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ACLA Says Cuts in Medicare Lab Payments Could Hurt Nascent Personalized Dx Segment

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Originally published Feb. 20.

By Turna Ray

The clinical laboratory
testing market will take a Medicare payment hit, according to provisions in a bill that both houses of Congress passed last week and sent off to President Barack Obama for enactment.

The American Clinical Laboratory Association decried the 2 percent decrease in Medicare reimbursement to clinical labs included in the "Middle Class Tax Relief and Job Creation Act of 2012," or the so-called payroll tax deal. ACLA said the reduced payments will hurt the lab testing industry, with particular implications for the small but rapidly growing personalized medicine sector.

The new cut adds to reductions that the lab industry already faces from the healthcare reform law, known formally as the Patient Protection and Affordable Care Act, which includes provisions to reduce Medicare reimbursement for lab services by 19 percent over 10 years. The payroll tax bill, which legislative experts are saying the President will likely sign into law, decreases the payment amount to clinical labs by an additional 2.4 percent.

ACLA criticized the bill for forcing the lab industry to "bear a vastly disproportionate share," or around 13.5 percent, of the $20 billion needed to cushion the 27 percent Medicare payment cut that doctors would have had to bear this year. In the payroll tax deal, Congress decided to delay the reimbursement decrease for doctors for another year.

The Centers for Medicare & Medicaid Services has frozen or reduced payments to labs through the clinical lab fee schedule between 2003 and 2012. Comparatively, Medicare payments for physicians have increased during that time, according to ACLA.

Although lab tests comprise a very small portion of Medicare spending, industry observers have often noted that such tests influence the majority of healthcare decisions in the US. "Doctors use laboratory test results to make 70 percent of their treatment decisions," ACLA said in a statement. "But lab services represent only 1.6 percent of Medicare spending ($8.1 billion in 2010.)"

Wall Street's reaction to the reimbursement cuts doesn't bode well for two of the largest clinical labs in the US. "We believe that these potential unexpected cuts highlight ongoing pricing risk to the US clinical lab industry in an environment centered on austerity and reducing healthcare costs," Goldman Sachs analyst Isaac Ro wrote in a note last week. Ro maintained a "sell" rating on Quest and the Laboratory Corporation of America.

Given these "unexpected" events, Ro said Goldman Sachs would keep a "cautious view" on the clinical lab industry relative to the life sciences tools and diagnostics market.

Medicare currently reimburses few molecular diagnostics used in personalized medicine settings, but that segment of the broader lab testing market is expected to grow. As a result, ACLA believes that slashing reimbursement for a nascent segment of the industry may have ill effects for job creation and investments. Citing figures from a study prepared by Battelle Memorial Institute on its behalf, ACLA noted that the genetic testing industry created 116,000 jobs, accounting for $6 billion in income, for US workers in 2009. The same year, the industry contributed $16.5 billion in national economic output.


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