Originally Published IVD Technology April 2005
INDUSTRY NEWS
Lab reimbursement cuts in limbo
Richard Park
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President Bush’s federal budget for fiscal year 2006 does not make any specific proposals to cut reimbursement rates for clinical laboratory services. However, industry analysts believe that it is still too early to tell whether or not the government may impose such cuts later.
“We’re far from being out of the woods,” says Vince Stine, director of government affairs at the American Association for Clinical Chemistry (AACC; Washington, DC). “It’s quite early in the budget process. If Bush plans to do a number of the things that he’s talked about, it is going to require a significant amount of funds, and I don’t think at this point the Bush budget has really been laid out.”
With the President pledging to reduce the federal budget deficit and make past tax cuts permanent, analysts believe the House and Senate budget committees will have no other choice but to cut spending in certain domestic programs, such as Medicare. Analysts believe that clinical lab tests could be one of the items that may be considered for spending cuts in order to meet such budget goals.
“It’s likely that lab reimbursement cuts will be discussed,” says Stine. “There are many key players involved in this process who are likely to bring up laboratory services as one of the things that could be used to help reduce the deficit. So somewhere along the way, something about lab services will be thrown into the list of things Congress is going to talk about.”
Such thoughts are supported by a report released by the Congressional Budget Office (CBO; Washington, DC). In this report, CBO identified clinical laboratory services as one potential area that could generate cost savings. CBO recommended adopting a $100 deductible and a 20% beneficiary copayment for lab tests, similar to copayment plans for other health services. According to CBO, such changes could yield total savings of $5.9 billion during the next five years and $14.5 billion in 10 years.
Congress may also consider implementing a direct cut in the laboratory fee schedule. Analysts believe that the direct cut option could be more politically acceptable since it would not directly affect beneficiaries.
Issues that could affect reimbursement rates for clinical lab tests have always been a concern for IVD manufacturers. When deciding whether to invest in new technologies through research and development, licensing, or acquisition strategies, manufacturers consider and evaluate the likely Medicare payment rates in the context of pricing. Such an evaluation must include the level of clinical evidence and clinical utility that a test may offer to the marketplace, which are elements of value. A blockbuster test will command a fair price and will be in demand regardless of the reimbursement rate. However, not all new technologies gain blockbuster status nor are their values necessarily well understood or established initially at market entry. In addition, the reimbursement environment is unpredictable, and can make or break a new technology.
“Reimbursement cuts in lab tests, if they happen, will harm the laboratory community and will have ramifications for the IVD industry,” says Stine. “For example, labs may stop buying some new technologies because reimbursement is less and they have less money. Also, some facilities may decide to close their doors. Those labs are not only ones that were currently buying equipment, but they are also potential markets. Moreover, lab cuts may actually discourage people from entering the market because they have to get paid an adequate amount to do the testing and continue reinvesting in new technologies. So it’s a trickle- down effect that goes from one side to the other because everyone’s interrelated.”
The President’s 2006 federal budget may be accessed through the Office of Management and Budget’s Web site at www.whitehouse.gov/ omb/budget/fy2006/budget.html. The CBO’s report on budget options to reduce Medicare spending may be accessed through its Web site at www.cbo.gov/showdoc.cfm?index=6075&sequence=13.
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