Clinical laboratory tests play an integral role in helping physicians diagnose and treat patients. New developments in laboratory technology offer the prospect of improvements in diagnosis and care, but will place an increased burden on the payment system.

Medicare, the federal program providing coverage of health-care services for the elderly and disabled, is the largest payer of clinical laboratory services. Originally designed in the early 1980s, Medicare's payment policy methodology for outpatient laboratory services has not evolved to take into account technology, market, and regulatory changes, and is now outdated. This report examines the current Medicare payment methodology for outpatient clinical laboratory services in the context of environmental and technological trends, evaluates payment policy alternatives, and makes recommendations to improve the system.

Contents

• THE NATIONAL ACADEMIES
• COMMITTEE ON MEDICARE PAYMENT METHODOLOGY FOR CLINICAL LABORATORY SERVICES
• REVIEWERS
• Preface
• Acknowledgments
• Summary
  • INTRODUCTION
  • THE LABORATORY INDUSTRY
  • THE CURRENT MEDICARE PAYMENT SYSTEM
  • GOALS FOR A PAYMENT SYSTEM
  • ASSESSMENT OF THE CURRENT MEDICARE PAYMENT SYSTEM
  • RECOMMENDATIONS
  • CONCLUSION
  • REFERENCES
• 1. Introduction
  • ORIGINS OF THIS STUDY
  • STATEMENT OF TASK
  • THE IOM STUDY PROCESS
  • GOALS FOR A PAYMENT SYSTEM
  • CLINICAL LABORATORY SERVICES COVERED BY MEDICARE
  • THE MEDICARE PROGRAM
  • ORGANIZATION OF THE REPORT
  • REFERENCES
• 2. Background and Environmental Trends
  • BACKGROUND ON THE CLINICAL LABORATORY INDUSTRY
  • MEDICARE PART B CLINICAL LABORATORY TRENDS
  • ENVIRONMENTAL TRENDS
  • MINIMIZING FRAUD, WASTE, AND ABUSE
  • PAYMENT TRENDS
  • RESPONSE FROM THE INDUSTRY TO ENVIRONMENTAL TRENDS
  • SUMMARY
  • REFERENCES
• 3. Technology Trends in the Clinical Laboratory Industry
  • AUTOMATION
  • INFORMATION TECHNOLOGY
  • LABORATORY MEASUREMENT AND TESTING TECHNOLOGY
  • TECHNOLOGY'S EFFECT ON SITE OF SERVICE
  • EFFECT ON CLINICAL LABORATORY STAFF REQUIREMENTS
  • SUMMARY
  • REFERENCES
• 4. Description of the Current Medicare Payment System and Its Historical Roots
  • INTRODUCTION
  • THE FDA APPROVAL PROCESS
  • CODING POLICY
  • CLAIMS PROCESSING
  • MEDICARE COVERAGE POLICY
  • MEDICARE PAYMENT POLICY
  • DEVELOPMENT OF THE CURRENT SYSTEM
  • ELEMENTS OF A PAYMENT SYSTEM
  • EFFECT OF LABORATORY SPENDING ON PHYSICIAN PAYMENT
  • CONCLUSION
  • REFERENCES
• 5. The Current System: How Well Does It Work?
  • BENEFICIARY ACCESS
  • FLEXIBILITY
  • TRANSPARENCY
  • VALUE
  • ADMINISTRATIVE SIMPLICITY AND EFFICIENCY
  • OTHER ISSUES OF CONCERN
  • CONCLUSION
  • REFERENCES
• 6. Alternative Payment Methodologies
  • INTRODUCTION
  • ELEMENTS OF A PAYMENT SYSTEM
  • OTHER ISSUES IN PAYMENT SYSTEMS
  • MAKING IMPROVEMENTS A REALITY
  • CONCLUSION
  • REFERENCES
• 7. Recommendations
  • INTRODUCTION
  • CONCLUSION
  • REFERENCES
• Acronyms and Glossary
• APPENDIX A Acknowledgments
• APPENDIX B Medicare Clinical Laboratory Payments: The National Limitation Amount and Its Relationship to Payment Amounts
• APPENDIX C Study of Fees and Payment System Characteristics for Clinical Laboratory Services
• APPENDIX D Annual Volume of Laboratory Tests by Laboratory Type and Waived-Nonwaived Test Status, 1996–1998, 1999-Early 2000
• APPENDIX E 1998 Medicare Carrier Denial Rates
• APPENDIX F Committee Biographies

Support for this study was provided by the Health Care Financing Administration (Contract No. 500-99-0023).

NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competences and with regard for appropriate balance.