Medicare Has Stopped Paying the Bills for Medical Diagnostic Tests

Just pure bureaucratic ineptitude.  CMS has effectively ended the old system for diagnostic reimbursement without creating a new one.  Now the local carriers need to decide on pricing and are completely unprepared to do so:

The Obama Administration has stopped paying the bills from hundreds of health care companies, and it has nothing to do with sequestration.

This is a story of bureaucratic mismanagement at the Centers for Medicare and Medicaid Services, and the harm it's visiting on the diagnostic testing industry.

At issue is the way that Medicare reimburses everyone from the big laboratory companies such as the Laboratory Corp of America (LH:NYSE) and Quest Diagnostics Inc. (DGX:NYSE), to the molecular diagnostic labs inside academic hospitals, and especially smaller firms that make proprietary tests used by doctors to more effectively target treatments to patients with conditions like cancer.

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At issue are molecular diagnostics, used to screen for everything from genetic markers that predict disease to proteins that help diagnose illnesses and guide peoples' response to treatments. These tests are transforming the treatment of cancer, among many other maladies.

The Medicare agency decided to change the way it reimburses these sorts of diagnostic tests. But it's been slow to decide on its new approach. So in the absence of a policy, the Medicare program is simply not paying its bills.

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It basically means that the local carriers, which contract with CMS to administer the Medicare program for different regions of the country, now have wide discretion to come up with their own prices. The entire punt gave the local Medicare contractors no time – and no clear direction – on how to assign prices to the different diagnostic codes. The result is that no prices have been established for the vast majority of the marketplace. And so many tests simply aren't being paid for.

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Some contractors have not priced anything, such as the Medicare contractor for the market covering Florida. That means diagnostic labs located in markets like Florida aren't getting paid at all. In many cases, Medicare contractors look into setting a price only after they see a lot of claims for the same sort of test.

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There's no clear deadline on when this will all get resolved. There's some speculation that when the Medicare contractors submit their 2013 pricing on April 30th, they'll have to declare their prices for these various molecular tests. Once they do, the labs should get paid retroactively. But the April 30th deadline seems soft. This could linger much longer.

There's also a risk for labs that the individual Medicare contractors may decide not to pay for certain codes (and tests) altogether.