Quest Diagnostics 2003 Annual Report Download - page 34

adopted as proposed, it could potentially reduce the amounts reimbursed to us by Medicare and other federal
payers or affect the fees we charge to other payers and could also be costly for us to administer.
The 1997 Balanced Budget Act permits CMS to adjust statutorily prescribed fees for some medical
services, including clinical laboratory services, if the fees are “grossly excessive.’’ In December 2002, CMS
issued an interim final rule setting forth a process and factors for establishing a “realistic and equitable’’
payment amount for all Medicare Part B services (except physician services and services paid under a
prospective payment system) when the existing payment amounts are determined to be inherently unreasonable.
Payment amounts may be considered unreasonable because they are either grossly excessive or deficient. We
cannot provide any assurances to investors that fees payable by Medicare could not be reduced as a result of
the application of this rule or that the government might not assert claims for reimbursement by purporting to
retroactively apply this rule or the OIG interpretation concerning “usual charges.’’
Currently, Medicare does not require the beneficiary to pay a co-payment for clinical laboratory testing.
When co-payments were last in effect before adoption of the clinical laboratory services fee schedules in 1984,
clinical laboratories received from Medicare carriers only 80% of the Medicare allowed amount and were
required to bill Medicare beneficiaries for the unpaid balance of the Medicare allowed amount. If re-enacted, a
co-payment requirement could adversely affect the revenues of the clinical laboratory industry, including us, by
exposing the testing laboratory to the credit of individuals and by increasing the number of bills. In addition, a
laboratory could be subject to potential fraud and abuse violations if adequate procedures to bill and collect the
co-payments are not established and followed. The Medicare reform bill approved by the United State Senate in
June 2003 included a co-payment provision, under which clinical laboratories would receive from Medicare
carriers only 80% of the Medicare allowed amount for clinical laboratory tests and would be required to bill
Medicare beneficiaries for the 20% balance of the Medicare allowed amount. The co-payment provision was
dropped from the bill as passed (known as Prescription Drug, Improvement, and Modernization Act of 2003),
although the final legislation did include (as discussed above) a five year freeze on adjustments to the Medicare
national fee schedule based on the consumer price index. Certain Medicaid programs do provide co-payments
for clinical laboratory testing.
Reduced Utilization of Clinical Laboratory Testing. In recent years, CMS has taken several steps to
reduce utilization of clinical laboratory testing. Since 1995, Medicare carriers have adopted policies under which
they do not pay for many commonly ordered clinical tests unless the ordering physician has provided an
appropriate diagnosis code supporting the medical necessity of the test. Physicians are required by law to
provide diagnostic information when they order clinical tests for Medicare and Medicaid patients. However,
CMS has not prescribed any penalty for physicians who fail to provide diagnostic information to laboratories.
Moreover, regulations adopted in accordance with HIPAA require submission of diagnosis codes as part of the
standard claims transaction.
We are generally permitted to bill patients directly for some statutorily excluded clinical laboratory services.
If a patient signs an advance beneficiary notice, or ABN, we are also generally permitted to bill patients for
clinical laboratory tests that Medicare does not cover due to “medical necessity’’ limitations (these tests include
limited coverage tests for which the ordering physician did not provide an appropriate diagnosis code and
certain tests ordered on a patient at a frequency greater than covered by Medicare). An ABN is a notice signed
by the beneficiary which documents the patient’s informed decision to personally assume financial liability for
laboratory tests which are likely to be not covered by Medicare because they are deemed to be not medically
necessary. We do not have any direct contact with most of these patients and, in such cases, cannot control the
proper use of the ABN by the physician or the physician’s office staff. If the ABN is not timely provided to
the beneficiary or is not completed properly, we end up performing tests that we cannot subsequently bill to the
patient if they are not reimbursable by Medicare due to coverage limitations.
Inconsistent Practices. Currently, many different local carriers administer Medicare. They have inconsistent
policies on matters such as: (1) test coverage; (2) automated chemistry panels; (3) diagnosis coding; (4) claims
documentation; and (5) fee schedules (subject to the national fee schedule limitations). Inconsistent carrier rules
and policies have increased the complexity of the billing process for clinical laboratories. As part of the 1997
Balanced Budget Act, HHS was required to adopt uniform policies on the above matters by January 1, 1999,
and replace the current local carriers with no more than five regional carriers. Although HHS has finalized a
number of uniform test coverage/diagnosis coding policies, it has not taken any final action to replace the local
carriers with five regional carriers. However, in November 2000, CMS published a solicitation in the Commerce
Business Daily seeking two contractors to process Part B clinical laboratory claims. In the solicitation, CMS
stated that the Secretary has decided to limit the number of carriers processing clinical diagnostic laboratory test
claims to two contractors. The solicitation indicated that the request for proposals, or RFP, would be released
17