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The United States health care system is in the fourth year of reimbursement changes. We will explore the effects of these changes on the AP market and in your laboratory. At the end of this presentation, you will have a better understanding of why these changes have occurred. In addition, we will look at solutions to help you through these market changes.
- Understand how US AP laboratories are paid.
- Review how reimbursement has changed over the past four years.
- What to expect in 2017.
- Discuss solutions to help your lab meet these challenges.
For the next hour I would like to talk to you all about understanding reimbursement in the U.S. and the changes that we've had to face, and what they mean to your anatomic pathology laboratory. I always start with this little rubrics congress, this little rubrics cube because certainly we've gone through a lot of puzzles over the last four years and I think it's one big so sure it’s going to continue for a while yet as we move forward.
But today, I want to cover a lot of information, but I’m hopeful that at the end of that, the presentation, that you will have some takeaways and understand how pathology labs are paid; how reimbursement has changed over the last four years; what we see next for our business, and I should add the word currently because it could be changing daily; and what do you do, what you can do in your laboratory to meet the challenges of this market.
Do how do we get paid for pathology services?
It's basically one of two ways. It's either we're paid for Medicare or we're paid for non-Medicare work. Medicare work is paid from the physician fee schedule which I’m sure most of you are familiar with. It comes out every January and it's the CPT codes which stands for Current Procedural Terminology. We deal with these codes every day in the laboratory and I’m sure you're familiar with them. The pathology codes are 88104 through 88399. Now there are three things that go into determining what the price is for each one of those codes. There's the technical component that we refer to as the TC, and that's the actual time that a specimen is in a laboratory, I like to say from the time it walks in the door, comes in the door till it goes out as a finished product, or slide. The professional component, or the PC time as we commonly refer to it, is the time it takes the pathologist to interpret and make a diagnosis on that specimen. And the third thing which I think a lot of people aren’t aware of is that the geographic area does play a part because the cost of living in a place like New York City or California is much higher than it is in Florida where I happen to live, or in other states. So they do have a factor that they count towards the cost of living. So for instance an 88305 biopsy would be reimbursed at a higher rate in New York or California than it would be say in Florida. So when you see published rates for codes, that is the average rate across the country, so it may not be the specific rate for your area.
And Medicare is also divided into multiple regions, and so you need to be aware of what region you fall into. All this is available on the CMS website. So you need to know what region you fall into because the regions in the last few years have begun to have a lot of authority in what is going to be allowed to be paid in that area and it can be different from region to region. The rule is that if something doesn’t have a national rule attached to it, or guideline, then each of the local regions has the authority to make their own rules and guidelines and these are called LCDs or Local Coverage Determination. And once again they're all published on the CMS website, so depending on where you live and what region you live in, you can look and see if there are any LCDs in effect that would affect your reimbursement in your area. And it's very good information to know because as I say in the last two or three years we're seeing the regions take on more and more of this responsibility of setting guidelines for Medicare on what they will pay and what they won't pay.
And then we had non-Medicare work which is also referred to in the literature and so forth as private payers. It's the insurance and self-pay. Self-pay is a very limited amount, so it's for the most part insurance. It does include private insurance companies as well as the Medicare replacement plans. This gets confusing because I have a lot of clients that think Medicare replacement plans follow the rules of Medicare, but for the most part they do not, they follow the rules of the insurance companies. And we'll see as we get further into this discussion, the rules can be different for Medicare and non-Medicare work. However, non-Medicare work does utilize the same CPT coding. And insurance companies can have contracts with individual laboratories and most of them do, especially with the large laboratories. Or their contracts may simply say they pay based on Medicare rate, therefore if Medicare goes up or down, their reimbursement rates would go up and down.
So why did we have to have reform in this country?
I get asked that a lot. And the truth is that our spending was totally unsustainable. The cost had grown over 400% between 1990 and 2012, and almost 200% between 2001 and 2012 so I think everyone knew that we needed to have some sort of reform. Plus even sadder than that, I always say that's me down there in the corner crying because our outcomes did not keep pace with spending. In 2012 there was a report put out that said the U.S. had the highest cost of healthcare of any industrialized nation per capita without significantly improved outcomes. So we had the highest income per person and we were ranked fifth in outcomes, which they base on life expectancy. So that was not good statistics. In 2016 we were even--2013 I’m sorry, we were even further down the list, so obviously reform needed to happen.
Along came the Affordable Care Act which was passed in 2012, and that brought rapid change. Along with putting millions more people on insurance which is what we commonly think of when we think of what the object of the Affordable Care Act, and certainly that was the big part of it, was to give everyone access to insurance. But there were a couple of other things that were just as important. They wanted to focus the chance to value and outcomes, and include incentives and penalties for performance by hospitals and by laboratories, by everyone, physicians, everyone in healthcare.
It also included aggressive reductions in Medicare reimbursement. The plan includes cutting not only hospital revenues but also the CPT codes for independent laboratories.
And finally they wanted to get more into bundled and quality based payments vs fee-for -service. Traditionally, in our laboratory business, we did a test, we bill for the test, and we got paid. They want to get away from that type of service and you're going to have bundled payments and we’ll talk about this and some of the quality based payments as we get further in the presentation as we're starting to see these rolled out a little bit more each year since this was enacted and it's a big, big change from the way we have been paid in the past.
For 2013 that was when we first saw the big change as far as reimbursement in pathology. We were expecting it, they told us in 2012 that they were going to cut the reimbursement for biopsy. The biopsy code, I call it our bread and butter of our business, the 88305, I'm sure everyone is aware of that knows that CPT code by heart. But we expected it to be in the range of 15% to 20% so people were not happy when it was announced in October 2012 that it was going to be cut 33% for the global reimbursement and 52% for the technical component. The professional component actually got a 2% increase, so altogether that made the global reimbursement 33%. It was $105.68 globally and it went down to $70.46. But if you look up at the technical component, we went from almost $70 to just under $34 which was a big cut on the technical component portion. Labs bill differently, and labs that bill globally for their work would not feel the hit as much as labs that bill separately. Many labs bill technical component and the pathologist, or the pathology groups bill their own professional component. And those types of labs took a much bigger hit than if they billed globally.
Now CMS which is the Centers for Medicare and Medicaid Services, which handles Medicare's responsible for Medicare, base this reduction on determining that the tech time for the 88305 was really 60 minutes vs 30 minutes which it had been previously. So that's the time it would take one tech, hands on time now, we’re not talking about while it's on the process or the stainer, but hands on time to process one biopsy through the lab from the minute it walks into the door till it goes out. So they determined that that time was 13 minutes vs 30. So this was the big hit for many pathology laboratories especially small labs that did mostly biopsies. So overall, for the whole AP market it was a 5 - 6% decrease.
I like to show this chart even though it's a 2012 chart but it gives you a perfect snapshot of why they selected the 88305 to make that cut. If you could, notice the CPT codes used in pathology along the bottom of the chart, and in 2012 alone the 88305 Medicare paid $1.7 billion out to laboratories for biopsies. That's $1.7 billion. And if you look at all the other CPT codes and add it up together, it would not add up to what that one code was. So by cutting that code 33%, they were actually able to save $600 million in one year on one CPT code. So many people think it was low hanging fruit as we say, but it certainly was a simple way for them to take a big chunk of reimbursement out of the pathology market.
In 2014, I'd like to call this the tornado year. It was a nightmare for pathology laboratories because they had told us in 2013 that they were going to look at IHC next, which is immunohistochemistry. But we didn’t expect the complicated rules or anticipate them that came out that January. What happened was the American Medical Association sets the dollar amount for coding and the rules for coding for the insurance work. And CMS for Medicare work wanted to change the guidelines so that the first primary antibody was by specimen and not by block as it had been. And the American Medical Association did not agree with them and they could not compromise and come to an agreement, so we ended up with two set of guidelines.
If a patient was a Medicare patient, they were billed for IHC by specimen, and if they were an insurance or private pay patient they were billed per block. And this was extremely difficult for laboratories because it required a lot of programming from