1985 mandated a national limitation amount

(NLA). The NLA is set at 74 percent of the median carrier rate for each laboratory test (or 100

percent of the median for new tests for which an NLA was not established before January I,

2001). Based on section 1833(a)(1 )(0) and 1833(a)(2)(0) ofthe Social eeurity Act (the Act),

carriers pay the laboratories the lower ofthe laboratories' charges, the LA, or the carrier rate.

DIG Recommendation:

CMS should request legislative authority to institute a new process for setting accurate and

reasonable payment rates. CMS could use several methods to achieve this resull. Whatever

method CMS implements should be determined aller careful consideration ofthe impact on

Medicare costs and on the laboratory industry.

CMS Response:

We non-concur at this time. The President's budget for fiscal year 20 I0 docs not include any

proposals to amend the paymcnt methodology for clinical laboratory tests. However, we will

take this recommendation into consideration as we continue to monitor the effects of our current

payment policies.

Δ APPENDIX~C 

Agency Comments 

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Page 2 - Daniel R. Levinson

The OIG state that, in the interim, CM could standardize payment rates across the CLF and

suggests that this could be done by paying for all laboratory tests at the current LA or at a

reduced NLA. They further note that while setling base payment rates based on the LA would

eliminate tbe current variation, those payment rates may still not accurately reflect cost.

Therefore they recommend that MS consider adjusting these rates to renect geography and

other factors that affect co t.

Currently, CMS' authority to set payments at a different percentage of the NLA is limited by

statute. Specifically, section I833(a)(1 )(D) and I833(a)(2)(D) ofthe Act provide that, for

clinical laboratory diagnostic services, CMS shall pay the lesser ofthe CLFS amount, the NLA,

or thc amount of charges billed for the test. The statute also specifies how the amount of the

LA shall be calculated. Therefore, we do not have the authority at the current time to

standardize rates across the CLF by paying all tests at tbe current LA or a reduced NLA.

Finally, the OIG recommends that CMS develop a process to establisb accurate and reasonable

payment rates for new lab te ts that would represent costs, adjusted for any geographic

differences, and would not create new rate variations.

As described in the OIG's report, two methods are used to establish payment amounts for ncw

lab test codes. Cross-walking is used when a new test is determined to be imilar to an existing

test, multiple existing test codcs, or a portipn of an existing test code. The new test code is then

assigned the related existing local fee schedule amount and the related existing LA. Gapfilling is used when no comparable, existing test is available, and presents an opportunity to

establisb rates based on more updated cost data. While the gap-filling methodology has the

potential to establish new rates more closely lied to cost and 10 more narrowly limit variation

within carriers, it is far more common for us to use cross-walking to establish the rates for new

lab tests because new tests are frequently very similar to existing ones. If we were to use gapfilling even when it is possible to cross-walk, we might be able to establish payment that reflects

national average costs adjusted for geographic area differences but might create new

inconsistencies by having different rates within a single geographic area for laboratory services

with similar costs.

We do note, however, that in the calendar year 2007 Physician Fee cbedule, CMS implemented

section 942(b) of the Medicare Prescription Drug, Improvement, and Modernization Act of2003,

which required that CMS establish procedures [or consulting the public on'how to establish

payment for new clinical laboratory test codes to be included in the annual update of the CLFS.

Wc now hold an annual public meeting to allow for public input on the pricing of new tests and

we provide an additional opportunity for the public to comment once the proposed rates are

posted. Altendees and those who provide commentli are invited to submit cost data to aid CM

in accurately pricing new tests.

The CMS is committed to improving our CLF payment policies and to refining our

methodologies for e tablishing new payment rates. Therefore, we appreciate the opportunity to

comment on this report.

A P P E N D I X ~ C 

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APPENDIX~A 

APPENDIX~A 

 

Δ ACKNOWLEDGMENTS 

This report was prepared under the direction of Ann Maxwell, Regional 

Inspector General for Evaluation and Inspections in the Chicago 

regional office, and Thomas Komaniecki, Deputy Regional Inspector 

General. 

Mark Stiglitz served as the team leader for this study. Other principal 

Office of Evaluation and Inspections staff from the Chicago regional 

office who contributed include Mara Werner. Other principal central 

office staff who contributed include Cynthia Thomas, Scott Manley, and 

Robert Gibbons. 

 O E I - 0 5 - 0 8 - 0 0 4 0 0 VARIATION IN THE CLINICAL L ABORATORY F EE S CHEDULE 21