Medicare spends nearly $1B more on common lab tests than other payers

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In 2011, Medicare paid between 18 and 30 percent more than other payers for the top 20 most common lab tests, and could have saved almost $1 billion if it paid providers the lowest rate in each geographic area negotiated by other payers, according to a report from the Department of Health and Human Services’ Office of Inspector General (OIG).

The findings prompted the OIG to recommend that the Centers for Medicare and Medicaid Services (CMS) seek legislation that would allow the federal payer to establish lower payment rates for lab tests, and also to consider instituting copayments or deductibles for lab tests. Currently, lab test rates are set for Medicare, which is restricted from negotiating for lower rates.

OIG collected payment data from all 50 states and three Federal Employees Health Benefits (FEHB) plans from Jan. 1 through March 31, 2011, for 20 lab tests. In each geographic area, Medicare paid claims were compared with State Medicaid program fee schedules and FEHB plans.

If Medicare paid the lowest established rate in each geographic area, it would have saved 38 percent, or $910 million, according to OIG.

Some examples from the report include lab tests for thyroid stimulating hormone, for which Medicare pays 22 percent more compared with state Medicaid programs, and automated urinalysis, for which Medicare pays 39 percent more compared with FEHB plan rates.

The report noted that while state Medicaid programs and FEHB plans use the Medicare Clinical Laboratory Fee Schedule as the basis for establishing their own fee schedules, most wind up paying less and incorporate factors such as competitor information, technological changes and provider requests. Some also require copayments.

In response to the report, CMS stated it is exploring whether it has the authority to revise payments for lab tests under the current statute. It added that the establishment of deductibles or coinsurance for lab tests is not included in the fiscal year 2014 President’s Budget.

You can read the full report on OIG's website.