“Health Care Reform Gets Underway – What it Means for the Future of Laboratories… Plus, the Latest on FDA Oversight of LDTs” Alan Mertz, President, American Clinical Laboratory Association November 5, 2010 California Clinical Laboratory Association

Major Thrust of HCR Two Major Components $938 Billion* In Subsidies & Medicaid Expansion for Coverage 15-18 Million More Eligible for Medicaid 15 Million Eligible for New Subsidies & Access to “Network Exchange” $1.089 Trillion in New Taxes & Medicare Cuts to Finance $523 Billion in Medicare Cuts $569 Billion in New Taxes * Includes $40 billion for small business subsidies

Overview – Health Care Reform Lab Coinsurance & Federal Tax on Labs Proposed Proposals Dropped, Replaced With1.75% CLFS Reduction 2011-2015 “Productivity Adjustment” Applies to Providers Prevention and Wellness Provisions Independent Payment Advisory Board Other Provisions TC Grandfather Clause “Date of Service” Demo Cost Containment and “Quality” Initiatives

All Sectors Asked to Contribute Savings Pharma, Hospitals, Nursing Homes, Health Plans, Device Manufacturers and Others Asked to Contribute Savings Most Providers Were Asked for Savings Entirely Through Reductions in Medicare Reimbursement President Wins Key Support In Battle For Health Reform

Summer 2009 – Bills Take Shape Bills Included “Productivity Adjustment” on Medicare Providers Permanent Annual Reduction of 1.1-1.4% House Bill Cut CLFS Deeper ($7.3 Billion over 10 Years) - NO Protection from Negative CPI Update Senate Bill Protects Against Negative CLFS CPI Update ($5 Billion over 10 Years) Both Bills Eliminated Existing .5% Reduction in CLFS Final Enacted Bill: Senate Version January 2011 Productivity Adjustment Will Take CLFS Update to Zero, but No Lower

Senate Finance Committee Proposes Lab Coinsurance July 2009, Senate Finance Informs Industry that Medicare Laboratory Coinsurance Will Be in Senate Finance Committee Bill 20% Reduction in the CLFS, Labs Required to Collect from Beneficiaries, $20 billion “Savings” Lab Community Unites in Opposing Proposal

CQ HEALTHBEAT NEWS Aug. 6, 2009 – 4:25 p.m. AARP Pressures Finance Panel to Reject Lab Co-Pays By John Reichard, CQ HealthBeat Editor Senate Finance Committee negotiators are under pressure from the senior lobby AARP and the clinical lab industry to reject the use of Medicare clinical lab co- payments to help pay for a health overhaul. An AARP official reacted strongly Thursday to reports that the committee would consider charging co-payments. Saying that President Obama has twice assured AARP members that he won’t cut Medicare benefits to pay for an overhaul, AARP legislative policy director David Cerner warned in an interview that “to turn around and cut Medicare benefits is going to significantly affect support for health care reform.” Assuring senior support for a health overhaul is already a delicate issue for Democrats because of several hundred billion dollars in planned Medicare cuts to hospitals, health plans, and other providers. Arguably those cuts would not affect care to seniors because of improvements in provider efficiency. But AARP is drawing the line at Medicare revisions that would cut benefits or add to out-of- pocket costs. Democrats also have asserted that a health overhaul will lower cost burdens. But AARP lobbyist John Rother noted that “any requirement that seniors be billed for “Adding the paperwork and additional overhead associated with collections for coinsurance would add costs to the system, not save costs. It would make Medicare Source: CQ HealthBeat News “any requirement that seniors be billed for part of the cost of laboratory services would simply shift costs to beneficiaries, not save costs. Lab services are a function of physician decisions, not patient preferences. Adding the paperwork and additional overhead associated with collections for coinsurance would add costs to the system, not save costs. It would make Medicare less efficient and raise the costs of supplemental insurance coverage. For these reasons, AARP opposes this idea.”

America’s Healthy Future Act of 2009 Chairman’s Mark Chairman’s Mark America’s Healthy Future Act of 2009 “The Chairman’s Mark would impose a fee on any covered entity offering clinical laboratory services…$750 million annually…”

Senate Finance Proposes New Fed Tax on Lab Revenue Lab Coinsurance Dropped, New Fed Tax on All Lab Revenue Proposed in Senate Bill 2-3% New Tax on All Labs, All Revenue (Government, Private, CLFS, PFS, Pathology…) Permanent Tax Computed to Collect $7.5 Billion From Labs Over 10 years

“– Strike ―Annual Fee on Clinical Laboratories”

Additional Adjustment to CLFS Replaces Lab Tax -1.75% in each of 2011-2015 Taken from CPI Adjusted CLFS, But Can Reduce CLFS Below Zero Replaced Proposal For New Federal Fee/Tax on All Lab Revenue Total Over 2010-2011 Is $5 Billion

Lab Tax – CLFS Reduction Comparison Lab Tax Medicare Reduction $7.5B Tax $5B Cut All Revenue (Gov & Private) Medicare CLFS Reimbursement Only All Labs (Ind, Path, Hosp, POL)* All Labs With CLFS 2-3% Tax 1.75% Reduction Permanent, Starts 2010 Applied in Years 2011-2015 * Labs Under $500,000 Annual Rev Exempt

Bottom Line: CLFS 2011 January 2011: .5% Reduction Eliminated 1.2% Productivity Adjustment Will Reduce CPI to Zero 1.75% Additional CLFS Reduction Applied Net Change to CLFS: Minus 1.75%

Prevention & Wellness (PW) HCR Requires that New Network Exchange Plans Have No Beneficiary Cost-Sharing for PW Limited to Lab Tests That Receive “A or B” Rating from US Preventative Service Task Force (USPSTF) Broadened USPSTF Membership and Evidence Considered

Independent Payment Advisory Board 15-Member Board Submits Proposals to Congress to Reduce Medicare Spending if Medicare Per Capita Spending Exceeds “Average CPI” Takes Effect for Lab 2015 (All Others 2014) Beginning 2018, Average CPI Plus 1% Triggers Board’s Proposal Becomes Law Unless Congress Enacts Alternative to Reduce Equivalent Amount of Medicare Spending

Other Important Issues Laboratory Specific TC Grandfather Extended to December 31, 2010 “Date of Service” Demonstration Program Cost Control & “Quality” Initiatives Patient Centered Outcomes Research Institute Accountable Care Organizations Center for Medicare & Medicaid Innovation The Latest on the Physician Fee Schedule/SGR

Latest on FDA Oversight of LDT’s Until Summer 2010, Asserted Authority, “Enforcement Discretion” DTC Flare Up Spring 2010 July 2010 FDA Public Meeting on LDTs, Intends to Regulate LDTs Series of Meetings Reveals FDA “Draft Guidance” Likely “Very soon” on LDTs Major Stakeholder Meeting With FDA Nov 22

Latest on FDA Oversight of LDTs Key Issues Definition of LDT, Scope of Oversight Grandfathering, Rare-Low Volume Tests Registration and Listing Overlap of CLIA/CMS & FDA Risk Classification Evidence Requirements Draft Guidance on Framework/Process Timing Likely “Very Soon”