OIG: Medicare Could Have Saved $910 Million on Lab Tests in 2011

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By James Swann

Medicare could have saved $910 million in 2011 by paying the lowest possible rate for certain clinical lab tests, according to a report from the Department of Health and Human Services Office of Inspector General released June 11.

The report, Comparing Lab Test Payment Rates: Medicare Could Achieve Substantial Savings (OEI-07-11-00010), said “Medicare could have saved $910 million, or 38 percent, in 2011 if it had paid the same rate as the lowest paying insurer surveyed for each lab test in each geographic location.”

OIG looked at payment rates for 20 clinical lab tests in 56 geographic regions and compared Medicare's payment rates against those of Medicaid and three fee-for-service Federal Employees Health Benefits (FEHB) plans.

Medicare paid 20 percent more for the 20 lab tests than Medicaid and between 18 percent and 30 percent more than the three FEHB plans.

The report said the Centers for Medicare & Medicaid Services has limited authority to revise payment rates for clinical lab tests and that congressional action is required for any major payment rate changes.

Medicaid and the FEHB plans, on the other hand, have more flexibility in establishing payment rates.

“For example, eight Medicaid plans and four local FEHB plans reported that technological changes (e.g., benchmarking payment rates for new tests to the actual cost of performing them) are taken into account when establishing payment rates,” the report said.

OIG Recommendations

OIG recommended that CMS ask Congress to create lower payment rates for clinical lab tests. For example, congressional legislation could create demonstration programs to determine the value of lower payment rates, OIG said, or could allow CMS to make payment rate changes on a test-by-test basis.

OIG also recommended that CMS ask Congress to implement copays and deductibles for Medicare clinical lab tests. “The concept of beneficiary copayments and deductibles is used broadly for other types of services in Medicare; requiring them could lead to cost savings,” OIG said.

CMS neither agreed nor disagreed with the recommendations. The agency said it “is currently exploring whether it has the authority under the current statute to revise payments for clinical diagnostic laboratory services consistent with the OIG's recommendation.”

OIG asked CMS to indicate in its final management decision whether it agreed or disagreed with the recommendations.

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