80 FR 59385 - Medicare Program; Medicare Clinical Diagnostic Laboratory Tests Payment System

DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services

Federal Register Volume 80, Issue 190 (October 1, 2015)

Page Range		59385-59422
FR Document		2015-24770

This proposed rule would significantly revise the Medicare payment system for clinical diagnostic laboratory tests and would implement other changes required by section 216 of the Protecting Access to Medicare Act of 2014.

Federal Register, Volume 80 Issue 190 (Thursday, October 1, 2015)

[Federal Register Volume 80, Number 190 (Thursday, October 1, 2015)]
[Proposed Rules]
[Pages 59385-59422]
From the Federal Register Online [www.thefederalregister.org]
[FR Doc No: 2015-24770]

[[Page 59385]]

Vol. 80

Thursday,

No. 190

October 1, 2015

Part III

Department of Health and Human Services

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Centers for Medicare & Medicaid Services

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42 CFR Part 414

Medicare Program; Medicare Clinical Diagnostic Laboratory Tests Payment
System; Proposed Rule

Federal Register / Vol. 80 , No. 190 / Thursday, October 1, 2015 /
Proposed Rules

[[Page 59386]]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 414

[CMS-1621-P]
RIN 0938-AS33

Medicare Program; Medicare Clinical Diagnostic Laboratory Tests
Payment System

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Proposed rule.

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SUMMARY: This proposed rule would significantly revise the Medicare
payment system for clinical diagnostic laboratory tests and would
implement other changes required by section 216 of the Protecting
Access to Medicare Act of 2014.

DATES: To be assured consideration, comments must be received at one of
the addresses provided below, no later than 5 p.m. on November 24,
2015.

ADDRESSES: In commenting, please refer to file code CMS-1621-P. Because
of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission.
You may submit comments in one of four ways (please choose only one
of the ways listed):
1. Electronically. You may submit electronic comments on this
regulation to http://www.regulations.gov. Follow the ``Submit a
comment'' instructions.
2. By regular mail. You may mail written comments to the following
address ONLY: Centers for Medicare & Medicaid Services, Department of
Health and Human Services, Attention: CMS-1621-P, P.O. Box 8016,
Baltimore, MD 21244-8016.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments to
the following address ONLY: Centers for Medicare & Medicaid Services,
Department of Health and Human Services, Attention: CMS-1621-P, Mail
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
4. By hand or courier. Alternatively, you may deliver (by hand or
courier) your written comments ONLY to the following addresses prior to
the close of the comment period:
a. For delivery in Washington, DC-- Centers for Medicare & Medicaid
Services, Department of Health and Human Services, Room 445-G, Hubert
H. Humphrey Building, 200 Independence Avenue SW., Washington, DC
20201.
(Because access to the interior of the Hubert H. Humphrey Building
is not readily available to persons without Federal government
identification, commenters are encouraged to leave their comments in
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing
by stamping in and retaining an extra copy of the comments being
filed.)
b. For delivery in Baltimore, MD-- Centers for Medicare & Medicaid
Services, Department of Health and Human Services, 7500 Security
Boulevard, Baltimore, MD 21244-1850.
If you intend to deliver your comments to the Baltimore address,
call telephone number (410) 786-7195 in advance to schedule your
arrival with one of our staff members.
Comments erroneously mailed to the addresses indicated as
appropriate for hand or courier delivery may be delayed and received
after the comment period.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Marie Casey, (410) 786-7861 or Karen
Reinhardt (410) 786-0189 for issues related to the local coverage
determination process for clinical diagnostic laboratory tests.
Valerie Miller, (410) 786-4535 or Sarah Harding, (410) 786-4001 for
all other issues.

SUPPLEMENTARY INFORMATION:
Inspection of Public Comments: All comments received before the
close of the comment period are available for viewing by the public,
including any personally identifiable or confidential business
information that is included in a comment. We post all comments
received before the close of the comment period on the following Web
site as soon as possible after they have been received: http://www.regulations.gov. Follow the search instructions on that Web site to
view public comments.
Comments received timely will also be available for public
inspection as they are received, generally beginning approximately 3
weeks after publication of a document, at the headquarters of the
Centers for Medicare & Medicaid Services, 7500 Security Boulevard,
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30
a.m. to 4 p.m. To schedule an appointment to view public comments,
phone 1-800-743-3951.
To assist readers in referencing sections contained in this
document, we are providing the following Table of Contents.

Table of Contents

I. Executive Summary and Background
A. Executive Summary
1. Purpose and Legal Authority
2. Summary of the Major Provisions of This Proposed Rule
3. Summary of Costs and Benefits
B. Background
1. The Medicare Clinical Laboratory Fee Schedule (CLFS)
2. Statutory Bases for Changes in Payment, Coding, and Coverage
Policies for Clinical Diagnostic Laboratory Tests (CDLT)
II. Provisions of the Proposed Rule
A. Definition of Applicable Laboratory
B. Definition of Applicable Information
C. Definition of Advanced Diagnostic Laboratory Tests (ADLTs)
and New ADLTs
1. Definition of ADLT
2. Definition of New ADLT
D. Data Collection and Data Reporting
1. Definitions
2. General Data Collection and Data Reporting Requirements
3. Data Reporting Requirements for New ADLTs
E. Data Integrity
1. Penalties for Non-Reporting
2. Data Certification
F. Confidentiality and Public Release of Limited Data
G. Coding for Certain Clinical Diagnostic Laboratory Tests
(CDLTs) on the CLFS
1. Background
2. Coding Under PAMA
a. Temporary Codes for Certain New Tests
b. Coding and Publication of Payment Rates for Existing Tests
c. Establishing Unique Identifiers for Certain Tests
H. Payment Methodology
1. Calculation of Weighted Median
2. Phased-in Payment Reduction
3. Payment for New ADLTs
4. Recoupment of Payment for New ADLTs if Actual List Charge
Exceeds Market Rate
5. Payment for Existing ADLTs
6. Payment for New CDLTs That Are Not ADLTs
a. Definitions
b. Crosswalking and Gapfilling
c. Public Consultation Procedures
7. Medicare Payment for Tests Where No Applicable Information Is
Reported
I. Local Coverage Determination Process and Designation of
Medicare Administrative Contractors for Clinical Diagnostic
Laboratory Tests
J. Other Provisions
1. Advisory Panel on Clinical Diagnostic Laboratory Tests
2. Exemption From Administrative and Judicial Review
3. Sample Collection Fee
III. Collection of Information Requirements
IV. Response to Comments
V. Regulatory Impact Analysis

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Acronyms

Because of the many terms to which we refer by acronym in this
proposed rule, we are listing these abbreviations and their
corresponding terms in alphabetical order below:

ADLT Advanced Diagnostic Laboratory Test
CCN CMS Certification Number
CDLT Clinical Diagnostic Laboratory Test
CEO Chief Executive Officer
CFR Code of Federal Regulations
CLFS Clinical Laboratory Fee Schedule
CLIA Clinical Laboratory Improvement Amendments of 1988
CMP Civil Monetary Penalty
CMS Centers for Medicare & Medicaid Services
CPT American Medical Association's Current Procedural Terminology
CR Change Request
CY Calendar Year
DNA Deoxyribonucleic Acid
FDA Food and Drug Administration
HCPCS Healthcare Common Procedure Coding System
HHA Home Health Agency
HIPAA Health Insurance Portability and Accountability Act of 1996
IRS Internal Revenue Service
LCD Local Coverage Determination
MAC Medicare Administrative Contractor
NCD National Coverage Determination
NLA National Limitation Amount
NOC Not Otherwise Classified
NPI National Provider Identifier
OPPS Hospital Outpatient Prospective Payment System
PAMA Protecting Access to Medicare Act of 2014
PFS Physician Fee Schedule
Q1 First Quarter
Q2 Second Quarter
Q3 Third Quarter
Q4 Fourth Quarter
RNA Ribonucleic Acid
SNF Skilled Nursing Facility
TIN Taxpayer Identification Number

I. Executive Summary and Background

A. Executive Summary

1. Purpose and Legal Authority
Since 1984, Medicare has paid for clinical diagnostic laboratory
tests (CDLTs) on the Clinical Laboratory Fee Schedule (CLFS) under
section 1833(h) of the Social Security Act (the Act). Section 216(a) of
the Protecting Access to Medicare Act of 2014 (PAMA) (Pub. L. 113-93,
enacted on April 1, 2014) added section 1834A to the Act. This statute
requires extensive revisions to the Medicare payment, coding, and
coverage requirements for CDLTs. In this proposed rule, we present our
specific proposals for implementing the requirements of section 1834A
of the Act.
2. Summary of the Major Provisions of This Proposed Rule
Section 1834A of the Act significantly changes how CMS will set
Medicare payment rates for CDLTs, which are paid for on the CLFS.
Applicable laboratories will be required to report to CMS certain
information about the payment rates paid by private payors for each
CDLT and the corresponding volumes of such tests furnished during a
period of time specified by the Secretary of the Department of Health
and Human Services (the Secretary). In general, with certain designated
exceptions, the statute requires that the payment amount for CDLTs
furnished on or after January 1, 2017, be equal to the weighted median
of private payor rates determined for the test, based on certain data
reported by laboratories during a specified data collection period.
Different reporting and payment requirements will apply to a subset of
CDLTs that are determined to be advanced diagnostic laboratory tests
(ADLTs). The most significant proposed policies in this proposed rule
include the following (more detailed descriptions follow the bulleted
list):
The definition of ``applicable laboratory'' (the entities
that must report applicable information).
The definition of ``applicable information'' (the specific
data that must be reported).
The definition of an ADLT.
Data collection and data reporting.
The schedule for reporting applicable information to CMS.
Data integrity.
Confidentiality and public release of limited data.
Coding for certain CDLTs.
The payment methodology for CDLTs.
The local coverage determination (LCD) process and the
designation of Medicare Administrative Contractors (MACs) for
laboratory tests.
Under the authority of section 1834A(a)(2) of the Act, in section
II.A of this proposed rule, we are proposing to define an ``applicable
laboratory'' as a laboratory that receives more than 50 percent of its
Medicare revenues from 42 CFR part 414, subparts G and B (that is, for
services that are paid by Medicare under the CLFS and the Physician Fee
Schedule (PFS)) in a data collection period. We also propose that if a
laboratory receives less than $50,000 in Medicare revenues in a data
collection period from 42 CFR part 414, subpart G (that is, for
services that are paid by Medicare on the CLFS), it would be excluded
from the definition of an applicable laboratory. In addition, we are
proposing to define applicable laboratories at the Taxpayer
Identification Number (TIN) level rather than the National Provider
Identifier (NPI) level.
The statute requires an applicable laboratory to report the
following applicable information for each test on the CLFS it performs:
(1) The payment rate that was paid by each private payor for each test
during the data collection period; and (2) the volume of such tests for
each such payor. As discussed in section II.B., we propose to use the
term ``private payor rate'' in the context of applicable information,
instead of ``payment rate,'' in order to minimize confusion because we
typically use the term payment rate to generically refer to the amount
paid under the CLFS. We propose that the private payor rate reflects
the price for a test prior to application of any patient deductible and
coinsurance amounts. We are also proposing that only applicable
laboratories may report applicable information.
Section 1834A(d)(5) of the Act specifies criteria for defining an
ADLT (discussed in section II.C.) and authorizes the Secretary to
establish additional criteria. At this time, we are only proposing to
apply the criteria specified in statute and are not proposing any
additional criteria under the statutory authority conferred upon the
Secretary.
In section II.D. of this proposed rule, for the initial data
collection period, we propose that applicable laboratories must report
applicable information to CMS for the period of July 1, 2015, through
December 31, 2015. All subsequent data collection periods would cover a
full calendar year (CY). Further, we are proposing that all applicable
information, except for new ADLTs, would be due to CMS by March 31 of
the year following the data collection period. We also propose that the
applicable information for new ADLTs must be reported to CMS by the end
of the second quarter of the new ADLT initial period.
We propose to apply a civil monetary penalty (CMP) to an applicable
laboratory that fails to report or that makes a misrepresentation or
omission in reporting applicable information (described in section
II.E.). We propose to require all data to be certified by the
President, Chief Executive Officer (CEO), or Chief Financial Officer
(CFO) of a laboratory before it is submitted to CMS. As required by
section 1834A(a)(10) of the Act, certain information disclosed by a
laboratory under section 1834A(a) of the Act is confidential and may
not be disclosed by the Secretary or a Medicare contractor in a form
that reveals the identity of a specific payor or laboratory, or prices,
charges or payments made to any such laboratory,

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with several exceptions (described in section II.F.).
We propose to use G codes, which are part of the Healthcare Common
Procedure Coding System (HCPCS) coding system CMS uses for programmatic
purposes, to temporarily identify new ADLTs and new laboratory tests
that are cleared or approved by the Food and Drug Administration (FDA).
The temporary codes would be in effect for up to 2 years until a
permanent HCPCS code is established except if the Secretary determines
it is appropriate to extend the use of the temporary code.
As required by section 1834A(b) of the Act, payment amounts for
laboratory tests on the CLFS will be determined by calculating a
weighted median of private payor rates using reported private payor
rates and associated volume (number of tests). For tests that were paid
on the CLFS prior to the implementation of section 1834A of the Act,
PAMA requires that any reduction in payment amount be phased in over
the first 6 years of payment under the new system. For new ADLTs,
initial payment will be based on the actual list charge of the test for
3 calendar quarters; thereafter, the payment rate will be determined
using the weighted median of private payor rates and associated volume
(number of tests) reported every year. For new and existing tests for
which we receive no applicable information to calculate a weighted
median, we propose that payment rates be determined by using
crosswalking or gapfilling methods. These methods of determining
payment are discussed in section II.H. of this proposed rule.
Section 1834A(g)(2) of the Act authorizes the Secretary to
designate one or more (not to exceed four) MACs to establish coverage
policies, or establish coverage policies and process claims, for CDLTs.
As noted in section II.I. of this proposed rule, we are requesting
public comment on the benefits and disadvantages of implementing this
discretionary authority before making proposals on this topic. We are
therefore making no proposals with regard to this topic at this time.
3. Summary of Costs and Benefits
In section V. of this proposed rule, we provide a regulatory impact
analysis that, to the best of our ability, describes the expected
impact of the proposals described in this proposed rule. The proposed
policies, which would implement new section 1834A of the Act, include a
process for collecting applicable information from applicable
laboratories on the rates that are paid by private payors for CDLTs and
their associated volume. We note that, because such data are not yet
available, we are limited in our ability to provide estimated impacts
of the proposed payment policies under different scenarios.

B. Background

1. The Medicare Clinical Laboratory Fee Schedule (CLFS)
Currently, under sections 1832, 1833(a), (b), and (h), and 1861 of
the Act, CDLTs furnished on or after July 1, 1984 in a physician's
office, by an independent laboratory, or in limited circumstances by a
hospital laboratory for its outpatients or non-patients are paid under
the Medicare CLFS, with certain exceptions. Under this section, tests
are paid the lesser of (1) the billed amount, (2) the fee schedule
amount established by Medicare contractors, or (3) a National
Limitation Amount (NLA), which is a percentage of the median of all the
state and local fee schedules.
Under the current system, the CLFS amounts are updated for
inflation based on the percentage change in the Consumer Price Index
for all urban consumers (CPI-U) and reduced by a multi-factor
productivity adjustment (see section 1833(h)(2)(A) of the Act). For CY
2015, under section 1833(h)(2)(A)(iv)(II) of the Act, we also reduced
the update amount by 1.75 percentage points. In the past, we have
implemented other adjustments or did not apply the change in the CPI-U
to the CLFS for certain years in accordance with statutory mandates. We
do not otherwise update or change the payment amounts for tests on the
CLFS. Generally, coinsurance and deductibles do not apply to CDLTs paid
under the CLFS.
For any CDLT for which a new or substantially revised HCPCS code
has been assigned on or after January 1, 2005, we determine the basis
for and amount of payment based on one of two methodologies--
crosswalking and gapfilling (see section 1833(h)(8) of the Act and
Sec. 414.500 through Sec. 414.509). The crosswalking methodology is
used when a new test is comparable in terms of test methods and
resources to an existing test, multiple existing test codes, or a
portion of an existing test code on the CLFS. In such a case, CMS
assigns the new test code the local fee schedule amount and the NLA of
the existing test and pays for the new test code at the lesser of the
local fee schedule amount or the NLA. Gapfilling is used when no
comparable test exists on the CLFS. Under gapfilling, MACs establish
local amounts for the new test code using the following sources of
information, if available: (1) Charges for the test and routine
discounts to charges; (2) resources required to perform the test; (3)
payment amounts determined by other payors; and (4) charges, payment
amounts, and resources required for other tests that may be comparable
or otherwise relevant. Under this gapfilling methodology, an NLA is
calculated after a year of employing a local amount on the basis of the
median amount for the test code across all MACs. Once established, in
most cases, we can only reconsider the crosswalking or gapfilling basis
and/or amount of payment for new tests for one additional year after
the basis or payment is initially set. Once the reconsideration process
is complete, payment cannot be further adjusted (except by a change in
the CPI-U, the productivity adjustment, and any other adjustments
required by statute).
In 2014, Medicare paid approximately $8 billion for CDLTs. As the
CLFS has grown from approximately 400 tests to over 1,300 tests, some
test methods have become outdated and some tests may no longer be
priced appropriately. For example, some tests have become faster and
cheaper to perform, with little need for manual interaction by
laboratory technicians, while more expensive and complex tests have
been developed that bear little resemblance to the simpler tests that
were performed at the inception of the CLFS.
Another complexity we must consider is the various types of
laboratories that bill Medicare under the CLFS. Medicare-enrolled
laboratories include a mix of national chains that furnish a large menu
of tests, and small regional operations that may concentrate on a
specific population, such as nursing home residents, or that have a
small menu of tests. Physicians' offices also perform certain tests
that are paid under the CLFS.
2. Statutory Bases for Changes in Payment, Coding, and Coverage
Policies for Clinical Diagnostic Laboratory Tests
Section 1834A of the Act, as added by section 216(a) of PAMA,
requires extensive revisions to the Medicare payment, coding, and
coverage requirements for CDLTs. In this section, we describe the major
provisions of section 1834A of the Act, which we are proposing to
implement in this proposed rule.
Section 1834A(a)(1) of the Act requires reporting of private payor
payment rates for CDLTs by applicable laboratories to establish
Medicare payment rates for tests paid under the

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CLFS. Specifically, each applicable laboratory must report to the
Secretary, at a time specified by the Secretary and for a designated
data collection period, applicable information for each CDLT the
laboratory furnishes during such period for which Medicare payment is
made. Section 1834A(a)(2) of the Act defines the term ``applicable
laboratory'' to mean a laboratory that receives a majority of its
Medicare revenues from sections 1834A, 1833(h) (the statutory
authorities under which CLFS payments are made), or 1848 (the authority
under which PFS payments are made) of the Act. Section 1834A(a)(2) of
the Act also provides that the Secretary may establish a low volume or
low expenditure threshold for excluding a laboratory from the
definition of an applicable laboratory, as the Secretary determines to
be appropriate.
Section 1834A(a)(3)(A) of the Act defines the term ``applicable
information'' as the payment rate that was paid by each private payor
for each CDLT and the volume of such tests for each such payor for the
data collection period. Under section 1834A(a)(5) of the Act, the
payment rate reported by a laboratory must reflect all discounts,
rebates, coupons, and other price concessions, including those
described in section 1847A(c)(3) of the Act regarding the average sales
price for Part B drugs or biologicals. Section 1834A(a)(6) of the Act
further specifies that, where an applicable laboratory has more than
one payment rate for the same payor for the same test, or more than one
payment rate for different payors for the same test, the applicable
laboratory must report each such payment rate and the volume for the
test at each such rate. This paragraph also provides that, beginning
January 1, 2019, the Secretary may establish rules to aggregate
reporting in situations where a laboratory has more than one payment
rate for the same payor for the same test, or more than one payment
rate for different payors for the same test. Under section
1834A(a)(3)(B) of the Act, information about laboratory tests for which
payment is made on a capitated basis or other similar payment basis is
not considered ``applicable information'' and is therefore excluded
from the reporting requirements.
Section 1834A(a)(4) of the Act defines the term ``data collection
period'' as a period of time, such as a previous 12-month period,
specified by the Secretary. Section 1834A(a)(7) of the Act requires
that an officer of each laboratory must certify the accuracy and
completeness of the information reported by laboratories. Section
1834A(a)(8) of the Act defines the term ``private payor'' as a health
insurance issuer and a group health plan (as such terms are defined in
section 2791 of the Public Health Service Act), a Medicare Advantage
plan under Medicare Part C, or a Medicaid managed care organization (as
defined in section 1903(m) of the Act).
Section 1834A(a)(9)(A) of the Act authorizes the Secretary to apply
a CMP in cases where the Secretary determines that an applicable
laboratory has failed to report, or made a misrepresentation or
omission in reporting, applicable information under section 1834A(a) of
the Act for a CDLT. In these cases, the Secretary may apply a CMP in an
amount of up to $10,000 per day for each failure to report or each such
misrepresentation or omission. Section 1834A(a)(9)(B) of the Act
further provides that the provisions of section 1128A of the Act (other
than subsections (a) and (b)) shall apply to a CMP under this paragraph
in the same manner as they apply to a CMP or proceeding under section
1128A(a) of the Act. Section 1128A of the Act governs CMPs that apply
in general under federal health care programs. Thus, the provisions of
section 1128A of the Act (specifically sections 1128A(c) through
1128A(n) of the Act) apply to a CMP under section 1834A(a)(9) of the
Act in the same manner as they apply to a CMP or proceeding under
section 1128A(a) of the Act. That is, the existing CMP provisions apply
to the laboratory data collection process under 1834A of the Act, just
as the CMP provisions are applied now to other processes, such as the
Medicare Part B drug data collection process under sections 1847A and
1927 of the Act.
Section 1834A(a)(10) of the Act addresses the confidentiality of
the information reported to the Secretary. Specifically, this paragraph
provides that, notwithstanding any other provision of law, information
disclosed by a laboratory under the data reporting requirements is
confidential and shall not be disclosed by the Secretary or a Medicare
contractor in a form that discloses the identity of a specific payor or
laboratory, or prices charged, or payments made to any such laboratory,
except: (1) As the Secretary determines to be necessary to carry out
this section; (2) to permit the Comptroller General to review the
information provided; (3) to permit the Director of the Congressional
Budget Office to review the information provided; and (4) to permit the
Medicare Payment Advisory Commission (MedPAC) to review the information
provided. Section 1834A(a)(11) of the Act further states that a payor
shall not be identified on information reported under the data
reporting requirements, and that the name of an applicable laboratory
shall be exempt from disclosure under the Freedom of Information Act, 5
U.S.C. 552(b)(3).
Section 1834A(a)(12) of the Act requires the Secretary to establish
parameters for the data collection under section 1834A(a) of the Act
through notice and comment rulemaking no later than June 30, 2015.
Section 1834A(b) of the Act establishes a new methodology for
determining Medicare payment rates for CDLTs. Section 1834A(b)(1)(A) of
the Act provides that, in general, the payment amount for a CDLT
(except for new ADLTs and new CDLTs) furnished on or after January 1,
2017, shall be equal to the weighted median determined under section
1834A(b)(2) of the Act for the test for the most recent data collection
period. Section 1834A(b)(1)(B) of the Act specifies that the payment
amounts established under this methodology shall apply to a CDLT
furnished by a hospital laboratory if the test is paid for separately,
and not as part of a bundled payment under the hospital outpatient
prospective payment system (OPPS) (section 1833(t) of the Act). Section
1834A(b)(2) of the Act provides that the Secretary shall calculate a
weighted median for each test for the data collection period by
arraying the distribution of all payment rates reported for the period
for each test weighted by volume for each payor and each laboratory.
Section 1834A(b)(4)(A) of the Act states that the payment amounts
established under this methodology for a year following a data
collection period shall continue to apply until the year following the
next data collection period. Moreover, section 1834A(b)(4)(B) of the
Act specifies that the payment amounts established under section 1834A
of the Act shall not be subject to any adjustment (including any
geographic adjustment, budget neutrality adjustment, annual update, or
other adjustment).
Section 1834A(b)(3) of the Act requires a phase-in of any reduction
in payment amounts for a CDLT for each year from 2017 through 2022.
Specifically, section 1834A(b)(3)(A) of the Act requires that the
payment amounts determined under the new methodology for a CDLT for
each of 2017 through 2022 shall not result in a reduction in payments
for that test for the year that is greater than the ``applicable
percent'' of the payment amount for the test for the preceding year.
Section 1834A(b)(3)(B) of the Act defines these maximum applicable

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percent reductions as follows: for each of 2017 through 2019, 10
percent; and for each of 2020 through 2022, 15 percent. However,
section 1834A(b)(3)(C) of the Act specifies that this payment reduction
limit shall not apply to a new CDLT under section 1834A(c)(1) of the
Act, or to a new ADLT, as defined in section 1834A(d)(5) of the Act.
Section 1834A(b)(5) of the Act increases by $2 the nominal fee that
would otherwise apply under section 1833(h)(3)(A) of the Act for a
sample collected from an individual in a Skilled Nursing Facility (SNF)
or by a laboratory on behalf of a Home Health Agency (HHA). This
provision has the effect of raising the sample collection fee from $3
to $5 when the sample is being collected from an individual in a SNF or
a laboratory on behalf of an HHA.
Section 1834A(d)(5) of the Act defines an ADLT to mean a CDLT
covered under Medicare Part B that is offered and furnished only by a
single laboratory and not sold for use by a laboratory other than the
original developing laboratory (or a successor owner) and meets one of
the following criteria: (1) The test is an analysis of multiple
biomarkers of deoxyribonucleic acid (DNA), ribonucleic acid (RNA), or
proteins combined with a unique algorithm to yield a single patient-
specific result; (2) the test is cleared or approved by the FDA; or (3)
the test meets other similar criteria established by the Secretary.
Section 1834A(d)(1)(A) of the Act provides that, in the case of an
ADLT for which payment has not been made under the CLFS prior to April
1, 2014 (the date of enactment of PAMA), during an initial 3 quarters,
the payment amount for the test shall be based on the actual list
charge for the test. Section 1834A(d)(1)(B) of the Act defines the term
``actual list charge'' for purposes of this provision to mean the
publicly available rate on the first day at which the test is available
for purchase by a private payor. For the reporting requirements for
such tests, under section 1834A(d)(2) of the Act, an applicable
laboratory will initially be required to comply with the data reporting
requirements under section 1834A(a) of the Act by the last day of the
second quarter (Q2) of the initial 3 quarter period. Section
1834A(d)(3) of the Act requires that, after this initial period, the
data reported under paragraph 1834A(d)(2) of the Act shall be used to
establish the payment amount for an ADLT described in section
1834A(d)(1)(A) of the Act using the payment methodology for CDLTs under
section 1834A(b) of the Act. This payment amount shall continue to
apply until the year following the next data collection period.
Section 1834A(d)(4) of the Act addresses recoupment of payment for
new ADLTs if the actual list charge exceeds the market rate.
Specifically, it provides that, if the Secretary determines after the
initial period that the payment amount for a new ADLT based on the
actual list charge was greater than 130 percent of the payment rate
that is calculated based on applicable information using the payment
methodology for CDLTs under section 1834A(b) of the Act, the Secretary
shall recoup the difference for tests furnished during that initial
period.
Section 1834A(c) of the Act provides for payment of new tests that
are not ADLTs. Specifically, section 1834A(c)(1) of the Act provides
that, in the case of a CDLT that is assigned a new or substantially
revised HCPCS code on or after April 1, 2014 (the date of enactment of
PAMA), and which is not an ADLT (as defined in section 1834A(d)(5) of
the Act), during an initial period until payment rates under section
1834A(b) of the Act are established for the test, payment for the test
shall be determined on the basis of crosswalking or gapfilling. Section
1834A(c)(1)(A) of the Act requires application of the crosswalking
methodology described in Sec. 414.508(a) (or any successor regulation)
to the most appropriate existing test under the CLFS during that
period. Section 1834A(c)(1)(B) of the Act provides that, if no existing
test is comparable to the new test, the gapfilling process described in
section 1834A(c)(2) of the Act shall be applied. Section 1834A(c)(2) of
the Act states that this gapfilling process must take into account the
following sources of information to determine gapfill amounts, if
available: charges for the test and routine discounts to charges;
resources required to perform the test; payment amounts determined by
other payors; charges, payment amounts, and resources required for
other tests that may be comparable or otherwise relevant; and other
criteria the Secretary determines to be appropriate. Section
1834A(c)(3) of the Act further requires that, in determining the
payment amount under crosswalking or gapfilling processes, the
Secretary must consider recommendations from the panel established
under section 1834A(f)(1) of the Act. In addition, section 1834A(c)(4)
of the Act provides that, in the case of a new CDLT that is not an
ADLT, the Secretary shall make available to the public an explanation
of the payment rate for the new test, including an explanation of how
the gapfilling criteria and panel recommendations described in
paragraphs (2) and (3) of section 1834A(c) of the Act are applied.
Section 1834A(e) of the Act sets out coding requirements for
certain new and existing tests. Specifically, section 1834A(e)(1)(A) of
the Act requires the Secretary to adopt temporary HCPCS codes to
identify new ADLTs (as defined in section 1834A(d)(5) of the Act) and
new laboratory tests that are cleared or approved by the FDA. Section
1834A(e)(1)(B) of the Act addresses the duration of these temporary new
codes. Section 1834A(e)(1)(B)(i) of the Act requires the temporary code
to be effective until a permanent HCPCS code is established (but not to
exceed 2 years), subject to an exception under section
1834A(e)(1)(B)(ii) of the Act that permits the Secretary to extend the
temporary code or establish a permanent HCPCS code, as the Secretary
determines appropriate.
Section 1834A(e)(2) of the Act addresses coding for certain
existing tests. This section requires that, not later than January 1,
2016, the Secretary shall assign a unique HCPCS code and publicly
report the payment rate for each existing ADLT (as defined in section
1834A(d)(5) of the Act) and each existing CDLT that is cleared or
approved by the FDA for which payment is made under Medicare Part B as
of April 1, 2014 (PAMA's enactment date), if such test has not already
been assigned a unique HCPCS code. In addition, section 1834A(e)(3) of
the Act requires the establishment of unique identifiers for certain
tests. Specifically, for purposes of tracking and monitoring, if a
laboratory or a manufacturer requests a unique identifier for an ADLT
or a laboratory test that is cleared or approved by the FDA, the
Secretary shall utilize a means to uniquely track such test through a
mechanism such as a HCPCS code or modifier.
Section 1834A(f) of the Act addresses requirements for input from
clinicians and technical experts on issues related to CDLTs. In
particular, section 1834A(f)(1) of the Act requires the Secretary to
consult with an expert outside advisory panel that is to be established
by the Secretary no later than July 1, 2015. This advisory panel must
include an appropriate selection of individuals with expertise, which
may include molecular pathologists, researchers, and individuals with
expertise in clinical laboratory science or health economics, or in
issues related to CDLTs, which may include the development, validation,
performance,

[[Page 59391]]

and application of such tests. Under section 1834A(f)(1)(A) of the Act,
this advisory panel is required to provide input on the establishment
of payment rates under section 1834A of the Act for new CDLTs,
including whether to use crosswalking or gapfilling processes to
determine payment for a specific new test, and the factors to be used
in determining coverage and payment processes for new CDLTs. Section
1834A(f)(1)(B) of the Act states that the panel may provide
recommendations to the Secretary under section 1834A of the Act.
Section 1834A(f)(2) of the Act requires the panel to comply with the
requirements of the Federal Advisory Committee Act (5 U.S.C. App.). A
notice announcing the establishment of the Advisory Panel on CDLTs and
soliciting nominations for members was published in the October 27,
2014 Federal Register (79 FR 63919 through 63920). The panel's first
public meeting was held on August 26, 2015. Information regarding the
Advisory Panel on CDLTs is available at https://www.cms.gov/Regulations-and-Guidance/Guidance/FACA/AdvisoryPanelonClinicalDiagnosticLaboratoryTests.html.
Section 1834A(f)(3) of the Act requires that the Secretary continue
to convene the annual meeting described in section 1833(h)(8)(B)(iii)
of the Act after the implementation of section 1834A of the Act, for
purposes of receiving comments and recommendations (and data on which
the recommendations are based) on the establishment of payment amounts
under section 1834A of the Act.
Section 1834A(g) of the Act addresses issues related to coverage of
CDLTs. Section 1834A(g)(1)(A) of the Act requires that coverage
policies for CDLTs, when issued by a MAC, be issued in accordance with
the LCD process, which CMS has outlined in Chapter 13 of the Medicare
Program Integrity Manual.
In addition, section 1834A(g)(1)(A) of the Act states that the
processes governing the appeal and review of CDLT-related LCDs shall
continue to follow the general rules for LCD review established by CMS
in regulations at 42 CFR part 426.
Section 1834A(g)(1)(B) of the Act states that the CDLT-related LCD
provisions referenced in section 1834A(g) do not apply to the national
coverage determination (NCD) process (as defined in section
1869(f)(1)(B) of the Act). Section 1834A(g)(1)(C) of the Act specifies
that the provisions pertaining to the LCD process for CDLTs, including
appeals of LCDs, shall apply to coverage policies issued on or after
January 1, 2015.
In addition, section 1834A(g)(2) of the Act authorizes the
Secretary to designate one or more (not to exceed four) MACs to either
establish LCDs for CDLTs, or to both establish CDLT-related LCDs and
process Medicare claims for payment for CDLTs, as determined
appropriate by the Secretary.
Section 1834A(h)(1) of the Act states that there shall be no
administrative or judicial review under sections 1869, 1878, or
otherwise, of the establishment of payment amounts under section 1834A
of the Act. Section 1834A(h)(2) of the Act provides that the Paperwork
Reduction Act in chapter 35 of title 44 of the U.S.C. shall not apply
to information collected under section 1834A of the Act.
Section 1834A(i) of the Act states that during the period beginning
on the date of enactment of section 1834A of the Act (April 1, 2014)
and ending on December 31, 2016, the Secretary shall use the
methodologies for pricing, coding, and coverage for ADLTs in effect on
the day before this period. This may include crosswalking or gapfilling
methods.

II. Provisions of the Proposed Rule

In this section of the proposed rule, we outline our proposals on
several topics, including, among others: The definitions of applicable
laboratory and applicable information; the definitions of ADLTs and new
ADLTs; the data collection period, and data reporting requirements;
data integrity; confidentiality and public release of limited data;
coding for certain CDLTs and ADLTs; payment methodology; and coverage.

A. Definition of Applicable Laboratory

Section 1834A(a)(1) of the Act requires an ``applicable
laboratory'' to report applicable information for a data collection
period for each CDLT the laboratory furnishes during the period for
which payment is made under Medicare Part B. This reporting begins
January 1, 2016, and takes place every 3 years thereafter for CDLTs,
and every year thereafter for ADLTs. Section 1834A(a)(2) of the Act
defines an applicable laboratory as a laboratory that receives a
majority of its Medicare revenues from section 1834A and section
1833(h) (the statutory authorities for the CLFS) or section 1848 (the
statutory authority for the PFS) of the Act. Section 1834A(a)(2) of the
Act also allows the Secretary to establish a low volume or low
expenditure threshold for excluding a laboratory from the definition of
an applicable laboratory, as the Secretary determines appropriate.
In establishing a regulatory definition for ``applicable
laboratory,'' we considered the following issues: (1) How to define
``laboratory;'' (2) what it means to receive a majority of Medicare
revenues from sections 1834A, 1833(h), or 1848 of the Act; (3) how to
apply the majority of Medicare revenues criterion; and (4) whether to
establish a low volume or low expenditure threshold to exclude an
entity from the definition of applicable laboratory.
First, we consider what a laboratory is, and we incorporate our
understanding of that term in our proposed definition of applicable
laboratory. The CLFS applies to a wide variety of laboratories (for
example, national chains, physician offices, hospital laboratories,
etc.), and it is important that we define laboratory broadly enough to
encompass every laboratory type that is subject to the CLFS.
We searched for existing statutory definitions of ``laboratory''
that could be appropriate to use for the revised CLFS. However, section
1834A of the Act does not define laboratory, nor is it defined
elsewhere in the Medicare statute. So we looked to the Clinical
Laboratory Improvement Amendments of 1988 (CLIA) for a definition. CLIA
applies to all laboratories performing testing on human specimens for a
health purpose, including but not limited to those seeking payment
under the Medicare and Medicaid programs (42 CFR 493.1). To be paid
under Medicare, a laboratory must be CLIA-certified (42 CFR 410.32(d)
and part 493). Therefore, we believe it is appropriate to use the CLIA
definition of laboratory at Sec. 493.2 for our purposes of defining
laboratory within the term applicable laboratory. We did not consider
alternative definitions of laboratory as we were not able to identify
alternative defainitions that would be appropriate for consideration
under section 1834A of the Social Security Act. Nevertheless, we
welcome public comments on alternative definitions of a laboratory that
may be appropriate for this purpose.
CLIA defines laboratory as a facility for the biological,
microbiological, serological, chemical, immunohematological,
hematological, biophysical, cytological, pathological, or other
examination of materials derived from the human body for the purpose of
providing information for the diagnosis, prevention, or treatment of
any disease or impairment of, or the assessment of the health of, human
beings. These examinations also include procedures to determine,
measure, or otherwise

[[Page 59392]]

describe the presence or absence of various substances or organisms in
the body. Facilities only collecting or preparing specimens (or both)
or only serving as a mailing service and not performing testing are not
considered laboratories.
We believe the same policy is also appropriate for our purposes. In
addition, the services of those facilities that only collect or prepare
specimens or serve as a mailing service are not paid on the CLFS. We
propose to incorporate the CLIA regulatory definition of laboratory
into our proposed definition of applicable laboratory in Sec. 414.502
by referring to the CLIA definition at Sec. 493.2 to indicate what we
mean by laboratory.
Under the revised payment system for CDLTs, an applicable
laboratory is the entity that must report applicable information to
CMS. However, not all entities that meet the CLIA regulatory definition
of laboratory would be applicable laboratories under our proposal.
Here, we discuss which entities we believe should be required to report
applicable information.
Laboratory business models vary throughout the industry. For
example, some laboratories are large national networks with multiple
laboratories under one parent entity. Some laboratories are single,
independent laboratories that operate individually. Some entities, such
as hospitals or large practices, include laboratories as well as other
types of providers and suppliers. We propose that an applicable
laboratory is an entity that itself is a laboratory under the CLIA
definition or is an entity that includes a laboratory (for example, a
health care system that is comprised of one or more hospitals,
physician offices, and reference laboratories). Within our proposed
definition of applicable laboratory, we would indicate that if the
entity is not itself a laboratory, it has at least one component that
is a laboratory, as defined in Sec. 493.2.
Whether the applicable laboratory is itself a laboratory or is an
entity that has at least one component that is a laboratory, the
applicable laboratory is the entity that would be reporting applicable
information. Entities that enroll in Medicare must provide a TIN, which
we use to identify the entity of record that is authorized to receive
Medicare payments. The TIN-level entity is the entity that reports tax-
related information to the Internal Revenue Service (IRS). When an
entity reports to the IRS, the entity and its components are all
associated with that entity's TIN. We would rely on the TIN as the
mechanism for defining the entity we consider to be the applicable
laboratory. Therefore, we propose that the TIN-level entity is the
applicable laboratory.
Each component of the entity that is a covered health care provider
under the Health Insurance Portability and Accountability Act of 1996
(HIPAA) regulations will have an NPI. The NPI is the HIPAA standard
unique health identifier for health care providers adopted by HHS (45
CFR 162.406). Health care providers, which include laboratories that
transmit any health information in electronic form in connection with a
HIPAA transaction for which the Secretary has adopted a standard, are
required to obtain NPIs and use them according to the NPI regulations
at 45 CFR part 162, subpart D. When the TIN-level entity reports tax-
related information to the IRS, it does so for itself and on behalf of
its component NPI-level entities. We would indicate this in the
definition of applicable laboratory by stating that the applicable
laboratory is the entity that reports tax-related information to the
IRS under a TIN with which all of the NPIs in the entity are
associated. We also propose to define TIN and NPI in Sec. 414.502 by
referring to definitions already in the Code of Federal Regulations.
In making this proposal, we considered defining an applicable
laboratory at the NPI level instead of the TIN level. Some stakeholders
have indicated that because they bill Medicare by NPI and not TIN, the
NPI is the most appropriate level for reporting applicable information
to Medicare. However, the purpose of the revised Medicare payment
system is to base CLFS payment amounts on private payor rates for
CDLTs, which we expect would be negotiated at the level of the entity's
TIN, as described previously, and not by individual laboratory
locations at the NPI level. In industry meetings that occurred while
developing this proposed rule, numerous stakeholders suggested that the
TIN represents the entity negotiating pricing and is the entity in the
best position to compile and report applicable information across its
multiple NPIs when there are multiple NPIs associated with a TIN. We
believe defining an applicable laboratory by TIN rather than by NPI
will result in the same applicable information being reported, just at
a higher level, and will require less reporting, and therefore, would
be less burdensome to applicable laboratories. In addition to
potentially being less burdensome, we do not believe reporting at the
TIN level would affect or diminish the quality of the applicable
information reported. To the extent the information is accurately
reported, reporting at a higher organizational level should produce
exactly the same applicable as reporting at a lower level. Therefore,
we are proposing to define applicable laboratory by TIN rather than by
NPI. However, we solicit public comments on this aspect of the
applicable laboratory definition and on whether there are other
possibly superior approaches to defining an applicable laboratory,
including by NPI.
We also considered whether to separate the mechanics of reporting
from the definition of an applicable laboratory. For example, we
considered allowing or requiring a corporate entity with multiple TINs
to provide applicable information for all of its TINs along with a list
of component TINs. Under this approach, the corporate entity would
report each distinct private payor rate and the associated volume
across all component TINs instead of each component TIN reporting
separately. Thus, if the same rate was paid by a private payor in two
or more of the corporate entity's component TINs, the entity would
report the private payor rate once and the associated sum of the volume
of that test across the component TINs. We believe this approach may be
operationally less burdensome than submitting separate data files by
TIN or NPI. We also do not believe that such reporting would affect the
quality of the applicable information because we should still arrive at
the same weighted median for each test. We opted not to propose this
option, however, because we are not yet familiar enough with the
corporate governance of laboratories to know whether this even higher
level of reporting would be a desirable or practical option for the
industry and whether it would affect the quality of the applicable
information we would receive. We welcome public comments on allowing a
corporate entity with which multiple TINs are associated to report
applicable information for all of its TINs, as we have described.
Next, we consider what it means for an applicable laboratory to
receive a majority of Medicare revenues from sections 1834A, 1833(h),
or 1848 of the Act. We would define Medicare revenues to be payments
received from the Medicare program, which would include fee-for-service
payments under Medicare Parts A and B, as well as Medicare Advantage
payments under Medicare Part C, and prescription drug payments under
Medicare Part D, and any associated Medicare beneficiary deductible or
coinsurance amounts for

[[Page 59393]]

Medicare services furnished during the data collection period. We are
applying the standard meaning of ``majority,'' which is more than 50
percent. Under our proposal, in deciding whether an entity meets the
majority criterion of the applicable laboratory definition, it would
examine its Medicare revenues from sections 1834A, 1833(h), and 1848 of
the Act to determine if those revenues (including any beneficiary
deductible and coinsurance amounts), whether from only one or a
combination of all three sources, constitute more than 50 percent of
its total revenues under the Medicare program for the data collection
period. In determining its Medicare revenues from sections 1834A,
1833(h), and 1848 of the Act, the entity would not include Medicare
payments made to hospital laboratories for tests furnished for admitted
hospital inpatients or registered hospital outpatients because payments
for these patient care services are made under the statutory
authorities of section 1886(d) of the Act (for the Hospital Inpatient
Prospective Payment System (IPPS)) and section 1833(t) of the Act (for
the OPPS), respectively, not sections 1834A, 1833(h), or 1848 of the
Act. In other words, an entity would need to determine whether its
Medicare revenues from laboratory services billed on Form CMS 1500 (or
its electronic equivalent) and paid under the current CLFS (section
1833(h) of the Act), the CLFS under PAMA (section 1834A of the Act),
and the PFS (section 1848 of the Act) constitute more than 50 percent
of its total Medicare revenues for the data collection period.
Moreover, for the entity evaluating whether it is an applicable
laboratory, the ``majority of Medicare revenues'' determination would
be based on the collective amount of its Medicare revenues received
during the data collection period, whether the entity is a laboratory
under Sec. 493.2 or is not, but has at least one component that is. We
propose that the determination of whether an entity is an applicable
laboratory would be made across the entire entity, including all
component NPI entities, and not just those NPI entities that are
laboratories. We are proposing to specify in the definition of
applicable laboratory that an applicable laboratory is an entity that
receives, collectively with its associated NPI entities, more than 50
percent of its Medicare revenues from one or a combination of the
following sources: 42 CFR part 414, subpart G; and 42 CFR part 414,
subpart B. The regulatory citations we are proposing to include in the
definition are the regulatory payment provisions that correspond to the
three statutory provisions named in section 1834A(a)(2); that is,
sections 1834A, 1833(h), and 1848 of the Act.
We note that section 1834A(a)(1) of the Act only mandates reporting
from entities meeting the definition of an applicable laboratory. We
believe the purpose of only mandating applicable laboratories to report
applicable information is to ensure that we use only their applicable
information to determine payment rates under the CLFS beginning January
1, 2017, and not information from entities that do not meet the
definition of applicable laboratory. By specifying that only applicable
laboratories must report applicable information, and specifying in the
definition of applicable laboratory that an applicable laboratory must
receive the majority of its Medicare revenues from PFS or CLFS
services, we believe the statute intends to limit reporting primarily
to independent laboratories and physician offices (other than those
that meet the low expenditure or low volume threshold, if established
by the Secretary) and not include other entities (such as hospitals, or
other health care providers) that do not receive the majority of their
revenues from PFS or CLFS services. For this reason, we are proposing
to prohibit any entity that does not meet the definition of applicable
laboratory from reporting applicable information to CMS, which we would
reflect in paragraph (g) of the data reporting requirements in Sec.
414.504.
We expect most entities that fall above or below the ``majority of
Medicare revenues'' threshold will tend to maintain that status through
the course of their business. However, it is conceivable that an entity
could move from above to below the threshold, or vice-versa, through
the course of its business so that, for example, for services furnished
in one data collection period, an entity might be over the ``majority
of Medicare revenues'' threshold, but below the threshold in the next
data collection period. We propose that an entity that otherwise meets
the criteria for being an applicable laboratory, would have to report
applicable information if it is above the threshold in the given data
collection period. Some entities will not know whether they exceed the
threshold until after the data collection period is over; in that case,
they would have to retroactively assess their Medicare revenues during
the 3-month data reporting period. However, we expect that most
entities will know whether they exceed the threshold long before the
end of the data collection period. Under our proposal, an entity would
need to reevaluate its status as to whether it falls above or below the
``majority of Medicare revenues'' threshold for every data collection
period, that is, every year for ADLTs and every 3 years for all other
CDLTs. This requirement would be reflected in the definition of
applicable laboratory in Sec. 414.502.
Finally, we are proposing to establish a low expenditure threshold
for excluding an entity from the definition of applicable laboratory,
as permitted under section 1834A(a)(2) of the Act, and we are including
that threshold in our proposed definition of applicable laboratory in
Sec. 414.502. We believe it is important to achieve a balance between
collecting sufficient data to calculate a weighted median that
appropriately reflects the private market rate for a test, and
minimizing the reporting burden for entities that receive a relatively
small amount of revenues under the CLFS. We expect many of the entities
that meet the low expenditure threshold will be physician offices and
will have relatively low revenues for laboratory tests paid under the
CLFS.
For purposes of determining the low expenditure threshold, we
reviewed Medicare payment amounts for physician office laboratories and
independent laboratories from CY 2013 Medicare CLFS claims data.
Although the statute uses the term ``expenditure,'' in this discussion,
we use the term ``revenues'' because, from the perspective of
applicable laboratories, payments received from Medicare are revenues
rather than expenditures, whereas expenditures refer to those same
revenues, but from the perspective of Medicare (that is, to Medicare,
those payments are expenditures). In our analysis, we assessed the
number of billing physician office laboratories and independent
laboratories that would otherwise qualify as applicable laboratories,
but would be excluded from the definition under various revenue
thresholds. We did not include in our analysis hospitals whose Medicare
revenues are generally under section 1833(t) of the Act for outpatient
services and section 1886(d) of the Act for inpatient services, as
these entities are unlikely to meet the proposed definition of
applicable laboratory.
We found that, with a $50,000 revenue threshold, the exclusion of
data from physician office laboratories and independent laboratories
with total CLFS revenues below that threshold, did not materially
affect the quality and sufficiency of the data we needed to set rates.
In other words, we were able to substantially reduce the number of

[[Page 59394]]

entities that would be required to report (94 percent of physician
office laboratories and 52 percent of independent laboratories) while
retaining a high percentage of Medicare utilization (96 percent of CLFS
spending on physician office laboratories and more than 99 percent of
CLFS spending on independent laboratories) from applicable laboratories
that would be required to report. We do not believe that excluding
certain entities with CLFS revenues below a $50,000 threshold would
have a significant impact on the weighted median private payor rates.
With this threshold, using Medicare utilization data, we estimate
there are only 17 tests whose utilization is completely attributed to
laboratories that would not be reporting because they fell below a
$50,000 threshold. We understand that Medicare claims data are not
representative of the volume of laboratory tests furnished in the
industry as a whole; however, we believe this was the best information
available to us for the purpose of determining a low expenditure
threshold for this proposed rule. Therefore, we propose that any entity
that would otherwise be an applicable laboratory, but that receives
less than $50,000 in Medicare revenues under section 1834A and section
1833(h) of the Act for laboratory tests furnished during a data
collection period, would not be an applicable laboratory for the
subsequent data reporting period. In determining whether its Medicare
revenues from sections 1834A and 1833(h) are at least $50,000, the
entity would not include Medicare payments made to hospital
laboratories for tests furnished for hospital inpatients or hospital
outpatients. In other words, an entity would need to determine whether
its Medicare revenues from laboratory tests billed on Form CMS 1500 (or
its electronic equivalent) and paid under the current CLFS (under
section 1833(h) of the Act) and the revised CLFS (under section 1834A
of the Act) are at least $50,000. We are proposing that if an
applicable laboratory receives, collectively with its associated NPI
entities (which would include all types of NPI entities, not just
laboratories), less than $50,000 in Medicare revenues for CLFS services
paid on Form CMS 1500 (or its electronic equivalent), the entity would
not be an applicable laboratory.
As discussed in section II.D.1., we are proposing an initial data
collection period of July 1, 2015, through December 31, 2015 (all
subsequent data collection periods would be a full calendar year). In
conjunction with the shortened data collection period for 2015, we are
proposing to specify that, during the data collection period of July 1,
2015, through December 31, 2015, to be an applicable laboratory, an
entity must receive at least $25,000 of its Medicare revenues from the
CLFS, as set forth in 42 CFR part 414, subpart G. During each
subsequent data collection period, to be an applicable laboratory, an
entity would have to receive at least $50,000 of its Medicare revenues
from the CLFS, as set forth in 42 CFR part 414, subpart G.
As with the ``majority of Medicare revenues'' threshold, some
entities will not know whether they meet the low expenditure threshold,
that is, if they receive at least $50,000 in Medicare CLFS revenues in
a data collection period (or $25,000 during the initial data collection
period) until after the data collection period is over; in that case,
they would have to retroactively assess their total Medicare CLFS
revenues during the subsequent 3-month data reporting period. However,
for many entities, it will be clear whether they exceed the low
expenditure threshold even before the end of the data collection
period. Under our proposal, an entity would need to reevaluate its
status as to the $50,000 low expenditure threshold during each data
collection period, that is, every year for ADLTs and every three years
for all other CDLTs. We propose to codify the low expenditure threshold
requirement as part of the definition of applicable laboratory in Sec.
414.502.
We are not proposing a low volume threshold at this time. Once we
obtain applicable information under the new payment system, however, we
may decide to reevaluate the threshold options in future years and
propose different or revised policies, as necessary, which we would do
through notice and comment rulemaking.
In summary, an applicable laboratory means an entity that reports
tax-related information to the IRS under a TIN with which all of the
NPIs in the entity are associated. An applicable laboratory is either
itself a laboratory, as defined in Sec. 493.2, or, if it is not itself
a laboratory, has at least one component that is. In a data collection
period, an applicable laboratory must receive, collectively with its
associated NPI entities, more than 50 percent of its Medicare revenues
from either the CLFS or PFS. For the data collection period from July
1, 2015 through December 31, 2015, for purposes of calculating CY 2017
payment rates, the applicable laboratory must receive, collectively
with its associated NPI entities, at least $25,000 of its Medicare
revenues from the CLFS, and for all subsequent data collection periods,
at least $50,000 of its Medicare revenues from the CLFS. We propose to
codify this definition of applicable laboratory in Sec. 414.502.

B. Definition of Applicable Information

Section 1834A(a)(3) of the Act defines the term ``applicable
information'' as (1) the payment rate that was paid by each private
payor for a test during the data collection period, and (2) the volume
of such tests for each such payor during the data collection period.
Under section 1834A(a)(5) of the Act, the payment rate reported by a
laboratory must reflect all discounts, rebates, coupons, and other
price concessions, including those described in section 1847A(c)(3) of
the Act relating to a manufacturer's average sales price for drugs or
biologicals. Section 1834A(a)(6) of the Act states that if there is
more than one payment rate for the same payor for the same test, or
more than one payment rate for different payors for the same test, the
applicable laboratory must report each payment rate and corresponding
volume for the test. Section 1834A(a)(3)(B) of the Act provides that
applicable information must not include information about a laboratory
test for which payment is made on a capitated basis or other similar
payment basis during the data collection period.
We are proposing to define applicable information in Sec. 414.502
as, with respect to each CDLT for a data collection period, each
private payor rate, the associated volume of tests performed
corresponding to each private payor rate, the specific HCPCS code
associated with the test, and not information about a test for which
payment is made on a capitated basis.
Several terms and concepts in our proposed definition require
explanation. First, we address the term ``private payor rate.'' The
statutory definition of applicable information refers to ``payment
rate'' as opposed to private payor rate; however, we often use payment
rate generically to refer to the amount paid by Medicare under the
CLFS. We believe it could be confusing to the public if we use the term
``payment rate'' as it relates to both applicable information and the
amount paid under the CLFS. Because the statute says the payment rate
is the amount paid by private payors, we believe ``private payor rate''
could be used in the context of applicable information rather than
payment rate. Therefore, hereafter, we refer to the private payor rate
in regard to applicable information, and we do so even when we are
referring to the

[[Page 59395]]

statutory language that specifically references payment rate. When we
use the term ``payment rate'' hereafter, unless we indicate otherwise,
we are referring to the Medicare payment amount under the CLFS. In our
proposed definition of private payor rate, we attempt to be clear that
we are limiting the term to its use in the definition of applicable
information.
Regarding the definition of ``private payor rate,'' the statute
indicates that applicable laboratories are to report the private payor
rate ``that was paid by each private payor,'' and that the private
payor rate must reflect all price concessions. The private payor rate,
as we noted previously, is the amount that was paid by a private payor
for a CDLT, and we are proposing to incorporate that element into our
proposed definition of private payor rate. To calculate a CLFS amount,
we believe it is necessary to include in private payor rates patient
deductible and coinsurance amounts. (Note: In the discussion below,
``patient'' refers to a privately insured individual while
``beneficiary'' refers to a Medicare beneficiary.) For example, if a
private payor paid a laboratory $80 for a particular test, but the
payor required the patient to pay the laboratory 20 percent of the cost
of that test as coinsurance, meaning the private payor actually paid
the laboratory only $64, the laboratory would report a private payor
rate of $80 (not $64), to reflect the patient coinsurance. The
alternative would be for private payor rates to not include patient
deductibles and coinsurance (such policy would yield $64 in the above
example). Thus, the issue of whether we propose to include or exclude
patient deductible and coinsurance in the definition of private payor
rate has a material effect on the private payor rate and, ultimately,
the payment amount determined by CMS. As CMS generally does not require
a beneficiary to pay a deductible or coinsurance on CLFS services, we
believe it is important for private payor rates to be reported
analogous to how they will be used by CMS to determine the Medicare
payment amount for CDLTs under the new payment methodology. For this
reason, we are proposing that applicable laboratories must report
private payor rates inclusive of all patient cost sharing amounts.
With regard to price concessions, section 1834A of the Act is clear
that the private payor rate is meant to reflect the amount paid by a
private payor less any price concessions that were applied to a CDLT.
For example, there may be a laboratory that typically charges $10 for a
particular test, but offers a discount of $2 per test if a payor
exceeds a certain volume threshold for that test in a given time
period. If the payor exceeds the volume threshold, the private payor
rate for that payor for that test, taking into account the $2 discount,
is $8. The statute lists specific price concessions in section
1834A(a)(5) of the Act--discounts, rebates, and coupons; and in section
1847A(c)(3) of the Act--volume discounts, prompt pay discounts, cash
discounts, free goods that are contingent on any purchase requirement,
chargebacks, and rebates (except for Medicaid rebates under section
1927 of the Act). These lists are examples of price concessions, and,
we believe, are not meant to be exhaustive. Other price concessions
that are not specified in section 1834A of the Act might be applied to
the amounts paid by private payors, and we would expect those to be
accounted for in the private payor rate. Within our definition of
private payor rate, we are proposing that the amount paid by a private
payor for a CDLT must be the amount after all price concessions were
applied.
We propose to codify the definition of private payor rate in Sec.
414.502. Specifically, we propose that the private payor rate, with
respect to applicable information, is the amount that was paid by a
private payor for a CDLT after all price concessions were applied, and
includes any patient cost sharing amounts, if applicable.
Next, we address the definition of ``private payor.'' Section
1834A(a)(3)(i) of the Act specifies that applicable information is the
private payor rate paid by each private payor. Section 1834A(a)(8) of
the Act defines private payor as (A) a health insurance issuer and a
group health plan (as such terms are defined in section 2791 of the
Public Health Service Act), (B) a Medicare Advantage plan under part C,
and (C) a Medicaid managed care organization (as defined in section
1903(m) of the Act).
A health insurance issuer is defined in section 2791(b)(2) of the
Public Health Service (PHS) Act in relevant part, as an insurance
company, insurance service, or insurance organization (including a
health maintenance organization) which is licensed to engage in the
business of insurance in a State and which is subject to State law
which regulates insurance (within the meaning of section 514(b)(2) of
the Employee Retirement Income Security Act of 1974 (ERISA)). Such term
does not include a group health plan. We would incorporate this
definition of health insurance issuer into our proposed definition of
private payor by referring to the definition at section 2791(b)(2) of
the PHS Act.
Section 2791(a)(1) of the PHS Act defines a group health plan, in
relevant part, as an employee welfare benefit plan (as defined in
section 3(1) of ERISA to the extent that the plan provides medical care
and including items and services paid for as medical care) to employees
or their dependents (as defined under the terms of the plan) directly
or through insurance, reimbursement, or otherwise. We would incorporate
this definition of group health plan into our definition of private
payor by referring to the definition at section 2791(a)(1) of the PHS
Act.
A Medicare Advantage plan under part C is defined in section
1859(b)(1) of the Act as health benefits coverage offered under a
policy, contract, or plan by a Medicare+Choice organization pursuant to
and in accordance with a contract under section 1857. We would
incorporate this definition of Medicare Advantage plan into our
definition of private payor by referring to the definition in section
1859(b)(1) of the Act.
A Medicaid managed care organization is defined in section
1903(m)(1)(A) of the Act, in relevant part, as a health maintenance
organization, an eligible organization with a contract under section
1876 or a Medicare+Choice organization with a contract under Medicare
Part C, a provider sponsored organization, or any other public or
private organization, which meets the requirement of section 1902(w) of
the Act and (i) makes services it provides to individuals eligible for
benefits under Medicaid accessible to such individuals, within the area
served by the organization, to the same extent as such services are
made accessible to individuals (eligible for medical assistance under
the State plan) not enrolled with the organization, and (ii) has made
adequate provision against the risk of insolvency, which provision is
satisfactory to the State, meets the requirements under section
1903(m)(1)(C)(i) of the Act (if applicable), and which assures that
individuals eligible for benefits under Medicaid are in no case held
liable for debts of the organization in case of the organization's
insolvency. An organization that is a qualified health maintenance
organization (as defined in section 1310(d) of the PHS Act) is deemed
to meet the requirements of clauses (i) and (ii). We would incorporate
this definition of Medicaid managed care organization into our
definition of private payor by referring to the definition at section
1903(m)(1)(A) of the Act.
We propose to codify the definition of ``private payor'' in Sec.
414.502 as a health

[[Page 59396]]

insurance issuer, as defined in section 2791(b)(2) of the PHS Act; a
group health plan, as defined in section 2791(a)(1) of the PHS Act; a
Medicare Advantage plan under Medicare Part C, as defined in section
1859(b)(1) of the Act; or a Medicaid managed care organization, as
defined in section 1903(m)(1)(A) of the Act.
Next, section 1834A(a)(3) of the Act requires that applicable
information include the private payor rate for each test and the
``volume of such tests'' for each private payor. Regarding the volume
reporting requirement, we are aware that sometimes laboratories are
paid different amounts for the same CDLT by a payor. And, sometimes
laboratories are paid different amounts for the same CDLT by different
payors. Section 1834A(a)(6) of the Act specifies that an applicable
laboratory must report each such private payor rate and associated
volume for the CDLT. Accordingly, we are proposing that each applicable
laboratory must report each private payor rate for each CDLT and its
corresponding volume. For example, an applicable laboratory and private
payor may agree on a volume discount for a particular test whereby the
first 100 tests will be reimbursed at $100. The 101st test (and all
thereafter) will be reimbursed at $90. In reporting to CMS, the
laboratory would report two different private payor rates for this
private payor. The first would be 100 tests at a private payor rate of
$100 per test, and the second, $90 for all tests reimbursed thereafter.
We are proposing to implement the volume reporting requirement by
including in the proposed definition of applicable information in Sec.
414.502 that, in addition to ``each'' private payor rate for ``each''
CDLT, applicable information is the associated volume of tests
performed corresponding to each private payor rate.
We will also need to be able to identify the particular test for
which private payor information is being reported. As CLFS tests are
identified by HCPCS codes (see section II.G. of this proposed rule for
discussion of coding), applicable laboratories will need to report a
HCPCS code for each test that specifically identifies the test being
reported. We are proposing to include in Sec. 414.502 that applicable
information includes the specific HCPCS code associated with each CDLT.
Some laboratory tests are currently billed using unlisted CPT codes or
HCPCS level II miscellaneous/not otherwise classified (NOC) codes.
Because NOC codes and unlisted CPT codes do not describe a single test
and may be used to bill and pay for multiple types of tests, we would
not be able to determine the specific laboratory test corresponding to
a reported private payor rate if either was used for reporting.
Therefore, to ensure that applicable laboratories do not report
applicable information with a NOC code or an unlisted CPT code, we are
also proposing to define ``specific HCPCS code'' in Sec. 414.502 as a
HCPCS code that does not include an unlisted CPT code, as established
by the American Medical Association, or a NOC code, as established by
the CMS HCPCS Workgroup.
Finally, the statute specifies that applicable information does not
include certain information listed in section 1834A(a)(3)(B) of the
Act--information for a laboratory test for which payment is made on a
capitated basis or other similar payment basis during the data
collection period. A capitated payment is made for health care services
based on a set amount for each enrolled beneficiary in the plan for a
given period of time, regardless of whether the particular beneficiary
receives services during the period covered by the payment. Payment is
typically made on a capitated basis under a managed care arrangement.
As there is no way to determine payment specifically for a given test,
it cannot be reported as applicable information. Therefore, we are
proposing to specify in the definition of applicable information in
Sec. 414.502 that the term does not include information about a test
for which payment is made on a capitated basis. We do not believe that
providing a discount based on volume of tests furnished is an example
of a payment made on a capitated basis or other similar payment basis.

C. Definition of Advanced Diagnostic Laboratory Tests (ADLTs) and New
ADLTs

The statute applies different reporting and payment requirements to
ADLTs than to other CDLTs, and further distinguishes a subset of ADLTs
called ``new ADLTs.'' In this section, we discuss our proposed
definitions for the terms ``advanced diagnostic laboratory test'' and
``new advanced diagnostic laboratory test.''
1. Definition of ADLT
Section 1834A(d)(5) of the Act defines an ADLT as a CDLT covered
under Medicare Part B that is offered and furnished only by a single
laboratory and not sold for use by a laboratory other than the original
developing laboratory (or a successor owner) and that meets one of the
following criteria: (1) The test is an analysis of multiple biomarkers
of DNA, RNA, or proteins combined with a unique algorithm to yield a
single patient-specific result; (2) the test is cleared or approved by
the FDA; (3) the test meets other similar criteria established by the
Secretary. Sections 1834A(d)(1) and (2) of the Act recognize special
reporting and payment requirements for ADLTs for which payment has not
been made under the CLFS prior to April 1, 2014 (PAMA's enactment
date). In establishing a regulatory definition for ADLT, we considered
each component of the statutory definition at section 1834A(d)(5) of
the Act, and we explain here how we interpret and incorporate key
statutory terms and phrases.
We believe that, by including these provisions for ADLTs, the
statute seeks to establish special payment status for tests that are
unique and are provided only by the laboratory that developed the test,
or a subsequent owner of that laboratory. In other words, we view the
statute as intending to award special payment status to the one
laboratory that is expending the resources for all aspects of the
test--developing it, marketing it to the public, performing it, and
selling it. It is with this understanding that we developed our
proposed policies for defining ADLTs.
First, to be an ADLT, a test must meet the requirements specified
in the first part of the definition at section 1834A(d)(5) of the Act,
that is, it must be a CDLT covered under Medicare Part B that is
offered and furnished only by a single laboratory and not sold for use
by a laboratory other than the original developing laboratory (or a
successor owner). With regard to the meaning of ``single laboratory,''
we believe the statute intends to ensure that we grant ADLT status to
the one laboratory that offers and furnishes in the particular test, to
the exclusion of all other laboratories. The way we propose to ensure
this is the case, is to require the laboratory to be a facility with a
single CLIA certificate as described in Sec. 493.43(a) and (b) because
we believe, in most instances, the laboratory's single CLIA certificate
will correspond to one laboratory location, or facility. Under our
proposal, an entity with multiple CLIA certificates would not be a
single laboratory. For example, a test offered by a health system
consisting of multiple entities, including physician offices and
independent laboratories, and that has multiple CLIA certificates
associated with its multiple testing locations, would not be eligible
for ADLT status, even if the test met all other ADLT criteria. Section
493.43(b) includes several narrow exceptions for certain types of
laboratories that may

[[Page 59397]]

have multiple locations.\1\ We do not believe those exceptions would
apply to most or all laboratories seeking ADLT status for a given test
and, even if they did, we do not believe those particular exceptions
would undermine our effort to identify the single laboratory. We
request comment on the impact of using the CLIA certificate to
designate a single laboratory.
---------------------------------------------------------------------------

\1\ Section 493.43(b) includes the following exceptions: (1)
Laboratories that are not at a fixed location; (2) not-for-profit or
Federal, State, or local government laboratories that engage in
limited (not more than a combination of 15 moderately complex or
waived tests per certificate) public health testing; and (3)
laboratories that are within a hospital that are located at
contiguous buildings on the same campus and under common direction.
---------------------------------------------------------------------------

Next, the statute directs that the test must be ``offered and
furnished'' by a laboratory seeking ADLT status for the test. It also
requires that the test be ``not sold for use by a laboratory other than
the original developing laboratory.'' We interpret the original
developing laboratory referenced in the statute to be the same
laboratory that offers and furnishes the test. This interpretation is
consistent with our understanding that the statute intends for special
payment status to be awarded to the one laboratory that is expending
the resources for all aspects of the test. Within the two
requirements--(1) that a laboratory seeking ADLT status must offer and
furnish the test and (2) that the test is not sold for use by a
laboratory other than the original developing laboratory--there are
several components for us to parse, and we do so consistent with our
view of the statutory intent. First, we believe a laboratory offers and
furnishes a test when it markets and performs the test. The laboratory
that markets and performs the test must also be the only one to sell
it, that is, to receive remuneration in exchange for performing the
test. In addition, that laboratory must also be the one that developed
the test, which means the laboratory designed it. We are aware that, in
certain circumstances, a referring laboratory may bill for a test under
section 1833(h)(5)(A) of the Act. The referring laboratory is a
laboratory that receives a specimen to be tested and refers it to
another laboratory, the reference laboratory, to perform the test. In
these situations, because the reference laboratory performed the test,
it would be the laboratory that offered and furnished the test for
purposes of the ADLT definition.
Accordingly, under our proposal, only one laboratory may design,
market, perform, and sell the test. If more than the one laboratory
engages in any of one of those activities, the test would not meet the
criteria to be an ADLT. If our proposal is finalized, we would not
expect to see more than one applicable laboratory report applicable
information for an ADLT.
Next, the statute permits a successor owner to the original
developing laboratory to sell the test without disqualifying the test
for ADLT status. We propose to define successor owner as a laboratory
that has assumed ownership of the original developing laboratory, and
meets all other aspects of the ADLT definition (except for being the
original developing laboratory). This means the successor owner is a
single laboratory that markets, performs, and sells the ADLT.
In considering how to define successor owner, we looked to our
regulations at Sec. 489.18(a), which describe what constitutes a
change of ownership for Medicare providers. Although laboratories are
suppliers and not providers, we believe the language in this regulation
appropriately applies to the wide range of potential changes in
ownership for laboratories. Specifically, we propose to incorporate the
scenarios described in Sec. 489.18(a) as follows. A successor owner,
for purposes of an ADLT, means a single laboratory that has assumed
ownership of the laboratory that designed the test through any of the
following circumstances:
Partnership. In the case of a partnership, the removal,
addition, or substitution of a partner, unless the partners expressly
agree otherwise, as permitted by applicable State law, constitutes
change of ownership.
Unincorporated sole proprietorship. Transfer of title and
property to another party constitutes change of ownership.
Corporation. The merger of the original developing
laboratory corporation into another corporation, or the consolidation
of two or more corporations, including the original developing
laboratory, resulting in the creation of a new corporation constitutes
change of ownership. However, a transfer of corporate stock or the
merger of another corporation into the original developing laboratory
corporation does not constitute change of ownership.
Leasing. The lease of all or part of the original
developing laboratory facility constitutes change of ownership of the
leased portion.
In the case of a lease, all of or part of the original developing
laboratory is leased by the owner(s) of the original developing
laboratory to another entity who takes over the continued production of
the test, and the owner(s) of the original developing laboratory
becomes the lessor of the laboratory where it formerly provided
laboratory tests. In this situation, there would be a change of
ownership of the leased portion of the laboratory, and the lessee would
become the successor owner that could be paid for performing an ADLT,
provided the test meets all other criteria for being an ADLT.
As we noted above, the successor owner would need to be a single
laboratory and meet all other aspects of the ADLT definition. For
example, under our proposal, if an original developing laboratory
corporation is merged into another laboratory corporation that has
multiple CLIA certificates, while the test would still be a CDLT, it
would no longer be considered an ADLT. If this proposal is finalized,
we would expect a laboratory that obtains CMS approval of ADLT status
for a test to maintain documentation on changes of ownership with
transfer of rights to market, perform, and sell the ADLT to support
correct claims submission and payment. We are soliciting comments on
our proposed definition of successor owner and, in particular, whether
different change of ownership requirements may be more appropriate for
the laboratory industry.
To summarize, we propose to implement the first part of the ADLT
definition in section 1834A(d)(5) of the Act by stating that an ADLT is
a CDLT covered under Medicare Part B that is marketed and performed
only by a single laboratory and not sold for use by a laboratory other
than the laboratory that designed the test or a successor owner of that
laboratory. We would define the terms ``single laboratory'' and
``successor owner'' in Sec. 414.502. If this proposal is finalized, we
plan to monitor compliance by confirming that applicable information
for each ADLT is reported by a single laboratory. As part of that
process, we would confirm that each applicable laboratory that reports
applicable information for an ADLT has a single CLIA certificate.
Next, in addition to meeting the first part of the ADLT definition
at section 1834A(d)(5) of the Act, the statute requires that an ADLT
must meet one of the criteria described in paragraphs (5)(A), (5)(B),
or (5)(C). Criterion A of section 1834A(d)(5) of the Act states that
the test is an analysis of multiple biomarkers of DNA, RNA, or proteins
combined with a unique algorithm to yield a single patient-specific
result. We interpret this provision to require that the test analyze,
at a minimum, biomarkers of DNA or RNA. Tests that analyze nucleic
acids (DNA or RNA) are

[[Page 59398]]

molecular pathology analyses. Therefore, we are proposing that, under
criterion A, a test must be a molecular pathology analysis of DNA or
RNA. Examples of such tests include those that analyze the expression
of a gene, the function of a gene, or the regulation of a gene. The
statute also requires that the test analyze ``multiple'' biomarkers of
DNA, RNA, or proteins. Therefore, an ADLT might consist of one test
that analyzes multiple biomarkers or it might consist of multiple tests
that each analyzes one or more biomarkers.
That the analysis of the biomarkers must be ``combined with a
unique algorithm to yield a single patient-specific result'' indicates
to us that the algorithm must be empirically derived, and that the
ultimate test result must be diagnostic of a certain condition, a
prediction of the probability of an individual developing a certain
condition(s), or the probability of an individual's response to a
particular therapy(ies). Furthermore, the statute requires the result
to be a single patient-specific one, so the test must diagnose a
certain condition for an individual, or predict the probability that a
specific individual patient will develop a certain condition(s) or
respond to a particular therapy(ies). We are also proposing that the
test must provide new clinical diagnostic information that cannot be
obtained from any other existing test on the market or combination of
tests (for example, through a synthesis of the component molecular
pathology assays included in the laboratory test in question). We
considered requiring that a new ADLT be clinically useful, as well as
new, but decided against such a policy due to statutory limitations.
These proposed policies for implementing criterion A derive from our
view that ADLTs that meet the criterion are innovative tests that are
new and different from any prior test already on the market and provide
the individual patient with valuable genetic information to predict the
trajectory of the patient's disease process or response to treatment of
the patient's disease that could not be gained from another test or
tests on the market. Finally, we expect that an ADLT could include
assays in addition to the biomarker assay(s) described above. For
example, in addition to an analysis of a DNA biomarker, an ADLT might
also include a component that analyzes proteins. We would not
disqualify a test from ADLT status consideration if that is the case.
In summary, we propose that to qualify as an ADLT under criterion A of
section 1834A(d)(5) of the Act, a test: (i) Must be a molecular
pathology analysis of multiple biomarkers of DNA, or RNA; (ii) when
combined with an empirically derived algorithm, yields a result that
predicts the probability a specific individual patient will develop a
certain condition(s) or respond to a particular therapy(ies); (iii)
provides new clinical diagnostic information that cannot be obtained
from any other test or combination of tests; and (iv) may include other
assays. We reflect this proposed requirement in paragraph (1) of the
ADLT definition in Sec. 414.502.
Criterion B of section 1834A(d)(5) of the Act states that the test
is cleared or approved by the FDA. The FDA considers CDLTs to be
medical devices, and has two distinct application processes for
clearing and approving medical devices. To receive FDA clearance to
market a new device, a Premarket Notification submission, also referred
to as a 510(k), is submitted to FDA for review at least 90 days before
introducing, or delivering for introduction, the device into interstate
commerce. Before FDA can clear a 510(k) and allow a device to be
commercialized, the 510(k) submitter must demonstrate that their
medical device is ``substantially equivalent'' to a device that is
legally marketed for the same use and for which a Premarket Approval
Application (PMA) is not required. A request for FDA approval of a
device is typically submitted through a PMA, which is the most
stringent type of device marketing application required by FDA.
According to the FDA's ``Overview of Medical Devices and Their
Regulatory Pathways'' (available on the FDA's Web site at http://www.fda.gov/), a PMA refers to the scientific and regulatory review
necessary to evaluate the safety and effectiveness of devices that were
found either not substantially equivalent through the 510(k) [Premarket
Notification] process or devices for which insufficient information
exists to determine that general controls (Class I) and special
controls (Class II) would provide a reasonable assurance of its safety
and effectiveness. To obtain FDA approval of a device, an applicant
must submit a PMA which contains valid scientific evidence to assure
that the device is safe and effective for its intended use(s). We
further note that FDA regulations exempt certain low-risk devices from
approval or clearance and allow them to be legally marketed immediately
without any form of premarket approval or clearance. Since criterion B
of section 1834A(d)(5) of the Act requires FDA approval or clearance,
we do not intend for this criterion to cover any devices that are, by
regulation, exempt from FDA approval or clearance. We propose that a
laboratory test can be considered an ADLT if it is cleared or approved
by the FDA and meets all other aspects of the ADLT definition. Under
criterion B, laboratories would have to submit documentation of their
FDA clearance or approval for the test. This process would be outlined
through subregulatory processes prior to January 1, 2016.
To implement criteria A and B, we would establish guidelines for
laboratories to apply for ADLT status and submit documentation to
support their application. For example, if our proposed definition of
criterion A is finalized, laboratories would have to submit to CMS
evidence of their empirically derived algorithms and show how their
test provides new clinical diagnostic information that cannot be
obtained from any other test or combination of tests. As we note in
section II.F. of this proposed rule, section 1834A(a)(10) of the Act
provides for confidentiality of the information disclosed by a
laboratory under section 1834A(a) of the Act. As this statutory
provision is limited to ``this subsection'' (that is, subsection (a)),
it does not apply to subsection (d) of section 1834A of the Act, which
relates to information provided to the Secretary to determine whether a
test is an ADLT. While we do not expect to make information in an ADLT
application available to the public, that information is not explicitly
protected from disclosure under the confidentiality provisions of the
statute, nor is it explicitly protected from disclosure in response to
a Freedom of Information Act (FOIA) request, as is information
disclosed by a laboratory under subsection (a), per section
1834A(a)(11) of the Act. However, we note that FOIA includes an
exemption for trade secrets and commercial or financial information
obtained from a person that is privileged or confidential. An ADLT
applicant should be aware that information in an ADLT application may
not be protected from public disclosure even if it is marked as
confidential and proprietary. We cannot guarantee that information
marked as proprietary and confidential will not be subject to release
under FOIA. While a party may mark information as confidential and
proprietary, the information may be subject to disclosure under FOIA
unless, consistent with FOIA exemption (b)(4), the information relates
to trade secrets and commercial or financial information that is exempt
from disclosure. The ADLT applicant would need to substantiate this

[[Page 59399]]

confidentiality by expressly claiming substantial competitive harm if
the information is disclosed and demonstrating such in a separate
statement how the release would cause substantial competitive harm
pursuant to the process in E.O. 12600 for evaluation by CMS (please see
Section II.F of this rule for further discussion of the confidentiality
and public release of data).
Criterion C of section 1834A(d)(5) of the Act gives the Secretary
the authority to establish and apply other similar criteria by which to
determine that a test is an ADLT. At this time, we are not proposing to
exercise this authority; if we do so in the future, it would be through
notice and comment rulemaking.
2. Definition of New ADLT
Section 1834A(d) of the Act is titled ``Payment for New Advanced
Diagnostic Laboratory Tests.'' As previously discussed in this section,
section 1834A(d)(1)(A) provides special payment rules for ADLTs for
which payment has not been made under the CLFS prior to April 1, 2014,
the enactment date of PAMA. Section 1834A(i) of the Act, titled
``Transitional Rule,'' provides that during the period beginning on
April 1, 2014, PAMA's enactment date, and ending on December 31, 2016,
for ADLTs under Medicare Part B, the Secretary shall use the
methodologies for pricing, coding, and coverage in effect on the day
before April 1, 2014, which may include crosswalking or gapfilling
methods. We interpret section 1834A(i) of the Act to mean that we must
use the current CLFS payment methodologies for ADLTs that are furnished
between April 1, 2014, and December 31, 2016.
Accordingly, we propose to define a new ADLT as an ADLT for which
payment has not been made under the CLFS prior to January 1, 2017. Any
ADLT paid for under the CLFS prior to January 1, 2017, would be an
existing ADLT and would be paid in accordance with the current
regulations at 42 CFR part 414, subpart G, including gapfilling and
crosswalking methodologies. In other words, there would be no new ADLTs
until January 1, 2017, and they would be first paid on the CLFS using
the payment methodology for new ADLTs proposed in Sec. 414.522. We
would codify the definition of ``new ADLT'' at Sec. 414.502 to mean an
ADLT for which payment has not been made under the CLFS prior to
January 1, 2017. A full discussion of our proposed payment policies for
new ADLTs is provided in section II.H.3. of this proposed rule.

D. Data Collection and Data Reporting

1. Definitions
Section 1834A(a) of the Act requires applicable laboratories to
report applicable information. The information is gathered or collected
during a ``data collection period'' and then reported to the Secretary
during a ``data reporting period.'' Under the statute, the Secretary is
to specify the period of time that is the data collection period and
the timeframe for the data reporting period. In this section, we
propose to define the terms ``data collection period'' and ``data
reporting period.'' In determining what the data collection and data
reporting periods should be, we considered our objectives to: (1)
Provide applicable laboratories sufficient notice of their obligation
to collect and report applicable information to CMS; (2) allow
applicable laboratories enough time to collect and report applicable
information; (3) give CMS enough time to process applicable information
to determine a CLFS payment rate for each laboratory test; and (4)
publish new CLFS payment rates at least 60 days in advance of January 1
so laboratories will have sufficient time to review the data used to
calculate CLFS payment rates and prepare for implementation of the new
CLFS rates on January 1.
Section 1834A(a)(4) of the Act defines the term ``data collection
period'' as a period of time, such as a previous 12-month period,
specified by the Secretary. Except for the first data collection period
(which we discuss in this section), we believe the data collection
period should be a full calendar year, for example, January 1 through
December 31, because a full calendar year of applicable information
would provide a comprehensive set of data for calculating CLFS rates.
In addition, we have chosen to define a data collection period as a
calendar year as opposed to, for example, a federal fiscal year
(October through September), so the data collection period coordinates
with the timing of the CLFS payment schedule, wherein updated CLFS
payment rates are in effect on January 1 of each year. We also believe
the data collection period should immediately precede the data
reporting period, which is the time period during which applicable
laboratories must report applicable information to CMS. For example,
the data reporting period for the 2018 data collection period (January
1, 2018, through December 31, 2018) would begin on January 1, 2019. We
believe that having the data collection period immediately precede the
data reporting period will result in more accurate reporting by
laboratories and, thus, more accurate rate setting by CMS, because
laboratories will have more recent experience, and therefore, be more
familiar with the information they are reporting. Further, starting the
data reporting period immediately after the data collection period will
limit the lag time between reporting applicable information and the use
of that applicable information to determine Medicare CLFS payments,
thus ensuring that CMS is using the most recent data available to set
CLFS payment rates. For these reasons, we propose to codify in Sec.
414.502 that the data collection period is the calendar year during
which an applicable laboratory collects applicable information and that
immediately precedes the data reporting period.
We are proposing a special rule for the 2015 data collection
period, which would begin July 1, 2015, and end December 31, 2015.
While our preference would have been for the data collection period to
be a full calendar year, as we are proposing for subsequent data
collection periods, and for it to begin after publication of proposed
and final rules implementing section 1834A of the Act, we believe the
statute contemplates that the first data collection period would begin
prior to publication of regulations establishing the parameters for
data collection. Given that the statute, which was enacted on April 1,
2014, requires us to establish the parameters for data collection
through rulemaking by June 30, 2015, the first data collection period
that would allow for reporting in 2016 and implementation of the new
payment system on January 1, 2017, would have to be in 2015. As the
statute indicates that a data collection period could be a 12-month
period, and data collection requirement regulations do not have to be
complete until June 30, 2015, we believe the statute anticipates that
the first data collection period would begin prior to publication of
the June 30, 2015 regulations, that is, 6 months prior to a final
regulation. In addition, section 1834A(a)(4) of the Act does not
require the data collection period to be a 12-month period, but rather,
suggests that it could be, and provides CMS the authority to determine
the length of the period. Therefore, although we could have chosen to
make the 2015 data collection period a full calendar year, given that
laboratories would not have notice of the data collection period until
our regulations were proposed and finalized, we believe it is
reasonable to limit the time period of the first data collection period
to 6 months, which is consistent with the length of time the data
collection period would have been

[[Page 59400]]

in effect prior to a final rule if we had adopted a full calendar year
data collection period in 2015 and published regulations specifying
that to be the case on June 30, 2015. While we believe a full calendar
year of data will be the most robust and comprehensive for setting CLFS
payment rates, we believe the 6-month data collection period in 2015
will still provide sufficient, reliable data with which to set rates
that accurately reflect private payor rates. Therefore, we are
proposing to include in the definition of data collection period in
Sec. 414.502 that the data collection period for 2015 is July 1, 2015
through December 31, 2015.
Under section 1834A(a)(1) of the Act, beginning January 1, 2016,
and every 3 years thereafter (or annually in the case of an ADLT), each
applicable laboratory must report applicable information to the
Secretary at a time specified by the Secretary. We believe applicable
laboratories should have 3 months during which to submit applicable
information from the corresponding data collection period, that is, the
calendar year immediately preceding the data reporting period. For
example, for purposes of calculating CY 2017 CLFS rates, the data
collection period would begin on July 1, 2015, and end on December 31,
2015, and the data reporting period would be January 1, 2016 through
March 31, 2016. We believe a 3-month data reporting period is a
sufficient amount of time for applicable laboratories to report
applicable information to CMS. It would give CMS adequate time to
calculate CLFS payment amounts, upload the CLFS rates on Medicare's
claims processing systems, and make that data publicly available
(tentatively, first in September and then a final version in November)
before the CLFS rates go into effect on the following January 1. Given
the magnitude of the potential changes in CLFS payment rates, to give
the industry sufficient time to prepare for the next year's fee
schedule, we believe final CLFS rates for the following year should be
published at least 60 days prior to the beginning of the next calendar
year, or no later than November 1. For these reasons, we are proposing
that the definition of ``data reporting period'' in Sec. 414.502 is
the 3-month period during which an applicable laboratory reports
applicable information to CMS and that immediately follows the data
collection period.
Table 1 illustrates the data collection period, the data reporting
period, and CLFS rate year for which the data will be used under our
proposal for CDLTs.

Table 1--Data Collection and Reporting Periods for CDLTs
------------------------------------------------------------------------
Data reporting Used for CLFS rate
Data collection period period years
------------------------------------------------------------------------
7/1/2015-12/31/2015............. 1/1/2016-3/31/2016 2017-2019.
1/1/2018-12/31/2018............. 1/1/2019-3/31/2019 2020-2022.
Continues every 3rd subsequent Continues every New CLFS rate
calendar year. 3rd subsequent every 3rd year
calendar year. for 3 years.
------------------------------------------------------------------------

As indicated below, applicable information must be reported
annually for ADLTs and will follow the above data collection schedule
on an annual basis after the first data collection period, which will
be for the first and second quarters of the new ADLT initial period,
and reported to CMS by the end of the second quarter of the new ADLT
initial period (described in more detail below).
2. General Data Collection and Data Reporting Requirements
Section 1834A(a)(1) of the Act requires applicable laboratories,
beginning January 1, 2016, to report applicable information on CDLTs
that are not ADLTs every 3 years, and every year for ADLTs, at a time
specified by the Secretary. As discussed in section II.D.1., we are
proposing that the data collection period during which applicable
laboratories collect applicable information would be the calendar year
immediately prior to the data reporting period. Thus, the data
reporting period would occur each year for ADLTs, from January 1
through March 31, and every third year, from January 1 through March
31, for all other CDLTs (for example, 2016, 2019, 2022, etc.). We
propose to establish these data reporting requirements in Sec.
414.504(a) of the regulations.
Section 1834A(a)(3)(A) of the Act requires applicable information
to be the rate paid by each private payor for the test and the
associated volume of such tests for each such payor during the data
collection period. In addition, section 1834A(a)(6) of the Act
specifies that, in the case where an applicable laboratory has more
than one payment rate for the same payor for the same test or more than
one payment rate for different payors for the same test, the applicable
laboratory must report each such payment rate and the volume for the
test at each such rate. Furthermore, section 1834A(a)(6) of the Act
provides that, beginning January 1, 2019, the Secretary may establish
rules to aggregate reporting, that is, permit applicable laboratories
to combine the prices and volumes for individual tests; we understand
this to mean that, absent rules set by the Secretary (in 2019 or
later), applicable laboratories may not aggregate data by laboratory
test in reporting applicable information. Taken together, these
provisions indicate that an applicable laboratory must report
applicable information for every test it performs for each private
payor, including both the amounts paid and volume. This means, should a
rate for a private payor change during the data collection period, an
applicable laboratory would report both the old and new rates and the
volume of tests associated with each rate. We realize the amount of
applicable information could be voluminous for those applicable
laboratories that offer a large number of tests. However, we believe
the statute requires comprehensive reporting of applicable information
so the Medicare CLFS rates accurately reflect the rates paid by private
payors to laboratories. Our proposed definition of applicable
information in Sec. 414.502 states that applicable information, with
respect to each CDLT for a data collection period, includes each
private payor rate and the associated volume of tests performed
corresponding to each private payor rate, so our proposed requirement
at Sec. 414.504(a) covers the requirement for applicable laboratories
to report the private payor rate for every laboratory test it performs,
and to account for the volume of tests furnished at each rate. This
requirement means that an applicable laboratory that has more than one
payment rate for the same payor for the same test, or more than one
payment rate for different payors for the same test, must report each
such payment rate and the volume for the test at each such rate.
To minimize the reporting burden on applicable laboratories and to
avoid collecting personally identifiable information, we would only
require applicable laboratories to report the minimum information
necessary to

[[Page 59401]]

enable us to set CLFS payment rates. We will specify the form and
manner for reporting applicable information in guidance prior to the
first data reporting period, but generally, in reporting applicable
information, we will expect laboratories to report the specific HCPCS
code associated with each laboratory test, the private payor rate or
rates associated with the HCPCS code, and the volume of laboratory
tests performed by the laboratory at each private payor rate. We would
not permit applicable laboratories to report individual claims because
claims include more information than we need to set payment rates and
they contain personally identifiable information. We also would not
permit applicable laboratories to report private payor names because
section 1834A(a)(11) of the Act prohibits a payor from being identified
on information reported by the applicable laboratory. Our guidance
would reflect these instructions. Accordingly, we are proposing to
include in our data reporting requirements at Sec. 414.504(b), that
applicable information must be reported in the form and manner
specified by CMS.
3. Data Reporting Requirements for New ADLTs
Section 1834A(d)(1)(A) of the Act requires the payment amount for
new ADLTs to be based on actual list charge for an ``initial period''
of 3 quarters, but does not specify when this initial period of 3
quarters begins. We believe the initial period should start and end on
the basis of a calendar quarter, so that the first day of the initial
period would be the first day of a calendar quarter, and the last day
of the initial period would be the last day of a calendar quarter (for
example, January 1 and March 31, April 1 and June 30, July 1 and
September 30, or October 1 and December 31). We are proposing this
policy to be consistent with how applicable information would be
reported for CDLTs (on the basis of a calendar year, that is, 4
quarters of applicable information) and how CLFS payment rates would be
updated (also on the basis of a calendar year). This consistency is
important so that after the new ADLT initial period is over, all CLFS
payment rates (for CDLTs and ADLTs) will be posted publicly at the same
time. Further, CMS updates all of its payment systems on the basis of a
calendar quarter, and we believe consistency with all other CMS data
systems will facilitate implementation and updates to the CLFS.
Beginning and ending the new ADLT initial period on the basis of a
calendar quarter would also be consistent with average sales price
reporting for Medicare Part B drugs under section 1847A of the Act and
desirable for the reasons stated above. If we were to start the initial
period during a calendar quarter, then the end of the Q2 (the time by
which applicable laboratories must report applicable information for
new ADLTs) would also occur during a calendar quarter, which would mean
that applicable laboratories would be reporting applicable information
for new ADLTs during a calendar quarter. Further, if an initial period
of three quarters ends during a calendar quarter, CMS would have to
begin paying for the ADLT using the methodology under section 1834A(b)
of the Act during a calendar quarter. For these reasons, we propose to
start the initial period on the first day of the first full calendar
quarter following first day on which a new ADLT is performed. We
propose to refer to the initial period for new ADLTs as the ``new ADLT
initial period,'' and to codify the definition in Sec. 414.502.
Section 1834A(d)(2) of the Act requires applicable laboratories to
report applicable information for new ADLTs not later than the last day
of the Q2 of the initial period. The applicable information will be
used to determine the CLFS payment amount (using the weighted median
methodology; see our discussion of the CDLT payment methodology in
section II.H.1.) for a new ADLT after the new ADLT initial period. We
propose to codify the reporting requirement for new ADLTs in Sec.
414.504(a)(3).
The following is an example of the reporting and payment schedule
for a new ADLT: A new ADLT that is first performed by an applicable
laboratory during the Q1 of 2017 (for example, February 4, 2017) would
start its initial period on the first day of the Q2 of 2017 (April 1,
2017). The new ADLT initial period would last for three full quarters,
until the end of the Q4 of 2017 (December 31, 2017). The applicable
laboratory would be required to report applicable information for the
new ADLT by the end of the Q2 of the new ADLT initial period, which
would be, in this example, the end of the Q3 of 2017 (September 30,
2017). These data would be used to calculate the payment amount for the
new ADLT, which would be applied after the end of the new ADLT initial
period, which would be the Q1 2018 (January 1, 2018). This payment
amount would last through the remainder of CY 2018. The new ADLT would
then follow the annual reporting schedule for existing ADLTs, that is,
CY 2017 applicable information would be reported between January 1,
2018 through March 31, 2018, and the applicable information would then
be used to establish the payment amount for the ADLT that takes effect
on January 1, 2019.
Table 2 illustrates the proposed data collection and reporting
periods for a new ADLT using the above example.

Table 2--Data Collection and Reporting Periods for New ADLTs
----------------------------------------------------------------------------------------------------------------
Data collection Data reporting Used for CLFS rate
ADLT first performed Initial period period period year
----------------------------------------------------------------------------------------------------------------
02/04/2017...................... 04/01/2017-12/31/ 04/01/2017-09/30/ By 09/30/2017..... 2018-2019.
2017. 2017.
.................. 01/01/2018-12/31/ 01/01/2019-03/31/ 2020.
2018. 2019.
----------------------------------------------------------------------------------------------------------------

We welcome comments on these proposals and on how to make the data
reporting process work as efficiently as possible.

E. Data Integrity

1. Penalties for Non-Reporting
Section 1834A(a)(9)(A) of the Act authorizes the Secretary to apply
a CMP if the Secretary determines that an applicable laboratory has
failed to report, or has made a misrepresentation or omission in
reporting, information under section 1834A(a) of the Act for a CDLT. In
these cases, the Secretary may apply a CMP in an amount of up to
$10,000 per day for each failure to report or each such
misrepresentation or omission. Section 1834A(a)(9)(B) of the Act
further provides that the provisions of section 1128A of the Act (other
than subsections (a) and (b)) shall apply to a CMP under this paragraph
in the same manner as they apply to a CMP or proceeding under section
1128A(a) of the Act. Section 1128A of the Act governs CMPs that apply
to all federal health care programs. Thus the provisions of section
1128A of the Act (specifically sections 1128A(c) through 1128A(n) of
the Act) apply to a CMP under section 1834A(a)(9) of the Act in

[[Page 59402]]

the same manner as they apply to a CMP or proceeding under section
1128A(a) of the Act. We note that a similar provision is included in
the law under section 1847A(d)(4) of the Act with regard to the
reporting of average sales price by the manufacturer of a drug or
biological. Given the similarity between sections 1834A(a)(9)(A) and
1847A(d)(4) of the Act, we are proposing to adopt a provision in Sec.
414.504(e) for implementing section 1834A(a)(9)(A) of the Act that is
similar to Sec. 414.806, the regulation governing drug manufacturers'
reporting of Part B drug prices under section 1847A(d)(4) of the Act.
Following the final publication of this rule, we anticipate issuing
guidance further clarifying these requirements.
2. Data Certification
Section 1834A(a)(7) of the Act requires that an officer of each
applicable laboratory must certify the accuracy and completeness of the
reported information required by section 1834A(a) of the Act. We
propose to implement this provision by requiring in Sec. 414.504(d)
that the President, CEO, or CFO of an applicable laboratory or an
individual who has been delegated authority to sign for, and who
reports directly to, the laboratory's President, CEO, or CFO, must sign
a certification statement and be responsible for assuring that the
applicable information provided is accurate, complete, and truthful,
and meets all the reporting parameters. We will specify the processes
for certification in subregulatory guidance prior to January 1, 2016.

F. Confidentiality and Public Release of Limited Data

Section 1834A(a)(10) of the Act addresses the confidentiality of
the information disclosed by a laboratory under section 1834A(a) of the
Act. Specifically, this paragraph provides that, notwithstanding any
other provision of law, information disclosed by a laboratory under
section 1834A(a) of the Act is confidential and must not be disclosed
by the Secretary or a Medicare contractor in a form that discloses the
identity of a specific payor or laboratory, or prices charged or
payments made to any such laboratory, except as follows:
As the Secretary determines to be necessary to carry out
section 1834A of the Act;
To permit the Comptroller General to review the
information provided;
To permit the Director of the Congressional Budget Office
(CBO) to review the information provided; and
To permit MedPAC to review the information provided.
These confidentiality provisions apply to information disclosed by
a laboratory under section 1834A(a) of the Act, the paragraph that
addresses reporting of applicable information for purposes of
establishing CLFS rates, and therefore we interpret these protections
as applying to the applicable information that applicable laboratories
report to CMS under proposed Sec. 414.504(a). We do not read section
1834A(a)(10) of the Act as applying to other information laboratories
may submit to CMS that does not constitute applicable information, for
example, information regarding an applicable laboratory's business
structure, such as its associated NPI entities, or information
submitted in connection with an application for ADLT status under
section 1834A(d) of the Act (including evidence of a laboratory's
empirically derived algorithms and how the test provides new clinical
diagnostic information that cannot be obtained from any other test or
combination of tests).
As we discuss in more detail in section II.H.1., we will use the
applicable information reported under proposed Sec. 414.504 to set
CLFS payment rates, and intend to make available to the public a list
of test codes and the CLFS payment rates associated with those codes,
which is the same CLFS information we currently make available. This
information would not reveal the identity of a specific payor or
laboratory, or prices charged or payments made to a specific laboratory
(except as noted below), and thus, we believe continuing to publish
this limited information would allow us to be compliant with section
1834A(a)(10) of the Act while continuing to provide necessary
information to the public on CLFS payment amounts.
As noted above, section 1834A(a)(10) of the Act lists four
instances when the prohibition on disclosing information reported by
laboratories under section 1834A(a) of the Act would not apply, the
first being when the Secretary determines disclosure is necessary to
carry out section 1834A of the Act. We believe certain disclosures will
be necessary for CMS to administer and enforce the new Medicare payment
system for CDLTs. For example, it may be necessary to disclose to the
HHS Office of Inspector General confidential data needed to conduct an
audit, evaluation, or investigation or to assess a CMP, or to disclose
to other law enforcement entities such as the Department of Justice
confidential data needed to conduct law enforcement activities.
Therefore, we are proposing to add those entities to the list of
entities in Sec. 414.504(f) to which CMS may disclose applicable
information that is otherwise confidential. Additionally, there may be
other circumstances that require the Secretary to disclose confidential
information regarding the identity of a specific laboratory or private
payor. In the event we determine it necessary to disclose confidential
information for other circumstances, we would notify the public of the
reasons through a Federal Register announcement or via a CMS Web site
publication.
Also, we believe that codes and associated CLFS payment rates
published for ADLTs may indirectly disclose the identity of the
specific laboratories selling those tests, and, for new ADLTs, payments
made to those laboratories. That is because, as explained in section
II.C. of this proposed rule, ADLTs are offered and furnished only by a
single laboratory. Thus, we believe publishing the test code and
associated CLFS payment rate for an ADLT would indirectly reveal the
identity of the laboratory because only the single laboratory is
offering and furnishing that test. Moreover, because Medicare will pay
actual list charge for a new ADLT during the new ADLT initial period,
publishing the test code and associated CLFS rate for a new ADLT would,
we believe, reveal the payments made to the laboratory offering and
furnishing that test. We believe section 1834A(a)(10)(A) of the Act
authorizes us to publish the test codes and associated CLFS payment
rates for ADLTs because we need to publish the CLFS rates for ADLTs and
we do not believe we can do so without indirectly revealing ADLT
laboratory identities and payments made to those laboratories. However,
because the actual list charge for a new ADLT would already be publicly
available, we do not believe laboratories will be harmed by our
publishing the CLFS rates for new ADLTs. We will not publish
information that directly discloses a laboratory's identity, but we
cannot prevent the public from associating CLFS payment information for
an ADLT to the single laboratory offering and furnishing the test.
Section 1834A(a)(10) of the Act also prohibits a Medicare
contractor from disclosing information under section 1834A(a) of the
Act in a form that reveals the identity of a specific payor or
laboratory, or prices charged or payments made to any such laboratory.
We do not expect this prohibition to be problematic as applicable
laboratories will be reporting applicable information

[[Page 59403]]

to CMS and not the MACs. When a MAC sets rates under our new policies,
we would expect the MAC will follow its current practice for pricing
when developing a local payment rate for an item or service that does
not have a national payment rate, which is, it would only disclose
pricing information to the extent that it needs to process and pay a
claim.
We propose to implement the confidentiality requirements of section
1834A(a)(10) of the Act in Sec. 414.504(f).

G. Coding for Certain Clinical Diagnostic Laboratory Tests (CDLTs) on
the CLFS

Section 1834A(e) of the Act includes coding requirements for
certain new and existing ADLTs and laboratory tests that are cleared or
approved by the FDA. In this section, we describe our current coding
system for the CLFS and how we propose to utilize aspects of this
system to implement the coding provisions in section 1834A(e) of the
Act.
1. Background
Currently, new tests on the CLFS receive HCPCS level I codes (CPT)
from the American Medical Association (AMA). The CPT is a uniform
coding system consisting of descriptive terms and codes that are used
primarily to identify medical services and procedures furnished by
physicians, suppliers, and other health care professionals. Decisions
regarding the addition, deletion, or revision of CPT codes are made by
the AMA, and published and updated annually by the AMA. Level II of the
HCPCS is a standardized coding system used primarily to identify
products, supplies, and services not included in the CPT codes, such as
ambulance services and durable medical equipment, prosthetics,
orthotics and supplies (DMEPOS). Because Medicare and other insurers
cover a variety of services, supplies, and equipment that are not
identified by CPT codes, the HCPCS level II codes were established for
submitting claims for these items.
Within CMS, the CMS HCPCS Workgroup, which is comprised of
representatives of major components of CMS and consultants from
pertinent Federal agencies, is responsible for all revisions,
deletions, and addition to the HCPCS level II codes. As part of its
deliberations, the CMS HCPCS Workgroup may develop temporary and
permanent national alpha-numeric HCPCS level II codes. Permanent HCPCS
level II codes are established and updated annually, whereas temporary
HCPCS level II codes are established and updated on a quarterly basis.
Temporary codes are useful for meeting, in a short time frame, the
national program operational needs of a particular insurer that are not
addressed by an already existing national code. For example, Medicare
may need additional codes before the next annual HCPCS update to
implement newly issued coverage policies or legislative requirements.
Temporary HCPCS level II codes do not have established expiration
dates, however, a temporary code may be replaced by a CPT code, or the
CMS HCPCS Workgroup may decide to replace a temporary code with a
permanent HCPCS level II code. For example, a laboratory may request a
code for a test in the middle of a year. Because permanent codes are
assigned only once a year, the CMS HCPCS Workgroup may assign the
laboratory test a temporary HCPCS level II code. The temporary code may
be used indefinitely or until a permanent code is assigned to the test.
Whenever the CMS HCPCS Workgroup establishes a permanent code to
replace a temporary code, the temporary code is cross-referenced to the
new permanent code and deleted.
``G codes'' are temporary HCPCS level II codes used by CMS to
identify professional health care procedures and services, including
laboratory tests, that would otherwise be identified by a CPT code, but
for which there is no CPT code. CMS has used G codes for laboratory
tests that do not have CPT codes but for which CMS makes payment, or in
situations where CMS wants to treat the codes differently from the CPT
code descriptor for Medicare payment purposes.
2. Coding Under PAMA
Section 1834A(e) of the Act includes three provisions that relate
to coding: (a) Temporary codes for certain new tests; (b) coding for
existing tests; and (c) establishment of unique identifiers for certain
tests. The effect of section 1834A(e) of the Act is to require the
Secretary to establish codes, whereas prior to the enactment of PAMA,
the Secretary had discretion, but was not required to do so. Before we
discuss each of the three provisions, we address several specific
references in the statute that we believe need clarification.
In the three coding provisions, the statute requires us to
``adopt,'' ``assign,'' and ``establish'' codes or identifiers. We
believe those terms are interchangeable. There is no practical
difference between them for purposes of CMS's obligation under section
1834A(e) of the Act, which is, essentially, to ensure that certain
laboratory tests can be identified by a HCPCS code, or in the case of
section 1834A(e)(3) of the Act, a unique identifier. The statute also
refers to ``new laboratory tests'' and ``existing clinical diagnostic
laboratory test[s]'' in sections 1834A(e)(1)(A) and (2), respectively.
We believe new laboratory tests here refers to CDLTs (that are cleared
or approved by the FDA) paid under the CLFS on or after January 1,
2017, and existing CDLTs refers to CDLTs (that are approved or cleared
by the FDA) paid under the CLFS prior to that date.
a. Temporary Codes for Certain New Tests
Section 1834A(e)(1)(A) of the Act requires the Secretary to adopt
temporary HCPCS codes to identify new ADLTs and new laboratory tests
that are cleared or approved by the FDA. In section II.C.1. of this
proposed rule, we proposed a definition for new ADLTs, and in section
II.C.2., we discuss what it means for a laboratory test to be cleared
or approved by the FDA. We are applying those interpretations here. We
understand the statute to be requiring us to adopt temporary HCPCS
level II codes for these two types of laboratory tests if they have not
already been assigned a HCPCS code. Therefore, we would utilize the
existing HCPCS coding process for these tests. This means, if a new
ADLT or a new CDLT that is FDA cleared or approved is not already
assigned a CPT code or HCPCS level II code, we would assign a G code to
the test. The statute further directs that the temporary code be
effective for up to 2 years until a permanent HCPCS code is
established, although the statute permits the Secretary to extend the
length of time as appropriate. Therefore, any G code that we adopt
under this provision would be effective for up to two years, unless we
believe it is appropriate to continue to use the G code. For instance,
we may create a G code to describe a test for prostate specific antigen
(PSA) that may be covered by Medicare under sections 1861(s)(2)(P) and
1861(oo)(2)(B) of the Act as a prostate cancer screening test. At the
end of 2 years, if the AMA has not created a CPT code to describe that
test but Medicare continues to have a need to pay for the test
described by the G code, we would continue to use the G code.
b. Coding and Publication of Payment Rates for Existing Tests
Section 1834A(e)(2) of the Act stipulates that not later than
January 1, 2016, for each existing ADLT and each existing CDLT that is
cleared or approved by the FDA for which

[[Page 59404]]

payment is made under Medicare Part B as of PAMA's enactment date
(April 1, 2014), if such test has not already been assigned a unique
HCPCS code, the Secretary shall (1) assign a unique HCPCS code for the
test and (2) publicly report the payment rate for the test.
As with the requirement for us to adopt codes for certain new tests
under section 1834A(e)(1) of the Act, we believe our existing coding
process is consistent with the requirements of section 1834A(e)(2) of
the Act. Accordingly, we would utilize the existing HCPCS coding
process for these tests, meaning, if an existing ADLT or existing CDLT
is not already assigned a CPT code or a HCPCS level II code, we would
assign a G code to the test.
One aspect of section 1834A(e)(2) of the Act (applying to existing
tests) that is different than section 1834A(e)(1) of the Act (applying
to certain new tests) is the requirement for us to assign a ``unique''
HCPCS code. We understand a unique HCPCS code to describe only a single
test. An ADLT is a single test, so each existing ADLT would be assigned
its own G code. However, it is possible that one HCPCS code is used to
describe more than one existing CDLT that is cleared or approved by the
FDA. For instance, we understand there are different versions of
laboratory tests for the Kirsten rat sarcoma viral oncogene homolog
(KRAS)--one version that is FDA-approved and others that are not FDA
cleared or approved. Currently, the same HCPCS code is used for both
the FDA-approved laboratory test for KRAS and the non-FDA cleared or
approved versions of the test. Thus, the current HCPCS code is not
unique in describing only the FDA-approved version of the KRAS test.
Under section 1834A(e)(2) of the Act, we are required to ensure that
FDA cleared or approved versions of the KRAS test are assigned their
own unique codes.
Section 1834A(e)(2)(B) of the Act requires CMS to publicly report
the payment rate for the existing ADLT or test that is cleared or
approved by the FDA by January 1, 2016. It is possible there are
existing ADLTs or CDLTs cleared or approved by the FDA that are
currently being priced under our existing regulations using
crosswalking or gapfilling. For instance, some tests are currently
being priced using gapfilling (see http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ClinicalLabFeeSched/Downloads/CY2015-CLFS-Codes-Final-Determinations.pdf). If any of the tests that are
currently being priced using gapfilling fall within the category of
section 1834A(e)(2) existing laboratory tests, we would be able to
report the payment rate for them by January 1, 2016. There may be other
tests in the category of section 1834A(e)(2) existing laboratory tests
that are currently being priced for January 1, 2016, and that are
already being paid by the MACs. (See http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ClinicalLabFeeSched/Downloads/Clinical-Lab-Codes-for-CY-2016.pdf for a list of codes discussed at the
Annual Public Meeting on July 16, 2015 that we are currently in the
process of pricing for January 1, 2016.) As these tests are already
being paid by MACs, we would be able to publicly report their payment
amounts by January 1, 2016.
To fulfill the requirement to publicly report payment rates, we
will include the codes and payment amounts on the electronic CLFS
payment file that we make available on the CMS Web site prior to
January 1, 2016. We are currently considering how we would present the
information. We expect to provide a separate field with a special
identifier indicating when a HCPCS code uniquely describes an existing
laboratory test, although we may separately identify those codes that
uniquely identify an existing test in separate documentation describing
the file.
c. Establishing Unique Identifiers for Certain Tests
Section 1834A(e)(3) of the Act requires the establishment of a
unique identifier for certain tests. Specifically, section 1834A(e)(3)
of the Act provides that, for purposes of tracking and monitoring, if a
laboratory or a manufacturer requests a unique identifier for an ADLT
or a laboratory test that is cleared or approved by the FDA, the
Secretary shall utilize a means to uniquely track such test through a
mechanism such as a HCPCS code or modifier. Section 1834A(e)(3) of the
Act applies only to those laboratory tests that are addressed by
sections 1834A(e)(1) and (2) of the Act, that is, new and existing
ADLTs and new and existing CDLTs that are cleared or approved by the
FDA.
The statute does not define ``tracking and monitoring.'' However,
in the context of a health insurance program like Medicare, tracking
and monitoring would typically be associated with enabling or
facilitating the obtaining of information included on a Medicare claim
for payment to observe such factors as: Overall utilization of a given
service; regional utilization of the service; where a service was
provided (for example, office, laboratory, hospital); who is billing
for the service (for example, physician, laboratory, other supplier);
which beneficiary received the service; and characteristics of the
beneficiary receiving the service (for example, male/female, age,
diagnosis). As the HCPCS code is the fundamental variable used to
identify an item or service, and can serve as the means to uniquely
track and monitor many various aspects of a laboratory test, we believe
the requirements of this section will be met by the existing HCPCS
coding process. Therefore, we intend to implement section 1834A(e)(3)
of the Act using our current HCPCS coding system. If a laboratory or
manufacturer specifically requests from us a unique identifier for
tracking and monitoring an ADLT or an FDA cleared or approved or
cleared CDLT, we would assign it a unique HCPCS code if it does not
already have one.

H. Payment Methodology

1. Calculation of Weighted Median
Section 1834A(b) of the Act establishes a new methodology for
determining Medicare payment amounts for CDLTs on the CLFS. Section
1834A(b)(1)(A) of the Act establishes the general requirement that the
Medicare payment amount for a CDLT furnished on or after January 1,
2017, shall be equal to the weighted median determined for the test for
the most recent data collection period. Section 1834A(b)(2) of the Act
requires the Secretary to calculate a weighted median for each
laboratory test for which information is reported for the data
collection period by arraying the distribution of all private payor
rates reported for the period for each test weighted by volume for each
private payor and each laboratory. As discussed later in this section,
the statute includes special payment requirements for new ADLTs and new
CDLTs that are not ADLTs.
To illustrate how we propose to calculate the weighted median for
CDLTs, we are providing examples of several different scenarios. These
examples are meant to show how we plan to determine the weighted median
and not to be exhaustive of every possible pricing scenario. As
depicted in Table 3, suppose that applicable laboratories report the
following private payor rate and volume information for three different
CDLTs.

[[Page 59405]]

Table 3--Example of the Calculation of the Weighted Median
--------------------------------------------------------------------------------------------------------------------------------------------------------
Test 1 Test 2 Test 3
-----------------------------------------------------------------------------------------------
Private payor Private payor Private payor
rate Volume rate Volume rate Volume
--------------------------------------------------------------------------------------------------------------------------------------------------------
Lab. A.................................................. $5.00 1,000 $25.00 500 $40.00 750
Lab. B.................................................. 9.00 1,100 20.00 2,000 41.00 700
Lab. C.................................................. 6.00 900 23.50 1,000 50.00 500
Lab. D.................................................. 2.50 5,000 18.00 4,000 39.00 750
Lab. E.................................................. 4.00 3,000 30.00 100 45.00 850
--------------------------------------------------------------------------------------------------------------------------------------------------------

In this example, there are five different private payor rates for
each test. Table 3 is shown again as Table 4 with each test arrayed by
order of the lowest to highest private payor rate, with each private
payor rate appearing one time only so as to not reflect volume
weighting.

Table 4--Example of the Calculation of the Unweighted Median
----------------------------------------------------------------------------------------------------------------
Test 1 Test 2 Test 3
-----------------------------------------------
Private payor Private payor Private payor
rate rate rate
----------------------------------------------------------------------------------------------------------------
Lowest (1)...................................................... $2.50 $18.00 $39.00
Next in Sequence (2)............................................ 4.00 20.00 40.00
Next in Sequence (3)............................................ 5.00 23.50 41.00
Next in Sequence (4)............................................ 6.00 25.00 45.00
Highest (5)..................................................... 9.00 30.00 50.00
----------------------------------------------------------------------------------------------------------------

With five different private payor rates for each test, the
unweighted median is the middle value or the third line in the table
where there are an equal number of private payor rates listed above and
below the third line in the table. The unweighted median private payor
rate for each test would be:
Test 1 = $5.00
Test 2 = $23.50
Test 3 = $41.00
These results are obtained by arraying the distribution of all
private payor rates reported for the period for each test without
regard to the volume reported for each private payor and each
laboratory. To obtain the weighted median, we would do a similar array
to the one in Table 4 except we would list each distinct private payor
rate repeatedly by the same number of times as its volume. This is
illustrated for Test 1 in Table 5.

Table 5--Example of the Calculation of the Weighted Median
------------------------------------------------------------------------
Test 1
---------------
Private payor
rate
------------------------------------------------------------------------
Lowest (1).............................................. $2.50
Lowest (2).............................................. 2.50
. . .................................................... 2.50
. . .................................................... 2.50
Until . . . (5,000)..................................... 2.50
Next Rate in Sequence (5,001)........................... 4.00
Next Rate in Sequence (5,002)........................... 4.00
. . .................................................... 4.00
. . .................................................... 4.00
Until (8,000)........................................... 4.00
. . .................................................... . . .
Highest (11,000)........................................ 9.00
------------------------------------------------------------------------

Thus, for Test 1, the array would show the lowest private payor
rate of $2.50 five thousand times. The ellipsis (``. . .'') represents
the continuation of the sequence between lines 2 and 4,999. The next
private payor rate in the sequence ($4.00) would appear on line 5,001
and would be listed 3,000 times until we get to line 8,000. This
process would continue with the remaining private payor rates listed as
many times as the associated volumes, with the continuing sequence
illustrated by ellipses. Continuing the array, the next highest private
payor rate in the sequence would be: $5.00 listed 1,000 times; $6.00
listed 900 times; and $9.00 listed 1,100 times. The total number of
lines in the array would be 11,000, as that is the total volume for
Test 1 furnished by the five applicable laboratories. Because the total
volume for Test 1 is 11,000, the weighted median private payor rate
would be the average of the 5,500th and 5,501st entry, which would be
$4.00.
Repeating this process for Test 2 (see Table 6), the total volume
for Test 2 is 7,600 units; therefore, the weighted median private payor
rate would be the average of the 3,800th and 3,801st entry, which would
be $18.00.

Table 6--Test 2--Sorted by Rate
------------------------------------------------------------------------
Private payor rate Volume
------------------------------------------------------------------------
$18.00.................................................. 4,000
20.00................................................... 2,000
23.50................................................... 1,000
25.00................................................... 500
30.00................................................... 100
------------------------------------------------------------------------

For Test 3 (see Table 7), the total volume is 3,550 units;
therefore, the weighted median private payor rate would be the average
of the 1,775th and 1,776th entry, which would be $41.00.

Table 7--Test 3--Sorted by Rate
------------------------------------------------------------------------
Private payor rate Volume
------------------------------------------------------------------------
$39.00.................................................. 750
40.00................................................... 750
41.00................................................... 700
45.00................................................... 850
50.00................................................... 500
------------------------------------------------------------------------

In this example, weighting changed the median private payor rate
from $5.00 to $4.00 for Test 1, from $23.50 to $18.00 for Test 2, and
resulted in no

[[Page 59406]]

change ($41.00 both unweighted and weighted) for Test 3.
For simplicity, the above example shows only one private payor rate
per test. We expect laboratories commonly have multiple private payor
rates for each CDLT they perform. For each test performed by applicable
laboratories having multiple private payor rates, we would use the same
process shown above, irrespective of how many different private payor
rates there are for a given test. In other words, we would list each
private payor rate and its volume at that private payor rate, and
determine the median as we did above for each payor and each
laboratory, and then compute the volume-weighted median rate. The
following example in Table 8 illustrates how we propose to calculate
the weighted median rate for a test under this scenario:

Table 8--Test 4
--------------------------------------------------------------------------------------------------------------------------------------------------------
Payor 1 Payor 2 Payor 3
-----------------------------------------------------------------------------------------------
Private payor Private payor Private payor
rate Volume rate Volume rate Volume
--------------------------------------------------------------------------------------------------------------------------------------------------------
Lab. A.................................................. $5.00 10 $5.25 20 $4.00 30
Lab. B.................................................. 3.75 50
Lab. C.................................................. 6.00 5 5.00 10 5.50 25
Lab. D.................................................. 5.00 10 4.75 30
Lab. E.................................................. 6.00 5
--------------------------------------------------------------------------------------------------------------------------------------------------------

To calculate the weighted median for Test 4, we would array all
private payor rates, listed the number of times for each respective
test's volume, and then determine the median value (as illustrated in
Table 9).

Table 9--Test 4--Sorted by Rate
------------------------------------------------------------------------
Private payor rate Volume
------------------------------------------------------------------------
$3.75................................................... 50
4.00.................................................... 30
4.75.................................................... 30
5.00.................................................... 10
5.00.................................................... 10
5.00.................................................... 10
5.50.................................................... 25
5.25.................................................... 20
6.00.................................................... 5
6.00.................................................... 5
------------------------------------------------------------------------

The total volume for Test 4 is 195. Therefore, the median value
would be at the 98th entry, which would be 4.75. We are proposing to
describe this process in Sec. 414.507(b).
Section 1834A(b)(1)(B) of the Act states that the Medicare payment
amounts established under section 1834A of the Act shall apply to a
CDLT furnished by a hospital laboratory if such test is paid for
separately, and not as part of a bundled payment under section 1833(t)
of the Act (the statutory section pertaining to the OPPS). In CY 2014,
we finalized a policy to package certain CDLTs in the OPPS (78 FR 74939
through 74942 and 42 CFR 419.2(b)(17)). Under current policy, certain
CDLTs that are listed on the CLFS are packaged in the OPPS as integral,
ancillary, supportive, dependent, or adjunctive to the primary service
or services provided in the hospital outpatient setting on the same
date of service as the laboratory test. Specifically, we conditionally
package laboratory tests and only pay separately for a laboratory test
when (1) it is the only service provided to a beneficiary on a given
date of service or (2) it is conducted on the same date of service as
the primary service, but is ordered for a different purpose than the
primary service and ordered by a practitioner different than the
practitioner who ordered the other OPPS services. Also excluded from
this conditional packaging policy are molecular pathology tests
described by CPT codes in the ranges of 81200 through 81383, 81400
through 81408, and 81479 (78 FR 74939 through 74942). When laboratory
tests are not packaged under the OPPS and are listed on the CLFS, they
are paid at the CLFS payment rates outside the OPPS under Medicare Part
B. Section 1834A(b)(1)(B) of the Act would require us to pay the CLFS
payment amount determined under section 1834A(b)(1)(B) of the Act for
CDLTs that are provided in the hospital outpatient department and not
packaged into Medicare's OPPS payment. This policy would apply to any
tests currently paid separately in the hospital outpatient department
or in the future if there are any changes to OPPS packaging policy.\2\
As these are payment policies that pertain to the OPPS, we will
implement them in OPPS annual rulemaking.
---------------------------------------------------------------------------

\2\ For the CY 2016 OPPS proposed rule, we have proposed changes
to the packaging policy described above. See 80 FR 39235 for more
information.
---------------------------------------------------------------------------

Next, section 1834A(b)(4)(A) of the Act states that the Medicare
payment amounts under section 1834A(b) shall continue to apply until
the year following the next data collection period. We propose to
implement this requirement in proposed Sec. 414.507(a) by stating that
each payment rate will be in effect for a period of 1 calendar year for
ADLTs and 3 calendar years for all other CDLTs, until the year
following the next data collection period.
Section 1834A(b)(4)(B) of the Act states that the Medicare payment
amounts under section 1834A of the Act shall not be subject to any
adjustment (including any geographic adjustment, budget neutrality
adjustment, annual update, or other adjustment). As discussed
previously in this section, the new payment methodology for CDLTs
established under section 1834A(b) of the Act will apply to all tests
furnished on or after January 1, 2017, and replace the current
methodology for calculating Medicare payment amounts for CDLTs under
sections 1833(a), (b), and (h) of the Act, including the annual updates
for inflation based on the percentage change in the CPI-U and reduction
by a multi-factor productivity adjustment (see section 1833(h)(2)(A) of
the Act). We believe section 1834A(b)(4)(B) of the Act is clear that
Congress intended there be no annual update adjustment for tests paid
under section 1834A of the Act. Therefore, we are proposing to include
in Sec. 414.507(c) that the payment amounts established under this
section are not subject to any adjustment, such as any geographic,
budget neutrality, annual update, or other adjustment.
2. Phased-In Payment Reduction
Section 1834A(b)(3) of the Act limits the reduction in payment
amounts that may result from implementation of the new payment
methodology under section 1834A(b) of the Act within the first 6 years.
Specifically, section 1834A(b)(3)(A) of the Act states that the payment
amounts determined for a CDLT for a year cannot be reduced by more than
the applicable percent from the preceding year for each of 2017 through
2022. Under section

[[Page 59407]]

1834A(b)(3)(B) of the Act, the applicable percent is 10 percent for
each of 2017 through 2019, and 15 percent for each of 2020 through
2022. These provisions do not apply to new ADLTs, or new CDLTs that are
not ADLTs (defined in Sec. 414.502 and discussed in sections II.H.3.
and H.6. of this proposed rule).
For example, if a test that is not a new ADLT or new CDLT has a CY
2016 Medicare payment amount of $20.00, the maximum reduction in the
Medicare payment amount for CY 2017 is 10 percent, or $2. Following the
CY 2016 data reporting period, CMS calculates a weighted median of
$15.00 (a reduction of 25 percent from a Medicare payment amount of
$20.00) based on the applicable information reported for the test.
Because the maximum payment reduction permitted under the statute for
2017 is 10 percent, the Medicare payment amount for CY 2017 will be
$18.00 ($20.00 minus $2.00). The following year, a 10 percent reduction
from the CY 2017 payment of $18.00 would equal $1.80, lowering the
total Medicare payment amount to $16.20 for CY 2018. As a second
example, if a test that is not a new ADLT or new CDLT has a CY 2016
Medicare payment amount of $17.00, the maximum reduction for CY 2017 is
10 percent or $1.70. Following the CY 2016 data reporting period, CMS
calculates a weighted median of $15.00 (a reduction of 11.8 percent
from the CY 2016 Medicare payment amount of $17). Because the maximum
reduction is 10 percent, the Medicare payment amount for CY 2017 will
be $15.30 or the maximum allowed reduction of $1.70 from the preceding
year's (CY 2016) Medicare payment amount of $17.00. The following year
(CY 2018), the Medicare payment amount will be reduced to $15.00, or
$0.30 less, which is less than a 10 percent reduction from the prior
year's (CY 2017) Medicare payment amount of $15.30. We believe applying
the maximum applicable percentage reduction from the prior year's
Medicare payment amount, rather than from the weighted median rate for
CY 2016, is most consistent with the statute's mandate that the
reduction ``for the year'' (that is, the calendar year) not be
``greater than the applicable percent . . . of the amount of payment
for the test for the preceding year.''
To apply the phase-in reduction provisions beginning in CY 2017, we
must look at the CLFS rates established for CY 2016 under the payment
methodology set forth in sections 1833(a), (b), and (h) of the Act. As
discussed in section II.B.1. of this proposed rule, CDLTs furnished on
or after July 1, 1984, and before January 1, 2017, in a physician's
office, by an independent laboratory, or, in limited circumstances, by
a hospital laboratory for its outpatients or non-patients, are paid
under the Medicare CLFS, with certain exceptions. Payment is the lesser
of:
The amount billed;
The state or local fee schedule amount established by
Medicare contractors; or
An NLA, which is a percentage of the median of all the
state and local fee schedules.
The NLA is 74 percent of the median of all local Medicare payment
amounts for tests for which the NLA was established before January 1,
2001. The NLA is 100 percent of the median of the local fee schedule
amount for tests for which the NLA was first established on or after
January 1, 2001 (see section 1833(h)(4)(B)(viii) of the Act). Medicare
typically pays either the lower of the local fee schedule amount or the
NLA, as it uncommon for the amount billed to be less than either of
these amounts. As the local fee schedule amount may be lower than the
NLA, Medicare payment amounts for CDLTs are not uniform across the
nation. Thus, we must decide which CY 2016 CLFS payment amounts to
consider--the lower of the local fee schedule amount or the NLA, or
just the NLA--when applying the phase-in reduction provisions to the
CLFS rates for CY 2017. Under option 1, we would apply the 10 percent
reduction limitation to the lower of the NLA or the local fee schedule
amount. This option would retain some of the features of the current
payment methodology under sections 1833(a), (b), and (h) of the Act
and, we believe, would be the most consistent with the requirement in
section 1834A(b)(3)(A) of the Act to apply the applicable percentage
reduction limitation to the ``amount of payment for the test'' for the
preceding year. As noted above, for each of CY 2018 through 2022, we
would apply the applicable percentage reduction limitation to the
Medicare payment amount for the preceding year. Under this option,
though, the Medicare payment amounts may be local fee schedule amounts,
so there could continue to be regional variation in the Medicare
payment amounts for CDLTs.
Alternatively, under option 2, we would consider only the NLAs for
CY 2016 when applying the 10 percent reduction limitation. This option
would eliminate the regional variation in Medicare payment amounts for
CDLTs, and, we believe, would be more consistent with section
1834A(b)(4)(B) of the Act, which, as noted above, prohibits the
application of any adjustments to CLFS payment amounts determined under
section 1834A of the Act, including any geographic adjustments.
We are proposing option 2 (NLAs only) for purposes of applying the
10 percent reduction limit to CY 2017 payment amounts because we
believe the statute intends CLFS rates to be uniform nationwide, which
is why it precludes any geographic adjustment. In other words, we are
proposing that if the weighted median calculated for a CDLT based on
applicable information for CY 2017 would be more than 10 percent less
than the CY 2016 NLA for that test, we would establish a Medicare
payment amount for CY 2017 that is no less than 90 percent of the NLA
(that is, no more than a 10 percent reduction). For each of CY 2018
through 2022, we would apply the applicable percentage reduction
limitation to the Medicare payment amount for the preceding year.
We are proposing to codify the phase-in reduction provisions in
Sec. 414.507(d) to specify that for years 2017 through 2022, the
payment rates established under this section for each CDLT that is not
a new ADLT or new CDLT, may not be reduced by more than the following
amounts for--
2017--10 percent of the NLA for the test in 2016.
2018--10 percent of the payment rate established in 2017.
2019--10 percent of the payment rate established in 2018.
2020--15 percent of the payment rate established in 2019.
2021--15 percent of the payment rate established in 2020.
2022--15 percent of the payment rate established in 2021.
Table 10 illustrates the phase-in reduction for the two
hypothetical examples presented above:

[[Page 59408]]

Table 10--Phase-In Reduction for 2 Examples
--------------------------------------------------------------------------------------------------------------------------------------------------------
Private 10% Max. 10% Max. 10% Max.
NLA payor rate reduction 2017 Rate reduction 2018 Rate reduction 2019 Rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
Test 1.......................................... $20.00 $15.00 $2.00 $18.00 $1.80 $16.20 $1.20<10% $15.00
Test 2.......................................... 17.00 15.00 1.70 15.30 $0.30<10% 15.00 $0.00<10% 15.00
--------------------------------------------------------------------------------------------------------------------------------------------------------

3. Payment for New ADLTs
Section 1834A(d)(1)(A) of the Act provides that the payment amount
for a new ADLT shall be based on the actual list charge for the
laboratory test during an initial period of 3 quarters. Section
1834A(d)(2) of the Act requires applicable laboratories to report
applicable information for a new ADLT not later than the last day of
the Q2 of the initial period. Section 1834A(d)(3) of the Act requires
the Secretary to use the weighted median methodology under subsection
(b) to establish Medicare payment rates for new ADLTs after the initial
period. Under section 1834A(d)(3) of the Act, such payment rates
continue to apply until the year following the next data collection
period.
In section II.D.3. of this proposed rule, we discuss our proposal
to require the initial period, which we propose to call the ``new ADLT
initial period,'' to begin on the first day of the first full calendar
quarter following the first day on which a new ADLT is performed. In
accordance with section 1834A(d)(1)(A) of the Act, we are proposing
that the payment amount for the new ADLT will equal the actual list
charge, as defined below, during the new ADLT initial period.
Accordingly, we propose to codify Sec. 414.522(a)(1) to specify the
payment rate for a new ADLT during the new ADLT initial period is equal
to its actual list charge.
Section 1834A(d)(1)(B) of the Act states that actual list charge
means the publicly available rate on the first day at which the test is
available for purchase by a private payor for a laboratory test. We
believe the ``publicly available rate'' is the amount charged for an
ADLT that is readily accessible in such forums as a company Web site,
test registry, or price listing, to anyone seeking to know how much a
patient who does not have the benefit of a negotiated rate would pay
for the test. This interpretation of publicly available rate is
distinguishable from a private payor rate in that the former is readily
available to a consumer, while the latter may be negotiated between a
private payor and a laboratory and is not readily available to a
consumer. We recognize there may be more than one publicly available
rate, in which case we believe the lowest rate should be the actual
list charge amount so that Medicare is not paying more than the lowest
rate that is publicly available to any consumer. We would define
publicly available rate in Sec. 414.502 as the lowest amount charged
for an ADLT that is readily accessible in such forums as a company Web
site, test registry, or price listing, to anyone seeking to know how
much a patient who does not have the benefit of a negotiated rate would
pay for the test.
In our view, the first day a new ADLT is available for purchase by
a private payor is the first day an ADLT is offered to a patient who is
covered by private insurance. The statutory phrase ``available for
purchase'' suggests to us that the test only has to be available to
patients who have private insurance even if the test has not actually
been performed yet by the laboratory. That is, it is the first day the
new ADLT is obtainable by a patient, or marketed to the public as a
test that a patient can receive, even if the test has not yet been
performed on that date. We propose to incorporate this interpretation
into our proposed definition of actual list charge in Sec. 414.502 to
specify actual list charge is the publicly available rate on the first
day the new ADLT is obtainable by a patient who is covered by private
insurance, or marketed to the public as a test a patient can receive,
even if the test has not yet been performed on that date.
Because we cannot easily know the first date on which a new ADLT is
performed or the actual list charge amount for a new ADLT, we would
require the laboratory seeking ADLT status for its test to inform us of
both the date the test is first performed and the actual list charge
amount. Accordingly, we are proposing in Sec. 414.504(c), that, in its
new ADLT application, the laboratory seeking new ADLT status for its
test must attest to the actual list charge and the date the new ADLT is
first performed. We will outline the new ADLT application process in
detail in subregulatory guidance prior to January 1, 2017.
Because the new ADLT initial period starts on the first day of the
next calendar quarter following the first day on which a new ADLT is
performed, there will be a span of time between when the test is first
performed and when the test is paid the actual list charge amount. We
need to establish a payment amount for the test during that span of
time. Similar to how CMS pays for a test under the PFS, the CLFS, or
other payment systems, for a service that does not yet have a national
payment amount, the MAC would work with a laboratory to develop a
payment rate for a new ADLT for the period of time before CMS pays at
actual list charge. For example, if an ADLT is first performed on
February 4, 2017, the new ADLT initial period would begin on April 1,
2017. While the new ADLT would be paid the actual list charge amount
from April 1 through December 31, 2017, the MAC would determine the
payment amount for the test from February 4 through March 31, 2017, as
it does currently for tests that need to be paid prior to having a
national payment amount. We propose to reflect the payment amount for a
new ADLT prior to the new ADLT initial period at Sec. 414.522(a)(2) to
specify the payment amount is determined by the MAC based on
information provided by the laboratory seeking new ADLT status for its
laboratory test.
According to section 1834A(d)(3) of the Act, the weighted median
methodology used to calculate the payment amount for CDLTs that are not
new ADLTs will be used to establish the payment amount for a new ADLT
after the new ADLT initial period; the payment amount will be based on
applicable information reported by an applicable laboratory before the
last day of the second quarter of the new ADLT initial period, per
section 1834A(d)(2) of the Act. We propose to codify these provisions
in Sec. 414.522(b) as follows: After the new ADLT initial period, the
payment rate for a new ADLT is equal to the weighted median established
under the payment methodology described in Sec. 414.507(b).
The payment rate based on the first 2 quarters of the new ADLT
initial period will continue to apply until the year following the next
data collection period, per section 1834A(d)(3) of the Act. The
following is an example of how the various time frames for new ADLT
payment rates would work. If the first day a new ADLT is available for
purchase by a private payor is in the middle of Q1 of 2017, the new
ADLT

[[Page 59409]]

initial period would begin on the first day of Q2 of CY 2017. The test
would be paid actual list charge through the end of Q4 of CY 2017. The
applicable laboratory that furnishes the test would collect applicable
information in Q2 and Q3 of CY 2017, and report it to CMS by the last
day of Q3 of CY 2017. CMS would calculate a weighted median based on
that applicable information and establish a payment rate that would be
in effect from January 1, 2018, through the end of 2018. The applicable
laboratory would report applicable information from the CY 2017 data
collection period to CMS during the January through March data
reporting period in 2018, which would be used to establish the payment
rate that would go into effect on January 1, 2019.
4. Recoupment of Payment for New ADLTs if Actual List Charge Exceeds
Market Rate
Section 1834A(d)(4) of the Act requires that after the new ADLT
initial period, if the Medicare payment amount during the new ADLT
initial period (that is, the actual list charge) is more than 130
percent of the Medicare payment amount determined using the weighted
median of private payor rates that is applicable after the new ADLT
initial period, the Secretary shall recoup the difference between the
Medicare payment amounts during the initial period and the Medicare
payment amount based on the weighted median of private payor rates. We
believe the statute is directing the Secretary to recoup the entire
amount of the difference between the Medicare payment amount during the
new ADLT initial period and the Medicare payment amount based on the
weighted median of private payor rates--not the difference between the
Medicare payment amount during the initial period and 130 percent of
the weighted median rate. For example, if the Medicare payment amount
using actual list charge is $150 during the new ADLT initial period and
the weighted median rate is $100, the Medicare payment amount is 150
percent of the Medicare payment amount based on the weighted median
rate. We believe the statute is directing the Secretary to use 130
percent as the threshold for invoking the recoupment provision but once
invoked, collect the entire amount of the difference in Medicare
payment amounts ($50 in this example).
The statute refers to ``Such amounts'' which means the Medicare
payment amount based on actual list charge and the Medicare payment
amount based on the weighted median rate. The statute directs
recoupment of the full amount of that difference as the 130 percent is
only being used in making the threshold determination of whether the
recoupment provision will apply. For this reason, we are proposing at
Sec. 414.522(c) to specify that if the difference between the Medicare
payment amounts for an ADLT during the new ADLT initial period based on
actual list charge and the weighted median rate exceeds 130 percent,
CMS will recoup the entire amount of the difference between the
Medicare payment amounts. We further note that if the 130 percent
statutory threshold is not exceeded, we are proposing to not recoup at
all. Thus, for instance, if the weighted median rate is $100 and the
Medicare payment amount during the initial period is $130 or lower, the
statutory threshold of 130 percent is not exceeded and we will not
pursue any recoupment of payment.
To determine whether the recoupment provision applies, we propose
to compare the Medicare payment amount based on actual list charge paid
during the new ADLT initial period and the weighted median rate (as
calculated from the first time reporting of new ADLT applicable
information) for each ADLT. If the difference between these two amounts
exceeds 130 percent, the laboratory will be required to refund the
difference in total Medicare payments based on actual list charge and
the weighted median rates. In other words, if the actual list charge
for a new ADLT is more than 130 percent of the weighted median rate (as
calculated from applicable information received during the first
reporting period), claims paid during the new ADLT initial period would
be re-priced using the weighted median rate. To that end, CMS would
issue a Technical Direction Letter instructing the MACs to re-price
claims previously paid during the new ADLT initial period at the
weighted median rate (instead of the actual list charge for the new
ADLT). CMS also intends to issue further guidance on the operational
procedures for recoupment of the new ADLTs that exceed the 130 percent
threshold.
5. Payment for Existing ADLTs
Section 1834A(i) of the Act requires the Secretary, for the period
of April 1, 2014, through December 31, 2016, to use the methodologies
for pricing, coding, and coverage for ADLTs in effect on the day before
the enactment of PAMA (April 1, 2014), and provides that those
methodologies may include crosswalking or gapfilling. Thus, section
1834A(i) of the Act authorizes us to use crosswalking and gapfilling to
pay for existing ADLTs, that is, those ADLTs that are paid for under
the CLFS prior to January 1, 2017. The methodologies in effect on March
31, 2014 were gapfilling and crosswalking. Therefore, we are proposing
to use crosswalking and gapfilling to establish the payment amounts for
existing ADLTs. We would reflect this requirement at Sec. 414.507(h)
to state that for ADLTs that are furnished between April 1, 2014 and
December 31, 2016, payment is made based on crosswalking or gapfilling
methods described in proposed Sec. 414.508(a).
6. Payment for New CDLTs That Are Not ADLTs
Section 1834A(c) of the Act establishes special provisions for
determining payment for new CDLTs that are not ADLTs. Section
1834A(c)(1) of the Act states that payment for a CDLT that is assigned
a new or substantially revised HCPCS code on or after the April 1, 2014
enactment date of PAMA, which is not an ADLT, will be determined using
crosswalking or gapfilling during an initial period until payment rates
under section 1834A(b) of the Act are established. The test must either
be crosswalked (as described in Sec. 414.508(a) or any successor
regulation) to the most appropriate existing test on the CLFS or, if no
existing test is comparable, paid according to a gapfilling process
that takes into account specific sources of information, which we
describe later in this section.
We developed our current procedures for crosswalking and gapfilling
new CDLTs pursuant to section 1833(h)(8) of the Act. Section
1833(h)(8)(A) of the Act requires the Secretary to establish by
regulation procedures for determining the basis for, and amount of,
payment for any CDLT for which a new or substantially revised HCPCS
code is assigned on or after January 1, 2005. Section 1833(h)(8)(B) of
the Act specifies the annual public consultation process that must take
place before the Secretary can determine payment amounts for such
tests, and section 1833(h)(8)(C) of the Act requires the Secretary to
set forth the criteria for making such determinations and make
available to the public the data considered in making such
determinations. We implemented these provisions in the CY 2007 PFS
final rule (71 FR 69701-69704) published on December 1, 2006.
We interpret section 1834A(c) of the Act to generally require us to
use the existing procedures we implemented in 42 CFR part 414, subpart
G. However, we will need to make some changes to our current
regulations to reflect

[[Page 59410]]

specific provisions in section 1834A(c) of the Act, as well as other
aspects of section 1834A of the Act and this proposed rule. In this
section, we describe those proposed changes and how they would affect
our current process for setting payment rates for new CDLTs. To
incorporate section 1834A of the Act within the basis and scope of
payment for CDLTs, we propose to add a reference to 42 CFR part 414,
subpart A, entitled ``General Provisions,'' in Sec. 414.1. In
addition, we propose to change the title of 42 CFR part 414, subpart G,
to reflect that it applies to payment for all CDLTs, not just new
CDLTs. We also propose to add a reference to section 1834A of the Act
in Sec. 414.500. To reflect that Sec. 414.500 would apply to a
broader scope of laboratory tests than just those covered by section
1833(h)(8) of the Act, we propose to delete ``new'' and ``with respect
to which a new or substantially revised Healthcare Common Procedure
Coding System code is assigned on or after January 1, 2005.''
a. Definitions
As noted previously, section 1834A(c) of the Act addresses payment
for a CDLT that is not an ADLT and that is assigned a new or
substantially revised HCPCS code on or after April 1, 2014, PAMA's
enactment date. Our current regulations apply throughout to a ``new
test,'' which we currently define in Sec. 414.502 as any CDLT for
which a new or substantially revised HCPCS code is assigned on or after
January 1, 2005. We are proposing to replace ``new test'' with ``new
CDLT'' in Sec. 414.502 and to make conforming changes throughout the
regulations to distinguish between the current requirements that apply
to new tests and the proposed requirements that would apply to new
CDLTs. Our proposed definition would specify that a new CDLT means a
CDLT that is assigned a new or substantially revised Healthcare Common
Procedure Coding System (HCPCS) code, and that does not meet the
definition of an ADLT. Section 1834A(c)(1) of the Act uses the same
terminology as section 1833(h)(8)(A) of the Act, ``new or substantially
revised HCPCS code,'' which we specifically incorporated into the
definition of new test in Sec. 414.502. We also defined
``substantially revised HCPCS code'' in Sec. 414.502 based on the
statutory definition in section 1833(h)(8)(E)(ii) of the Act to mean a
code for which there has been a substantive change to the definition of
the test or procedure to which the code applies (such as a new analyte
or a new methodology for measuring an existing analyte-specific test).
Because section 1834A(c)(1) of the Act uses terminology that we have
already defined, and is consistent with our current process, we are not
proposing any changes to the phrase ``new or substantially revised
HCPCS code'' in our proposed definition of new CDLT or to the existing
definition for ``substantially revised HCPCS code.''
b. Crosswalking and Gapfilling
Background: As we explained in the CY 2008 PFS final rule with
comment period (71 FR 66275-76), under current Sec. 414.508, we use
one of two bases for payment to establish a payment amount for a new
test. Under Sec. 414.508(a), the first basis, called ``crosswalking,''
is used if a new test is determined to be comparable to an existing
test, multiple existing test codes, or a portion of an existing test
code. If we use crosswalking, we assign to the new test code the local
fee schedule amount and NLA of the existing test code or codes. If we
crosswalk to multiple existing test codes, we determine the local fee
schedule amount and NLA based on a blend of payment amounts for the
existing test codes. Under Sec. 414.508(a)(2), we pay the lesser of
the local fee schedule amount or the NLA. The second basis for payment
is ``gapfilling.'' Under Sec. 414.508(b), we use gapfilling when no
comparable existing test is available. We instruct each MAC to
determine a contractor-specific amount for use in the first year the
new code is effective. (We note that we are proposing to replace
``carrier'' with contractor to reflect that Medicare has replaced
fiscal intermediaries and carriers with MACs.) The sources of
information MACs examine in determining contractor-specific amounts
include:
Charges for the test and routine discounts to charges;
Resources required to perform the test;
Payment amounts determined by other payers; and
Charges, payment amounts, and resources required for other
tests that may be comparable (although not similar enough to justify
crosswalking) or otherwise relevant.
During the first year a new test code is paid using the gapfilling
method, contractors are required to establish contractor-specific
amounts on or before March 31. Contractors may revise their payment
amounts, if necessary, on or before September 1, based on additional
information. After the first year, the contractor-specific amounts are
used to calculate the NLA, which is the median of the contractor-
specific amounts, and under Sec. 414.508(b)(2), the test code is paid
at the NLA in the second year. We instruct MACs to use the gapfilling
method through program instruction, which lists the specific new test
code and the timeframes to establish contractor-specific amounts.
In the CY 2007 PFS final rule with comment period (71 FR 69702), we
also described the timeframes for determining the amount of and basis
for payment for new tests. The codes to be included in the upcoming
year's fee schedule (effective January 1) are available as early as
May. We list the new clinical laboratory test codes on our Web site,
usually in June, along with registration information for the public
meeting, which is held no sooner than 30 days after we announce the
meeting in the Federal Register. The public meeting is typically held
in July. In September, we post our proposed determination of the basis
for payment for each new code and seek public comment on these proposed
determinations. The updated CLFS is prepared in October for release to
our contractors during the first week in November so that the updated
CLFS is ready to pay claims effective January 1 of the following
calendar year. Under Sec. 414.509, for a new test for which a new or
substantially revised HCPCS code was assigned on or after January 1,
2008, CMS accepts reconsideration requests in written format for 60
days after making a determination of the basis for payment (either
crosswalking or gapfilling) regarding whether CMS should reconsider the
basis for payment and/or amount of payment assigned to the new test. If
a requestor recommends that the basis for payment should be changed
from gapfilling to crosswalking, the requestor may also recommend the
code or codes to which to crosswalk the new test. The reconsideration
request would be presented for public comment at the next public
meeting, the following year. After considering the public comments, if
CMS decides to change the amount of payment for the code, the new
payment amount would be effective January 1 of the year following the
reconsideration.
Section 1834A(c)(1) of the Act refers to payment for CDLTs for
which a new or substantially revised HCPCS code is assigned on or after
the April 1, 2014 enactment date of PAMA. We note that the annual
crosswalking and gapfilling process has already occurred for codes on
the 2015 CLFS, and is currently underway for codes on the 2016 CLFS. We
are proposing to continue using the current crosswalking and gapfilling
processes for CDLTs assigned new or substantially revised HCPCS codes
prior to January 1, 2017 because: section 1834A(c)(1)(A) of the Act
refers to our

[[Page 59411]]

existing crosswalking process under Sec. 414.508(a); we would not have
been able to finalize new crosswalking requirements as of PAMA's April
1, 2014 enactment date; and the current payment methodology involving
NLAs and local fee schedule amounts will remain in effect until January
1, 2017. We would update Sec. 414.508 by changing the introductory
language to limit paragraphs (a) and (b) (which would be redesignated
as paragraphs (a)(1) and (a)(2)) to tests assigned new or substantially
revised HCPCS codes ``between January 1, 2005 and December 31, 2016,''
and adding introductory language preceding new proposed paragraphs
(b)(1) and (b)(2) to reflect our proposal to pay for a CDLT that is
assigned a new or substantially revised HCPCS code on or after January
1, 2017 based on either crosswalking or gapfilling.
For CDLTs that are assigned a new or substantially revised HCPCS
codes on or after January 1, 2017, we are proposing to use comparable
crosswalking and gapfilling processes that are modified to reflect the
new market-based payment system under section 1834A of the Act. As
discussed previously, beginning January 1, 2017, the payment
methodology established under section 1834A(b) of the Act will replace
the current payment methodology under sections 1833(a), (b), and (h) of
the Act, including NLAs and local fee schedule amounts. Thus, we are
proposing to establish Sec. 414.508(b)(1) and (2) to describe
crosswalking and gapfilling processes that do not involve NLAs or local
fee schedule amounts.
Regarding the crosswalking process, because section 1834A(c)(1)(A)
of the Act specifically references our existing process under Sec.
414.508(a), we are not proposing to change the circumstances when we
use crosswalking, that is, when we determine the new CDLT is comparable
to an existing test, multiple existing test codes, or a portion of an
existing test code. For a CDLT assigned a new or substantially revised
HCPCS code on or after January 1, 2017, we are proposing to establish
the following crosswalking process in Sec. 414.508(b)(1), which does
not rely on NLAs or local fee schedule amounts:
Crosswalking: Crosswalking is used if it is determined that a new
CDLT is comparable to an existing test, multiple existing test codes,
or a portion of an existing test code.
CMS assigns to the new CDLT code, the payment amount
established under Sec. 414.507 for the existing test.
Payment for the new CDLT code is made at the payment
amount established under Sec. 414.507 for the existing test.
Regarding the gapfilling process, section 1834A(c)(2) of the Act
requires the use of gapfilling if no existing test is comparable to the
new test. Section 1834A(c)(2) of the Act specifies that this gapfilling
process must take into account the following sources of information to
determine gapfill amounts, if available:
Charges for the test and routine discounts to charges.
Resources required to perform the test.
Payment amounts determined by other payors.
Charges, payment amounts, and resources required for other
tests that may be comparable or otherwise relevant.
Other criteria the Secretary determines appropriate.
The first four criteria are identical to the criteria currently
specified in Sec. 414.508(b)(1). For this reason, we are not proposing
any substantive changes to the factors that must be considered in the
gapfilling process. The fifth criterion authorizes the Secretary to
establish other criteria for gapfilling as the Secretary determines
appropriate. At this time, we are not proposing any additional factors
to determine gapfill amounts. If we decide to establish additional
gapfilling criteria, we will do so through notice and comment
rulemaking.
We are proposing to establish a gapfilling process for CDLTs
assigned a new or substantially revised HCPCS code on or after January
1, 2017, that would be similar to the gapfilling process currently
included in Sec. 414.508(b), but would eliminate the reference to the
NLA in Sec. 414.508(b)(2), as that term would no longer be applicable,
and would substitute ``Medicare Administrative Contractor'' (MAC) for
``carrier,'' as MACs are now Medicare's claims processing contractors.
To determine a payment amount under this gapfilling process, we are
proposing to pay the test code at an amount equal to the median of the
contractor-specific payment amounts, consistent with the current
gapfilling methodology at Sec. 414.508(b). Section Sec. 414.508(b)(2)
would state that gapfilling is used when no comparable existing CDLT is
available. We would state in Sec. 414.508(b)(2)(i) that, in the first
year, Medicare Administrative Contractor-specific amounts are
established for the new CDLT code using the following sources of
information to determine gapfill amounts, if available:
Charges for the test and routine discounts to charges;
Resources required to perform the test;
Payment amounts determined by other payers; and
Charges, payment amounts, and resources required for other
tests that may be comparable or otherwise relevant.
Other criteria CMS determines appropriate.
We would state in Sec. 414.508(b)(2)(ii) that, in the second year,
the CDLT code is paid at the median of the MAC-specific amounts.
We note that section 1834A(c)(1) of the Act requires the
crosswalked and gapfilled payment amounts for new CDLTs to be in effect
``during an initial period'' until payment rates under section 1834A(b)
of the Act are established. As discussed previously, we typically list
new CDLT codes on our Web site by June, and by January 1 of the
following calendar year, we have either established payment amounts
using crosswalking or indicated that a test is in its first year of the
gapfilling process. Because we are proposing to largely continue our
existing gapfilling and crosswalking processes, for CDLTs assigned new
or substantially revised HCPCS codes on or after January 1, 2017, we
believe the initial period is the period of time until applicable
information is reported for a CDLT and can be used to establish a
payment amount using the weighted median methodology in Sec.
414.507(b).
We would continue to permit reconsideration of the basis and amount
of payment for CDLTs as we currently do under Sec. 414.509. For a new
CDLT for which a new or substantially revised HCPCS code was assigned
on or after January 1, 2008, CMS accepts reconsideration requests in
written format for 60 days after making a determination of the basis
for payment (either crosswalking or gapfilling) or the payment amount
assigned to the new test code, per Sec. 414.509(a)(1), (b)(1)(i) and
(b)(2)(ii). The requestor may also request to present its
reconsideration request at the next annual public meeting, typically
convened in July of each year under Sec. 414.509(a)(2)(i) and
(b)(1)(ii)(A). Under Sec. 414.509(a)(1), if a requestor recommends
that the basis for payment should be changed from gapfilling to
crosswalking, the requestor may also recommend the code or codes to
which to crosswalk the new test. After considering the comments
received, CMS may reconsider the basis for payment under Sec.
414.509(a)(3) and (b)(1)(iii) or its determination of the amount of
payment, which could

[[Page 59412]]

include a revised NLA for the new code under Sec. 414.509(b)(2)(v).
However, as previously noted in this section, the NLA will no longer be
applicable on and after January 1, 2017, and we would instead refer to
the national payment amount under crosswalking or gapfilling as the
median of the contractor-specific payment amounts. Therefore, we
propose to revise Sec. 414.509 to replace references to the ``national
limitation amount'' with ``median of the Medicare Administrative
Contractor-specific payment amount'' in Sec. 414.509(b)(2)(iv) and
(b)(2)(v). We would also replace ``carrier-specific amount'' where it
appears in Sec. 414.509 with ``Medicare Administrative Contractor-
specific payment amount'' because we now refer to our Medicare Part B
claims processing contractors as Medicare Administrative Contractors.
c. Public Consultation Procedures
Advisory Panel Recommendations: Our current procedures for public
consultation for payment for a new test are addressed in Sec. 414.506.
Section 1834A(c)(3) of the Act requires the Secretary to consider
recommendations from the expert outside advisory panel established
under section 1834A(f)(1) of the Act when determining payment using
crosswalking or gapfilling processes. In section II.J.1, we describe
the Advisory Panel on CDLTs (the Panel). We are proposing to specify
that the public consultation process regarding payment for new CDLTs on
or after January 1, 2017, must include the Panel's recommendations by
adding Sec. 414.506(e) to specify that CMS will consult with an expert
outside advisory panel, called the Advisory Panel on CDLTs, composed of
an appropriate selection of individuals with expertise, which may
include molecular pathologists, researchers, and individuals with
expertise in laboratory science or health economics in issues related
to CDLTs . This advisory panel will provide input on the establishment
of payment rates under Sec. 414.508 and provide recommendations to CMS
under this subpart.
Explanation of Payment Rates: Section 1834A(c)(4) of the Act
requires the Secretary to make available to the public an explanation
of the payment rate for a new CDLT, including an explanation of how the
gapfilling criteria are applied and how the recommendations of the
Advisory Panel on CDLTs are applied. Currently, Sec. 414.506(d)
provides that, considering the comments and recommendations (and
accompanying data) received at the public meeting, CMS develops and
makes available to the public (through an Internet Web site and other
appropriate mechanisms) a list of:
Proposed determinations with respect to the appropriate
basis for establishing a payment amount for each code, with an
explanation of the reasons for each determination, the data on which
the determinations are based, and a request for public written comments
within a specified time period on the proposed determination; and
Final determinations of the payment amounts for tests,
with the rationale for each determination, the data on which the
determinations are based, and responses to comments and suggestions
from the public.
Section 414.506(d) already indicates that CMS will provide an
explanation of the payment rate determined for each new CDLT and the
rationale for each determination. As described above, under our current
process, we make available to the public proposed payment rates with
accompanying rationales and supporting data, as well as final payment
rates with accompanying rationales and supporting data. However, this
process has been used almost exclusively for new tests that are
crosswalked. For tests that are gapfilled, we generally post the
contractor-specific amounts in the first year of gapfilling on the CMS
Web site and provide for a public comment period, but do not typically
provide explanations of final payment amounts. Based on section
1834A(c)(4) of the Act, we are proposing to amend Sec. 414.506 to
explicitly indicate that, for a new CDLT on or after January 1, 2017,
we will provide an explanation of gapfilled payment amounts and how we
took into account the Panel's recommendations. Specifically, we are
proposing to add paragraphs (3) and (4) to Sec. 414.506(d). In Sec.
414.506(d)(3), we would specify that, for a new CDLT, in applying
paragraphs (1) and (2), CMS will provide an explanation of how it took
into account the recommendations of the Advisory Panel on CDLTs. In
Sec. 414.506(d)(4), we would specify that, for a new CDLT, in applying
paragraphs (1) and (2) and Sec. 414.509(b)(2)(i) and (iii) when CMS
uses the gapfilling method described in Sec. 414.508(b)(2), CMS will
make available to the public an explanation of the payment rate for the
test.
Under these provisions, we would publish the Medicare payment
amounts for new CDLTs along with an explanation of the payment rate and
how the gapfilling criteria and recommendations by the Advisory Panel
on CDLTs were applied via the CMS CLFS Web site as we currently do for
new tests. The CMS CLFS Web site may be accessed at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ClinicalLabFeeSched/.
7. Medicare Payment for Tests Where No Applicable Information Is
Reported
While sections 1834A(b), (c), and (d), of the Act, respectively,
address payment for CDLTs and ADLTs as of January 1, 2017, the statute
does not address how we must pay for a laboratory test when no
applicable information is reported by applicable laboratories.
There are several possible reasons why no applicable information
would be reported for a laboratory test. For example:
Test is Not Performed for Any Privately Insured Patients
During the Data Collection Period. One reason CMS may not receive any
applicable information is that the test is not performed for a
privately insured patient by an applicable laboratory during the data
collection period.
Test is Not Performed by Any Applicable
Laboratories. Another reason why CMS may not receive applicable
information is that none of the laboratories performing the test during
a data collection period are applicable laboratories as defined in
proposed Sec. 414.502. For example, the laboratories could be hospital
laboratories that, in a data collection period, did not receive more
than 50 percent of their Medicare revenues from the CLFS and the PFS.
Or, they may be laboratories that received less than $50,000 a year in
Medicare revenues under the CLFS (or less than $25,000 in Medicare
revenues under the CLFS for the proposed 6-month data collection period
for CY 2015). As we stated in section II.A. of this proposed rule, we
estimate that in 2013 there were 17 laboratory tests with utilization
completely attributed to entities that would not have been applicable
laboratories because they did not meet the $50,000 threshold.
Special Situations Involving ADLTs. It is also
possible that a laboratory that performs a test that would qualify to
be an ADLT, does not meet the definition of an applicable laboratory
and, therefore, cannot report applicable information. As discussed in
section II.C. of this proposed rule, an ADLT is a test that is
performed by only a single laboratory. If that laboratory is not an
applicable laboratory, we would not receive applicable information for
the test. As discussed above, this situation could occur if the only
laboratory performing the test did not receive more than 50 percent of
its Medicare revenues from the CLFS and the PFS, or received less than
$50,000 a year in Medicare revenues under the CLFS (or less than

[[Page 59413]]

$25,000 in Medicare revenues under the CLFS for the proposed 6-month
data collection period for CY 2015).
Other Reasons Not Specified. It is possible we
may not receive applicable information for a laboratory test if an
applicable laboratory fails to comply with the reporting requirements
under section 1834A of the Act for which the laboratory may be
penalized under section 1834A(a)(9) of the Act (we address CMPs for
non-reporting in section II.E.1. of this proposed rule). There may also
be other reasons we cannot anticipate where we might not receive
applicable information for a laboratory test in a data collection
period.
In the event we do not receive applicable information for a
laboratory test that is provided to a Medicare beneficiary, we would
need to determine a payment amount for the test in the year following
the data collection period. The statute does not specify the
methodology we must use to establish the payment rate for an ADLT or
CDLT for which we receive no applicable information in a data reporting
period but for which we need to establish a payment amount. In such
circumstances, we propose to use crosswalking and gapfilling using the
proposed definitions in Sec. 414.508(b)(1) and (2) to establish a
payment rate on or after January 1, 2017, which would remain in effect
until the year following the next data reporting period. This policy
would include the situation where we receive no applicable information
for tests that were previously priced using gapfilling or crosswalking
or where we had previously priced a test using the weighted median
methodology. If CMS receives no applicable information in a subsequent
data reporting period, we would use crosswalking or gapfilling
methodologies to establish the payment amount for the test. In other
words, if in a subsequent data reporting period, no applicable
information is reported, CMS would reevaluate the basis for payment, of
crosswalking or gapfilling, and the payment amount for the test.
In exploring what we would do if we receive no applicable
information for a CDLT, we alternatively considered carrying over the
current payment amount for a test under the current CLFS, the payment
amount for a test (if one was available) using the weighted median
methodology based on applicable information from the previous data
reporting period, or the gapfilled or crosswalked payment amount.
However, we are not proposing this approach because we believe carrying
over previous payment rates would not reflect changes in costs or
pricing for the test over time. We understand the purpose of section
1834A of the Act is to update the CLFS rates to reflect changes in
market prices over time.
As noted above, the statute does not address situations where we
price a test using crosswalking or gapfilling because we received no
applicable information with which to determine a CLFS rate. We believe
reconsidering rates for tests in these situations would be consistent
with the purpose of section 1834A of the Act, which requires us to
periodically reconsider CLFS payment rates. In the case of tests for
which we previously received applicable information to determine
payment rates, section 1834A of the Act requires Medicare to follow
changes in the market rates for private payors. Our proposal serves an
analogous purpose by periodically reconsidering the payment rate of a
test using gapfilling or crosswalking. We expect to continue to
evaluate our proposed approach to setting rates for laboratory tests
paid on the CLFS with no reported applicable information as we gain
more programmatic experience under the new CLFS. Any revisions to how
we determine a rate for laboratory tests without reported applicable
information would be addressed in the future through notice and comment
rulemaking.
In summary, we propose that for a CDLT, including ADLTs, for which
we receive no applicable information in a data reporting period, CMS
will determine the payment amount based on either crosswalking or
gapfilling. We propose to add paragraph (g) to Sec. 414.507 to specify
that for CDLTs for which CMS receive no applicable information, payment
is made based on the crosswalking or gapfilling methods described in
Sec. 414.508(b)(1) and (2).

I. Local Coverage Determination Process and Designation of Medicare
Administrative Contractors for Clinical Diagnostic Laboratory Tests

Section 1834A(g) of the Act addresses issues related to coverage of
CDLTs. Section 1834A(g)(1)(A) of the Act requires that coverage
policies for CDLTs, when issued by a MAC, be issued in accordance with
the LCD process. The current LCD development and implementation process
is set forth in agency guidance. Section 1869(f)(2)(B) of the Act,
however, defines an LCD as a determination by a MAC under part A or
part B, as applicable, respecting whether or not a particular item or
service is covered on a MAC jurisdiction-wide basis under such parts,
in accordance with section 1862(a)(1)(A) of the Act.
While the LCD development process is not enumerated in statute,
CMS' Internet-Only Manual 100-08, Medicare Program Integrity Manual,
Chapter 13, lays out the process for establishing LCDs. The manual
outlines the steps in LCD development including: The posting of a draft
LCD, a public comment period, and issuance of a final LCD followed by
at least a 45-day notice period prior to the policy becoming effective.
In addition, there are opportunities for public meetings. This LCD
development process has been used by the MACs since 2003.
In addition to addressing LCD development and implementation,
section 1834A(g)(1)(A) of the Act states that the processes governing
the appeal and review of LCDs for CDLTs must be consistent with the
general LCD appeal and review rules that CMS has issued at 42 CFR part
426. The LCD appeals process establishes a process for an ``aggrieved
party'' to challenge an LCD or LCD provisions in effect at the time of
the challenge. An aggrieved party is defined as a Medicare beneficiary,
or the estate of a Medicare beneficiary, who is entitled to benefits
under Part A, enrolled under Part B, or both (including an individual
enrolled in fee-for-service Medicare, in a Medicare+Choice plan, or in
another Medicare managed care plan), and is in need of coverage for an
item or service that would be denied by an LCD, as documented by the
beneficiary's treating physician, regardless of whether the service has
been received.
Section 1834A(g)(1)(B) of the Act provides that the CDLT-related
LCD provisions referenced in section 1834A(g) do not apply to the NCD
process (as defined in section 1869(f)(1)(B) of the Act). The NCD
process is outlined in section 1862(l) and further articulated in the
August 7, 2013 Federal Register (78 FR 48164).
Section 1834A(g)(1)(C) of the Act specifies that the provisions
pertaining to the LCD process for CDLTs, including appeals, shall apply
to coverage policies issued on or after January 1, 2015.
Beyond specifying how the Medicare LCD process will relate to
CDLTs, section 1834A(g)(2) of the Act provides the Secretary the
discretion to designate one or more (not to exceed four) MACs to either
establish LCDs for CDLTs or to both establish LCDs and process Medicare
claims for payment for CDLTs. Currently, there are 12 MACs that have
authority to establish LCDs and process claims for CDLTs. We believe
the statute authorizes CMS to reduce the number of MACs issuing LCDs
for CDLTs, which

[[Page 59414]]

would result in fewer contractors issuing policies for larger
geographic areas. If we were to exercise only the authority to reduce
the number of MACs issuing LCDs for CDLTs, such a change could likely
be finalized within the next 2 to 4 years. However, reducing the number
of MACs processing claims for CDLTs would involve significantly more
complex programmatic and operational issues. For instance, the
consolidation of Medicare claims processing for CDLTs would require
complex changes to Medicare's computer systems. Thus, such a transition
could take several years to implement. To be consistent with the
statute, we believe the agency needs to conduct the necessary analyses
to determine the feasibility and program desirability of moving forward
with consolidating the number of MACs making coverage policies and
processing claims for CDLTs. We believe that the medical complexity and
the volume of these test requires the agency to seriously consider
consolidating all MAC CDLT processes into 1-4 MACs. Therefore, we are
seeking input from stakeholders on the components and feasibility of
moving forward with consolidation all MAC CDLT process into 1-4 MACs.
For instance, should only coverage policies be developed by a
smaller number of MACs, issues could arise for the other A/B MACs that
would need to implement policies, edit claims and defend LCD policies
that they did not author. Moreover, the same policy may be implemented
differently among MACs based on the ability of their individual claims
processing systems to support certain types of editing and/or their
differing assessment of risk and technical solutions. Finally, if both
LCD development and claims processing were combined and consolidated,
CMS would need to consider that the MAC processing the laboratory claim
will (in most cases) not be the same MAC that processes the claim of
the ordering physician. This may complicate the development of a full
profile of the ordering physicians' practice patterns for quality and
medical necessity assessment purposes. Accordingly, at this time, we
are requesting public comment on the benefits and disadvantages of
implementing the new discretionary authority to consolidate the number
of MACs developing LCDs for CDLTs. We are also soliciting comments on
whether CMS should utilize the broadest discretion provided by the
statute to task four or fewer MACs with the responsibility of both
writing CDLT-related LCDs and processing all CDLT claims. We also
invite comments on other alternatives permissible within the scope of
the new legislative authority that CMS should consider which are not
outlined here.
The timing for implementation of section 1834A(g)(2) of the Act (if
we chose to exercise this authority) would be largely dependent on the
ability of the agency to develop statements of work, modify existing or
develop new MAC contracts, and address the policy, information
technology and technical aspects of the claims processing environment
including the potential development of a new system. Implementing the
fullest scope of the authority granted by this section, by which CMS
would reduce both the number of MACs writing coverage policies for CDLT
services and the number of MACs processing CDLT claims, could take
upwards of 5 to 6 years. To establish centralized LCDs for all CDLTs
would probably involve an initial build-up and then a steady-state
investment of between $10 and $15M per year. To create regional lab
claims processors (in addition to development of LCDs) would involve
higher set-up costs, and some steady-state costs. The reduction in A/B
MACs operating costs would likely not fully offset the cost of the
specialty lab MACs since the A/B MACs would continue to develop LCDs
for other Medicare benefits. CMS is not aware of PAMA funds for this
activity, and so CMS would need to obtain any needed incremental
implementation and operational funding through the regular Program
Management appropriation process. However, prior to the agency
committing to any direction regarding the number of MACs involved and
the purview of their responsibilities, we are seeking public comment on
the benefits and risks of implementing the various scenarios authorized
by this section of the statute.

J. Other Provisions

1. Advisory Panel on Clinical Diagnostic Laboratory Tests
Section 1834A(f) of the Act sets out several requirements for input
from clinicians and technical experts on issues related to CDLTs.
Section 1834A(f)(1) of the Act requires the Secretary to consult with
an expert outside advisory panel that is to be established by the
Secretary no later than July 1, 2015. This advisory panel must be
composed of an appropriate selection of individuals with expertise,
which may include molecular pathologists, researchers, and individuals
with expertise in laboratory science or health economics, in issues
related to CDLTs, which may include the development, validation,
performance, and application of such tests.
Section 1834A(f)(1)(A) of the Act provides that the advisory panel
will generally provide input on the establishment of payment rates for
new CDLTs, including whether to use crosswalking or gapfilling
processes to determine payment for a specific new test and the factors
used in determining coverage and payment processes for new CDLTs.
Section 1834A(f)(1)(B) of the Act provides that the panel will provide
recommendations to the Secretary under section 1834A of the Act.
Section 1834A(f)(2) of the Act mandates that the panel comply with the
requirements of the Federal Advisory Committee Act (5 U.S.C. App.)
(FACA). As discussed in section II.H.6. of this proposed rule, we are
proposing to add Sec. 414.506(e) to codify the establishment of the
Advisory Panel on CDLTs.
In the October 27, 2014 Federal Register (79 FR 63919), CMS
announced the Advisory Panel on CDLTs. On April 16, 2015, CMS
established the charter for the Panel. (See https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ClinicalLabFeeSched/Downloads/PAMA-Tab-F-1635-N.pdf). As indicated in the charter, meetings
will be held up to 4 times a year. Meetings will be open to the public
except as determined otherwise by the Secretary or other official to
whom the authority has been delegated in accordance with the Government
in the Sunshine Act of 1976 (5 U.S.C. 552b(c)) and FACA. Notice of all
meetings will be published in the Federal Register as required by
applicable laws and Departmental regulations. Meetings will be
conducted, and records of the proceedings kept, as required by
applicable laws and departmental regulations. Additionally, in the
August 7, 2015 Federal Register (80 FR 47491), CMS announced membership
appointments to the Panel along with the first meeting date for the
Panel. As we do with the Advisory Panel on Hospital Outpatient Payment
(see https://www.cms.gov/Regulations-and-Guidance/Guidance/FACA/AdvisoryPanelonAmbulatoryPaymentClassificationGroups.html), we will
make the Advisory Panel on CDLT's recommendations publicly available on
the CMS Web site shortly after the panel's meeting. The first meeting
of the panel was held at CMS on August 26, 2015. Information regarding
the Panel is available at https://www.cms.gov/Regulations-and-Guidance/Guidance/FACA/AdvisoryPanelonClinicalDiagnosticLaboratoryTests.html.

[[Page 59415]]

2. Exemption From Administrative and Judicial Review
Section 1834A(h)(1) of the Act states that there shall be no
administrative or judicial review under section 1869 of the Act,
section 1878 of the Act, or otherwise, of the establishment of payment
amounts under section 1834A of the Act. We are proposing to codify this
provision in Sec. 414.507(e).
3. Sample Collection Fee
Section 1834A(b)(5) of the Act increases by $2 the nominal fee that
would otherwise apply under section 1833(h)(3)(A) of the Act for a
sample collected from an individual in a SNF or by a laboratory on
behalf of a HHA. This provision was implemented via Medicare Change
Request (CR) transmittal effective December 1, 2014 (Transmittal
#R3056CP; CR #8837). We propose to reflect this policy in Sec.
414.507(f).

III. Collection of Information Requirements

As stated in section 1834A(h)(2) of the Act, Chapter 35 of title
44, United States Code, shall not apply to the information collection
requirements contained in section 1834A of the Act. Consequently, the
information collection requirements contained in this notice of
proposed rulemaking need not be reviewed by the Office of Management
and Budget.

IV. Response to Comments

Because of the large number of public comments we normally receive
on Federal Register documents, we are not able to acknowledge or
respond to them individually. We will consider all comments we receive
by the date and time specified in the DATES section of this preamble,
and, when we proceed with a subsequent document, we will respond to the
comments in the preamble to that document.

V. Regulatory Impact Analysis

A. Statement of Need

This proposed rule is necessary to establish a methodology for
implementing the requirements in section 1834A of the Act, including a
proposed process for data collection and reporting, a proposed weighted
median calculation methodology, and proposed requirements for how and
to whom these policies would apply.

B. Overall Impact

We have examined the impacts of this rule as required by Executive
Order 12866 on Regulatory Planning and Review (September 30, 1993),
Executive Order 13563 on Improving Regulation and Regulatory Review
(January 18, 2011), the Regulatory Flexibility Act (RFA) (September 19,
1980, Pub. L. 96-354), section 1102(b) of the Act, section 202 of the
Unfunded Mandates Reform Act of 1995 (March 22, 1995; Pub. L. 104-4),
Executive Order 13132 on Federalism (August 4, 1999) and the
Congressional Review Act (5 U.S.C. 804(2).
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). Section
3(f) of Executive Order 12866 defines a ``significant regulatory
action'' as an action that is likely to result in a rule: (1) Having an
annual effect on the economy of $100 million or more in any 1 year, or
adversely and materially affecting a sector of the economy,
productivity, competition, jobs, the environment, public health or
safety, or state, local or tribal governments or communities (also
referred to as ``economically significant''); (2) creating a serious
inconsistency or otherwise interfering with an action taken or planned
by another agency; (3) materially altering the budgetary impacts of
entitlement grants, user fees, or loan programs or the rights and
obligations of recipients thereof; or (4) raising novel legal or policy
issues arising out of legal mandates, the President's priorities, or
the principles set forth in the Executive Order.
A regulatory impact analysis (RIA) must be prepared for major rules
with economically significant effects ($100 million or more in any 1
year). This proposed rule is an economically significant rule because
we believe that the changes to how CLFS payment rates will be developed
will overall decrease payments to entities paid under the CLFS. We
estimate that this rulemaking is ``economically significant'' as
measured by the $100 million threshold, and hence also a major rule
under the Congressional Review Act. Accordingly, we have prepared a
Regulatory Impact Analysis that, to the best of our ability, presents
the costs and benefits of the rulemaking.

C. Limitations of Our Analysis

Our analysis presents the projected effects of our proposed
implementation of new section 1834A of the Act. As described earlier in
this proposed rule, a part of this proposed rule describes a schedule
and process for collecting private payor rate information from certain
laboratories. Until such time that these data are available, we are
limited in our ability to estimate effects of our proposed CLFS payment
policies under different scenarios.

D. Anticipated Effects

1. Effects on Entities Paid Under the CLFS
The RFA requires agencies to analyze options for regulatory relief
of small entities if a rule has a significant impact on a substantial
number of small entities. For purposes of the RFA, we estimate that
most of the entities paid under the CLFS are small entities as that
term is used in the RFA (including small businesses, nonprofit
organizations, and small governmental jurisdictions). The great
majority of hospitals and most other health care providers and
suppliers are small entities, either by being nonprofit organizations
or by meeting the SBA definition of a small business (having revenues
of less than $7.5 million to $38.5 million in any 1 year).
For purposes of the RFA, we estimate that most entities furnishing
laboratory tests paid under the CLFS are considered small businesses
according to the Small Business Administration's size standards with
total revenues of $15 million or less in any 1 year: $15 million for
testing laboratories and $11 million for doctors. Individuals and
states are not included in the definition of a small entity. Using the
codes for laboratories in the North American Industry Classification
System (NAICS), 93 percent of medical laboratories would be considered
small businesses. This rule will have a significant impact on a
substantial number of small businesses or other small entities even
with an exception for low expenditure laboratories.
As discussed previously in this proposed rule, we are proposing to
define applicable laboratory at the TIN level. Approximately 68,000
unique TIN entities are enrolled in the Medicare program as a
laboratory and paid under the CLFS. Of these unique TIN entities, 94
percent are enrolled as a physician office laboratory, 3 percent are
enrolled as independent laboratories while the remaining 3 percent are
attributed to other types of laboratories such as those operating
within a rural health clinic or a skilled nursing facility. Given that
well over 90 percent of the Medicare enrolled laboratories paid under
the CLFS are physician office laboratories, we estimate the majority of
Medicare enrolled laboratories would meet the SBA definition of a small
business.

[[Page 59416]]

As discussed in section II.D. of this proposed rule, applicable
laboratories will be required to report applicable information to CMS,
which includes each private payor rate, the associated volume of tests
performed corresponding to each private payor rate, and the specific
HCPCS code associated with the test. We are specifically proposing to
minimize the reporting burden by only requiring the minimum information
necessary to enable us to set CLFS payment rates. We are not requiring
(or permitting) applicable laboratories to report individual claims
because claims include more information than we need to set payment
rates (and also raises concerns about reporting personally identifiable
information). We believe that each of these proposals will
substantially reduce the reporting burden for applicable laboratories
in general and small businesses in particular. We discuss reporting
requirements further in section V.E. of this proposed rule.
Given that we have never collected information about private payor
rates for tests from laboratories, we do not have the specific payment
amounts from the weighted median of private payor rates that will
result from implementation of section 1834A of the Act. For this
reason, it is not possible to determine an impact at the level of the
individual laboratory or physician office laboratory much less
distinctly for small and other businesses. While the information
provided elsewhere in this impact statement provide the aggregate level
of changes in payments, these estimates were done by comparing the
differences in payment amounts for laboratory tests from private payers
with the Medicare CLFS payment adjusted for changes expected to occur
by CY 2017. While this methodology can be used to estimate an overall
aggregate change in payment for services paid using the CLFS, the
impact on any individual laboratory will depend on the mix of
laboratory services provided by the individual laboratory or physician
office. A proposed regulation is generally deemed to have a significant
impact on small businesses if the rule is estimated to have an impact
greater than a 3 to 4 percentage change to their revenue. As discussed
previously in this section, we estimate that most entities furnishing
laboratory tests paid under the CLFS would be considered a small
business. Therefore, we believe our accounting statement would provide
a reasonable representation of the impact of the proposed changes to
the CLFS on small businesses (see Table 11). As illustrated in Table
11, the effect on the Medicare program is expected to be $360 million
less in Part B program payments for CLFS tests furnished in FY 2017.
The 5-year impact is estimated to be $2.94 billion less and the 10-year
impact is expected to result in $5.14 billion less in program payments.
As discussed in section I.B., overall, Medicare pays approximately $8
billion a year under the current CLFS for CDLTs. Using our estimated
amount of proposed changes in CLFS spending, we estimate an overall
percentage reduction in revenue of approximately -4.5 percent for FY
2017 (-$360 million/$8 billion = -4.5 percent); a 5-year percentage
reduction of about 7.4 percent (-$2.94 billion/$40 billion = -7.35
percent) and a 10-year percentage reduction of approximately 6.4
percent (-$5.14 billion/$80 billion = -6.43 percent). As such, we
estimate that the proposed revisions to the CLFS as authorized by PAMA
would have a significant impact on small businesses.
In addition, section 1102(b) of the Act requires us to prepare a
regulatory impact analysis if a rule may have a significant impact on
the operations of a substantial number of small rural hospitals. This
analysis must conform to the provisions of section 603 of the RFA. For
purposes of section 1102(b) of the Act, we define a small rural
hospital as a hospital that is located outside of a metropolitan
statistical area and has fewer than 100 beds. This proposed rule will
not have a significant impact on small rural hospitals because the
majority of entities paid under the CLFS and affected by this proposal
are independent laboratories and physician offices. To the extent that
rural hospitals own independent laboratories and to the extent that
rural hospitals are paid under the CLFS, there could be a significant
impact on those facilities. Since most payments for laboratory tests to
hospitals are bundled in Medicare severity Diagnosis Related Group
payments under Part A, the Secretary has determined that this proposed
rule will not have a significant impact on the operations of a
substantial number of small rural hospitals. We request comment from
small rural hospitals on (1) their relationships with independent
clinical laboratories and (2) the potential impact of a reduction in
CLFS payments on their revenues and profits.
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also
requires that agencies assess anticipated costs and benefits before
issuing any rule whose mandates require spending in any 1 year of $100
million in 1995 dollars, updated annually for inflation. In 2015, that
is approximately $144 million. This proposed rule does not contain
mandates that will impose spending costs on State, local, or tribal
governments in the aggregate, or by the private sector.
Executive Order 13132 establishes certain requirements that an
agency must meet when it promulgates a proposed rule (and subsequent
final rule) that imposes substantial direct costs on State and local
governments, preempts State law, or otherwise has Federalism
implications. We have examined the CLFS provisions included in this
proposed rule in accordance with Executive Order 13132, Federalism, and
have determined that they will not have a substantial direct effect on
State, local or tribal governments, preempt State law, or otherwise
have a Federalism implication. While we have limited information about
entities billing the CLFS with government ownership, the limited amount
of information we currently have indicates that the number of those
entities, as well as CLFS payment amounts associated with them, are
minimal. Based on 2013 claims data, we received only 21,627 claims for
CLFS services from a total of 50 state or local public health clinics
(0.1 percent of total labs that billed under the CLFS). However, we
note that this proposed rule will potentially affect payments to a
substantial number of laboratory test suppliers, and some effects may
be significant.
2. Effects on the Medicare and Medicaid Programs
The effect on the Medicare program is expected to be $360 million
less in program payments for CLFS tests furnished in FY 2017. We first
established a baseline difference between Medicare CLFS payment rates
and private payor rates based on a study by the Office of Inspector
General, ``Comparing Lab Test Payment Rates: Medicare Could Achieve
Substantial Savings'', OEI-07-11-00010, June 2013. The OIG study showed
that Medicare paid between 18 and 30 percent more than other insurers
for 20 high-volume and/or high-expenditure lab tests. We assumed the
private payor rates to be approximately 20 percent lower than the
Medicare CLFS payment rates for all tests paid under the CLFS. We then
accounted for the legislated 5 years of 1.75 percent cuts to laboratory
payments, as required by section 1833(h)(2)(A)(iv)(II) of the Act, as
well as 7 years of multi-factor productivity adjustments, as required
by 1833(h)(2)(A) of the Act, to establish a new baseline difference
between private payor rates and Medicare CLFS payment

[[Page 59417]]

rates of approximately 6.4 percent in 2017. The new baseline difference
between Medicare CLFS payment rates and private payor rates (6.4
percent) results in an approximate savings to the Medicare program of
$360 million in FY 2017. We projected the FY 2017 Medicare savings of
$360 million forward by assuming a rate of growth proportional to the
growth in the CLFS (that is approximately 8.2 percent annually over the
projection window FY 2016 through FY 2026) after adjusting for
additional productivity adjustments to determine a 10 year cost savings
estimate (as illustrated in Table 11). The effect on the Medicaid
program is expected to be limited to payments that Medicaid may make on
behalf of Medicaid recipients who are also Medicare beneficiaries. We
note that section 6300.2 of the CMS State Medicaid Manual states that
Medicaid reimbursement for CDLTs may not exceed the amount that
Medicare recognizes for such tests.

E. Alternatives Considered

This proposed rule contains a range of policies, including some
provisions related to specific statutory provisions. The preceding
sections of this proposed rule provide descriptions of the statutory
provisions that are addressed, identify proposed policies where the
statute recognizes the Secretary's discretion, present the rationale
for our proposals and, where relevant, alternatives that were
considered.
In developing this proposed rule, we considered numerous
alternatives to the presented proposals. Key areas where we considered
alternatives include the organizational level associated with an
applicable laboratory, authority to develop a low volume or low
expenditure threshold to reduce reporting burden for small businesses,
whether to include coinsurance amounts as part of the applicable
information, the definition of the initial reporting period for ADLTs,
and how to set rates for CDLTs for which the agency receives no
applicable information. Below, we discuss alternative policies
considered. We recognize that all of the alternatives considered could
have a potential impact on the cost or savings under the CLFS. However,
we do not have any private payor rate information with which to price
these alternative approaches.
Definition of applicable laboratory--TIN vs. NPI. We considered
defining an applicable laboratory by NPI instead of TIN. As discussed
in section II.A. of this proposed rule, we believe that defining an
applicable laboratory for reporting applicable information to CMS by
TIN, rather than by NPI, will result in the same applicable information
being reported at a higher level and will require less reporting and
will, therefore, be less burdensome to applicable laboratories.
Therefore, we are proposing to define applicable laboratory by TIN
rather than by NPI.
Authority to develop a low volume or low expenditure threshold to
reduce reporting burden for small businesses. We are proposing to
exercise our authority to develop a low expenditure threshold to
exclude small businesses from having to report applicable information.
As discussed in section II.A. of this proposed rule, we are proposing
that any entity that would otherwise be an applicable laboratory, but
that receives less than $50,000 in Medicare revenues under section
1834A and section 1833(h) of the Act for tests furnished during a data
collection period, would not be an applicable laboratory. We considered
the alternative of not proposing a low volume or low expenditure
threshold which would require all entities meeting the definition of
applicable laboratory to report applicable information to CMS. However,
by proposing a low expenditure threshold we were able to substantially
reduce the number of entities required to report applicable information
to CMS (94 percent of physician office laboratories and 52 percent of
independent laboratories would not be required to report applicable
information) while retaining a high percentage of Medicare utilization
(that is, 96 percent of CLFS spending on physician office laboratories
and more than 99 percent of CLFS spending on independent laboratories)
from applicable laboratories that would be required to report. We did
not pursue a low volume threshold because it could potentially exclude
laboratories that perform a low volume of very expensive tests from
reporting applicable information. We believe that the proposed low
expenditure threshold will significantly reduce the reporting burden
for small businesses.
Applicable information--Private payor rates inclusive of patient
cost-sharing amounts (coinsurance, deductible) vs. private payor rates
exclusive of patient cost-sharing amounts. As we discussed in section
II.B. of this proposed rule, because Medicare generally does not
require the beneficiary to pay a deductible or coinsurance on CLFS
services, we believe it is important for private payor rates to be
reported analogous to how they will be used by Medicare to determine
the Medicare payment amount (that is, without any beneficiary cost-
sharing). For this reason, we are proposing that applicable
laboratories report private payor rates inclusive of all patient cost
sharing. We did not propose defining applicable information as private
payor payment amounts after the application of beneficiary cost
sharing, because reporting rates absent of deductible and coinsurance
amounts would be inconsistent with how rates are determined under the
CLFS.
Definition of New ADLT Initial Period. As explained in sections
II.C.1. and II.D.3 of this proposed rule, section 1834A(d)(1)(A) of the
Act requires an ``initial period'' of three quarters during which
payment for new ADLTs is based on the actual list charge for the
laboratory test. The statute does not specify when this initial period
of three quarters is to begin. Section 1834A(d)(2) of the Act requires
reporting of applicable information not later than the last day of the
Q2 of the initial period. These private payor rates will be used to
determine the CLFS rate after the new ADLT initial period ends. We
considered starting the initial period on the day the new ADLT is first
performed (which in most cases would be after a calendar quarter
begins). However, as noted previously in this proposed rule, if we were
to start the initial period after the beginning of a calendar quarter,
the 2nd quarter would also begin in the midst of a calendar quarter
requiring the laboratory to report applicable information from the
middle of the calendar quarter rather than on a calendar quarter basis.
Further, if an initial period of three quarters would also end during a
calendar quarter, the laboratory would start getting paid the weighted
median rate in the middle of the calendar quarter rather at the
beginning of a calendar quarter. This may be burdensome and confusing
for laboratories. As such, we believe that the new ADLT initial period
should start and end on the basis of a calendar quarter (for example,
January 1 through March 31, April 1 through June 30, July 1 through
September 30, or October 1 through December 31) for consistency with
how private payor rates will be reported and determined for CDLTs (on
the basis of a calendar year which is four quarters aggregated) and how
CLFS rates will be paid (also on the basis of a calendar year).
CMPs. With regard to CMPs, we are proposing to adopt a similar
regulation for implementing section 1834A(a)(9)(A) of the Act that
applies to drug manufacturers reporting Part B drug prices under
section 1847A(d)(4) of the Act. We did not include in this proposed
rule a specific proposal for

[[Page 59418]]

effecting CMPs under the proposed CLFS. Given that CMP collections have
been limited for drug manufacturers (only one case), we do not have
data to provide an estimate of CMP collections under the revised CLFS
established under PAMA. Nevertheless, if compliance with the section
1834A of the Act and this proposed rule is as high as occurred with
reporting Part B drug prices, we expect CMP collections to be a rare
event.
Medicare payment for tests where no applicable information is
reported. As discussed in section II.H.7. of this proposed rule, in the
event we do not receive applicable information for a laboratory test
that is provided to a Medicare beneficiary, we propose to use
crosswalking and gapfilling using the proposed definitions in Sec.
414.508(b)(1) and (2) to establish a payment rate on or after January
1, 2017, which would remain in effect until the year following the next
data reporting period. This policy would include the situation where we
receive no applicable information for tests that were previously priced
using gapfilling or crosswalking or where we had previously priced a
test using the weighted median methodology. If CMS receives no
applicable information in a subsequent data reporting period, we would
use crosswalking or gapfilling methodologies to establish the payment
amount for the test. In other words, if in a subsequent data reporting
period, no applicable information is reported, CMS would reevaluate the
basis for payment, of crosswalking or gapfilling, and the payment
amount for the test. In exploring what we would do if we receive no
applicable information for a CDLT, we alternatively considered carrying
over the current payment amount for a test under the current CLFS, the
payment amount for a test (if one was available) using the weighted
median methodology based on applicable information from the previous
data reporting period, or the gapfilled or crosswalked payment amount.
However, we are not proposing this approach because we believe carrying
over previous payment rates would not reflect changes in costs or
pricing for the test over time. As noted in section II.H.7., we believe
reconsidering payment rates for tests in these situations would be
consistent with the purpose of section 1834A of the Act, which requires
us to periodically reconsider CLFS payment rates.
Cost of data reporting activities. As discussed in section II.D. of
this proposed rule, applicable laboratories will be required to report
applicable information to CMS. Section II.E.1. addresses penalties for
non-reporting. We believe there could be substantial costs associated
with compliance with section 1834A. As we do not have information upon
which to develop a cost estimate for reporting applicable information,
we cannot provide more information at this time. The CLFS has grown
from approximately 400 tests to over 1,300 tests. While we are not able
to ascertain how many private payors and private payor rates there are
for each applicable laboratory, we are providing a hypothetical example
to illustrate the number of records (with one record being the specific
HCPCS code, the associated private payor rate, and volume) that an
applicable laboratory would be required to report under this proposed
rule. If an applicable laboratory had 30 different private payor rates
for a given test and it received private payor payment for each test on
the CLFS, it would be reporting 39,000 records (1,300 tests x 30) and
117,000 data points (one data point each for the HCPCS code and its
associated private payor rate and volume). Of course, this example is
hypothetical and illustrative only but demonstrates the potential
volume of information a given laboratory may be required to report. It
seems likely that most applicable laboratories will not have private
payor rates for each test on the CLFS and that a small number of tests
will have the highest volume and more associated private payor rates.
To the extent that a laboratory receives private payor payment for
fewer than the 1,300 tests paid under the CLFS, the reporting burden
will be less (and accordingly the 1,300 multiplier will be less) than
in the above example. To the extent a private payor has more or less
than 30 private payor rates, the multiplier will differ from 30 in the
above example.
To better understand the projected reporting, recordkeeping or
other compliance requirements of the proposed rule, we are interested
in public comments from applicable laboratories on the following
questions:
How many tests on the CLFS does the applicable laboratory
perform?
For each test, how many different private payor rates does
the applicable laboratory have in a given period (for example, calendar
year or other 12 month reporting period)?
Does the applicable laboratory receive more than one rate
from a private payor in a given period (for example, calendar year or
other 12 month reporting period)?
Is the information that laboratories are required to
report readily available in the applicable laboratories' record
systems?
How much time does the applicable laboratory expect will
be required to assemble and report applicable information?
What kind of personnel will the applicable laboratory be
using to report applicable information?
What is the salary per hour for these staff?
Is there other information not requested in the above
questions that will inform the potential reporting burden being imposed
by section 1834A of the Act?
We believe that these items would be important factors to consider
before projecting data reporting and or record keeping requirements. We
welcome comments on these questions from the public.
Phased-in Payment Reduction. As discussed in section II.H.2. of
this proposed rule, we are proposing to use the NLAs for purposes of
applying the 10 percent reduction limit to CY 2017 payment amounts
instead of using local fee schedule amounts. As previously explained in
section II.H.2., we believe the statute intends CLFS rates to be
uniform nationwide, which is why it precludes any geographic
adjustment. In other words, we are proposing that if the weighted
median calculated for a CDLT based on applicable information for CY
2017 would be more than 10 percent less than the CY 2016 NLA for that
test, we would establish a Medicare payment amount for CY 2017 that is
no less than 90 percent of the NLA (that is, no more than a 10 percent
reduction). For each of CY 2018 through 2022, we would apply the
applicable percentage reduction limitation to the Medicare payment
amount for the preceding year. The alternative would be to apply the 10
percent reduction limitation to the lower of the NLA or the local fee
schedule amount. This option would retain some of the features of the
current payment methodology. Under this option, though, the Medicare
payment amounts may be local fee schedule amounts, so there could
continue to be regional variation in the Medicare payment amounts for
CDLTs. We believe that Medicare infrequently pays less than the NLA and
there would be significant burden for CMS to establish systems logic to
establish transition payment based on the less of the local fee
schedule amount or the NLA. For this reason, and because we believe the
statute intends there to be uniform national payment for CLFS services,
we decided not to adopt this option.

[[Page 59419]]

F. Accounting Statement and Table

As required by OMB Circular A-4 (available on the Office of
Management and Budget Web site at: http://www.whitehouse.gov/sites/default/files/omb/assets/regulatory_matters_pdf/a-4.pdf), we have
prepared an accounting statement in Table 11 to illustrate the impact
of this proposed rule. The following table illustrates the estimated
amount of change in CLFS spending under the proposed policies set forth
in this proposed rule.

Table 11--Accounting Statement: Estimated Clinical Laboratory Fee Schedule Transfers From CY 2015 to CY 2019
Associated With the Proposed Changes to the Clinical Laboratory Fee Schedule as Described in Section 1834A of
the Act
----------------------------------------------------------------------------------------------------------------
Category Year dollar
------------------------------------------------- -----------------------------------------------
Estimates Discount rate Period
Transfers Year dollar (percent) covered
----------------------------------------------------------------------------------------------------------------
Federal Annualized Monetized Transfers (in -489 2015 3 2016-2025
millions)......................................
-480 2015 7 2016-2025
---------------------------------------------------------------
From Whom to Whom...............................
Federal Government to Entities that Receive
Payments under the Medicare Clinical Laboratory
Fee Schedule...................................
----------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
5-year 10-year
Estimate (in millions) 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 impact impact
2016-2020 2016-2025
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
FY Cash Impact (with MC)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Part B:
Benefits.................................................. ....... ....... (480) (850) (920) (850) (810) (870) (680) (540) (580) (250) (3,910) (6,830)
Premium Offset............................................ ....... ....... 120 210 230 210 200 220 170 130 140 60 970 1,690
---------------------------------------------------------------------------------------------------------------------------------
Total Part B.......................................... ....... ....... (360) (640) (690) (640) (610) (650) (510) (410) (440) (190) (2,940) (5,140)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

G. Cost to the Federal Government

If these requirements are finalized, CMS will create a data
collection system, develop HCPCS codes for laboratory tests when
needed, convene a FACA advisory committee to make recommendations on
how to pay for new CDLTs including reviewing and making recommendations
on applications for ADLTs, and undertake other implementation
activities. To implement these new standards, we anticipate initial
federal start-up costs to be approximately $4 million. Once
implemented, ongoing costs to collect data, review ADLTs, maintain data
collection systems, and provide other upkeep and maintenance services
will require an estimated $3 million annually in federal costs. We will
continue to examine and seek comment on the potential impacts to both
Medicare and Medicaid.

H. Conclusion

The changes that we are proposing in this proposed rule would
affect suppliers who receive payment under the CLFS, primarily
independent laboratories and physician offices. We are limited in our
ability to determine the specific impact on different classes of
suppliers at this time due to the data limitations noted earlier in
this section. However, we anticipate that the updated information
through this proposed data collection process in combination with the
exclusion of adjustments (geographic adjustment, budget neutrality
adjustment, annual update, or other adjustment that may apply under
other Medicare payment systems), as described in section 1834A(b)(4)(B)
of the Act, will reduce aggregate payments made through the CLFS, and
therefore, some supplier level payments. We note that this proposed
rule includes proposed changes which may affect different laboratory
test suppliers differently, based on the types of tests that they
provide.
The previous analysis, together with the remainder of this
preamble, provides an initial Regulatory Flexibility Analysis. In
accordance with the provisions of Executive Order 12866, this
regulation was reviewed by the Office of Management and Budget.

List of Subjects

42 CFR Part 414

Administrative practice and procedure, Health facilities, Health
professions, Kidney diseases, Medicare, Reporting and recordkeeping
requirements.
For the reasons set forth in the preamble, the Centers for Medicare
& Medicaid Services proposes to amend 42 CFR part 414 as follows:

PART 414--PAYMENT FOR PART B MEDICAL AND OTHER HEALTH SERVICES

0
1. The authority citation for part 414 continues to read as follows:

Authority: Secs. 1102, 1871, and 1881(b)(l) of the Social
Security Act (42 U.S.C. 1302, 1395hh, and 1395rr(b)(l)).

Sec. 414.1 [Amended]

0
2. Section 414.1 is amended by adding ``1834A--Improving policies for
clinical diagnostic laboratory tests'' in numerical order.
0
3. The heading for subpart G is revised to read as follows:

Subpart G--Payment for Clinical Diagnostic Laboratory Tests

0
4. Section 414.500 is revised to read as follows:

Sec. 414.500 Basis and scope.

This subpart implements provisions of 1833(h)(8) of the Act and
1834A of the Act--procedures for determining the basis for, and amount
of, payment for a clinical diagnostic laboratory test (CDLT).
0
5. Section 414.502 is amended by adding the definitions of ``Actual
list charge,'' ``Advanced diagnostic laboratory test (ADLT),''
``Applicable information,'' ``Applicable laboratory,'' ``Data
collection period,'' ``Data reporting period,'' ``National Provider

[[Page 59420]]

Identifier,'' ``New advanced diagnostic laboratory test (ADLT),'' ``New
ADLT initial period,'' ``New clinical diagnostic laboratory test
(CDLT),'' ``Private payor,'' ``Private payor rate,'' ``Publicly
available rate,'' ``Single laboratory,'' ``Specific HCPCS code,''
``Successor owner,'' and ``Taxpayer Identification Number (TIN)'' in
alphabetical order to read as follows:

Sec. 414.502 Definitions.

* * * * *
Actual list charge means the publicly available rate on the first
day the new advanced diagnostic laboratory test (ADLT) is obtainable by
a patient who is covered by private insurance, or marketed to the
public as a test a patient can receive, even if the test has not yet
been performed on that date.
Advanced diagnostic laboratory test (ADLT) means a CDLT covered
under Medicare Part B that is marketed and performed only by a single
laboratory and not sold for use by a laboratory other than the
laboratory that designed the test or a successor owner of that
laboratory, and meets one of the following criteria:
(1) The test--
(i) Must be a molecular pathology analysis of multiple biomarkers
of deoxyribonucleic acid (DNA), or ribonucleic acid (RNA);
(ii) When combined with an empirically derived algorithm, yields a
result that predicts the probability a specific individual patient will
develop a certain condition(s) or respond to a particular therapy(ies);
(iii) Provides new clinical diagnostic information that cannot be
obtained from any other test or combination of tests; and
(iv) May include other assays.
(2) The test is cleared or approved by the Food and Drug
Administration.
Applicable information means, with respect to each CDLT for a data
collection period--
(1) Each private payor rate.
(2) The associated volume of tests performed corresponding to each
private payor rate.
(3) The specific HCPCS code associated with the test.
(4) Does not include information about a test for which payment is
made on a capitated basis.
Applicable laboratory means an entity that:
(1) Reports tax-related information to the Internal Revenue Service
(IRS) under a Taxpayer Identification Number (TIN) with which all of
the National Provider Identifiers (NPIs) in the entity are associated,
as these terms are defined in this section;
(2) Is itself a laboratory, as defined in Sec. 493.2 of this
chapter, or, if it is not itself a laboratory, has at least one
component that is a laboratory, as defined in Sec. 493.2 of this
chapter, for which the entity reports tax-related information to the
IRS using its TIN; and
(3) In a data collection period, receives, collectively with its
associated NPI entities, more than 50 percent of its Medicare revenues,
which includes fee-for-service payments under Medicare Part A and B,
Medicare Advantage payments under Medicare Part C, prescription drug
payments under Medicare Part D, and any associated Medicare beneficiary
deductible or coinsurance for services furnished during the data
collection period from one or a combination of the following sources:
(i) Subpart G of this part;
(ii) Subpart B of this part; and
(4) For the data collection period from July 1, 2015 through
December 31, 2015, receives, collectively with its associated NPI
entities, at least $25,000 of its Medicare revenues from subpart G of
this part; and
(5) For all subsequent data collection periods receives,
collectively with its associated NPI entities, at least $50,000 of its
Medicare revenues from subpart G of this part.
Data collection period is the calendar year during which an
applicable laboratory collects applicable information and that
immediately precedes the data reporting period, except that for 2015,
the data collection period is July 1, 2015 through December 31, 2015.
Data reporting period is the 3-month period during which an
applicable laboratory reports applicable information to CMS and that
immediately follows the data collection period.
National Provider Identifier (NPI) means the standard unique health
identifier used by health care providers for billing payors, assigned
by the National Plan and Provider Enumeration System (NPPES) in 45 CFR
part 162.
New advanced diagnostic laboratory test (ADLT) means an ADLT for
which payment has not been made under the clinical laboratory fee
schedule prior to January 1, 2017.
New ADLT initial period means a period of 3 calendar quarters that
begins on the first day of the first full calendar quarter following
the first day on which a new ADLT is performed.
New clinical diagnostic laboratory test (CDLT) means a CDLT that is
assigned a new or substantially revised Healthcare Common Procedure
Coding System (HCPCS) code, and that does not meet the definition of an
ADLT.
* * * * *
Private payor means:
(1) A health insurance issuer, as defined in section 2791(b)(2) of
the Public Health Service Act.
(2) A group health plan, as defined in section 2791(a)(1) of the
Public Health Service Act.
(3) A Medicare Advantage plan under Medicare Part C, as defined in
section 1859(b)(1) of the Act.
(4) A Medicaid managed care organization, as defined in section
1903(m)(1)(A) of the Act.
Private payor rate, with respect to applicable information:
(1) Is the amount that was paid by a private payor for a CDLT after
all price concessions were applied.
(2) Includes any patient cost sharing amounts if applicable.
Publicly available rate means the lowest amount charged for an ADLT
that is readily accessible in such forums as a company Web site, test
registry, or price listing, to anyone seeking to know how much a
patient who does not have the benefit of a negotiated rate would pay
for the test.
Single laboratory, for purposes of an ADLT, means a facility with a
single CLIA certificate as described in Sec. 493.43(a) and (b) of this
chapter.
Specific HCPCS code means a HCPCS code that does not include an
unlisted CPT code, as established by the American Medical Association,
or a Not Otherwise Classified (NOC) code, as established by the CMS
HCPCS Workgroup.
Successor owner, for purposes of an ADLT, means a single laboratory
that has assumed ownership of the laboratory that designed the test
through any of the following circumstances:
(1) Partnership. In the case of a partnership, the removal,
addition, or substitution of a partner, unless the partners expressly
agree otherwise, as permitted by applicable State law, constitutes
change of ownership.
(2) Unincorporated sole proprietorship. Transfer of title and
property to another party constitutes change of ownership.
(3) Corporation. The merger of the original developing laboratory
corporation into another corporation, or the consolidation of two or
more corporations, including the original developing laboratory,
resulting in the creation of a new corporation constitutes change of
ownership. Transfer of corporate stock or the merger of another
corporation into the original

[[Page 59421]]

developing laboratory corporation does not constitute change of
ownership.
(4) Leasing. The lease of all or part of the original developing
laboratory constitutes change of ownership of the leased portion.
* * * * *
Taxpayer Identification Number (TIN) means a Federal taxpayer
identification number or employer identification number as defined by
the IRS in 26 CFR 301.6109-1.
0
6. Section 414.504 is added to read as follows:

Sec. 414.504 Data reporting requirements.

(a) General Rule: In a data reporting period, an applicable
laboratory must report applicable information for each CDLT furnished
during the corresponding data collection period, as follows--
(1) For CDLTS that are not new CDLTs, every 3 years beginning
January 1, 2016.
(2) For ADLTs that are not new ADLTs, every year beginning January
1, 2016.
(3) For new ADLTs--
(i) Initially, no later than the last day of the second quarter of
the new ADLT initial period; and
(ii) Thereafter, every year.
(b) Applicable information must be reported in the form and manner
specified by CMS.
(c) A laboratory seeking new ADLT status for its test must, in its
new ADLT application, attest to the actual list charge and the date the
new ADLT is first performed.
(d) To certify data integrity, the President, CEO, or CFO of an
applicable laboratory or an individual who has been delegated authority
to sign for, and who reports directly to, such an officer, must sign
the certification statement and be responsible for assuring that the
data provided are accurate, complete, and truthful, and meets all the
reporting parameters described in this section.
(e) If the Secretary determines that an applicable laboratory has
failed to report, or made a misrepresentation or omission in reporting,
applicable information, the Secretary may apply a civil monetary
penalty in an amount of up to $10,000 per day for each failure to
report or each such misrepresentation or omission. The provisions for
civil monetary penalties that apply in general to the Medicare program
under 42 U.S.C. 1320a-7b apply in the same manner to the laboratory
data reporting process under this section.
(f) CMS or its contractors will not disclose applicable information
reported to CMS under this section in a manner that would identify a
specific payor or laboratory, or prices charged or payments made to a
laboratory, except to permit the Comptroller General, the Director of
the Congressional Budget Office, and the Medicare Payment Advisory
Commission, to review the information, or as CMS determines is
necessary to implement this subpart, such as disclosures to the HHS
Office of Inspector General or the Department of Justice for oversight
and enforcement activities.
(g) An entity that does not meet the definition of an applicable
laboratory may not report applicable information.
0
7. Section 414.506 is amended by revising the introductory text and
paragraph (d)(1), and adding paragraphs (d)(3), (d)(4), and (e) to read
as follows:

Sec. 414.506 Procedures for public consultation for payment for a new
clinical diagnostic laboratory test.

For a new CDLT, CMS determines the basis for and amount of payment
after performance of the following:
* * * * *
(d) * * *
(1) Proposed determinations with respect to the appropriate basis
for establishing a payment amount for each code, with an explanation of
the reasons for each determination, the data on which the
determinations are based, including recommendations from the Advisory
Panel on CDLTs described in paragraph (e), and a request for written
public comments within a specified time period on the proposed
determination; and
* * * * *
(3) On or after January 1, 2017, in applying paragraphs (d)(1) and
(2) of this section, CMS will provide an explanation of how it took
into account the recommendations of the Advisory Panel on CDLTs
described in paragraph (e) of this section.
(4) On or after January 1, 2017, in applying paragraphs (d)(1) and
(2) of this section and Sec. 414.509(b)(2)(i) and (iii) when CMS uses
the gapfilling method described in Sec. 414.508(b)(2), CMS will make
available to the public an explanation of the payment rate for the
test.
(e) CMS will consult with an expert outside advisory panel, called
the Advisory Panel on CDLTs, composed of an appropriate selection of
individuals with expertise, which may include molecular pathologists
researchers, and individuals with expertise in laboratory science or
health economics, in issues related to CDLTs. This advisory panel will
provide input on the establishment of payment rates under Sec. 414.508
and provide recommendations to CMS under this subpart.
0
8. Section 414.507 is added to read as follows:

Sec. 414.507 Payment for clinical diagnostic laboratory tests.

(a) General rule. Except as provided in paragraph (d) of this
section, and Sec. 414.508 and Sec. 414.522, the payment rate for a
CDLT furnished on or after January 1, 2017, is equal to the weighted
median for the test, as calculated under paragraph (b) of this section.
Each payment rate will be in effect for a period of one calendar year
for ADLTs and three calendar years for all other CDLTs, until the year
following the next data collection period.
(b) Methodology. For each test under paragraph (a) of this section
for which applicable information is reported, the weighted median is
calculated by arraying the distribution of all private payor rates,
weighted by the volume for each payor and each laboratory.
(c) The payment amounts established under this section are not
subject to any adjustment, such as geographic, budget neutrality,
annual update, or other adjustment.
(d) Phase-in of payment reductions. For years 2017 through 2022,
the payment rates established under this section for each CDLT that is
not a new ADLT or new CDLT, may not be reduced by more than the
following amounts for--
(1) 2017--10 percent of the national limitation amount for the test
in 2016.
(2) 2018--10 percent of the payment rate established in 2017.
(3) 2019--10 percent of the payment rate established in 2018.
(4) 2020--15 percent of the payment rate established in 2019.
(5) 2021--15 percent of the payment rate established in 2020.
(6) 2022--15 percent of the payment rate established in 2021.
(e) There is no administrative or judicial review under sections
1869 and 1878 of the Social Security Act, or otherwise, of the payment
rates established under this subpart.
(f) Effective December 1, 2014, the nominal fee that would
otherwise apply for a sample collected from an individual in a Skilled
Nursing Facility (SNF) or by a laboratory on behalf of a Home Health
Agency (HHA) is $5.
(g) For a CDLT for which CMS receives no applicable information,
payment is made based on the crosswalking or gapfilling methods
described in Sec. 414.508(b)(1) and (2).
(h) For ADLTs that are furnished between April 1, 2014 and December
31, 2016, payment is made based on the crosswalking or gapfilling
methods described in Sec. 414.508(a).

[[Page 59422]]

0
9. Section 414.508 is revised to read as follows:

Sec. 414.508 Payment for a new clinical diagnostic laboratory test.

(a) For a new CDLT that is assigned a new or substantially revised
code between January 1, 2005 and December 31, 2016, CMS determines the
payment amount based on either of the following:
(1) Crosswalking. Crosswalking is used if it is determined that a
new CDLT is comparable to an existing test, multiple existing test
codes, or a portion of an existing test code.
(i) CMS assigns to the new CDLT code, the local fee schedule
amounts and national limitation amount of the existing test.
(ii) Payment for the new CDLT code is made at the lesser of the
local fee schedule amount or the national limitation amount.
(2) Gapfilling. Gapfilling is used when no comparable existing CDLT
is available.
(i) In the first year, Medicare Administrative Contractor-specific
amounts are established for the new CDLT code using the following
sources of information to determine gapfill amounts, if available:
(A) Charges for the CDLT and routine discounts to charges;
(B) Resources required to perform the CDLT;
(C) Payment amounts determined by other payors; and
(D) Charges, payment amounts, and resources required for other
tests that may be comparable or otherwise relevant.
(ii) In the second year, the test code is paid at the national
limitation amount, which is the median of the contractor-specific
amounts.
(iii) For a new CDLT for which a new or substantially revised HCPCS
code was assigned on or before December 31, 2007, after the first year
of gapfilling, CMS determines whether the contractor-specific amounts
will pay for the test appropriately. If CMS determines that the
contractor-specific amounts will not pay for the test appropriately,
CMS may crosswalk the test.
(b) For a new CDLT that is assigned a new or substantially revised
HCPCS code on or after January 1, 2017, CMS determines the payment
amount based on either of the following until applicable information is
available to establish a payment amount under the methodology described
in Sec. 414.507(b):
(1) Crosswalking. Crosswalking is used if it is determined that a
new CDLT is comparable to an existing test, multiple existing test
codes, or a portion of an existing test code.
(i) CMS assigns to the new CDLT code, the payment amount
established under Sec. 414.507 of the comparable existing CDLT.
(ii) Payment for the new CDLT code is made at the payment amount
established under Sec. 414.507.
(2) Gapfilling. Gapfilling is used when no comparable existing CDLT
is available.
(i) In the first year, Medicare Administrative Contractor-specific
amounts are established for the new CDLT code using the following
sources of information to determine gapfill amounts, if available:
(A) Charges for the test and routine discounts to charges;
(B) Resources required to perform the test;
(C) Payment amounts determined by other payors;
(D) Charges, payment amounts, and resources required for other
tests that may be comparable or otherwise relevant; and
(E) Other criteria CMS determines appropriate.
(ii) In the second year, the CDLT code is paid at the median of the
Medicare Administrative Contractor-specific amounts.
0
10. Section 414.509 is amended by revising the introductory text and
paragraphs (b)(2)(i) through (v) to read as follows:

Sec. 414.509 Reconsideration of basis for and amount of payment for a
new clinical diagnostic laboratory test.

For a new CDLT, the following reconsideration procedures apply:
* * * * *
(b) * * *
(2) * * *
(i) By April 30 of the year after CMS makes a determination under
Sec. 414.506(d)(2) or Sec. 414.509(a)(3) that the basis for payment
for a CDLT will be gapfilling, CMS posts interim Medicare
Administrative Contractor-specific amounts on the CMS Web site.
(ii) For 60 days after CMS posts interim Medicare Administrative
Contractor-specific amounts on the CMS Web site, CMS will receive
public comments in written format regarding the interim Medicare
Administrative Contractor-specific amounts.
(iii) After considering the public comments, CMS will post final
Medicare Administrative Contractor-specific amounts on the CMS Web
site.
(iv) For 30 days after CMS posts final Medicare Administrative
Contractor-specific payment amounts on the CMS Web site, CMS will
receive reconsideration requests in written format regarding whether
CMS should reconsider the final Medicare Administrative Contractor-
specific payment amount and median of the Medicare Administrative
Contractor-specific payment amount for the CDLT.
(v) Considering reconsideration requests received, CMS may
reconsider its determination of the amount of payment. As the result of
a reconsideration, CMS may revise the median of the Medicare
Administrative Contractor-specific payment amount for the CDLT.
* * * * *
0
11. Section 414.522 is added to subpart G to read as follows:

Sec. 414.522 Payment for new advanced diagnostic laboratory tests.

(a) The payment rate for a new ADLT--
(1) During the new ADLT initial period, is equal to its actual list
charge.
(2) Prior to the new ADLT initial period, is determined by the
Medicare Administrative Contractor based on information provided by the
laboratory seeking new ADLT status for its laboratory test.
(b) After the new ADLT initial period, the payment rate for a new
ADLT is equal to the weighted median established under the payment
methodology described in Sec. 414.507(b).
(c) If, after the new ADLT initial period, the difference between
the actual list charge of a new ADLT and the weighted median
established under the payment methodology described in Sec. 414.507
exceeds 130 percent, CMS will recoup the entire amount of the
difference between the ADLT actual list charge and the weighted median.
(d) If CMS does not receive any applicable information for a new
ADLT by the last day of the second quarter of the new ADLT initial
period, the payment rate for the test is determined either by the
gapfilling or crosswalking method as described in Sec. 414.508(b)(1)
and (2).

Dated: September 4, 2015.
Andrew M. Slavitt,
Acting Administrator, Centers for Medicare & Medicaid Services.
Dated: September 23, 2015.
Sylvia M. Burwell,
Secretary, Department of Health and Human Services.
[FR Doc. 2015-24770 Filed 9-25-15; 4:15 pm]
BILLING CODE 4120-01-P

Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Proposed Rules
Action		Proposed rule.
Dates		To be assured consideration, comments must be received at one of
Contact		Marie Casey, (410) 786-7861 or Karen Reinhardt (410) 786-0189 for issues related to the local coverage determination process for clinical diagnostic laboratory tests.
FR Citation		80 FR 59385
RIN Number		0938-AS33
CFR Associated		Administrative Practice and Procedure; Health Facilities; Health Professions; Kidney Diseases; Medicare and Reporting and Recordkeeping Requirements

80 FR 59385 - Medicare Program; Medicare Clinical Diagnostic Laboratory Tests Payment System

DEPARTMENT OF HEALTH AND HUMAN SERVICESCenters for Medicare & Medicaid Services

Federal Register Volume 80, Issue 190 (October 1, 2015)

DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services