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Medicare reimbursement for lab tests to rise slightly in '17

Medicare reimbursement for lab tests will rise by 0.7% starting Jan. 1, 2017, under the U.S. Centers for Medicare & Medicaid Services' clinical laboratory fee schedule for 2017.

The annual update to payments made on a reasonable charge basis for all other laboratory services is 1% for 2017.

The fee schedule sets the maximum Medicare payment for outpatient clinical laboratory services.

Lab operators like Quest Diagnostics Inc., Laboratory Corp. of America Holdings and Bio-Reference Laboratories receive more than 80% of their Medicare revenues from services paid under the lab fee schedule, Cowen and Co. analyst Eric Assaraf said in a Dec. 30 research note.

Medicare payments under the fee schedule amounted to $7 billion in 2015.

Assaraf noted that 2017 is the final year in which the lab fee schedule rates will be determined by inflation-adjusted lab charges as rates will be based on the private health insurance market in 2018 due to the Protecting Access to Medicare Act of 2014.

CMS had previously delayed the implementation of the act by a year. The analyst does not believe the new administration will further delay rebasing the fee schedule unless there are major technological issues in data collection.

Assaraf also believes the rate cuts from the rebasing will be higher than those expected during the drafting of the act, noting that CMS' decision in the final rule to include some hospital outreach labs in the calculation of rates did not drastically reduce its estimated savings from the proposed rule.

CMS has estimated that the new market-based payment system would lower Medicare part B payments for lab tests by $390 million in 2018, $1.71 billion over five years and $3.93 billion over 10 years.

Assaraf does not see any legislative headwinds for the clinical lab industry in 2017. He also thinks potential offsets like lab co-pays are unlikely as President-elect Donald Trump and GOP leaders in Congress are not expected to pursue an overhaul of Medicare and other entitlement programs in 2017.

However, the analyst believes there might be a small likelihood of Congress making cuts to the fee schedule to offset other legislation as the Protecting Access to Medicare Act was delayed until 2018.