ASSESSING POTENTIAL MEDICARE SAVINGS FROM IMPLEMENTING A CHANGE IN PAYMENT FOR SELECTED CLINICAL LABORATORY SERVICES

Transcription

1 ASSESSING POTENTIAL MEDICARE SAVINGS FROM IMPLEMENTING A CHANGE IN PAYMENT FOR SELECTED CLINICAL LABORATORY SERVICES Report Submitted to: Dominion Diagnostics Submitted by: Dobson DaVanzo & Associates, LLC July 10, 2009 Dobson DaVanzo

2 ASSESSING POTENTIAL MEDICARE SAVINGS FROM IMPLEMENTING A CHANGE IN PAYMENT FOR SELECTED CLINICAL LABORATORY SERVICES Report Submitted to: Dominion Diagnostics Submitted by: Allen Dobson, Ph.D. Steven Heath, M.P.A. Audrey El-Gamil Joan E. DaVanzo, Ph.D., M.S.W. July 10, 2009 Medicare Savings from Selected Clinical Laboratory Services Page i

3 Table of Contents I. Executive Summary... i II. Introduction... 1 A. Moderate/High vs. Low Complexity Drug Testing... 1 B. Medicare Reimbursement of Clinical Laboratory Drug Testing... 2 C. Study Purpose... 3 III. Methods... 4 IV. Results... 6 A. Objective 1: Descriptive Statistics... 6 B. Objective 2: Identification of CLIA Waived Services and Potential for Medicare Savings Building the Projection Model Potential Savings V. Summary Appendix A: List of Confirmation Test Codes... A-1 Medicare Savings from Selected Clinical Laboratory Services

4 I. Executive Summary Dobson DaVanzo & Associates, LLC, a health economics consulting firm, was commissioned by Dominion Diagnostics to conduct a study to: 1) quantify Medicare utilization of the CPT codes 80100, 80101, and (with and without modifiers) for the period of 2004 through 2007 using Medicare claims data; and 2) determine the potential savings to Medicare if the program were to establish a payment threshold limiting physicians to billing a single CLIA waived test strip per patient visit. Under the Clinical Laboratory Improvements Act of 1988 (CLIA), laboratories must have a certification for the level of test complexity performed by them. The least regulated category is waived testing. When a physician or other healthcare professional receives a CLIA Waiver Certificate, he or she is permitted to perform waived tests in their offices. We found that since CPT was added to the approved CLIA procedure list effective January 2005, the rate of increase in utilization of and allowed charges for the CLIA waived procedure (billed with modifier QW) was nearly 3,000 percent from 2003 through It is estimated that clinical laboratory testing has an impact on over 70 percent of today s medical decisions. 1 CPT code 80101, drug screen for a single class, is used to bill for tests that can only detect the presence or absence of a single drug class. Each class of drug is tested using a separate test to determine the presence or absence of each respective drug. The standard drug panel consists of tests for 11 drugs. Under the present CMS fee schedule, CPT code is reimbursed at approximately $19.00/unit. This level of reimbursement currently applies to whether the procedure is performed in a moderately or highly complex laboratory, or as a test strip in a physician s office. On average, the test strip costs the physician approximately $3-4 per test. Furthermore, a confirmation test (reimbursed at approximately $25.00/unit) must then be performed for each drug test performed in a physician s office. On the other hand, in the laboratory setting, a confirmation test is only performed for positive drug tests approximately 2.6 confirmation tests per 11 drug panel. A. Methods Using the 100 percent Physician Supplier Procedure Summary File (PSPS) for 2004 through 2007, we constructed an extract of CPT codes 80100, and The PSPS file is a summary of all Part B Carrier and DMERC Claims processed through the Common Working File and stored in the National Claims History Repository. Our analyses focus on units of service and allowed charges, and our calculation of allowed charges per unit. We built a model to project the future utilization and cost to Medicare for CPT QW from 2010 to 2019 for both the current state baseline and a model of Medicare savings if a payment threshold was to be implemented. By limiting the number of CLIA waived procedures that can be billed per patient visit, Medicare would experience savings due to reduction in utilization of CLIA waived tests, and also a reduction in the accompanying confirmation tests of those performed in the physician s office. Our model includes a savings offset, however, for tests that are no longer performed in the physician s office, but are instead performed in the laboratory setting. We conducted a sensitivity analysis that assumes that 25 percent and 75 percent of the averted tests return to the laboratory. 1 American Clinical Laboratory Association. (available online at: Medicare Savings from Selected Clinical Laboratory Services Page i

5 B. Findings in Brief The current projected growth of QW absent any change in payment policy serves as our baseline. Our model assumes that the implementation of a policy that limits reimbursement for QW to one procedure per patient encounter would reduce utilization for QW. Medicare savings are calculated as the difference between the baseline and the modeled savings effect. There are, however saving offsets that would occur when averted QW procedures are moved into the laboratory setting. Table ES-1 contains the findings of our analysis. We estimated that Medicare can save between $562 and $830 million dollars by implementing a threshold limit on the number of QW procedures performed per patient encounter. Table ES-1: Potential Savings to the Medicare Program (in millions) Savings Component 25% of Averted Tests Moved to Lab 75% of Averted Tests Moved to Lab Total Averted Tests and Confirmation (A+B) $963.5 $963.5 (A) Averted QW in Office $401.4 $401.4 (B) Averted corresponding Confirmation Tests $562.1 $562.1 Total Offset for Averted Tests Moved to the Lab (C+D) $133.8 $401.4 (C) Tests Moved to Lab $101.0 $302.9 (D) Corresponding Conformation Tests $32.8 $98.5 Total Medicare Program Savings (A + B) (C + D) $829.7 $562.1 Source: Dobson DaVanzo analysis of Physician Supplier Procedure Summary File C. Summary Limiting the number of waived strip tests (80101 QW) that can be billed separately to Medicare would have the effect of: 1. reducing utilization of CLIA waived tests in the physician s office; 2. reducing program payments for all remaining CLIA waived tests in the physician s office; and 3. reducing the number of confirmation tests then needed to be performed in the laboratory. After accounting for savings offsets (costs), we estimate the 10 year savings of this payment policy change to range between $562.1and $829.7 million. Medicare Savings from Selected Clinical Laboratory Services Page ii

6 II. Introduction It is estimated that clinical laboratory testing has an impact on over 70 percent of today s medical decisions. 2 Clinical laboratory tests are frequently ordered as part of routine physician visits and most hospital admissions. 3 Clinical lab services account for 1-2 percent of Medicare expenditures and 3 percent of overall spending on health care. Primary care physician compliance with evidence based medicine and an emphasis on prevention and chronic disease management are two factors that underlie the growth in use of clinical lab tests. Dominion Diagnostics is a national medical laboratory started in 1997 that specializes in the design, development, and performance of clinical drug testing, pharmacokinetic analyses, and physician education and training. 4 The firm recently began using a unique product under which physicians can monitor their pain management patients. This product is called Scientifically Accurate Medication Monitoring (SAMM TM ). A. Moderate/High vs. Low Complexity Drug Testing In order to operate legally as a laboratory in the U.S. it is necessary to comply with the requirements of the Clinical Laboratory Improvements Act of 1988 (CLIA). Under CLIA, laboratories must have a certification for the level of test complexity performed by the laboratory. The CLIA test complexity levels are: Waived (subject to minimal requirements) Moderate complexity High complexity (subject to the most stringent standards) The least regulated category is waived testing. Waived tests are the type of tests that are simple to perform and can be performed by personnel with no specific training or educational requirements. In order to obtain a waived certificate, a laboratory need only follow the test manufacturer s instructions and be subject to random inspections. Moderate and high complexity testing, however, is subjected to a much broader range of requirements. These include regular performance of proficiency testing, quality system standards, qualifications for personnel, and routine inspections. Since 2000, the FDA has been responsible for categorizing laboratory tests under CLIA. Manufacturers of tests submit them to the FDA for review and categorization. Waived tests generally pose a very small risk of erroneous results. Over the past decade the number of tests approved as waived tests has greatly increased. There are now hundreds of analyte (drug) specific tests considered to be waived tests. Tests that are not waived are categorized as either moderately or highly complex. As described above, laboratories that perform these tests must meet stringent requirements, and the tests must be performed by qualified individuals. The complexity categorization of any test can be found on the FDA s web site. In the field of urine drug testing, until recently, most of the tests were performed in a laboratory using complex machinery run by specially trained personnel. These laboratories would be certified by CLIA to 2 American Clinical Laboratory Association. (available online at: 3 Hogan C. Briefing on Laboratory services spending trends, March 22, Available online at: Medicare Savings from Selected Clinical Laboratory Services Page 1

7 perform complex or highly complex testing. With the increase in the number of analyte (drug) specific tests being categorized as waived tests, there has been a significant increase in the number of waived urine drug tests being performed in physician s offices instead of being performed in laboratories. These tests are typically performed by dipping a test strip into a urine sample or by using a sample cup that contains a test strip. These test strips can, depending upon their design, test for the presence of a single drug or test for the presence of up to eleven drugs. The cost of these test kits varies depending upon the number of drugs being tested, but on average, the cost of the test kit for a single drug is between $3-$4 and between $7-$10 for a test kit that tests for multiple drugs. B. Medicare Reimbursement of Clinical Laboratory Drug Testing Laboratory reimbursement under Medicare has declined since the mid-1980 s. Medicare currently reimburses for clinical laboratory drug testing, regardless of test complexity, using three Common Procedure Terminology (CPT) procedure codes Drug screen: multiple classes, each procedure Drug screen: single class, each procedure Drug confirmation: each procedure CPT code is used by a moderately or highly complex laboratory to bill for a single drug test that detects the presence or absence of multiple drug classes. For example, if a single test were able to detect the presence of ten different drug classes, the laboratory would bill a single unit of CPT code CPT code is used by moderately or highly complex laboratories to bill for tests that can only detect the presence or absence of a single drug class. In this case, if a laboratory was requested to test for eleven different drug classes (a standard panel) and it performed eleven separate tests to determine the presence or absence of the drugs, it would bill CPT code eleven times. This is because each test represents a different procedure using a different reagent to detect the drug. Under the present CMS fee schedule, CPT code is reimbursed at approximately $19.00/unit billed. So in this example the laboratory would be reimbursed approximately $209 for performing eleven tests. When a physician or other health care professional receives a CLIA Waiver Certificate permitting he or she to perform waived tests in their office, they can perform urine drug tests using waived tests. As described above, these test kits can test for one to eleven drugs. In order to be reimbursed for these tests by CMS or a state Medicaid agency, CMS has indicated that the correct CPT Code to use is QW. The QW is a modifier to advise the payor that the test being billed is a waived test. Physicians performing these waived tests then bill CMS for each drug that the test kit is designed to detect. Under the present CMS fee schedule this CPT Code is also reimbursed at approximately $19.00/unit billed. The issue that has arisen as a result of the above reimbursement policy, along with the capability to conduct waived tests, is that a doctor who purchases a $7.00 waived test cup that detects up to eleven different drugs is billing for eleven separate units of CPT Code 80101QW and is being paid approximately $209. This is the same amount that a full service laboratory receives, despite the fact that the testing performed by the full service laboratory is much more accurate and sophisticated. The present CMS fee schedule does not take into account the complexity of the various tests or the investment necessary to be able to perform the different tests. Medicare Savings from Selected Clinical Laboratory Services Page 2

8 C. Study Purpose The CMS reimbursement of CPT code QW at the same rate as CPT code 80101, as well as the capability to submit bills for multiple units of CPT code QW using a single test kit has led to a dramatic increase in the number of claims for tests using CPT code QW. Given the difference in resource use between the moderate/highly complex approach and test strip approach, substantial financial margins are achieved for those CLIA providers conducting a large number of waived test strip screens. There has been a substantial increase in the utilization of CPT QW in the physician s office since 2005, presumably because these activities are lucrative. For instance, some test strip manufacturers have targeted their marketing materials to emphasize the potential to increase office revenue. This marketing does indicate, however, that the tests which can be performed in a CLIA waived environment are not as accurate as the tests performed in an independent laboratory. The marketing materials recognize this shortcoming by specifically stating that these tests provide only a qualitative, preliminary analytical result. 5 Furthermore, the advertising stresses the importance of performing additional confirmation tests in conjunction with the test strip tests to ensure accurate results: The confirmation is the quantitative portion of the Urine Drug Test (UDT). 6 Performing and billing for only the screening side is inconsistent with current acceptable laboratory practices. 7 While stating the limitations of the test strip, many company s marketing materials emphasize that billing this CLIA waived test: is a great way to generate revenue in your facility! The National Average reimbursement is $19.00 per test x 5 is $95.00 per 5 panel test, your cost $3.60 per panel! Rapid Response Drug of Abuse test kits are FDA and CLIA waived. Please call me to discuss our Rapid Drug Test Kits. 8 As a result of the CLIA waived status and substantial direct marketing to physicians as noted above, utilization of these procedures in the physician s office has increased significantly. Dobson DaVanzo & Associates, LLC, a health economics consulting firm, was commissioned by Dominion Diagnostics to conduct a study with the following two objectives: 1) To quantify Medicare utilization of the CPT codes 80100, 80101, and (with and without modifiers) for the period of 2004 through 2007 using Medicare claims data; and 2) To determine the potential savings to Medicare if the program were to establish a payment threshold limiting physicians to billing a single CLIA waived test strip per patient visit. 5 Promotional Materials, Millennium Laboratories Via Tazon, Suite F, San Diego, CA Promotional Materials, Millennium Laboratories Via Tazon, Suite F, San Diego, CA Promotional Materials, Millennium Laboratories Via Tazon, Suite F, San Diego, CA BTNX Inc., a distributor of Rapid Response brand products (available online at: Medicare Savings from Selected Clinical Laboratory Services Page 3

9 III. Methods Using the 100 percent Physician Supplier Procedure Summary File (PSPS) for 2004, 2005, 2006, and 2007, we constructed an extract of the codes of interest. The PSPS file is a summary of all Part B Carrier and DMERC Claims processed through the Common Working File and stored in the National Claims History Repository. The file is arrayed by carrier, pricing locality, CPT, modifier 1, modifier 2, physician specialty, type of service, and place of service. The summarized fields are total services and charges, total allowed services and charges, total denied services and charges, and total payment amounts. Our analyses focus on units of service and allowed charges, and our calculation of allowed charges per unit. To ensure that the variables units versus services would not be confused in the analysis, we conducted a validation exercise to determine the relationship between the two variables. As Table 1 shows, total services minus denied services equals allowed services. services is identical to units. Regardless of modifier, one unit is billed per allowed service. While we use units as the variable in the analysis, we use the term services and units interchangeably in the report. Table 1 shows the growth rate in units by CPT code over the years 2004 to We found that code has shown significant growth from 644,216 units in 2004 to 2,850,707 units in 2007: a 343 percent increase. HCPCS Year Services Table 1: Validation of Results Denied Services Services Units Units Per Service ,299 17,722 80,577 80, ,116 21,028 93,088 93, ,026 26,208 80,818 80, ,088 21,283 81,805 81, , , , , ,098, , , , ,902, ,032 1,717,963 1,717, ,140, ,040 2,850,707 2,850, ,484 2,230 11,254 11, ,012 3,360 17,652 17, ,109 5,403 27,706 27, ,240 8,044 52,196 52,196 1 Total 7,443, ,975 6,611,168 6,611,168 1 Source: Dobson DaVanzo analysis of Physician Supplier Procedure Summary File To determine the potential savings to Medicare if a payment limit of one CPT Code QW procedure per patient visit was implemented, we generated assumptions to determine whether each unit/service found in the data was the moderate/highly complex laboratory test or the test strip approach. We used the following assumptions to determine the test that was performed. Our assumptions were based on the use, the site of service, and modifier on the claim: Medicare Savings from Selected Clinical Laboratory Services Page 4

10 Procedures billed in the physician office by a CLIA certified provider (indicated by modifier QW) used the test strip approach Procedures billed in the physician office with a reference (outside) laboratory modifier (modifier 90) or no modifier on the claim used the moderate/highly complex laboratory test Table 2 below summarizes our assumptions by site of service and modifier. Almost all sites of service found in the claims were independent lab or physician office. Table 2: Summary of Assumptions: Site of Service of Moderate/highly Complex Tests versus Test Strip Site of Service Independent Lab No modifier billed Mod/High Complex Reference lab used (mod 90) Mod/High Complex CLIA Waived (mod QW) Mod/High Complex Physician Office Mod/High Complex Mod/High Complex Test Strip Using these assumptions, we modeled a range of potential savings over a ten year period ( ) that could accrue from a change in Medicare payment policy. We present the descriptive statistics for the codes of interest in order to understand where and how these services are currently being billed, followed by the potential savings to Medicare of implementing a payment threshold requirement. Medicare Savings from Selected Clinical Laboratory Services Page 5

11 IV. Results A. Objective 1: Descriptive Statistics Using the PSPS data extract, we created a longitudinal dataset containing claims for the utilization of the three CPT codes of interest for 2004 through We found that these codes represent 0.2 percent of all Part B laboratory services in 2004, and increased to 0.7 percent in Table 3 shows the utilization (units) and allowed charges of all three procedure codes, regardless of site of service. CPT code is by far the most frequently billed, growing rapidly over the period. Additionally, CPTs and saw increases in allowed charges while CPT barely changed (only a slight decrease in allowed charges as total units grew minimally from 2004 to 2007). Table 3: Summary of CPT 80100, 80101, and Utilization and Program Payments By Year: All Outpatient Sites of Service CPT Year Units Total Per Unit ,577 $1,370,064 $ ,088 $1,650,264 $ ,818 $1,446,717 $ ,805 $1,357,233 $16.59 Percent Change 2% -1% -2% ,216 $8,944,070 $ ,186 $14,357,991 $ ,717,963 $28,257,742 $ ,850,707 $49,395,620 $17.33 Percent Change 343% 452% 25% ,254 $197,439 $ ,652 $309,421 $ ,706 $499,001 $ ,196 $960,913 $18.41 Percent Change 364% 387% 5% Source: Dobson DaVanzo analysis of Physician Supplier Procedure Summary File To understand the detailed billing patterns of these codes across specialty, site of service and modifiers, we analyzed 2007 data separately. Table 4 shows that nearly all the services and charges take place in either the doctor s office or the independent laboratory. For CPT 80100, 77.5 percent of the allowed charges occur in the independent laboratory and 22 percent are in the office. For 80101, 81 percent of the allowed charges are in the laboratory while 19 percent are in the office, and for 80102, 99 percent are in the laboratory. Our assumption is that only office-based procedures coded and are potential test strips (and would be subject to the threshold limit) and about one-fifth of the allowed charges for the two procedures could potentially result in Medicare savings. Since independent laboratories and physician visits represent almost 100 percent of the allowed charges, and since our assumptions for cost Medicare Savings from Selected Clinical Laboratory Services Page 6

12 savings are based on the presence of modifiers in the physician office, we again focus our detailed analyses on these two sites of service. Table 4: 2007 Utilization and Program Costs of CPT 80100, and Site of Service Units Charge Units Charge Units Charge Independent Laboratory 64,045 $1,051,364 2,349,692 $40,035,269 51,724 $952,168 Office 17,374 $298, ,696 $9,319, $8,504 Ambulatory Surgical Center 0 $0 1,178 $22,664 3 $56 Nursing Facility 29 $ $5,776.. Home 3 $ $3, $185 Skilled Nursing Facility 32 $ $3,059.. Other 322 $6, $5,823 0 $0 Total 81,805 $1,357,233 2,850,707 $49,395,620 52,196 $960,913 Source: Dobson DaVanzo analysis of Physician Supplier Procedure Summary File Totals might not sum due to removal of lines with no allowed charges. By cross-tabulating the data by modifier and site of service we can understand the proportion of the independent laboratory services and office services that are billed with modifiers that may indicate that a test strip was conducted. Table 5 shows that modifiers are not billed in more than two-thirds of the drug screening procedures (80100 and 80101) performed in the independent lab. Over 90 percent of procedures are billed with no modifier. CLIA waived procedures (modifier QW) represent almost 40 percent of the procedures in the office and 10 percent of procedures in the independent lab. Also, repeat clinical diagnostic laboratory test is the most common modifier (modifier 91) that is listed for the three CPT codes. Medicare Savings from Selected Clinical Laboratory Services Page 7

13 Table 5: for CPT 80100, 80101, and by Select Sites of Service and Initial Modifier (2007) Initial Modifier % of Independent Laboratory % of % of No modifier $692,244 66% $27,726,245 69% $867,378 91% CLIA waived test $0 0% $3,861,623 10% - 0% Distinct procedural service $5,214 0% $995,774 2% $3,146 0% Reference (outside) laboratory $83,965 8% $2,213,611 6% $65,564 7% Repeat clinical diagnostic laboratory test Repeat procedure or service by same physician $102,657 10% $5,128,238 13% $15,215 2% $154,909 15% $37,087 0% $223 0% Other $12,375 1% $72,691 0% $642 0% Independent Laboratory Total $1,051, % $40,035, % $952, % Office No modifier $292,890 98% $5,582,001 60% $7,373 87% CLIA waived test $0 0% $3,605,391 39% - 0% Distinct procedural service $80 0% $31,094 0% $0 0% Reference (outside) laboratory $80 0% $9,366 0% - 0% Repeat clinical diagnostic laboratory test Repeat procedure or service by same physician $651 0% $48,413 1% $816 10% $2,770 1% $371 0% - 0% Other $1,808 1% $43,127 0% $315 4% Office Total $298, % $9,319, % $8, % Grand Total $1,335,460 $1,335,460 $49,239,214 $49,239,214 $959,715 $959,715 Source: Dobson DaVanzo analysis of Physician Supplier Procedure Summary File B. Objective 2: Identification of CLIA Waived Services and Potential for Medicare Savings Our first analysis found that almost 51 percent of the three study procedures are performed in the independent lab, and 48 percent are performed in the physician office. As our assumptions in Table 2 demonstrate, only procedures performed in the office with a CLIA waiver are possibly a test strip test and could result in potential savings to Medicare. In developing our cost savings model, the first task was to identify the proportion of CPT procedures that were billed with a CLIA modifier. CPT was added to the approved CLIA procedure list effective January The substantial increase in the use of the CLIA modifier for this procedure in 2005 could be explained by this fact. Table 6 shows the utilization of CLIA waived tests by year. It is quite clear from the data that the utilization of clinical lab tests coded with this modifier has Medicare Savings from Selected Clinical Laboratory Services Page 8

14 grown rapidly since Although the allowed charges per unit have remained stable, the total Medicare allowed charges have increased substantially. The rate of increase for utilization and allowed charges is nearly 3,000 percent over the four year period under consideration in this analysis. Table 6: Utilization and Medicare Payments for HCPCS Claims with Modifier of QW (CLIA Waived Test): All Sites of Service Year Units Total Per Unit ,097 $247,316 $ ,747 $1,170,451 $ ,152 $3,060,577 $ ,705 $7,492,025 $18.89 Percent Change 2929% 2929% 0% Source: Dobson DaVanzo analysis of Physician Supplier Procedure Summary File Although our assumptions would only consider CLIA waived procedures performed in the office as the source of potential Medicare cost savings, CLIA waived procedures are billed in other settings. Approximately $3.6 million in allowed charges could have been billed as a moderate/highly complexity test but could potentially have been a test strip. See Table 7. Table 7: Site of Service Utilization and for CPT Modifier for QW (CLIA Waived Test) for 2007 Site of Service CLIA Waived Units Per Unit % of Charge Independent laboratory 201,284 $3,861,623 $ % Office 194,121 $3,605,391 $ % Other 1,300 $25,011 $ % Total 396,705 $7,492,025 $ % Source: Dobson DaVanzo analysis of Physician Supplier Procedure Summary File Totals might not sum due to removal of lines with no allowed charges. Within the physician office setting, there is great variation concerning the specialty of the provider (see Table 8). Again, CPT is the only code which has any allowed charges for CLIA waived services. About 19 percent of the allowed charges for CLIA waived procedures are billed by anesthesiologists and about 16 percent are each billed by Internal Medicine and Gynecology/Osteopaths. Medicare Savings from Selected Clinical Laboratory Services Page 9

15 Table 8: Utilization and for CLIA Waived Services in Office Setting (2007): CPT Specialty Units Charge Per Units % of Anesthesiology 35,533 $674,180 $ % Internal medicine 31,938 $595,388 $ % Gynecology/osteopaths 30,749 $579,478 $ % Miscoded 19,096 $358,305 $ % Group practice prepayment plan diagnostic laboratory Physical medicine and rehabilitation 15,427 $286,413 $ % 12,352 $237,054 $ % Family practice 13,525 $236,584 $ % General practice 8,253 $157,123 $ % Independent clinical laboratory billing independently 7,893 $151,861 $ % Emergency medicine 6,144 $111,127 $ % Psychiatry 3,412 $65,523 $ % Other 9,799 $152,355 $ % Office Total 194,121 $3,605,391 $ % Source: Dobson DaVanzo analysis of Physician Supplier Procedure Summary File Building the Projection Model Based upon the findings discussed above, we built a model to project the utilization and cost to Medicare for CPT QW from 2010 to This allows us to create a 5 (2010 to 2014) and 10 year (2010 to 2019) estimate of the Medicare program cost for these procedures. It also allows us to model the savings impact of proposed changes in payment policy. Currently, Medicare reimburses each test strip and moderate/highly complex laboratory test at a national average of $ As stated, physicians are able to bill for testing multiple drugs during one patient visit. The standard panel consists of 11 drugs. Therefore, the typical patient receives 11 test strips per encounter, resulting in 11 billings of QW, or 11 tests within the lab, resulting in 11 billings of This would result in a total reimbursement of $ in both settings. By limiting the number of CLIA waived procedures that can be billed per patient visit, Medicare would experience savings due to the reduction in utilization of CLIA waived tests, and accompanying confirmation tests (reimbursed at approximately $25.36 per unit), performed in the physician s office. There are, however saving offsets (costs) that would occur when averted QW procedures are moved into the laboratory setting. We discuss the savings and savings offset below. Medicare Savings from Selected Clinical Laboratory Services Page 10

16 Reduction in utilization of CLIA waived tests, and accompanying confirmation tests, performed in the physician s office It is expected that adjusting the payment policy to only reimburse for a single procedure per patient visit will encourage some physicians to discontinue using the CLIA waived test strip, and encourage some physicians to refer patients for the full laboratory test. By not performing the CLIA waived test strip, physicians would also no longer order the confirmation tests that are strongly recommended to confirm every strip test. To determine the projected savings from physicians who would no longer use the CLIA waived services for their patients, we generated a baseline projection and then modeled the potential Medicare payment policy change. The baseline utilization growth rate of from 2004 through 2007 was very high. As can be seen in Chart 1, to project the utilization of without a change in the reimbursement threshold, we assumed that the rate of increase for 2012 through 2019 would slow to 1 percent, consistent with the overall Medicare population growth. Using a curve smoothing estimate, we projected the rate of growth for 2008 through 2012, as demonstrated in the Baseline (blue line in Chart 1). This adjustment to the growth rate in the projection was needed since we believe the growth rate seen in was unsustainable over time. In the absence of a perverse incentive for physician offices to perform QW, we project the growth of QW to grow at 3 percent from 2008 through 2019 (green line in Chart 1). For the purpose of calculating the savings from implementing a reimbursement limit for CLIA waived test in the physician s office, we assume that there will be a reduction in the number of CLIA waived units administered. It is assumed that the primary driver for the growth of the CLIA waived services is the large potential to increase office revenue. As a result, a change in policy to reimburse for only one CLIA waived per patient visit could result in approximately 75 percent of physicians discontinuing this service in their offices starting in We assume that the removal of a perverse payment incentive will reduce QW utilization for 2010 and 2011 so that the utilization levels are slightly below 2009 utilization levels in From 2011 through 2019, the growth of QW would be consistent with the growth in the baseline, which slows to 1 percent in This projection is represented by the red line in Chart 1. Chart 1: Baseline and Modeled Utilization of CLIA Waived Source: Dobson DaVanzo analysis of Physician Supplier Procedure Summary File Medicare Savings from Selected Clinical Laboratory Services Page 11

17 If QW utilization decreases from the baseline to the projected levels, we estimate an approximate 21.7 million CLIA waived test strip units would be averted over ten years. This would result in Medicare savings of approximately $401.4 million. The baseline projection and the impact of the elimination of new growth in utilization can be seen in Table 9. Table 9: Utilization and Expenditures CLIA Waived CPT Tests: Baseline Compared to Adjusted Year Units (in thousands) Baseline Modeled Change Expenditures (in millions) Units (in thousands) Historic Expenditures (in millions) Units (in thousands) Expenditures (in millions) $0.1 7 $0.1 0 $ $ $0.4 0 $ $ $1.2 0 $ $ $3.5 0 $0.0 Projected $ $9.8 0 $ ,265 $23.3 1,265 $ $ ,223 $40.8 1,180 $21.7 (1,043) ($19.2) ,022 $55.5 1,094 $20.1 (1,928) ($35.4) ,346 $61.5 1,115 $20.5 (2,231) ($41.0) ,436 $63.1 1,132 $20.8 (2,305) ($42.4) ,471 $63.8 1,143 $21.0 (2,328) ($42.8) ,505 $64.4 1,154 $21.2 (2,351) ($43.2) ,541 $65.1 1,166 $21.4 (2,375) ($43.6) ,576 $65.7 1,177 $21.6 (2,398) ($44.1) ,594 $66.0 1,189 $21.9 (2,405) ($44.2) ,612 $68.4 1,201 $22.7 (2,411) ($45.6) Ten Year Total 33,325 $ ,551 $212.9 (21,774) ($401.4) Source: Dobson DaVanzo analysis of Physician Supplier Procedure Summary File As discussed above, when a CPT test is performed in a physician s office as a CLIA waived test, a laboratory based confirmation test must also be administered. The elimination of 21.7 million CLIA waived tests over 10 years could result in the same number of laboratory confirmation tests being averted as well. Medicare currently reimburses for the confirmation tests at approximately $25.00 per test. Table 10 shows the impact this would have on Medicare expenditures for these confirmation tests. Medicare Savings from Selected Clinical Laboratory Services Page 12

18 Table 10: Laboratory Based Confirmation Test Expenditures Averted When CLIA Waived CPT in the Office Setting are Threshold Limited Year Baseline Modeled Change Historic 2004 $3.7 $3.7 $ $6.0 $6.0 $ $11.0 $11.0 $ $20.7 $20.7 $0.0 Projected 2008 $39.2 $39.2 $ $65.5 $65.5 $ $86.6 $60.3 ($26.3) 2011 $110.0 $53.4 ($56.5) 2012 $112.1 $54.5 ($57.6) 2013 $113.7 $55.3 ($58.5) 2014 $114.9 $55.8 ($59.0) 2015 $116.0 $56.4 ($59.6) 2016 $117.2 $57.0 ($60.2) 2017 $118.4 $57.5 ($60.8) 2018 $118.9 $57.5 ($61.4) 2019 $119.5 $57.5 ($62.1) Ten Year Total $1,127.6 $565.2 ($562.1) Source: Dobson DaVanzo analysis of Physician Supplier Procedure Summary File Increase in utilization of tests performed in the laboratory (savings offset) While 21.7 million QW procedures, and accompanying confirmation tests, are averted in the physician s office due to a removal of the perverse payment incentive, it is expected that some of these tests will move back to the laboratory setting. However, the amount that will return to the lab is unknown. Per patient encounter, an 11 drug panel is performed in the laboratory setting, each billed with 80101, and on average 2.6 confirmation tests are consequently performed. This is 8.4 fewer confirmation tests per patient encounter than billing if the QW were performed in the physician s office. As a result, instead of Medicare saving the cost of 22 procedures ( QW and 11 confirmation tests) for an QW, Medicare savings will be offset by 13.6 procedures in every instance (11 drug tests 80101, and 2.6 confirmation tests) that are now performed in the laboratory setting. Hence, net 8.4 averted procedures. Not knowing the actual percent of averted CLIA waived tests that will move to the laboratory setting, we conducted sensitivity analyses that assumed 25 percent and 75 percent of the averted QW will be performed in the laboratory setting. See Chart 2. Medicare Savings from Selected Clinical Laboratory Services Page 13

19 Chart 2: Baseline and Modeled QW Savings Offsets at 25 Percent and 75 Percent Source: Dobson DaVanzo analysis of Physician Supplier Procedure Summary File If 25 percent of the averted utilization were performed in the laboratory, there would be a savings offset of $133.8 million, which would include the procedure ($101.0 million) and the confirmation tests ($33.8 million). See Table 11. Table 11: Expenditures for 25 Percent Shift of Averted CLIA Waived CPT Tests to the Laboratory Setting (in millions) Year Baseline Lab Expenditures Confirmation Expenditures Historic 2004 $3.7 $0.0 $ $6.0 $0.0 $ $11.0 $0.0 $ $20.7 $0.0 $0.0 Projected 2008 $39.2 $0.0 $ $65.5 $0.0 $ $86.6 $4.8 $ $100.0 $9.2 $ $108.1 $10.3 $ $112.7 $10.6 $ $114.9 $10.7 $ $116.0 $10.8 $ $117.2 $10.9 $ $118.4 $11.0 $ $118.9 $11.1 $ $119.5 $11.6 $ year Total $1,112.3 $101.0 $32.82 Medicare Savings from Selected Clinical Laboratory Services Page 14

20 Source: Dobson DaVanzo analysis of Physician Supplier Procedure Summary File Table 12 presents results of our assumption that 75 percent of the averted QW tests are now performed in the laboratory. This assumption results in a savings offset of $401.4 million, which includes $302.9 million for the procedures and $98.5 million for the accompanying confirmation tests. Table 12: Expenditures for 75 Percent Shift of Averted CLIA Waived CPT Tests to the Laboratory Setting (in millions) Year Baseline Lab Expenditures Confirmation Expenditures Historic 2004 $3.7 $0.0 $ $6.0 $0.0 $ $11.0 $0.0 $ $20.7 $0.0 $0.0 Projected 2008 $39.2 $0.0 $ $65.5 $0.0 $ $86.6 $14.4 $ $100.0 $27.5 $ $108.1 $30.9 $ $112.7 $31.8 $ $114.9 $32.1 $ $116.0 $32.4 $ $117.2 $32.7 $ $118.4 $33.1 $ $118.9 $33.4 $ $119.5 $34.7 $ year Total $1,112.3 $302.9 $ Source: Dobson DaVanzo analysis of Physician Supplier Procedure Summary File Potential Savings Using these projection models, we can develop an estimate of potential savings for Medicare that might result from implementing a payment threshold for the number of CLIA waived test strips that can be billed per patient visit. As modeled, total savings would range from $562.1 million to $829.7 million over the ten year period, depending on the number of QW procedures that return to the laboratory setting. Table 13 shows the savings for each projection model discussed above. Medicare Savings from Selected Clinical Laboratory Services Page 15

21 Table 13: Potential Savings to the Medicare Program as 25 Percent and 75 Percent of Averted Tests Move to the Laboratory (in millions) Savings Component 25% of Averted Tests Moved to Lab 75% of Averted Tests Moved to Lab Total Averted Tests and Confirmation (A+B) $963.5 $963.5 (A) Averted QW in Office $401.4 $401.4 (B) Averted corresponding Confirmation Tests $562.1 $562.1 Total Offset for Averted Tests Moved to the Lab (C+D) $133.8 $401.4 (C) Tests Moved to Lab $101.0 $302.9 (D) Corresponding Conformation Tests $32.8 $98.5 Total Medicare Program Savings (A + B) (C + D) $829.7 $562.1 Source: Dobson DaVanzo analysis of Physician Supplier Procedure Summary File V. Summary Limiting the number of waived strip tests (80101 QW) that can be billed separately to Medicare would have the effect of: 1. reducing utilization of CLIA waived tests in the physician s office; 2. reducing program payments for all remaining CLIA waived tests in the physician s office; and 3. reducing the number of confirmation tests then needed to be performed in the laboratory. After accounting for savings offsets (costs), we estimate the 10 year savings of this payment policy change to range between $562.1and $829.7 million. Medicare Savings from Selected Clinical Laboratory Services Page 16

22 Appendix A: List of Confirmation Test Codes HCPCS Description Benzodiazepine Amphetamine Barbiturate Cocaine THC Buprenorphine, Methadone, Propoxyphene, Ethyl Glucuronide, Tramadol Meperidine Fentanyl, Opiates, Oxycodone/Oxymorphone Medicare Savings from Selected Clinical Laboratory Services Page A-1