Quest Diagnostics 2005 Annual Report Download - page 34

payment adjustment of less than 15% is needed to produce a realistic and equitable payment amount, then the
payment amount is not considered “grossly excessive or deficient.’’ However, if a determination is made that a
payment adjustment of 15% or more is justified, CMS could provide an adjustment of less than 15%, but not
more than 15%, in any given year. 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 States 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 the Medicare Prescription Drug, Improvement, and Modernization
Act of 2003). We cannot provide any assurances to investors that Congress would not seek to re-impose a
copayment requirement payable by Medicare beneficiaries for clinical laboratory services. Certain Medicaid
programs already require Medicaid recipients to pay co-payment amounts 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 this 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 denied and not reimbursed 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 may 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 to 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.
Carrier Jurisdiction Changes for Lab-to-Lab Referrals. On October 31, 2003, CMS announced its
intention to change the manner in which Medicare contractors currently process claims for lab-to-lab referrals of
clinical laboratory tests. While laboratories are, under certain criteria, permitted to directly bill Medicare for
clinical laboratory tests they refer to other laboratories, they must be reimbursed at the correct fee schedule
amount based on the Medicare fee schedule in effect in the Medicare carrier region in which the test was
actually performed. Historically, laboratories needed to enroll with and file claims to multiple carriers in order
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