2012: Future Impact of Health Care Reform on Laboratory Business By: Mark S. Birenbaum, Ph.D. Administrator National Independent Laboratory Association (NILA) November 9, 2012 National Independent Laboratory Association, 906 Olive Street, Suite 1200, Saint Louis, Missouri 63101-1448 Telephone: 314-241-1445, Fax: 314-241-1449, Web Site: www.nila-usa.com

Healthcare Reform May Be Good If You Live To Tell About It

Tax Versus 1.75% Part B Cuts And Permanent Versus Temporary 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Tax $750m = $7.5b 1.75% Part B Cut (Senate) -1.75% -3.50% -5.25% -7.00% -8.75% 3% Growth $7.85b $8.09b $8.33b $8.58b $8.84b $9.10b $9.38b $9.66b $9.95b $10.24b $10.55b $8.19b $8.28b $8.38b $8.48b $8.59b $9.11b $7.95b $8.04b $8.14b $8.24b $8.34b $.14b $.29b $.44b $.6b $.76b $.79b $.82b $.84b $.86b $.89b $530.9m 6.9% Growth $8.97b $9.59b $10.25b $10.96b $11.71b $12.52b $13.37b $14.31b $15.3b $8.81b $9.26b $9.72b $10.21b $10.72b $11.46b $12.25b $13.1b $14b $8.66b $9.09b $9.55b $10.03b $.15b $.31b $.5b $.7b $.93b $.99b $1.06b $1.12b $1.21b $1.3b November 6, 2009

Clinical Laboratory Fee Schedule Cut Effective January 1, 2013

Increases to Part B CLFS 2011-2015 Cuts to Part B CLFS 2011-2015 2011 -1.75% ACA* 2012 2013 -2.00% (SGR “fix”) Sequestration Total -9.25% 2014 2015 -12.75% Productivity Adjustments 2011-2015 -5.7% Estimated -18.45% MedPAC -10% -28.45% Increases to Part B CLFS 2011-2015 CPI 2011 +1.1% 2012 +3.6% 2013 +1.7% 2014 +1.5% Est. (CBO) 2015 +9.6% Overall -28.45% + 9.6% = -19.25% *ACA: Affordable Care Act

Impact of Cuts on Medicare Payments Test Paid at $10 in 2010 17% Cut

September 15, 2011 MedPAC Public Meeting

Potential Medicare offset options for repealing the SGR System TABLE A-4 BLE

September 27, 2011 Meeting with MedPAC Attending: NILA Mark Birenbaum, Ph.D. Julie Allen Erin Will Morton ACLA Alan Mertz Roche Diagnostics Kathleen Claessens MedPAC Mark Miller, Ph.D., Executive Director James Mathews, Ph.D., Deputy Director Ariel Winter, MPP, Principal Policy Analyst

George Washington University (GWU) Survey Spring-Fall 2012 Commissioned by the National Independent Laboratory Association

List of Independent Community Labs for the GWU Survey l Began with the June 14, 2012, CLIA List of Independent Laboratories in all 50 States (approximately 4,000 laboratories). l Excluded:  Laboratories affiliated with other practice structures (i.e., physician office laboratories or hospitals) or other laboratories that did not meet the definition of an independent laboratory.  Publicly traded national laboratories (e.g., LabCorp, Quest).  Hospital laboratories without a separate federal tax ID number (Medicare reimbursement for hospital laboratories is mainly derived from Medicare Part A).  Assisted Reproductive Laboratories/In Vitro Fertilization Laboratories. (These laboratories receive little or no Medicare reimbursement). l Subsequently generated a convenience sample of approximately 180 laboratories. l 77 laboratories from 22 states completed the survey.

Market Analysis Profit margin Impact of Medicare cuts Payer mix Beneficiary mix Case studies Most pressing business concerns

Services by Customer Type Practice Hospitals NH/SNFs ALFs Home CHCs

Average Profit Margin 0-3% 4-6% 7-9% 10-12% 12-15% >15%

Key Findings: Profit Margin Laboratories with low profit margins were more likely to: Serve rural communities: Nearly 40 percent of laboratories serving rural communities had low profit margins. Provide most of their stat and same-day turnaround testing to nursing homes/SNFs: 71 percent of labs that provide the majority of their stat and same-day turnaround testing to nursing homes and SNFs had low profit margins.

Anticipated Business Challenges Medicare cuts Nat’l Insurers HIT Regs ACO Medicaid cuts Medicare changes Other Mergers Contract

2013 Regulatory Activity Affecting Laboratory Business Direct access to lab test results – waiting on release of a final rule Molecular test placement and payment – November 2012 CMS decision to place tests on Part B CLFS instead of PFS Laboratory developed tests – regulatory authority to be FDA or CLIA? Health reform – future of state exchanges (laboratory services a required benefit to be provided through the exchange); development of ACOs and other payment reform models

NILA’s 2013 Legislative and Regulatory Activity Meet with MedPAC to Present Results of GWU Survey Partner with Other Lab Associations Through Clinical Laboratory Coalition (CLC) Encourage Members of Congress and Hill Staffers to Visit NILA Members’ Laboratories Take Message to Capitol Hill During “Lame Duck” Session

NILA Capitol Hill Day November 14-15, 2012 Liaison Hotel l Washington, DC

In 2013 Watch Out For NILA ALERT!!! More Part B CLFS Cuts Resurrection of Competitive Bidding Proposals Resurrection of Copay/Coinsurance Proposals

Challenges Ahead Migration of Independent Physician Practices to Hospitals Restrictive Policies of National Insurance Companies Costs and Difficulties of Adopting and Connecting to Electronic Health Information Systems Decreases in Lab Testing Volumes Due To Poor Economy Changes in Ordering Patterns Frequency Limitations