The Outlook for Medicare CLFS Rates

by harrisonklipp@gmail.com | Jun 20, 2025 | CLFS, ACLA, CMS, Medicare

The Outlook for Medicare CLFS Rates

Without legislative action, Medicare rates for nearly 800 lab tests
will be cut by up to 15% effective January 1, 2026. “A lot of labs
have become complacent after five straight years of Medicare CLFS rate
freezes,” says Mark Birenbaum, PhD, Executive Director of the National Independent Lab Association (St. Louis, MO). “But they need to start thinking about the potential for rate cuts next year.”

Birenbaum says that NILA is working with the American Clinical Laboratory Assn. to introduce a new “PAMA-fix” bill within the next month or two. Any new bill would seek to delay the scheduled Medicare CLFS rate cuts for 2026 and ensure that hospital lab rates are correctly represented
in future private-payer payments surveys and rate calculations.
It’s too late to get a PAMA-fix into the Big Beautiful Bill currently being debated in the Senate.

The hope is that a PAMA-fix could get inserted into a major government funding or healthcare policy bill at the end of the year. But this will be a tough hill to climb, and time is running short.

Here’s an outline of three possible scenarios:

Scenario 1: PAMA Proceeds as Scheduled by Law
The first PAMA survey, which was based on private-payer lab rates from 2016, resulted in three straight years (2018-2020) of 10% cuts to most lab tests on the Medicare CLFS. A second PAMA survey and additional rate cuts were then frozen for five straight years (2021-2025).

Under current law, Medicare CLFS rates for approximately 800 lab tests will be reduced by up to 15% on January 1, 2026. See table on page 4.

In addition, the second PAMA survey is scheduled to begin on January 1, 2026. Independent labs, hospitals and large POLs are required to submit their private-payer volumes and reimbursement rates from the period January 1, 2019 to June 30, 2019 to CMS by March 31, 2026. CMS will use
this data to calculate new median private-payer rates to set the Medicare CLFS for 2027-2029.

Scenario 2: A PAMA-Fix is Introduced and Passed into Law
Despite widespread support from both Democrats and Republicans, the last PAMA-fix bill SALSA (H.R. 2377/S. 1000) failed to get passed into law. The culprit was cost. The Congressional Budget Office (CBO) had projected that passing SALSA into law would cost $6 billion over 10 years. A separate analysis by ACLA had estimated the cost at less than $3 billion.

ACLA is now crafting a new PAMA-fix proposal and seeking supporters to introduce it. A simpler and less costly alternative to SALSA is what’s needed.

There is little argument that current PAMA law pertaining to labs is unworkable. In particular, it will be nearly impossible for most hospital labs to dig up their private-payer volume and payment data from 2019 and report it to CMS, notes Josh Kramer, Managing Partner at the laboratory IT company Leap Consulting Group (Teaneck, NJ). Kramer says that many hospitals have gone through system upgrades and changes since 2019 and these hospitals may not have historical claims data readily available from legacy systems. In addition, PAMA does not allow hospitals to ignore paper claims data. And smaller hospitals may not have detailed lab data from paper claims loaded in their systems at all, according to Kramer.

A new PAMA-fix bill will need to include a mechanism (e.g., statistical sampling) to ensure that the higher rates paid to hospital labs are accurately surveyed and included in CLFS rate calculations.

Scenario 3: CLFS Remains Frozen and PAMA is Delayed Another Year
In previous scoring of one-year delays in PAMA payment cuts and reporting, the CBO assumed that private payers were adjusting their lab test reimbursement rates for inflation. Based on this assumption, the CBOconcluded that the suspension of PAMAwould result in cost savings. The CBO is no longer assuming private payer inflation updates. As a result, another one-year PAMA delay is unlikely to be scored to provide savings and thus unlikely to be passed into law.

FDA Final LDT Rule Could be Published Soon

by Jondavid Klipp | Mar 18, 2024 | CLFS, ACLA, FDA, Lab Developed Tests (LDT)

FDA Final LDT Rule Could be Published Soon

On March 1, the FDA submitted its final rule for LDT regulation to
the White House’s Office of Information and Regulatory Affairs
(OIRA). This is a perfunctory last step before the final rule is published
in the Federal Register. This could occur as soon as April 1. This will be
the most impactful new regulatory change for laboratories since PAMA
completely overhauled the Medicare CLFS in 2018.

FDA FINAL LDT RULE COULD BE PUBLISHED SOON

OIRA (pronounced “oh-eye-rah”) is a statutory part of the Office of Management and Budget within the Executive Office of the President. OIRA is responsible for reviewing all federal regulations (i.e., the Executive Branch’s administrative actions) to ensure they meet all statutory requirements. OIRA is currently headed by Richard Revesz, Administrator, who was appointed by President Biden and confirmed by the U.S. Senate in late 2022.

“OIRA reviewed the proposed rule in record time, so it is reasonable to expect that the review of the final rule will not be protracted. I would not be surprised if OIRA completes its review in 30 days and FDA publishes the final rule in the federal register in the first week of April,” according to attorney Sheila Walcoff, Chief Executive at the IVD consulting firm Goldbug Strategies (Gaithersburg, MD).

Typically, a final rule will specify an effective date of 30 or 60 days after the publication date, adds Walcoff.

Once a final rule is published it will be difficult to overturn.

Last Chance to Sway OIRA Against Regulation

OIRA staff held nine teleconferences with organizations advocating both for and against FDA LDT regulation last year. OIRA is next scheduled to meet with The Association for Diagnostics and Laboratory Medicine (ADLM — formerly AACC) on March 18. ADLM, which represents approximately 8,000 members, including clinical labs and IVD manufacturers, has steadfastly
opposed FDA regulation of LDTs. This could be the last chance that the lab industry has to sway OIRA against rubber-stamping the final rule.

Expected Legal Challenge

A final rule is almost guaranteed to trigger a lawsuit from lab trade groups, which will argue that the FDA does not have the authority to regulate LDTs.
The American Clinical Laboratory Assn. (ACLA — Washington, DC) seems to be gearing up for a lawsuit to the impending final rule. In a statement, ACLA President Susan Van Meter said:

ACLA has significant concerns about the legality and impact of FDA unilaterally imposing an ill-fitting medical device scheme on laboratory-developed testing services, which are professional services and not medical products. Should the agency promulgate a final rule, ACLA will assess its options at that time; but we continue to urge the agency to withdraw the proposed rule and reengage on advancing appropriate legislation.

Could a New Trump Administration Put the Kibosh on LDT Regulation?

As a component of OMB, OIRA is part of the Executive Office of the President and helps ensure that covered agencies’ rules reflect the President’s policies and priorities.

The FDA is moving quickly because the national election in November could result in a new administration opposed to LDT regulation. A new President could, immediately upon taking office, prevent a proposed rule from being finalized, according to long-time lab regulation expert Dennis
Weissman (Falls Church, VA).

However, Weissman says that changing or canceling a final rule is much more difficult. Once a federal rule has been finalized a new administration would be required to undergo the formal rulemaking process (i.e., opportunity for public comment on a proposal followed by final rule) to change or repeal all or part of a final rule.

In addition to this administrative action, Congress could also take legislative action to overturn a final rule, notes Weissman.

FDA Won’t Extend Comment Period on LDT Regs

by Jondavid Klipp | Nov 14, 2023 | ACLA, CAP, FDA, Lab Developed Tests (LDT)

FDA Won’t Extend Comment Period on LDT Regs

The FDA has announced that its standard 60-day comment period for its proposed regulation of laboratory-developed test (LDTs) will not be extended past December 4. Several trade groups, including CAP and ACLA, had requested to stretch the comment period to 120 days. An extension would have potentially delayed implementation of the rule while giving Congress more time to pass LDT reform legislation. The FDA has indicated that a final rule could be published as early as April 1, 2024.

The FDA estimates that there are approximately 12,000 U.S. labs performing high-complexity testing and that 10% of these are marketing LDTs. These 1,200 labs are currently offering 80,400 LDTs and 7,776 new LDTs are coming to the market each year. The FDA estimates that labs will generate $28.6 billion of revenue from LDTs in 2023.

One of the biggest concerns is the FDA’s capacity to review and process as many as 80,000+ LDT applications over the next few years. For example, the FDA gave marketing authorization to a grand total of only 765 medical devices, including lab tests, in 2022, according to the FDA’s Center for Devices and Radiological Health 2022 Annual Report. The FDA’s ability to process tens of thousands of LDT applications in a timely manner, even with the help of third-party reviewers, is doubtful.

During an October 24 call with investors, Jim Davis, Chief Executive of Quest Diagnostics, said that Quest agrees with the long-standing assertion of the American Clinical Laboratory Assn. (ACLA), “that the FDA does not have the statutory authority to unilaterally regulate LDTs under its existing medical device authority.” Davis noted that by volume, LDTs account for less than 10% of Quest’s overall testing business. Quest performs the majority of its LDT testing at three ISO-certified labs, including San Juan Capistrano, CA; Chantilly, VA; and Lewisville, TX.

On an October 26 conference call, Labcorp CEO Adam Schechter said that LDTs account for less than 5% of Labcorp’s volume and less than 10% of its testing revenue. “If you look at the rigor that we go through with our laboratory-developed tests, we think we do the vast majority of what they [FDA] would be asking for anyway.” Schechter said FDA regulation could have unintended consequences. LDTs “are sometimes the most important test for new specialty areas. And getting those tests to patients quickly is what’s most important.”

One group in favor of LDT regulation is AdvaMed (Washington, DC), whose members include Abbott, BD, Bio-Rad Laboratories, bioMerieux, Hologic, Illumina and Roche. “We like the rule….This is really about making sure there’s a level playing field when you’re talking about diagnostics tests and having everything go through a similar pathway,” said AdvaMed CEO Scott Whitaker at an October 10 press conference. “Either you raise the regulatory standard, or you lower the regulatory standard, but you do it across the board without stifling innovation,” he said.

The last major effort by the FDA to formally regulate LDTs came in October 2014, when the agency issued draft guidance. But after collecting comments and facing two years of stiff opposition, the agency chose not to issue final guidance. One of the strongest critics was ACLA, which challenged the FDA’s authority over the tests by filing a citizen petition and making clear its intent to sue if necessary.

Khani To Step Down As ACLA President

by Jondavid Klipp | Oct 15, 2021 | ACLA, American Clinical Laboratory Association

Khani To Step Down As ACLA President

The American Clinical Laboratory Assn. (Washington, DC) has announced that Julie Khani is resigning as President effective November 26. Khani, who has been ACLA President since January 1, 2017, has accepted a position as Vice President of Government Affairs at Hologic (Marlborough, MA). The ACLA Board of Directors has begun a national search for her successor.

Why Were Hospital Labs Excluded From The Initial PAMA Survey?

by Jondavid Klipp | Mar 15, 2020 | ACLA, CMS, PAMA

Why Were Hospital Labs Excluded From The Initial PAMA Survey?

A former CMS official involved in drafting the initial Medicare rules that determined which labs must report their private-payer pricing data to CMS for calculating Medicare CLFS rates says that PAMA was specifically designed to exclude hospital labs. This flies in the face of the lab industry’s contention that the PAMA law intended pricing information from all labs, including hospital labs, to be included in the rate calculations.

Speaking at the Annual Meeting for the American Clinical Laboratory Assn. (ACLA), March 4, Marc Hartstein, a Principal with Health Policy Alternatives and former Director of CMS’s Hospital and Ambulatory Policy Group, said, “I provided technical assistance to the Senate Finance Committee, which wrote the statute, and I can tell you the intent was to exclude hospital laboratories. The provision was intended to get savings, and if hospital laboratories were included, that would have raised the payment amounts.”

Hartstein spent 26 years at CMS (1990-2016) and helped develop such major Medicare policies as the misvalued code initiative for the physician fee schedule, the hospital Diagnosis-Related Group system, the hospital two-midnight rule, as well as the regulations for implementing Medicare’s
new CLFS under PAMA.

At this point, the opinions of those involved in drafting the PAMA statute don’t really matter, said Hartstein, who noted that it’s now up to the court to issue a statutory interpretation of the law. “Courts rightly decide issues based on the words of the law, not the opinions of those involved in drafting or enacting the law,” he said. ACLA’s lawsuit challenging the implementation of PAMA (originally filed in December 2017) is now awaiting a ruling from Judge Amy Berman Jackson from the U.S. District Court for the District of Columbia. Judge Jackson initially dismissed the case, but ACLA won an appeal, and the case was sent back to her to make a ruling. All briefs and replies were submitted to Judge Jackson at the end of January, and a decision is expected by year’s end.

“The question is whether the secretary’s definition of ‘laboratory’ is a reasonable definition,” said Hartstein. “If a laboratory is only a laboratory and not its larger organization, the laboratory is going to get 100% of its [Medicare] revenues from the clinical laboratory fee schedule or physician fee schedule. I don’t understand what the majority revenues criterion would be in that circumstance. The majority of revenue criterion must have been drafted to eliminate somebody from this determination.”

Regardless, the second PAMA reporting cycle now requires hospital labs to report their privatepayer data for non-patients to CMS in the first quarter of 2021. The hospital data, along with data from independent labs and POLs, will be used to calculate Medicare CLFS rates for 2022-2024.

Finally, the Medical Payment Advisory Commission (MedPAC) is currently reviewing how CMS has implemented the private-payer-based CLFS under PAMA, giving the lab industry an opportunity to make its case for a different system, said Hartstein. The lab industry wants CMS to analyze the payment data it collects from labs using statistical sampling to ensure that all sectors
of the lab market are accurately represented.

ACLA Wins Appeals Court Decision; HHS Likely To Request Rehearing

by Jondavid Klipp | Aug 15, 2019 | ACLA, HHS

ACLA Wins Appeals Court Decision; HHS Likely To Request Rehearing

On July 30, the U.S. Court of Appeals for the District of Columbia ruled in favor of the American Clinical Laboratory Assn. (ACLA) in its suit against the U.S. Department of Health and Human Services (HHS) regarding implementation of the Protecting Access to Medicare Act (PAMA). The ruling overturned a D.C. District Court decision that dismissed ACLA’s lawsuit on the grounds that PAMA law prohibits judicial review of CMS’s “establishment of payment amounts” for clinical lab tests.

However, before the case goes back to D.C. District Court for review on its
merits, HHS is likely to request either a rehearing of the D.C. Court of Appeals’ three-judge panel decision or petition for a rehearing en banc from a broader panel of judges.

The D.C. Court of Appeals concluded that the statutory provision stripping jurisdiction to review payment amounts does not cover the statute’s data-collection provision. It ruled that the case be sent back to D.C. District Court to determine whether or not HHS/CMS violated PAMA by excluding hospital outreach labs from the first private-payer payment survey used to set Medicare CLFS rates for 2018 to 2020.

HHS has 45 days to petition for either a rehearing or rehearing en banc. The D.C. Court of Appeals has ordered that the case be held from being sent back to the D.C. District Court “until seven days after disposition of any timely request for rehearing or petition for rehearing en banc.”

It’s unlikely that any request by HHS for a rehearing will be granted, but the process will delay final resolution of the lawsuit, which is now approaching two years since initially being filed in late 2017.

More likely than not, the D.C. Court of Appeals will uphold its initial decision and send the lawsuit back to D.C. District Court. But the D.C. District Court proceedings could be lengthy, taking anywhere from six months to more than two years, before a decision is rendered.

Nonetheless, the Appeals Court decision is a victory for ACLA that will put pressure on HHS/CMS to negotiate with ACLA for a potential settlement of the lawsuit. ACLA and its biggest members, LabCorp and Quest Diagnostics, are lobbying hard to delay the next private-payer payment data reporting period (currently scheduled for January 1 to March 31, 2020) by one year. In addition, the lab industry wants CMS to use statistical sampling when it calculates new CLFS rates for 2021 to ensure that all lab segments (independents, hospital outreach labs and POLs) are properly represented.