California Clinical Laboratory Association 2017 Annual Conference Washington Update Julie Khani, ACLA November 3, 2017

US Labs Create Jobs for Over 622,000 People Labs have a total economic impact of over $100 billion. Labs pay over $21 billion in wages. Labs pay over $13 billion in taxes. Labs employ 2.2% of healthcare workers. Labs represent 2% of industry output. http://www.acla.com/economic-impact-of-clinical-labs/

CA Labs Create Jobs for Over 67,000 People CA labs have a total economic impact of nearly $12 billion. CA labs pay over $2.5 billion in wages. CA labs pay over $1.7 billion in total taxes. CA labs pay an average wage of $89,000, 140% higher than the national median.

DC Landscape Crowded agenda Limited legislative days Health care fatigue CHIP Medicare Extenders Continuing Resolution by December 9th Cost consciousness for all policy decisions

Today’s Topics PAMA New and Reconsidered Codes LDTs Physician Signature Prior Authorization

Reform of the Clinical Laboratory Fee Schedule from the Protecting Access to Medicare Act of 2014 Congress enacted the Protecting Access to Medicare Act (PAMA) in 2014, including Section 216, which changes how labs are reimbursed for serving Medicare patients. PAMA changes the Clinical Laboratory Fee Schedule (CLFS) from a static fee schedule to a fee schedule based on the private market rates of Medicare lab providers. CMS, however, has implemented PAMA in an arbitrary way that ignores Congressional intent and threatens beneficiary access. PAMA’s Intent PAMA as CMS implemented Detail Market-based system CMS cherry-picked highest volume, lowest priced tests in market-place System neither follows private market make-up nor the Medicare market make-up Data from all market segments Skewed data excluding market segments Over 99% of laboratories were prohibited from reporting, especially hospital labs Predictable and sustainable Arbitrary and unsustainable Agency cherry-picked lowest pricing labs to report and arbitrarily applied regulations to the data set, resulting in unpredictable and unsustainably low reimbursement Fair and accurate rate-setting Rate cuts 3-4x greater than government estimates Top 25 tests cut by average of 32%, rural hospital labs cut by average of 28.5% Medicare beneficiary access Beneficiary access threatened Vulnerable beneficiaries at greatest risk of losing access to laboratory services, including rural, nursing home and home health patients

Less than 1% of Labs Reported Data

Flaws in PAMA Data Data set excludes 99.3% of the laboratory market as identified by OIG Hospital labs only contributed 1% of the data compared to 24% share of Medicare CLFS spending Physician Office Labs (POLs) only contributed 7.5% of data compared to 20% share of Medicare CLFS spending 2.4 million $0.00 prices were submitted as compared to 2.3 million data points from all reporting hospital NPIs 3.7 million data points are likely inaccurate outliers, creating questions of pricing errors which are not obvious as outliers Alternative CMS simulations incorrectly assume additional labs would report pricing volume and distribution identical to data already captured CMS selectively corrected or omitted data that would have resulted in higher than expected weighted medians.

More $0.00 Prices Were Reported than Prices Reported from Hospitals

California Proposed Medicare Cuts to Clinical Laboratories In September 2017, CMS proposed devastating cuts to the Medicare Clinical Laboratory Fee Schedule (CLFS). Instead of creating a market-based system as intended by Congress, CMS has used flawed and incomplete data that will arbitrarily slash reimbursement to unsustainable levels and harm beneficiary access to laboratory services which help to diagnose, screen, and monitor disease for millions of patients everyday. PAMA 10 Year Cut Impact National CLFS Impact -25.6% California Labs -19.9% Urban Comparison DC: -13.8% California Lab Segments: Independent Labs -18.0% Physician Office Labs -25.9% Hospital Labs Overall -26.3% Hospital Labs Urban -26.2% Hospital Labs Rural -28.4% Clinical Laboratories in California Employment 28,867 Jobs Economic Impact $4.41 Billion Wages $2.57 Billion Impact estimate compares fully implementing the draft weighted medians to if 2017 CLFS rates were held constant in the 10 year window

Preliminary Payment Determinations for CY2018 New & Reconsidered Codes What codes were in the set of Preliminary Determinations? 40 new and reconsidered codes New Proprietary Laboratory Analyses (PLA) codes 60 codes with no PAMA data CMS followed the majority recommendation of the advisory panel in only 12.5% of instances vs. 92.3% in the prior year. Crosswalks of CY2018 codes to those with PAMA data should have a 10% per year max cut. CMS cannot use PAMA data for drugs of abuse testing codes G0480-G0483 due to 2017 code changes (apples to oranges comparison).

CMS’s Proposed Rates for the 4 MAAAs Result in Drastic Cuts CMS ignored critical comparative factors in selecting crosswalk: test sample, differences in biomarkers, methodology and prognostic vs. screening. CMS crosswalked all four MAAAs to the lowest priced MAA on the CLFS. Did not follow the recommendations of advisory panel and stakeholders. CMS should adopt the recommendations of the advisory panel, ACLA and other stakeholders, as set forth in the below chart. Code Current Rate Recommended Crosswalk of the Advisory and Stakeholders Rate of Crosswalk Recommendation from Advisory Panel and Stakeholders CMS Proposed Rate for Crosswalk to 81528 Percent Cut 81520 $3443 0008M $3099 $508 85% 81521 $3416 81519 $3873 81541 $3161 Gapfill/81519 84% 81551 $2030 Gapfill N/A 75%

Laboratory Developed Tests Comprehensive statutory reform for oversight of LDTs and IVDs DAIA Discussion Draft Important Step ACLA Principles for Diagnostic Reform, including: LDTs are not devices Grandfathering Preemption Modifications

Physician Signature Ongoing issue Burden should not fall solely on laboratories 34% error rate in lab claims Clear, written guidelines needed for CERTs, MACs, physicians and labs

Prior Authorization