The Centers for Medicare and Medicaid Services (CMS) recently finalized changes to the reimbursement policy for laboratory tests for Calendar Year 2018. The date of service (DOS) policy, or the “14-day rule” as it is commonly referred to in the laboratory industry, governs who can seek reimbursement from Medicare for clinical laboratory diagnostic tests (CLDTs) conducted on stored specimens. The revisions to the DOS rule will have a significant impact on the relationship between hospitals and laboratories that perform certain advanced diagnostic tests.
The DOS Policy
Generally, CMS bundles the payment for a laboratory test with the payment for a hospital service if the date of service for a laboratory test falls during an outpatient or inpatient stay. The default date of service for a laboratory test is the date the specimen was collected. However, the DOS rule is an exception to this policy. The exception allows a clinical laboratory to move the date of service to when a test is actually performed on the specimen if certain criteria are satisfied. By moving the date of service of the test, the laboratory is able to bill Medicare directly for the service, rather than the hospital.
Specifically, the DOS policy allows a clinical laboratory to seek reimbursement from Medicare for a test conducted on a stored specimen collected during a hospital surgical procedure when the test is ordered at least 14 days following the patient’s discharge from the hospital. If the test is ordered prior to 14 days from the patient’s discharge, however, the payment for the clinical laboratory test is bundled with the hospital payment. When enacting the 14-day rule, CMS expressed concerned that only tests that could be “legitimately distinguished” from the care a beneficiary received in the hospital should be reimbursed directly by Medicare. CMS explained that it would be difficult to make this determination if the test was ordered within 14 days of the patient’s discharge.
Critics of the DOS policy, however, have argued that such a framework requires hospitals to bill for services that they do not provide and are unrelated to the care the patient receives in the hospital setting. Additionally, the policy has proven administratively challenging for clinical laboratories, which must determine whether the particular test was collected during a hospital surgical procedure and whether it was indeed ordered 14 days following the patient’s discharge. Reimbursement can be further complicated given CMS’s decision to delegate the interpretation of such DOS policy provisions to the Medicare administrative contractors. This patchwork regulatory scheme can be confusing for clinical laboratories operating in multiple jurisdictions, which may face different reimbursement rules depending upon the jurisdiction in which they are seeking payment for a clinical laboratory test.
The New Exception
The revised DOS policy will allow clinical laboratories to seek reimbursement from Medicare directly for certain advanced laboratory diagnostic tests (ALDTs) and molecular pathology tests. Effective January 1, 2018, clinical laboratories will bill Medicare directly for these laboratory tests conducted on specimens collected during a hospital outpatient encounter, but which are performed after the outpatient has been discharged from the hospital. To qualify as an ALDT under the new exception, the test must be (i) a CLDT covered under Medicare Part B, and (ii) offered and furnished by a single lab that uses a proprietary algorithm to analyze multiple biomarkers of DNA, RNA or proteins to predict the probability a specific individual patient will develop a certain condition or respond to particular therapy. Additionally, the ALDT must also provide “new clinical diagnostic information” that cannot be obtained from another test.
Unlike the original DOS rule, a laboratory’s ability to bill Medicare directly for a qualifying ALDT under the new exception will no longer depend on when the test was ordered. Laboratories may seek reimbursement directly from Medicare for such tests conducted on samples obtained from a hospital outpatient after the outpatient’s discharge, regardless of the amount of time that has elapsed from the date that the test was ordered. For those tests that do not qualify as an ALDT however, the original DOS exception will still apply. In those instances, laboratories will only be able to receive reimbursement directly from Medicare if the test is ordered at least 14 days after a patient’s discharge from the hospital.
The new DOS policy will ease some of the challenges that clinical laboratories face when seeking reimbursement for certain advanced diagnostic tests. Going forward, laboratories may more easily obtain payment for these diagnostic tests without the difficulties associated with seeking payments from hospitals.
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Jessica A. Ellel - Practice Chair
Chair of Houston Harbaugh’s Health Law Practice, Jessica works almost exclusively with health care entities and health practitioners. She has extensive experience with:
- Drafting and negotiating physician employment agreements from both the physician and employer perspectives
- Negotiating contracts between physicians and hospitals
- Preparing purchase agreements to govern the sale of medical practices
- Advising on corporate governance issues, from practice formation to dissolution
- Developing comprehensive compliance plans for physician practices, hospitals, third-party billing administrators, and other health care and related entities
- Organizing strategies for compliance with fraud and abuse laws
- Addressing HIPAA compliance
Jessica is especially well-versed in HIPAA compliance and authors numerous client updates and bulletins on the subject. She conducts on-site and remote HIPAA training and also maintains Houston Harbaugh’s HIPAA compliance manual, ” Federal HIPAA Privacy Standards Simplified: A Comprehensive Tool-Kit”.