Medicare:

Modifying Payments for Certain Pathology Services Is Warranted

GAO-03-1056: Published: Sep 30, 2003. Publicly Released: Sep 30, 2003.

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In 1999, the Health Care Financing Administration, now called the Centers for Medicare & Medicaid Services (CMS), proposed terminating an exception to a payment rule that had permitted laboratories to receive direct payment from Medicare when providing technical pathology services that had been outsourced by certain hospitals. The Congress enacted provisions in the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA) to delay the termination. The BIPA provisions directed GAO to report on the number of outsourcing hospitals and their service volumes and the effect of the termination of direct laboratory payments on hospitals and laboratories, as well as on access to technical pathology services by Medicare beneficiaries. GAO analyzed Medicare inpatient and outpatient hospital and laboratory claims data from 2001 to develop its estimates.

In 2001, approximately 95 percent of all Medicare prospective payment system (PPS) hospitals--hospitals that are paid predetermined fixed amounts for services--and critical access hospitals (CAH), which receive reimbursement from Medicare based on their reasonable costs, outsourced some technical pathology services to laboratories that received direct payment for those services. However, the median number of outsourced services per hospital was small--81. If laboratories had not received direct payments for services for hospital patients, GAO estimates that Medicare spending would have been $42 million less in 2001, and beneficiary cost sharing obligations for inpatient and outpatient services would have been reduced by $2 million. Most hospitals are unlikely to experience a financial burden from paying laboratories to provide technical pathology services. If payment to the laboratory is made at the current rate, a PPS hospital outsourcing the median number of technical pathology services outsourced by PPS hospitals, 94, would incur an additional annual cost of approximately $2,900. There would be no financial impact for the 31 percent of rural hospitals that are CAHs, as they would receive Medicare reimbursement for their additional costs. Medicare beneficiaries' access to pathology services would likely be unaffected if direct laboratory payments are terminated. Hospital officials stated they were unlikely to limit surgical services, including those requiring pathology services, because limiting these services would result in a loss of revenue and could restrict access to services for their communities.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Matter for Congressional Consideration

    Matter: Congress may wish to consider not reinstating the provisions that allow laboratories to receive direct payment from Medicare for providing technical pathology services to hospital patients.

    Status: Closed - Implemented

    Comments: Section 732 of the Medicare Modernization Act extended this provision for 2005 and 2006. Thus, certain independent laboratories can continue to bill the carrier for the technical component of physician pathology services to hospital patients for those years. When the MMA extension expires for 2007, independent laboratories will no longer be allowed to bill for the technical component of physician pathology services to hospital patients.

    Recommendation for Executive Action

    Recommendation: The Administrator of CMS should terminate the policy of permitting laboratories to receive payment from Medicare for technical pathology services provided to hospital patients.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

    Status: Closed - Implemented

    Comments: Section 732 of the Medicare Modernization Act extended this provision for 2005 and 2006. Thus, certain independent laboratories can continue to bill the carrier for the technical component of physician pathology services to hospital patients. When the MMA extension expires on December 31, 2006, CMS will discontinue allowing this billing.

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