Almost $1 billion wasted in overpayments for lab tests

Medicare is overpaying by as much as $1 billion a year for patients’ blood tests and other lab work, simply failing to get taxpayers the same bargains as private health insurers.

In fact, the program for senior citizens – the largest client of laboratory services in the nation with $8.2 billion in payments in 2010 alone – pays between 18 and 30 percent more than private insurers for the same tests, according to a new investigation by the U.S. Health and Human Services inspector general.

Surprisingly, the report from the inspector general is the first comprehensive look at how Medicare’s spending on lab tests stacks up against the rest of the market. 

Unlike other parts of Medicare, there are no co-payments by beneficiaries for blood tests and other lab work, and the deductible doesn’t apply – something the inspector general said is driving up costs.

The fault doesn’t entirely rest with Medicare or its parent office, the Centers for Medicare and Medicaid services.  The rules for calculating payment rates for lab tests were established in the Deficit Reduction Act of 1984, and while the rate formula has been periodically changed by Congress several times in the nearly 30 years since, other health providers negotiate rates and use a range of factors to determine their reimbursements.  The IG said it would take an act of Congress to change Medicare’s formula.

“Medicare’s payment rates for lab tests were established in 1984 on the basis of prevailing charges for lab tests in each Medicare carrier jurisdiction,” the IG said.  “Medicare’s payment rate methodology does not take into account technological and market changes.”

For failing to update a payment system from the 1980s and costing taxpayers needlessly for Medicare lab tests, Congress and CMS win this week’s Golden Hammer, a distinction awarded by the Washington Guardian to examples of misspending, waste and abuse in government.

If lawmakers and bureaucrats need an example to follow, they need not look far. Medicare’s high rates contrast to federal employee programs and some state Medicaid programs, the IG noted.  While state and federal employee plans the IG evaluated can use Medicare guidelines to set their maximum reimbursement for lab tests, many make lower reimbursements and some require co-payments from patients, helping to drive down cost to taxpayers.

“Achieving lower rates is possible because state Medicaid and FEHB [Federal Employees Health Benefits] lab test providers accepted these lower rates for lab tests,” the IG said.

The Inspector General is recommending that Medicare officials “seek legislation that would allow CMS to establish lower payment rates for lab tests,” as well as petition Congress to implement co-payments and deductibles.

CMS did not directly respond to the report, but said officials are considering what course of action to take. The agency noted, however, that no rate change was proposed in President Barack Obama’s 2014 budget. “CMS is exploring whether we have the authority under current statute to revise payments for lab tests consistent with OIG’s recommendation,” a spokesperson for the agency said.

Payment fees, CMS added, are also usually dependent upon local factors, like the fees in a certain geographic area.

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