[Federal Register Volume 81, Number 121 (Thursday, June 23, 2016)]
[Rules and Regulations]
[Pages 41036-41101]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-14531]



[[Page 41035]]

Vol. 81

Thursday,

No. 121

June 23, 2016

Part III





Department of Health and Human Services





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Centers for Medicare & Medicaid Services





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42 CFR Part 414





Medicare Program; Medicare Clinical Diagnostic Laboratory Tests Payment 
System; Final Rule

Federal Register / Vol. 81 , No. 121 / Thursday, June 23, 2016 / 
Rules and Regulations

[[Page 41036]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 414

[CMS-1621-F]
RIN 0938-AS33


Medicare Program; Medicare Clinical Diagnostic Laboratory Tests 
Payment System

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Final rule.

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SUMMARY: This final rule implements requirements of section 216 of the 
Protecting Access to Medicare Act of 2014 (PAMA), which significantly 
revises the Medicare payment system for clinical diagnostic laboratory 
tests. This final rule also announces an implementation date of January 
1, 2018 for the private payor rate-based fee schedule required by PAMA.

DATES: These regulations are effective on August 22, 2016.

FOR FURTHER INFORMATION CONTACT: Marie Casey, (410) 786-7861 or Karen 
Reinhardt (410) 786-0189 for issues related to the local coverage 
determination process for clinical diagnostic laboratory tests. Valerie 
Miller, (410) 786-4535 or Sarah Harding, (410) 786-4001 for all other 
issues.

SUPPLEMENTARY INFORMATION: To assist readers in referencing sections 
contained in this document, we are providing the following Table of 
Contents.

Table of Contents

I. Executive Summary and Background
    A. Executive Summary
    1. Purpose and Legal Authority
    2. Summary of the Major Provisions of this Final Rule
    3. Summary of Costs and Benefits
    B. Background
    1. The Medicare Clinical Laboratory Fee Schedule (CLFS)
    2. Statutory Bases for Changes in Payment, Coding, and Coverage 
Policies for Clinical Diagnostic Laboratory Tests (CDLT)
II. Provisions of the Proposed Rule and Analysis and Response to 
Comments
    A. Definition of Applicable Laboratory
    B. Definition of Applicable Information
    C. Definition of Advanced Diagnostic Laboratory Tests (ADLTs) 
and New ADLTs
    1. Definition of ADLT
    2. Definition of New ADLT
    D. Data Collection and Data Reporting
    1. Definitions
    2. General Data Collection and Data Reporting Requirements
    3. Data Reporting Requirements for New ADLTs
    E. Data Integrity
    1. Penalties for Non-Reporting
    2. Data Certification
    F. Confidentiality and Public Release of Limited Data
    G. Coding for Certain Clinical Diagnostic Laboratory Tests 
(CDLTs) on the CLFS
    1. Background
    2. Coding Under PAMA
    a. Temporary Codes for Certain New Tests
    b. Coding and Publication of Payment Rates for Existing Tests
    c. Establishing Unique Identifiers for Certain Tests
    H. Payment Methodology
    1. Calculation of Weighted Median
    2. Phased-In Payment Reduction
    3. Payment for New ADLTs
    4. Recoupment of Payment for New ADLTs if Actual List Charge 
Exceeds Market Rate
    5. Payment for Existing ADLTs
    6. Payment for New CDLTs That Are Not ADLTs
    a. Definitions
    b. Crosswalking and Gapfilling
    c. Proposal
    d. Crosswalking and Gapfilling
    e. Public Consultation Procedures
    7. Medicare Payment for Tests Where No Applicable Information Is 
Reported
    I. Local Coverage Determination Process and Authority To 
Designate Medicare Administrative Contractors for Clinical 
Diagnostic Laboratory Tests
    J. Other Provisions
    1. Advisory Panel on Clinical Diagnostic Laboratory Tests
    2. Exemption From Administrative and Judicial Review
    3. Sample Collection Fee
III. Collection of Information Requirements
IV. Waiver of Proposed Notice and Comment Rulemaking
V. Regulatory Impact Analysis Regulation Text

Acronyms

    Because of the many terms to which we refer by acronym in this 
final rule, we are listing these abbreviations and their corresponding 
terms in alphabetical order below:

ADLT Advanced Diagnostic Laboratory Test
CCN CMS Certification Number
CDLT Clinical Diagnostic Laboratory Test
CEO Chief Executive Officer
CFR Code of Federal Regulations
CLFS Clinical Laboratory Fee Schedule
CLIA Clinical Laboratory Improvement Amendments of 1988
CMP Civil Monetary Penalty
CMS Centers for Medicare & Medicaid Services
CPT American Medical Association's Current Procedural Terminology
CR Change Request
CY Calendar Year
DNA Deoxyribonucleic Acid
FDA Food and Drug Administration
HCPCS Healthcare Common Procedure Coding System
HHA Home Health Agency
HIPAA Health Insurance Portability and Accountability Act of 1996
IRS Internal Revenue Service
LCD Local Coverage Determination
MAC Medicare Administrative Contractor
NCD National Coverage Determination
NLA National Limitation Amount
NOC Not Otherwise Classified
NPI National Provider Identifier
OPPS Hospital Outpatient Prospective Payment System
PAMA Protecting Access to Medicare Act of 2014
PFS Physician Fee Schedule
Q1 First Quarter
Q2 Second Quarter
Q3 Third Quarter
Q4 Fourth Quarter
RNA Ribonucleic Acid
SNF Skilled Nursing Facility
TIN Taxpayer Identification Number

I. Executive Summary and Background

A. Executive Summary

1. Purpose and Legal Authority
    Since 1984, Medicare has paid for clinical diagnostic laboratory 
tests (CDLTs) on the Clinical Laboratory Fee Schedule (CLFS) under 
section 1833(h) of the Social Security Act (the Act). Section 216(a) of 
the Protecting Access to Medicare Act of 2014 (PAMA) (Pub. L. 113-93, 
enacted on April 1, 2014) added section 1834A to the Act. The statute 
requires extensive revisions to the Medicare payment, coding, and 
coverage requirements for CDLTs, as well as creates a new subcategory 
of CDLTs called Advanced Diagnostic Laboratory Tests (ADLTs) with 
separate reporting and payment requirements. In this final rule, we 
present our policies for implementing the requirements of section 1834A 
of the Act.
2. Summary of the Major Provisions
    Section 1834A of the Act significantly changes how CMS will set 
Medicare payment rates for CDLTs that are paid for under the CLFS. In 
general, with certain designated exceptions, the statute requires that 
the payment amount for CDLTs furnished on or after January 1, 2017, be 
equal to the weighted median of private payor rates determined for the 
test, based on certain data reported by laboratories during a specified 
data collection period. Different reporting and payment requirements 
will apply to a subset of CDLTs that are determined to be ADLTs. The 
most significant policies adopted in this final rule include the 
following (more detailed descriptions follow the bulleted list):
     The implementation date for CLFS rates based on the 
weighted median of private payor rates.

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     The definition of ``applicable laboratory''.
     The definition of ``reporting entity'' (the entity that 
must report applicable information).
     The definition of ``applicable information'' (the specific 
data that must be reported).
     The definition of ADLT.
     Data collection and data reporting schedules.
     Data integrity.
     Confidentiality and public release of limited data.
     Coding for certain CDLTs.
     The payment methodology for CDLTs.
     The local coverage determination (LCD) process and the 
authority to designate Medicare Administrative Contractors (MACs) for 
clinical diagnostic laboratory tests.
    Section 1834A(b)(1)(A) of the Act requires that, for a CDLT 
furnished on or after January 1, 2017, the amount Medicare pays for the 
CDLT must be equal to the weighted median of private payor rates for 
the CDLT. After considering public comments recommending that we revise 
the implementation date of the CLFS, we have decided to move the 
implementation date to January 1, 2018. Thus, for a CDLT furnished on 
or after January 1, 2018, the amount Medicare pays will be equal to the 
weighted median of private payor rates for the CDLT.
    Under the authority of section 1834A(a)(2) of the Act, which 
requires applicable laboratories to report applicable information to 
CMS to be used in establishing the new CLFS payment rates, we proposed 
to define an applicable laboratory as an entity that: (1) Reports tax-
related information to the Internal Revenue Service (IRS) under a 
Taxpayer Identification Number (TIN) with which all of the National 
Provider Identifiers (NPIs) in the entity are associated; (2) is itself 
a laboratory, as defined in Sec.  493.2, or, if it is not itself a 
laboratory, has at least one component that is a laboratory, as defined 
in Sec.  493.2, for which the entity reports tax-related information to 
the IRS using its TIN; (3) in a data collection period, receives, 
collectively with its associated NPI entities, more than 50 percent of 
its Medicare revenues from the CLFS or Physician Fee Schedule (PFS); 
(4) for the data collection period from July 1, 2015 through December 
31, 2015, receives, collectively with its associated NPI entities, at 
least $25,000 of its Medicare revenues from the CLFS; and (5) for all 
subsequent data collection periods receives, collectively with its 
associated NPI entities, at least $50,000 of its Medicare revenues from 
the CLFS.
    After considering the comments we received, we are retaining some 
aspects of the proposed definition and revising others. In this final 
rule, the applicable laboratory is defined at the NPI level, rather 
than the TIN level, so we have removed the pieces of the definition 
that refer to the TIN-level entity. However, we are retaining the TIN-
level entity as the ``reporting entity'' (now defined separately from 
the applicable laboratory), which is responsible for reporting 
applicable information for all of its component NPI-level entities that 
meet the definition of applicable laboratory. We are retaining the 
``majority of Medicare revenues'' threshold, but it will be applied to 
the NPI-level entity, rather than the TIN-level entity. We are 
finalizing a low expenditure threshold, but we are revising the amount 
because the threshold will be applied at the NPI level as opposed to 
the TIN level and will reflect a 6-month data collection period instead 
of a full calendar year. Under our final policy, if a laboratory 
receives less than $12,500 of its Medicare revenues from the CLFS 
during the data collection period, it is excluded from the definition 
of applicable laboratory. For a single laboratory that offers and 
furnishes an ADLT, the $12,500 threshold will not apply with respect to 
the ADLT. This means, if the laboratory otherwise meets the definition 
of applicable laboratory, whether or not it meets the low expenditure 
threshold, it will be considered an applicable laboratory with respect 
to the ADLT it offers and furnishes, and must report applicable 
information for its ADLT. If it does not meet the threshold, it will 
not be considered an applicable laboratory with respect to all the 
other CDLTs it furnishes.
    The statute requires the following applicable information to be 
reported for each test on the CLFS an applicable laboratory performs: 
(1) The payment rate that was paid by each private payor for each test 
during the data collection period; and (2) the volume of such tests for 
each such payor. We proposed to use the term ``private payor rate'' in 
the context of applicable information, instead of ``payment rate,'' to 
minimize confusion because we typically use the term payment rate to 
generically refer to the amount paid under the CLFS. We also proposed 
that the private payor rate reflect the price for a test prior to 
application of any deductible or coinsurance amounts owed by the 
patient. In this final rule we are adopting these policies as final. We 
proposed that only applicable laboratories may report applicable 
information. We are also finalizing that requirement, but rephrasing it 
in the regulation to conform to our final policy that reporting 
entities, rather than applicable laboratories, will be reporting 
applicable information.
    Section 1834A(d)(5) of the Act specifies criteria for defining an 
ADLT and authorizes the Secretary to establish additional criteria. We 
proposed to apply the criteria specified in statute, but not any 
additional criteria under the statutory authority conferred upon the 
Secretary, and are finalizing that proposal in this final rule. In 
addition, in the proposed rule, we defined an ADLT, in part, to be a 
molecular pathology analysis of multiple biomarkers of deoxyribonucleic 
acid (DNA), or ribonucleic acid (RNA). However, in response to public 
comments, we are removing the requirement that the test be a molecular 
pathology analysis and permitting protein-only based tests to also 
qualify for ADLT status.
    We proposed that the initial data collection period would be July 
1, 2015, through December 31, 2015, and that all subsequent data 
collection periods would be a full calendar year, from January 1 
through December 31. After consideration of the comments we received, 
and because we no longer need to implement a shortened time frame for 
the initial data reporting period in light of our moving the 
implementation date of the revised CLFS to January 1, 2018, we are 
adopting the policy that all data collection periods are 6 months long, 
from January 1 through June 30. Further, we proposed that all 
applicable information, except applicable information for new ADLTs, 
would be reported to us in a data reporting period that would begin on 
January 1 and end on March 31 of the year following the data collection 
period. We are finalizing this policy in this final rule. However, 
because we are finalizing that reporting entities, and not applicable 
laboratories, must report applicable information, we have revised the 
final data reporting requirements regulation accordingly.
    We proposed that the applicable information for new ADLTs must be 
reported initially to us by the end of the second quarter of the new 
ADLT initial period, which we are finalizing. We also proposed that the 
new ADLT initial period would be a period of 3 calendar quarters that 
begins on the first full calendar quarter following the first day on 
which a new ADLT is performed. After consideration of public comments, 
we are revising this policy and

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requiring, instead, that the data collection period for a new ADLT will 
begin on the first day of the first full calendar quarter following the 
latter of either the date a Medicare Part B coverage determination is 
made or ADLT status is granted by us.
    The statute specifies that if, after a new ADLT initial period, the 
Secretary determines the payment amount that was applicable during the 
initial period (the test's actual list charge) was greater than 130 
percent of the payment amount that is applicable after such period 
(based on private payor rates), the Secretary shall recoup the 
difference between those payment amounts for tests furnished during the 
initial period. We proposed to recoup the entire amount of the 
difference between the actual list charge and the weighted median 
private payer rate. After consideration of public comments, we are 
revising our proposed policy so that, for tests furnished during the 
new ADLT initial period, we will pay up to 130 percent of the weighted 
median private payor rate. That is, if the actual list charge is 
subsequently determined to be greater than 130 percent of the weighted 
median private payor rate, we will recoup the difference between the 
actual list charge and 130 percent of the weighted median private payer 
rate.
    We proposed to apply a civil monetary penalty (CMP) to an 
applicable laboratory that fails to report or that makes a 
misrepresentation or omission in reporting applicable information. We 
proposed to require all data to be certified by the President, Chief 
Executive Officer (CEO), or Chief Financial Officer (CFO) of an 
applicable laboratory before it is submitted to CMS. As required by 
section 1834A(a)(10) of the Act, certain information disclosed by a 
laboratory under section 1834A(a) of the Act is confidential and may 
not be disclosed by the Secretary or a Medicare contractor in a form 
that reveals the identity of a specific payor or laboratory, or prices, 
charges or payments made to any such laboratory, with several 
exceptions. We are revising the certification and CMP policies in the 
final rule to require that the accuracy of the data be certified by the 
President, CEO, or CFO of the reporting entity, or an individual who 
has been delegated to sign for, and who reports directly to such an 
officer. Similarly, the reporting entity will be subject to CMPs for 
the failure to report or the misrepresentation or omission in reporting 
applicable information. Additionally, we are updating the CMP amount to 
reflect changes required by the Federal Civil Penalties Inflation 
Adjustment Act Improvements Act of 2015 (Sec. 701 of the Bipartisan 
Budget Act of 2015, Pub. L. 114-74, November 2, 2015).
    We proposed to use G codes, which are part of the Healthcare Common 
Procedure Coding System (HCPCS) we use for programmatic purposes, to 
temporarily identify new ADLTs and new laboratory tests that are 
cleared or approved by the Food and Drug Administration (FDA). The 
temporary codes would be in effect for up to 2 years until a permanent 
HCPCS code is established except if the Secretary determines it is 
appropriate to extend the use of the temporary code. We are finalizing 
this policy in this final rule.
    As required by section 1834A(b) of the Act, payment amounts for 
laboratory tests on the CLFS will be determined by calculating a 
weighted median of private payor rates using reported private payor 
rates and associated volume (number of tests). For tests that were paid 
on the CLFS prior to the implementation of section 1834A of the Act, 
PAMA requires that any reduction in payment amount be phased in over 
the first 6 years of payment under the new system. For new ADLTs, 
initial payment will be based on the actual list charge of the test for 
3 calendar quarters; thereafter, the payment rate will be determined 
using the weighted median of private payor rates and associated volume 
(number of tests) reported every year. For new and existing tests for 
which we receive no applicable information to calculate a weighted 
median, we proposed that payment rates be determined by using 
crosswalking or gapfilling methods. These methods of determining 
payment were discussed in the proposed rule (80 FR 59404). We are 
finalizing these policies in this final rule.
    Section 1834A(g)(2) of the Act authorizes the Secretary to 
designate one or more (not to exceed four) MACs to establish coverage 
policies, or establish coverage policies and process claims, for CDLTs. 
As noted in section II.I of the proposed rule, we requested public 
comment on the benefits and disadvantages of implementing this 
discretionary authority before making proposals on this topic. While we 
proposed no changes to the CDLT LCD development and implementation 
processes or claims processing functions in this final rule, our review 
of the comments received and our response to comments is contained in 
section II.I below.
3. Summary of Costs and Benefits
    In section VI. of this final rule, we provide a regulatory impact 
analysis that, to the best of our ability, describes the expected 
impact of the policies we are adopting in this final rule. These 
policies, which implement section 1834A of the Act, include a process 
for collecting the applicable information of applicable laboratories 
for CDLTs. We note that, because such data are not yet available, we 
are limited in our ability to provide estimated impacts of the payment 
policies under different scenarios. However, we believe this final rule 
is an economically significant rule because we believe that the changes 
to how CLFS payment rates will be developed will overall decrease 
payments to entities paid under the CLFS. Accordingly, in section IV., 
we have prepared a Regulatory Impact Analysis that, to the best of our 
ability, presents the costs and benefits of the rulemaking.

B. Background

1. The Medicare Clinical Laboratory Fee Schedule (CLFS)
    Currently, under sections 1832, 1833(a), (b), and (h), and 1861 of 
the Act, CDLTs furnished on or after July 1, 1984 in a physician's 
office, by an independent laboratory, or in limited circumstances by a 
hospital laboratory for its outpatients or non-patients are paid under 
the Medicare CLFS, with certain exceptions. Under these sections, tests 
are paid the lesser of (1) the billed amount, (2) the local fee 
schedule amount established by the Medicare contractor, or (3) a 
National Limitation Amount (NLA), which is a percentage of the median 
of all the local fee schedule amounts (or 100 percent of the median for 
new tests furnished on or after January 1, 2001). In practice, most 
tests are paid at the NLA.
    Under the current system, the CLFS amounts are updated for 
inflation based on the percentage change in the Consumer Price Index 
for all urban consumers (CPI-U) and reduced by a multi-factor 
productivity adjustment (see section 1833(h)(2)(A) of the Act). For CY 
2015, under section 1833(h)(2)(A)(iv)(II) of the Act, we also reduced 
the update amount by 1.75 percentage points. In the past, we have 
implemented other adjustments or did not apply the change in the CPI-U 
to the CLFS for certain years in accordance with statutory mandates. We 
do not otherwise have authority to update or change the payment amounts 
for tests on the CLFS. Generally, coinsurance and deductibles do not 
apply to CDLTs paid under the CLFS.
    For any CDLT for which a new or substantially revised HCPCS code 
has been assigned on or after January 1, 2005, we determine the basis 
for and

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amount of payment based on one of two methodologies--crosswalking and 
gapfilling (see section 1833(h)(8) of the Act and Sec. Sec.  414.500 
through 414.509). The crosswalking methodology is used when a new test 
is comparable in terms of test methods and resources to an existing 
test code, multiple existing test codes, or a portion of an existing 
test code on the CLFS. In such a case, we assign the new test code the 
local fee schedule amount and the NLA of the existing test and pay for 
the new test code at the lesser of the local fee schedule amount or the 
NLA. Gapfilling is used when no comparable test exists on the CLFS. 
Under gapfilling, the MACs establish local payment amounts for the new 
test code using the following sources of information, if available: (1) 
Charges for the test and routine discounts to charges; (2) resources 
required to perform the test; (3) payment amounts determined by other 
payors; and (4) charges, payment amounts, and resources required for 
other tests that may be comparable or otherwise relevant. Under this 
gapfilling methodology, an NLA is calculated after a year of payment at 
the local contractor rates, based on the median of rates for the test 
code across all MACs. Once an NLA is established, in most cases, we can 
only reconsider the crosswalking or gapfilling basis and/or amount of 
payment for new tests for one additional year after the basis or 
payment is initially set. Once the reconsideration process is complete, 
payment cannot be further adjusted (except by a change in the CPI-U, 
the productivity adjustment, and any other adjustments required by 
statute).
    In 2014, Medicare paid approximately $7 billion for CDLTs. As the 
CLFS has grown from approximately 400 tests to over 1,300 tests, some 
test methods have become outdated and some tests may no longer be 
priced appropriately. For example, some tests have become more 
automated and cheaper to perform, with little need for manual 
interaction by laboratory technicians, while more expensive and complex 
tests have been developed that bear little resemblance to the simpler 
tests that were performed at the inception of the CLFS.
2. Statutory Bases for Changes in Payment, Coding, and Coverage 
Policies for Clinical Diagnostic Laboratory Tests
    Section 1834A of the Act, as added by section 216(a) of PAMA, 
requires extensive revisions to the Medicare payment, coding, and 
coverage requirements for CDLTs. In this section, we describe the major 
provisions of section 1834A of the Act, which we are implementing in 
this final rule.
    Section 1834A(a)(1) of the Act requires reporting of private payor 
payment rates for CDLTs made to applicable laboratories to establish 
Medicare payment rates for tests paid under the CLFS. Applicable 
information must be reported to the Secretary, at a time specified by 
the Secretary and for a designated data collection period, for each 
CDLT an applicable laboratory furnishes during such period for which 
Medicare payment is made. Section 1834A(a)(2) of the Act defines the 
term ``applicable laboratory'' to mean a laboratory that receives a 
majority of its Medicare revenues from sections 1834A or 1833(h) of the 
Act (the statutory authorities under which CLFS payments are or will be 
made), or section 1848 of the Act (the authority under which PFS 
payments are made). Section 1834A(a)(2) of the Act also provides that 
the Secretary may establish a low volume or low expenditure threshold 
for excluding a laboratory from the definition of an applicable 
laboratory, as the Secretary determines to be appropriate.
    Section 1834A(a)(3)(A) of the Act defines the term ``applicable 
information'' as the payment rate that was paid by each private payor 
for each CDLT and the volume of such tests for each such payor for the 
data collection period. Under section 1834A(a)(5) of the Act, the 
payment rate reported by a laboratory must reflect all discounts, 
rebates, coupons, and other price concessions, including those 
described in section 1847A(c)(3) of the Act regarding the average sales 
price for Part B drugs or biologicals. Section 1834A(a)(6) of the Act 
further specifies that, where an applicable laboratory has more than 
one payment rate for the same payor for the same test, or more than one 
payment rate for different payors for the same test, each such payment 
rate and the volume for the test at each such rate must be reported. 
The paragraph also provides that, beginning January 1, 2019, the 
Secretary may establish rules to aggregate reporting in situations 
where a laboratory has more than one payment rate for the same payor 
for the same test, or more than one payment rate for different payors 
for the same test. Under section 1834A(a)(3)(B) of the Act, information 
about laboratory tests for which payment is made on a capitated basis 
or other similar payment basis is not considered ``applicable 
information'' and is therefore excluded from the reporting 
requirements.
    Section 1834A(a)(4) of the Act defines the term ``data collection 
period'' as a period of time, such as a previous 12-month period, 
specified by the Secretary. Section 1834A(a)(7) of the Act requires 
that an officer of each laboratory must certify the accuracy and 
completeness of the applicable information reported. Section 
1834A(a)(8) of the Act defines the term ``private payor'' as a health 
insurance issuer and a group health plan (as such terms are defined in 
section 2791 of the Public Health Service Act), a Medicare Advantage 
plan under Medicare Part C, or a Medicaid managed care organization (as 
defined in section 1903(m) of the Act).
    Section 1834A(a)(9)(A) of the Act authorizes the Secretary to apply 
a CMP in cases where the Secretary determines that an applicable 
laboratory has failed to report, or made a misrepresentation or 
omission in reporting, applicable information under section 1834A(a) of 
the Act for a CDLT. In these cases, the Secretary may apply a CMP in an 
amount of up to $10,000 per day for each failure to report or each such 
misrepresentation or omission. Section 1834A(a)(9)(B) of the Act 
further provides that the provisions of section 1128A of the Act (other 
than subsections (a) and (b)) shall apply to a CMP under this paragraph 
in the same manner as they apply to a CMP or proceeding under section 
1128A(a) of the Act. Section 1128A of the Act governs CMPs that apply 
in general under federal health care programs. Thus, the provisions of 
section 1128A of the Act (specifically sections 1128A(c) through 
1128A(n) of the Act) apply to a CMP under section 1834A(a)(9) of the 
Act in the same manner as they apply to a CMP or proceeding under 
section 1128A(a) of the Act. That is, the existing CMP provisions apply 
to the laboratory data collection process under 1834A of the Act, just 
as the CMP provisions are applied now to other processes, such as the 
Medicare Part B and Medicaid drug data collection processes under 
sections 1847A and 1927 of the Act.
    Section 1834A(a)(10) of the Act addresses the confidentiality of 
the information reported to the Secretary. Specifically, the paragraph 
provides that, notwithstanding any other provision of law, information 
disclosed under the data reporting requirements is confidential and 
shall not be disclosed by the Secretary or a Medicare contractor in a 
form that discloses the identity of a specific payor or laboratory, or 
prices charged, or payments made to any such laboratory, except: (1) As 
the Secretary determines to be necessary to carry out this section; (2) 
to permit the Comptroller General to review the information provided; 
(3) to permit the Director of the Congressional Budget Office to review 
the information

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provided; and (4) to permit the Medicare Payment Advisory Commission 
(MedPAC) to review the information provided. Section 1834A(a)(11) of 
the Act further states that a payor shall not be identified on 
information reported under the data reporting requirements, and that 
the name of an applicable laboratory shall be exempt from disclosure 
under the Freedom of Information Act, 5 U.S.C. 552(b)(3).
    Section 1834A(a)(12) of the Act requires the Secretary to establish 
parameters for the data collection under section 1834A(a) of the Act 
through notice and comment rulemaking no later than June 30, 2015.
    Section 1834A(b) of the Act establishes a new methodology for 
determining Medicare payment rates for CDLTs. Section 1834A(b)(1)(A) of 
the Act provides that, in general, the payment amount for a CDLT 
(except for new ADLTs and new CDLTs) furnished on or after January 1, 
2017, shall be equal to the weighted median determined under section 
1834A(b)(2) of the Act for the test for the most recent data collection 
period. Section 1834A(b)(1)(B) of the Act specifies that the payment 
amounts established under this methodology shall apply to a CDLT 
furnished by a hospital laboratory if the test is paid for separately, 
and not as part of a bundled payment under the hospital outpatient 
prospective payment system (OPPS) (section 1833(t) of the Act). Section 
1834A(b)(2) of the Act provides that the Secretary shall calculate a 
weighted median for each test for the data collection period by 
arraying the distribution of all payment rates reported for the period 
for each test weighted by volume for each payor and each laboratory. 
Section 1834A(b)(4)(A) of the Act states that the payment amounts 
established under this methodology for a year following a data 
collection period shall continue to apply until the year following the 
next data collection period. Moreover, section 1834A(b)(4)(B) of the 
Act specifies that the payment amounts established under section 1834A 
of the Act shall not be subject to any adjustment (including any 
geographic adjustment, budget neutrality adjustment, annual update, or 
other adjustment).
    Section 1834A(b)(3) of the Act requires a phase-in of any reduction 
in payment amounts for a CDLT for each year from 2017 through 2022. 
Specifically, section 1834A(b)(3)(A) of the Act requires that the 
payment amounts determined under the new methodology for a CDLT for 
each of 2017 through 2022 shall not result in a reduction in payments 
for that test for the year that is greater than the ``applicable 
percent'' of the payment amount for the test for the preceding year. 
Section 1834A(b)(3)(B) of the Act defines these maximum applicable 
percent reductions as follows: For each of 2017 through 2019, 10 
percent; and for each of 2020 through 2022, 15 percent. However, 
section 1834A(b)(3)(C) of the Act specifies that this payment reduction 
limit shall not apply to a new CDLT under section 1834A(c)(1) of the 
Act, or to a new ADLT, as defined in section 1834A(d)(5) of the Act.
    Section 1834A(b)(5) of the Act increases by $2 the nominal fee that 
would otherwise apply under section 1833(h)(3)(A) of the Act for a 
sample collected from an individual in a Skilled Nursing Facility (SNF) 
or by a laboratory on behalf of a Home Health Agency (HHA). This 
provision has the effect of raising the sample collection fee from $3 
to $5 when the sample is being collected from an individual in a SNF or 
by a laboratory on behalf of an HHA.
    Section 1834A(d)(5) of the Act defines an ADLT to mean a CDLT 
covered under Medicare Part B that is offered and furnished only by a 
single laboratory and not sold for use by a laboratory other than the 
original developing laboratory (or a successor owner) and meets one of 
the following criteria: (1) The test is an analysis of multiple 
biomarkers of deoxyribonucleic acid (DNA), ribonucleic acid (RNA), or 
proteins combined with a unique algorithm to yield a single patient-
specific result; (2) the test is cleared or approved by the FDA; or (3) 
the test meets other similar criteria established by the Secretary.
    Section 1834A(d)(1)(A) of the Act provides that, in the case of an 
ADLT for which payment has not been made under the CLFS prior to April 
1, 2014 (PAMA's enactment date), during an initial 3 quarters, the 
payment amount for the test shall be based on the actual list charge 
for the test. Section 1834A(d)(1)(B) of the Act defines the term 
``actual list charge'' for purposes of this provision to mean the 
publicly available rate on the first day at which the test is available 
for purchase by a private payor. For the reporting requirements for 
such tests, under section 1834A(d)(2) of the Act, an applicable 
laboratory will initially be required to comply with the data reporting 
requirements under section 1834A(a) of the Act by the last day of the 
second quarter (Q2) of the initial 3 quarter period. Section 
1834A(d)(3) of the Act requires that, after this initial period, the 
data reported under paragraph 1834A(d)(2) of the Act shall be used to 
establish the payment amount for an ADLT described in section 
1834A(d)(1)(A) of the Act using the payment methodology for CDLTs under 
section 1834A(b) of the Act. This payment amount shall continue to 
apply until the year following the next data collection period.
    Section 1834A(d)(4) of the Act addresses recoupment of payment for 
new ADLTs if the actual list charge exceeds the subsequently 
established payment amount based on market rates. Specifically, it 
provides that, if the Secretary determines after the initial period 
that the payment amount for a new ADLT based on the actual list charge 
was greater than 130 percent of the payment rate that is calculated 
using the payment methodology for CDLTs under section 1834A(b) of the 
Act, the Secretary shall recoup the difference for tests furnished 
during that initial period.
    Section 1834A(c) of the Act provides for payment of new tests that 
are not ADLTs. Specifically, section 1834A(c)(1) of the Act provides 
that, in the case of a CDLT that is assigned a new or substantially 
revised HCPCS code on or after April 1, 2014 (PAMA's enactment date), 
and which is not an ADLT (as defined in section 1834A(d)(5) of the 
Act), during an initial period until payment rates under section 
1834A(b) of the Act are established for the test, payment for the test 
shall be determined on the basis of crosswalking or gapfilling. Section 
1834A(c)(1)(A) of the Act requires application of the crosswalking 
methodology described in Sec.  414.508(a) (or any successor regulation) 
to the most appropriate existing test under the CLFS during that 
period. Section 1834A(c)(1)(B) of the Act provides that, if no existing 
test is comparable to the new test, the gapfilling process described in 
section 1834A(c)(2) of the Act shall be applied. Section 1834A(c)(2) of 
the Act states that this gapfilling process must take into account the 
following sources of information to determine gapfill amounts, if 
available: charges for the test and routine discounts to charges; 
resources required to perform the test; payment amounts determined by 
other payors; charges, payment amounts, and resources required for 
other tests that may be comparable or otherwise relevant; and other 
criteria the Secretary determines to be appropriate. Section 
1834A(c)(3) of the Act further requires that, in determining the 
payment amount under crosswalking or gapfilling processes, the 
Secretary must consider recommendations from the panel

[[Page 41041]]

established under section 1834A(f)(1) of the Act. In addition, section 
1834A(c)(4) of the Act provides that, in the case of a new CDLT that is 
not an ADLT, the Secretary shall make available to the public an 
explanation of the payment rate for the new test, including an 
explanation of how the gapfilling criteria and panel recommendations 
described in paragraphs (2) and (3) of section 1834A(c) of the Act are 
applied.
    Section 1834A(e) of the Act sets out coding requirements for 
certain new and existing tests. Specifically, section 1834A(e)(1)(A) of 
the Act requires the Secretary to adopt temporary HCPCS codes to 
identify new ADLTs (as defined in section 1834A(d)(5) of the Act) and 
new laboratory tests that are cleared or approved by the FDA. Section 
1834A(e)(1)(B) of the Act addresses the duration of these temporary new 
codes. Section 1834A(e)(1)(B)(i) of the Act requires the temporary code 
to be effective until a permanent HCPCS code is established (but not to 
exceed 2 years), subject to an exception under section 
1834A(e)(1)(B)(ii) of the Act that permits the Secretary to extend the 
temporary code or establish a permanent HCPCS code, as the Secretary 
determines appropriate.
    Section 1834A(e)(2) of the Act addresses coding for certain 
existing tests. This section requires that, not later than January 1, 
2016, the Secretary shall assign a unique HCPCS code and publicly 
report the payment rate for each existing ADLT (as defined in section 
1834A(d)(5) of the Act) and each existing CDLT that is cleared or 
approved by the FDA for which payment is made under Medicare Part B as 
of April 1, 2014 (PAMA's enactment date), if such test has not already 
been assigned a unique HCPCS code. In addition, section 1834A(e)(3) of 
the Act requires the establishment of unique identifiers for certain 
tests. Specifically, for purposes of tracking and monitoring, if a 
laboratory or a manufacturer requests a unique identifier for an ADLT 
or a laboratory test that is cleared or approved by the FDA, the 
Secretary shall use a means to uniquely track such test through a 
mechanism such as a HCPCS code or modifier.
    Section 1834A(f) of the Act addresses requirements for input from 
clinicians and technical experts on issues related to CDLTs. In 
particular, section 1834A(f)(1) of the Act requires the Secretary to 
consult with an expert outside advisory panel that is to be established 
by the Secretary no later than July 1, 2015. This advisory panel must 
include an appropriate selection of individuals with expertise, which 
may include molecular pathologists, researchers, and individuals with 
expertise in clinical laboratory science or health economics, or in 
issues related to CDLTs, which may include the development, validation, 
performance, and application of such tests. Under section 
1834A(f)(1)(A) of the Act, this advisory panel is required to provide 
input on the establishment of payment rates under section 1834A of the 
Act for new CDLTs, including whether to use crosswalking or gapfilling 
processes to determine payment for a specific new test, and the factors 
to be used in determining coverage and payment processes for new CDLTs. 
Section 1834A(f)(1)(B) of the Act states that the panel may provide 
recommendations to the Secretary under section 1834A of the Act. 
Section 1834A(f)(2) of the Act requires the panel to comply with the 
requirements of the Federal Advisory Committee Act (5 U.S.C. App.). A 
notice announcing the establishment of the Advisory Panel on CDLTs and 
soliciting nominations for members was published in the October 27, 
2014 Federal Register (79 FR 63919 through 63920). The panel's first 
public meeting was held on August 26, 2015. Information regarding the 
Advisory Panel on CDLTs is available at https://www.cms.gov/Regulations-and-Guidance/Guidance/FACA/AdvisoryPanelonClinicalDiagnosticLaboratoryTests.html.
    Section 1834A(f)(3) of the Act requires that the Secretary continue 
to convene the annual meeting described in section 1833(h)(8)(B)(iii) 
of the Act after the implementation of section 1834A of the Act, for 
purposes of receiving comments and recommendations (and data on which 
the recommendations are based) on the establishment of payment amounts 
under section 1834A of the Act.
    Section 1834A(g) of the Act addresses issues related to coverage of 
CDLTs. Section 1834A(g)(1)(A) of the Act requires that coverage 
policies for CDLTs, when issued by a MAC, be issued in accordance with 
the LCD process, which we have outlined in Chapter 13 of the Medicare 
Program Integrity Manual.
    In addition, section 1834A(g)(1)(A) of the Act states that the 
processes governing the appeal and review of CDLT-related LCDs shall 
continue to follow the general rules for LCD review established by CMS 
in regulations at 42 CFR part 426.
    Section 1834A(g)(1)(B) of the Act states that the CDLT-related LCD 
provisions referenced in section 1834A(g) of the Act do not apply to 
the national coverage determination (NCD) process (as defined in 
section 1869(f)(1)(B) of the Act). Section 1834A(g)(1)(C) of the Act 
specifies that the provisions pertaining to the LCD process for CDLTs, 
including appeals of LCDs, shall apply to coverage policies issued on 
or after January 1, 2015.
    In addition, section 1834A(g)(2) of the Act authorizes the 
Secretary to designate one or more (not to exceed four) MACs to either 
establish LCDs for CDLTs, or to both establish CDLT-related LCDs and 
process Medicare claims for payment for CDLTs, as determined 
appropriate by the Secretary.
    Section 1834A(h)(1) of the Act states that there shall be no 
administrative or judicial review under sections 1869, 1878, or 
otherwise, of the establishment of payment amounts under section 1834A 
of the Act. Section 1834A(h)(2) of the Act provides that the Paperwork 
Reduction Act in chapter 35 of title 44 of the U.S.C. shall not apply 
to information collected under section 1834A of the Act.
    Section 1834A(i) of the Act states that during the period beginning 
on the date of enactment of section 1834A of the Act (April 1, 2014) 
and ending on December 31, 2016, the Secretary shall use the 
methodologies for pricing, coding, and coverage for ADLTs in effect on 
the day before this period. This may include crosswalking or gapfilling 
methods.

II. Provisions of the Proposed Regulations and Responses to Public 
Comments

    We received approximately 1,300 public comments from individuals, 
health care providers, corporations, government agencies, trade 
associations, and major laboratory organizations. The following are the 
proposed provisions, a summary of the public comments we received 
related to each proposal, and our responses to the comments.

A. Definition of Applicable Laboratory

    Section 1834A(a)(1) of the Act requires an ``applicable 
laboratory'' to report applicable information for a data collection 
period for each CDLT the laboratory furnishes during the period for 
which payment is made under Medicare Part B. The statute requires 
reporting to begin January 1, 2016, and to take place every 3 years 
thereafter for CDLTs, and every year thereafter for ADLTs. Section 
1834A(a)(2) of the Act defines an applicable laboratory as a laboratory 
that receives a majority of its Medicare revenues from section 1834A 
and section 1833(h) (the statutory authorities for the CLFS) or section 
1848 (the statutory authority for the PFS) of the Act. Section 
1834A(a)(2) of the Act

[[Page 41042]]

also allows the Secretary to establish a low volume or low expenditure 
threshold for excluding a laboratory from the definition of an 
applicable laboratory, as the Secretary determines appropriate.
    In establishing a regulatory definition for ``applicable 
laboratory,'' we considered the following issues: (1) How to define 
``laboratory;'' (2) what it means to receive a majority of Medicare 
revenues from sections 1834A, 1833(h), or 1848 of the Act; (3) how to 
apply the majority of Medicare revenues criterion; and (4) whether to 
establish a low volume or low expenditure threshold to exclude an 
entity from the definition of applicable laboratory.
    First, we considered what a laboratory is, and we incorporated our 
understanding of that term in our proposed definition of applicable 
laboratory. The CLFS applies to a wide variety of laboratories (for 
example, national chains, physician offices, hospital laboratories, 
etc.), and we believed it was important that we define laboratory 
broadly enough to encompass every laboratory type that is subject to 
the CLFS.
    We searched for existing statutory definitions of ``laboratory'' 
that could be appropriate to use for the revised CLFS. However, section 
1834A of the Act does not define laboratory, nor is it defined 
elsewhere in the Medicare statute. So we looked to the Clinical 
Laboratory Improvement Amendments of 1988 (CLIA) for a definition. CLIA 
applies to all laboratories performing testing on human specimens for a 
health purpose, including but not limited to those seeking payment 
under the Medicare and Medicaid programs (Sec.  493.1). To be paid 
under Medicare, a laboratory must be CLIA-certified (Sec.  410.32(d) 
and part 493). Therefore, we believed it was appropriate to use the 
CLIA definition of laboratory at Sec.  493.2 for our purposes of 
defining laboratory within the term applicable laboratory. We did not 
consider alternative definitions of laboratory as we were not able to 
identify alternative definitions that would be appropriate for 
consideration under section 1834A of the Act.
    CLIA defines a laboratory as a facility for the biological, 
microbiological, serological, chemical, immunohematological, 
hematological, biophysical, cytological, pathological, or other 
examination of materials derived from the human body for the purpose of 
providing information for the diagnosis, prevention, or treatment of 
any disease or impairment of, or the assessment of the health of, human 
beings. These examinations also include procedures to determine, 
measure, or otherwise describe the presence or absence of various 
substances or organisms in the body. Facilities only collecting or 
preparing specimens (or both), or only serving as a mailing service and 
not performing testing, are not considered laboratories, which we 
believed was also appropriate for our purposes. The services of those 
facilities that only collect or prepare specimens or serve as a mailing 
service are not paid on the CLFS. We proposed to incorporate the CLIA 
regulatory definition of laboratory into our proposed definition of 
applicable laboratory in Sec.  414.502 by referring to the CLIA 
definition at Sec.  493.2 to indicate what we mean by laboratory.
    We indicated in the proposed rule that, under the revised payment 
system for CDLTs, an applicable laboratory is the entity that reports 
applicable information to CMS. However, not all entities that meet the 
CLIA regulatory definition of laboratory would be applicable 
laboratories under our proposal. Here, we discuss which entities we 
believe should be required to report applicable information.
    Laboratory business models vary throughout the industry. For 
example, some laboratories are large national networks with multiple 
laboratories under one parent entity. Some laboratories are single, 
independent laboratories that operate individually. Some entities, such 
as hospitals or large practices, include laboratories as well as other 
types of providers and suppliers. We proposed that an applicable 
laboratory is an entity that itself is a laboratory under the CLIA 
definition or is an entity that includes a laboratory (for example, a 
health care system that is comprised of one or more hospitals, 
physician offices, and reference laboratories). Within our proposed 
definition of applicable laboratory, we indicated that if the entity is 
not itself a laboratory, it has at least one component that is a 
laboratory, as defined in Sec.  493.2.
    We proposed that, whether an applicable laboratory is itself a 
laboratory or is an entity that has at least one component that is a 
laboratory, the applicable laboratory would be required to report 
applicable information. Entities that enroll in Medicare must provide a 
TIN, which we use to identify the entity of record that is authorized 
to receive Medicare payments. The TIN-level entity is the entity that 
reports tax-related information to the Internal Revenue Service (IRS). 
When an entity reports to the IRS, the entity and its components are 
all associated with that entity's TIN. We would rely on the TIN as the 
mechanism for defining the entity we consider to be the applicable 
laboratory. Therefore, we proposed that the TIN-level entity is the 
applicable laboratory.
    We explained that each component of the TIN-level entity that is a 
covered health care provider under the Health Insurance Portability and 
Accountability Act of 1996 (HIPAA) regulations will have an NPI. The 
NPI is the HIPAA standard unique health identifier for health care 
providers adopted by HHS (Sec.  162.406). Health care providers, which 
include laboratories that transmit any health information in electronic 
form in connection with a HIPAA transaction for which the Secretary has 
adopted a standard, are required to obtain NPIs and use them according 
to the NPI regulations at 45 CFR part 162, subpart D. When the TIN-
level entity reports tax-related information to the IRS, it does so for 
itself and on behalf of its component NPI-level entities. We indicated 
this in the proposed definition of applicable laboratory by stating 
that the applicable laboratory is the entity that reports tax-related 
information to the IRS under a TIN with which all of the NPIs in the 
entity are associated. We also proposed to define TIN and NPI in Sec.  
414.502 by referring to definitions already in the Code of Federal 
Regulations.
    We considered defining an applicable laboratory at the NPI level 
instead of the TIN level. Some stakeholders indicated that, because 
they bill Medicare by NPI and not TIN, the NPI would be the most 
appropriate level for reporting applicable information to Medicare. 
However, because the purpose of the revised Medicare payment system is 
to base CLFS payment amounts on private payor rates for CDLTs, which we 
expect would be negotiated at the level of the entity's TIN, as 
described previously, and not by individual laboratory locations at the 
NPI level, we proposed that an applicable laboratory be defined at the 
level of a TIN. Further, numerous stakeholders suggested that the TIN 
represents the entity negotiating pricing and is the entity in the best 
position to compile and report applicable information across its 
multiple NPIs when there are multiple NPIs associated with a TIN. We 
stated in the proposed rule that we believed defining an applicable 
laboratory by TIN rather than by NPI would result in the same 
applicable information being reported, and would require reporting by 
fewer entities, and therefore, would be less burdensome to applicable 
laboratories. In addition, we stated that we did not believe reporting 
at the TIN level would affect or diminish the quality of the applicable 
information reported. To the

[[Page 41043]]

extent the information is accurately reported, reporting at a higher 
organizational level should produce exactly the same applicable 
information as reporting at a lower level. Therefore, we proposed to 
define applicable laboratory by TIN rather than by NPI.
    We also considered whether to separate the mechanics of reporting 
from the definition of an applicable laboratory. For example, we 
considered allowing or requiring a corporate entity with multiple TINs 
to provide applicable information for all of its TINs along with a list 
of component TINs. Under this approach, the corporate entity would 
report each distinct private payor rate and the associated volume 
across all component TINs instead of each component TIN reporting 
separately. Thus, if the same rate was paid by a private payor in two 
or more of the corporate entity's component TINs, the entity would 
report the private payor rate once and the associated sum of the volume 
of that test across the component TINs. We stated in the proposed rule 
that we believed this approach may be operationally less burdensome 
than submitting separate data files by TIN or NPI. We also stated that 
we did not believe such reporting would affect the quality of the 
applicable information because we should still arrive at the same 
weighted median for each test. We opted not to propose this option, 
however, because we are not familiar enough with the corporate 
governance of laboratories to know whether this even higher level of 
reporting would be a desirable or practical option for the industry and 
whether it would affect the quality of the applicable information we 
would receive.
    Next, we considered what it means for an applicable laboratory to 
receive a majority of Medicare revenues from sections 1834A, 1833(h), 
or 1848 of the Act. We proposed to define Medicare revenues to be 
payments received from the Medicare program, which would include fee-
for-service payments under Medicare Parts A and B, as well as Medicare 
Advantage payments under Medicare Part C, and prescription drug 
payments under Medicare Part D, and any associated Medicare beneficiary 
deductible or coinsurance amounts for Medicare services furnished 
during the data collection period. We applied the standard meaning of 
``majority,'' which is more than 50 percent. Under our proposal, in 
deciding whether an entity meets the majority criterion of the 
applicable laboratory definition, it would examine its Medicare 
revenues from sections 1834A, 1833(h), and 1848 of the Act to determine 
if those revenues (including any beneficiary deductible and coinsurance 
amounts), whether from only one or a combination of all three sources, 
constitute more than 50 percent of its total revenues under the 
Medicare program for the data collection period. In determining its 
Medicare revenues from sections 1834A, 1833(h), and 1848 of the Act, 
the entity would not include Medicare payments made to hospital 
laboratories for tests furnished for admitted hospital inpatients or 
registered hospital outpatients because payments for these patient care 
services are made under the statutory authorities of section 1886(d) of 
the Act (for the Hospital Inpatient Prospective Payment System (IPPS)) 
and section 1833(t) of the Act (for the OPPS), respectively, not 
sections 1834A, 1833(h), or 1848 of the Act. In other words, an entity 
would need to determine whether its Medicare revenues from laboratory 
services billed on Form CMS 1500 (or its electronic equivalent) and 
paid under the current CLFS (section 1833(h) of the Act), the CLFS 
under PAMA (section 1834A of the Act), and the PFS (section 1848 of the 
Act) constitute more than 50 percent of its total Medicare revenues for 
the data collection period.
    Moreover, for the entity evaluating whether it is an applicable 
laboratory, the ``majority of Medicare revenues'' determination would 
be based on the collective amount of its Medicare revenues received 
during the data collection period, whether the entity is a laboratory 
under Sec.  493.2 or is a larger entity that has at least one component 
that is a laboratory. We proposed that the determination of whether an 
entity is an applicable laboratory would be made across the entire 
entity, including all component NPI entities, and not just those NPI 
entities that are laboratories. We proposed to specify in the 
definition of applicable laboratory that an applicable laboratory is an 
entity that receives, collectively with its associated NPI entities, 
more than 50 percent of its Medicare revenues from one or a combination 
of the following sources: 42 CFR part 414, subpart G; and 42 CFR part 
414, subpart B. The regulatory citations we proposed to include in the 
definition are the regulatory payment provisions that correspond to the 
three statutory provisions named in section 1834A(a)(2), that is, 
sections 1834A, 1833(h), and 1848 of the Act.
    We noted that section 1834A(a)(1) of the Act only mandates 
reporting from entities meeting the definition of an applicable 
laboratory. We stated in the proposed rule that we believed the purpose 
of only mandating applicable laboratories to report applicable 
information is to ensure we use only their applicable information to 
determine payment rates under the CLFS beginning January 1, 2017, and 
not information from entities that do not meet the definition of 
applicable laboratory. We believed that, by specifying that only 
applicable laboratories must report applicable information, and 
specifying in the definition of applicable laboratory that an 
applicable laboratory must receive the majority of its Medicare 
revenues from PFS or CLFS services, the statute limits reporting 
primarily to independent laboratories and physician offices (other than 
those that meet the low expenditure or low volume threshold, if 
established by the Secretary) and does not include other entities (such 
as hospitals or other health care providers) that do not receive the 
majority of their revenues from PFS or CLFS services. For this reason, 
we proposed to prohibit any entity that does not meet the definition of 
applicable laboratory from reporting applicable information to CMS, 
which we reflect in paragraph (g) of the proposed data reporting 
requirements in Sec.  414.504.
    We stated that we expected most entities that fall above or below 
the ``majority of Medicare revenues'' threshold will tend to maintain 
that status through the course of their business. However, it is 
conceivable that an entity could move from above to below the 
threshold, or vice-versa, through the course of its business so that, 
for example, for services furnished in one data collection period, an 
entity might be over the ``majority of Medicare revenues'' threshold, 
but below the threshold in the next data collection period. We proposed 
that an entity that otherwise meets the criteria for being an 
applicable laboratory, would have to report applicable information if 
it is above the threshold in the given data collection period. Some 
entities will not know whether they exceed the threshold until after 
the data collection period is over; in that case, they would have to 
retroactively assess their Medicare revenues during the 3-month data 
reporting period. However, we expected that most entities will know 
whether they exceed the threshold long before the end of the data 
collection period. Under our proposal, an entity would need to 
reevaluate its status as to whether it falls above or below the 
``majority of Medicare revenues'' threshold for every data collection 
period, that is, every year for ADLTs and every 3 years for all other 
CDLTs. We proposed this requirement would be

[[Page 41044]]

reflected in the definition of applicable laboratory in Sec.  414.502.
    Finally, we proposed to establish a low expenditure threshold for 
excluding an entity from the definition of applicable laboratory, as 
permitted under section 1834A(a)(2) of the Act, and we included that 
threshold in our proposed definition of applicable laboratory in Sec.  
414.502. We stated in the proposed rule that we believed it is 
important to achieve a balance between collecting sufficient data to 
calculate a weighted median that appropriately reflects the private 
market rate for a test, and minimizing the reporting burden for 
entities that receive a relatively small amount of revenues under the 
CLFS. We expected many of the entities that meet the low expenditure 
threshold will be physician offices and will have relatively low 
revenues for laboratory tests paid under the CLFS.
    For purposes of determining the low expenditure threshold, we 
reviewed Medicare payment amounts for physician office laboratories and 
independent laboratories from CY 2013 Medicare CLFS claims data. In the 
proposed rule, we noted that, although the statute uses the term 
``expenditure,'' in this discussion, we would use the term ``revenues'' 
because, from the perspective of applicable laboratories, payments 
received from Medicare are revenues rather than expenditures, whereas 
expenditures refer to those same revenues, but from the perspective of 
Medicare (that is, to Medicare, those payments are expenditures). In 
our analysis, we assessed the number of billing physician office 
laboratories and independent laboratories that would otherwise qualify 
as applicable laboratories, but would be excluded from the definition 
under various revenue thresholds. We did not include in our analysis 
hospitals whose Medicare revenues are generally under section 1833(t) 
of the Act for outpatient services and section 1886(d) of the Act for 
inpatient services, as these entities are unlikely to meet the proposed 
definition of applicable laboratory.
    We found that, with a $50,000 revenue threshold, the exclusion of 
data from physician office laboratories and independent laboratories 
with total CLFS revenues below that threshold, did not materially 
affect the quality and sufficiency of the data we needed to set rates. 
In other words, we were able to substantially reduce the number of 
entities that would be required to report (94 percent of physician 
office laboratories and 52 percent of independent laboratories) while 
retaining a high percentage of Medicare utilization (96 percent of CLFS 
spending on physician office laboratories and more than 99 percent of 
CLFS spending on independent laboratories) from applicable laboratories 
that would be required to report. In the proposed rule, we indicated 
that we did not believe excluding certain entities with CLFS revenues 
below a $50,000 threshold would have a significant impact on the 
weighted median private payor rates.
    With this threshold, using Medicare utilization data, we estimated 
that only 17 tests would have utilization completely attributed to 
laboratories not reporting because they fell below a $50,000 threshold. 
We understand that Medicare claims data are not representative of the 
volume of laboratory tests furnished in the industry as a whole; 
however, we believed this was the best information available to us for 
the purpose of determining a low expenditure threshold for the proposed 
rule. Therefore, we proposed that any entity that would otherwise be an 
applicable laboratory, but that receives less than $50,000 in Medicare 
revenues under section 1834A and section 1833(h) of the Act for 
laboratory tests furnished during a data collection period, would not 
be an applicable laboratory for the subsequent data reporting period. 
In determining whether its Medicare revenues from sections 1834A and 
1833(h) are at least $50,000, the entity would not include Medicare 
payments made to hospital laboratories for tests furnished for hospital 
inpatients or hospital outpatients. In other words, an entity would 
need to determine whether its Medicare revenues from laboratory tests 
billed on Form CMS 1500 (or its electronic equivalent) and paid under 
the current CLFS (under section 1833(h) of the Act) and the revised 
CLFS (under section 1834A of the Act) are at least $50,000. We proposed 
that if an applicable laboratory receives, collectively with its 
associated NPI entities (which would include all types of NPI entities, 
not just laboratories), less than $50,000 in Medicare revenues for CLFS 
services paid on Form CMS 1500 (or its electronic equivalent), the 
entity would not be an applicable laboratory.
    As discussed in the proposed rule (80 FR 59399), we proposed an 
initial data collection period of July 1, 2015, through December 31, 
2015 (all subsequent data collection periods would be a full calendar 
year). In conjunction with the shortened data collection period for 
2015, we proposed to specify that, during the data collection period of 
July 1, 2015, through December 31, 2015, to be an applicable 
laboratory, an entity must have received at least $25,000 of its 
Medicare revenues from the CLFS, as set forth in 42 CFR part 414, 
subpart G. During each subsequent data collection period, to be an 
applicable laboratory, an entity would have to receive at least $50,000 
of its Medicare revenues from the CLFS, as set forth in 42 CFR part 
414, subpart G.
    We stated that, as with the ``majority of Medicare revenues'' 
threshold, some entities will not know whether they meet the low 
expenditure threshold, that is, if they receive at least $50,000 in 
Medicare CLFS revenues in a data collection period (or $25,000 during 
the initial data collection period) until after the data collection 
period is over; in that case, they would have to retroactively assess 
their total Medicare CLFS revenues during the subsequent 3-month data 
reporting period. However, for many entities, it will be clear whether 
they exceed the low expenditure threshold even before the end of the 
data collection period. Under our proposal, an entity would need to 
reevaluate its status as to the $50,000 low expenditure threshold 
during each data collection period, that is, every year for ADLTs and 
every three years for all other CDLTs. We proposed to codify the low 
expenditure threshold requirement as part of the definition of 
applicable laboratory in Sec.  414.502.
    We did not propose a low volume threshold. As indicated in the 
proposed rule, once we obtain applicable information under the new 
payment system, we may decide to reevaluate the threshold options in 
future years and propose different or revised policies, as necessary, 
which we would do through notice and comment rulemaking.
    In summary, we proposed to define an applicable laboratory to mean 
an entity that reports tax-related information to the IRS under a TIN 
with which all of the NPIs in the entity are associated. An applicable 
laboratory would either itself be a laboratory, as defined in Sec.  
493.2, or, if it is not itself a laboratory, have at least one 
component that is. In a data collection period, an applicable 
laboratory must have received, collectively with its associated NPI 
entities, more than 50 percent of its Medicare revenues from either the 
CLFS or PFS. For the data collection period from July 1, 2015 through 
December 31, 2015, for purposes of calculating CY 2017 payment rates, 
the applicable laboratory must have received, collectively with its 
associated NPI entities, at least $25,000 of its Medicare revenues from 
the CLFS, and for all subsequent data collection periods, at least 
$50,000 of its Medicare revenues from the CLFS. We proposed to codify

[[Page 41045]]

this definition of applicable laboratory in Sec.  414.502.
    A discussion of the comments we received on our proposed definition 
of applicable laboratory and our responses to those comments are 
provided below.
    Comment: While some commenters agreed with our proposal to 
designate applicable laboratories according to an entity's TIN, many 
objected. Those that objected asserted overwhelmingly that defining an 
applicable laboratory using the TIN would exclude hospital laboratories 
from the definition of applicable laboratory because, in calculating 
the applicable laboratory's majority of Medicare revenues amount, which 
looks at the percentage of Medicare revenues from the PFS and CLFS 
across the entire TIN-level entity, virtually all hospital laboratories 
would not be considered an applicable laboratory. Commenters stated 
that hospital laboratories compete with independent laboratories and 
therefore must be able to report private payor rates in order for CMS 
to more accurately reflect the private payor market for laboratory 
services under the revised CLFS.
    Many commenters expressed particular concern about the exclusion of 
hospital outreach laboratories under our proposed definition of 
applicable laboratory. Commenters asserted that hospital outreach 
laboratories, which do not provide laboratory services to hospital 
patients, are direct competitors of the broader independent laboratory 
market, and excluding them from the definition of applicable laboratory 
would result in incomplete and inappropriate applicable information, 
which would skew the CLFS payment rates. Commenters maintained that, if 
the majority of all laboratories are not permitted to report private 
payor rate information, CMS's policy would ignore the intent of 
Congress to include all sectors of the laboratory market in 
establishing the new Medicare rates for clinical diagnostic laboratory 
services. Commenters stressed that, in order to set accurate market-
based rates, CMS needs to ensure reporting by a broad scope of the 
laboratory market.
    Response: We believe the statute supports the effective exclusion 
of hospital laboratories by virtue of the majority of Medicare revenues 
criterion in section 1834A(a)(2) of the Act. Section 1834A(a)(2) 
provides that, to qualify as an applicable laboratory, the majority of 
the laboratory's Medicare revenues are derived from the CLFS or the PFS 
(the laboratory's total Medicare revenues being the denominator, and 
revenues from the CLFS and PFS being the numerator in the ratio). Under 
our proposal, an entity would determine its total Medicare payments 
received from the Medicare program, including fee-for-service payments 
under Medicare Parts A and B, as well as Medicare Advantage payments 
under Medicare Part C, and prescription drug payments under Medicare 
Part D, and any associated Medicare beneficiary deductible or 
coinsurance amounts for Medicare services furnished during the data 
collection period. An entity would then calculate its revenues from 
sections 1834A, 1833(h), and 1848 of the Act to determine if those 
revenues (including any beneficiary deductible and coinsurance 
amounts), whether from only one or a combination of all three sources, 
constituted more than 50 percent of its total revenues under the 
Medicare program for the data collection period. Because payments for 
IPPS and OPPS services are made under the statutory authorities of 
sections 1886(d) and 1833(t) of the Act, respectively, not sections 
1834A, 1833(h), or 1848, they would not be included in the numerator of 
the ratio. Most hospital laboratories will not meet the majority of 
revenues threshold because their revenues under the IPPS and OPPS alone 
will likely far exceed the revenues they receive under the CLFS and 
PFS. Therefore, we believe the statute supports limiting reporting 
primarily to independent laboratories and physician offices.
    We agree with commenters, however, that hospital outreach 
laboratories should be accounted for in the new CLFS payment rates. 
Hospital outreach laboratories are laboratories that furnish laboratory 
tests for patients that are not admitted hospital inpatients or 
registered outpatients of the hospital. They are distinguishable from 
hospital laboratories in that they are enrolled in Medicare separately 
from the hospital of which they are a part, that is, they can be 
enrolled as independent laboratories that do not serve hospital 
patients. We believe it is important not to prevent private payor rates 
from being reported for hospital outreach laboratories so that we may 
have a broader representation of the national laboratory market to use 
in setting CLFS payment amounts. We address below how we are revising 
our definition of applicable laboratory to account for hospital 
outreach laboratories.
    Comment: Many commenters recommended that the CLIA certificate, 
rather than the TIN, be used to identify the organizational entity that 
would be considered an applicable laboratory. Under this approach, each 
entity that has a CLIA certificate would be an applicable laboratory. 
They explained that because the denominator of the majority of Medicare 
revenues ratio would only include PFS and CLFS revenues, the 
denominator would more or less equal the numerator of the formula and 
would therefore ensure that an entity exceeded the threshold criterion. 
Another commenter, that requested applicable laboratory be defined by 
the CLIA certificate, suggested the following approach for calculating 
the majority of Medicare revenues amount. If CMS used the CLIA 
certificate to define applicable laboratory, then a hospital 
laboratory's Medicare revenues from PFS and CLFS would be compared to 
the hospital laboratory's total Medicare revenues, including Medicare 
laboratory revenue obtained from inpatient and outpatient hospital 
laboratory sources, as opposed to the hospital's total Medicare 
revenue. Commenters believed this approach would qualify hospital 
laboratories as applicable laboratories, which would allow for the 
reporting of market-based payment rates, as they believe Congress 
intended.
    Response: We considered the commenters' suggestions to define 
applicable laboratory by CLIA certificate. As we indicated above, we do 
not believe it is appropriate to establish an applicable laboratory 
definition to purposely qualify hospital laboratories as applicable 
laboratories. We do, however, distinguish hospital outreach 
laboratories from hospital laboratories (as discussed above), and 
believe we should define applicable laboratory so that hospital 
outreach laboratories would not, in effect, be excluded. In addition to 
the potential for a CLIA certificate-based definition of applicable 
laboratory to be overly inclusive by including all hospital 
laboratories, not just hospital outreach laboratories, we do not agree 
with commenters as to how the majority of Medicare revenues criterion 
would be applied with this option.
    If we used the commenters' suggested approach to define an 
applicable laboratory by CLIA certificate, the majority of Medicare 
revenues criterion would be applied only to the revenues received by 
the laboratory (as identified by its CLIA certificate) and not to the 
entire organization, if the laboratory is part of an organization that 
provides laboratory and other services. For example, in the case of a 
hospital laboratory, the numerator of the majority of Medicare revenues 
ratio would be the revenues the hospital received for the CLFS and PFS 
services furnished in its laboratory, and the denominator would be all 
of the revenues the hospital received for the

[[Page 41046]]

laboratory services provided to hospital inpatients and outpatients. 
However, as laboratory services provided to hospital inpatients and 
outpatients are typically not separately paid, it is unclear to us how 
revenues for these services would be determined for the denominator of 
the ratio. Laboratory services provided to Medicare hospital inpatients 
are not paid on a fee-for-service basis, but rather, are bundled into 
Medicare's IPPS. In addition, beginning January 1, 2014, 3 months prior 
to the enactment of PAMA, CMS began packaging nearly all laboratory 
services performed for registered hospital outpatients into the OPPS. 
Thus, most hospital outpatient laboratory services are also not paid on 
a fee-for-service basis.
    The CLIA certificate is used to certify that a laboratory meets 
applicable health and safety regulations in order to furnish laboratory 
services. CLIA certificates are not associated with Medicare billing 
so, unlike for example, the NPI, with which revenues for specific 
services can easily be identified, the CLIA certificate cannot be used 
to identify revenues for specific services. The TIN, like the NPI, can 
be used to determine revenues and costs for tax purposes where revenues 
for CLFS or PFS services can be distinguished from other Medicare 
revenues. We do not see how a hospital would determine whether its 
laboratories would meet the majority of Medicare revenues threshold 
(and the low expenditure threshold) using the CLIA certificate as the 
basis for defining an applicable laboratory. In addition, given the 
difficulties many hospitals would have in determining whether their 
laboratories are applicable laboratories, we also believe hospitals may 
object to using the CLIA certificate as commenters advocate.
    Comment: One commenter, concerned that our proposed definition of 
applicable laboratory would exclude hospital outreach services, 
suggested an alternative approach so that hospital outreach 
laboratories could potentially be included. Under the commenter's 
approach, the hospital would determine the proportion of its overall 
Medicare revenues attributable to the hospital laboratory and whether 
the hospital laboratory derives a majority of its Medicare revenues 
from the CLFS and PFS. The commenter suggested, in order to determine 
the total Medicare revenues attributed to the hospital laboratory, a 
hospital could establish an adjustment factor based on its payment-to-
charges ratio. The adjustment factor would be applied to the hospital's 
total Medicare revenues received at the TIN level to determine the 
portion of Medicare revenues attributed to the hospital laboratory. The 
hospital would then add the revenues paid under the CLFS and PFS for 
non-hospital patients and for non-bundled outpatient laboratory 
services, the sum of which would be the estimated total Medicare 
revenues attributed to the hospital laboratory (the denominator). Under 
the commenter's approach, the majority of Medicare revenues threshold 
would be applied to the hospital's laboratory rather than to the entire 
hospital. If the hospital laboratory revenues from the PFS and CLFS 
exceeded 50 percent of the hospital laboratory's total Medicare 
revenue, it would meet the majority of Medicare revenues threshold.
    Response: As discussed below, we are defining applicable laboratory 
at the NPI level, which we believe addresses the industry's concern 
that hospital outreach laboratories not be excluded from the definition 
of applicable laboratory. Given this change in how we are defining 
applicable laboratory, we do not believe it is necessary to establish a 
hospital adjustment factor to enable hospital outreach laboratories to 
be applicable laboratories. Hospital outreach laboratories will be able 
to be included as applicable laboratories under the final policy we are 
adopting.
    Comment: Many commenters recommended that the definition of 
applicable laboratory be established at the NPI level rather than the 
TIN level because doing so would increase the number of hospital 
laboratories that would qualify as applicable laboratories. They stated 
that the NPI is included on claims submitted by laboratories and can be 
easily used to determine whether the laboratory meets the majority of 
Medicare revenues criterion for being an applicable laboratory. Other 
commenters were opposed to defining applicable laboratory in terms of 
the NPI because they believed not all laboratories are identified 
separately by an NPI. They stated that very few hospital laboratories 
have laboratory-specific NPIs, even those with robust laboratory 
outreach programs, and laboratory services claims are generally 
submitted under the hospital's NPI. However, commenters that favored 
using the NPI suggested hospital laboratories that function as outreach 
laboratories may enroll in Medicare as independent laboratories, under 
a separate NPI, in which case they could meet the definition of 
applicable laboratory. They believed this approach would ensure that 
hospital outreach laboratories, in particular, would meet the 
definition of applicable laboratory.
    Response: We considered the commenters' suggestions to define 
applicable laboratory by the NPI rather than the TIN. Under this 
approach, the criteria for being an applicable laboratory would be 
applied by each laboratory with an NPI. So, for example, in determining 
whether the majority of Medicare revenues criterion is met, the NPI-
level entity would compare its revenues under the CLFS and PFS to its 
own total Medicare revenues which, in the case of a hospital outreach 
laboratory, could presumably be comprised of only CLFS and PFS 
revenues. A primary benefit to this approach is that it would allow a 
hospital outreach laboratory, either currently enrolled in Medicare as 
an independent laboratory (in which case it would already have its own 
NPI) or that obtains a unique NPI (separate from the hospital) and 
bills for its hospital outreach services (that is, services furnished 
to patients other than inpatients or outpatients of the hospital) using 
its unique NPI, to meet the definition of an applicable laboratory. As 
we discussed above, an advantage of enabling private payor rates to be 
reported for hospital outreach laboratories is that there will be a 
broader representation of the national laboratory market on which to 
base CLFS payment amounts. Hospital laboratories that are not outreach 
laboratories, on the other hand, would be unlikely to get their own NPI 
and bill Medicare for laboratory services because the laboratory 
services they furnish are typically primarily paid for as part of 
bundled payments made to the hospital under the IPPS and OPPS.
    As discussed previously in this section, given that the purpose of 
the revised Medicare payment system is to base CLFS payment amounts on 
private payor rates, which we expect would be negotiated at the level 
of the entity's TIN and not by individual laboratory locations at the 
NPI level, we proposed that an applicable laboratory be defined at the 
TIN level instead of the NPI level. In addition, while we were 
developing the proposed rule, many stakeholders suggested that the TIN-
level entity is the one that negotiates pricing and is in the best 
position to collect private payor rates and report applicable 
information for its multiple NPI-level entities when there are multiple 
NPI-level entities associated with a TIN. Defining applicable 
laboratory in terms of the NPI rather than the TIN, however, is 
consistent with our view that the statute supports limiting reporting 
to primarily independent laboratories and physician office 
laboratories. That is, the statute defines an applicable laboratory as 
a laboratory that receives a majority of its

[[Page 41047]]

Medicare revenues from the PFS and the CLFS, which predominantly 
includes independent laboratories and physician office laboratories.
    However, we proposed to define applicable laboratory in terms of 
the TIN rather than the NPI, in part, to minimize the reporting burden 
on the laboratory industry. We have concerns about the administrative 
burden the reporting requirement may place on applicable laboratories 
by defining applicable laboratories in terms of the NPI. We believe 
that defining applicable laboratory by the NPI, while retaining the 
reporting requirement at the TIN level, will result in the same 
applicable information being reported to CMS, but will require 
reporting by fewer entities, which will be less burdensome to the 
laboratory industry. Therefore, although we are changing the definition 
of applicable laboratory to apply at the NPI level, we are retaining 
the requirement to report applicable information at the TIN level. 
Under this approach, the TIN-level entity will still be required to 
report applicable information to CMS for all of its component NPI-level 
entities that meet the definition of applicable laboratory. We are 
calling these TIN-level entities ``reporting entities'' and are 
establishing a definition in Sec.  414.502, which we discuss in more 
detail in this section.
    We are not prescribing how a reporting entity should coordinate 
with its component applicable laboratories to collect and prepare 
applicable information for submission. The TIN-level entity and any 
NPI-level entities that are applicable laboratories will establish 
their own approach for ensuring that the TIN-level entity reports 
applicable information for laboratory services provided by the NPI-
level entities. However, in deciding how to collect applicable 
information and prepare it for reporting, entities may want to consider 
that, in this final rule, data integrity will be certified for the 
reporting entity under Sec.  414.504(d) (as discussed in section 
II.E.2), and the reporting entity will be the entity to which civil 
penalties may be applied under Sec.  414.504(e) (as discussed in 
section II.E.1). We will provide the details for how applicable 
information is to be reported to CMS through subregulatory guidance.
    In light of the changes described above, we are modifying our 
proposed definition of applicable laboratory at Sec.  414.502. 
Specifically, we are removing the first two requirements from the 
proposed definition that pertained to the TIN-level entity. Because all 
NPI-level entities that qualify as applicable laboratories will be 
laboratories, we are specifying that an applicable laboratory is a 
laboratory as defined in Sec.  493.2 that bills Medicare part B under 
its own NPI. Because we are defining applicable laboratory in terms of 
the NPI rather than the TIN, we are specifying in the definition of 
applicable laboratory that the majority of Medicare revenues threshold 
is to be applied by the NPI-level entity, that is, the applicable 
laboratory, rather than by the TIN-level entity collectively with all 
its associated NPIs.
    In addition, as discussed later in this section, we are revising 
the dollar amount for the low expenditure threshold from $50,000 to 
$12,500, which is also reflected in the revised definition of 
applicable laboratory. And, because the initial data collection period 
will no longer be shorter than the subsequent data collection periods 
(as discussed further below), the definition of applicable laboratory 
will no longer reflect a different low expenditure threshold for the 
initial data collection period. Additionally, as discussed later in 
this section, we are also not applying the low expenditure threshold to 
the single laboratory that offers and furnishes an ADLT with respect to 
that laboratory's ADLTs, so we are adding a provision to that effect.
    Comment: Many commenters suggested that CMS should separate the 
reporting of applicable information from the definition of applicable 
laboratory. Commenters recommended that, even if applicable 
laboratories are defined at the NPI level, the data reporting 
requirement should remain with the TIN-level entity. Some commenters 
who recommended that we identify applicable laboratories by CLIA 
certificate also suggested a bifurcated approach to defining applicable 
laboratory and reporting applicable information whereby applicable 
laboratories would be identified by CLIA certificates, and the 
businesses that own the CLIA certificate-level entities would report 
applicable information in one report by either their TIN or NPI.
    While many commenters supported our proposal for reporting 
applicable information at the TIN level, some commenters also suggested 
that we be flexible in allowing applicable information to be reported 
at the TIN level, the NPI level, or the CLIA certificate level.
    Response: We considered commenters' suggestions to continue to 
require the TIN-level entity to report applicable information even if 
we decided to define the applicable laboratory at a level other than 
the TIN. As discussed above, we are defining applicable laboratory at 
the NPI level, so under the approach suggested by commenters, while the 
NPI-level entity would be the applicable laboratory, the TIN-level 
entity would report the NPI-level entity's applicable information. 
Depending on the entity's organizational structure, sometimes the NPI-
level entity will be a component of the TIN-level entity, but sometimes 
it will itself also be the TIN-level entity, for example, when a 
laboratory, as defined in Sec.  493.2, is not owned by and does not own 
other entities. Therefore, sometimes the applicable laboratory will 
also be the reporting entity.
    We believe that reporting at the TIN level will require reporting 
from fewer entities overall and will therefore be less burdensome to 
all types of applicable laboratories--that is independent laboratories, 
physician office laboratories, and hospital outreach laboratories--than 
would requiring applicable laboratories to report. We indicated in the 
proposed rule (80 FR 59392) that we do not believe reporting at the TIN 
level would affect or diminish the quality of the applicable 
information reported, and we noted that reporting at the higher level 
should produce exactly the same applicable information as reporting at 
the lower level. We still believe that to be the case even though we 
are no longer defining applicable laboratory to be the TIN-level 
entity.
    We do not agree with the comments suggesting we allow applicable 
information to be reported at the TIN level, the NPI level, or the CLIA 
certificate level. We believe such flexibility could result in 
confusion among applicable laboratories as to which entity will be 
reporting for a given data reporting period. For example, under the 
commenters' suggested approach, for an organization in which a TIN-
level entity is comprised of multiple NPI-level entities that meet the 
definition of applicable laboratory, the organization might designate 
an NPI-level entity to report applicable information for the initial 
data reporting period, but might decide to shift the reporting 
responsibility to the another NPI-level entity or the TIN-level entity 
for the next. We are concerned about the possibility of confusion as to 
which entity has reporting responsibilities, which could result in 
duplicative or no reporting.
    For these reasons, we are finalizing our proposal that applicable 
information must be reported by the TIN-level entity. We believe 
section 1834A(a)(1) of the Act supports this final policy. A 
fundamental requirement of the statute is that the applicable 
information of

[[Page 41048]]

applicable laboratories must be reported. While we are operationalizing 
section 1834A(a)(1) of the Act by designating an entity other than the 
applicable laboratory to report, we are adhering to the essential 
requirement of the statute. Accordingly, we are adding the definition 
of reporting entity to Sec.  414.502 to state that the reporting entity 
is the entity that reports tax-related information to the Internal 
Revenue Service using its TIN for its components that are applicable 
laboratories. We are also revising the data reporting requirements in 
Sec.  414.504(a) to require a reporting entity to report applicable 
information for each CDLT furnished by its component applicable 
laboratories.
    Comment: Many commenters requested that laboratories not meeting 
the definition of applicable laboratory still be permitted to 
voluntarily report private payor rates. The commenters urged us to 
consider allowing an option whereby laboratories that do not meet the 
definition of applicable laboratory may still report applicable 
information if they wish to do so. They contend that this option would 
make the new rates under the revised CLFS, which are based on the 
median of private payor rates, more representative of the total 
laboratory market. One commenter stated that our proposal to prohibit 
any entity that does not meet the definition of applicable laboratory 
from reporting applicable information does not appear in the statute 
and is not inferable from the statute. Another commenter suggested that 
an entity, that is not itself an applicable laboratory but that has the 
ability to report applicable information more efficiently and 
effectively than the applicable laboratories it owns or controls, 
should be permitted to do so.
    Response: The statute is clear about the particular information 
that is to be reported and on which we must base the new CLFS payment 
rates. Only applicable information of applicable laboratories is to be 
reported, and section 1834A(a)(3) of the Act indicates that applicable 
information is private payor rate information. The statute imposes 
parameters on the collection and reporting of private payor rate 
information, and section 1834A(b) of the Act specifies that the payment 
amounts for CDLTs are to be based on the median of the private payor 
rate information. As such, we believe the statute supports our policy 
to prohibit information other than statutorily specified private payor 
rate information of applicable laboratories from being reported and 
used to set CLFS payment amounts under the revised CLFS. Therefore, we 
do not agree with the commenters' recommendation to allow voluntary 
reporting. At Sec.  414.504(g), we proposed that an entity that does 
not meet the definition of an applicable laboratory may not report 
applicable information. We are finalizing that requirement, but 
rephrasing it as follows to conform to our final policy that reporting 
entities are distinct from applicable laboratories: Applicable 
information may not be reported for an entity that does not meet the 
definition of an applicable laboratory.
    Comment: Two commenters stated that our proposed low expenditure 
threshold would have a negative effect on the pricing of point of care 
tests provided by physician office laboratories (POLs). Point of care 
tests will be priced by crosswalking or gapfilling methodologies if 
they are only furnished by POLs that are below the low expenditure 
threshold, or they will be priced using only private payor rate 
information furnished by independent laboratories (which only provide a 
minority of these tests), and those rates could be lower than the rates 
paid by private payors to POLs.
    The commenters suggested we establish a POL-dependent test CLFS 
revenue threshold to address POLs performing tests that are performed 
primarily or exclusively in the POL setting. Specifically, they 
proposed that CMS identify test codes for which POLs perform the test 
50 percent or more of the time (by procedure volume). The commenters 
suggested that CMS could identify any POL that would not otherwise meet 
the definition of applicable laboratory (because the laboratory is 
below the low expenditure threshold) but that performs more than a 
significant threshold percentage, as determined by CMS, of the POL-
dependent test. The commenters stated that CMS would contact such POLs 
and require that they report applicable information solely for those 
POL-dependent tests, so POL laboratories would not report applicable 
information for any test codes other than for POL-dependent tests that 
meet the criteria suggested. Furthermore, the POL could decline to 
report if it did not perform the test during the data collection 
period. Additionally, the commenter suggested for the purpose of 
reporting POL-dependent tests, a data collection period should be 
limited to no more than 3 months (or some other appropriate timeframe 
that balances the benefit of enhanced data collection with avoiding 
unnecessary reporting burden on physician offices). Moreover, the 
commenter requested that POL test-dependent laboratories not be liable 
for the civil monetary penalties outlined in the statute for good-faith 
errors in reporting. Under the suggested approach, for each POL-
dependent test code, CMS would combine the data reported by applicable 
laboratories together with the data from POLs meeting the POL-dependent 
test CLFS revenue threshold for that test to determine the weighted 
median private payor amount.
    Response: We considered establishing a POL-dependent test CLFS 
revenue threshold based on criteria we set that could potentially 
achieve the goal of increasing reporting for POL tests. Under this 
approach, we could identify the POL-dependent test codes that a POL 
must report and establish a low volume or low expenditure threshold 
above which a POL would be required to report private payor data. 
Although we acknowledge that, without a POL-dependent test CLFS revenue 
threshold, our payment methodology could result in the use of 
crosswalking or gapfilling instead of private payor data to establish 
rates for tests furnished exclusively in the POL setting, our data show 
that the number of laboratory tests that are exclusively or primarily 
performed by POLs is not significant. Furthermore, as discussed in the 
proposed rule (80 FR 59394), we estimated there are only 17 tests on 
the CLFS for which we would receive no data under our proposed 
definition of applicable laboratory with the low expenditure threshold. 
Therefore, we have decided not to pursue the commenters' suggested 
approach. In addition, we note that the statute does not support 
exempting some laboratories from the application of CMPs, as commenters 
suggest. We also note that we cannot provide information on the effect 
on revenue for POLs without knowing the resulting crosswalked or 
gapfilled amount determined for these tests and what would have been 
paid using the weighted median private payor rate. Although we have 
decided not to establish a POL-dependent test CLFS revenue threshold in 
this final rule, we may revisit the issue in a future rule as we gain 
more programmatic experience under the new CLFS and continue to refine 
payment for laboratory tests under the CLFS.
    Comment: One commenter disagreed with our analysis of the amount of 
data we expect to receive under the proposed low expenditure threshold. 
The commenter stated that it appears the low expenditure threshold 
would result in all laboratories above the low expenditure threshold 
being required to report, despite some payment rate information, such 
as payments made on a capitated or other similar payment

[[Page 41049]]

basis, being statutorily excluded from the definition of applicable 
information. The commenter contended that, without knowledge of 
contractual arrangements between laboratories and private payors, CMS's 
estimation of the amount of applicable information it will be 
collecting, even after applying the low expenditure threshold, is 
undoubtedly overstated. The commenter stated that the quality and 
sufficiency of data needed to set rates is unknown and therefore 
requested a significant decrease in the low expenditure threshold in 
order to ensure the volume of private payor rate data collected is 
sufficient.
    Response: We are not decreasing the low expenditure threshold in 
response to this comment; however, we are decreasing it commensurate 
with the shorter data collection period we are finalizing in this rule, 
as discussed below. We do not agree with the commenter's reasons for 
significantly decreasing the low expenditure threshold. First, a 
significant decrease in the low expenditure threshold could potentially 
result in a significant increase in the reporting burden on the 
laboratory industry without a proportionate improvement in the quality 
and accuracy of the data reported. Second, we continue to believe our 
analysis, which suggests we will receive a very high percentage of 
market data with the low expenditure threshold we proposed, is 
reliable. While we acknowledge that our analysis based on Medicare CLFS 
data is not a perfect proxy for private payor rate data, it reflects 
the type of private payor rates that will be reported as applicable 
information by applicable laboratories. For instance, by excluding 
capitated payments and other similar payments, the statute 
predominately defines applicable information as fee-for-service (FFS) 
private payor rates. Therefore, as discussed later in this section, to 
determine the low expenditure threshold, we reviewed Medicare FFS 
payment amounts from CY 2013 Medicare CLFS claims data. Based on our 
analysis, we found that setting a $12,500 threshold and using data 
collected at the NPI level for a 6-month data collection period, we 
could retain a high percentage of Medicare FFS utilization under the 
CLFS from the applicable information reported for applicable 
laboratories. Further, because CLFS payments will be based on the 
weighted median of private payor rates, additional reporting may not be 
likely to change payment amounts, irrespective of how many additional 
smaller laboratories are required to report, if, as our analysis 
suggests, the largest laboratories dominate the market and therefore 
most significantly affect the payment rates. Once we obtain applicable 
information under the new payment system, we may decide to reevaluate 
the low expenditure threshold in future years and propose a different 
threshold amount through notice and comment rulemaking.
    Comment: One commenter requested that we not apply the low 
expenditure threshold to laboratories that offer and furnish new ADLTs. 
The commenter stated that, by definition, a new ADLT is furnished by a 
single laboratory. Thus, if the laboratory that furnishes the new ADLT 
has under $50,000 in Medicare CLFS revenues, there will be no private 
payor data for the laboratory to report, even though the statute 
specifically includes provisions for reporting private payor data by 
the end of the second quarter of the new ADLT initial period and on 
annual basis thereafter. If no private payor data is reported, payment 
amounts will be determined under gapfilling or crosswalking 
methodologies which, the commenter contends, negates the intention of 
the statute, which is for new ADLTs to be priced based on reported 
private payor rates. Therefore, the commenter believes the low 
expenditure threshold should not apply to those applicable laboratories 
that offer and furnish new ADLTs. However, the commenter requested 
that, if CMS does apply a low expenditure threshold to laboratories 
that offer and furnish new ADLTs, it should do so consistent with the 
proposed low expenditure threshold for the initial data collection 
period, that is, $25,000 in Medicare revenues under the CLFS, in order 
to correspond to the shorter data collection period for ADLTs during 
the new ADLT initial period.
    Response: The statute requires the applicable information of 
applicable laboratories to be reported and defines an applicable 
laboratory as one that derives the majority of its Medicare revenues 
from the PFS and CLFS. The statute also provides the Secretary with the 
authority to establish a low volume or low expenditure threshold as the 
Secretary determines appropriate. As such, the application of the 
majority of Medicare revenues threshold criterion is mandatory for 
defining an applicable laboratory, while the application of the low 
expenditure threshold criterion is discretionary for defining an 
applicable laboratory.
    As noted by the commenter, we would not receive private payor rate 
data from laboratories offering and furnishing an ADLT that have CLFS 
revenues below the low expenditure threshold, which means we would need 
to use crosswalking or gapfilling methodologies to develop a payment 
amount for the test after the new ADLT initial period. Given that the 
statute contemplates private payor rates being reported for ADLTs by 
the end of the second quarter of the new ADLT initial period, we do not 
believe it is appropriate to apply a discretionary threshold if it 
excludes the single laboratory that offers and furnishes an ADLT from 
the definition of an applicable laboratory. If the single laboratory 
offering and furnishing an ADLT is excluded, we would not receive any 
private payor rate data for the test. For this reason, we agree with 
the commenter that the low expenditure threshold should not be applied 
to single laboratories offering and furnishing ADLTs. Therefore, we are 
finalizing a policy to exclude laboratories offering and furnishing 
ADLTs from the low-expenditure threshold, but only with respect to the 
ADLTs offered and furnished by the single laboratory. If the single 
laboratory offering and furnishing an ADLT otherwise meets the 
definition of applicable laboratory, but does not meet the low 
expenditure threshold, that is, even if it receives less than $12,500 
in Medicare revenues from the CLFS during a data collection period, the 
single laboratory would be an applicable laboratory with respect to its 
ADLT, which means its applicable information for the ADLT must be 
reported. However, because we want to minimize the data collection and 
reporting burden for laboratories to the extent we can, with respect to 
the other CDLTs the single laboratory furnishes that are not ADLTs, the 
low expenditure threshold will still apply. This means that the single 
laboratory offering and furnishing an ADLT that does not receive at 
least $12,500 in Medicare CLFS revenues is not an applicable laboratory 
with respect to its CDLTs that are not ADLTs, and it may not report 
information for those other CDLTs. For example, if the single 
laboratory that offers and furnishes an ADLT receives greater than 50 
percent of its Medicare revenue from the CLFS and PFS during a data 
collection period but only receives $10,000 in revenues from the CLFS 
during the data collection period, it would be an applicable laboratory 
only for the purpose of reporting applicable information for the ADLT. 
The single laboratory that offers and furnishes an ADLT would not be an 
applicable laboratory for purposes of the other CDLTs it furnishes that 
are not ADLTs.

[[Page 41050]]

In this circumstance, the single laboratory would report applicable 
information for the ADLT during the data reporting period, but would 
not report applicable information for the other CDLTs it furnishes that 
are not an ADLT. However, if the single laboratory meets the majority 
of Medicare revenue threshold, that is, it receives greater than 50 
percent of its Medicare revenues from the CLFS and PFS during a data 
collection period and also meets the low expenditure threshold, that 
is, it receives at least $12,500 in revenues from the CLFS during the 
data collection period, it would be an applicable laboratory for 
purposes of all of its CDLTs, that is, ADLTs and other CDLTs that are 
not an ADLT, and it would report applicable information for all of its 
tests during the data reporting period. We are revising our definition 
of applicable laboratory in Sec.  414.502 accordingly. We are also 
adding the following statement to Sec.  414.504(g) to account for our 
policy that may result in a single laboratory being an applicable 
laboratory with respect to its ADLTs but not with respect to its other 
CDLTs: For a single laboratory that offers and furnishes an ADLT that 
is not an applicable laboratory except with respect to its ADLTs, the 
applicable information of its CDLTs that are not ADLTs may not be 
reported.
    Comment: Many commenters referenced a report by the Department of 
Health and Human Services Office of the Inspector General (OIG) 
entitled ``Medicare Payments for Clinical Laboratory Tests in 2014: 
Baseline Data.'' The commenters stated that the OIG report showed 19 
percent of Medicare CLFS payments went to physician office 
laboratories, 24 percent went to hospital-based laboratories, and 57 
percent went to independent laboratories. The commenters urged us to 
define applicable laboratory in a way that reflects the actual 
laboratory marketplace, consistent with the ratio identified by the 
OIG. One commenter stated that this ratio could be achieved by 
adjusting the low expenditure threshold up or down until the desired 
percentages are obtained.
    Response: We do not agree with commenters that an applicable 
laboratory should be defined so as to achieve the ratio of physician 
office laboratories, independent laboratories, and hospital-based 
laboratories consistent with what the OIG report showed. We believe 
this approach would place an undue administrative burden on physician 
office laboratories. For instance, based on the findings from the OIG 
report, nearly 20 percent of all physician office laboratories would be 
applicable laboratories. Given that the new CLFS payment methodology is 
based on the weighted median private payor rate, it is unlikely that 
including additional small physician office laboratories would have a 
material impact on payment amounts; the analysis we used to establish 
the low expenditure threshold suggests that the volume from larger 
laboratories would dominate the market and therefore the determination 
of the weighted median private payor rate.
    Comment: A few commenters urged us to establish a low volume 
threshold that would exclude end-stage renal disease (ESRD) 
laboratories from the definition of applicable laboratory. The 
commenters stated that almost all ESRD-related laboratory testing is 
bundled into a per-patient payment that Medicare pays directly to the 
dialysis facility, and the ESRD laboratory is paid by the dialysis 
facility for the bundled laboratory services they furnish to Medicare 
beneficiaries. The commenters noted that the only Medicare CLFS 
revenues ESRD laboratories receive directly are for laboratory tests 
that are not related to renal disease. The commenters contend that this 
small number of non-ESRD-related laboratory tests furnished to Medicare 
beneficiaries would result in the ESRD specialty laboratories being 
considered applicable laboratories, although they have little private 
payor data to report. One commenter stated that ESRD laboratories with 
Medicare CLFS test volume of less than 5 percent of their total test 
volume for Medicare patients should be excluded from the definition of 
applicable laboratory. However, the same commenter also supported the 
majority of Medicare revenues threshold requiring at least 50 percent 
of total Medicare revenues be derived from the PFS and CLFS, which the 
commenter believes reflects the reality of accounting for Medicare 
revenues related to the ESRD PPS.
    Response: We established the low expenditure threshold, in part, to 
alleviate the reporting burden on small laboratories that are likely to 
have a relatively low volume of CLFS claims. We believe the application 
of the majority of Medicare revenues threshold criterion, along with 
the low expenditure threshold, would exclude ESRD laboratories whose 
Medicare laboratory revenues are mostly derived from the ESRD PPS. 
However, we would not want to exclude an ESRD laboratory from the 
definition of applicable laboratory if it receives CLFS revenues 
greater than the established low revenue threshold. Therefore, we are 
not developing a low volume threshold specific to ESRD laboratories.
1. Low Expenditure Threshold
    As discussed in the proposed rule (80 FR 59393 through 59394), we 
established a low expenditure threshold to achieve a balance between 
collecting sufficient data to calculate a weighted median that 
appropriately reflects the private market rate for a test, and 
minimizing the reporting burden for laboratories that receive a 
relatively small amount of revenues under the CLFS. The proposed low 
expenditure threshold would have required an entity to receive at least 
$50,000 of its Medicare revenue from the CLFS for a data collection 
period to be considered an applicable laboratory. We established that 
threshold based on CY 2013 TIN-level Medicare CLFS claims. We also 
proposed an initial data collection period of July 1, 2015, through 
December 31, 2015 (with all subsequent data collection periods being a 
full calendar year). In conjunction with the shortened initial data 
collection period, we proposed a $25,000 low expenditure threshold, 
whereas for all subsequent data collection periods, we proposed a low 
expenditure threshold of $50,000.
    Although we are not revising the low expenditure threshold in 
response to the public comments we received on the issue, we are 
revising it in conjunction with our decisions to define applicable 
laboratory in terms of the NPI rather than the TIN and, as discussed in 
section III.D., to make the data collection period 6 months rather than 
a full calendar year.
    To establish the new low expenditure threshold amount, we repeated 
the analysis we used for the proposed rule, but using NPI-level claims 
data rather than TIN-level claims data. We reviewed Medicare payment 
amounts from CY 2013 Medicare CLFS claims for physician office 
laboratories and independent laboratories at the NPI level. We assessed 
the number of billing physician office laboratories and independent 
laboratories that would otherwise qualify as applicable laboratories 
based on the majority of Medicare revenues threshold, but that would be 
excluded from the definition under various low expenditure revenue 
thresholds. Consistent with our analysis for the proposed low 
expenditure threshold, we did not include hospitals whose Medicare 
revenues were primarily under section 1833(t) of the Act for outpatient 
services and section 1886(d) of the Act for inpatient services, as 
these entities are unlikely to meet the definition of applicable 
laboratory. We found that, with a $25,000 annual

[[Page 41051]]

revenue threshold, the exclusion of data from physician office 
laboratories and independent laboratories with total CLFS revenues 
below that threshold, did not materially affect the quality and 
sufficiency of the data we needed to set rates. As we found for the 
proposed rule, we were able to substantially reduce the number of 
laboratories qualifying as applicable laboratories (that is, 
approximately 95 percent of physician office laboratories and 
approximately 55 percent of independent laboratories) while retaining a 
high percentage of Medicare utilization (that is, approximately 92 
percent of CLFS spending on physician office laboratories and 
approximately 99 percent of CLFS spending on independent laboratories).
    Additionally, because we are changing the data collection period 
from a full calendar year to 6 months in this final rule, we reduced 
the $25,000 annual low expenditure threshold by 50 percent, which 
resulted in a $12,500 low expenditure threshold for the 6-month data 
collection period. Accordingly, any laboratory that would otherwise be 
an applicable laboratory, but that receives less than $12,500 in CLFS 
revenues in a data collection period would not be an applicable 
laboratory (with the exception of single laboratories that offer and 
furnish ADLTs, which would be considered applicable laboratories only 
with respect to the ADLTs that they offer and furnish). As discussed 
previously in this section, we are finalizing the low expenditure 
threshold criterion as part of the definition of applicable laboratory 
in Sec.  414.502. In addition, because the initial data collection 
period will no longer be shorter than subsequent ones, it is no longer 
necessary for us to apply a different low expenditure threshold to the 
initial data collection period. Therefore, we are removing the 
provision in the definition of applicable laboratory that would have 
distinguished the initial data collection period low expenditure 
threshold.
    As with the proposed low expenditure threshold of $50,000, in 
determining whether its CLFS revenues in a data collection period are 
at least $12,500, a laboratory would not include Medicare payments made 
to hospital laboratories for tests furnished for hospital inpatients or 
hospital outpatients. In other words, a laboratory would need to 
determine whether its Medicare revenues from laboratory tests billed on 
Form CMS 1500 (or its electronic equivalent) and paid under the current 
CLFS (under section 1833(h) of the Act) and the revised CLFS (under 
section 1834A of the Act) are at least $12,500 for the data collection 
period. If a laboratory receives less than $12,500 in Medicare revenues 
for CLFS services paid on Form CMS 1500 (or its electronic equivalent) 
during a data collection period, the laboratory would not be an 
applicable laboratory.
    Some laboratories will not know whether they meet the low 
expenditure threshold, that is, if they receive at least $12,500 in 
Medicare CLFS revenues in a data collection period, until after the 
data collection period is over; in that case, they would have to assess 
their total Medicare CLFS revenues during the 6-month window between 
the end of the data collection period and the beginning of the data 
reporting period. However, for many laboratories, it will be clear 
whether they exceed the low expenditure threshold even before the end 
of the data collection period. A laboratory would need to reevaluate 
its status as to the $12,500 low expenditure threshold for each data 
collection period, that is, every year for ADLTs and every 3 years for 
all other CDLTs.

B. Definition of Applicable Information

    Section 1834A(a)(3) of the Act defines the term ``applicable 
information'' as (1) the payment rate that was paid by each private 
payor for a test during the data collection period, and (2) the volume 
of such tests for each such payor during the data collection period. 
Under section 1834A(a)(5) of the Act, the payment rate reported by a 
laboratory must reflect all discounts, rebates, coupons, and other 
price concessions, including those described in section 1847A(c)(3) of 
the Act relating to a manufacturer's average sales price for drugs or 
biologicals. Section 1834A(a)(6) of the Act states that if there is 
more than one payment rate for the same payor for the same test, or 
more than one payment rate for different payors for the same test, the 
applicable laboratory must report each payment rate and corresponding 
volume for the test. Section 1834A(a)(3)(B) of the Act provides that 
applicable information must not include information about a laboratory 
test for which payment is made on a capitated basis or other similar 
payment basis during the data collection period.
    We proposed to define applicable information in Sec.  414.502 as, 
for each CDLT for a data collection period, each private payor rate, 
the associated volume of tests performed corresponding to each private 
payor rate, and the specific HCPCS code associated with the test, but 
not information about a test for which payment is made on a capitated 
basis.
    Several terms and concepts in our proposed definition required 
explanation. First, we addressed the term ``private payor rate.'' The 
statutory definition of applicable information refers to ``payment 
rate'' as opposed to private payor rate; however, we often use payment 
rate generically to refer to the amount paid by Medicare under the 
CLFS. For the proposed rule, we believed it could be confusing to the 
public if we used the term ``payment rate'' as it related to both 
applicable information and the amount paid under the CLFS. Because the 
statute says the payment rate is the amount paid by private payors, we 
believed ``private payor rate'' could be used in the context of 
applicable information rather than payment rate. Therefore, we referred 
to the private payor rate in regard to applicable information, and we 
did so even when we were referring to the statutory language that 
specifically references payment rate. When we used the term ``payment 
rate,'' unless we indicated otherwise, we were referring to the 
Medicare payment amount under the CLFS. In our proposed definition of 
private payor rate, we attempted to be clear that we were limiting the 
term to its use in the definition of applicable information. We 
continue to use the term private payor rate with regard to applicable 
information in this final rule.
    Regarding the definition of ``private payor rate,'' the statute 
indicates that applicable laboratories are to report the private payor 
rate ``that was paid by each private payor,'' and that the private 
payor rate must reflect all price concessions. The private payor rate, 
as we noted previously, is the amount that was paid by a private payor 
for a CDLT, and we proposed to incorporate that element into our 
proposed definition of private payor rate. To calculate a CLFS amount, 
we believed it was necessary to include in private payor rates patient 
deductible and coinsurance amounts. (Note: In the discussion below, 
``patient'' refers to a privately insured individual while 
``beneficiary'' refers to a Medicare beneficiary.) For example, if a 
private payor paid a laboratory $80 for a particular test, but the 
payor required the patient to pay the laboratory 20 percent of the cost 
of that test as coinsurance, meaning the private payor actually paid 
the laboratory only $64, the laboratory would report a private payor 
rate of $80 (not $64), to reflect the patient coinsurance. The 
alternative would be for private payor rates to not include patient 
deductibles and coinsurance (such policy would yield $64 in the above 
example). Thus, the issue of whether to include or exclude

[[Page 41052]]

patient deductible and coinsurance in the definition of private payor 
rate has a material effect on the private payor rate and, ultimately, 
the payment amount determined by CMS. As Medicare generally does not 
require a beneficiary to pay a deductible or coinsurance on CLFS 
services, we believed it was important for private payor rates to be 
reported analogous to how they will be used by CMS to determine the 
Medicare payment amount for CDLTs under the new payment methodology. 
For this reason, we proposed that applicable laboratories must report 
private payor rates inclusive of all patient cost sharing amounts.
    With regard to price concessions, section 1834A of the Act is clear 
that the private payor rate is meant to reflect the amount paid by a 
private payor less any price concessions that were applied to a CDLT. 
For example, there may be a laboratory that typically charges $10 for a 
particular test, but offers a discount of $2 per test if a payor 
exceeds a certain volume threshold for that test in a given time 
period. If the payor exceeds the volume threshold, the private payor 
rate for that payor for that test, taking into account the $2 discount, 
is $8. The statute lists specific price concessions in section 
1834A(a)(5) of the Act--discounts, rebates, and coupons; and in section 
1847A(c)(3) of the Act--volume discounts, prompt pay discounts, cash 
discounts, free goods that are contingent on any purchase requirement, 
chargebacks, and rebates (except for Medicaid rebates under section 
1927 of the Act). These lists are examples of price concessions, and, 
we believed, were not meant to be exhaustive. We indicated that other 
price concessions that are not specified in section 1834A of the Act 
might be applied to the amounts paid by private payors, and we would 
expect those to be accounted for in the private payor rate. Within our 
definition of private payor rate, we proposed that the amount paid by a 
private payor for a CDLT must be the amount after all price concessions 
were applied.
    We proposed to codify the definition of private payor rate in Sec.  
414.502. Specifically, we proposed that the private payor rate, for 
applicable information, is the amount that was paid by a private payor 
for a CDLT after all price concessions were applied, and includes any 
patient cost-sharing amounts, if applicable.
    Next, we addressed the definition of ``private payor.'' Section 
1834A(a)(3)(i) of the Act specifies that applicable information is the 
private payor rate paid by each private payor. Section 1834A(a)(8) of 
the Act defines private payor as (A) a health insurance issuer and a 
group health plan (as such terms are defined in section 2791 of the 
Public Health Service Act), (B) a Medicare Advantage plan under part C, 
and (C) a Medicaid managed care organization (as defined in section 
1903(m) of the Act).
    A health insurance issuer is defined in section 2791(b)(2) of the 
Public Health Service (PHS) Act, in relevant part, as an insurance 
company, insurance service, or insurance organization (including a 
health maintenance organization) which is licensed to engage in the 
business of insurance in a state and which is subject to state law 
which regulates insurance (within the meaning of section 514(b)(2) of 
the Employee Retirement Income Security Act of 1974 (ERISA)). We 
incorporated this definition of health insurance issuer into our 
proposed definition of private payor by referring to the definition at 
section 2791(b)(2) of the PHS Act.
    Section 2791(a)(1) of the PHS Act defines a group health plan, in 
relevant part, as an employee welfare benefit plan (as defined in 
section 3(1) of ERISA to the extent that the plan provides medical care 
and including items and services paid for as medical care) to employees 
or their dependents (as defined under the terms of the plan) directly 
or through insurance, reimbursement, or otherwise. We incorporated this 
definition of group health plan into our definition of private payor by 
referring to the definition at section 2791(a)(1) of the PHS Act.
    A Medicare Advantage plan under part C is defined in section 
1859(b)(1) of the Act as health benefits coverage offered under a 
policy, contract, or plan by a Medicare+Choice organization under, and 
in accordance with, a contract under section 1857 of the Act. In the 
proposed rule we incorporated this definition of Medicare Advantage 
plan into our definition of private payor by referring to the 
definition in section 1859(b)(1) of the Act.
    A Medicaid managed care organization is defined in section 
1903(m)(1)(A) of the Act, in relevant part, as a health maintenance 
organization, an eligible organization with a contract under section 
1876 of the Act or a Medicare+Choice organization with a contract under 
Medicare Part C, a provider sponsored organization, or any other public 
or private organization, which meets the requirement of section 1902(w) 
of the Act and (i) makes services it provides to individuals eligible 
for benefits under Medicaid accessible to such individuals, within the 
area served by the organization, to the same extent as such services 
are made accessible to individuals (eligible for medical assistance 
under the State plan) not enrolled with the organization, and (ii) has 
made adequate provision against the risk of insolvency, which provision 
is satisfactory to the state, meets the requirements under section 
1903(m)(1)(C)(i) of the Act (if applicable), and which assures that 
individuals eligible for benefits under Medicaid are in no case held 
liable for debts of the organization in case of the organization's 
insolvency. An organization that is a qualified health maintenance 
organization (as defined in section 1310(d) of the PHS Act) is deemed 
to meet the requirements of clauses (i) and (ii). We incorporated this 
definition of Medicaid managed care organization into our definition of 
private payor by referring to the definition at section 1903(m)(1)(A) 
of the Act.
    We proposed to codify the definition of ``private payor'' in Sec.  
414.502 as a health insurance issuer, as defined in section 2791(b)(2) 
of the PHS Act; a group health plan, as defined in section 2791(a)(1) 
of the PHS Act; a Medicare Advantage plan under Medicare Part C, as 
defined in section 1859(b)(1) of the Act; or a Medicaid managed care 
organization, as defined in section 1903(m)(1)(A) of the Act.
    Next, section 1834A(a)(3) of the Act requires that applicable 
information include the private payor rate for each test and the 
``volume of such tests'' for each private payor. Regarding the volume 
reporting requirement, we are aware that sometimes laboratories are 
paid different amounts for the same CDLT by a payor. Also, sometimes 
laboratories are paid different amounts for the same CDLT by different 
payors. Section 1834A(a)(6) of the Act specifies that an applicable 
laboratory must report each such private payor rate and associated 
volume for the CDLT. Accordingly, we proposed that each applicable 
laboratory must report each private payor rate for each CDLT and its 
corresponding volume. For example, an applicable laboratory and private 
payor may agree on a volume discount for a particular test whereby the 
first 100 tests will be reimbursed at $100. The 101st test (and all 
thereafter) will be reimbursed at $90. In reporting to CMS, the 
laboratory would report two different private payor rates for this 
private payor. The first would be 100 tests at a private payor rate of 
$100 per test, and the second, $90 for all tests reimbursed thereafter. 
We proposed to implement the volume reporting requirement by including 
in the proposed definition of applicable

[[Page 41053]]

information in Sec.  414.502 that, in addition to ``each'' private 
payor rate for ``each'' CDLT, applicable information is the associated 
volume of tests performed corresponding to each private payor rate.
    In the proposed rule we discussed the need to be able to identify 
the particular test for which private payor information is being 
reported. As CLFS tests are identified by HCPCS codes (see 80 CFR 59403 
to 59404 for discussion of coding), applicable laboratories will need 
to report a HCPCS code for each test that specifically identifies the 
test being reported. We proposed to include in Sec.  414.502 that 
applicable information includes the specific HCPCS code associated with 
each CDLT. Some laboratory tests are currently billed using unlisted 
CPT codes or HCPCS level II miscellaneous/not otherwise classified 
(NOC) codes. Because NOC codes and unlisted CPT codes do not describe a 
single test and may be used to bill and pay for multiple types of 
tests, we would not be able to determine the specific laboratory test 
corresponding to a reported private payor rate if either was used for 
reporting. To ensure that applicable laboratories do not report 
applicable information with a NOC code or an unlisted CPT code, we also 
proposed to define ``specific HCPCS code'' in Sec.  414.502 as a HCPCS 
code that does not include an unlisted CPT code, as established by the 
American Medical Association, or a NOC code, as established by the CMS 
HCPCS Workgroup. Therefore, data on tests that are billed using 
unlisted CPT codes or NOC codes would not be considered applicable 
information and would not be reported.
    Finally, the statute specifies that applicable information does not 
include certain information listed in section 1834A(a)(3)(B) of the 
Act--information for a laboratory test for which payment is made on a 
capitated basis or other similar payment basis during the data 
collection period. A capitated payment is made for health care services 
based on a set amount for each enrolled beneficiary in the plan for a 
given period of time, regardless of whether the particular beneficiary 
receives services during the period covered by the payment. Payment is 
typically made on a capitated basis under a managed care arrangement. 
As there is no way to determine payment specifically for a given test, 
it cannot be reported as applicable information. Therefore, we proposed 
to specify in the definition of applicable information in Sec.  414.502 
that the term does not include information about a test for which 
payment is made on a capitated basis. We stated that we do not believe 
providing a discount based on volume of tests furnished is an example 
of a payment made on a capitated basis or other similar payment basis.
    A discussion of the public comments we received on the definition 
of applicable information and our responses to those comments appears 
below.
    Comment: Many commenters requested that we exclude private payor 
rates from the definition of applicable information that would be 
administratively burdensome, if not impossible, for applicable 
laboratories to report to CMS. Specifically, the commenters suggested 
that private payor rates that would not have any bearing on 
establishing the weighted median private payor payment rates, and would 
otherwise be immensely burdensome for laboratories to report, should be 
excluded from the definition of applicable information. The commenters 
contended that not including certain information as applicable 
information would not have a material effect on the weighted median 
private payor payment rates and would reduce the burden on applicable 
laboratories. They provided the following examples of payments that 
should be excluded from the definition of applicable information and 
therefore from reporting, if the laboratories so chose:
     Hard copy (manual) remittances where HCPCS-level payment 
data are not captured or the formatting of the hard copy remittance 
advice is not conducive to optical character recognition (OCR) 
scanning;
     Manual remittances where the payor has grouped test-level 
payments into an encounter-level (claim-level) payment;
     Payments that were made in error, which are often not 
corrected until months after the incorrect payment was received;
     Bulk settlements;
     Payments that include post-payment activity such as 
recoupments;
     Payments from secondary insurance payors;
     Payments that do not reflect specific HCPCS code-level 
amounts; and
     Other similar payments.
    The commenters requested that we permit some measure of flexibility 
for applicable laboratories to exclude reporting the aforementioned 
items from applicable information where the administrative burden of 
collecting and reporting applicable information exceeds any potential 
to influence the final payment rate. To that end, the commenters 
requested that we issue subregulatory guidance after publication of the 
final rule to specify the information that laboratories may exclude 
from reporting.
    Response: As discussed in the proposed rule (80 FR 59394), we 
proposed to define applicable information to mean each private payor 
rate for each CDLT in a data collection period, the associated volume 
of tests performed corresponding to each private payor rate, and the 
specific HCPCS code associated with the test, but not information about 
a test for which payment is made on a capitated basis. We proposed that 
private payor rate would mean, in part, ``the amount that was paid'' by 
a private payor.
    First, the commenters' specific requests that certain information 
be excluded from the definition of applicable information indicate to 
us that we need to provide clarification about what we meant by the 
term ``paid'' in the proposed definition of private payor rate. We 
clarify here that an amount has been paid if the laboratory received 
final payment for the test. Many of the items commenters requested to 
be excluded would not be considered applicable information because 
final payment would not have been made for the test. For instance, a 
private payor pays a laboratory for a test, but subsequent post-payment 
activities may change that initial payment amount. Some examples of 
post-payment activity that could change the initial payment amount are 
the correction of an initial payment made in error or recoupment of 
payment. Where those types of activities result in a final payment, the 
resulting payment amount would be considered for purposes of the 
private payor rate if it is made to the laboratory in the data 
collection period. For example, if an initial claim was paid in error 3 
months before a data collection period and then corrected, with final 
payment being made by the private payor during the data collection 
period, the final corrected payment amount for the test would be 
considered for purposes of the private payor rate. If a test is 
performed during a data collection period, but a final payment is not 
made until after the data collection period, that payment amount would 
not be a private payor rate for purposes of applicable information and, 
therefore, would not be reported to CMS. Final payments from secondary 
insurance payors would also be considered in calculating private payor 
rates if the final payment was made during the data collection period.
    Second, commenters asked whether payment rates can be excluded from 
the

[[Page 41054]]

definition of applicable information if the payment does not reflect 
specific HCPCS code-level amounts. In the proposed rule (80 FR 59396), 
we explained that we need to be able to identify the particular test 
for which private payor information is being reported. Therefore, we 
proposed to require that applicable information includes the specific 
HCPCS code associated with each CDLT to prevent private payor rates 
corresponding to a HCPCS level II/not otherwise classified (NOC) code 
or an unlisted CPT code from being reported. Accordingly, if a 
laboratory cannot correlate a private payor payment amount to a 
specific HCPCS code, that amount is not a private payor rate for 
purposes of applicable information.
    Third, commenters asked about excluding from applicable information 
manual remittances where the payor has grouped test-level payments into 
an encounter (claim-level) payment. The proposed rule specified that, 
for each CDLT, the associated volume of tests performed corresponding 
to each private payor rate is a component of the definition of 
applicable information. Where the associated volume of tests performed 
corresponding to each private payor rate cannot be discerned by a 
laboratory from the private payors' remittance, those payment amounts 
would not be considered applicable information and should not be 
reported to CMS. Therefore, where a private payor groups test-level 
payments into a claim-level payment, instead of by individual HCPCS 
code, those rates would not be applicable information.
    Commenters also asked that we allow stakeholders to decide whether 
the burden of collecting and reporting certain payment rates outweighs 
the potential influence those rates would have on final payment rates 
and, when that is the case, stakeholders would not have to report it as 
applicable information. We cannot permit stakeholders to exercise that 
discretion. The statute is clear that applicable information, which is 
used to set CLFS payment amounts, must be reported for applicable 
laboratories for a data collection period, and it defines applicable 
information, in part, as the payment rate that was paid by each private 
payor for the test during a data collection period and the volume of 
such tests for each such payor for the data collection period. As such, 
we believe the statute does not support selective reporting of 
applicable information for applicable laboratories. If the laboratory 
meets the definition of applicable laboratory, the applicable 
information for that laboratory must be reported.
    Comment: Many commenters raised questions about a variety of other 
issues regarding the definition of applicable information. They stated 
that the proposed rule does not clearly specify the dates that apply to 
private payor rates. For example, commenters asked whether private 
payor rate information collected during the data collection period is 
based on the date of payment, date of service, date of claim 
submission, or date of denial. The commenters stated that if the date 
of service is the controlling date, claims for laboratory services 
furnished during the data collection period may not be paid before the 
data collection period ends, which would mean the payment amounts would 
not qualify as private payor rates. These same commenters questioned 
whether denials, which they referred to as ``zero payments,'' are to be 
excluded from the data set reported to CMS. Many commenters requested 
clarification as to how to handle claims undergoing an appeal. 
Commenters also requested clarification as to whether the private payor 
rates collected include non-contracted amounts for out-of-network 
laboratories or services.
    Response: As discussed in response to the previous comment, final 
payment must be made by the private payor for a laboratory test(s) 
during the data collection period for the rate to be considered in 
calculating a private payor rate. If the date of the final payment for 
a CDLT falls within a data collection period, the payment rate would be 
considered to have been paid for purposes of the definition of private 
payor rate.
    Where a laboratory test claim is still under review by the private 
payor or is under appeal during a data collection period, the amount 
that has already been paid would not be considered a final payment rate 
and would therefore not be used to determine a private payor rate. 
Payment rates for claims under appeal would only be private payor rates 
if the final payment amount is determined and paid during the data 
collection period. For example, if a laboratory filed an appeal for a 
test furnished prior to a data collection period, and the appeal was 
resolved so that final payment for the test was made during the data 
collection period, the final rate paid would be used to calculate the 
private payor rate. However, if the appeal was settled during the data 
collection period, but final payment was not made by the private payor 
until after the data collection period, the payment amount could not be 
used for a private payor rate and would therefore be excluded from 
applicable information.
    Some commenters asked whether denials, which they referred to as 
zero payments, would need to be reported as applicable information 
because no private payor payment amount was made for the laboratory 
test(s). We assume commenters are suggesting that when a claim is 
denied, the payment amount for the test could be said to be zero 
dollars, so commenters want to know if, in those instances, they should 
report zero dollars as the private payor rate. Laboratories should not 
report zero dollars for CDLTs where a private payor has denied payment 
within a data collection period. We are revising the definition of 
private payor rate in Sec.  414.502 to specify that it does not include 
information about denied payments.
    Finally, in response to the commenters' request for clarification 
as to whether private payor rate includes non-contracted amounts for 
out-of-network laboratories or services, we clarify that applicable 
information includes private payor rates for out-of-network 
laboratories, as long as the final payment for the laboratory test was 
made by the private payor during the data collection period. As the 
statutory definition of applicable information does not distinguish 
between contracted and non-contracted amounts paid by private payors, 
we believe it is appropriate for the private payor rate to include non-
contracted amounts paid to laboratories.
    We are modifying the definition of applicable information in Sec.  
414.502 to clarify that, with respect to each CDLT, applicable 
information includes each private payor rate for which final payment 
has been made in the data collection period. We are also renumbering 
the provisions within the definition to make the requirements clearer; 
these are non-substantive changes that do not affect the final policy. 
In addition, we are modifying the definition of private payor rate in 
Sec.  414.502 to clarify two points: (1) The private payor rate is the 
``final amount'' that was paid by a private payor for a CDLT and; (2) 
as noted above, the private payor rate does not include information 
about denied payments.
    Comment: Many commenters agreed with our proposal to include 
patient deductible and coinsurance amounts as part of the definition of 
private payor rate and our rationale for doing so. The commenters 
encouraged us to finalize our proposal to require applicable 
laboratories to report private payor rates that include patient cost 
sharing amounts.

[[Page 41055]]

    Response: We agree with the commenters and are finalizing our 
proposed policy.
    Comment: Two commenters stated that beneficiary cost sharing is 
frequently used to mean copayments and coinsurance, and recommended 
that we clarify our intent that private payor rate includes any patient 
cost sharing and deductible amounts if applicable.
    Response: As discussed in the proposed rule (80 FR 59395), Medicare 
generally does not require a beneficiary to pay a deductible or 
coinsurance amount for services paid under the CLFS, and we believe it 
is important that private payor rates be reported analogous to how they 
will be used to determine the Medicare payment amount for laboratory 
tests under the new CLFS methodology. Therefore, we proposed that 
private payor rate includes all patient cost sharing amounts. For 
purposes of reporting applicable information under the CLFS, we clarify 
that private payor rate includes any patient cost sharing amounts 
required by private payors, including patient deductible amounts, 
coinsurance amounts (that is, the percentage of the fee schedule amount 
a private payor requires the patient to pay for a given laboratory 
test), and copayment amounts (that is, the specific dollar amount a 
private payor requires the patient to pay for a given laboratory test).
    Comment: One commenter agreed with our proposal to include ``front-
end concessions'' such as volume thresholds in private payor rates. 
However, the commenter stated that under the OIG's 1994 Special Fraud 
Alert and Medicare Claims Guidelines, providers, practitioners, or 
suppliers may forgive the deductible and copayments in consideration of 
a particular patient's financial hardship. The commenter believes that 
when the laboratory provides this type of ``one-off financial 
hardship'' discount, such concession should not be included in the 
private payor rate.
    Response: Section 1834A(a)(5) of the Act requires the private payor 
rate to reflect all discounts, rebates, coupons, and other price 
concessions, including those described in section 1847A(c)(3) of the 
Act. Accordingly, we proposed that the private payor rate is, among 
other things, the amount that was paid by a private payor for a CDLT 
after all price concessions are applied.
    We are clarifying here that the price concessions to be applied are 
only those applied by the private payor. We do not intend that 
concessions applied by a laboratory, such as, for example, the waiver 
of patient coinsurance, copayments, or deductibles due to a patient's 
financial hardship, would be a price concession for purposes of the 
definition of private payor rate. The statute envisions that CLFS 
payment rates under the new system are based on the rates paid by 
private payors. Although laboratories may provide concessions to 
patients, we do not believe it is appropriate to factor those 
concessions into a system that is required to be based on the rates 
paid by private payors. We understand, however, that we may have 
created some confusion about which price concessions are to be applied 
and which are not. Unfortunately, we provided an example in the 
proposed rule of a discount provided by a laboratory, as opposed to a 
private payor, that would be considered to be a price concession. This 
example did not reflect our intent that, for the private payor rate, 
only price concessions made by the private payor are to be applied.
    To be clear, concessions applied by a laboratory are not price 
concessions for purposes of the private payor rate. To clarify that 
only private payor price concessions apply in calculating the private 
payor rate and not those applied by the laboratory, we are modifying 
the definition of private payor rate in Sec.  414.502 to indicate that, 
for purposes of applicable information, private payor rate is the final 
amount that was paid by a private payor for a CDLT after all private 
payor price concessions are applied, and does not include price 
concessions applied by a laboratory.
    Comment: Many commenters raised questions as to whether private 
payor rates for laboratory tests paid only on the PFS should be 
reported, and requested that we publish a list of HCPCS codes for which 
we expect applicable laboratories to report applicable information.
    Response: Only private payor payment rates for CDLTs paid for under 
the CLFS are considered for private payor rates. The payment rates for 
laboratory tests paid only under the PFS, and not under the CLFS, would 
not be private payor rates and should not be reported as applicable 
information. We will publish a list of HCPCS codes on the CLFS Web site 
for which applicable laboratories must report private payor rates as 
part of subregulatory guidance.
    Comment: One commenter noted that the proposed rule only defines 
applicable information in terms of private payor rates. The commenter 
stated that if Medicare payments are not included, we would be 
neglecting to use the majority of payment rate information in 
determining the weighted median private payor payment amounts under the 
new CLFS.
    Response: Section 1834A(a)(3) of the Act defines applicable 
information as the payment rate that was paid by each private payor, 
and section 1834A(a)(8) defines private payors to include health 
insurers, group health plans, Medicare Advantage plans under part C, 
and Medicaid managed care organizations. Therefore, we clarify that 
applicable information would include Medicare data to the extent it is 
collected from Medicare Advantage plans and reported to CMS.
    Comment: One commenter suggested that the proposed regulations text 
be revised to refer to applicable ``rate'' information instead of 
applicable information.
    Response: Section 414.502 defines applicable information as each 
private payor rate, the associated volume of tests performed 
corresponding to each private payor rate, and the specific HCPCS code 
associated with the test. We believe this is sufficient specificity for 
the industry to understand what applicable information is without 
adding the word ``rate'' to the term.

C. Definition of Advanced Diagnostic Laboratory Tests (ADLTs) and New 
ADLTs

    The statute applies different reporting and payment requirements to 
ADLTs than to other CDLTs, and further distinguishes a subset of ADLTs 
called ``new ADLTs.'' In this section, we discuss our definitions for 
the terms ``advanced diagnostic laboratory test'' and ``new advanced 
diagnostic laboratory test.''
1. Definition of ADLT
    Section 1834A(d)(5) of the Act defines an ADLT as a CDLT covered 
under Medicare Part B that is offered and furnished only by a single 
laboratory and not sold for use by a laboratory other than the original 
developing laboratory (or a successor owner) and that meets one of the 
following criteria: (1) The test is an analysis of multiple biomarkers 
of DNA, RNA, or proteins combined with a unique algorithm to yield a 
single patient-specific result; (2) the test is cleared or approved by 
the FDA; (3) the test meets other similar criteria established by the 
Secretary. Sections 1834A(d)(1) and (2) of the Act recognize special 
reporting and payment requirements for ADLTs for which payment has not 
been made under the CLFS prior to April 1, 2014 (PAMA's enactment 
date). In establishing a regulatory definition for ADLT, we considered 
each component of the statutory definition at section

[[Page 41056]]

1834A(d)(5) of the Act, and how we interpreted and incorporated key 
statutory terms and phrases.
    We believe that, by including these provisions for ADLTs, the 
statute seeks to establish special payment status for tests that are 
unique and are provided only by the laboratory that developed the test, 
or a subsequent owner of that laboratory. In other words, we view the 
statute as intending to award special payment status to the one 
laboratory that is expending the resources for all aspects of the 
test--developing it, marketing it to the public, performing it, and 
selling it. It is with this understanding that we developed our 
proposed policies for defining ADLTs.
    First, to be an ADLT, a test must meet the requirements specified 
in the first part of the definition at section 1834A(d)(5) of the Act, 
that is, it must be a CDLT covered under Medicare Part B that is 
offered and furnished only by a single laboratory and not sold for use 
by a laboratory other than the original developing laboratory (or a 
successor owner). For the meaning of ``single laboratory,'' we believed 
the statute intends to ensure that we grant ADLT status to the one 
laboratory that offers and furnishes the particular test, to the 
exclusion of all other laboratories. To ensure this is the case, we 
proposed to require the laboratory to be a facility with a single CLIA 
certificate as described in Sec.  493.43(a) and (b) because we 
believed, in most instances, the laboratory's single CLIA certificate 
would correspond to one laboratory location or facility. Under our 
proposal, an entity with multiple CLIA certificates would not be a 
single laboratory. For example, a test offered by a health system 
consisting of multiple entities, including physician offices and 
independent laboratories, and that has multiple CLIA certificates 
associated with its multiple testing locations, would not be eligible 
for ADLT status, even if the test met all other ADLT criteria. Section 
493.43(b) includes several narrow exceptions for certain types of 
laboratories that may have multiple locations.\1\ We stated that we did 
not believe those exceptions would apply to most or all laboratories 
seeking ADLT status for a given test and, even if they did, we did not 
believe those particular exceptions would undermine our effort to 
identify the single laboratory offering and furnishing the ADLT.
---------------------------------------------------------------------------

    \1\ Section 493.43(b) includes the following exceptions: (1) 
Laboratories that are not at a fixed location; (2) not-for-profit or 
Federal, State, or local government laboratories that engage in 
limited (not more than a combination of 15 moderately complex or 
waived tests per certificate) public health testing; and (3) 
laboratories that are within a hospital that are located at 
contiguous buildings on the same campus and under common direction.
---------------------------------------------------------------------------

    Next, the statute directs that the test must be ``offered and 
furnished'' by a laboratory seeking ADLT status for the test. It also 
requires that the test be ``not sold for use by a laboratory other than 
the original developing laboratory.'' We interpreted the original 
developing laboratory referenced in the statute to be the same 
laboratory that offers and furnishes the test. This interpretation was 
consistent with our understanding that the statute intends for special 
payment status to be awarded to the one laboratory that is expending 
the resources for all aspects of the test. Within the two 
requirements--(1) that a laboratory seeking ADLT status must offer and 
furnish the test and (2) that the test is not sold for use by a 
laboratory other than the original developing laboratory--there were 
several components for us to parse, and we did so consistent with our 
view of the statutory intent. First, we stated that we believed a 
laboratory offers and furnishes a test when it markets and performs the 
test. The laboratory that markets and performs the test must also be 
the only one to sell it, that is, to receive remuneration in exchange 
for performing the test. In addition, we believed that laboratory must 
also be the one that developed the test, which means the laboratory 
designed it. We are aware that, in certain circumstances, a referring 
laboratory may bill for a test under section 1833(h)(5)(A) of the Act. 
The referring laboratory is a laboratory that receives a specimen to be 
tested and refers it to another laboratory, the reference laboratory, 
to perform the test. We explained that, in these situations, because 
the reference laboratory performed the test, it would be the laboratory 
that offered and furnished the test for purposes of the ADLT 
definition.
    Accordingly, under our proposal, only one laboratory could design, 
market, perform, and sell the test. If more than one laboratory engages 
in any of those activities, the test would not meet the criteria to be 
an ADLT. Under our proposal, we would not expect to see more than one 
applicable laboratory report applicable information for a given ADLT.
    Next, the statute permits a successor owner to the original 
developing laboratory to sell the test without disqualifying the test 
from ADLT status. We proposed to define successor owner as a laboratory 
that has assumed ownership of the original developing laboratory, and 
meets all other aspects of the ADLT definition (except for being the 
original developing laboratory). This means the successor owner is a 
single laboratory that markets, performs, and sells the ADLT.
    In considering how to define successor owner, we looked to our 
regulations at Sec.  489.18(a), which describe what constitutes a 
change of ownership for Medicare providers. Although laboratories are 
suppliers and not providers, we believed the language in this 
regulation appropriately applied to the wide range of potential changes 
in ownership for laboratories. Specifically, we proposed to incorporate 
the scenarios described in Sec.  489.18(a) as discussed in the proposed 
rule, 80 FR 59397, as follows. A successor owner, for purposes of an 
ADLT, would mean a single laboratory that has assumed ownership of the 
laboratory that designed the test through any of the following 
circumstances:
     Partnership. In the case of a partnership, the removal, 
addition, or substitution of a partner, unless the partners expressly 
agree otherwise, as permitted by applicable state law, constitutes 
change of ownership.
     Unincorporated sole proprietorship. Transfer of title and 
property to another party constitutes change of ownership.
     Corporation. The merger of the original developing 
laboratory corporation into another corporation, or the consolidation 
of two or more corporations, including the original developing 
laboratory, resulting in the creation of a new corporation constitutes 
change of ownership. However, a transfer of corporate stock or the 
merger of another corporation into the original developing laboratory 
corporation does not constitute change of ownership.
     Leasing. The lease of all or part of the original 
developing laboratory facility constitutes change of ownership of the 
leased portion. In the case of a lease, all of or part of the original 
developing laboratory is leased by the owner(s) of the original 
developing laboratory to another entity who takes over the continued 
production of the test, and the owner(s) of the original developing 
laboratory becomes the lessor of the laboratory where it formerly 
provided laboratory tests. In this situation, there would be a change 
of ownership of the leased portion of the laboratory, and the lessee 
would become the successor owner that could be paid for performing an 
ADLT, provided the test meets all other criteria for being an ADLT.
    As we noted, the successor owner would need to be a single 
laboratory and meet all other aspects of the ADLT definition. For 
example, under our proposal, if an original developing

[[Page 41057]]

laboratory corporation is merged into another laboratory corporation 
that has multiple CLIA certificates, while the test would still be a 
CDLT, it would no longer be considered an ADLT. Under our proposal, we 
expected a laboratory that obtains CMS approval of ADLT status for a 
test to maintain documentation on changes of ownership with transfer of 
rights to market, perform, and sell the ADLT to support correct claims 
submission and payment. We proposed to define the terms ``single 
laboratory'' and ``successor owner'' in Sec.  414.502.
    Next, in addition to meeting the first part of the ADLT definition 
at section 1834A(d)(5) of the Act, the statute requires that an ADLT 
must meet one of the criteria described in paragraphs (5)(A), (5)(B), 
or (5)(C). Criterion A of section 1834A(d)(5) of the Act states that 
the test is an analysis of multiple biomarkers of DNA, RNA, or proteins 
combined with a unique algorithm to yield a single patient-specific 
result. We interpreted this provision to require that the test analyze, 
at a minimum, biomarkers of DNA or RNA. Tests that analyze nucleic 
acids (DNA or RNA) are molecular pathology analyses. Therefore, we 
proposed that, under criterion A, a test must be a molecular pathology 
analysis of DNA or RNA. Examples of such tests include those that 
analyze the expression of a gene, the function of a gene, or the 
regulation of a gene. The statute also requires that the test analyze 
``multiple'' biomarkers of DNA, RNA, or proteins. Therefore, we stated 
that an ADLT might consist of one test that analyzes multiple 
biomarkers or it might consist of multiple tests that each analyzes one 
or more biomarkers.
    That the analysis of the biomarkers must be ``combined with a 
unique algorithm to yield a single patient-specific result'' indicated 
to us that the algorithm must be empirically derived, and that the 
ultimate test result must be diagnostic of a certain condition, a 
prediction of the probability of an individual developing a certain 
condition, or the probability of an individual's response to a 
particular therapy. Furthermore, the statute requires the result to be 
a single patient-specific one, so we proposed that the test must 
diagnose a certain condition for an individual, or predict the 
probability that a specific individual patient will develop a certain 
condition(s) or respond to a particular therapy. We also proposed that 
the test must provide new clinical diagnostic information that cannot 
be obtained from any other existing test on the market or combination 
of tests (for example, through a synthesis of the component molecular 
pathology assays included in the laboratory test in question). We 
considered requiring that a new ADLT be clinically useful, as well as 
new, but decided against such a policy due to statutory limitations. 
These proposed policies for implementing criterion A were based on our 
view that ADLTs that meet the criterion are innovative tests that are 
new and different from any prior test already on the market and provide 
the individual patient with valuable genetic information to predict the 
trajectory of the patient's disease process or response to treatment of 
the patient's disease that could not be gained from another test or 
tests on the market. Finally, we stated that we expected an ADLT could 
include assays in addition to the biomarker assay(s) described above. 
For example, in addition to an analysis of a DNA biomarker, an ADLT 
might also include a component that analyzes proteins. We would not 
disqualify a test from ADLT status consideration if that is the case. 
In summary, we proposed that to qualify as an ADLT under criterion A of 
section 1834A(d)(5) of the Act, a test: (i) Must be a molecular 
pathology analysis of multiple biomarkers of DNA, or RNA; (ii) when 
combined with an empirically derived algorithm, yields a result that 
predicts the probability a specific individual patient will develop a 
certain condition(s) or respond to a particular therapy(ies); (iii) 
provides new clinical diagnostic information that cannot be obtained 
from any other test or combination of tests; and (iv) may include other 
assays. We included this proposed requirement in paragraph (1) of the 
ADLT definition in Sec.  414.502.
    Criterion B of section 1834A(d)(5) of the Act states that the test 
is cleared or approved by the FDA. The FDA considers CDLTs to be 
medical devices, and has two main application processes for clearing 
and approving medical devices. To receive FDA clearance to market a new 
device, a Premarket Notification submission, also referred to as a 
510(k), is submitted to FDA for review at least 90 days before 
introducing, or delivering for introduction, the device into interstate 
commerce. Before FDA can clear a 510(k) and allow a device to be 
commercialized, the 510(k) submitter must demonstrate that their 
medical device is ``substantially equivalent'' to a device that is 
legally marketed for the same intended use and for which a Premarket 
Approval Application (PMA) is not required. A request for FDA approval 
of a device is typically submitted through a PMA, which is the most 
stringent type of device marketing application required by FDA. A PMA 
refers to the scientific and regulatory review necessary to evaluate 
the safety and effectiveness of devices that have not been found to be 
substantially equivalent through the 510(k) [Premarket Notification] 
process or devices for which insufficient information exists to 
determine that general controls either alone (Class I) or together with 
special controls (Class II) would provide a reasonable assurance of 
their safety and effectiveness. To obtain FDA approval of a device, an 
applicant must submit a PMA which includes valid scientific evidence to 
assure that the device is safe and effective for its intended use(s). 
We further noted that FDA regulations or orders exempt many Class I and 
certain Class II devices from premarket notification and allow them to 
be legally marketed immediately without premarket clearance. Since 
criterion B of section 1834A(d)(5) of the Act requires FDA approval or 
clearance, we stated that we did not intend for this criterion to cover 
any devices that are, by regulation or order, exempt from premarket 
notification and that have not received FDA approval or clearance. We 
proposed that a laboratory test can be considered an ADLT if it is 
cleared or approved by the FDA and meets all other aspects of the ADLT 
definition. Under criterion B, laboratories would have to submit 
documentation of their FDA clearance or approval for the test. We 
stated that this process would be outlined through subregulatory 
processes prior to January 1, 2016.
    To implement criteria A and B, we stated that we would establish 
guidelines for laboratories to apply for ADLT status and submit 
documentation to support their application. For example, we indicated 
that if our proposed definition of criterion A is finalized, 
laboratories would have to submit to CMS evidence of their empirically 
derived algorithms and show how their test provides new clinical 
diagnostic information that cannot be obtained from any other test or 
combination of tests. As we noted in section II.F. of the proposed rule 
(80 FR 59402), section 1834A(a)(10) of the Act provides for 
confidentiality of the information disclosed by a laboratory under 
section 1834A(a) of the Act. As this statutory provision is limited to 
``this section'' (that is, section (a)), we believed it does not apply 
to section (d) of section 1834A of the Act, which relates to 
information provided to the Secretary to determine whether a test is an 
ADLT. While we stated that we do

[[Page 41058]]

not expect to make information in an ADLT application available to the 
public, that information is not explicitly protected from disclosure 
under the confidentiality provisions of the statute, nor is it 
explicitly protected from disclosure in response to a Freedom of 
Information Act (FOIA) request, as is information disclosed by a 
laboratory under section (a), per section 1834A(a)(11) of the Act. 
However, we noted that FOIA includes an exemption for trade secrets and 
commercial or financial information obtained from a person that is 
privileged or confidential. An ADLT applicant should be aware that 
information in an ADLT application may not be protected from public 
disclosure even if it is marked as confidential and proprietary. We 
indicated that we could not guarantee information marked as proprietary 
and confidential will not be subject to release under FOIA. While a 
party may mark information as confidential and proprietary, the 
information may be subject to disclosure under FOIA unless, consistent 
with FOIA exemption (b)(4), the information relates to trade secrets 
and commercial or financial information that is exempt from disclosure. 
The ADLT applicant would need to substantiate this confidentiality by 
expressly claiming substantial competitive harm if the information is 
disclosed and demonstrating in a separate statement how the release 
would cause substantial competitive harm pursuant to the process in 
E.O.12600 for evaluation by CMS (please see 80 FR 59402 through 59403 
for further discussion of the confidentiality and public release of 
data).
    Criterion C of section 1834A(d)(5) of the Act gives the Secretary 
the authority to establish and apply other similar criteria by which to 
determine that a test is an ADLT. We did not propose to exercise this 
authority; however we indicated that if we do so in the future, it 
would be through notice and comment rulemaking.
2. Definition of New ADLT
    Section 1834A(d) of the Act is titled ``Payment for New Advanced 
Diagnostic Laboratory Tests.'' As previously discussed in this section, 
section 1834A(d)(1)(A) of the Act provides special payment rules for 
ADLTs for which payment has not been made under the CLFS prior to April 
1, 2014, the enactment date of PAMA. Section 1834A(i) of the Act, 
titled ``Transitional Rule,'' provides that during the period beginning 
on April 1, 2014, PAMA's enactment date, and ending on December 31, 
2016, for ADLTs paid under Medicare Part B, the Secretary shall use the 
methodologies for pricing, coding, and coverage in effect on the day 
before April 1, 2014, which may include crosswalking or gapfilling 
methods. We interpreted section 1834A(i) of the Act to mean that we 
must use the current CLFS payment methodologies for ADLTs that are 
furnished between April 1, 2014, and December 31, 2016.
    Accordingly, we proposed to define a new ADLT as an ADLT for which 
payment has not been made under the CLFS prior to January 1, 2017. Any 
ADLT paid for under the CLFS prior to January 1, 2017, would be an 
existing ADLT and would be paid in accordance with the current 
regulations at 42 CFR part 414, subpart G, including gapfilling and 
crosswalking methodologies. In other words, there would be no new ADLTs 
until January 1, 2017, and they would be first paid on the CLFS using 
the payment methodology for new ADLTs proposed in Sec.  414.522. We 
proposed to codify the definition of ``new ADLT'' at Sec.  414.502 to 
mean an ADLT for which payment has not been made under the CLFS prior 
to January 1, 2017.
    A discussion of the public comments we received on the definitions 
of ADLT and new ADLT and our responses to those comments appears below.
    Comment: A few commenters disagreed with our proposal to require an 
ADLT to be ``marketed and performed'' by a single laboratory. The 
commenters noted that in defining an ADLT, the statute requires the 
test be ``offered and furnished'' by a single laboratory, and that 
requiring activities such as marketing and performing the test would go 
beyond the intent of Congress and place undue restrictions on the 
normal business practices of ADLT laboratories. The commenters stated 
that ``offered and furnished,'' when read in the context of the 
statutory definition of an ADLT, indicates that the single laboratory 
furnishes the test and does not sell it as a ``kit'' to other 
laboratories for those laboratories to offer and furnish. The 
commenters also explained that a small ADLT laboratory may partner with 
larger laboratories to provide marketing support while still performing 
and billing for its tests because of resource constraints. In this 
scenario, the test would be offered and furnished by a single 
laboratory, but it may not qualify for ADLT status under the proposed 
requirement that the single laboratory must market and perform the 
test. The commenters contend that the words ``offered and furnished'' 
are sufficiently clear and well understood in the Medicare program and 
that CMS does not need to complicate the definition by redefining it as 
``marketed and performed.'' Thus, the commenters recommended using the 
statutory terms ``offered and furnished'' instead of ``marketed and 
performed.''
    Response: We agree with commenters that our definition of single 
laboratory should not preclude a test that would otherwise qualify as 
an ADLT from being an ADLT simply because the single laboratory relies 
on a third party to market the test, although we do not think our 
definition would necessarily do that. Even though a single laboratory 
may hire another entity to market the test, the single laboratory would 
still be the entity expending the resources for the test.
    In the proposed rule, we explained that we considered ``marketing'' 
to be an appropriate illustration of how we interpreted the term 
``offer.'' Nonetheless, we agree that some marketing activities, such 
as developing and implementing a promotional strategy, may go beyond 
``offering'' a test. What we were attempting to achieve with our 
proposal that the single laboratory must be the only laboratory to 
market and perform the test, was to ensure that the single laboratory 
was the entity expending the resources for all aspects of the test, in 
other words, the entity responsible for administering all aspects of 
the test. We are using the term ``offer'' rather than ``market'' in 
this final rule because we are convinced by commenters that the terms 
are not synonymous and, in fact, marketing goes beyond the scope of 
offering. If a laboratory offers a test, it is presenting the test for 
sale, which is consistent with our view that a single laboratory is the 
entity expending the resources and is responsible for administering all 
aspects of the test.
    In addition, we used the term ``performed'' in the proposed rule to 
illustrate what we believe it means for a laboratory to furnish a test. 
While it is important for the industry to know how we interpret the 
term ``furnish,'' we understand the industry prefers we use the term 
``furnish'' in the regulatory definition of ADLT. Therefore, we are 
revising our proposed definition of ADLT in Sec.  414.502 to include 
the statutory terms ``offered and furnished'' rather than ``marketed 
and performed.''
    Comment: Several commenters did not agree with our proposal to 
define a single laboratory as a facility with a single CLIA 
certificate. The commenters stated that our proposed definition of 
``single laboratory'' does not comport with how laboratories operate, 
and would be an insurmountable barrier for many laboratories whose 
tests Congress

[[Page 41059]]

meant to include as ADLTs. They explained that one laboratory may 
expend resources for all aspects of the test, but that laboratory does 
not necessarily hold only one CLIA certificate. For example, a 
laboratory may have multiple sites, each with its own CLIA certificate, 
but furnishes the ADLT at only one of those sites. Or, due to higher 
than expected demand for its testing, a laboratory may have to open a 
new laboratory facility in which to perform testing, and that second 
facility would be required to obtain its own CLIA certificate because 
of its different mailing address or location. The commenters stated 
that, as long as the offering and furnishing laboratory does not sell 
the test for use by another laboratory, then the number of CLIA 
certificates the entity holds should not be relevant to whether a test 
can qualify as an ADLT. Therefore, they recommended that, for purposes 
of an ADLT, the definition of ``single laboratory'' be revised to mean 
a laboratory and its parent corporation, wholly-owned subsidiaries, and 
other entities under common ownership, as applicable.
    Response: After reviewing the public comments on this issue, we 
agree that defining single laboratory by requiring the laboratory to 
administer every aspect of the test--offer, furnish, develop, and 
sell--at only one physical location, is inconsistent with how 
laboratories are structured and how they operate. As noted by the 
commenters, a corporate entity may consist of multiple laboratories and 
other entities under common ownership that have different functions, 
for instance a laboratory that offers and furnishes tests and other 
entities that perform research and development activities. 
Additionally, we believe it is possible that limiting the definition of 
single laboratory to a facility with a single CLIA certificate could, 
in some instances, impede beneficiary access to unique, innovative 
laboratory tests.
    For these reasons, we are not adopting our proposal to define 
single laboratory as a facility with a single CLIA certificate. For 
purposes of an ADLT, we are revising the definition of single 
laboratory to mean a laboratory as defined in Sec.  493.2 which 
furnishes the test, and that may also design, offer, and sell the test. 
The definition also includes the entities that own the laboratory or 
that the laboratory owns, which may design, offer, and sell the test; 
this includes other laboratories that may be owned by the single 
entity.
    We believe this revised approach will allow a corporate entity that 
owns multiple laboratories to furnish a new ADLT at each laboratory 
site, and will enable other parts of the single laboratory organization 
to be involved with aspects of the ADLT such as research and 
development. It will also allow an original developing laboratory that 
meets the definition of a single laboratory to continue to be a single 
laboratory if it chooses to expand its organization by acquiring new 
laboratory sites to meet increased demand for laboratory testing. 
Revising the definition of single laboratory to allow multiple 
laboratories located in different locations throughout the country, 
under common ownership, to furnish the test could also improve 
beneficiary access to innovative laboratory tests.
    Although our revised definition will enable parts of the single 
laboratory organization other than its component laboratories to assume 
responsibilities such as developing (as we discuss above, we believe 
when a laboratory develops a test, it means the laboratory designs it), 
offering, and selling the test, only the laboratory parts of the single 
laboratory organization may perform the test. Therefore, our revised 
definition specifies that only laboratories, as defined in Sec.  493.2, 
may furnish the ADLT.
    We are revising the definition of single laboratory in Sec.  
414.502 to indicate that a single laboratory, for purposes of an ADLT, 
means the laboratory, as defined in Sec.  493.2, which furnishes the 
test, and that may also design, offer, or sell the test and the entity 
that owns the laboratory and the entity that is owned by the laboratory 
which may design, offer, or sell the test.
    Additionally, as discussed previously in this section, we proposed 
that a successor owner for purposes of an ADLT, means a single 
laboratory that has assumed ownership of the laboratory that designed 
the test through any of the following circumstances: Partnership; 
unincorporated sole proprietorship; corporation; or leasing. Under our 
revised definition of single laboratory, because each successor owner 
is an entity that assumes ownership of a single laboratory, the 
successor owner becomes the owner of the entire single laboratory 
organization, that is, the laboratory and the other entities the 
laboratory owns or is owned by. For example, if the single laboratory 
owns multiple laboratories and other entities, then a change in 
partnership or sole proprietorship, as described in the definition of 
successor owner, would have to apply to the entire single laboratory 
organization to qualify as successor ownership. In the case of a merger 
of the single laboratory into another corporation or its consolidation 
with two or more corporations that results in a new corporation, the 
entire single laboratory organization would need to be included in the 
corporate merger to qualify as successor ownership.
    For changes in ownership resulting from leasing, we proposed (80 FR 
59397) that the lease of all or part of the single laboratory 
organization would constitute a change in ownership of the leased 
portion. However, we cannot reconcile leasing a portion of a single 
laboratory with our final policy that a single laboratory includes the 
laboratory and the other entities that own or are owned by the 
laboratory. Therefore, we are removing leasing from the definition of 
successor owner as a circumstance under which there can be a successor 
owner.
    In addition, in the proposed rule we indicated that a successor 
owner for purposes of an ADLT means a single laboratory that has 
assumed ownership of the laboratory that designed the test. We 
recognize that successor ownership is not limited to just the successor 
of the original developing laboratory. There can be successor owners to 
successor owners. Therefore, we are revising the definition of 
successor owner to clarify, for purposes of an ADLT, a successor owner 
means a single laboratory that has assumed ownership of the single 
laboratory that designed the test or of the single laboratory that is a 
successor owner to the single laboratory that designed the test, 
through any of the following circumstances:
    (1) Partnership--the removal, addition, or substitution of a 
partner, unless the partners expressly agree otherwise, as permitted by 
applicable state law;
    (2) Unincorporated sole proprietorship--the transfer of title and 
property to another party;
    (3) Corporation--the merger of the single laboratory corporation 
into another corporation, or the consolidation of two or more 
corporations, including the single laboratory, resulting in the 
creation of a new corporation. We also specify that a transfer of 
corporate stock or the merger of another corporation into the single 
laboratory corporation does not constitute change of ownership.
    Comment: One commenter stated that the proposed definition of a 
``successor owner'' does not include a laboratory that acquires the 
license to an ADLT that was ``discovered'' by a different entity. 
Specifically, the commenter explained that a number of ADLTs may be 
discovered by academic researchers who own the intellectual property 
rights

[[Page 41060]]

to a test such as a multi-analyte assay with algorithmic analysis. In 
these instances, the intellectual property rights would belong to the 
sponsoring institution and in many cases, the institution is incapable 
of further developing and validating the test or making it commercially 
available to the general public, or does not wish to do so. Some of the 
reasons given by the commenter for why the academic institution may not 
bring the test to market include, lack of capital, lack of support from 
the institution's laboratory or other facilities, and lack of 
infrastructure. In such cases, the commenter stated, the institution 
would license the intellectual property rights to another entity that 
develops the test for commercialization, and performs clinical trials 
to demonstrate analytic and clinical validity and clinical utility. The 
commenter contends that, even though this entity would only be a 
licensee, it is responsible for developing and validating the test in 
its own laboratory and therefore should be viewed as the successor 
owner for purposes of the definition of ADLT. Further, the commenter 
urged CMS to confirm that, a laboratory that obtains the exclusive 
license to the intellectual property rights for one or more uses of a 
test from the laboratory that ``discovered'' the test is also a 
successor owner.
    Response: An academic institution that creates a test but does not 
fully develop it for use by the public would not be considered the 
original developing laboratory if it is not a laboratory under Sec.  
413.2, and if it does not design, sell, offer, and furnish the test, it 
would not meet the requirements of a single laboratory in the 
definition of ADLT.
    The commenter describes a situation wherein an academic institution 
licenses the intellectual property to another entity that further 
develops the test for commercialization. We believe that by 
``discovering'' the test, the academic institution partially develops 
the test. For instance, a laboratory that purchases the intellectual 
property of the test may rely on the academic institution to develop a 
method the test utilizes or a particular reagent the academic 
institution has patented. In such situations, the laboratory that 
purchased the intellectual property would not be expending its own 
resources on all aspects of the development of the test and therefore, 
could not be considered an original developing laboratory of the test. 
It also could not be a successor owner if the academic institution is 
not the original developing laboratory or a single laboratory. As such, 
the test would not qualify for ADLT status.
    Comment: Many commenters did not agree with our proposal to exclude 
protein-only tests under criterion A of the definition of an ADLT. The 
commenters stated that our proposal would exclude tests that are solely 
comprised of proteins from being considered an ADLT, despite statutory 
language that explicitly includes protein biomarker analysis under 
criterion A. The commenters contend that protein-only diagnostics are 
being used to impact patient care today, and there is no reason why 
complex protein-only tests should not be eligible to be considered 
ADLTs. For example, one commenter stated that multi-analyte protein-
based tests are valuable drivers of innovation in the field of 
precision medicine and in many cases, provide information about a 
patient's disease state that is more detailed and/or advanced than what 
may be drawn from DNA- or RNA-based tests. Another commenter explained 
that a great deal of innovation is occurring with multi-analyte 
protein-based assays with algorithmic analyses, for instance, assays 
for lung nodule cancer determination, autism diagnosis, and prostate 
cancer metastasis risk. The same commenter stated that our proposed 
policy is based on a misinterpretation of the statutory language and 
would block innovators from using an important pathway to bring these 
clinically impactful assays to market. Commenters also noted that the 
Advisory Panel on CDLTs unanimously recommended that we revise our 
proposal to reflect the statutory language and include protein-only 
tests in the definition of an ADLT. Therefore, the commenters strongly 
urged us to revise criterion A of the proposed definition of an ADLT to 
permit tests that are solely comprised of proteins to be eligible for 
ADLT status.
    Response: We agree that complex protein-only tests may provide 
information about a patient's disease state that is more comprehensive 
and/or advanced than what may be obtained from DNA- or RNA-based tests, 
and valuable innovation is occurring within multi-analyte protein-based 
assays, which would be consistent with our view that ADLTs are 
innovative tests that are new and different from any prior test already 
on the market. Therefore, we agree that protein-only tests should be 
eligible for ADLT status under criterion A. Because ADLTs are advanced 
tests that are apt to be complex, however, we would expect only complex 
protein-only tests to qualify for ADLT status as discussed further 
below. Therefore, we are revising criterion A of the definition of an 
ADLT to include tests that are solely comprised of proteins.
    In addition, we are not finalizing our proposal under criterion A 
that a test must be a molecular pathology analysis of multiple 
biomarkers of DNA or RNA. In the proposed rule (80 FR 59397 through 
59398) we stated that tests that analyze nucleic acids (DNA or RNA) are 
molecular pathology analyses, and we therefore proposed that, under 
criterion A, a test must be a molecular pathology analysis of RNA or 
DNA. Because we are now including protein-only tests under criterion A, 
and protein-only tests are not molecular pathology tests, we are 
removing the requirement that an ADLT must be a molecular pathology 
test. The definition of ADLT in Sec.  414.502(1)(i) is revised to state 
that it is an analysis of multiple biomarkers of deoxyribonucleic acid 
(DNA), ribonucleic acid (RNA), or proteins.
    Comment: Many commenters objected to our proposed definition of a 
``unique algorithm,'' asserting that the statute requires the algorithm 
to be unique but not the result it produces. The commenters contend 
that the concept of ``unique'' only applies to the algorithm itself and 
not to the patient-specific result. Additionally, one commenter 
asserted that the statutory reference to a unique algorithm means that 
one ADLT must be different from other ADLTs. The same commenter stated 
that if a test comprises multiple biomarkers of DNA, RNA or proteins, 
incorporates an algorithm to provide a patient-specific result, and was 
developed by a single laboratory, there should be a presumption that 
the test comprises a unique algorithm because the test is the product 
of the development activities of the single laboratory. Another 
commenter stated that the statutory term ``single patient-specific 
result'' is sufficiently clear and does not require further 
interpretation, and that it would be unwise for us to be overly 
prescriptive in defining ADLT because it may prevent qualified tests 
from being considered ADLTs. Many commenters also mentioned that the 
Advisory Panel on CDLTs recommended that the definition of unique 
algorithm reflect the text of the statute. Therefore, the commenters 
recommended that we revise the definition of ADLT with respect to the 
unique algorithm to reflect the exact statutory language under 
criterion A.
    Response: We considered the commenters' suggestion to use only the 
exact statutory language and not define unique algorithm as we proposed 
to do. However, we do not agree with this

[[Page 41061]]

approach for the following reasons. First, using only the exact 
language of the statute would leave the public without any specific 
guidance on how to interpret ``unique algorithm to yield a single, 
patient-specific result,'' and would leave us with no criteria by which 
to evaluate whether a test meets that requirement. Second, without such 
criteria, the requirement that a test have a ``unique algorithm to 
yield a single, patient-specific result'' would be, to some extent, 
self-determined by each laboratory requesting ADLT status. Without 
specific guidance, the laboratory seeking ADLT status would interpret 
the requirements under criterion A in whatever manner it chose, which 
could potentially vary depending on the test, and which could also vary 
from other laboratory interpretations. Third, if not further defined, 
the criterion could apply very broadly to nearly any test on the CLFS 
that is only done by one laboratory, which would be inconsistent with 
our view that ADLTs are innovative tests that are new and different 
from any test already on the market. Therefore, we believe it is 
necessary for us to interpret what it means for a unique algorithm to 
yield a single, patient-specific result, and to use that interpretation 
in establishing the requirements a test must meet to qualify as an 
ADLT. Additionally, as noted previously in this section, we are 
revising criterion A of the definition of an ADLT to include protein-
only tests. However, we continue to have concerns about granting ADLT 
status for protein-only tests that are not advanced tests. To that end, 
we believe our proposed application of the unique algorithm requirement 
ensures that simple protein analyses would not be considered advanced 
tests as they are not likely to produce a patient-specific result that 
cannot be provided by any other test.
    For the reasons discussed previously in this section, we are 
finalizing our proposal for the unique algorithm, and will reflect it 
in the definition of ADLT under criterion A as proposed.
    Comment: One stakeholder urged us to remove the requirement that 
the test must provide new clinical diagnostic information that cannot 
be obtained from any other test or combination of tests. It contends 
that this requirement may limit competition among tests in the 
marketplace and allow an inferior test to monopolize the marketplace 
due only to its first-comer advantage.
    Response: As noted previously, our view is that ADLTs are 
innovative tests that are new and different from any test already on 
the market, which is, in part, how we interpret the requirement that 
the test uses a unique algorithm. We indicated in the proposed rule (80 
FR 59398) that our proposed requirements for criterion A, including 
that the test must provide new clinical diagnostic information that 
cannot be obtained from any other test or combination of tests, derive 
from our view of ADLTs. We do not believe the requirement, that the 
test must provide new clinical diagnostic information that cannot be 
obtained from any other test or combination of tests, will limit 
competition among tests and enable the test that is developed first to 
dominate the marketplace. For a new test(s) that is covered under 
Medicare Part B and that improves upon an ADLT, if that later test does 
not qualify as an ADLT, it would nonetheless be paid as a CDLT based on 
the median private payor rate methodology, as would the ADLT after the 
new ADLT initial period.
    Comment: One commenter stated that Congress did not intend for 
information that results from the test to be new and otherwise 
unobtainable from any other test(s). The commenter believes this 
additional criterion is more suitable for a coverage determination than 
for a determination of whether a test qualifies as an ADLT.
    Response: A Medicare coverage analysis for a given CDLT is a 
separate, independent process from the determination of ADLT status. 
Whereas a coverage analysis would evaluate whether a laboratory test is 
reasonable and necessary for the diagnosis or treatment of an illness 
or injury (and within the scope of a Medicare benefit category), the 
ADLT application process will determine whether a test qualifies for 
special temporary payment status under the CLFS. Section 1834A(d)(5)(A) 
of the Act requires a test to yield a single patient-specific result. 
The requirement we are finalizing--that the test must provide new 
clinical diagnostic information that cannot be obtained from any other 
test or combination of tests--is the means by which we are implementing 
that statutory requirement. The policy is consistent with our overall 
view of ADLTs, and we believe it is appropriate and consistent with the 
statute.
    Comment: One commenter stated that it appears an FDA-cleared or 
approved CDLT would qualify as an ADLT only if it was also offered and 
furnished by a single laboratory and not sold for use by a laboratory 
other than the laboratory that designed the test, or a successor owner 
of that laboratory. If that is the case, then FDA-cleared or approved 
tests that are designed, marketed, and distributed by manufacturers to 
multiple labs for ``off-the-shelf'' (for example, unmodified) use would 
not qualify as ADLTs. The commenter requested clarification in the 
final rule as to whether this interpretation is correct.
    Response: The commenter is correct. In order to qualify for ADLT 
status, a test that is cleared or approved by the FDA must also be 
offered and furnished by a single laboratory and not sold for use by a 
laboratory other than the original developing laboratory or a successor 
owner. As discussed previously in this section, the definition of an 
ADLT consists of two parts. All tests must meet the first part of the 
definition which, as we note above, requires the test to be offered and 
furnished only by a single laboratory and not sold for use by a 
laboratory other than the original developing laboratory or a successor 
owner. All tests must also meet the second part of the definition, but 
the second part presents three alternative criteria, only one of which 
must be met (note, we are not implementing the third criterion, C, in 
this final rule). If a test is FDA-cleared or approved, but sold to 
multiple labs as a kit for ``off-the-shelf'' use, then the test is 
offered and furnished by more than a single laboratory and would not 
qualify for ADLT status.
    Comment: One commenter recommended that we retain flexibility 
outside of the annual rulemaking process to implement criterion C of 
the definition of an ADLT. Specifically, the commenter urged us to 
consider allowing MACs to apply criterion C using criteria developed by 
CMS that would utilize the MACs' assessment of clinical, technological, 
and resource similarities to other tests that have already attained 
ADLT status. Another commenter urged CMS to create a simple process 
under criterion C to allow laboratories to apply for ADLT status for 
tests that do not meet criterion (A) or (B).
    Response: We appreciate the suggestions for how we might establish 
additional criteria for determining ADLT status. As discussed 
previously in this section, we did not propose to exercise our 
authority to establish other criteria by which to determine ADLT status 
under criterion C of section 1834A(d)(5)(C) of the Act. If we decide in 
the future to exercise that authority, we would propose any additional 
criteria through notice and comment rulemaking so the public would have 
an opportunity to comment.
    Comment: One commenter agreed with our proposal to define a new 
ADLT as an ADLT for which payment has not been made under the CLFS 
prior to January 1, 2017.

[[Page 41062]]

    Response: As we discussed in the proposed rule, we interpreted two 
sections of the statute together to determine that new ADLTs would be 
ADLTs for which payment has not been made under the CLFS prior to 
January 1, 2017. Section 1834A(d)(1)(A) of the Act requires special 
payment for ADLTs for which payment has not been made under the CLFS 
prior to April 1, 2014 (the enactment date of PAMA). Section 1834A(i) 
of the Act provides that, between April 1, 2014 and December 31, 2016, 
we must price ADLTs using the methodologies in effect on March 31, 
2014. Because the statute specifies the payment methodology for new 
ADLTs, which is not the methodologies in place as of April 1, 2014 
(crosswalking and gapfilling), we reasoned that new ADLTs would be 
those tests first paid on the CLFS after December 31, 2016.
    The proposed definition of new ADLT correlated to the proposed 
implementation date of the private payor rate-based CLFS, January 1, 
2017. However, as we discuss in this final rule, in response to 
comments, we are moving the implementation date of the private payor 
rate-based CLFS to January 1, 2018. We believe it is also appropriate 
to adopt a corresponding change for new ADLTs because the statute 
requires new ADLTs to be paid based on private payor rates after the 
new ADLT initial period. If we were to retain the proposed 
implementation date for new ADLTs, it could result in a new ADLT 
receiving payment based on the median private payor rate before January 
1, 2018. For example, if the initial period for a new ADLT were to end 
on September 30, 2017, payment would then be based on the weighted 
median private payor rate beginning October 1, 2017, which would be 
prior to the January 1, 2018 implementation schedule for the new 
private payor rate-based CLFS. Therefore, the January 1, 2018 
implementation date will apply to CDLTs (that are not ADLTs), as well 
as new ADLTs. In conjunction with this change, the payment amount for 
existing ADLTs will be determined based on crosswalking and gapfilling 
for ADLTs furnished through December 31, 2017, instead of December 31, 
2016.
    We are revising the definition of new ADLT in Sec.  414.502 to 
reflect that a new ADLT is an ADLT for which payment has not been made 
under the CLFS prior to January 1, 2018. We are also making a 
conforming revision to Sec.  414.507(h) to indicate that the payment 
amount for ADLTs that are furnished between April 1, 2014, and December 
31, 2017, is based on the crosswalking or gapfilling methods described 
in Sec.  414.508(a).
    Comment: A few commenters urged us to clarify the process for 
laboratories to pursue an ADLT designation. The commenters stated that 
the statutory definition of ADLT is straightforward and the application 
process should be equally straightforward to minimize the 
administrative burden. One commenter recommended that any application 
process by which laboratories would apply for ADLT status should 
consist of an objective checklist of the statutory criteria, and be 
submitted by ADLT applicants and reviewed by CMS on a quarterly basis.
    Response: As discussed in the proposed rule, we plan to establish 
an application process for laboratories requesting ADLT status after 
publication of the CLFS final rule. The information laboratories will 
need to provide in their application will be consistent with the 
definition of ADLT in Sec.  414.502. For example, we will provide 
instructions for how an ADLT applicant will need to demonstrate that 
the test is offered and furnished by a single laboratory and has not 
been sold for use by a laboratory other than the laboratory that 
designed the test, or a successor owner of that laboratory. We will 
also specify the information applicants must submit to demonstrate how 
the test meets the requirements of criterion A or criterion B. 
Additionally, we will specify the timeframes by which ADLT applications 
will be reviewed by us, how and when applicants will be notified of our 
decision, and the process by which an ADLT would receive a unique HCPCS 
code. We appreciate commenters' input that ADLT applications should be 
submitted and reviewed by us on a quarterly basis, and we will take 
that into consideration as we establish the schedule for requesting and 
approving ADLT status for a laboratory test. All of this detail will be 
provided through subregulatory guidance after the final rule is 
published.
    Comment: Several commenters believe that Congress did not intend 
for a laboratory's confidential information to have to be provided to 
us for the agency to be able to determine whether a test meets the 
definition of an ADLT. They pointed to the statute, which did not 
confer explicit protection from disclosure under the Freedom of 
Information Act (FOIA) to ADLT information submitted to us, as it did 
in section 1834A(a)(11) of the Act for applicable information. 
Therefore, the commenters urged us to only require the submission of 
publicly available information that would describe the algorithm and 
assay, but would not require applicants to submit proprietary 
information about the algorithm and assay. Alternatively, the 
commenters requested that any proprietary information required by us, 
or included voluntarily by the ADLT applicant in its ADLT application, 
be automatically protected from public disclosure under 5 U.S.C. 
552(b)(4) as a trade secret.
    Response: As discussed in the proposed rule (80 FR 59398 through 
59399), the statute provides for the confidentiality only of applicable 
information disclosed by a laboratory under section 1834A(a) of the 
Act. The confidentiality of information provision, section 1834A(a)(10) 
of the Act, does not apply to section 1834A(d) of the Act, which 
relates to the requirements a test must meet to be an ADLT. We 
explained, however, that information in an ADLT application might be 
protected from public disclosure, even though it is not explicitly 
protected from disclosure under the confidentiality provisions of the 
statute.
    Specifically, we indicated that, although the statute does not 
explicitly protect ADLT application information from release under FOIA 
(as it does under section 1834A(a)(11) of the Act for applicable 
information), FOIA does include an exemption for trade secrets and 
commercial and financial information obtained from a person that is 
privileged or confidential. While we do not have the authority to 
provide automatic protection from public disclosure under this FOIA 
exemption, (b)(4), if an applicant submits an ADLT application that 
includes trade secrets or certain commercial or financial information, 
specified above, it is possible the information could be withheld from 
public disclosure under FOIA exemption (b)(4). An applicant that wishes 
to protect the information submitted in an ADLT application would mark 
it proprietary and confidential, and substantiate that statement by 
expressly claiming substantial competitive harm if the information is 
disclosed, and demonstrating such in a separate statement by explaining 
how the release would cause substantial competitive harm pursuant to 
the process in E.O. 12600 for evaluation by us. Because there is no 
guarantee such information will be withheld, however, laboratories will 
have to decide for themselves whether to apply for ADLT status and risk 
the possibility of public disclosure of information they do not want to 
be publicly disclosed. However, we note that we would only be requiring 
information relevant to determining whether a test qualifies as an 
ADLT. Please see additional comments and responses related to 
confidentiality and

[[Page 41063]]

public release of data in section II.F. of this final rule.

D. Data Collection and Data Reporting

1. Definitions
    Section 1834A(a) of the Act requires applicable laboratories to 
report applicable information. The information is gathered or collected 
during a ``data collection period'' and then reported to the Secretary 
during a ``data reporting period.'' Under the statute, the Secretary is 
to specify the period of time for the data collection period and the 
timeframe for the data reporting period. In this section, we proposed 
to define the terms ``data collection period'' and ``data reporting 
period.'' In determining what the proposed data collection and data 
reporting periods should be, we considered our objectives to: (1) 
Provide applicable laboratories sufficient notice of their obligation 
to collect and report applicable information to CMS; (2) allow 
applicable laboratories enough time to collect and report applicable 
information; (3) give CMS enough time to process applicable information 
to determine a CLFS payment rate for each laboratory test; and (4) 
publish new CLFS payment rates at least 60 days in advance of January 1 
so laboratories will have sufficient time to review the data used to 
calculate CLFS payment rates and prepare for implementation of the new 
CLFS rates on January 1.
    Section 1834A(a)(4) of the Act defines the term ``data collection 
period'' as a period of time, such as a previous 12-month period, 
specified by the Secretary. We believed the data collection period 
should be a full calendar year, for example, January 1 through December 
31, because a full calendar year of applicable information would 
provide a comprehensive set of data for calculating CLFS rates. In 
addition, we chose to define a data collection period as a calendar 
year as opposed to, for example, a federal fiscal year (October through 
September), so the data collection period would coordinate with the 
timing of the CLFS payment schedule, wherein updated CLFS payment rates 
are in effect on January 1 of each year. We also believed the data 
collection period should immediately precede the data reporting period, 
which is the time period during which applicable laboratories must 
report applicable information to us. For example, the data reporting 
period for the 2018 data collection period (January 1, 2018, through 
December 31, 2018) would begin on January 1, 2019. We believed that 
having the data collection period immediately precede the data 
reporting period would result in more accurate reporting by 
laboratories and, thus, more accurate rate setting by us, because 
laboratories would have more recent experience, and therefore, be more 
familiar with the information they are reporting. Further, we believed 
that starting the data reporting period immediately after the data 
collection period would limit the lag time between reporting applicable 
information and the use of that applicable information to determine 
Medicare CLFS payments, thus ensuring that we are using the most recent 
data available to set CLFS payment rates. For these reasons, we 
proposed to codify in Sec.  414.502 that the data collection period is 
the calendar year during which an applicable laboratory collects 
applicable information and that immediately precedes the data reporting 
period.
    We proposed a different timeline for the 2015 data collection 
period, which would have begun July 1, 2015, and ended December 31, 
2015. While our preference would have been for the data collection 
period to be a full calendar year, as we proposed for subsequent data 
collection periods, and for it to begin after publication of proposed 
and final rules implementing section 1834A of the Act, we believed the 
statute contemplated the possibility that the first data collection 
period would begin prior to publication of regulations establishing the 
parameters for data collection. Given that the statute, which was 
enacted on April 1, 2014, required us to establish the parameters for 
data collection through rulemaking by June 30, 2015, the first data 
collection period that would allow for reporting in 2016 and 
implementation of the new payment system on January 1, 2017, would have 
to have been in 2015. As the statute indicates that a data collection 
period could be a 12-month period, and data collection requirement 
regulations did not have to be complete until June 30, 2015, we 
believed the statute anticipated that the first data collection period 
would begin prior to publication of the June 30, 2015 regulations, that 
is, 6 months prior to a final regulation. In addition, section 
1834A(a)(4) of the Act does not require the data collection period to 
be a 12-month period, but rather, suggests that it could be, and 
provides us the authority to determine the length of the period. 
Therefore, although we could have chosen to make the 2015 data 
collection period a full calendar year, given that laboratories would 
not have notice of the data collection period until our regulations 
were proposed and finalized, we believed it was reasonable to limit the 
time period of the first data collection period to 6 months, which 
would have been consistent with the length of time the data collection 
period would have been in effect prior to a final rule if we had 
adopted a full calendar year data collection period in 2015 and 
published regulations specifying that to be the case on June 30, 2015. 
While we believed a full calendar year of data would be the most robust 
and comprehensive for setting CLFS payment rates, we stated in the 
proposed rule that we believed the 6-month data collection period in 
2015 would still provide sufficient, reliable data with which to set 
rates that accurately reflect private payor rates. Therefore, we 
proposed to include in the definition of data collection period in 
Sec.  414.502 that the data collection period for 2015 would be July 1, 
2015 through December 31, 2015.
    Under section 1834A(a)(1) of the Act, beginning January 1, 2016, 
and every 3 years thereafter (or annually in the case of an ADLT), each 
applicable laboratory must report applicable information to the 
Secretary at a time specified by the Secretary. We believed applicable 
laboratories should have 3 months during which to submit applicable 
information from the corresponding data collection period, that is, the 
calendar year immediately preceding the data reporting period. For 
example, for purposes of calculating CY 2017 CLFS rates, the data 
collection period would have begun on July 1, 2015, and ended on 
December 31, 2015, and the data reporting period would have been 
January 1, 2016 through March 31, 2016. We believed a 3-month data 
reporting period would be a sufficient amount of time for applicable 
laboratories to report applicable information to us. As we explained in 
the proposed rule, it would give us adequate time to calculate CLFS 
payment amounts, upload the CLFS rates on Medicare's claims processing 
systems, and make that data publicly available (preliminarily in 
September and then a final version in November) before the CLFS rates 
would go into effect on the following January 1. Given the magnitude of 
the potential changes in CLFS payment rates, to give the industry 
sufficient time to prepare for the next year's fee schedule, we 
believed final CLFS rates for the following year should be published at 
least 60 days prior to the beginning of the next calendar year, or no 
later than November 1. For these reasons, we proposed that the 
definition of ``data reporting period'' in Sec.  414.502 be the 3-month 
period during which an applicable laboratory reports applicable 
information to CMS and that

[[Page 41064]]

immediately follows the data collection period.
    Table 1 illustrates the proposed data collection period, data 
reporting period, and CLFS rate year for which the data would have been 
used for CDLTs.

    Table 1--Proposed Data Collection and Reporting Periods for CDLTs
------------------------------------------------------------------------
                                 Data reporting      Used for CLFS rate
   Data collection period            period                 years
------------------------------------------------------------------------
7/1/2015-12/31/2015.........  1/1/2016-3/31/2016..  2017-2019.
1/1/2018-12/31/2018.........  1/1/2019-3/31/2019..  2020-2022.
Continues every 3rd           Continues every 3rd   New CLFS rate every
 subsequent calendar year.     subsequent calendar   3rd year for 3
                               year.                 years.
------------------------------------------------------------------------

    As indicated in this section, we proposed that applicable 
information must be reported annually for ADLTs and follow the above 
proposed data collection schedule on an annual basis after the first 
data collection period, which would be for the first and second 
quarters of the new ADLT initial period, and reported to us by the end 
of the second quarter of the new ADLT initial period (described in more 
detail later in this section).
2. General Data Collection and Data Reporting Requirements
    Section 1834A(a)(1) of the Act requires applicable laboratories, 
beginning January 1, 2016, to report applicable information on CDLTs 
that are not ADLTs every 3 years, and every year for ADLTs, at a time 
specified by the Secretary. As we discussed previously, we proposed 
that the data collection period during which applicable laboratories 
collect applicable information would be the calendar year immediately 
prior to the data reporting period. Thus, the data reporting period is 
a 3-month period that would occur each year for ADLTs, from January 1 
through March 31, and every third year, from January 1 through March 
31, for all other CDLTs (for example, 2016, 2019, 2022, etc.). We 
proposed to establish these data reporting requirements in Sec.  
414.504(a).
    Section 1834A(a)(3)(A) of the Act requires applicable information 
to be the rate paid by each private payor for the test and the 
associated volume of such tests for each such payor during the data 
collection period. In addition, section 1834A(a)(6) of the Act 
specifies that, in the case where an applicable laboratory has more 
than one payment rate for the same payor for the same test or more than 
one payment rate for different payors for the same test, the applicable 
laboratory must report each such payment rate and the volume for the 
test at each such rate. Furthermore, section 1834A(a)(6) of the Act 
provides that, beginning January 1, 2019, the Secretary may establish 
rules to aggregate reporting, that is, permit applicable laboratories 
to combine the prices and volumes for individual tests. We explained 
that we understand this to mean that, absent rules set by the Secretary 
(in 2019 or later), applicable laboratories may not aggregate data by 
laboratory test in reporting applicable information. Taken together, 
these provisions indicated to us that an applicable laboratory must 
report applicable information for every test it performs for each 
private payor, including both the amounts paid and volume. This means, 
should a rate for a private payor change during the data collection 
period, an applicable laboratory would report both the old and new 
rates and the volume of tests associated with each rate. We realized 
the amount of applicable information could be voluminous for those 
applicable laboratories that offer a large number of tests. However, we 
believed the statute requires comprehensive reporting of applicable 
information so the Medicare CLFS rates accurately reflect the rates 
paid by private payors to laboratories. Our proposed definition of 
applicable information in Sec.  414.502 states that applicable 
information, with respect to each CDLT for a data collection period, 
includes each private payor rate and the associated volume of tests 
performed corresponding to each private payor rate, so our proposed 
requirement at Sec.  414.504(a) covers the requirement for applicable 
laboratories to report the private payor rate for every laboratory test 
it performs, and to account for the volume of tests furnished at each 
rate. We explained that this requirement means an applicable laboratory 
that has more than one payment rate for the same payor for the same 
test, or more than one payment rate for different payors for the same 
test, must report each such payment rate and the volume for the test at 
each such rate.
    To minimize the reporting burden on applicable laboratories and to 
avoid collecting personally identifiable information, we proposed that 
we would only require applicable laboratories to report the minimum 
information necessary to enable us to set CLFS payment rates. We 
indicated that we would specify the form and manner for reporting 
applicable information in guidance prior to the first data reporting 
period, but generally, in reporting applicable information, we would 
expect laboratories to report the specific HCPCS code associated with 
each laboratory test, the private payor rate or rates associated with 
the HCPCS code, and the volume of laboratory tests performed by the 
laboratory at each private payor rate. We would not permit applicable 
laboratories to report individual claims because claims include more 
information than we need to set payment rates and they contain 
personally identifiable information. We also would not permit 
applicable laboratories to report private payor names because section 
1834A(a)(11) of the Act prohibits a payor from being identified on 
information reported by the applicable laboratory. Our guidance would 
reflect these instructions. Accordingly, we proposed to include in our 
data reporting requirements at Sec.  414.504(b), that applicable 
information must be reported in the form and manner specified by CMS.
3. Data Reporting Requirements for New ADLTs
    Section 1834A(d)(1)(A) of the Act requires the payment amount for 
new ADLTs to be based on actual list charge for an ``initial period'' 
of 3 quarters, but does not specify when this initial period of 3 
quarters begins. We believed the initial period should start and end on 
the basis of a calendar quarter, so that the first day of the initial 
period would be the first day of a calendar quarter, and the last day 
of the initial period would be the last day of a calendar quarter (for 
example, January 1 and March 31, April 1 and June 30, July 1 and 
September 30, or October 1 and December 31). We proposed this policy to 
be consistent with how applicable information would be reported for 
CDLTs (on the basis of a calendar year, that is, 4 quarters of 
applicable information) and how CLFS payment rates would be updated 
(also on the basis of a calendar year). We explained in the proposed 
rule that this

[[Page 41065]]

consistency is important so that after the new ADLT initial period is 
over, all CLFS payment rates (for CDLTs and ADLTs) would be posted 
publicly at the same time. Further, CMS updates all of its payment 
systems on the basis of a calendar quarter, and we believed consistency 
with all other CMS data systems would facilitate implementation and 
updates to the CLFS. Beginning and ending the new ADLT initial period 
on the basis of a calendar quarter would also be consistent with 
average sales price reporting for Medicare Part B drugs under section 
1847A of the Act and desirable for the reasons stated above. If we were 
to start the initial period during a calendar quarter, then the end of 
the Q2 (the time by which applicable laboratories must report 
applicable information for new ADLTs) would also occur during a 
calendar quarter, which would mean applicable laboratories would be 
reporting applicable information for new ADLTs during a calendar 
quarter. Further, if an initial period of 3 quarters ended during a 
calendar quarter, we would have to begin paying for the ADLT using the 
methodology under section 1834A(b) of the Act during a calendar 
quarter. For these reasons, we proposed to start the initial period on 
the first day of the first full calendar quarter following the first 
day on which a new ADLT is performed. We proposed to refer to the 
initial period for new ADLTs as the ``new ADLT initial period,'' and to 
codify the definition in Sec.  414.502.
    Section 1834A(d)(2) of the Act requires applicable laboratories to 
report applicable information for new ADLTs not later than the last day 
of the Q2 of the initial period. The applicable information will be 
used to determine the CLFS payment amount (using the weighted median 
methodology; see our discussion of the proposed CDLT payment 
methodology at 80 FR 59404 through 59406) for a new ADLT after the new 
ADLT initial period. We proposed to codify the reporting requirement 
for new ADLTs in Sec.  414.504(a)(3).
    We provided the following as an example of the proposed reporting 
and payment schedule for a new ADLT: A new ADLT that is first performed 
by an applicable laboratory during the Q1 of 2017 (for example, 
February 4, 2017) would start its initial period on the first day of 
the Q2 of 2017 (April 1, 2017). The new ADLT initial period would last 
for 3 full quarters, until the end of the Q4 of 2017 (December 31, 
2017). The applicable laboratory would be required to report applicable 
information for the new ADLT by the end of the Q2 of the new ADLT 
initial period, which would be, in this example, the end of the Q3 of 
2017 (September 30, 2017). These data would be used to calculate the 
payment amount for the new ADLT, which would be applied after the end 
of the new ADLT initial period, or starting Q1 2018 (January 1, 2018). 
This payment amount would last through the remainder of CY 2018. The 
new ADLT would then follow the annual reporting schedule for existing 
ADLTs, that is, CY 2017 applicable information would be reported 
between January 1, 2018 through March 31, 2018, and the applicable 
information would then be used to establish the payment amount for the 
ADLT that takes effect on January 1, 2019.
    Table 2 illustrates the proposed data collection and reporting 
periods for a new ADLT using the above example.

                      Table 2--Proposed Data Collection and Reporting Periods for New ADLTs
----------------------------------------------------------------------------------------------------------------
                                                        Data collection     Data reporting    Used for CLFS rate
      ADLT first performed          Initial period          period              period               year
----------------------------------------------------------------------------------------------------------------
02/04/2017......................  04/01/2017-12/31/   04/01/2017-09/30/   By 09/30/2017.....  2018-2019.
                                   2017.               2017.
                                                      01/01/2018-12/31/   01/01/2019-03/31/   2020.
                                                       2018.               2019.
----------------------------------------------------------------------------------------------------------------

    A summary of the comments we received on the proposals for data 
collection and reporting and our responses are discussed below.
    Comment: Many commenters urged us to move the implementation date 
of the private payor-based rates for the CLFS to January 1, 2018. The 
commenters stated that a January 1, 2017 implementation date does not 
allow sufficient time following release of a final rule for 
laboratories to build their information systems to collect, assess, and 
report the required data. The commenters contended that insufficient 
lead time could result in inaccurate reporting and increase their risk 
of being sanctioned with civil monetary penalties. Another commenter 
stated that the proposed implementation schedule does not provide an 
adequate amount of time for us to thoughtfully consider recommendations 
by stakeholders and, if necessary, develop modifications to the rule. 
The same commenter stated that laboratories subject to reporting may 
not have adequate time to prepare for reporting, especially in the 
absence of the regulatory guidance that we would release at a later 
date.
    The commenters suggested that a January 1, 2018 implementation date 
would provide applicable laboratories sufficient notice of their 
obligation to collect and report applicable information and adequate 
time to collect and report the information to us. They asserted that 
moving the implementation date out by 1 year would also allow us enough 
time to process the private payor data and calculate and publish the 
new CLFS rates at least 60 days prior to implementation. In addition, 
many commenters stated that the recommendation to move the 
implementation date of the new system to January 1, 2018 is consistent 
with PAMA, which required us to publish a final rule by June 30, 2015 
to enable new rates to be in effect on January 1, 2017, thereby 
contemplating an 18-month period from the date of the final rule to the 
implementation of the new rates.
    Response: We recognize that entities will need sufficient time 
after the publication of the final rule to build the information 
systems necessary to collect private payor rates, and review and verify 
the data collected to ensure their accuracy. We understand that a 
moving the implementation date to January 1, 2018 would allow for those 
activities as well as independent validation testing of our system to 
which reporting entities will report applicable information and could 
also provide laboratories time to perform end user testing prior to the 
data reporting period. A January 1, 2018 implementation date would also 
allow laboratories to complete the registration processes for 
submitting applicable information well ahead of the data reporting 
period. We also appreciate that stakeholders are particularly concerned 
about having sufficient time to prepare for the new CLFS in light of 
the potential for civil monetary penalties. For all of these reasons, 
we agree with the commenters that we should move the implementation 
date of the new CLFS. As the majority of commenters indicated a January 
1, 2018 implementation date would be sufficient, we are moving the

[[Page 41066]]

implementation date of the new CLFS to January 1, 2018. We are revising 
the data reporting schedule accordingly at Sec.  414.504(a)(1) and (2) 
to require that, for CDLTs and ADLTs that are not new ADLTs, the data 
reporting period is a three-month period that occurs every 3 years 
beginning January 1, 2017.
    Comment: We received comments from stakeholders requesting a 
January 1, 2019 implementation date for the revised CLFS. The 
commenters stated that moving the implementation date to January 1, 
2019 would allow us enough time to finalize the rule and related 
guidance and for community laboratories to build systems and processes 
as necessary for compliance. The commenters recommended that the 
initial data collection period should be the first 6 months of 2017 
(January 1, 2017 through June 30, 2017) and the initial data reporting 
period should be January 1, 2018 through March 31, 2018, with private 
payor-based rates effective on January 1, 2019. The commenters urged us 
to recognize the immense challenges many laboratories, particularly 
small and mid-size community laboratories, will face in implementing 
the new requirements while also maintaining their regular business 
practices of providing and billing for laboratory testing services.
    Response: We considered moving the implementation date of the 
revised CLFS to January 1, 2019. However, based on the majority of 
comments we received on this issue, we are convinced that a January 1, 
2018 implementation date is sufficient for laboratories to develop the 
necessary information systems to collect private payor rates and report 
applicable information. We note that, as discussed in section II.A., 
the low expenditure threshold will exclude laboratories that receive a 
relatively small amount of revenues under the CLFS from the definition 
of applicable laboratory. Therefore, we believe many of the community 
and physician office laboratories that would prefer that we implement 
the revised CLFS beginning January 1, 2019 will not meet the definition 
of applicable laboratory and will be excluded from the data reporting 
requirements.
    Comment: Many stakeholders requested that we revise the data 
collection period from a full calendar year to 6 months and that we 
include a 6-month window between the end of the data collection period 
and the beginning of the data reporting period. The commenters 
explained that laboratories will need a minimum of 6 months to 
determine whether they are applicable laboratories for purposes of 
reporting private payor rates and if they are, to collect, format, 
organize, validate, and submit their data. The commenters contend that 
a 6-month window between the end of the data collection period and the 
beginning of the data reporting period will allow laboratories, which 
have no experience collecting and reporting private payor data to us, 
the necessary time to reconcile payment information with a multitude of 
private payors and review the accuracy of the collected data prior to 
submission. Commenters also recommended all data collection periods, 
both initial and subsequent, be 6 months instead of a full calendar 
year. One laboratory organization, which supported a 6-month data 
collection period followed by a 6-month gap before the data reporting 
period, commented that it performed its own analysis and found the 
weighted median payment amounts derived from 6 months of private payor 
data to be ``generally consistent'' with the weighted median private 
payor rates derived from a full year of data. Given these findings, the 
commenter believed we would be able to capture the data we need to 
calculate accurate market-based Medicare payment rates with a 6-month 
data collection period.
    Response: We recognize that the data collection and reporting 
requirements in this final rule are new requirements with which the 
industry has no experience yet, and we understand the commenters' 
concerns that ample time be allotted for laboratories to review and 
verify the data collected before reporting it to us. We believe giving 
laboratories a 6-month period of time between the data collection and 
reporting periods will lead to higher quality data because laboratories 
will have the opportunity to ensure the data are complete and accurate. 
Additionally, as discussed in the proposed rule (80 FR 59400), although 
we believe a full calendar year of data would provide us with a robust 
and comprehensive dataset for determining CLFS payment rates, we also 
believe a 6-month data collection period will provide sufficient, 
reliable data on which to accurately set rates. Therefore, we are 
revising the data collection period as stakeholders suggest.
    After we begin to obtain applicable information under the new 
private payor rate-based CLFS, we will evaluate the quality and 
quantity of applicable information reported in a 6-month data 
collection period. We will also evaluate whether a 6-month window 
before the reporting period continues to be necessary once the 
laboratory industry has more experience with the new CLFS. If we 
determine that a longer data collection period is necessary or 
appropriate, or that a 6-month period after the data collection period 
is no longer needed, we may propose modifications to our policies, 
which we would do through notice and comment rulemaking.
    We are finalizing a 6-month data collection period, from January 1 
through June 30, for all data collection periods, initial and 
subsequent. Because we are moving the implementation of the new CLFS to 
January 1, 2018, we no longer need to provide a shortened time frame 
for the initial data collection period, so we are no longer 
distinguishing the initial data collection period from subsequent data 
collection periods in the definition of data collection period in Sec.  
414.502. We are also finalizing the proposed 3-month data reporting 
period, from January 1 through March 31, for a data reporting period 
following a data collection period. This means entities will have six 
months between the end of the data collection period and the beginning 
of the data reporting period. We are revising the definition of data 
collection period in Sec.  414.502 to read: Data collection period is 
the 6 months from January 1 through June 30 during which applicable 
information is collected and that precedes the data reporting period.
    Table 3 illustrates the final data collection and reporting 
periods, as described above, and the CLFS rate year for which the data 
will be used for CDLTs.

                         Table 3--Final Data Collection and Reporting Periods for CDLTs
----------------------------------------------------------------------------------------------------------------
      Data collection period            Six month window        Data reporting period   Used for CLFS rate years
----------------------------------------------------------------------------------------------------------------
1/1/2016-6/30/2016...............  7/1/2016-12/31/2016......  1/1/2017-3/31/2017......  2018-2020.
1/1/2019-6/30/2019...............  7/1/2019-12/31/2019......  1/1/2020-3/31/2020......  2021-2023.
Continues every 3rd subsequent     Continues every 3rd        Continues every 3rd       New CLFS rate every 3rd
 calendar year.                     subsequent calendar year.  subsequent calendar       year.
                                                               year.
----------------------------------------------------------------------------------------------------------------


[[Page 41067]]

    Comment: One commenter, that also urged us to implement the new 
CLFS on January 1, 2018, recommended that CMS implement the new ADLT 
payment methodology on January 1, 2017 as proposed. Additionally, the 
commenter stated that assignment of specific codes for ADLTs should 
proceed on time as intended by statute. The commenter contends that, 
because data collection for new ADLTs would not begin until 2017, 
delaying implementation of the new ADLT payment methodology is not 
necessary to accommodate any change we might adopt in reporting for 
existing ADLTs and CDLTs.
    Response: As discussed in section II.A. of this final rule, the 
proposed definition of new ADLT correlated to the proposed 
implementation date of the private payor rate-based CLFS, January 1, 
2017. As we discuss previously in this section, in response to 
comments, we are moving the implementation date of the private payor 
rate-based CLFS to January 1, 2018. We believe it is also appropriate 
to adopt a corresponding change in the implementation date for new 
ADLTs because the statute requires new ADLTs to be paid based on 
private payor rates after the new ADLT initial period. If we were to 
retain the proposed implementation date for new ADLTs, conceivably, 
they could start being paid based on the median private payor rate 
before the revised CLFS is implemented. For example, if a new ADLT 
initial period were to end on September 30, 2017, payment would be 
based on the weighted median private payor rate beginning October 1, 
2017, which would be prior to the January 1, 2018 implementation 
schedule for the new private payor rate-based CLFS. Therefore, the 
January 1, 2018 implementation date will apply to CDLTs, including 
ADLTs. We are modifying the definition of a new ADLT in Sec.  414.502 
to specify that a new ADLT is an ADLT for which payment has not been 
made under the CLFS prior to January 1, 2018.
    Comment: Several commenters urged us to revise our proposed 
definition of new ADLT initial period to ensure that private payor 
rates can be reported and used to develop market-based rates for new 
ADLTs after the new ADLT initial period is over. The commenters stated 
that using the date a test is first performed as the starting point for 
determining when the new ADLT initial period begins may result in 
insufficient private payor data being reported to us. The commenters 
also stated that if the new ADLT initial period were to begin prior to 
Medicare coverage for the test (which one commenter suggested could 
take 6 to 12 months or longer), the time during which the new ADLT can 
be paid the actual list charge rate could expire before Medicare pays 
at that rate, which the commenters contended would defeat the purpose 
of the statutory provision creating a specific payment scheme for new 
ADLTs.
    Some commenters suggested the new ADLT initial period should only 
begin once Medicare coverage is available for that particular test. 
Other commenters suggested that the CMS approval date for ADLT status 
should trigger the start date for the new ADLT initial period. For 
example, if a test is first performed on February 4, 2017, and CMS does 
not confer ADLT status until March 14, 2018, then it would be March 14, 
2018, and not February 4, 2017, that would trigger the start of the new 
ADLT initial period.
    Other commenters pointed out that CMS's proposed approach requires, 
before an ADLT can be paid at the actual list charge rate, that the 
laboratory has first sought and been granted ADLT status for its 
laboratory test and that Medicare coverage in the form of an initial 
claim determination or a local coverage policy has occurred. As such, 
some commenters believed we should clarify our proposed policy, while 
others suggested we should adopt a new policy, that when the agency 
says the initial period starts on the first day of the next calendar 
quarter following the first day on which the new ADLT is performed, 
that means the agency has already deemed the test to be an ADLT and 
Medicare coverage has been established.
    Response: As discussed in the proposed rule (80 FR 59401), we 
proposed to start the new ADLT initial period on the first day of the 
first full calendar quarter following the first day on which a new ADLT 
is performed. We agree with commenters that our policy should try to 
ensure that a new ADLT is paid actual list charge during the new ADLT 
initial period.
    We recognize that our proposed policy to tie the start of the new 
ADLT initial period to the date the test is first performed could mean 
new ADLTs will not be paid actual list charge. We understand that a 
Medicare coverage determination could be a lengthy process for the 
types of tests that are likely to qualify as ADLTs and that, 
consequently, a test may be available on the market and paid by private 
payors before Medicare covers and pays for it. Under our proposed 
policy, if the test has been available to private payors long before we 
grant ADLT status and provide Medicare coverage, the new ADLT initial 
period may have expired and the actual list charge rate would no longer 
apply.
    We believe making the start of the new ADLT initial period 
contingent upon us making a Medicare Part B coverage determination for 
the test and approving the test for ADLT status will address 
stakeholder concerns that the new ADLT initial period might expire 
before Medicare makes payment at the actual list charge. We are 
revising our proposal accordingly. The new ADLT initial period will 
begin only when the test has been both covered under Medicare Part B 
and approved for ADLT status, regardless of the order in which the 
events take place. To ensure that both events have occurred, the date 
that triggers the date on which the new ADLT initial period begins will 
be the later of the two.
    For example, if we approve a single laboratory's request for ADLT 
status on March 4, 2018, and a coverage determination for that test is 
made on August 10, 2018, the date that triggers the new ADLT initial 
period is August 10, 2018. The new ADLT initial period would begin 
October 1, 2018 because that is the first day of the first full 
calendar quarter following August 10, 2018. In another example, if a 
coverage determination for the test is made on April 6, 2018, and we 
approve a single laboratory's request for ADLT status on May 1, 2018, 
the date that triggers the new ADLT initial period would be May 1, 
2018. The new ADLT initial period would begin July 1, 2018 because that 
is the first day of the first full calendar quarter following May 1, 
2018.
    To reflect this change to the start date of a new ADLT initial 
period, we are revising the definition of new ADLT initial period in 
Sec.  414.502 to mean a period of 3 calendar quarters that begins on 
the first day of the first full calendar quarter following the later of 
the date a Medicare Part B coverage determination is made or ADLT 
status is granted by us. In light of this change, we are also revising 
the data reporting requirements in Sec.  414.504(c) to no longer 
require a laboratory seeking new ADLT status for its test to attest to 
the date the new ADLT is first performed as this information is no 
longer relevant for determining the start date of the new ADLT initial 
period.
    Additionally we clarify here that the start date of a new ADLT 
initial period is separate and distinct from the date that corresponds 
to the definition of the actual list charge. As discussed in this final 
rule, the actual list charge is the publicly available rate on the 
first day the new ADLT is obtainable by a patient who is covered by 
private insurance, or

[[Page 41068]]

marketed to the public as a laboratory test a patient can receive even 
if the test has not yet been furnished on that date. Therefore, the 
actual list charge amount could be known well before the start of the 
new ADLT initial period. For more discussion of the actual list charge, 
please refer to section II.H. in this final rule.
    We also recognize that if private payors do not cover and pay for a 
test until after the second quarter of the new ADLT initial period, no 
private payor data may be reported for the test. In that case, we would 
use crosswalking and gapfilling methodologies to determine pricing for 
the new ADLT after the new ADLT initial period. We note that the use of 
crosswalking and gapfilling for determining pricing for ADLTs in such 
circumstances is consistent with how we will price other CDLTs for 
which no applicable information is reported in a data reporting period. 
We believe the requirement for laboratories to collect and report 
private payor rate data annually for ADLTs would mitigate most concerns 
about prolonged reliance on crosswalking and gapfilling to price ADLTs 
rather than private payor rates. We note that under the recoupment of 
payment for new ADLTs if actual list charge exceeds the market rate 
provision (section 1834A(d)(4) of the Act), the weighted median private 
payor rate determined during the new ADLT initial period is compared to 
the actual list charge. If no private payor rate data is reported 
during the new ADLT initial period, there would be no weighted median 
private payor rate to compare the actual list charge to and the 
recoupment provision would not be applicable. For more information on 
the recoupment of payment for new ADLTs, please refer to section II.H 
in this final rule.
    Table 4 illustrates the final data collection and reporting period 
for a new ADLT, using the example above, where a test receives a 
Medicare Part B coverage determination on April 6, 2018 and ADLT status 
is granted by CMS on May 1, 2018.

                                      Table 4--Example of Final Data Collection and Reporting Period for New ADLTs
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             New ADLT  initial                                                     Data used for CLFS
 Test is covered by  medicare Part B      ADLT status is    period (actual list    Data  collection    Data  reporting  period      (weighted median
                                             granted              charge)               period                                     private payor rate)
--------------------------------------------------------------------------------------------------------------------------------------------------------
4/6/2018.............................             5/1/2018   7/1/2018-3/31/2019  7/1/2018-12/31/2018  By 12/31/2018...........  4/1/2019-
                                                                                                                                12/31/2020.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Table 5 illustrates the final data collection and reporting periods 
for new ADLTs after the new ADLT initial period, using the example 
above, where the new ADLT initial period ends on March 31, 2019.

                  Table 5--Example of Final Data Collection and Reporting Periods for New ADLTs
                                         [After New ADLT Initial Period]
----------------------------------------------------------------------------------------------------------------
      Data collection period            Six month window        Data reporting period    Used for CLFS rate year
----------------------------------------------------------------------------------------------------------------
1/1/2019-6/30/2019...............  7/1/2019-12/31/2019......  1/1/2020-3/31/2020......  2021.
1/1/2020-6/30/2020...............  7/1/2020-12/31/2020......  1/1/2021-3/31/2021......  2022.
Continues every year.............  Continues every year.....  Continues every year....  New CLFS rate every
                                                                                         year.
----------------------------------------------------------------------------------------------------------------

    Comment: One commenter stated that, given that commercial payors' 
processes to price new codes and tests is lengthy, three quarters is 
not adequate time for a sufficient number of insurers to have paid for 
the test and contributed to the private payor data on which we will 
price the test. To address this concern, the commenter recommended that 
we extend the new ADLT initial period to one calendar year before 
reporting is required.
    Response: Section 1834A(d)(1) of the Act requires a new ADLT 
initial period to be 3 quarters, and section 1834A(d)(2) of the Act 
requires applicable information for a new ADLT to be reported no later 
than the last day of the second quarter of the new ADLT initial period. 
As the statute is explicit about those time frames, we do not believe 
it would permit the new ADLT initial period to be a full calendar year 
or the first reporting to be after the new ADLT initial period is over. 
As discussed in response to a previous comment, if no private payor 
rate data are reported by the end of the second quarter of the new ADLT 
initial period, we will use crosswalking and gapfilling methodologies 
to determine pricing for the ADLT. We believe, however, the annual data 
collection and reporting requirement for ADLTs should alleviate 
concerns about the extended use of crosswalking and gapfilling, as 
opposed to private payor rates, to determine payment amounts for ADLTs.

E. Data Integrity

1. Penalties for Non-Reporting
    Section 1834A(a)(9)(A) of the Act authorizes the Secretary to apply 
a CMP if the Secretary determines that an applicable laboratory has 
failed to report, or has made a misrepresentation or omission in 
reporting, information under section 1834A(a) of the Act for a CDLT. In 
these cases, the Secretary may apply a CMP in an amount of up to 
$10,000 per day for each failure to report or each such 
misrepresentation or omission. Section 1834A(a)(9)(B) of the Act 
further provides that the provisions of section 1128A of the Act (other 
than sections (a) and (b)) shall apply to a CMP under this paragraph in 
the same manner as they apply to a CMP or proceeding under section 
1128A(a) of the Act. Section 1128A of the Act governs CMPs that apply 
to all federal health care programs. Thus the provisions of section 
1128A of the Act (specifically sections 1128A(c) through 1128A(n) of 
the Act) apply to a CMP under section 1834A(a)(9) of the Act in the 
same manner as they apply to a CMP or proceeding under section 1128A(a) 
of the Act. We noted that a similar provision is included in the law 
under section 1847A(d)(4) of the Act with regard to the reporting of 
average sales price by the manufacturer of a drug or biological. Given 
the similarity between sections 1834A(a)(9)(A) and 1847A(d)(4) of the 
Act, we proposed to adopt a provision in Sec.  414.504(e) for 
implementing section 1834A(a)(9)(A) of the Act that is similar to Sec.  
414.806, the regulation governing drug manufacturers' reporting of Part 
B drug

[[Page 41069]]

prices under section 1847A(d)(4) of the Act. Following the final 
publication of this rule, we anticipate issuing guidance further 
clarifying these requirements.
    A discussion of the comments we received on this topic, and our 
responses to those comments, appears below.
    Comment: Several commenters commented on the proposed CMPs of up to 
$10,000 per day per violation and said the amount should be 
reconsidered, particularly for community laboratories that cannot 
afford such penalties. The commenters also suggested that CMS only 
apply penalties in cases where there is evidence that a laboratory 
intentionally provided inaccurate or mistaken information.
    Response: The statute authorizes CMPs of up to $10,000 per day per 
violation. However, in situations where our review reveals that the 
data submitted is incomplete or incorrect, we will work with the OIG to 
assess whether a CMP should be applied, and if so, the appropriate 
amount based on the specific circumstances. Although the statute 
authorizes CMPs of up to $10,000 per day per violation, we recognize 
that this is the maximum statutory amount, and not a minimum. The 
actual penalty imposed will be determined based on the facts and 
circumstances of each violation.
    We note that this amount was recently amended by the Federal Civil 
Penalties Inflation Adjustment Act Improvements Act of 2015 (Sec. 701 
of the Bipartisan Budget Act of 2015, Public Law 114-74, November 2, 
2015) (the 2015 Act), which amends the Federal Civil Penalties 
Inflation Adjustment Act of 1990 (the Inflation Adjustment Act) (Pub. 
L. 101-410, 104 Stat. 890 (1990) (codified as amended at 28 U.S.C. 2461 
note 2(a)). The Inflation Adjustment Act required all agencies, 
including HHS, to adjust any CMPs within their jurisdiction by 
increasing the maximum CMP or the range of minimum and maximum CMPs, as 
applicable, for each CMP by the cost-of-living adjustment. The 2015 Act 
was enacted to improve the effectiveness of civil monetary penalties 
and to maintain their deterrent effect. Among other things, it revises 
the method of calculating inflation adjustments so that, instead of the 
significant rounding methodology applied under the Inflation Adjustment 
Act, penalty amounts are now simply rounded to the nearest $1. 
Accordingly, in applying the requirements of the Inflation Adjustment 
Act, as amended, to the penalty amounts specified in section 
1834A(a)(9) of the Act, the Secretary may assess CMPs of up to $10,017 
per day per violation beginning on the effective date of this rule. We 
have revised Sec.  414.504(e) to reflect this statutory adjustment. The 
2015 Act also requires agencies to publish annual adjustments not later 
than January 15 of every year after publication of the initial 
adjustment. Therefore, subsequent to this initial adjustment, CMP 
adjustments applicable to section 1834A of the Act will be updated 
annually through regulations published by the Secretary no later than 
January 15 of every year.
    Comment: Several commenters requested clarification as to what 
constitutes an error that warrants a penalty, and stated that CMS 
should not apply any penalties or sanctions for reporting errors until 
an appeals process is outlined. Some commenters stated that CMS 
indicated in the proposed rule that full implementation of the new CLFS 
regulations will take between 5 and 6 years, and suggested that no 
penalties be assessed during this time.
    Response: As previously mentioned, following the publication of 
this final rule, we will issue additional guidance on the assessment of 
CMPs, including what would constitute a failure to report or a 
misrepresentation or omission in reporting. We also note that we do not 
intend to assess CMPs for minor errors. The actual penalty imposed will 
be determined based on the facts and circumstances of each violation. 
While full implementation of the new CLFS regulations will take several 
years, it is critical that reporting entities provide accurate and 
complete information at the outset so that accurate prices can be set, 
and while we do not expect that CMPs will be assessed frequently, we 
believe the ability to assess CMPs on reporting entities when 
appropriate is consistent with our statutory authority. Section 
1834A(a)(9)(B) of the Act further provides that the provisions of 
section 1128A of the Act (other than sections (a) and (b)) shall apply 
to a CMP under this paragraph in the same manner as they apply to a CMP 
or proceeding under section 1128A(a) of the Act.
    Comment: A commenter stated that the economics and other 
characteristics of the laboratory industry differ greatly from the 
pharmaceutical industry making the comparison to Part B drugs 
inapplicable.
    Response: We agree there are important differences between the 
pharmaceutical industry and the laboratory industry, but believe the 
general approach taken for the application of CMPs for violations in 
reporting drug prices is an appropriate model to consider when we 
develop guidance on the application of CMPs for violations in reporting 
of applicable information.
    Comment: A commenter stated that CMPs can be an effective tool for 
encouraging data reporting and ensuring compliance with the PAMA 
reporting obligations but that there will be significant confusion 
within the laboratory community initially. The commenter requested that 
CMS not impose CMPs during the initial cycle on any laboratory that has 
shown a good faith effort to comply with the reporting requirements, 
and that CMS should notify applicable laboratories of their reporting 
obligations to ensure compliant reporting and to reduce the likelihood 
of penalties.
    Response: We appreciate the commenter's understanding of the 
important role of CMPs in ensuring accurate and complete data reporting 
and acknowledge the commenter's concerns regarding the provision of 
data during the initial reporting period. We are uncertain as to what 
the commenter means by ``any laboratory that has shown a good faith 
effort to comply with the reporting requirements'' As we have noted 
previously, we do not intend to assess CMPs for minor errors, and will 
provide additional information in subregulatory guidance to facilitate 
compliant reporting and to reduce the likelihood of penalties. 
Additionally, we are clarifying in Sec.  414.504(e) that the CMPs will 
be assessed at the reporting entity level, not at the applicable 
laboratory level, to ensure consistency with the data reporting and 
certification requirements that the reporting entity is obligated to 
follow, as addressed in the other paragraphs in Sec.  414.504.
    Comment: Some commenters stated that smaller laboratories without 
sufficient administrative staff face challenges in reporting as 
compared to larger, well-resourced laboratories. These commenters 
suggested that the size of the penalty should correspond to the size of 
the laboratory, so that laboratories with limited resources would not 
be forced to close as a result of such penalties.
    Response: We will consider all relevant information when 
determining the amount of a CMP, and we will work with the OIG to 
ensure that any penalties assessed are fairly applied. The purpose of 
PAMA is to collect complete and accurate data in order to set payment 
rates, not to force a laboratory to close as a result of a CMP 
assessment.
    Comment: Some commenters were concerned that the period to 
understand and comply with the data requirements is too short and could 
compromise the integrity of the data submitted.

[[Page 41070]]

    Response: In section II.D of this final rule, we discuss our final 
data collection and reporting process, which is changed from our 
proposal in the proposed rule. Under the process we are adopting in 
this final rule, applicable laboratories will have a 6-month data 
collection period, followed by a 6-month period between the end of the 
data collection period and the beginning of the data reporting period 
to allow applicable laboratories time to ensure the accuracy of their 
data, followed by a 3-month data reporting period during which 
reporting entities will report applicable information to us. We believe 
this process will provide applicable laboratories adequate time to 
understand and prepare for the submission of the required data.
    Comment: Some commenters noted that accidental errors are 
inevitable with a new, first-of-its-kind, untested laboratory price 
reporting system, and the associated fines are significant. These 
commenters also opined that the new reporting requirements will require 
significant changes for the clinical laboratory community to undertake 
with no funding provided to make those changes, and that implementation 
of this law is being fast-tracked, which will lead to mistakes and 
unexpected problems.
    Response: As discussed in section II.D.3 of this final rule, we are 
moving the implementation date of section 1834A of the Act to January 
1, 2018. We expect applicable laboratories will have sufficient time to 
review their data for accuracy and completeness during the 6-month time 
period we are affording between the end of the data collection period 
and the beginning of the data reporting period. We recognize that there 
is a cost associated with the development and submission of data under 
section 1834A of the Act, but we believe this data submission process 
is an essential mechanism to establish fair and accurate Medicare 
payment rates for CDLTs. We are proceeding with implementation of the 
new reporting requirements in accordance with the statutory 
requirements, notwithstanding the new implementation date of January 1, 
2018.
2. Data Certification
    Section 1834A(a)(7) of the Act requires that an officer of each 
laboratory must certify the accuracy and completeness of the reported 
information required by section 1834A(a) of the Act. We proposed to 
implement this provision by requiring in Sec.  414.504(d) that the 
President, CEO, or CFO of an applicable laboratory or an individual who 
has been delegated authority to sign for, and who reports directly to, 
the laboratory's President, CEO, or CFO, must sign a certification 
statement and be responsible for assuring that the applicable 
information provided is accurate, complete, and truthful, and meets all 
the reporting parameters. We stated that we would specify the processes 
for certification in subregulatory guidance prior to January 1, 2016.
    A discussion of the comments we received on this topic, and our 
responses to those comments, appears below.
    Comment: A few commenters objected to our plan to specify the 
processes for certification in subregulatory guidance prior to January 
1, 2016, stating that some of these process issues need to be resolved 
in the final rule before subregulatory guidance is issued. Others have 
asked that the subregulatory guidance be issued as soon as possible.
    Response: We will issue subregulatory guidance specifying the 
certification process for the submission of applicable information 
following publication of this final rule. As discussed in section 
II.D.3 of this final rule, we are moving the implementation date of the 
revised CLFS to January 1, 2018, so we now expect to issue the 
subregulatory guidance prior to January 1, 2018.
    Comment: Some commenters requested that CMS create a certification 
form for applicable laboratories that states that the information and 
statements submitted are accurate and complete to the best of the 
laboratory's knowledge and the submission is made in good faith.
    Response: We appreciate the commenters' suggestion and will take it 
into consideration as we develop subregulatory guidance for the 
certification process following the publication of this final rule.
    Comment: Some commenters stated that most laboratory Presidents, 
CEOs, and CFOs are not personally familiar with the volume and private 
payor rates for each laboratory test their labs offer, and they should 
not be required to certify the accuracy of the data submitted. The 
commenter suggested that a laboratory officer should be responsible for 
certifying that the data submitted is accurate to the best of his or 
her knowledge.
    Response: We agree with the commenter and in accordance with the 
changes to the data reporting requirements in this final rule, we have 
revised Sec.  414.504(d) to require the President, CEO, or CFO of the 
reporting entity or an individual who has been delegated authority to 
sign for, and who reports directly to, such an officer to certify the 
accuracy of the data submitted for the reporting entity.

F. Confidentiality and Public Release of Limited Data

    Section 1834A(a)(10) of the Act addresses the confidentiality of 
the information disclosed by a laboratory under section 1834A(a) of the 
Act. Specifically, the paragraph provides that, notwithstanding any 
other provision of law, information disclosed by a laboratory under 
section 1834A(a) of the Act is confidential and must not be disclosed 
by the Secretary or a Medicare contractor in a form that discloses the 
identity of a specific payor or laboratory, or prices charged or 
payments made to any such laboratory, except as follows:
     As the Secretary determines to be necessary to carry out 
section 1834A of the Act;
     To permit the Comptroller General to review the 
information provided;
     To permit the Director of the Congressional Budget Office 
(CBO) to review the information provided; and
     To permit MedPAC to review the information provided.
    These confidentiality provisions apply to information disclosed by 
a laboratory under section 1834A(a) of the Act, the paragraph that 
addresses reporting of applicable information for purposes of 
establishing CLFS rates, and we interpreted these protections as 
applying to the applicable information that applicable laboratories 
report to CMS under proposed Sec.  414.504(a). We did not interpret 
section 1834A(a)(10) of the Act as applying to other information 
laboratories may submit to CMS that does not constitute applicable 
information, for example, information regarding an applicable 
laboratory's business structure, such as its associated NPI entities, 
or information submitted in connection with an application for ADLT 
status under section 1834A(d) of the Act, including evidence of a 
laboratory's empirically derived algorithms and how the test provides 
new clinical diagnostic information that cannot be obtained from any 
other test or combination of tests.
    In section II.H of this final rule, we discuss in more detail how 
we will use the applicable information reported under Sec.  414.504 to 
set CLFS payment rates, and intend to make available to the public a 
list of test codes and the CLFS payment rates associated with those 
codes, which is the same CLFS information we currently make available. 
This information would not reveal the identity of a specific payor or 
laboratory, or prices charged or

[[Page 41071]]

payments made to a specific laboratory (except as noted below), and 
thus, we believed continuing to publish this limited information would 
allow us to comply with section 1834A(a)(10) of the Act while 
continuing to provide necessary information to the public on CLFS 
payment amounts.
    As noted above, section 1834A(a)(10) of the Act lists four 
instances when the prohibition on disclosing information reported by 
laboratories under section 1834A(a) of the Act would not apply, the 
first being when the Secretary determines disclosure is necessary to 
carry out section 1834A of the Act. We believe certain disclosures will 
be necessary for us to administer and enforce the new Medicare payment 
system for CDLTs. For example, it may be necessary to disclose to the 
HHS OIG confidential data needed to conduct an audit, evaluation, or 
investigation or to assess a CMP, or to disclose to other law 
enforcement entities such as the Department of Justice confidential 
data needed to conduct law enforcement activities. Therefore, we 
proposed to add those entities to the list of entities in Sec.  
414.504(f) to which we may disclose applicable information that is 
otherwise confidential. Additionally, there may be other circumstances 
that require the Secretary to disclose confidential information 
regarding the identity of a specific laboratory or private payor. If we 
determine that it is necessary to disclose confidential information for 
other circumstances, we would notify the public of the reasons through 
a Federal Register announcement, if deemed necessary, or via a CMS Web 
site prior to making such disclosure.
    Also, we believed that codes and associated CLFS payment rates 
published for ADLTs may indirectly disclose the identity of the 
specific laboratories selling those tests, and, for new ADLTs, payments 
made to those laboratories. As explained in this section, ADLTs are 
offered and furnished only by a single laboratory. Thus, in the 
proposed rule, we believed publishing the test code and associated CLFS 
payment rate for an ADLT would indirectly reveal the identity of the 
laboratory because only a single laboratory would be offering and 
furnishing that test. Moreover, because Medicare will pay actual list 
charge for a new ADLT during the new ADLT initial period, publishing 
the test code and associated CLFS rate for a new ADLT would, we 
believe, reveal the payments made to the laboratory offering and 
furnishing that test. We believe section 1834A(a)(10)(A) of the Act 
authorizes us to publish the test codes and associated CLFS payment 
rates for ADLTs and we do not believe we can do so without indirectly 
revealing ADLT laboratory identities and payments made to those 
laboratories. However, because the actual list charge for a new ADLT 
would already be publicly available, we do not believe laboratories 
will be harmed by our publishing the CLFS rates for new ADLTs. We 
indicated that we would not publish information that directly discloses 
a laboratory's identity, but we could not prevent the public from 
associating CLFS payment information for an ADLT with the single 
laboratory offering and furnishing the test.
    Section 1834A(a)(10) of the Act also prohibits a Medicare 
contractor from disclosing information under section 1834A(a) of the 
Act in a form that reveals the identity of a specific payor or 
laboratory, or prices charged or payments made to any such laboratory. 
We stated in the proposed rule that we did not expect this prohibition 
to be problematic as applicable laboratories would be reporting 
applicable information to CMS and not the MACs. When a MAC sets rates 
under our new policies, we expect the MAC will follow its current 
practice for pricing when developing a local payment rate for an item 
or service that does not have a national payment rate, that is, it 
would only disclose pricing information to the extent necessary to 
process and pay a claim.
    We proposed to implement the confidentiality requirements of 
section 1834A(a)(10) of the Act in Sec.  414.504(f).
    A discussion of the comments we received on this topic, and our 
responses to those comments, appears below.
    Comment: Many commenters agreed with the confidentiality provisions 
outlined in the proposed rule, but expressed concern regarding 
disclosure of certain information laboratories would be required to 
report under section 1834A of the Act. For example, commenters were 
concerned that information such as payor names could be revealed to the 
public. One commenter suggested that payor names are not necessary to 
carry out the requirements of section 1834A, and that it is also 
unnecessary for the Comptroller General, Director of the Congressional 
Budget Office, and MedPAC to review information that will be reported 
by laboratories. The commenter requested that CMS ensure the rates paid 
by specific payors are not easy to discern.
    A few commenters requested that CMS protect all reported 
information from public disclosure. One commenter requested assurance 
that disclosures made as the Secretary determines to be necessary to 
carry out the requirements of the law are made judiciously and without 
revealing more information than is truly necessary.
    A commenter indicated that the form and manner specified for 
reporting applicable information should ensure that private payor names 
are not reported. Along those same lines, another commenter suggested 
that language be added to Sec.  414.504(b) to explicitly state that 
private payor names are to be omitted from or otherwise obscured in all 
reporting materials. The commenter opined that including this 
instructive language solely in separate subregulatory guidance 
materials would be insufficient and that it needs to be included in the 
regulation to make the requirements clear, eliminate any uncertainty 
regarding confidentiality for clinical laboratories subject to the new 
law, and protect price competition in the marketplace.
    Response: We appreciate the commenters' concerns and suggestions 
regarding the confidentiality and data reporting provisions. As 
discussed above, CMS and the MACs will not publicly disclose applicable 
information reported under section 1834A(a) of the Act in a form that 
would reveal the identity of a specific payor or laboratory, or prices 
charged or payments made to a specific laboratory. While the commenter 
is correct that we can fulfill our obligations under section 1834A 
without disclosing the information to the Comptroller General, the 
Director of CBO, and MedPAC, the statute specifically provides for 
disclosure to those entities to permit them to review the information, 
if needed to carry out their responsibilities. Section 1834A(a)(10)(A) 
of the Act also authorizes us to disclose the information as we 
determine necessary to implement section 1834A(a) of the Act, which we 
proposed to use for such activities as oversight and enforcement in 
conjunction with the HHS OIG or the Department of Justice. We assure 
commenters that we will limit disclosure of information for the purpose 
of conducting such activities to only what is truly necessary.
    Although we appreciate the commenter's suggestion for adding 
language to the regulations to explicitly state that private payor 
identities are not to be revealed in reporting applicable information, 
we do not believe it is necessary. Section 1834A(a)(11) of the Act 
specifies that a payor shall not be identified on applicable 
information. In our data reporting requirements at

[[Page 41072]]

Sec.  414.504(b), we require that applicable information must be 
reported in the form and manner specified by us. We do not agree it is 
necessary to include in the regulations the specific form and manner 
for submitting applicable information. As we discussed in section 
II.D.2 of this final rule, we will only require the minimum information 
necessary to be reported to enable us to set CLFS payment rates. 
Generally, in reporting applicable information, we expect laboratories 
to report the specific HCPCS code associated with each laboratory test, 
the private payor rate or rates associated with the HCPCS code, and the 
volume of laboratory tests performed by the laboratory at each private 
payor rate. We will not permit individual claims to be reported because 
claims include more information than we need to set payment rates and 
they contain personally identifiable information. We also will not 
permit private payor names to be reported because section 1834A(a)(11) 
of the Act prohibits a payor from being identified on information 
reported. Our guidance will reflect these instructions.
    Comment: Many commenters expressed concern that our proposal to use 
the existing annual update process, in which we publish only a list of 
test codes and the CLFS payment rates associated with those codes, 
would be insufficient information for the public to review the new 
payment rates established under section 1834A of the Act. The 
commenters stated, with a new reporting system of this magnitude and 
complexity that relies on laboratories providing correct and uniform 
information, it is essential for CMS to also explain how it derived the 
new payment rates. Rather than simply announcing payment amounts, the 
commenters suggested CMS allow for notice and comment rulemaking to 
provide an opportunity for the agency to outline what data it received, 
from how many laboratories and the type(s) of laboratories that 
submitted data (for example, physician office laboratories, independent 
laboratories), the variances in the data, and how CMS reconciled any 
variances. Commenters suggested that, for laboratories to appropriately 
comment on the new CLFS rates under section 1834A, they will need to be 
able to review more data than just the rates.
    Response: In section II.H. of this final rule, we provide a 
comprehensive explanation of how the payment rates will be set under 
section 1834A of the Act, and we believe that is sufficient for the 
laboratory industry to understand how the rates we will announce are 
established.
    As indicated above in this section, we intend to make available to 
the public a list of test codes and the CLFS payment rates (that is, 
the weighted median of private payor rates) associated with those 
codes, which is the same CLFS information we currently make available 
to the public annually in November. However, under the new process, we 
expect to release this file earlier than November so the public will 
have more opportunity to review and comment on the payment rates before 
they are implemented. In addition, to address commenters' concerns 
about data transparency, we also intend to make available to the 
public, a file that includes summary or aggregate-level private payor 
rate and volume data for each test code such as, the unweighted median 
private payor rate, the range of private payor rates, the total, median 
and mean volume, and the number of laboratories reporting. Such 
information will also be released to the public before the final rates 
are published to better enable the public to comment on the general 
accuracy of the reported data. In providing this information, we will 
not release any information that identifies a payor or a laboratory.
    In addition to publishing the aggregate-level private payor rate 
and volume data, we are also exploring whether we can make available a 
file of the raw data, that is, the actual, un-aggregated data that is 
reported as applicable information for an applicable laboratory. We 
believe this process could provide even more transparency for the 
public to review and comment on the new CLFS payment rates before they 
are made effective. Details of this process, if we decide we can 
release the raw data, would be provided in subregulatory guidance.
    Although we noted in the proposed rule that we cannot prevent the 
public from associating applicable information for an ADLT with the 
single laboratory offering and furnishing the test (80 FR 59402), we 
have given further consideration to how we may protect the identity of 
such laboratories from public disclosure. Although we believe we could 
release the applicable information for ADLTs in raw or aggregate form 
under the authority of section 1834A(a)(10)(A) of the Act, we recognize 
and appreciate that commenters are especially concerned about 
confidentiality and risk of disclosure of propriety information. 
Therefore, we have decided, for tests we consider to be uncommon or 
that we know to be provided only by a single laboratory (such as for 
new ADLTs), we will not release applicable information in aggregate 
form, or raw form if we decide we can release the raw data. However, we 
will provide the HCPCS code and CLFS rate associated with those tests 
consistent with our current annual publication of the CLFS file. We 
consider a test to be ``uncommon'' if it is offered or furnished by 
only a few laboratories or if it is paid by only a few private payors. 
We will clarify further what we mean by ``a few laboratories'' and ``a 
few private payors'' after we evaluate the private payor data we 
receive in the first data reporting period of January 1, 2017 through 
March 31, 2017, and we will publish that clarification along with the 
public files we discussed above in this section.
    Comment: A few commenters believed proprietary algorithms that are 
submitted as part of an ADLT application should be protected from 
public disclosure. To that end, they requested we make proprietary and 
confidential information submitted for purposes of requesting ADLT 
status exempt from disclosure under the Freedom of Information Act 
(FOIA) Exemption 4. These commenters indicated that the proprietary 
information should be identified as a ``trade secret'' at the time of 
the ADLT application and thus should be protected from disclosure under 
FOIA.
    Response: As discussed in section III.C of this final rule, we do 
not have the statutory authority to automatically exempt confidential 
information submitted as part of an ADLT application from public 
disclosure. The statute provides for the confidentiality of applicable 
information disclosed by a laboratory under section 1834A(a) of the 
Act, but section 1834A(d) of the Act, which relates to the requirements 
a test must meet to be an ADLT, does not.
    FOIA includes an exemption for trade secrets and commercial and 
financial information obtained from a person that is privileged or 
confidential. While we do not have the authority to provide automatic 
protection from public disclosure under FOIA Exemption 4, if an 
applicant submits an ADLT application that includes trade secrets or 
certain commercial or financial information, specified above, it is 
possible the information could be withheld from public disclosure under 
the FOIA exemption. An applicant that wishes to protect the information 
submitted in an ADLT application would mark it proprietary and 
confidential, and substantiate that statement by expressly claiming 
substantial competitive harm if the information is disclosed, and 
demonstrating such in a separate statement by explaining how the 
release would cause substantial competitive

[[Page 41073]]

harm pursuant to the process in E.O. 12600 for evaluation by CMS.
    Comment: One commenter reasoned that the submission of evidence 
relating to an empirically derived algorithm is voluntary because 
laboratories could apply for ADLT status under criterion B by 
submitting validation of premarket clearance or approval from the FDA. 
Therefore, the commenter believes the information submitted as part of 
an ADLT application under criterion A is protected from public 
disclosure under FOIA Exemption 4 because the voluntarily provided 
information should be kept confidential if it is of the kind the 
company would not customarily release to the public.
    Response: An ADLT applicant may request ADLT status for a 
laboratory test based on criterion A or criterion B. If an applicant 
chooses to submit a request for ADLT status under criterion A, the 
applicant will be required to submit evidence of the empirically 
derived algorithm and show how a test provides new clinical diagnostic 
information that cannot be obtained from any other test or combination 
of tests. Information voluntarily submitted to the government may, in 
some circumstance, be protected from disclosure by FOIA in accordance 
with the goal of encouraging the cooperation of persons that may have 
information that would be useful to the government. The submission of 
information to support an ADLT application is not voluntary in that 
respect, and the protections from FOIA regarding voluntary information, 
as cited by the commenter, do not apply to information submitted by an 
applicant requesting ADLT status for a laboratory test under criterion 
A.

G. Coding for Certain Clinical Diagnostic Laboratory Tests (CDLTs) on 
the CLFS

    Section 1834A(e) of the Act includes coding requirements for 
certain new and existing ADLTs and laboratory tests that are cleared or 
approved by the FDA. In this section, we describe our current coding 
system for the CLFS and how we proposed to utilize aspects of this 
system to implement the coding provisions in section 1834A(e) of the 
Act.
1. Background
    Currently, new tests on the CLFS receive HCPCS level I codes (CPT) 
from the American Medical Association (AMA). The CPT is a uniform 
coding system consisting of descriptive terms and codes that are used 
primarily to identify medical services and procedures furnished by 
physicians, suppliers, and other health care professionals. Decisions 
regarding the addition, deletion, or revision of CPT codes are made by 
the AMA, and published and updated annually by the AMA. Level II of the 
HCPCS is a standardized coding system used primarily to identify 
products, supplies, and services not included in the CPT codes, such as 
ambulance services and durable medical equipment, prosthetics, 
orthotics and supplies (DMEPOS). Because Medicare and other insurers 
cover a variety of services, supplies, and equipment that are not 
identified by CPT codes, the HCPCS level II codes were established for 
submitting claims for these items.
    Within CMS, the CMS HCPCS Workgroup, which is comprised of 
representatives of major components of CMS and consultants from 
pertinent Federal agencies, is responsible for all revisions, 
deletions, and addition to the HCPCS level II codes. As part of its 
deliberations, the CMS HCPCS Workgroup may develop temporary and 
permanent national alpha-numeric HCPCS level II codes. Permanent HCPCS 
level II codes are established and updated annually, whereas temporary 
HCPCS level II codes are established and updated on a quarterly basis. 
Temporary codes are useful for meeting, in a short time frame, the 
national program operational needs of a particular insurer that are not 
addressed by an already existing national code. For example, Medicare 
may need additional codes before the next annual HCPCS update to 
implement newly issued coverage policies or legislative requirements.
    Temporary HCPCS level II codes do not have established expiration 
dates; however, a temporary code may be replaced by a CPT code, or the 
CMS HCPCS Workgroup may decide to replace a temporary code with a 
permanent HCPCS level II code. For example, a laboratory may request a 
code for a test in the middle of a year. Because permanent codes are 
assigned only once a year, the CMS HCPCS Workgroup may assign the 
laboratory test a temporary HCPCS level II code. The temporary code may 
be used indefinitely or until a permanent code is assigned to the test. 
Whenever the CMS HCPCS Workgroup establishes a permanent code to 
replace a temporary code, the temporary code is cross-referenced to the 
new permanent code and removed.
    ``G codes'' are temporary HCPCS level II codes that we use to 
identify professional health care procedures and services, including 
laboratory tests, that would otherwise be identified by a CPT code, but 
for which there is no CPT code. We have used G codes for laboratory 
tests that do not have CPT codes but for which we make payment, or in 
situations where we want to treat the codes differently from the CPT 
code descriptor for Medicare payment purposes.
2. Coding under PAMA
    Section 1834A(e) of the Act includes three provisions that relate 
to coding: (a) Temporary codes for certain new tests; (b) coding for 
existing tests; and (c) establishment of unique identifiers for certain 
tests. The effect of section 1834A(e) of the Act is to require the 
Secretary to establish codes, whereas prior to the enactment of PAMA, 
the Secretary had discretion to establish codes, but was not required 
to do so. Before we discussed each of the three provisions in the 
proposed rule, we addressed several specific references in the statute 
that we believed needed clarification.
    In the three coding provisions, the statute requires us to 
``adopt,'' ``assign,'' and ``establish'' codes or identifiers. We 
believe those terms to be interchangeable. There is no practical 
difference between them for purposes of CMS's obligation under section 
1834A(e) of the Act, which is, essentially, to ensure that certain 
laboratory tests can be identified by a HCPCS code, or in the case of 
section 1834A(e)(3) of the Act, a unique identifier. The statute also 
refers to ``new laboratory tests'' and ``existing clinical diagnostic 
laboratory test[s]'' in sections 1834A(e)(1)(A) and (2), respectively. 
We believe new laboratory tests here refers to CDLTs (that are cleared 
or approved by the FDA) paid under the CLFS on or after January 1, 
2017, and existing CDLTs refers to CDLTs (that are cleared or approved 
by the FDA) paid under the CLFS prior to that date.
a. Temporary Codes for Certain New Tests
    Section 1834A(e)(1)(A) of the Act requires the Secretary to adopt 
temporary HCPCS codes to identify new ADLTs and new laboratory tests 
that are cleared or approved by the FDA. As discussed previously, we 
proposed a definition for new ADLTs, and we also discussed what it 
means for a laboratory test to be cleared or approved by the FDA. We 
applied those interpretations in this section. We understood the 
statute to be requiring us to adopt temporary HCPCS level II codes for 
these two types of laboratory tests if they have not already been 
assigned a HCPCS code. Therefore, we stated we would use the existing 
HCPCS coding

[[Page 41074]]

process for these tests. This means, if a new ADLT or a new CDLT that 
is FDA-cleared or -approved is not already assigned a CPT code or HCPCS 
level II code, we would assign a G code to the test. The statute 
further directs that the temporary code be effective for up to 2 years 
until a permanent HCPCS code is established, although the statute 
permits the Secretary to extend the length of time as appropriate. 
Therefore, we indicated that any G code that we adopt under this 
provision would be effective for up to 2 years, unless we believed it 
appropriate to continue to use the G code. For instance, we may create 
a G code to describe a test for prostate specific antigen (PSA) that 
may be covered by Medicare under sections 1861(s)(2)(P) and 
1861(oo)(2)(B) of the Act as a prostate cancer screening test. At the 
end of 2 years, if the AMA has not created a CPT code to describe that 
test but Medicare continues to have a need to pay for the test 
described by the G code, we would continue to use the G code.
    A discussion of the comments we received on this topic, and our 
responses to those comments, appears below.
    Comment: Many commenters recommended that, whenever available, CMS 
utilize the existing HCPCS codes created and assigned by the CPT 
Editorial Panel for new tests on the CLFS. Commenters explained that 
private payors often do not recognize G codes assigned by Medicare and 
that the use of G codes may confuse the billing process and collection 
of private payor data should private payors use different codes for the 
same tests. Some commenters stated that a two-step coding process (that 
is, a temporary G code first, then a permanent CPT code) for new ADLTs 
would be unnecessarily burdensome for both CMS and clinical 
laboratories. Commenters also suggested that a quarterly process for 
assigning permanent codes to ADLTs would be more efficient and lead to 
more accurate coding and data reporting than the G code process 
outlined by CMS in the proposed rule.
    Response: We understand the commenters' concerns and are clarifying 
in this final rule that we will use existing HCPCS level I codes 
created by the CPT Editorial Panel whenever possible. As discussed 
above in this section, decisions regarding the addition, deletion, or 
revision of CPT codes are currently made annually by the AMA. CMS does 
not have authority to change the AMA's annual process to a quarterly 
process. As has been our standard practice, we expect to use G codes 
only when CPT codes are unavailable or do not meet our coding needs. In 
the event that we will need to assign a new G code to an ADLT, or to a 
CDLT that is cleared or approved by the FDA, we will make such 
assignments on a quarterly basis, consistent with our current process 
for updating HCPCS codes. Any temporary HCPCS code will be considered 
for replacement by a permanent CPT code when it is made available by 
the AMA, and if it satisfies our coding and payment needs, as part as 
the annual laboratory public meeting process discussed in section I.B.1 
of this final rule.
b. Coding and Publication of Payment Rates for Existing Tests
    Section 1834A(e)(2) of the Act stipulates that not later than 
January 1, 2016, for each existing ADLT and each existing CDLT that is 
cleared or approved by the FDA for which payment is made under Medicare 
Part B as of PAMA's enactment date (April 1, 2014), if such test has 
not already been assigned a unique HCPCS code, the Secretary shall (1) 
assign a unique HCPCS code for the test and (2) publicly report the 
payment rate for the test.
    As with the requirement for us to adopt codes for certain new tests 
under section 1834A(e)(1) of the Act, we discussed in the proposed rule 
that we believed our existing coding process is consistent with the 
requirements of section 1834A(e)(2) of the Act. Accordingly, we stated 
that we would use the existing HCPCS coding process for these tests, 
meaning, if an existing ADLT or existing CDLT is not already assigned a 
CPT code or a HCPCS level II code, we would assign a G code to the 
test.
    One aspect of section 1834A(e)(2) of the Act (applying to existing 
tests) that is different than section 1834A(e)(1) of the Act (applying 
to certain new tests) is the requirement for us to assign a ``unique'' 
HCPCS code. We explained in the proposed rule that we understand a 
unique HCPCS code to describe only a single test. An ADLT is a single 
test, so each existing ADLT would be assigned its own G code. However, 
it is possible that one HCPCS code may be used to describe more than 
one existing CDLT that is cleared or approved by the FDA. For instance, 
explained in the proposed rule, we understand there are different 
versions of laboratory tests for the Kirsten rat sarcoma viral oncogene 
homolog (KRAS)--one version that is FDA-approved and others that are 
not FDA-cleared or -approved. Currently, the same HCPCS code is used 
for both the FDA-approved laboratory test for KRAS and the non-FDA-
cleared or -approved versions of the test. Thus, the current HCPCS code 
is not unique in describing only the FDA-approved version of the KRAS 
test. Under section 1834A(e)(2) of the Act, we are required to ensure 
that FDA-cleared or -approved versions of the KRAS test are assigned 
their own unique codes.
    As we discussed in the proposed rule, section 1834A(e)(2)(B) of the 
Act requires us to publicly report the payment rate for existing ADLTs 
or tests that are cleared or approved by the FDA by January 1, 2016. We 
noted that we did not meet the deadline for this requirement as we 
would have established by January 1, 2016 the final definition of an 
ADLT, an ADLT application process, and a process for identifying FDA-
cleared or -approved tests. In section II.D. of this final rule we 
stated, in response to comments, that we are moving the implementation 
date of the private payor rate-based CLFS to January 1, 2018. 
Consistent with this change in implementing the new CLFS payment rates, 
we believe it is appropriate to adopt a corresponding change in 
assigning and publicly reporting the payment rates for existing ADLTs 
and tests that are cleared or approved by the FDA. Therefore, by 
January 1, 2017, we will assign and publish payment rates for existing 
ADLTs and tests cleared or approved by the FDA. We will publish the 
ADLT application process and the process for specifying that a test is 
cleared or approved by the FDA in subregulatory guidance.
    It is possible there are existing ADLTs or CDLTs cleared or 
approved by the FDA that are currently being priced under our existing 
regulations using crosswalking or gapfilling. For instance, some tests 
are currently being priced using gapfilling (see http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ClinicalLabFeeSched/Downloads/CY2015-CLFS-Codes-Final-Determinations.pdf). If any of the 
tests that are currently being priced using gapfilling fall within the 
category of existing laboratory tests under section 1834A(e)(2) of the 
Act, we will be able to report the payment rate for them by January 1, 
2017. To fulfill the requirement to publicly report payment rates, we 
will include the codes and payment amounts on the electronic CLFS 
payment file that we will make available on the CMS Web site prior to 
January 1, 2017. We are currently considering how we would present the 
information. We expect to provide a separate field with a special 
identifier indicating when a HCPCS code uniquely describes an existing

[[Page 41075]]

laboratory test, although we may separately identify those codes that 
uniquely identify an existing test in separate documentation describing 
the file.
    Comment: A few commenters recommended that we not assign unique 
codes to tests if they already have a code that is being billed to 
Medicare. The commenters advised against assigning unique codes to 
every FDA-cleared or -approved test as this could result in duplicative 
coding efforts. Thus, commenters believed a CDLT with FDA clearance or 
approval should not receive a unique HCPCS code. One commenter stated 
that there is no clinical or economic rationale for us to use our 
current coding process to differentiate between FDA-cleared or -
approved tests and non-FDA-cleared or -approved tests. The commenter 
explained there may be unintended consequences of generating these 
codes ahead of any further actions from the FDA with regard to the 
oversight of laboratory tests. In addition, the commenter suggested 
that it is not apparent from the statute that an FDA-cleared or -
approved CDLT should not share its code with a clinically equivalent 
non-FDA-cleared or -approved CDLT, nor that doing so would be 
inconsistent with the requirements under section 1834A(e) of the Act. 
Some commenters also suggested that if we do assign unique codes for 
FDA-cleared or -approved tests, then we should establish the temporary 
HCPCS code through public notice and comment rulemaking to allow for 
transparency and multi-stakeholder input. A few commenters recommended 
that, rather than doing so automatically, we should assign a unique 
HCPCS code for an ADLT or an FDA-cleared or -approved test only when a 
laboratory or manufacturer requests a unique code.
    Response: We understand the commenters' concerns regarding 
assigning unique codes to an FDA-cleared or -approved version of a 
test. However, as we discussed in this section, the statute requires 
the Secretary to adopt a unique HCPCS code for each existing ADLT and 
each new CDLT that is cleared or approved by the FDA if such tests are 
not already assigned a unique HCPCS code, and we view ``unique'' in 
this context to mean a HCPCS code that describes only a single test. We 
agree that our assignment of such codes should be done with 
transparency and multi-stakeholder input. As these codes would be new 
for the CLFS, they would be subject to the CLFS annual public meeting 
process, which provides for a public review and comment period for new 
and reconsidered tests (for more detail on this process, see section 
I.B.1 of this final rule). We believe our current CLFS public process, 
which is required to continue under section 1834A(e)(3) of the Act, 
will sufficiently address the public's needs for transparency and input 
in the assignment of unique codes for these tests. Therefore, we do not 
agree that the assignment of HCPCS codes for this purpose should be 
subject to notice and comment rulemaking.
    To alleviate commenters' concerns that we will automatically assign 
a unique HCPCS code for an ADLT or an FDA-cleared or -approved test, we 
note that laboratories must first indicate to the agency that its test 
requires a unique code. We may not be aware of existing ADLTs or CLDTs 
that are cleared or approved by the FDA that do not already have a 
unique HCPCS code. Details regarding how laboratories must notify us 
will be specified in subregulatory guidance.
c. Establishing Unique Identifiers for Certain Tests
    Section 1834A(e)(3) of the Act requires the establishment of a 
unique identifier for certain tests. Specifically, section 1834A(e)(3) 
of the Act provides that, for purposes of tracking and monitoring, if a 
laboratory or a manufacturer requests a unique identifier for an ADLT 
or a laboratory test that is cleared or approved by the FDA, the 
Secretary shall use a means to uniquely track such test through a 
mechanism such as a HCPCS code or modifier. Section 1834A(e)(3) of the 
Act applies only to those laboratory tests that are addressed by 
sections 1834A(e)(1) and (2) of the Act, that is, new and existing 
ADLTs and new and existing CDLTs that are cleared or approved by the 
FDA.
    The statute does not define ``tracking and monitoring.'' However, 
in the context of a health insurance program like Medicare, tracking 
and monitoring would typically be associated with enabling or 
facilitating the obtaining of information included on a Medicare claim 
for payment to observe such factors as: Overall utilization of a given 
service; regional utilization of the service; where a service was 
provided (for example, office, laboratory, hospital); who is billing 
for the service (for example, physician, laboratory, other supplier); 
which beneficiary received the service; and characteristics of the 
beneficiary receiving the service (for example, male/female, age, 
diagnosis). As the HCPCS code is the fundamental variable used to 
identify an item or service, and can serve as the means to uniquely 
track and monitor many various aspects of a laboratory test, we 
believed the requirements of this section would be met by the existing 
HCPCS coding process. Therefore, we proposed to implement section 
1834A(e)(3) of the Act using our current HCPCS coding system, which we 
are finalizing in this final rule. If a laboratory or manufacturer 
specifically requests a unique identifier for tracking and monitoring 
an ADLT or an FDA-cleared or -approved CDLT, we will assign it a unique 
HCPCS code if it does not already have one.
    A discussion of the comments we received on this topic, and our 
responses to those comments, appears below.
    Comment: A few commenters recommended that we implement a more 
granular coding structure than the HCPCS coding processes for tests on 
the CLFS. Specifically, they suggested we use the McKesson Z codes 
which, they explained, provide granularity to the level of the specific 
laboratory that furnishes the test. The commenters mentioned that our 
contractor for the MolDx program and several private payors already 
utilize Z codes and suggest they can be adapted to our needs for 
assigning unique identifiers for certain tests, as required under 
section 1834A(e)(3) of the Act.
    Response: We believe our current HCPCS coding processes will 
sufficiently meet our coding needs under section 1834A(e)(3) of the 
Act. We also note that, as of this final rule, the McKesson Z codes are 
not a HIPAA-compliant code set; HCPCS and CPT-4 are the current medical 
data code set standards adopted for use in health care claims 
transactions for physician and other health care services, such as 
CDLTs (see 42 CFR 162.1000 and 162.1002).
    Comment: One commenter requested to be allowed to assist us in the 
ADLT application process and to be involved with the coding of new 
ADLTs.
    Response: We appreciate the commenter's offer of assistance in the 
matter of designating a test as an ADLT and coding new ADLTs. We plan 
to consider recommendations of the CDLT Advisory Panel (see the 
discussion of the Panel in section II.J.1. of this final rule) as part 
of the process for determining ADLT status and assigning an ADLT a 
unique code. Meetings of the Panel are open to the public and input 
from the public is welcome. Announcements of the Panel meetings are 
published in the Federal Register and meeting agendas are posted on 
CMS's CLFS Web site at: https://www.cms.gov/Regulations-and-Guidance/

[[Page 41076]]

Guidance/FACA/AdvisoryPanelonClinicalDiagnosticLaboratoryTests.html.

H. Payment Methodology

1. Calculation of Weighted Median
    Section 1834A(b) of the Act establishes a new methodology for 
determining Medicare payment amounts for CDLTs on the CLFS. Section 
1834A(b)(1)(A) of the Act establishes the general requirement that the 
Medicare payment amount for a CDLT furnished on or after January 1, 
2017, shall be equal to the weighted median determined for the test for 
the most recent data collection period. Section 1834A(b)(2) of the Act 
requires the Secretary to calculate a weighted median for each 
laboratory test for which information is reported for the data 
collection period by arraying the distribution of all private payor 
rates reported for the period for each test weighted by volume for each 
private payor and each laboratory. As discussed later in this section, 
the statute includes special payment requirements for new ADLTs and new 
CDLTs that are not ADLTs.
    To illustrate how we proposed to calculate the weighted median for 
CDLTs, we provided examples of several different scenarios in the 
proposed rule (80 FR 59404 through 59406). These examples showed how we 
planned to determine the weighted median and were not exhaustive of 
every possible pricing scenario. In the first example, as depicted in 
Table 6, we supposed that the following private payor rate and volume 
information for three different CDLTs was reported for applicable 
laboratories.

                                               Table 6--Example of the Calculation of the Weighted Median
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      Test 1                          Test 2                          Test 3
                                                         -----------------------------------------------------------------------------------------------
                                                           Private payor                   Private payor                   Private payor
                                                               rate           Volume           rate           Volume           rate           Volume
--------------------------------------------------------------------------------------------------------------------------------------------------------
Lab. A..................................................           $5.00           1,000          $25.00             500          $40.00             750
Lab. B..................................................            9.00           1,100           20.00           2,000           41.00             700
Lab. C..................................................            6.00             900           23.50           1,000           50.00             500
Lab. D..................................................            2.50           5,000           18.00           4,000           39.00             750
Lab. E..................................................            4.00           3,000           30.00             100           45.00             850
--------------------------------------------------------------------------------------------------------------------------------------------------------

    In this example, there are five different private payor rates for 
each test. Table 6 is shown again as Table 7 with each test arrayed by 
order of the lowest to highest private payor rate, with each private 
payor rate appearing one time only so as to not reflect volume 
weighting.

                          Table 7--Example of the Calculation of the Unweighted Median
----------------------------------------------------------------------------------------------------------------
                                                                      Test 1          Test 2          Test 3
                                                                 -----------------------------------------------
                                                                   Private payor   Private payor   Private payor
                                                                       rate            rate            rate
----------------------------------------------------------------------------------------------------------------
Lowest (1)......................................................           $2.50          $18.00          $39.00
Next in Sequence (2)............................................            4.00           20.00           40.00
Next in Sequence (3)............................................            5.00           23.50           41.00
Next in Sequence (4)............................................            6.00           25.00           45.00
Highest (5).....................................................            9.00           30.00           50.00
----------------------------------------------------------------------------------------------------------------

    With five different private payor rates for each test, the 
unweighted median is the middle value or the third line in the table 
where there are an equal number of private payor rates listed above and 
below the third line in the table. The unweighted median private payor 
rate for each test would be:
     Test 1 = $5.00
     Test 2 = $23.50
     Test 3 = $41.00
    These results are obtained by arraying the distribution of all 
private payor rates reported for the period for each test without 
regard to the volume reported for each private payor and each 
laboratory. To obtain the weighted median, we would do a similar array 
to the one in Table 7 except we would list each distinct private payor 
rate repeatedly by the same number of times as its volume. This is 
illustrated for Test 1 in Table 8.

       Table 8--Example of the Calculation of the Weighted Median
------------------------------------------------------------------------
                                                              Test 1
                                                         ---------------
                                                           Private payor
                                                               rate
------------------------------------------------------------------------
Lowest (1)..............................................           $2.50
Lowest (2)..............................................            2.50
                          . . .                                     2.50
                          . . .                                     2.50
Until . . . (5,000).....................................            2.50
Next Rate in Sequence (5,001)...........................            4.00
Next Rate in Sequence (5,002)...........................            4.00
                          . . .                                     4.00
                          . . .                                     4.00
Until (8,000)...........................................            4.00
                          . . .                                    . . .
Highest (11,000)........................................            9.00
------------------------------------------------------------------------

    Thus, for Test 1, the array would show the lowest private payor 
rate of $2.50 five thousand times. The ellipsis (``. . .'') represents 
the continuation of the sequence between lines 2 and 4,999. The next 
private payor rate in the sequence ($4.00) would appear on line 5,001 
and would be listed 3,000 times until we get to line 8,000. This 
process would continue with the remaining private payor rates listed as 
many times as the associated volumes, with the continuing sequence 
illustrated by ellipses. Continuing the array, the next highest private 
payor rate in the sequence would be: $5.00 listed 1,000 times; $6.00 
listed 900 times; and $9.00 listed 1,100 times. The total number of 
lines in the array would be 11,000, as that is the total volume for 
Test 1 furnished for the five applicable laboratories. Because the 
total volume for Test 1 is 11,000, the weighted median private payor 
rate would be the

[[Page 41077]]

average of the 5,500th and 5,501st entry, which would be $4.00.
    Repeating this process for Test 2 (see Table 9), the total volume 
for Test 2 is 7,600 units; therefore, the weighted median private payor 
rate would be the average of the 3,800th and 3,801st entry, which would 
be $18.00.

                     Table 9--Test 2--Sorted by Rate
------------------------------------------------------------------------
                   Private payor rate                         Volume
------------------------------------------------------------------------
$18.00..................................................           4,000
20.00...................................................           2,000
23.50...................................................           1,000
25.00...................................................             500
30.00...................................................             100
------------------------------------------------------------------------

    For Test 3 (see Table 10), the total volume is 3,550 units; 
therefore, the weighted median private payor rate would be the average 
of the 1,775th and 1,776th entry, which would be $41.00.

                    Table 10--Test 3--Sorted by Rate
------------------------------------------------------------------------
                   Private payor rate                         Volume
------------------------------------------------------------------------
$39.00..................................................             750
40.00...................................................             750
41.00...................................................             700
45.00...................................................             850
50.00...................................................             500
------------------------------------------------------------------------

    In this example, weighting changed the median private payor rate 
from $5.00 to $4.00 for Test 1, from $23.50 to $18.00 for Test 2, and 
resulted in no change ($41.00 both unweighted and weighted) for Test 3.
    For simplicity, the above example shows only one private payor rate 
per test. We expect laboratories commonly have multiple private payor 
rates for each CDLT they perform. For each test performed by applicable 
laboratories having multiple private payor rates, we would use the same 
process shown above in this section, irrespective of how many different 
private payor rates there are for a given test. That is, we would list 
each private payor rate and its volume at that private payor rate, and 
determine the median as we did above for each payor and each 
laboratory, and then compute the volume-weighted median rate. The 
following example in Table 11 illustrates how we proposed to calculate 
the weighted median rate for a test under this scenario:

                                                                    Table 11--Test 4
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      Payor 1                         Payor 2                         Payor 3
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           Private payor                   Private payor                   Private payor
                                                               rate           Volume           rate           Volume           rate           Volume
--------------------------------------------------------------------------------------------------------------------------------------------------------
Lab. A..................................................           $5.00              10           $5.25              20           $4.00              30
Lab. B..................................................            3.75              50  ..............  ..............  ..............  ..............
Lab. C..................................................            6.00               5            5.00              10            5.50              25
Lab. D..................................................            5.00              10            4.75              30  ..............  ..............
Lab. E..................................................            6.00               5  ..............  ..............  ..............  ..............
--------------------------------------------------------------------------------------------------------------------------------------------------------

    To calculate the weighted median for Test 4, we would array all 
private payor rates, listed the number of times for each respective 
test's volume, and then determine the median value (as illustrated in 
Table 12).

                    Table 12--Test 4--Sorted by Rate
------------------------------------------------------------------------
                   Private payor rate                         Volume
------------------------------------------------------------------------
$3.75...................................................              50
4.00....................................................              30
4.75....................................................              30
5.00....................................................              10
5.00....................................................              10
5.00....................................................              10
5.50....................................................              25
5.25....................................................              20
6.00....................................................               5
6.00....................................................               5
------------------------------------------------------------------------

    The total volume for Test 4 is 195. Therefore, the median value 
would be at the 98th entry, which would be $4.75. We proposed to 
describe this process in Sec.  414.507(b).
    Section 1834A(b)(1)(B) of the Act states that the Medicare payment 
amounts established under section 1834A of the Act shall apply to a 
CDLT furnished by a hospital laboratory if such test is paid for 
separately, and not as part of a bundled payment under section 1833(t) 
of the Act (the statutory section pertaining to the OPPS). In CY 2014, 
we finalized a policy to package certain CDLTs in the OPPS (78 FR 74939 
through 74942 and Sec.  419.2(b)(17)). Under current policy, certain 
CDLTs that are listed on the CLFS are packaged in the OPPS as integral, 
ancillary, supportive, dependent, or adjunctive to the primary service 
or services provided in the hospital outpatient setting on the same 
date of service as the laboratory test. Specifically, we conditionally 
package laboratory tests and only pay separately for a laboratory test 
when (1) it is the only service provided to a beneficiary on a given 
date of service or (2) it is conducted on the same date of service as 
the primary service, but is ordered for a different purpose than the 
primary service and ordered by a practitioner different than the 
practitioner who ordered the other OPPS services. Also excluded from 
this conditional packaging policy are molecular pathology tests 
described by CPT codes in the ranges of 81200 through 81383, 81400 
through 81408, and 81479 (78 FR 74939 through 74942). When laboratory 
tests are not packaged under the OPPS and are listed on the CLFS, they 
are paid at the CLFS payment rates outside the OPPS under Medicare Part 
B. Section 1834A(b)(1)(B) of the Act would require us to pay the CLFS 
payment amount determined under section 1834A(b)(1)(B) of the Act for 
CDLTs that are provided in the hospital outpatient department and not 
packaged into Medicare's OPPS payment. This policy would apply to any 
tests currently paid separately in the hospital outpatient department 
or in the future if there are any changes to OPPS packaging policy.\2\ 
As these are payment policies that pertain to the OPPS, we would 
implement them in OPPS annual rulemaking.
---------------------------------------------------------------------------

    \2\ For the CY 2016 OPPS final rule, we adopted changes to the 
packaging policy described above. See 80 FR 70348 for more 
information.
---------------------------------------------------------------------------

    Next, section 1834A(b)(4)(A) of the Act states that the Medicare 
payment amounts under section 1834A(b) shall continue to apply until 
the year following the next data collection period. We proposed to 
implement this requirement in proposed Sec.  414.507(a) by stating that 
each payment rate will be in effect for a period of 1 calendar year for 
ADLTs and 3 calendar years for all other CDLTs, until the year 
following the next data collection period.
    Section 1834A(b)(4)(B) of the Act states that the Medicare payment 
amounts under section 1834A of the Act shall not be subject to any 
adjustment (including any geographic adjustment, budget neutrality 
adjustment, annual

[[Page 41078]]

update, or other adjustment). The new payment methodology for CDLTs 
established under section 1834A(b) of the Act will apply to all tests 
furnished on or after January 1, 2018 (the revised implementation date 
we are adopting for the private payor rate-based CLFS) and replace the 
current methodology for calculating Medicare payment amounts for CDLTs 
under sections 1833(a), (b), and (h) of the Act, including the annual 
updates for inflation based on the percentage change in the CPI-U and 
reduction by a multi-factor productivity adjustment (see section 
1833(h)(2)(A) of the Act). We stated in the proposed rule that we 
believed section 1834A(b)(4)(B) of the Act is clear that no annual 
update adjustment shall be applied for tests paid under section 1834A 
of the Act. Therefore, we proposed to include in Sec.  414.507(c) that 
the payment amounts established under this section are not subject to 
any adjustment, such as any geographic, budget neutrality, annual 
update, or other adjustment.
    A discussion of the public comments we received regarding the 
calculation of the weighted median private rate, and our responses to 
those comments, appears below.
    Comment: Many commenters agreed with the calculation of the 
weighted median private payor rate outlined in the proposed rule but 
expressed concern about whether the calculated weighted median prices 
would reflect ``true market rates'' for laboratory services. For 
example, many commenters believed PAMA intended to include data from 
independent laboratories and hospital outreach laboratories when 
calculating the weighted median private payor rate for each laboratory 
test. Additionally, commenters contended that ``true market-based 
reimbursement rates'' can be calculated by defining an applicable 
laboratory as an entity identified by a CLIA number and not by TIN. To 
that end, the commenters recommended CMS revise the definition of 
applicable laboratory as an entity identified by a CLIA number so that 
independent laboratories and hospital outreach laboratories are 
included in the calculation of the weighted median private payor rates.
    Response: In section II.A. of this final rule, we explain that we 
are defining applicable laboratory in terms of the NPI rather than the 
TIN and specifying in the definition that the majority of Medicare 
revenues threshold and the low expenditure threshold are to be applied 
by the NPI-level entity rather than by the TIN-level entity 
collectively with all its associated NPIs. A primary benefit of 
defining applicable laboratory at the NPI level, rather than at the TIN 
level, is that it will not prevent hospital outreach laboratories from 
meeting the definition of applicable laboratory and, therefore, 
reporting private rates. We also explained that we are not defining 
applicable laboratory by the CLIA certificate, in part, because CLIA 
certificates are not associated with Medicare billing so, unlike the 
NPI, with which revenues for specific services can easily be 
identified, the CLIA certificate cannot be used to identify revenues 
for specific services.
    Independent laboratories that exceed the majority of Medicare 
revenues threshold and the low expenditure threshold will meet the 
definition of applicable laboratory and their applicable information 
will be reported to us for determining the weighted median private 
payor rate. Although the low expenditure threshold will exclude many 
independent laboratories and physician office laboratories from 
reporting private payor rates, based on our analysis of CY 2013 CLFS 
claims data, we found with a $12,500 threshold for a 6-month data 
collection period, we can retain a high percentage of Medicare FFS 
utilization data under the CLFS from applicable laboratories. We note 
that because CLFS payments will be based on the weighted median of 
private payor rates, additional reporting may not be likely to change 
the weighted median private payor rate, irrespective of how many 
additional smaller laboratories are required to report, if, as our 
analysis suggests, the largest laboratories dominate the market and 
therefore most significantly affect the payment rate. For more 
information regarding the definition of applicable laboratory, please 
see section II.A. of this final rule.
    Comment: A few commenters requested that we calculate a weighted 
median private payor rate with and without data from Medicaid managed 
care organizations. These commenters opined that the effect of the 
inclusion of Medicaid managed care plans as private payors under the 
Act and their corresponding payment rates in the calculation of the 
weighted median is not yet fully known. They further indicated that 
determining the weighted median with and without Medicaid managed care 
plans will help us to assess the effect of setting Medicaid rates at a 
percentage of Medicare payment amounts over time.
    Response: The statute requires the payment amount for laboratory 
tests paid under the new CLFS to be equal to the weighted median of 
private payor rates, and it explicitly includes in the definition of 
private payor, at section 1834A(a)(8)(c), Medicaid managed care 
organizations. Therefore, we do not believe we can apply a weighted 
median private payor rate for a test that we calculate without Medicaid 
managed care organization rates.
    Comment: Two commenters requested clarification as to how we would 
address updating payment rates for tests which previously had multiple 
laboratories reporting private payor rates, but for which, in a 
subsequent data reporting period data is submitted by only one 
laboratory with low volume for the test. The commenters expressed 
concern that the updated payment rates would be based on a non-
statistically significant amount of data reported for a test code(s). 
To that end, the commenters requested we ensure that a weighted median 
private payor rate represents data from more than one laboratory.
    Response: Section 1834A(b)(2) of the Act requires the Secretary to 
calculate a weighted median private payor rate for each laboratory test 
for which information is reported for the data collection period by 
arraying the distribution of all private payor rates reported for the 
period for each test weighted by volume for each private payor and each 
laboratory. Section 1834A(b)(1)(A) of the Act requires the payment to 
be equal to the weighted median private payor rate for the test for the 
most recent data collection period. We do not see where the statute 
would permit us to deviate from that prescribed methodology in the 
situation where all the applicable information we receive for a test is 
reported by only one laboratory. Furthermore, in this final rule, we 
note that the statute specifies that only a single laboratory may offer 
and furnish an ADLT. Although for purposes of an ADLT we are revising 
the definition of a single laboratory to include entities that own or 
are owned by a laboratory, a single laboratory could conceivably 
consist of only one laboratory. Therefore, we cannot ensure that any 
data used to calculate a weighted median private payor rate represents 
more than one laboratory's private payor rate data.
    Comment: One commenter requested clarification as to whether the 
new CLFS will have a national fee schedule amount for each laboratory 
test code or if the payment amounts will be adjusted locally by the 
MACs. The commenter also requested that we clarify whether the median 
private payor rate will be calculated from applicable information 
reported for tests furnished only to Medicare beneficiaries or will 
include private payor rates of tests furnished to commercial 
beneficiaries as well.

[[Page 41079]]

    Response: Section 1834A(b)(4)(B) of the Act prohibits geographic 
adjustments of the new CLFS payment amounts. Therefore, the payment 
amounts under the revised CLFS will reflect a national fee schedule 
amount for each test. We also clarify that the applicable information 
reported is not limited to private payor rates for laboratory tests 
furnished to Medicare beneficiaries. Private payors, as we define the 
term at Sec.  414.502, include health insurers, group health plans, 
Medicare Advantage plans, and Medicaid managed care organizations.
2. Phased-In Payment Reduction
    Section 1834A(b)(3) of the Act limits the reduction in payment 
amounts that may result from implementation of the new payment 
methodology under section 1834A(b) of the Act within the first 6 years. 
Specifically, section 1834A(b)(3)(A) of the Act states that the payment 
amounts determined for a CDLT for a year cannot be reduced by more than 
the applicable percent from the preceding year for each of 2017 through 
2022. Under section 1834A(b)(3)(B) of the Act, the applicable percent 
is 10 percent for each of 2017 through 2019, and 15 percent for each of 
2020 through 2022. These provisions do not apply to new ADLTs, or new 
CDLTs that are not ADLTs.
    In the proposed rule (80 FR 59407), we provided the following 
example. If a test that is not a new ADLT or new CDLT has a CY 2016 
Medicare payment amount of $20.00, the maximum reduction in the 
Medicare payment amount for CY 2017 is 10 percent, or $2. Following the 
CY 2016 data reporting period, CMS calculates a weighted median of 
$15.00 (a reduction of 25 percent from a Medicare payment amount of 
$20.00) based on the applicable information reported for the test. 
Because the maximum payment reduction permitted under the statute for 
2017 is 10 percent, the Medicare payment amount for CY 2017 will be 
$18.00 ($20.00 minus $2.00). The following year, a 10 percent reduction 
from the CY 2017 payment of $18.00 would equal $1.80, lowering the 
total Medicare payment amount to $16.20 for CY 2018. In a second 
example we provided, if a test that is not a new ADLT or new CDLT has a 
CY 2016 Medicare payment amount of $17.00, the maximum reduction for CY 
2017 is 10 percent or $1.70. Following the CY 2016 data reporting 
period, we calculated a weighted median of $15.00 (a reduction of 11.8 
percent from the CY 2016 Medicare payment amount of $17). Because the 
maximum reduction is 10 percent, the Medicare payment amount for CY 
2017 will be $15.30 or the maximum allowed reduction of $1.70 from the 
preceding year's (CY 2016) Medicare payment amount of $17.00. The 
following year (CY 2018), the Medicare payment amount will be reduced 
to $15.00, or $0.30 less, which is less than a 10 percent reduction 
from the prior year's (CY 2017) Medicare payment amount of $15.30. We 
believed applying the maximum applicable percentage reduction from the 
prior year's Medicare payment amount, rather than from the weighted 
median rate for CY 2016, was most consistent with the statute's mandate 
that the reduction ``for the year'' (that is, the calendar year) not be 
``greater than the applicable percent . . . of the amount of payment 
for the test for the preceding year.''
    We explained in the proposed rule that, to apply the phase-in 
reduction provisions beginning in CY 2017, we must look at the CLFS 
rates established for CY 2016 under the payment methodology set forth 
in sections 1833(a), (b), and (h) of the Act. Previously discussed, 
CDLTs furnished on or after July 1, 1984, and before January 1, 2017, 
in a physician's office, by an independent laboratory, or, in limited 
circumstances, by a hospital laboratory for its outpatients or non-
patients, are paid under the Medicare CLFS, with certain exceptions. 
Payment is the lesser of:
     The amount billed;
     The state or local fee schedule amount established by 
Medicare contractors; or
     An NLA, which is a percentage of the median of all the 
state and local fee schedules.
    The NLA is 74 percent of the median of all local Medicare payment 
amounts for tests for which the NLA was established before January 1, 
2001. The NLA is 100 percent of the median of the local fee schedule 
amount for tests for which the NLA was first established on or after 
January 1, 2001 (see section 1833(h)(4)(B)(viii) of the Act). Medicare 
typically pays either the lower of the local fee schedule amount or the 
NLA, as it uncommon for the amount billed to be less than either of 
these amounts. As the local fee schedule amount may be lower than the 
NLA, Medicare payment amounts for CDLTs are not uniform across the 
nation. Thus, in the proposed rule we evaluated which CY 2016 CLFS 
payment amounts to consider--the lower of the local fee schedule amount 
or the NLA, or just the NLA--when applying the phase-in reduction 
provisions to the CLFS rates for CY 2017 (80 FR 59407). Under option 1, 
we explained we would apply the 10 percent reduction limitation to the 
lower of the NLA or the local fee schedule amount. This option would 
retain some of the features of the current payment methodology under 
sections 1833(a), (b), and (h) of the Act and, we believed, would be 
the most consistent with the requirement in section 1834A(b)(3)(A) of 
the Act to apply the applicable percentage reduction limitation to the 
``amount of payment for the test'' for the preceding year. As noted 
above, for each of CY 2018 through 2022, we explained we would apply 
the applicable percentage reduction limitation to the Medicare payment 
amount for the preceding year. Under this option, though, the Medicare 
payment amounts may be local fee schedule amounts, so there could 
continue to be regional variation in the Medicare payment amounts for 
CDLTs.
    Alternatively, under option 2, we explained would consider only the 
NLAs for CY 2016 when applying the 10 percent reduction limitation. 
This option would eliminate the regional variation in Medicare payment 
amounts for CDLTs, and, we believed, would be more consistent with 
section 1834A(b)(4)(B) of the Act, which, as noted above, prohibits the 
application of any adjustments to CLFS payment amounts determined under 
section 1834A of the Act, including any geographic adjustments.
    We proposed option 2 (NLAs only) for purposes of applying the 10 
percent reduction limit to CY 2017 payment amounts because we believed 
the statute intends CLFS rates to be uniform nationwide, which is why 
it precludes any geographic adjustment. That is, we proposed that if 
the weighted median calculated for a CDLT based on applicable 
information for CY 2017 would be more than 10 percent less than the CY 
2016 NLA for that test, we would establish a Medicare payment amount 
for CY 2017 that is no less than 90 percent of the NLA (that is, no 
more than a 10 percent reduction). For each of CY 2018 through 2022, we 
would apply the applicable percentage reduction limitation to the 
Medicare payment amount for the preceding year.
    We proposed to codify the phase-in reduction provisions in Sec.  
414.507(d) to specify that for years 2017 through 2022, the payment 
rates established under this section for each CDLT that is not a new 
ADLT or new CDLT, may not be reduced by more than the following amounts 
for--
     2017--10 percent of the NLA for the test in 2016.
     2018--10 percent of the payment rate established in 2017.
     2019--10 percent of the payment rate established in 2018.

[[Page 41080]]

     2020--15 percent of the payment rate established in 2019.
     2021--15 percent of the payment rate established in 2020.
     2022--15 percent of the payment rate established in 2021.
    Table 13 illustrates the proposed phase-in reduction for the two 
hypothetical examples presented above:

                                                       Table 13--Phase-In Reduction for 2 Examples
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Private    10% maximum               10% maximum                10% maximum
                                                     NLA       payor rate   reduction    2017 rate    reduction    2018 rate     reduction    2019 rate
--------------------------------------------------------------------------------------------------------------------------------------------------------
Test 1.........................................       $20.00       $15.00        $2.00       $18.00        $1.80       $16.20   $1.20 < 10%       $15.00
Test 2.........................................        17.00        15.00         1.70        15.30   0.30 < 10%        15.00    0.00 < 10%        15.00
--------------------------------------------------------------------------------------------------------------------------------------------------------

Revised Phase-In of Payment Reduction Timetable
    As discussed in section II.D., we are moving the implementation 
date of the private payor-based rates for the CLFS to January 1, 2018. 
We are finalizing our proposed policy for the phase-in of payment 
reductions, but we believe it is appropriate to make a corresponding 
change to the phase-in payment reduction timetable, which will permit 
laboratories to get the full benefit of the payment reduction 
limitations we believe the statute intended. Accordingly, we are 
revising the phase-in of the payment reductions timetable to reflect 
the January 1, 2018 implementation date of the revised CLFS. We are 
reflecting this change in Sec.  414.507(d) by indicating that a maximum 
payment reduction per year of 10 percent applies for years 2018 through 
2020 and a maximum payment reduction per year of 15 percent applies for 
years 2021 through 2023.
    A discussion of the comments we received on the phase-in payment 
reduction, and our responses to those comments, appears below.
    Comment: Two commenters requested clarification as to whether we 
would publish the full phased-in payment reductions, through CY 2022, 
when we publish the preliminary CLFS payment rates, or whether we would 
only publish the adjustment that would apply in January of the 
following year. The commenters believe it is important for laboratories 
to understand how payment reductions are applied to current Medicare 
payment rates over a three-year period to support laboratory planning 
over the course of several years.
    Response: Under the private payor rate-based CLFS, the preliminary 
payment amounts we publish in September will reflect the full median 
private payor rate for each CDLT for a given update for the next 
calendar year. For example, if a test that is not a new ADLT or new 
CDLT has a CY 2017 national limitation amount (NLA) of $20.00, and we 
calculate a weighted median private payor rate of $15.00 following the 
CY 2017 data reporting period, the preliminary payment amount for CY 
2018 would be $15.00 for the test. Laboratories will have the 
opportunity to review the fully phased-in payment reduction for a given 
CLFS update from the preliminary CLFS payment file. However, the final 
payment file published in November will only reflect the application of 
the phased-in payment reduction for the next calendar year.
    Comment: One commenter requested clarification as to whether we 
will apply a maximum amount that a laboratory test's payment rate may 
increase over six years since there is a six-year limitation on the 
decrease, and whether we anticipate that laboratory rates will decrease 
in all circumstances. The commenter also requested clarification as to 
why the maximum decrease per year is needed.
    Response: We are applying a phased-in payment reduction limitation 
as required by section 1834A(b)(3) of the Act. While the statute limits 
the amount of the payment reduction for laboratory tests, it does not 
limit the amount by which a laboratory test's payment rate may increase 
under the new CLFS, so we are not applying a limit on the increase 
amount. We cannot anticipate, as the commenter requested, whether 
payment rates for laboratory tests paid under the private payor rate-
based CLFS will decrease in all circumstances. We note that, as 
discussed in the proposed rule (80 FR 59416), a study by the Office of 
Inspector General, ``Comparing Lab Test Payment Rates: Medicare Could 
Achieve Substantial Savings'' (OEI-07-11-00010, June 2013), showed 
Medicare paid between 18 and 30 percent more than other insurers for 20 
high-volume and/or high-expenditure lab tests. We assumed the private 
payor rates to be approximately 20 percent lower than the Medicare CLFS 
payment rates for all tests paid under the CLFS. However, this 
aggregate assumption cannot be used to estimate the change in payment 
rates resulting from the private payor rate-based CLFS for a specific 
test(s).
3. Payment for New ADLTs
    Section 1834A(d)(1)(A) of the Act provides that the payment amount 
for a new ADLT shall be based on the actual list charge for the 
laboratory test during an initial period of 3 quarters. Section 
1834A(d)(2) of the Act requires applicable information to be reported 
for a new ADLT not later than the last day of the Q2 of the initial 
period. Section 1834A(d)(3) of the Act requires the Secretary to use 
the weighted median methodology under section (b) to establish Medicare 
payment rates for new ADLTs after the initial period. Under section 
1834A(d)(3) of the Act, such payment rates continue to apply until the 
year following the next data collection period.
    In this section, we discussed our proposal to require the initial 
period, which we proposed to call the ``new ADLT initial period,'' to 
begin on the first day of the first full calendar quarter following the 
first day on which a new ADLT is performed. In accordance with section 
1834A(d)(1)(A) of the Act, we proposed that the payment amount for the 
new ADLT would equal the actual list charge, as defined below in this 
section, during the new ADLT initial period. Accordingly, we proposed 
to codify Sec.  414.522(a)(1) to specify the payment rate for a new 
ADLT during the new ADLT initial period is equal to its actual list 
charge.
    Section 1834A(d)(1)(B) of the Act states that actual list charge 
means the publicly available rate on the first day at which the test is 
available for purchase by a private payor for a laboratory test. We 
believed the ``publicly available rate'' is the amount charged for an 
ADLT that is readily accessible in such forums as a company Web site, 
test registry, or price listing, to anyone seeking to know how much a 
patient who does not have the benefit of a negotiated rate would pay 
for the test. We noted that this interpretation of publicly available 
rate is distinguishable from a private payor rate in that the former is 
readily available to a consumer, while the latter may be negotiated 
between a private payor and

[[Page 41081]]

a laboratory and is not readily available to a consumer. We recognized 
there may be more than one publicly available rate, in which case we 
believed the lowest rate should be the actual list charge amount so 
that Medicare is not paying more than the lowest rate that is publicly 
available to any consumer. We proposed to define publicly available 
rate in Sec.  414.502 as the lowest amount charged for an ADLT that is 
readily accessible in such forums as a company Web site, test registry, 
or price listing, to anyone seeking to know how much a patient who does 
not have the benefit of a negotiated rate would pay for the test.
    We explained in the proposed rule that, in our view, the first day 
a new ADLT is available for purchase by a private payor is the first 
day an ADLT is offered to a patient who is covered by private 
insurance. The statutory phrase ``available for purchase'' suggested to 
us that the test only has to be available to patients who have private 
insurance even if the test has not actually been performed yet by the 
laboratory. That is, it is the first day the new ADLT is obtainable by 
a patient, or marketed to the public as a test that a patient can 
receive, even if the test has not yet been performed on that date. We 
proposed to incorporate this interpretation into our proposed 
definition of actual list charge in Sec.  414.502 to specify actual 
list charge is the publicly available rate on the first day the new 
ADLT is obtainable by a patient who is covered by private insurance, or 
marketed to the public as a test a patient can receive, even if the 
test has not yet been performed on that date.
    Because we cannot easily know the first date on which a new ADLT is 
performed or the actual list charge amount for a new ADLT, we proposed 
to require the laboratory seeking ADLT status for its test to inform us 
of both the date the test is first performed and the actual list charge 
amount. Accordingly, we proposed in Sec.  414.504(c), that, in its new 
ADLT application, the laboratory seeking new ADLT status for its test 
must attest to the actual list charge and the date the new ADLT is 
first performed. We also indicated that we would outline the new ADLT 
application process in detail in subregulatory guidance prior to the 
effective date of the private payor rate based CLFS.
    Because the new ADLT initial period starts on the first day of the 
next calendar quarter following the first day on which a new ADLT is 
performed, there will be a span of time between when the test is first 
performed and when the test is paid the actual list charge amount. We 
indicated in the proposed rule that we need to establish a payment 
amount for the test during that span of time. We explained that, 
similar to how we pay for a test under the PFS, the CLFS, or other 
payment systems, for a service that does not yet have a national 
payment amount, the MAC would work with a laboratory to develop a 
payment rate for a new ADLT for the period of time before we pay at 
actual list charge. We provided the following example in the proposed 
rule (80 FR 59408). If an ADLT is first performed on February 4, 2017, 
the new ADLT initial period would begin on April 1, 2017. While the new 
ADLT would be paid the actual list charge amount from April 1 through 
December 31, 2017, the MAC would determine the payment amount for the 
test from February 4 through March 31, 2017, as it does currently for 
tests that need to be paid prior to having a national payment amount. 
We proposed to specify at Sec.  414.522(a)(2) that the payment amount 
for a new ADLT prior to the new ADLT initial period is determined by 
the MAC based on information provided by the laboratory seeking new 
ADLT status for its laboratory test.
    According to section 1834A(d)(3) of the Act, the weighted median 
methodology used to calculate the payment amount for CDLTs that are not 
new ADLTs will be used to establish the payment amount for a new ADLT 
after the new ADLT initial period; we explained that the payment amount 
would be based on applicable information reported by an applicable 
laboratory before the last day of the second quarter of the new ADLT 
initial period, per section 1834A(d)(2) of the Act. We proposed to 
codify these provisions in Sec.  414.522(b) as follows: After the new 
ADLT initial period, the payment rate for a new ADLT is equal to the 
weighted median established under the payment methodology described in 
Sec.  414.507(b).
    The payment rate based on the first 2 quarters of the new ADLT 
initial period would continue to apply until the year following the 
next data collection period, per section 1834A(d)(3) of the Act. The 
following is the example we provided in the proposed rule (80 FR 59408 
through 59409) of how the various time frames for new ADLT payment 
rates would work. If the first day a new ADLT is available for purchase 
by a private payor is in the middle of Q1 of 2017, the new ADLT initial 
period would begin on the first day of Q2 of CY 2017. The test would be 
paid actual list charge through the end of Q4 of CY 2017. The 
applicable laboratory that furnishes the test would collect applicable 
information in Q2 and Q3 of CY 2017, and report it to us by the last 
day of Q3 of CY 2017. We would calculate a weighted median based on 
that applicable information and establish a payment rate that would be 
in effect from January 1, 2018, through the end of 2018. The applicable 
laboratory would report applicable information from the CY 2017 data 
collection period to us during the January through March data reporting 
period in 2018, which would be used to establish the payment rate that 
would go into effect on January 1, 2019.
    A discussion of the comments we received on payment for new ADLTs, 
and our responses to those comments, appears below.
    Comment: Two commenters noted that the statute defines actual list 
charge as the publicly available rate on the first day at which the 
test is available for purchase by a private payor. The commenter 
requested that we adopt that statutory definition, which the commenter 
believe is clear and gives laboratories sufficient guidance, rather 
than expand upon the statutory definition of actual list charge.
    Response: We believe we need to interpret several phrases in the 
statutory definition of actual list charge--``publicly available rate'' 
and ``available for purchase''--without which the industry would not 
have a common and consistent understanding of how we are implementing 
the actual list charge requirement. As discussed in the proposed rule 
(80 FR 59408), it is our understanding that if a test is ``available 
for purchase,'' the test does not have to have been performed yet; it 
only has to be available to patients who have private insurance. 
Further, our definition of ``publicly available rate'' in Sec.  414.502 
illustrates that we mean the lowest amount charged that is readily 
accessible to the public.
4. Recoupment of Payment for New ADLTs if Actual List Charge Exceeds 
Market Rate
    Section 1834A(d)(4) of the Act requires that, if the Medicare 
payment amount during the new ADLT initial period (that is, the actual 
list charge) is determined to be more than 130 percent of the Medicare 
payment amount based on the weighted median of private payor rates that 
applies after the new ADLT initial period, the Secretary shall recoup 
the difference between such payment amounts for tests furnished during 
such period.
    In the proposed rule, we interpreted this to mean that the 
Secretary should recoup the entire amount of the difference between the 
Medicare

[[Page 41082]]

payment amount during the new ADLT initial period and the Medicare 
payment amount based on the weighted median of private payor rates--not 
the difference between the Medicare payment amount during the initial 
period and 130 percent of the weighted median rate. In the proposed 
rule, we noted as an example, if the Medicare payment amount using 
actual list charge is $150 during the new ADLT initial period and the 
weighted median rate is $100, the Medicare payment amount for the new 
ADLT initial period is 150 percent of the Medicare payment amount based 
on the weighted median rate. We believed the statute directed the 
Secretary to use 130 percent as the threshold for invoking the 
recoupment provision but once invoked, collect the entire amount of the 
difference in Medicare payment amounts ($50 in this example).
    The statute refers to ``such payment amounts'' which we interpreted 
to mean the Medicare payment amount based on actual list charge and the 
Medicare payment amount based on the weighted median rate. We believed 
that the statute directed recoupment of the full amount of that 
difference as the 130 percent is only being used in making the 
threshold determination of whether the recoupment provision will apply. 
For this reason, we proposed at Sec.  414.522(c) to specify that if the 
Medicare payment amount for an ADLT during the new ADLT initial period 
(based on actual list charge) was more than 130 percent of the weighted 
median rate, we would recoup the entire amount of the difference 
between the two amounts. We further noted that if the 130 percent 
statutory threshold is not exceeded, we would not make any recoupment 
at all. Thus, for instance, if the weighted median private payor rate 
is $100 and the Medicare payment amount during the initial period is 
$130 or lower, the statutory threshold of 130 percent would not be 
exceeded and we would not pursue any recoupment of payment.
    However, if the actual list charge for a new ADLT was more than 130 
percent of the weighted median rate (as calculated from applicable 
information received during the first reporting period), claims paid 
during the new ADLT initial period would be re-priced using the 
weighted median rate. To that end, we proposed that we would issue a 
Technical Direction Letter instructing the MACs to re-price claims 
previously paid during the new ADLT initial period at the weighted 
median rate (instead of the actual list charge for the new ADLT). We 
also noted that we intended to issue further guidance on the 
operational procedures for recoupment of payments for the new ADLTs 
that exceed the 130 percent threshold.
    A discussion of the comments we received on our proposed recoupment 
of payment for new ADLTs and our responses to those comments, appears 
below.
    Comment: A few commenters disagreed with our proposal to recoup the 
difference between the actual list charge and the weighted median 
private payor rate if the actual list charge is greater than 130 
percent of the weighted median private payor rate. The commenters 
stated that Congress intended to reimburse new ADLTs up to 130 percent 
of the weighted median private payor amount, and the recoupment should 
serve as a guardrail that prevents abusive laboratory pricing. 
Additionally, the commenters contended that sound public policy, as 
well as a natural reading of the statute, dictates that Medicare regard 
the recoupment provision as an outer boundary limiting the actual list 
charge. To that end, the commenters requested that CMS recoup the 
difference between the actual list charge and 130 percent of the 
weighted median private payor rate, rather than the difference between 
the actual list charge and 100 percent of the weighted median private 
payor rate.
    Other stakeholders stated that our proposed recoupment policy would 
provide a disincentive for laboratories offering new ADLTs to negotiate 
price concessions with private payors. For example, they believe that 
if laboratories performing new ADLTs negotiate price concessions with 
commercial payors, it will lower the weighted median private payor rate 
and make it more likely that the ADLT will reach the 130 percent 
recoupment threshold. Therefore, laboratories offering new ADLTs may 
refuse to negotiate price concessions with commercial payors to avoid 
the recoupment threshold.
    Response: As discussed in this section, we proposed to recoup the 
entire amount of the difference between the actual list charge and the 
weighted median private payor rate if the actual list charge is greater 
than 130 percent of the weighted median private payor rate. We did so 
because, while we acknowledged in the proposed rule that the statute 
could be interpreted to permit the Secretary to recoup the difference 
between the Medicare payment amount during the initial period and 130 
percent of the weighted median rate, we believed that the more 
straightforward interpretation directed the Secretary to recoup the 
entire amount. Under our proposed policy, if the difference between 
actual list charge and the weighted median private payor rate was not 
greater than 130 percent, the recoupment provision would not apply and 
the test would be paid at the ``actual list charge'' during the entire 
new ADLT initial period.
    After review of the public comments, we recognize our proposed 
policy would create a disparity in the application of recoupment of 
payments. Under our proposal, if the difference between the actual list 
charge and the weighted median private payor rate is not greater than 
130 percent (for example, if it is exactly 130 percent), then there 
would be no recoupment, but if the difference between the actual list 
charge and the weighted median private payor rate is greater than 130 
percent (for example, if it is 131 percent), then the entire amount of 
the difference between actual list charge and the weighted median 
private payor rate would be recouped.
    In section II.D. of this final rule, we indicated that we 
understand a Medicare coverage determination could be a lengthy process 
for the types of tests that are likely to qualify as ADLTs and that, 
consequently, a test may be available on the market and paid by private 
payors before Medicare covers and pays for it. If a test is available 
to the public long before a Medicare Part B coverage determination is 
made and ADLT status is granted, the actual list charge could be 
significantly higher than the weighted median private payor rate based 
on applicable information reported during the new ADLT initial period. 
If the actual list charge is greater than 130 percent of the weighted 
median private payor rate determined during the new ADLT initial 
period, under our proposed recoupment policy, we would have recouped 
the entire difference between the actual list charge and the weighted 
median private payor rate, in which case the single laboratory that 
develops, offers and furnishes the ADLT would not have been awarded any 
special payment status during the new ADLT initial period, as 
contemplated by the statute. Furthermore, we agree our proposed 
recoupment policy could have been a disincentive for laboratories and 
private payors to negotiate price concessions because it could have 
increased the likelihood that the recoupment threshold would have been 
met.
    For these reasons, we are revising our proposed interpretation of 
the recoupment provision so that during the new ADLT initial period, 
new ADLTs will be paid up to 130 percent of their weighted median 
private payor rate. To determine whether the recoupment provision 
applies, we will compare the

[[Page 41083]]

Medicare payment amount based on actual list charge paid during the new 
ADLT initial period and the weighted median private payor rate from 
applicable information reported during the new ADLT initial period. If 
the actual list charge is greater than 130 percent of the weighted 
median private payor rate determined during the new ADLT initial 
period, we will recoup the difference between the actual list charge 
and 130 percent of the weighted median private payor rate. We are 
revising payment for new ADLTs at Sec.  414.522(c) to codify this 
change from the proposed rule.
    Additionally, as discussed in section II.D., we revised the 
definition of new ADLT initial period to mean a period of 3 calendar 
quarters that begins on the first day of the first full calendar 
quarter following the later of the date a Medicare Part B coverage 
determination is made and ADLT status is granted by us. See section 
II.D. for a discussion of the new ADLT initial period.
5. Payment for Existing ADLTs
    Section 1834A(i) of the Act requires the Secretary, for the period 
of April 1, 2014, through December 31, 2016, to use the methodologies 
for pricing, coding, and coverage for ADLTs in effect on the day before 
the enactment of PAMA (April 1, 2014), and provides that those 
methodologies may include crosswalking or gapfilling. Thus, we 
explained that section 1834A(i) of the Act authorizes us to use 
crosswalking and gapfilling to pay for existing ADLTs, that is, those 
ADLTs that are paid for under the CLFS prior to January 1, 2017. The 
methodologies in effect on March 31, 2014 were gapfilling and 
crosswalking. Therefore, we proposed to use crosswalking and gapfilling 
to establish the payment amounts for existing ADLTs. We proposed to 
reflect this requirement at Sec.  414.507(h) to state that for ADLTs 
that are furnished between April 1, 2014 and December 31, 2016, payment 
is made based on crosswalking or gapfilling methods described in 
proposed Sec.  414.508(a).
    A discussion of the comments we received on payment for existing 
ADLTs, and our responses to those comments, appears below.
    Comment: A few commenters recommended that we use the existing MAC 
rates for existing ADLTs instead of gapfilling or crosswalking pricing 
methods.
    Response: We disagree with the suggestion to use existing MAC rates 
for pricing existing ADLTs. We believe the purpose of PAMA is for the 
CLFS to reflect changes in market prices over time, which would not be 
accomplished by carrying over a previous payment amount. Therefore, we 
are finalizing the use of crosswalking and gapfilling methodologies for 
establishing a payment amount for existing ADLTs.
    As we discuss in section II.D. of this final rule, in response to 
comments, we are moving the implementation date of the private payor 
rate-based CLFS to January 1, 2018. In conjunction with the revised 
implementation date, we are also adopting a corresponding change for 
new ADLTs to reflect that a new ADLT is an ADLT for which payment has 
not been made under the CLFS prior to January 1, 2018. Therefore, the 
payment amount for existing ADLTs will be determined based on 
crosswalking and gapfilling for ADLTs furnished through December 31, 
2017, instead of December 31, 2016, which is reflected in revised Sec.  
414.507(h).
6. Payment for New CDLTs That Are Not ADLTs
    Section 1834A(c) of the Act includes special provisions for 
determining payment for new CDLTs that are not ADLTs. Section 
1834A(c)(1) of the Act states that payment for a CDLT that is assigned 
a new or substantially revised HCPCS code on or after the April 1, 2014 
enactment date of PAMA, which is not an ADLT, will be determined using 
crosswalking or gapfilling during an initial period until payment rates 
under section 1834A(b) of the Act are established. The test must either 
be crosswalked (as described in Sec.  414.508(a) or any successor 
regulation) to the most appropriate existing test on the CLFS or, if no 
existing test is comparable, paid according to a gapfilling process 
that takes into account specific sources of information, which we 
describe later in this section.
    We developed our current procedures for crosswalking and gapfilling 
new CDLTs pursuant to section 1833(h)(8) of the Act. Section 
1833(h)(8)(A) of the Act requires the Secretary to establish by 
regulation procedures for determining the basis for, and amount of, 
payment for any CDLT for which a new or substantially revised HCPCS 
code is assigned on or after January 1, 2005. Section 1833(h)(8)(B) of 
the Act specifies the annual public consultation process that must take 
place before the Secretary can determine payment amounts for such 
tests, and section 1833(h)(8)(C) of the Act requires the Secretary to 
implement the criteria for making such determinations and make 
available to the public the data considered in making such 
determinations. We implemented these provisions in the CY 2007 PFS 
final rule (71 FR 69701 through 69704) published in the Federal 
Register on December 1, 2006.
    We interpreted section 1834A(c) of the Act to generally require us 
to use the existing procedures we implemented in 42 CFR part 414, 
subpart G. However, we explained that we needed to make some changes to 
our current regulations to reflect specific provisions in section 
1834A(c) of the Act, as well as other aspects of section 1834A of the 
Act and the proposed rule. In this section, we describe those proposed 
changes and how they would affect our current process for setting 
payment rates for new CDLTs. To incorporate section 1834A of the Act 
within the basis and scope of payment for CDLTs, we proposed to add a 
reference to 42 CFR part 414, subpart A, entitled ``General 
Provisions,'' in Sec.  414.1.
    In addition, we proposed to change the title of 42 CFR part 414, 
subpart G, to reflect that it applies to payment for all CDLTs, not 
just new CDLTs. We also proposed to add a reference to section 1834A of 
the Act in Sec.  414.500. To reflect that Sec.  414.500 would apply to 
a broader scope of laboratory tests than just those covered by section 
1833(h)(8) of the Act, we proposed to remove ``new'' and ``with respect 
to which a new or substantially revised Healthcare Common Procedure 
Coding System code is assigned on or after January 1, 2005.''
a. Definitions
    As previously noted, section 1834A(c) of the Act addresses payment 
for a CDLT that is not an ADLT and that is assigned a new or 
substantially revised HCPCS code on or after April 1, 2014, PAMA's 
enactment date. Our current regulations apply throughout to a ``new 
test,'' which we currently define in Sec.  414.502 as any CDLT for 
which a new or substantially revised HCPCS code is assigned on or after 
January 1, 2005. We proposed to replace ``new test'' with ``new CDLT'' 
in Sec.  414.502 and to make conforming changes throughout the 
regulations to distinguish between the current requirements that apply 
to new tests and the proposed requirements that would apply to new 
CDLTs. Our proposed definition specified that a new CDLT means a CDLT 
that is assigned a new or substantially revised Healthcare Common 
Procedure Coding System (HCPCS) code, and that does not meet the 
definition of an ADLT. Section 1834A(c)(1) of the Act uses the same 
terminology as section 1833(h)(8)(A) of the Act, ``new or substantially 
revised HCPCS code,'' which we incorporated into the definition of new 
test in Sec.  414.502. We also defined ``substantially revised HCPCS 
code'' in

[[Page 41084]]

Sec.  414.502 based on the statutory definition in section 
1833(h)(8)(E)(ii) of the Act to mean a code for which there has been a 
substantive change to the definition of the test or procedure to which 
the code applies (such as a new analyte or a new methodology for 
measuring an existing analyte-specific test). Because section 
1834A(c)(1) of the Act uses terminology that we have already defined, 
and is consistent with our current process, we did not propose any 
changes to the phrase ``new or substantially revised HCPCS code'' in 
our proposed definition of new CDLT or to the existing definition for 
``substantially revised HCPCS code.''
    We did not receive any comments on our proposed payment for new 
CDLTs that are not ADLTs or the proposed definitions discussed above.
b. Crosswalking and Gapfilling
    Background: As we explained in the CY 2008 PFS final rule with 
comment period (71 FR 66275 through 66276), under current Sec.  
414.508, we use one of two bases for payment to establish a payment 
amount for a new test. Under Sec.  414.508(a), the first basis, called 
``crosswalking,'' is used if a new test is determined to be comparable 
to an existing test, multiple existing test codes, or a portion of an 
existing test code. If we use crosswalking, we assigned to the new test 
code the local fee schedule amount and NLA of the existing test code or 
codes. If we crosswalk to multiple existing test codes, we determine 
the local fee schedule amount and NLA based on a blend of payment 
amounts for the existing test codes. Under Sec.  414.508(a)(2), we pay 
the lesser of the local fee schedule amount or the NLA. The second 
basis for payment is ``gapfilling.'' Under Sec.  414.508(b), we use 
gapfilling when no comparable existing test is available. We instruct 
each MAC to determine a contractor-specific amount for use in the first 
year the new code is effective. (We note that we proposed to replace 
``carrier'' with ``contractor'' to reflect that Medicare has replaced 
fiscal intermediaries and carriers with MACs.) The sources of 
information MACs examine in determining contractor-specific amounts 
include:
     Charges for the test and routine discounts to charges;
     Resources required to perform the test;
     Payment amounts determined by other payors; and
     Charges, payment amounts, and resources required for other 
tests that may be comparable (although not similar enough to justify 
crosswalking) or otherwise relevant.
    During the first year a new test code is paid using the gapfilling 
method, contractors are required to establish contractor-specific 
amounts on or before March 31. Contractors may revise their payment 
amounts, if necessary, on or before September 1, based on additional 
information. After the first year, the contractor-specific amounts are 
used to calculate the NLA, which is the median of the contractor-
specific amounts, and under Sec.  414.508(b)(2), the test code is paid 
at the NLA in the second year. We instruct MACs to use the gapfilling 
method through program instruction, which lists the specific new test 
code and the timeframes to establish contractor-specific amounts.
    In the CY 2007 PFS final rule with comment period (71 FR 69702), we 
also described the timeframes for determining the amount of and basis 
for payment for new tests. The codes to be included in the upcoming 
year's fee schedule (effective January 1) are available as early as 
May. We list the new clinical laboratory test codes on our Web site, 
usually in June, along with registration information for the public 
meeting, which is held no sooner than 30 days after we announce the 
meeting in the Federal Register. The public meeting is typically held 
in July. In September, we post our proposed determination of the basis 
for payment for each new code and seek public comment on these proposed 
determinations. The updated CLFS is prepared in October for release to 
our contractors during the first week in November so that the updated 
CLFS is ready to pay claims effective January 1 of the following 
calendar year. Under Sec.  414.509, for a new test for which a new or 
substantially revised HCPCS code was assigned on or after January 1, 
2008, we accept reconsideration requests in written format for 60 days 
after making a determination of the basis for payment (either 
crosswalking or gapfilling) regarding whether we should reconsider the 
basis for payment and/or amount of payment assigned to the new test. If 
a requestor recommends that the basis for payment should be changed 
from gapfilling to crosswalking, the requestor may also recommend the 
code or codes to which to crosswalk the new test. The reconsideration 
request would be presented for public comment at the next public 
meeting, the following year. After considering the public comments, if 
we decide to change the amount of payment for the code, the new payment 
amount would be effective January 1 of the year following the 
reconsideration.
c. Proposal
    Section 1834A(c)(1) of the Act refers to payment for CDLTs for 
which a new or substantially revised HCPCS code is assigned on or after 
the April 1, 2014 PAMA enactment date. We noted in the proposed rule 
(80 FR 59410) that the annual crosswalking and gapfilling process had 
already occurred for codes on the 2015 CLFS, and was currently underway 
for codes on the 2016 CLFS. We proposed to continue using the current 
crosswalking and gapfilling processes for CDLTs assigned new or 
substantially revised HCPCS codes prior to January 1, 2017 because:
     Section 1834A(c)(1)(A) of the Act refers to our existing 
crosswalking process under Sec.  414.508(a);
     We would not be able to finalize new crosswalking 
requirements as of PAMA's April 1, 2014 enactment date; and
     The current payment methodology involving NLAs and local 
fee schedule amounts would remain in effect until January 1, 2017.
    We proposed to update Sec.  414.508 by changing the introductory 
language to limit paragraphs (a) and (b) (which would be redesignated 
as paragraphs (a)(1) and (2)) to tests assigned new or substantially 
revised HCPCS codes ``between January 1, 2005 and December 31, 2016,'' 
and adding introductory language preceding new proposed paragraphs 
(b)(1) and (2) to reflect our proposal to pay for a CDLT that is 
assigned a new or substantially revised HCPCS code on or after January 
1, 2017 based on either crosswalking or gapfilling.
    For CDLTs that are assigned a new or substantially revised HCPCS 
codes on or after January 1, 2017, we proposed to use comparable 
crosswalking and gapfilling processes that were modified to reflect the 
new market-based payment system under section 1834A of the Act. We 
noted in the proposed rule that, beginning January 1, 2017, the payment 
methodology established under section 1834A(b) of the Act would replace 
the current payment methodology under sections 1833(a), (b), and (h) of 
the Act, including NLAs and local fee schedule amounts. Thus, we 
proposed to establish Sec.  414.508(b)(1) and (2) to describe 
crosswalking and gapfilling processes that do not involve NLAs or local 
fee schedule amounts.
    Regarding the crosswalking process, because section 1834A(c)(1)(A) 
of the Act specifically references our existing process under Sec.  
414.508(a), we did not propose to change the circumstances when we use 
crosswalking, that is, when we determine the new CDLT is

[[Page 41085]]

comparable to an existing test, multiple existing test codes, or a 
portion of an existing test code. For a CDLT assigned a new or 
substantially revised HCPCS code on or after January 1, 2017, we 
proposed to establish the following crosswalking process in Sec.  
414.508(b)(1), which does not rely on NLAs or local fee schedule 
amounts:
d. Crosswalking and Gapfilling
    Crosswalking is used if it is determined that a new CDLT is 
comparable to an existing test, multiple existing test codes, or a 
portion of an existing test code.
     We assign to the new CDLT code, the payment amount 
established under Sec.  414.507 for the existing test.
     Payment for the new CDLT code is made at the payment 
amount established under Sec.  414.507 for the existing test.
    Regarding the gapfilling process, section 1834A(c)(2) of the Act 
requires the use of gapfilling if no existing test is comparable to the 
new test. Section 1834A(c)(2) of the Act specifies that this gapfilling 
process must take into account the following sources of information to 
determine gapfill amounts, if available:
     Charges for the test and routine discounts to charges.
     Resources required to perform the test.
     Payment amounts determined by other payors.
     Charges, payment amounts, and resources required for other 
tests that may be comparable or otherwise relevant.
     Other criteria the Secretary determines appropriate.
    The first four criteria are identical to the criteria currently 
specified in Sec.  414.508(b)(1). For this reason did not propose any 
substantive changes to the factors that must be considered in the 
gapfilling process. The fifth criterion authorizes the Secretary to 
establish other criteria for gapfilling as the Secretary determines 
appropriate. We did not propose any additional factors to determine 
gapfill amounts. We noted that, if we decided to establish additional 
gapfilling criteria, we would do so through notice and comment 
rulemaking.
    We proposed to establish a gapfilling process for CDLTs assigned a 
new or substantially revised HCPCS code on or after January 1, 2017, 
that would be similar to the gapfilling process currently included in 
Sec.  414.508(b), but would eliminate the reference to the NLA in Sec.  
414.508(b)(2), as that term would no longer be applicable, and would 
substitute ``Medicare Administrative Contractor'' (MAC) for 
``carrier,'' as MACs are now Medicare's claims processing contractors. 
To determine a payment amount under this gapfilling process, we 
proposed to pay the test code at an amount equal to the median of the 
contractor-specific payment amounts, consistent with the current 
gapfilling methodology at Sec.  414.508(b). We proposed Sec.  
414.508(b)(2) would state that gapfilling is used when no comparable 
existing CDLT is available. We proposed in Sec.  414.508(b)(2)(i) that, 
in the first year, Medicare Administrative Contractor-specific amounts 
would be established for the new CDLT code using the following sources 
of information to determine gapfill amounts, if available:
     Charges for the test and routine discounts to charges;
     Resources required to perform the test;
     Payment amounts determined by other payors; and
     Charges, payment amounts, and resources required for other 
tests that may be comparable or otherwise relevant.
     Other criteria CMS determines appropriate.

We proposed in Sec.  414.508(b)(2)(ii) that, in the second year, the 
CDLT code would be paid at the median of the MAC-specific amounts.
    We noted that section 1834A(c)(1) of the Act requires the 
crosswalked and gapfilled payment amounts for new CDLTs to be in effect 
``during an initial period'' until payment rates under section 1834A(b) 
of the Act are established. As discussed, we typically list new CDLT 
codes on our Web site by June, and by January 1 of the following 
calendar year, we have either established payment amounts using 
crosswalking or indicated that a test is in its first year of the 
gapfilling process. Because we proposed to largely continue our 
existing gapfilling and crosswalking processes, for CDLTs assigned new 
or substantially revised HCPCS codes on or after January 1, 2017, we 
believed the initial period should be the period of time until 
applicable information is reported for a CDLT and can be used to 
establish a payment amount using the weighted median methodology in 
Sec.  414.507(b). We proposed to continue to permit reconsideration of 
the basis and amount of payment for CDLTs as we currently do under 
Sec.  414.509. For a new CDLT for which a new or substantially revised 
HCPCS code was assigned on or after January 1, 2008, we accept 
reconsideration requests in written format for 60 days after making a 
determination of the basis for payment (either crosswalking or 
gapfilling) or the payment amount assigned to the new test code, per 
Sec.  414.509(a)(1), (b)(1)(i) and (b)(2)(ii). The requestor may also 
request to present its reconsideration request at the next annual 
public meeting, typically convened in July of each year under Sec.  
414.509(a)(2)(i) and (b)(1)(ii)(A). Under Sec.  414.509(a)(1), if a 
requestor recommends that the basis for payment should be changed from 
gapfilling to crosswalking, the requestor may also recommend the code 
or codes to which to crosswalk the new test. We noted that we might 
reconsider the basis for payment under Sec.  414.509(a)(3) and 
(b)(1)(iii) or its determination of the amount of payment, which could 
include a revised NLA for the new code under Sec.  414.509(b)(2)(v) 
based on comments. However, as noted in this section, we explained in 
the proposed rule that the NLA would no longer be applicable on or 
after January 1, 2017, and we would instead refer to the national 
payment amount under crosswalking or gapfilling as the median of the 
contractor-specific payment amounts. Therefore, we proposed to revise 
Sec.  414.509 to replace references to the ``national limitation 
amount'' with ``median of the Medicare Administrative Contractor-
specific payment amount'' in Sec.  414.509(b)(2)(iv) and (b)(2)(v). We 
also proposed to replace ``carrier-specific amount'' where it appears 
in Sec.  414.509 with ``Medicare Administrative Contractor-specific 
payment amount'' because we now refer to our Medicare Part B claims 
processing contractors as Medicare Administrative Contractors.
    As we discuss in this final rule, in response to comments, we are 
moving the implementation date of the private payor rate-based CLFS to 
January 1, 2018. We believe it is also appropriate for us to adopt 
corresponding changes to several timeframes we proposed in Sec.  
414.508. We are replacing December 31, 2016, with December 31, 2017 in 
the introductory paragraph of Sec.  414.508(a) to indicate, for a new 
CDLT that is assigned a new or substantially revised code between 
January 1, 2005 and December 31, 2017, we determine the payment amount 
based on either crosswalking or gapfilling, as specified in paragraph 
(a)(1) or (2). We are also replacing January 1, 2017, with January 1, 
2018 in the introductory paragraph of Sec.  414.508(b) to indicate, for 
a new CDLT that is assigned a new or substantially revised HCPCS code 
on or after January 1, 2018, we determine the payment amount based on 
either crosswalking or

[[Page 41086]]

gapfilling, as specified in paragraph (b)(1) or (2).
    A discussion of the comments we received on crosswalking and 
gapfilling and our responses to those comments appears below.
    Comment: One commenter requested that we modify the gapfilling 
process for establishing a payment amount for CDLTs assigned new or 
substantially revised HCPCS codes to more accurately account for the 
resources required to perform a test. To that end, the commenter 
suggested that laboratories be required to submit ``laboratory 
methods'' to the MACs for an assessment of the steps required to 
perform the new and/or previously unpriced test as part of the 
requirement that contractors take into consideration the resources 
required to perform a test when determining a gapfill payment amount.
    Response: We appreciate the commenter's suggestions for making 
revisions to the gapfill methodology. However, we believe our gapfill 
methodology, revised to reflect section 1834A(c)(2) of the Act, is 
sufficient for establishing the CLFS payment amount for new CDLTs that 
are not ADLTs. Under the gapfill criteria, MACs are permitted to take 
into account laboratory methods, and we trust they will do so if they 
believe it is necessary. If we determine that additional changes are 
necessary to establish payment amounts for new CDLTs under the revised 
CLFS, we may propose modifications to our policies, which we would do 
through notice and comment rulemaking.
e. Public Consultation Procedures
(1) Advisory Panel Recommendations
    Our current procedures for public consultation for payment for a 
new test are addressed in Sec.  414.506. Section 1834A(c)(3) of the Act 
requires the Secretary to consider recommendations from the expert 
outside advisory panel established under section 1834A(f)(1) of the Act 
when determining payment using crosswalking or gapfilling processes. In 
this section, we describe the Advisory Panel on CDLTs (the Panel). We 
proposed to specify that the public consultation process regarding 
payment for new CDLTs on or after January 1, 2017, must include the 
Panel's recommendations by adding Sec.  414.506(e) to specify that we 
will consult with an expert outside advisory panel, called the Advisory 
Panel on CDLTs, composed of an appropriate selection of individuals 
with expertise, which may include molecular pathologists, researchers, 
and individuals with expertise in laboratory science or health 
economics in issues related to CDLTs . We proposed that this advisory 
panel would provide input on the establishment of payment rates under 
Sec.  414.508 and provide recommendations to CMS under this subpart.
    A discussion of the comments we received on the Panel is included 
in section II.J.1. of this final rule.
(2) Explanation of Payment Rates
    Section 1834A(c)(4) of the Act requires the Secretary to make 
available to the public an explanation of the payment rate for a new 
CDLT, including an explanation of how the gapfilling criteria are 
applied and how the recommendations of the Advisory Panel on CDLTs are 
applied. Currently, Sec.  414.506(d) provides that, considering the 
comments and recommendations (and accompanying data) received at the 
public meeting, we develop and make available to the public (through a 
Web site and other appropriate mechanisms) a list of:
     Proposed determinations of the appropriate basis for 
establishing a payment amount for each code, with an explanation of the 
reasons for each determination, the data on which the determinations 
are based, and a request for public written comments within a specified 
time period on the proposed determinations; and
     Final determinations of the payment amounts for tests, 
with the rationale for each determination, the data on which the 
determinations are based, and responses to comments and suggestions 
from the public.
    Section 414.506(d) already indicates that we will provide an 
explanation of the payment rate determined for each new CDLT and the 
rationale for each determination. As described above, under our current 
process, we make available to the public proposed payment rates with 
accompanying rationales and supporting data, as well as final payment 
rates with accompanying rationales and supporting data. However, this 
process has been used almost exclusively for new tests that are 
crosswalked. For tests that are gapfilled, we generally post the 
contractor-specific amounts in the first year of gapfilling on the CMS 
Web site and provide for a public comment period, but do not typically 
provide explanations of final payment amounts. Based on section 
1834A(c)(4) of the Act, we proposed to amend Sec.  414.506 to 
explicitly indicate that, for a new CDLT on or after January 1, 2017, 
we would provide an explanation of gapfilled payment amounts and how we 
took into account the Panel's recommendations. Specifically, we 
proposed to add paragraphs (3) and (4) to Sec.  414.506(d). In Sec.  
414.506(d)(3), we proposed to specify that, for a new CDLT, in applying 
paragraphs (d)(1) and (2), we will provide an explanation of how we 
took into account the recommendations of the Advisory Panel on CDLTs. 
In Sec.  414.506(d)(4), we proposed to specify that, for a new CDLT, in 
applying paragraphs (d)(1) and (2) and Sec.  414.509(b)(2)(i) and (iii) 
when we use the gapfilling method described in Sec.  414.508(b)(2), we 
will make available to the public an explanation of the payment rate 
for the test.
    Under these provisions, we proposed to publish the Medicare payment 
amounts for new CDLTs along with an explanation of the payment rate and 
how the gapfilling criteria and recommendations by the Advisory Panel 
on CDLTs were applied via the CMS CLFS Web site as we currently do for 
new tests. The CMS CLFS Web site may be accessed at: http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ClinicalLabFeeSched/.
    As we discuss in this final rule, we are moving the implementation 
date of the private payor rate-based CLFS until January 1, 2018. We 
believe it is also appropriate for us to adopt corresponding changes to 
several timeframes we proposed in Sec.  414.506. Accordingly, in Sec.  
414.506(d)(3) and (4), we are replacing January 1, 2017 with January 1, 
2018 to identify our obligations with respect to procedures for public 
consultation for payment for new CDLTs beginning January 1, 2018.
    Comment: We received a few comments supporting our proposal to 
publish an explanation of payment rates.
    Response: We appreciate the commenters' support.
7. Medicare Payment for Tests Where No Applicable Information Is 
Reported
    While sections 1834A(b), (c), and (d), of the Act, respectively, 
address payment for CDLTs and ADLTs as of January 1, 2017, the statute 
does not address how we must pay for a laboratory test when no 
applicable information is reported for applicable laboratories.
    There are several possible reasons why no applicable information 
would be reported for a laboratory test. For example:
     Test is Not Performed for Any Privately Insured Patients 
During the Data Collection Period. One reason we may not receive any 
applicable information is that the test is not performed for a 
privately insured

[[Page 41087]]

patient by an applicable laboratory during the data collection period.
     Test is Not Performed by Any Applicable Laboratories. 
Another reason why we may not receive applicable information is that 
none of the laboratories performing the test during a data collection 
period are applicable laboratories as defined in proposed Sec.  
414.502. For example, the laboratories could be hospital laboratories 
that, in a data collection period, did not meet the majority of 
Medicare revenues threshold or the low expenditure threshold. We 
estimated that in 2013 there were about 17 laboratory tests with 
utilization completely attributed to entities that would not have been 
applicable laboratories because they did not meet the low expenditure 
threshold.
     Special Situations Involving ADLTs. It is also possible 
that a laboratory that performs a test that would qualify as an ADLT, 
does not meet the definition of an applicable laboratory and, 
therefore, no applicable information could be reported for it. As 
discussed in this section, an ADLT is a test that is performed by only 
a single laboratory. If that laboratory is not an applicable 
laboratory, we would not receive applicable information for the test. 
As discussed above in this final rule, this situation could occur if 
the only laboratory performing the test did not meet the majority of 
Medicare revenue threshold or the low expenditure threshold. A 
discussion of the majority of Medicare revenues threshold and low 
expenditure threshold is included in section II.A. of this final rule.
     Other Possible Reasons. It is possible we may not receive 
applicable information for a laboratory test if a reporting entity 
fails to comply with the reporting requirements under section 1834A of 
the Act, in which case penalties under section 1834A(a)(9) of the Act 
may be applied. There may also be other reasons we cannot anticipate 
where we might not receive applicable information for a laboratory test 
in a data reporting period.
    In the event we do not receive applicable information for a 
laboratory test that is paid under the CLFS, we would need to determine 
a payment amount for the test in the year following the data collection 
period. The statute does not specify the methodology we must use to 
establish the payment rate for an ADLT or CDLT for which we receive no 
applicable information in a data reporting period but for which we need 
to establish a payment amount. In such circumstances, we proposed to 
use crosswalking and gapfilling using the requirements we proposed for 
those methodologies in Sec.  414.508(b)(1) and (2) to establish a 
payment rate on or after January 1, 2017 (which will now be January 1, 
2018, in accordance with the change to the implementation date of the 
revised CLFS), which would remain in effect until the year following 
the next data reporting period. We proposed this policy would include 
the situation where we receive no applicable information for tests that 
were previously priced using gapfilling or crosswalking or where we had 
previously priced a test using the weighted median methodology. If we 
receive no applicable information in a subsequent data reporting 
period, we propose to use crosswalking or gapfilling methodologies to 
establish the payment amount for the test. That is, if in a subsequent 
data reporting period, no applicable information is reported, we would 
reevaluate the basis for payment, --crosswalking or gapfilling-- and 
the payment amount for the test.
    In exploring what we would do if we receive no applicable 
information for a CDLT, we alternatively considered carrying over the 
current payment amount for a test under the current CLFS, the payment 
amount for a test (if one was available) using the weighted median 
methodology based on applicable information from the previous data 
reporting period, or the gapfilled or crosswalked payment amount. 
However, we did not propose this approach because we believed carrying 
over previous payment rates would not reflect changes in costs or 
pricing for the test over time. We understood the purpose of section 
1834A of the Act to be update the CLFS rates to reflect changes in 
market prices over time.
    As noted above, the statute does not address situations where we 
price a test using crosswalking or gapfilling because we received no 
applicable information with which to determine a CLFS rate. We believed 
reconsidering rates for tests in these situations would be consistent 
with the purpose of section 1834A of the Act, which requires us to 
periodically reconsider CLFS payment rates. In the case of tests for 
which we previously received applicable information to determine 
payment rates, section 1834A of the Act requires Medicare to follow 
changes in the market rates for private payors. Our proposal served an 
analogous purpose by having us periodically reconsider the payment rate 
of a test using gapfilling or crosswalking. We stated in the proposed 
rule that we expected to continue to evaluate our proposed approach to 
setting rates for laboratory tests paid on the CLFS with no reported 
applicable information as we gained more programmatic experience under 
the new CLFS. We indicated that any revisions to how we determine a 
rate for laboratory tests without reported applicable information would 
be addressed in the future through notice and comment rulemaking.
    In summary, we proposed that for a CDLT, including ADLTs, for which 
we receive no applicable information in a data reporting period, we 
would determine the payment amount based on either crosswalking or 
gapfilling. We proposed to add paragraph (g) to Sec.  414.507 to 
specify that for CDLTs for which we receive no applicable information, 
payment would be made based on the crosswalking or gapfilling methods 
described in Sec.  414.508(b)(1) and (2).
    A discussion of the comments we received on Medicare payment for 
tests where no applicable information is reported, and our responses to 
those comments, appears below.
    Comment: A few commenters suggested that we carry over prices for 
any tests for which we receive no private payor data during a data 
reporting period. They contended that simply carrying over the payment 
amount established for the previous update would be a more logical 
approach than reevaluating the payment basis (crosswalk versus gapfill) 
for a test for which payment had once been established.
    Response: As discussed previously, we considered carrying over the 
current payment amount for a test in the event we do not receive any 
applicable information for a test in a given data reporting period. 
However, we are not adopting that approach because we understand the 
purpose of the revised CLFS payment methodology is to update the CLFS 
rates to reflect changes in market prices over time, and we believe 
carrying over previous payment rates would not reflect changes in costs 
or pricing for the test over time.
    As we discussed previously, because we are moving the 
implementation date of the private payor rate-based CLFS to January 1, 
2018, we are also adopting a corresponding change to the use of 
crosswalking and gapfilling methodologies for tests where no applicable 
information is reported. That is, we are revising Sec.  414.508(a) to 
reflect that we will use the crosswalking and gapfilling methodologies 
specified in that section to establish payment rates before January 1, 
2018, and we are revising Sec.  414.508(b) to reflect that we will use 
the crosswalking and gapfilling methodologies specified under Sec.  
414.508(b) to establish payment rates beginning January 1, 2018.

[[Page 41088]]

    In summary, we are revising our proposed policy for recouping 
payment for new ADLTs if the actual list charge paid during the new 
ADLT initial period exceeds 130 percent of the market-based rate as 
discussed above in this section. If the actual list charge is greater 
than 130 percent of the weighted median private payor rate determined 
during the new ADLT initial period, we will recoup the difference 
between the actual list charge and 130 percent of the weighted median 
private payor rate. We are also making changes corresponding to the 
January 1, 2018 implementation date of the private payor rate-based 
CLFS as discussed in this section. We are finalizing all other payment 
methodology policies in this section as proposed.

I. Local Coverage Determination Process and Designation of Medicare 
Administrative Contractors for Clinical Diagnostic Laboratory Tests

    Section 1834A(g) of the Act addresses issues related to coverage of 
CDLTs. Section 1834A(g)(1)(A) of the Act requires that coverage 
policies for CDLTs, when issued by a MAC, be issued in accordance with 
the LCD process. The current LCD development and implementation process 
is set forth in agency guidance. Section 1869(f)(2)(B) of the Act 
defines an LCD as a determination by a MAC under part A or part B, as 
applicable, respecting whether or not a particular item or service is 
covered on a MAC jurisdiction-wide basis under such parts, in 
accordance with section 1862(a)(1)(A) of the Act.
    While the LCD development process is not enumerated in statute, 
CMS' Internet-Only Manual 100-08, Medicare Program Integrity Manual, 
Chapter 13, lays out the process for establishing LCDs. The manual 
outlines the steps in LCD development including: The posting of a draft 
LCD with a public comment period, a public meeting and presentation to 
an expert advisory committee, and, after consideration of comments, 
issuance of a final LCD followed by at least a 45-day notice period 
prior to the policy becoming effective. This LCD development process 
has been used by the MACs since 2003.
    In addition to addressing LCD development and implementation, 
section 1834A(g)(1)(A) of the Act states that the processes governing 
the appeal and review of LCDs for CDLTs must be consistent with the 
general LCD appeal and review rules that we have issued at 42 CFR part 
426. The LCD appeals process allows an ``aggrieved party'' to challenge 
an LCD or LCD provisions in effect at the time of the challenge. An 
aggrieved party is defined as a Medicare beneficiary, or the estate of 
a Medicare beneficiary, who is entitled to benefits under Part A, 
enrolled under Part B, or both (including an individual enrolled in 
fee-for-service Medicare, in a Medicare+Choice plan, or in another 
Medicare managed care plan), and is in need of coverage for an item or 
service that would be denied by an LCD, as documented by the 
beneficiary's treating physician, regardless of whether the service has 
been received.
    Section 1834A(g)(1)(B) of the Act provides that the CDLT-related 
LCD provisions referenced in section 1834A(g) do not apply to the NCD 
process (as defined in section 1869(f)(1)(B) of the Act). The NCD 
process is outlined in section 1862(l) of the Act and further 
articulated in the August 7, 2013 Federal Register (78 FR 48164).
    Section 1834A(g)(1)(C) of the Act specifies that the provisions 
pertaining to the LCD process for CDLTs, including appeals, shall apply 
to coverage policies issued on or after January 1, 2015.
    Beyond specifying how the Medicare LCD process will relate to 
CDLTs, section 1834A(g)(2) of the Act provides the Secretary the 
discretion to designate one or more (not to exceed four) MACs to either 
establish LCDs for CDLTs or to both establish LCDs and process Medicare 
claims for payment for CDLTs. Currently, there are 12 MACs that have 
authority to establish LCDs and process claims for CDLTs. We believe 
the statute authorizes us to reduce the number of MACs issuing LCDs for 
CDLTs, which would result in fewer contractors issuing policies for 
larger geographic areas. If we were to exercise only the authority to 
reduce the number of MACs issuing LCDs for CDLTs, such a change could 
likely be finalized within the next 2 to 4 years. However, reducing the 
number of MACs processing claims for CDLTs would involve significantly 
more complex programmatic and operational issues. For instance, the 
consolidation of Medicare claims processing for CDLTs would require 
complex changes to Medicare's computer systems. Thus, such a transition 
could take several years to implement. To be consistent with the 
statute, we believe the agency would need to conduct various analyses 
to determine the feasibility and program desirability of moving forward 
with consolidating the number of MACs making coverage policies and 
processing claims for CDLTs. We believe that the medical complexity of 
many tests and the volume of tests overall would require serious 
consideration of several factors before the agency could decide whether 
to consolidate all MAC CDLT processes into 1-4 MACs. For instance, if 
only coverage policies were to be developed by a smaller number of 
MACs, issues could arise for the other MACs that would need to 
implement policies, edit claims and defend LCD policies that they did 
not author. Moreover, the same policy may be implemented differently 
among MACs based on the ability of their individual claims processing 
systems to support certain types of editing and/or their differing 
assessment of risk and technical solutions. Finally, if both LCD 
development and claims processing were combined and consolidated, we 
would need to consider that the MAC processing the laboratory claim (in 
most cases) would not be the same MAC that processes the claim of the 
ordering physician. This could complicate the development of a full 
profile of the ordering physician's practice patterns for quality and 
medical necessity assessment purposes.
    The timing for implementation of section 1834A(g)(2) of the Act (if 
we chose to exercise this authority) would be largely dependent on the 
time it would take the agency to develop new MAC statements of work, 
modify existing or develop new MAC contracts, and address the policy, 
information technology and technical aspects of the claims processing 
environment including the potential development of a new system. 
Implementing the fullest scope of the authority granted by this 
section, by which we would reduce both the number of MACs writing 
coverage policies for CDLT services and the number of MACs processing 
CDLT claims, could take at least 5 to 6 years and involve considerable 
costs. For example, to establish centralized LCDs for all CDLTs would 
probably involve an initial build-up and then a steady-state investment 
of several million dollars per year. To create regional lab test claims 
processors (in addition to development of LCDs) would involve higher 
set-up costs, and some steady-state costs.
    We received 27 comments on these proposals. Of those comments, two 
commenters were in favor of consolidating both LCD development and 
claims processing for CDLTs. Five commenters were in favor of only MAC 
LCD consolidation for CDLTs. Of those five comments, four commenters 
said we may want to consider having MACs consolidate their LCDs for 
CDLTs but also raised concerns about such consolidation. Seven 
commenters were not in favor of having the MACs consolidate their LCDs 
for CDLTs. In regard to designating 1-4 MACs to

[[Page 41089]]

process CDLT claims, 3 commenters were in favor and 11 commenters were 
not in favor of consolidating claims processing for CDLTs.
    A discussion of the comments we received on the benefits and risks 
of implementing the various scenarios authorized by this section of the 
statute, and our response to those comments, appears below.

a. Claims Processing Consolidation

    Comments: Several commenters stated that they believe working with 
a single MAC to process all claims was preferred because of the 
increased paperwork and reporting burden associated with submitting 
claims to more than one MAC. These same commenters stated that the 
disadvantages of having a MAC process only CDLT claims would far 
outweigh the benefits; therefore, they were strongly opposed to 
designating more than one MAC to conduct claims processing.
    Two commenters indicated that consolidating claims processing 
functions under 1-4 MACs may be problematic unless consolidation of 
claims processing functions applies only to independent labs. One 
commenter offered an alternative of using the Master Edit File to 
address CMS' concerns about the complexities of consolidating CDLT 
claims processing. This file, designed to function similarly to the 
Part B Drug Crosswalk Pricing file and the National Correct Coding 
Initiative edit file, could standardize processing across the MACs. 
Tools such as the Integrated Data Repository could also facilitate the 
necessary data analysis and payment review processes being performed at 
a single contractor.

b. LCD Consolidation

    Comments: Several commenters recommended that CMS move to a system 
that consolidates the MACs for the purpose of administering coverage 
determinations for laboratory tests. The commenters varied on the total 
number of MACs CMS should use for CDLT coverage policies.
    Two commenters indicated that CMS should consider designating a 
single contractor. One of these commenters believes a single contractor 
should be designated that has expertise in laboratory and precision 
medicine with the responsibility for coverage determinations for such 
tests. The commenter believes it would be difficult as well as 
inefficient for each MAC to develop this substantial and specialized 
expertise in laboratory medicine. The other commenter disagreed that it 
would take years to implement a national LCD process, and provided some 
suggestions on the LCD development process so that all MACs could 
release CDLT LCDs at the same time.
    Four commenters indicated that if CMS were to move forward with 
fewer MACs developing LCDs it may put some MACs in a position of having 
to defend and/or abide by LCDs they did not develop. This could also 
create regional differences in how the same LCD would be enforced 
because a MAC's claims processing systems and editing capabilities 
differ.
    Response: We appreciate the thoughtful comments on whether CMS 
should consolidate the MACs for the purpose of developing coverage 
policies and processing claims for CDLTs. Careful consideration will be 
given to the input from stakeholders as we consider whether to downsize 
the number of MACs developing LCDs and/or processing claims for CDLTs. 
In the interim, MACs should continue to develop and implement CDLT-
related LCDs in accordance with the guidance set forth in Chapter 13 of 
the Medicare Program Integrity Manual and process Medicare claims for 
payment of CDLTs in the same manner it always has until further notice.

J. Other Provisions

1. Advisory Panel on Clinical Diagnostic Laboratory Tests
    Section 1834A(f) of the Act sets out several requirements for input 
from clinicians and technical experts on issues related to CDLTs. 
Section 1834A(f)(1) of the Act requires the Secretary to consult with 
an expert outside advisory panel that is to be established by the 
Secretary no later than July 1, 2015. This advisory panel must be 
composed of an appropriate selection of individuals with expertise, 
which may include molecular pathologists, researchers, and individuals 
with expertise in laboratory science or health economics, in issues 
related to CDLTs, which may include the development, validation, 
performance, and application of such tests.
    Section 1834A(f)(1)(A) of the Act provides that the advisory panel 
will generally provide input on the establishment of payment rates for 
new CDLTs, including whether to use crosswalking or gapfilling 
processes to determine payment for a specific new test and the factors 
used in determining coverage and payment processes for new CDLTs. 
Section 1834A(f)(1)(B) of the Act provides that the panel will provide 
recommendations to the Secretary under section 1834A of the Act. 
Section 1834A(f)(2) of the Act mandates that the panel comply with the 
requirements of the Federal Advisory Committee Act (5 U.S.C. App.) 
(FACA). We proposed to add Sec.  414.506(e) to codify the establishment 
of the Advisory Panel on CDLTs.
    In the October 27, 2014 Federal Register (79 FR 63919), we 
announced the Advisory Panel on CDLTs. On April 16, 2015, we 
established the charter for the Panel. (See https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ClinicalLabFeeSched/Downloads/PAMA-Tab-F-1635-N.pdf). As indicated in the charter, meetings 
will be held up to 4 times a year. Meetings will be open to the public 
except as determined otherwise by the Secretary or other official to 
whom the authority has been delegated in accordance with the Government 
in the Sunshine Act of 1976 (5 U.S.C. 552b(c)) and FACA. Notice of all 
meetings will be published in the Federal Register as required by 
applicable laws and Departmental regulations. Meetings will be 
conducted, and records of the proceedings kept, as required by 
applicable laws and departmental regulations. Additionally, in the 
August 7, 2015 Federal Register (80 FR 47491), we announced membership 
appointments to the Panel along with the first meeting date for the 
Panel. As we do with the Advisory Panel on Hospital Outpatient Payment 
(see https://www.cms.gov/Regulations-and-Guidance/Guidance/FACA/AdvisoryPanelonAmbulatoryPaymentClassificationGroups.html), we will 
make the Advisory Panel on CDLT's recommendations publicly available on 
the CMS Web site shortly after the panel's meeting. The first meeting 
of the panel was held at CMS on August 26, 2015. Information regarding 
the Panel is available at https://www.cms.gov/Regulations-and-Guidance/Guidance/FACA/AdvisoryPanelonClinicalDiagnosticLaboratoryTests.html.
    A discussion of the comments we received on this topic, and our 
responses to those comments, appears below.
    Comment: Many commenters appreciated that Congress required the 
Secretary to establish the Advisory Panel to provide input on the many 
important issues related to clinical diagnostic laboratory testing and 
rate setting, and encouraged CMS to make use of the expertise on the 
Advisory Panel prior to setting payment rates and implementing the 
final rule.
    In addition, a commenter noted that much of the discussion during 
the

[[Page 41090]]

Advisory Panel's meetings on August 26, 2015, and October 19, 2015, 
focused on specific codes that are being considered for payment on the 
CLFS in CY 2016, and suggested that the Advisory Panel be used to 
provide clinical and technical expertise on a wide range of clinical 
laboratory tests.
    Response: We thank the commenters for their support of the Advisory 
Panel. We agree the Advisory Panel provides valuable expertise and we 
intend to utilize its input to the extent possible.
    Comment: Several commenters suggested that subject matter experts 
be invited to participate on the Advisory Panel to discuss sub-
specialty issues when the Advisory Panel lacks a subject matter expert 
on a specific issue being discussed.
    Response: We appreciate the suggestion and will take it into 
consideration for future meetings.
    Comment: A commenter requested that CMS follow more closely the 
recommendations of the Advisory Panel so that CMS actively engages in 
an open, transparent, and public decision-making process.
    Response: We agree that the decision-making process should be as 
open and transparent as possible, and we will continue to consider all 
recommendations of the Advisory Panel in the decision-making process. 
We note that the Advisory Panel's meetings are open to the public in 
accordance with FACA requirements, and information related to the 
Advisory Panel (agenda, recommendations, etc.) are posted on the CMS 
Web site at https://www.cms.gov/Regulations-and-Guidance/Guidance/FACA/AdvisoryPanelonClinicalDiagnosticLaboratoryTests.html.
    Comment: Some commenters requested a mechanism for stakeholders to 
request that specific topics be added to the Advisory Panel's agenda in 
advance of scheduled meetings.
    Response: Stakeholders who wish to request that an item be added to 
the Advisory Panel's meeting agenda should email their request to 
CDLTPanel@cms.hhs.gov.
    Comment: Some commenters recommended adding Advisory Panel members 
from community-based laboratories to ensure that panel members 
understand how community-based clinical laboratories operate and the 
costs associated with providing testing services in a diversity of 
settings. Other commenters recommended adding panelists that run 
clinical laboratories, or have recent direct experience in the clinical 
laboratory industry and knowledge of how policies can be 
operationalized by clinical laboratories. Another commenter urged CMS 
to utilize the Advisory Panel to augment the subject matter expertise 
of MACs on coverage matters.
    Response: We appreciate the suggestions and will consider these 
recommendations when a position on the Advisory Panel becomes 
available. The 15 Advisory Panel members have extensive expertise in 
issues related to clinical diagnostic laboratory tests and include 
representatives of clinical laboratories, molecular pathologists, 
clinical laboratory researchers, and individuals with expertise in 
clinical laboratory science or economics of clinical laboratory 
services. All Advisory Panel members have direct personal experience 
with clinical laboratory tests and services, and were selected to serve 
a 3-year term based on their leadership credentials, quality of their 
clinical laboratory experience, geographic and demographic factors, and 
the projected needs of the Advisory Panel.
    Comment: Some commenters stated that although FACA requires only 15 
days advance notice of meetings, CMS should provide at least 30 days 
notice to allow medical professionals time to plan travel and adjust 
their schedules to attend. Commenters also requested that CMS explore 
options to allow public comment via teleconference or webinar so 
stakeholders could actively participate in the process to address 
scheduling and cost issues associated with in-person attendance.
    Response: We understand that 15 days as required by FACA may not be 
adequate time for all interested persons to make scheduling and travel 
arrangements to attend an Advisory Panel meeting. We will strive to 
provide additional notice whenever possible. Participants are able to 
call in and live stream the Advisory Panel meetings and we will 
consider allowing public comments to be provided via these mechanisms 
as well.
2. Exemption From Administrative and Judicial Review
    Section 1834A(h)(1) of the Act states there shall be no 
administrative or judicial review under sections 1869 and 1878 of the 
Act, or otherwise, of the establishment of payment amounts under 
section 1834A of the Act. We proposed to codify this provision in Sec.  
414.507(e).
    A discussion of the comments we received on this topic, and our 
responses to those comments, appears below.
    Comment: Several commenters stated that there are likely to be 
errors in the data submitted, especially in the initial data reporting 
period, and since there is no opportunity for administrative or 
judicial review, they believe rates may be set for a three-year period 
based on incorrect information. While acknowledging that the law 
precludes administrative and judicial review of payment amounts, the 
commenters requested that CMS establish a process to accept requests 
for review of proposed rates, and noted that this is done in the 
Physician Fee Schedule and the Hospital Outpatient Prospective Payment 
System.
    Response: We understand there are concerns regarding the accuracy 
of the data submitted, particularly for the initial data reporting 
period. As discussed in section II.F of this final rule, we plan to 
establish a process for public review of the CLFS rates, that is, the 
weighted median private payor rates, before they are finalized. We 
intend to make available to the public a list of test codes and the 
CLFS rates associated with those codes, which is the same CLFS 
information we currently make available to the public. We stated that, 
while we will not release any information that identifies a payor or a 
laboratory, we will also make available to the public a file that 
includes aggregate-level private payor rate and volume data for each 
test code (for example, the unweighted median private payor rate; the 
total, median and or mean volume; number of laboratories reporting), 
and that this information will be released to the public before the 
final rates are published to better enable the public to comment about 
the general accuracy of the reported data. We also noted that we are 
exploring whether we can make available the raw data that is reported 
to us (that is, is the actual, un-aggregated data that is reported as 
applicable information for an applicable laboratory) in order to 
provide even more granular data for the public's review, but we would 
not provide aggregate or raw data for tests we consider to be uncommon 
or that we know to be provided by a single laboratory (such as for new 
ADLTs) to avoid potential disclosure of the prices charged or payments 
made to an individual laboratory. We believe this process could provide 
even more transparency for the public to review and comment on the new 
CLFS payment rates before they are made effective. Details of this 
process, if established, will be provided in subregulatory guidance.
3. Sample Collection Fee
    Section 1834A(b)(5) of the Act increases by $2 the nominal fee that 
would otherwise apply under section 1833(h)(3)(A) of the Act for a 
sample

[[Page 41091]]

collected from an individual in a SNF or by a laboratory on behalf of a 
HHA. We stated in the proposed rule that this provision was implemented 
via Medicare Change Request (CR) transmittal effective December 1, 2014 
(Transmittal #R3056CP; CR #8837) and that we proposed to reflect this 
policy in Sec.  414.507(f). However, Transmittal #R3056CP; CR #8837 was 
effective April 1, 2014 and implemented December 1, 2014. Therefore, we 
are revising Sec.  414.507(f) to reflect the effective date for this 
provision of April 1, 2014.
    A discussion of the comments we received on this topic, and our 
responses to those comments, appears below.
    Comment: Some commenters believed that our interpretation of the 
statute has prevented laboratories from receiving the sample collection 
fee increase if they provide services to patients designated by 
physicians as homebound, or if they provide services to patients that 
go back and forth within a shared SNF/NF facility. They noted that we 
allow HHAs to collect the fee but not to bill Part B for the specimen 
collection, even though SNFs are allowed to bill Part B for the 
specimen collection fees. The commenters proposed that we allow 
laboratories that provide specimen collection services to receive the 
increase in the fee by billing using place of service codes for SNFs, 
NFs, and for homebound patients in a private residence.
    Response: The statute states that the sample collection fee shall 
be increased for samples collected from an individual in a SNF or by a 
laboratory on behalf of a HHA. The authority does not extend to sample 
specimens collected from patients designated as homebound, even if 
place of service codes were utilized.

III. Collection of Information Requirements

    As stated in section 1834A(h)(2) of the Act, Chapter 35 of title 
44, United States Code, shall not apply to the information collection 
requirements contained in section 1834A of the Act. Consequently, the 
information collection requirements contained in this final rule need 
not be reviewed by the Office of Management and Budget.

IV. Waiver of Proposed Notice and Comment Rulemaking

    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register to provide for public comment before the provisions of 
a rule take effect in accordance with section 553(b) of the 
Administrative Procedure Act (APA). The notice of proposed rulemaking 
includes a reference to the legal authority under which the rule is 
proposed, and the terms and substances of the proposed rule or a 
description of the subjects and issues involved. However, this 
procedure can be waived if the Secretary finds, for good cause, that 
notice and comment procedures are impracticable, unnecessary, or 
contrary to the public interest, and incorporates a statement of the 
finding and the reasons therefor in the rule.
    We are finalizing the CMP amounts adjusted in accordance with the 
Federal Civil Penalties Inflation Adjustment Act Improvements Act of 
2015 (Sec. 701 of the Bipartisan Budget Act of 2015, Pub. L. 114-74) 
(the 2015 Act) without public notice and comment. The 2015 Act is very 
prescriptive in the formula that we must apply in adjusting the civil 
monetary penalties, leaving us no flexibility to exercise discretion in 
calculating the inflation adjustments to the CMP amounts. Therefore, we 
find good cause to waive notice and comment procedures as unnecessary.

V. Regulatory Impact Analysis

A. Statement of Need

    This final rule is necessary to establish a methodology for 
implementing the requirements in section 1834A of the Act, including a 
process for data collection and reporting, a weighted median 
calculation methodology, and requirements for how and to whom these 
policies would apply.

B. Overall Impact

    We have examined the impacts of this final rule as required by 
Executive Order 12866 on Regulatory Planning and Review (September 30, 
1993), Executive Order 13563 on Improving Regulation and Regulatory 
Review (January 18, 2011), the Regulatory Flexibility Act (RFA) 
(September 19, 1980, Pub. L. 96-354), section 1102(b) of the Act, 
section 202 of the Unfunded Mandates Reform Act of 1995 (March 22, 
1995; Pub. L. 104-4), Executive Order 13132 on Federalism (August 4, 
1999) and the Congressional Review Act (5 U.S.C. 804(2).
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Section 
3(f) of Executive Order 12866 defines a ``significant regulatory 
action'' as an action that is likely to result in a rule: (1) Having an 
annual effect on the economy of $100 million or more in any 1 year, or 
adversely and materially affecting a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or state, local or tribal governments or communities (also 
referred to as ``economically significant''); (2) creating a serious 
inconsistency or otherwise interfering with an action taken or planned 
by another agency; (3) materially altering the budgetary impacts of 
entitlement grants, user fees, or loan programs or the rights and 
obligations of recipients thereof; or (4) raising novel legal or policy 
issues arising out of legal mandates, the President's priorities, or 
the principles set forth in the Executive Order.
    A regulatory impact analysis (RIA) must be prepared for major rules 
with economically significant effects ($100 million or more in any 1 
year). This final rule is an economically significant rule because we 
believe that the changes to how CLFS payment rates will be developed 
will overall decrease payments to entities paid under the CLFS. We 
estimate that this final rule is ``economically significant'' as 
measured by the $100 million threshold, and hence also a major rule 
under the Congressional Review Act. Accordingly, we have prepared a 
Regulatory Impact Analysis that, to the best of our ability, presents 
the costs and benefits of the rulemaking.

C. Limitations of Our Analysis

    Our analysis presents the projected effects of our implementation 
of new section 1834A of the Act. As described earlier in this final 
rule, a part of this rule describes a schedule and process for 
collecting the private payor rate information of certain laboratories. 
Until such time that these data are available, we are limited in our 
ability to estimate effects of our CLFS payment policies under 
different scenarios.

D. Anticipated Effects

1. Effects on Entities Paid Under the CLFS
    The RFA requires agencies to analyze options for regulatory relief 
of small entities if a rule has a significant impact on a substantial 
number of small entities. For purposes of the RFA, we estimate that 
most of the entities paid under the CLFS are small entities as that 
term is used in the RFA (including small businesses, nonprofit 
organizations, and small governmental jurisdictions). The great 
majority of hospitals and most other health care providers and 
suppliers are small

[[Page 41092]]

entities, either by being nonprofit organizations or by meeting the SBA 
definition of a small business (having revenues of less than $7.5 
million to $38.5 million in any 1 year).
    For purposes of the RFA, we estimate that most entities furnishing 
laboratory tests paid under the CLFS are considered small businesses 
according to the Small Business Administration's size standards with 
total revenues of $32.5 million or less in any 1 year: $32.5 million 
for medical laboratories and $11 million for doctors. Individuals and 
states are not included in the definition of a small entity. Using the 
codes for laboratories in the North American Industry Classification 
System (NAICS), more than 90 percent of medical laboratories would be 
considered small businesses. This final rule will have a significant 
impact on a substantial number of small businesses or other small 
entities even with an exception for low expenditure laboratories.
    In the proposed rule (80 FR 59391through 59394), we proposed to 
define applicable laboratory at the TIN level. Approximately 68,000 
unique TIN entities are enrolled in the Medicare program as a 
laboratory and paid under the CLFS. Of these unique TIN entities, 94 
percent are enrolled as a physician office laboratory, 3 percent are 
enrolled as independent laboratories while the remaining 3 percent are 
attributed to other types of laboratories such as those operating 
within a rural health clinic or a skilled nursing facility. In section 
II.A. of this final rule, we discussed that after considering 
commenters' suggestions, we have revised the proposal and, as a final 
policy, we are defining applicable laboratory at the NPI level. 
Approximately 266,000 unique NPI-level entities are enrolled in the 
Medicare program as a laboratory and paid under the CLFS. Of these 
unique NPI-level entities, 93 percent are enrolled as a physician 
office laboratory, 1 percent are enrolled as independent laboratories 
while the remaining 6 percent are attributed to other types of 
laboratories such as those operating within a rural health clinic or a 
skilled nursing facility. Given that well over 90 percent of Medicare 
enrolled laboratories paid under the CLFS are physician-owned 
laboratories, we estimate the majority of Medicare-enrolled 
laboratories would meet the SBA definition of a small business. While 
the NPI-level entity will be the applicable laboratory, the TIN-level 
entity will be responsible for reporting applicable information for all 
the NPIs in its organization that are applicable laboratories. We 
believe that reporting at the TIN level will require reporting from 
fewer entities and will, therefore, be less burdensome to all types of 
applicable laboratories--that is independent laboratories, physician 
office laboratories, and hospital outreach laboratories--than would 
requiring applicable laboratories to report.
    As discussed in section II.B of this final rule, the applicable 
information required to be reported to CMS includes each private payor 
rate, the associated volume of tests performed corresponding to each 
private payor rate, and the specific HCPCS code associated with the 
test. We specifically intended to minimize the reporting burden by only 
requiring the minimum information necessary to enable us to set CLFS 
payment rates. We are not requiring (or permitting) individual claims 
to be reported because claims include more information than we need to 
set payment rates (and also raises concerns about reporting personally 
identifiable information). We believe that each of these policies, 
which are finalized in this rule, will substantially reduce the 
reporting burden for reporting entities in general and small businesses 
in particular.
    Given that we have never collected information about private payor 
rates for tests from laboratories, we do not have the specific payment 
amounts from the weighted median of private payor rates that will 
result from implementation of section 1834A of the Act. For this 
reason, it is not possible to determine an impact at the level of the 
individual laboratory or physician office laboratory much less 
distinctly for small and other businesses. While the information 
provided elsewhere in this impact statement provide the aggregate level 
of changes in payments, these estimates were done by comparing the 
differences in payment amounts for laboratory tests from private payers 
with the Medicare CLFS payment adjusted for changes expected to occur 
by CY 2018. While this methodology can be used to estimate an overall 
aggregate change in payment for services paid using the CLFS, the 
impact on any individual laboratory will depend on the mix of 
laboratory services provided by the individual laboratory or physician 
office.
    A final regulation is generally deemed to have a significant impact 
on small businesses if the rule is estimated to have an impact greater 
than a 3 to 4 percentage change to their revenue. As discussed 
previously in this section, we estimate that most entities furnishing 
laboratory tests paid under the CLFS would be considered a small 
business. Therefore, we believe our accounting statement provides a 
reasonable representation of the impact of the changes to the CLFS on 
small businesses (see Table 14). As illustrated in Table 14, the effect 
on the Medicare program is expected to be $390 million less in Part B 
program payments for CLFS tests furnished in FY 2018. The 5-year impact 
is estimated to be $1.71 billion less and the 10-year impact is 
expected to result in $3.93 billion less in program payments. As 
discussed previously, overall, Medicare pays approximately $7 billion a 
year under the current CLFS for CDLTs. Using our estimated amount of 
changes in CLFS spending, we estimate an overall percentage reduction 
in revenue of approximately -5.6 percent for FY 2018 (-$390 million/$7 
billion = -5.6 percent); a 5-year percentage reduction of about 4.9 
percent (-$1.71 billion/$35 billion = -4.9 percent) and a 10-year 
percentage reduction of approximately 5.6 percent (-$3.93 billion/$70 
billion = -5.61percent). As such, we estimate that the revisions to the 
CLFS as authorized by PAMA will have a significant impact on small 
businesses.
    We note that the above estimates differ from the estimates 
indicated in the regulatory impact analysis section of the proposed 
rule. The difference is due to the move in implementation from January 
1, 2017, to January 1, 2018. The move not only eliminated a year of 
potential savings but resulted in less future savings as another year 
of productivity adjustments will take effect and essentially narrow the 
gap between private payor rates and Medicare rates.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 604 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a metropolitan 
statistical area and has fewer than 100 beds. This final rule will not 
have a significant impact on small rural hospitals because the majority 
of entities paid under the CLFS and affected by the policies are 
independent laboratories and physician offices. To the extent that 
rural hospitals own independent laboratories and to the extent that 
rural hospitals are paid under the CLFS, there could be a significant 
impact on those facilities. Since most payments for laboratory tests to 
hospitals are bundled in Medicare Severity Diagnosis Related Group 
payments under Part A, the Secretary has determined that this final 
rule will not have a significant impact on the operations of a 
substantial number of

[[Page 41093]]

small rural hospitals. We requested comment from small rural hospitals 
on (1) their relationships with independent clinical laboratories and 
(2) the potential impact of a reduction in CLFS payments on their 
revenues and profits. We received no comments.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. In 2016, that 
is approximately $146 million. This final rule does not contain 
mandates that will impose spending costs on State, local, or tribal 
governments in the aggregate, or by the private sector.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a final rule that imposes 
substantial direct costs on state and local governments, preempts state 
law, or otherwise has Federalism implications. We have examined the 
CLFS provisions included in this final rule in accordance with 
Executive Order 13132, Federalism, and have determined that they will 
not have a substantial direct effect on state, local or tribal 
governments, preempt state law, or otherwise have a Federalism 
implication. While we have limited information about entities billing 
the CLFS with government ownership, the limited amount of information 
we currently have indicates that the number of those entities, as well 
as CLFS payment amounts associated with them, are minimal. Based on 
2013 claims data, we received only 21,627 claims for CLFS services from 
a total of 50 state or local public health clinics (0.1 percent of 
total laboratories that billed under the CLFS). However, we note that 
this final rule will potentially affect payments to a substantial 
number of laboratory test suppliers, and some effects may be 
significant.
2. Effects on the Medicare and Medicaid Programs
    Section 1834A of the Acts requires that the payment amount for 
tests on the CLFS, beginning January 1, 2017, be based on private payor 
rates. As discussed in the proposed rule (80 FR 59416), we estimated 
the effect on the Medicare program is expected to be $360 million less 
in program payments for CLFS tests furnished in FY 2017. However, as 
discussed in section II.D of this final rule, we are moving the 
implementation date of the private payor rate-based CLFS to January 1, 
2018. As a result, we revised the estimated amount of change in CLFS 
spending to reflect the revised implementation date.
    The effect on the Medicare program is expected to be $390 million 
less in program payments for CLFS tests furnished in FY 2018. We first 
established a baseline difference between Medicare CLFS payment rates 
and private payor rates based on a study by the Office of Inspector 
General, ``Comparing Lab Test Payment Rates: Medicare Could Achieve 
Substantial Savings'', OEI-07-11-00010, June 2013. The OIG study showed 
that Medicare paid between 18 and 30 percent more than other insurers 
for 20 high-volume and/or high-expenditure lab tests. We assumed the 
private payor rates to be approximately 20 percent lower than the 
Medicare CLFS payment rates for all tests paid under the CLFS in 
CY2010. We then accounted for the legislated 5 years of 1.75 percent 
cuts to laboratory payments, as required by section 
1833(h)(2)(A)(iv)(II) of the Act, as well as 8 years of multi-factor 
productivity adjustments, as required by section 1833(h)(2)(A) of the 
Act, to establish a new baseline difference between private payor rates 
and Medicare CLFS payment rates of approximately 5.8 percent in 2018. 
The new baseline difference between Medicare CLFS payment rates and 
private payor rates (5.8 percent) results in an approximate savings to 
the Medicare program of $390 million in FY 2018. We projected the FY 
2018 Medicare savings of $390 million forward by assuming a rate of 
growth proportional to the growth in the CLFS (that is approximately 
8.2 percent annually over the projection window FY 2016 through FY 
2025) after adjusting for additional productivity adjustments to 
determine a 10-year cost savings estimate (as illustrated in Table 14). 
We note that the 1-year move in implementation of this final rule 
reduces the 10-year estimated amount of change in CLFS spending by 
approximately $790 million. The effect on the Medicaid program is 
expected to be limited to payments that Medicaid may make on behalf of 
Medicaid recipients who are also Medicare beneficiaries. We note that 
section 6300.2 of the CMS State Medicaid Manual states that Medicaid 
reimbursement for CDLTs may not exceed the amount that Medicare 
recognizes for such tests.
    A discussion of the comments we received on this topic, and our 
responses to those comments, appears below.
    Comment: One commenter expressed concern that projected payment 
reductions for laboratories in 2017 and potential savings for Medicare 
surpasses the original goals for PAMA. For example, this commenter 
indicated that CMS projected the new laboratory payment rates to result 
in $360 million in payment reductions for laboratories in 2017 and 
potential savings for Medicare of over $5.14 billion over 10 years. The 
commenter believes these saving estimates are much greater than those 
released by the Congressional Budget Office (CBO) when PAMA was 
enacted. The commenters cite that CBO estimated savings of $100 million 
in 2017 and $2.5 billion over 10 years. The commenter recommended CMS 
make significant revisions before finalizing the proposed rule.
    Response: We acknowledge a difference in payment projections 
released by CBO and CMS. We believe this difference is due to the 
following: (1) CBO estimates were based on an OIG \3\ study that 
examined the top 25 Medicare laboratory test payments, whereas our 
estimates were based on all laboratory tests billed under the CLFS; (2) 
CBO estimates utilized 2014 Medicare claims data, whereas we used the 
2010 OIG data analysis to establish a baseline difference in the 
payments between CLFS and the private payor rates; and (3) CBO provided 
payment projections from 2014 to 2024, whereas we provided payment 
projections from 2016 to 2025.
---------------------------------------------------------------------------

    \3\ HHS OIG Data Brief, Medicare Payment for Clinical Laboratory 
Tests in 2014: Baseline Data. Office of Inspector General, September 
2015.
---------------------------------------------------------------------------

3. Cost of Data Collection and Reporting Activities
    As discussed previously, the applicable information of applicable 
laboratories must be collected, and reporting entities will be required 
to report that information to CMS. Section II.E.1. addresses penalties 
for non-reporting. We believe there could be substantial costs 
associated with compliance with section 1834A. As we had only limited 
information upon which to develop a cost estimate for collecting and 
reporting applicable information, we did not propose an estimate of the 
cost of data collection and reporting. As discussed below, we provided 
an illustrative example of the potential magnitude of collecting and 
reporting applicable information under the revised private payor rate 
based CLFS.
    As noted previously, the CLFS has grown from approximately 400 
tests to over 1,300 tests. For the proposed rule, we were not able to 
ascertain how many private payors and private payor rates there are for 
each applicable laboratory, and therefore, provided a hypothetical

[[Page 41094]]

example to illustrate the number of records (with one record being the 
specific HCPCS code, the associated private payor rate, and volume) 
that a reporting entity could be required to report for an applicable 
laboratory under the proposed rule. If an applicable laboratory had 30 
different private payor rates for a given test and it received private 
payor payment for each test on the CLFS, the reporting entity would be 
reporting 39,000 records (1,300 tests x 30) and 117,000 data points 
(one data point each for the HCPCS code and its associated private 
payor rate and volume). We explained that this example is hypothetical 
and illustrative only but demonstrates the potential volume of 
information a reporting entity may be required to report for a given 
applicable laboratory. It seems likely that most applicable 
laboratories will not have private payor rates for each test on the 
CLFS and that a small number of tests will have the highest volume and 
more associated private payor rates. To the extent that a laboratory 
receives private payor payment for fewer than the 1,300 tests paid 
under the CLFS, the data collection and reporting burden will be less 
(and accordingly the 1,300 multiplier will be less) than in the above 
example. To the extent a private payor has more or less than 30 private 
payor rates, the multiplier will differ from 30 in the above example.
    To better understand the projected reporting, recordkeeping or 
other compliance requirements, we specifically requested comments on 
the following questions concerning applicable laboratories:
     How many tests on the CLFS does the applicable laboratory 
perform?
     For each test, how many different private payor rates does 
the applicable laboratory have in a given period (for example, calendar 
year or other 12 month reporting period)?
     Does the applicable laboratory receive more than one rate 
from a private payor in a given period (for example, calendar year or 
other 12 month reporting period)?
     Is the information that laboratories are required to 
report readily available in the applicable laboratories' record 
systems?
     How much time does the applicable laboratory expect will 
be required to assemble and report applicable information?
     What kind of personnel will the applicable laboratory be 
using to report applicable information?
     What is the salary per hour for these staff?
     Is there other information not requested in the above 
questions that will inform the potential reporting burden being imposed 
by section 1834A of the Act?
    We believed that these items would be important factors to consider 
before projecting data reporting and record-keeping requirements. A 
discussion of the comments we received on this topic and our responses 
to those comment, appears below.
    Comment: We received two comments on these items. One commenter 
expressed concern regarding the impact of anticipated administration 
burden. For example, the commenter indicated that they would need to 
make changes to information technology (IT) systems in order to 
collect, validate and report applicable data to CMS. Another commenter 
indicated that data reporting provisions in the proposed rule would 
require significant IT systems changes that could cost $300,000-
$600,000. Additionally, the commenter estimated that a manual payment 
remittance process would cost $1.2 million for a 6 month data 
collection period and would require hiring 5 full-time equivalent staff 
at approximately $80,000 in annual salaries, wages and benefits.
    Response: As noted above, the CLFS has grown from approximately 400 
tests to over 1,300 tests. We assume that none of these tests are only 
furnished to Medicare beneficiaries or are only charged to Medicare, 
therefore, we expect applicable information (that is, private payor 
rates and associated volume) to be reported by applicable laboratories 
on nearly all of these tests. As discussed in the RIA, approximately 
266,000 unique NPI-level entities are enrolled in the Medicare program 
as a laboratory and paid under the CLFS. Of these unique NPI-level 
entities, 93 percent (approximately 247,000) are enrolled as a 
physician office laboratory, 1 percent (approximately 2,700) are 
enrolled as independent laboratories while the remaining 6 percent 
(approximately 16,000) are attributed to other types of laboratories 
such as those operating within a rural health clinic or a skilled 
nursing facility. Given our estimate that the low expenditure threshold 
will exclude approximately 95 percent of physician office laboratories 
and approximately 55 percent of independent laboratories from having to 
report applicable information, approximately 12,400 physician office 
laboratories (247,000 x .05) would be an applicable laboratory and 
approximately 1,200 independent laboratories (2,700 x .45) would an 
applicable laboratory for an estimated total of approximately 13,600 
applicable laboratories.
    According to the National Association of Insurance Commissioners, 
there were 859 domestic insurers in the United States in 2015.\4\ While 
it is difficult to ascertain how many private payors and private payor 
rates there are for each applicable laboratory, we understand from an 
inquiry to an association representing laboratories that each 
applicable laboratory will bill approximately 1,500 different private 
insurers. We note that this estimate presumes a finite number of 
different private payors that may have an agreement with different 
entities, therefore significantly increasing the total amount of 
different private insurers. For example, a private insurer may have 
separate agreements with Federal, State, and County governments, as 
well as different agreements with various private sector companies. In 
our estimate, these different agreements are counted as separate 
private insurers. Some laboratories may bill more or fewer private 
payors, but we believe this is a reasonable number based on the 
information furnished to us. For simplicity, we also assume that each 
applicable laboratory is paid a single private payor rate by each 
private payor for each laboratory test during a data collection period.
---------------------------------------------------------------------------

    \4\ National Association of Insurance Commissioners, 2015 
Insurance Department Resources Uses Report, Volume 1, page 27.
---------------------------------------------------------------------------

    Additionally, although we expect applicable information (that is, 
private payor rates and associated volume) to be reported by applicable 
laboratories on nearly all of the approximately 1300 tests on the CLFS, 
it seems likely that most applicable laboratories will not have private 
payor rates for each test on the CLFS and that a small number of tests 
will have the highest volume and more associated private payor rates. 
For instance, based on 2013 Medicare claims data, 25 tests accounted 
for over 85 percent of the total allowed services paid on the CLFS. 
Assuming that all of the estimated applicable laboratories 
(approximately 13,600) would report a single private payor rate for 
each of the most common 25 laboratory tests paid on the CLFS, we 
estimate there would be approximately 37,500 data points reported per 
applicable laboratory (25 laboratory test rates x 1,500 private payors) 
and approximately 510 million total data points reported for all 
applicable laboratories (13,600 estimated applicable laboratories x 
estimated 37,500 data points per applicable laboratory). As these 510 
million data points are for the 25

[[Page 41095]]

laboratory tests that account for 85 percent of the volume of tests 
paid on the CLFS, we would expect the total number of data points to be 
closer to 600 million (510 million/0.85) when accounting for the 
remaining laboratory tests paid under the CLFS. We believe the most 
time consuming of the activities related to data collection would be 
done by an office staff worker such as an Office Clerk (Occupational 
Category 49-9061 according to the Bureau of Labor Statistics earning 
and average hourly wage of $15.33). We believe this wage rate would not 
include benefits so there would be an additional cost assuming 
benefits.\5\ However, it is very difficult to estimate the number of 
hours this would require so we are unfortunately unable to come up with 
a cost estimate of this burden to include in the RIA. In addition, and 
we acknowledge that there is a high degree of uncertainty around our 
analysis as a result of the dearth of available data on which to 
estimate costs.
---------------------------------------------------------------------------

    \5\ United States Department of Labor, Bureau of Labor 
Statistics, Occupational and Employment Wages, May, 2015, 43-9061 
Office Clerks, General. http://www.bls.gov/oes/current/oes439061.htm.
---------------------------------------------------------------------------

    Additionally, we recognize that requirements set forth by section 
1834A of the Act may necessitate changes to IT systems and other 
administrative changes for laboratories to implement the reporting 
requirements of section 1834A of the Act. One commenter indicated that 
IT systems changes resulting from the data collection and reporting 
requirements could cost $300,000 and as much as $600,000 to implement. 
We presume that the majority of applicable laboratories would have IT 
systems and would not need to rely extensively on a manual payment 
remittance process. Although the information we received from the 
comments regarding the cost of IT changes was insightful, it was 
insufficient to develop a cost estimate for data collection and 
reporting activities for the entire laboratory industry.

E. Alternatives Considered

    This final rule contains a range of policies, including some 
provisions related to specific statutory provisions. The preceding 
sections of this final rule provide descriptions of the statutory 
provisions that are addressed, identify policies where the statute 
recognizes the Secretary's discretion, present the rationale for our 
policies and, where relevant, alternatives that were considered.
    In developing this final rule, we considered numerous alternatives 
to the final policies. Key areas where we considered alternatives 
include the organizational level associated with an applicable 
laboratory, authority to develop a low volume or low expenditure 
threshold to reduce reporting burden for small businesses, whether to 
include coinsurance amounts as part of the applicable information, the 
definition of the initial reporting period for ADLTs, and how to set 
rates for CDLTs for which the agency receives no applicable 
information. Below, we discuss alternative policies considered. We 
recognize that all of the alternatives considered could have a 
potential impact on the cost or savings under the CLFS. However, we do 
not have any private payor rate information with which to price these 
alternative approaches.
1. Definition of Applicable Laboratory--TIN vs. NPI
    As discussed previously in this section, we proposed to define an 
applicable laboratory at the TIN level rather than the NPI level 
because we believed that reporting applicable information would be less 
burdensome for applicable laboratories. However, as discussed in detail 
in section II.A of this final rule, in response to public comments, we 
revised our proposal and, as a final policy adopted in this final rule, 
we are defining applicable laboratory at the NPI level while 
maintaining that the TIN-level entity will be the reporting entity. We 
believe that having the TIN-level entity report applicable information 
for all of the NPI-level entities in its organization that are 
applicable laboratories will not affect or diminish the quality of the 
applicable information reported and should produce the same applicable 
information as reporting individually at the NPI level.
2. Authority To Develop a Low Volume or Low Expenditure Threshold To 
Reduce Reporting Burden for Small Businesses
    We proposed to exercise our authority to develop a low expenditure 
threshold to exclude small businesses from having to report applicable 
information. Specifically, we proposed that any entity that would 
otherwise be an applicable laboratory, but that received less than 
$50,000 in Medicare revenues under sections 1834A and 1833(h) of the 
Act (the CLFS) for tests furnished during a data collection period, 
would not be an applicable laboratory. We considered the alternative of 
not proposing a low volume or low expenditure threshold which would 
require all entities meeting the definition of applicable laboratory to 
report applicable information to us. However, by proposing a low 
expenditure threshold we were able to substantially reduce the number 
of entities required to report applicable information to us (94 percent 
of physician office laboratories and 52 percent of independent 
laboratories would not be required to report applicable information) 
while retaining a high percentage of Medicare utilization (that is, 96 
percent of CLFS spending on physician office laboratories and more than 
99 percent of CLFS spending on independent laboratories) from 
applicable laboratories that would be required to report. We did not 
pursue a low volume threshold because we believed it could potentially 
exclude laboratories that perform a low volume of very expensive tests 
from reporting applicable information.
    As discussed section II.A of this final rule, we are revising the 
low expenditure threshold consistent with defining an applicable 
laboratory at the NPI level rather than the TIN level. We are also 
revising the low expenditure threshold consistent with our decision in 
this final rule to change the data collection period from 12 months to 
6 months, which will also reduce the reporting burden for reporting 
entities (see detailed discussion in section II.D. of this final rule). 
With these changes, the low expenditure threshold is reduced from 
$50,000 in the proposed rule to $12,500 in this final rule. As we found 
for the proposed rule, the application of the low expenditure threshold 
will significantly reduce the number of laboratories qualifying as 
applicable laboratories and substantially reduce the reporting burden 
for small businesses. We estimate that the low expenditure threshold of 
$12,500 adopted in this final rule will exclude approximately 95 
percent of physician office laboratories and approximately 55 percent 
of independent laboratories from having to report applicable 
information, while retaining a high percentage of Medicare utilization 
(that is, approximately 92 percent of CLFS spending on physician office 
laboratories and approximately 99 percent of CLFS spending on 
independent laboratories). Additionally, as discussed in section II.A., 
for a single laboratory that offers and furnishes an ADLT, the $12,500 
threshold will not apply with respect to the ADLT. This means, if the 
laboratory otherwise meets the definition of applicable laboratory, 
whether or not it meets the low expenditure threshold, it will be

[[Page 41096]]

considered an applicable laboratory with respect to the ADLT it offers 
and furnishes, and must report applicable information for its ADLT. If 
it does not meet the threshold, it will not be considered an applicable 
laboratory with respect to all the other CDLTs it furnishes.
3. Definition of New ADLT Initial Period
    As explained in section II.D. of this final rule, section 
1834A(d)(1)(A) of the Act requires an ``initial period'' of three 
quarters during which payment for new ADLTs is based on the actual list 
charge for the laboratory test. The statute does not specify when this 
initial period of three quarters is to begin. Section 1834A(d)(2) of 
the Act requires reporting of applicable information not later than the 
last day of the Q2 of the new ADLT initial period. These private payor 
rates will be used to determine the CLFS rate after the new ADLT 
initial period ends. We considered starting the new ADLT initial period 
on the day the new ADLT is first performed (which in most cases would 
be after a calendar quarter begins). However, as noted previously in 
this final rule, if we were to start the new ADLT initial period after 
the beginning of a calendar quarter, the 2nd quarter would also begin 
in the midst of a calendar quarter, requiring the laboratory to report 
applicable information from the middle of the calendar quarter rather 
than on a calendar quarter basis. Further, if a new ADLT initial period 
of three quarters would also end during a calendar quarter, the 
laboratory would start getting paid the weighted median rate in the 
middle of the calendar quarter rather at the beginning of a calendar 
quarter. This may be burdensome and confusing for laboratories. As 
such, we believe that the new ADLT initial period should start and end 
on the basis of a calendar quarter (for example, January 1 through 
March 31, April 1 through June 30, July 1 through September 30, or 
October 1 through December 31) for consistency with how private payor 
rates will be reported and determined for CDLTs (on the basis of a 
calendar year which is four quarters aggregated) and how CLFS rates 
will be paid (also on the basis of a calendar year). As discussed in 
section II.D., we are revising the definition of new ADLT initial 
period in Sec.  414.502 to mean a period of 3 calendar quarters that 
begins on the first day of the first full calendar quarter following 
the later of the date a Medicare Part B coverage determination is made 
or ADLT status is granted by us.
4. Recoupment of Payment for New ADLTs
    As discussed in section II.H.4. of this final rule, the statute 
specifies that if, after a new ADLT initial period, the Secretary 
determines the payment amount that was applicable during the initial 
period (the test's actual list charge) was greater than 130 percent of 
the payment amount that is applicable after such period (based on 
private payor rates), the Secretary shall recoup the difference between 
those payment amounts for tests furnished during the initial period. We 
proposed to recoup the entire amount of the difference between the 
actual list charge and the weighted median private payer rate. After 
consideration of public comments, we revised our proposed policy so 
that, for tests furnished during the new ADLT initial period, we will 
pay up to 130 percent of the weighted median private payor rate. That 
is, if the actual list charge is subsequently determined to be greater 
than 130 percent of the weighted median private payor rate, we will 
recoup the difference between the actual list charge and 130 percent of 
the weighted median private payer rate. As we currently do not have 
information upon which to develop a cost estimate for this final 
recoupment policy, we cannot estimate how this policy will impact 
future payments under the CLFS. We do not anticipate many laboratory 
tests will meet the criteria for being an ADLT, therefore, we do not 
expect this final recoupment policy will have a significant impact on 
total CLFS spending.
5. Medicare Payment for Tests Where No Applicable Information Is 
Reported
    As discussed in section II.B of this final rule, in the event we do 
not receive applicable information for a laboratory test that is 
provided to a Medicare beneficiary, we will use crosswalking and 
gapfilling using the definitions in Sec.  414.508(b)(1) and (2) to 
establish a payment rate on or after January 1, 2018, which will remain 
in effect until the year following the next data reporting period. This 
policy includes the situation where we receive no applicable 
information for tests that were previously priced using gapfilling or 
crosswalking or where we had previously priced a test using the 
weighted median methodology. If we receive no applicable information in 
a subsequent data reporting period, we will use crosswalking or 
gapfilling methodologies to establish the payment amount for the test. 
That is, if in a subsequent data reporting period, no applicable 
information is reported, we will reevaluate the basis for payment, of 
crosswalking or gapfilling, and the payment amount for the test.
    In exploring what we would do if we receive no applicable 
information for a CDLT, we alternatively considered carrying over the 
current payment amount for a test under the current CLFS, the payment 
amount for a test (if one was available) using the weighted median 
methodology based on applicable information from the previous data 
reporting period, or the gapfilled or crosswalked payment amount. 
However, we did not adopt this approach because we believe carrying 
over previous payment rates would not reflect changes in costs or 
pricing for the test over time. As noted previously, we believe 
reconsidering payment rates for tests in these situations is consistent 
with the purpose of section 1834A of the Act, which requires us to 
periodically reconsider CLFS payment rates. In this final rule, we 
finalized our proposal for using crosswalking and gapfilling in the 
event we do not receive applicable information for a laboratory test.
6. Phased-In Payment Reduction
    As discussed previously, we proposed to use the NLAs for purposes 
of applying the 10 percent reduction limit to CY 2017 payment amounts 
instead of using local fee schedule amounts. As previously explained, 
we believed the statute intends CLFS rates to be uniform nationwide, 
which is why it precludes any geographic adjustment. We proposed that 
if the weighted median calculated for a CDLT based on applicable 
information for CY 2017 would be more than 10 percent less than the CY 
2016 NLA for that test, we would establish a Medicare payment amount 
for CY 2017 that is no less than 90 percent of the NLA (that is, no 
more than a 10 percent reduction). We proposed, for each of CY 2017 
through 2022, we would apply the applicable percentage reduction 
limitation to the Medicare payment amount for the preceding year. The 
alternative would have been to apply the 10 percent reduction 
limitation to the lower of the NLA or the local fee schedule amount. 
This option would retain some of the features of the current payment 
methodology. Under this option, though, the Medicare payment amounts 
may be local fee schedule amounts, so there could continue to be 
regional variation in the Medicare payment amounts for CDLTs. We 
believe that Medicare infrequently pays less than the NLA and there 
would be significant burden for CMS to establish systems logic to 
establish transition payment

[[Page 41097]]

based on the lesser of the local fee schedule amount or the NLA. For 
this reason, and because we believe the statute intends there to be 
uniform national payment for CLFS services, we decided not to adopt 
this option.
    As discussed in section II.D of this final rule, we are moving the 
implementation date of the private payor-based rates for the CLFS by 
one year, to January 1, 2018. Therefore we are making a corresponding 
change to the phase-in of payment reductions timetable to reflect the 
January 1, 2018 implementation date. We are codifying this change from 
the proposed rule in Sec.  414.507(d) to indicate that a maximum 
payment reduction per year of 10 percent applies for years 2018 through 
2020 and a maximum payment reduction per year of 15 percent applies for 
years 2021 through 2023.
    We did not receive comments on the proposed rule regarding the 
phased-in reduction provisions. Therefore, we adopted our proposal for 
phased-in reduction, along with the above changes to the timetable, as 
final policy.

F. Accounting Statement and Table

    As required by OMB Circular A-4 (available on the Office of 
Management and Budget Web site at: http://www.whitehouse.gov/sites/default/files/omb/assets/regulatory_matters_pdf/a-4.pdf), we have 
prepared an accounting statement in Table 14 to illustrate the impact 
of this final rule. The following table illustrates the estimated 
amount of change in CLFS spending under the policies set forth in this 
final rule.

  Table 14--Accounting Statement: Estimated Clinical Laboratory Fee Schedule Transfers From CY 2016 to CY 2025
 Associated With the Finalized Changes to the Clinical Laboratory Fee Schedule as Described in Section 1834A of
                                                     the Act
----------------------------------------------------------------------------------------------------------------
                    Category                                                        Year dollar
-------------------------------------------------                -----------------------------------------------
                                                     Estimates                     Discount rate      Period
                    Transfers                                       Year dollar      (percent)        covered
----------------------------------------------------------------------------------------------------------------
Federal Annualized Monetized Transfers (in                  -385            2016               3       2016-2025
 millions)......................................            -374            2016               7       2016-2025
                                                 ---------------------------------------------------------------
From Whom to Whom...............................  Federal Government to Entities that Receive Payments under the
                                                             Medicare Clinical Laboratory Fee Schedule
----------------------------------------------------------------------------------------------------------------


 
                                                                            Estimate (in millions)                                    5-year    10-year
                                           ----------------------------------------------------------------------------------------   impact     impact
                                                                                                                                   ---------------------
                                             2015    2016    2017    2018    2019    2020    2021    2022    2023    2024    2025     2016-      2016-
                                                                                                                                       2020       2025
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                FY Cash Impact (with MC)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Part B:
    Benefits..............................  ......  ......  ......   (520)   (930)   (820)   (760)   (830)   (570)   (380)   (410)    (2,270)    (5,220)
    Premium...............................  ......  ......  ......     130     230     200     190     210     140      90     100        560      1,290
    Offset................................
                                           -------------------------------------------------------------------------------------------------------------
        Total Part B......................  ......  ......  ......   (390)   (700)   (620)   (570)   (620)   (430)   (290)   (310)    (1,710)    (3,930)
--------------------------------------------------------------------------------------------------------------------------------------------------------

G. Cost to the Federal Government

    We are creating a data collection system, developing HCPCS codes 
for laboratory tests when needed, convening a FACA advisory committee 
to make recommendations on how to pay for new CDLTs including reviewing 
and making recommendations on applications for ADLTs, and undertaking 
other implementation activities. To implement these new standards, we 
anticipate initial federal start-up costs to be approximately $4 
million per year. Once implemented, ongoing costs to collect data, 
review ADLTs, maintain data collection systems, and provide other 
upkeep and maintenance services will require an estimated $3 million 
annually in federal costs. We will continue to examine and seek comment 
on the potential impacts to both Medicare and Medicaid.

H. Conclusion

    The changes we adopt in this final rule will affect suppliers who 
receive payment under the CLFS, primarily independent laboratories and 
physician offices. We are limited in our ability to determine the 
specific impact on different classes of suppliers at this time due to 
the data limitations noted earlier in this section. However, we 
anticipate that the updated information through this data collection 
process in combination with the exclusion of adjustments (geographic 
adjustment, budget neutrality adjustment, annual update, or other 
adjustment that may apply under other Medicare payment systems), as 
described in section 1834A(b)(4)(B) of the Act, will reduce aggregate 
payments made through the CLFS, and therefore, some supplier level 
payments. We note that this final rule includes changes that may affect 
different laboratory test suppliers differently, based on the types of 
tests they provide.
    The previous analysis, together with the remainder of the preamble, 
provides a Regulatory Flexibility Analysis. In accordance with the 
provisions of Executive Order 12866, this regulation was reviewed by 
the Office of Management and Budget.

List of Subjects in 42 CFR Part 414

    Administrative practice and procedure, Health facilities, Health 
professions, Kidney diseases, Medicare, Reporting and recordkeeping 
requirements.

    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services amend 42 CFR chapter IV as set forth below:

PART 414--PAYMENT FOR PART B MEDICAL AND OTHER HEALTH SERVICES

0
1. The authority citation for part 414 continues to read as follows:

    Authority:  Secs. 1102, 1871, and 1881(b)(l) of the Social 
Security Act (42 U.S.C. 1302, 1395hh, and 1395rr(b)(l)).


0
2. The heading for subpart G is revised to read as follows:

[[Page 41098]]

Subpart G--Payment for Clinical Diagnostic Laboratory Tests


Sec.  414.1  [Amended]

0
3. Section 414.1 is amended by adding ``1834A--Improving policies for 
clinical diagnostic laboratory tests'' in numerical order.
0
4. Section 414.500 is revised to read as follows:


Sec.  414.500  Basis and scope.

    This subpart implements provisions of 1833(h)(8) of the Act and 
1834A of the Act--procedures for determining the basis for, and amount 
of, payment for a clinical diagnostic laboratory test (CDLT).

0
5. Section 414.502 is amended by adding the definitions of ``Actual 
list charge,'' ``Advanced diagnostic laboratory test (ADLT),'' 
``Applicable information,'' ``Applicable laboratory,'' ``Data 
collection period,'' ``Data reporting period,'' ``National Provider 
Identifier,'' ``New advanced diagnostic laboratory test (ADLT),'' ``New 
ADLT initial period,'' ``New clinical diagnostic laboratory test 
(CDLT),'' ``Private payor,'' ``Private payor rate,'' ``Publicly 
available rate,'' ``Reporting entity,'' ``Single laboratory,'' 
``Specific HCPCS code,'' ``Successor owner,'' and ``Taxpayer 
Identification Number (TIN)'' in alphabetical order to read as follows:


Sec.  414.502  Definitions.

* * * * *
    Actual list charge means the publicly available rate on the first 
day the new advanced diagnostic laboratory test (ADLT) is obtainable by 
a patient who is covered by private insurance, or marketed to the 
public as a test a patient can receive, even if the test has not yet 
been performed on that date.
    Advanced diagnostic laboratory test (ADLT) means a clinical 
diagnostic laboratory test (CDLT) covered under Medicare Part B that is 
offered and furnished only by a single laboratory and not sold for use 
by a laboratory other than the single laboratory that designed the test 
or a successor owner of that laboratory, and meets one of the following 
criteria:
    (1) The test--
    (i) Is an analysis of multiple biomarkers of deoxyribonucleic acid 
(DNA), ribonucleic acid (RNA), or proteins;
    (ii) When combined with an empirically derived algorithm, yields a 
result that predicts the probability a specific individual patient will 
develop a certain condition(s) or respond to a particular therapy(ies);
    (iii) Provides new clinical diagnostic information that cannot be 
obtained from any other test or combination of tests; and
    (iv) May include other assays.
    (2) The test is cleared or approved by the Food and Drug 
Administration.
    Applicable information, with respect to each CDLT for a data 
collection period:
    (1) Means--
    (i) Each private payor rate for which final payment has been made 
during the data collection period;
    (ii) The associated volume of tests performed corresponding to each 
private payor rate; and
    (iii) The specific Healthcare Common Procedure Coding System 
(HCPCS) code associated with the test.
    (2) Does not include information about a test for which payment is 
made on a capitated basis.
    Applicable laboratory means an entity that:
    (1) Is a laboratory, as defined in Sec.  493.2 of this chapter;
    (2) Bills Medicare Part B under its own National Provider 
Identifier (NPI);
    (3) In a data collection period, receives more than 50 percent of 
its Medicare revenues, which includes fee-for-service payments under 
Medicare Parts A and B, Medicare Advantage payments under Medicare Part 
C, prescription drug payments under Medicare Part D, and any associated 
Medicare beneficiary deductible or coinsurance for services furnished 
during the data collection period from one or a combination of the 
following sources:
    (i) This subpart G.
    (ii) Subpart B of this part.
    (4) Receives at least $12,500 of its Medicare revenues from this 
subpart G. Except, for a single laboratory that offers and furnishes an 
ADLT, this $12,500 threshold--
    (i) Does not apply with respect to the ADLTs it offers and 
furnishes; and
    (ii) Applies with respect to all the other CDLTs it furnishes.
    Data collection period is the 6 months from January 1 through June 
30 during which applicable information is collected and that precedes 
the data reporting period.
    Data reporting period is the 3-month period, January 1 through 
March 31, during which a reporting entity reports applicable 
information to CMS and that follows the preceding data collection 
period.
    National Provider Identifier (NPI) means the standard unique health 
identifier used by health care providers for billing payors, assigned 
by the National Plan and Provider Enumeration System (NPPES) in 45 CFR 
part 162.
    New advanced diagnostic laboratory test (ADLT) means an ADLT for 
which payment has not been made under the clinical laboratory fee 
schedule prior to January 1, 2018.
    New ADLT initial period means a period of 3 calendar quarters that 
begins on the first day of the first full calendar quarter following 
the later of the date a Medicare Part B coverage determination is made 
or ADLT status is granted by CMS.
    New clinical diagnostic laboratory test (CDLT) means a CDLT that is 
assigned a new or substantially revised Healthcare Common Procedure 
Coding System (HCPCS) code, and that does not meet the definition of an 
ADLT.
* * * * *
    Private payor means:
    (1) A health insurance issuer, as defined in section 2791(b)(2) of 
the Public Health Service Act.
    (2) A group health plan, as defined in section 2791(a)(1) of the 
Public Health Service Act.
    (3) A Medicare Advantage plan under Medicare Part C, as defined in 
section 1859(b)(1) of the Act.
    (4) A Medicaid managed care organization, as defined in section 
1903(m)(1)(A) of the Act.
    Private payor rate, with respect to applicable information:
    (1) Is the final amount that is paid by a private payor for a CDLT 
after all private payor price concessions are applied and does not 
include price concessions applied by a laboratory.
    (2) Includes any patient cost sharing amounts, if applicable.
    (3) Does not include information about denied payments.
    Publicly available rate means the lowest amount charged for an ADLT 
that is readily accessible in such forums as a company Web site, test 
registry, or price listing, to anyone seeking to know how much a 
patient who does not have the benefit of a negotiated rate would pay 
for the test.
    Reporting entity is the entity that reports tax-related information 
to the Internal Revenue Service (IRS) using its Taxpayer Identification 
Number (TIN) for its components that are applicable laboratories.
    Single laboratory, for purposes of an ADLT, means:
    (1) The laboratory, as defined in 42 CFR 493.2, which furnishes the 
test, and that may also design, offer, or sell the test; and
    (2) The following entities, which may design, offer, or sell the 
test:
    (i) The entity that owns the laboratory.
    (ii) The entity that is owned by the laboratory.

[[Page 41099]]

    Specific HCPCS code means a HCPCS code that does not include an 
unlisted CPT code, as established by the American Medical Association, 
or a Not Otherwise Classified (NOC) code, as established by the CMS 
HCPCS Workgroup.
* * * * *
    Successor owner, for purposes of an ADLT, means a single 
laboratory, that has assumed ownership of the single laboratory that 
designed the test or of the single laboratory that is a successor owner 
to the single laboratory that designed the test, through any of the 
following circumstances:
    (1) Partnership. The removal, addition, or substitution of a 
partner, unless the partners expressly agree otherwise, as permitted by 
applicable State law.
    (2) Unincorporated sole proprietorship. Transfer of title and 
property to another party.
    (3) Corporation. The merger of the single laboratory corporation 
into another corporation, or the consolidation of two or more 
corporations, including the single laboratory, resulting in the 
creation of a new corporation. Transfer of corporate stock or the 
merger of another corporation into the single laboratory corporation 
does not constitute change of ownership.
    Taxpayer Identification Number (TIN) means a Federal taxpayer 
identification number or employer identification number as defined by 
the IRS in 26 CFR 301.6109-1.

0
6. Section 414.504 is added to read as follows:


Sec.  414.504  Data reporting requirements.

    (a) In a data reporting period, a reporting entity must report 
applicable information for each CDLT furnished by its component 
applicable laboratories during the corresponding data collection 
period, as follows--
    (1) For CDLTs that are not ADLTs, every 3 years beginning January 
1, 2017.
    (2) For ADLTs that are not new ADLTs, every year beginning January 
1, 2017.
    (3) For new ADLTs--
    (i) Initially, no later than the last day of the second quarter of 
the new ADLT initial period; and
    (ii) Thereafter, every year.
    (b) Applicable information must be reported in the form and manner 
specified by CMS.
    (c) A laboratory seeking new ADLT status for its test must, in its 
new ADLT application, attest to the actual list charge.
    (d) To certify data integrity, the President, CEO, or CFO of a 
reporting entity, or an individual who has been delegated authority to 
sign for, and who reports directly to, such an officer, must sign the 
certification statement and be responsible for assuring that the data 
provided are accurate, complete, and truthful, and meets all the 
reporting parameters described in this section.
    (e) If the Secretary determines that a reporting entity has failed 
to report applicable information for its applicable laboratories, or 
made a misrepresentation or omission in reporting applicable 
information for its applicable laboratories, the Secretary may apply a 
civil monetary penalty to a reporting entity in an amount of up to 
$10,000 per day, as amended by the Federal Civil Penalties Inflation 
Adjustment Act Improvements Act of 2015 (Sec. 701 of the Bipartisan 
Budget Act of 2015, Pub. L. 114-74, November 2, 2015), for each failure 
to report or each such misrepresentation or omission. The provisions 
for civil monetary penalties that apply in general to the Medicare 
program under 42 U.S.C. 1320a-7b apply in the same manner to the 
laboratory data reporting process under this section.
    (f) CMS or its contractors will not disclose applicable information 
reported to CMS under this section in a manner that would identify a 
specific payor or laboratory, or prices charged or payments made to a 
laboratory, except to permit the Comptroller General, the Director of 
the Congressional Budget Office, and the Medicare Payment Advisory 
Commission, to review the information, or as CMS determines is 
necessary to implement this subpart, such as disclosures to the HHS 
Office of Inspector General or the Department of Justice for oversight 
and enforcement activities.
    (g) Applicable information may not be reported for an entity that 
does not meet the definition of an applicable laboratory. For a single 
laboratory that offers and furnishes an ADLT that is not an applicable 
laboratory except with respect to its ADLTs, the applicable information 
of its CDLTs that are not ADLTs may not be reported.

0
7. Section 414.506 is amended by revising the introductory text and 
paragraph (d)(1), and adding paragraphs (d)(3) and (4) and (e) to read 
as follows:


Sec.  414.506  Procedures for public consultation for payment for a new 
clinical diagnostic laboratory test.

    For a new CDLT, CMS determines the basis for and amount of payment 
after performance of the following:
* * * * *
    (d) * * *
    (1) Proposed determinations with respect to the appropriate basis 
for establishing a payment amount for each code, with an explanation of 
the reasons for each determination, the data on which the 
determinations are based, including recommendations from the Advisory 
Panel on CDLTs described in paragraph (e) of this section, and a 
request for written public comments within a specified time period on 
the proposed determination; and
* * * * *
    (3) On or after January 1, 2018, in applying paragraphs (d)(1) and 
(2) of this section, CMS will provide an explanation of how it took 
into account the recommendations of the Advisory Panel on CDLTs 
described in paragraph (e) of this section.
    (4) On or after January 1, 2018, in applying paragraphs (d)(1) and 
(2) of this section and Sec.  414.509(b)(2)(i) and (iii) when CMS uses 
the gapfilling method described in Sec.  414.508(b)(2), CMS will make 
available to the public an explanation of the payment rate for the 
test.
    (e) CMS will consult with an expert outside advisory panel, called 
the Advisory Panel on CDLTs, composed of an appropriate selection of 
individuals with expertise, which may include molecular pathologists 
researchers, and individuals with expertise in laboratory science or 
health economics, in issues related to CDLTs. This advisory panel will 
provide input on the establishment of payment rates under Sec.  414.508 
and provide recommendations to CMS under this subpart.

0
8. Section 414.507 is added to read as follows:


Sec.  414.507  Payment for clinical diagnostic laboratory tests.

    (a) General rule. Except as provided in paragraph (d) of this 
section, and Sec. Sec.  414.508 and 414.522, the payment rate for a 
CDLT furnished on or after January 1, 2018, is equal to the weighted 
median for the test, as calculated under paragraph (b) of this section. 
Each payment rate will be in effect for a period of one calendar year 
for ADLTs and three calendar years for all other CDLTs, until the year 
following the next data collection period.
    (b) Methodology. For each test under paragraph (a) of this section 
for which applicable information is reported, the weighted median is 
calculated by arraying the distribution of all private payor rates, 
weighted by the volume for each payor and each laboratory.
    (c) The payment amounts established under this section are not 
subject to any adjustment, such as geographic, budget

[[Page 41100]]

neutrality, annual update, or other adjustment.
    (d) Phase-in of payment reductions. For years 2018 through 2023, 
the payment rates established under this section for each CDLT that is 
not a new ADLT or new CDLT, may not be reduced by more than the 
following amounts for--
    (1) 2018--10 percent of the national limitation amount for the test 
in 2017.
    (2) 2019--10 percent of the payment rate established in 2018.
    (3) 2020--10 percent of the payment rate established in 2019.
    (4) 2021--15 percent of the payment rate established in 2020.
    (5) 2022--15 percent of the payment rate established in 2021.
    (6) 2023--15 percent of the payment rate established in 2022.
    (e) There is no administrative or judicial review under sections 
1869 and 1878 of the Social Security Act, or otherwise, of the payment 
rates established under this subpart.
    (f) Effective April 1, 2014, the nominal fee that would otherwise 
apply for a sample collected from an individual in a Skilled Nursing 
Facility (SNF) or by a laboratory on behalf of a Home Health Agency 
(HHA) is $5.
    (g) For a CDLT for which CMS receives no applicable information, 
payment is made based on the crosswalking or gapfilling methods 
described in Sec.  414.508(b)(1) and (2).
    (h) For ADLTs that are furnished between April 1, 2014 and December 
31, 2017, payment is based on the crosswalking or gapfilling methods 
described in Sec.  414.508(a).

0
9. Section 414.508 is revised to read as follows:


Sec.  414.508  Payment for a new clinical diagnostic laboratory test.

    (a) For a new CDLT that is assigned a new or substantially revised 
code between January 1, 2005 and December 31, 2017, CMS determines the 
payment amount based on either of the following:
    (1) Crosswalking. Crosswalking is used if it is determined that a 
new CDLT is comparable to an existing test, multiple existing test 
codes, or a portion of an existing test code.
    (i) CMS assigns to the new CDLT code, the local fee schedule 
amounts and national limitation amount of the existing test.
    (ii) Payment for the new CDLT code is made at the lesser of the 
local fee schedule amount or the national limitation amount.
    (2) Gapfilling. Gapfilling is used when no comparable existing CDLT 
is available.
    (i) In the first year, Medicare Administrative Contractor-specific 
amounts are established for the new CDLT code using the following 
sources of information to determine gapfill amounts, if available:
    (A) Charges for the CDLT and routine discounts to charges;
    (B) Resources required to perform the CDLT;
    (C) Payment amounts determined by other payors; and
    (D) Charges, payment amounts, and resources required for other 
tests that may be comparable or otherwise relevant.
    (ii) In the second year, the test code is paid at the national 
limitation amount, which is the median of the contractor-specific 
amounts.
    (iii) For a new CDLT for which a new or substantially revised HCPCS 
code was assigned on or before December 31, 2007, after the first year 
of gapfilling, CMS determines whether the contractor-specific amounts 
will pay for the test appropriately. If CMS determines that the 
contractor-specific amounts will not pay for the test appropriately, 
CMS may crosswalk the test.
    (b) For a new CDLT that is assigned a new or substantially revised 
HCPCS code on or after January 1, 2018, CMS determines the payment 
amount based on either of the following until applicable information is 
available to establish a payment amount under the methodology described 
in Sec.  414.507(b):
    (1) Crosswalking. Crosswalking is used if it is determined that a 
new CDLT is comparable to an existing test, multiple existing test 
codes, or a portion of an existing test code.
    (i) CMS assigns to the new CDLT code, the payment amount 
established under Sec.  414.507 of the comparable existing CDLT.
    (ii) Payment for the new CDLT code is made at the payment amount 
established under Sec.  414.507.
    (2) Gapfilling. Gapfilling is used when no comparable existing CDLT 
is available.
    (i) In the first year, Medicare Administrative Contractor-specific 
amounts are established for the new CDLT code using the following 
sources of information to determine gapfill amounts, if available:
    (A) Charges for the test and routine discounts to charges;
    (B) Resources required to perform the test;
    (C) Payment amounts determined by other payors;
    (D) Charges, payment amounts, and resources required for other 
tests that may be comparable or otherwise relevant; and
    (E) Other criteria CMS determines appropriate.
    (ii) In the second year, the CDLT code is paid at the median of the 
Medicare Administrative Contractor-specific amounts.

0
10. Section 414.509 is amended by revising the introductory text and 
paragraphs (b)(2)(i) through (v) to read as follows:


Sec.  414.509  Reconsideration of basis for and amount of payment for a 
new clinical diagnostic laboratory test.

    For a new CDLT, the following reconsideration procedures apply:
* * * * *
    (b) * * *
    (2) * * *
    (i) By April 30 of the year after CMS makes a determination under 
Sec.  414.506(d)(2) or paragraph (a)(3) of this section that the basis 
for payment for a CDLT will be gapfilling, CMS posts interim Medicare 
Administrative Contractor-specific amounts on the CMS Web site.
    (ii) For 60 days after CMS posts interim Medicare Administrative 
Contractor-specific amounts on the CMS Web site, CMS will receive 
public comments in written format regarding the interim Medicare 
Administrative Contractor-specific amounts.
    (iii) After considering the public comments, CMS will post final 
Medicare Administrative Contractor-specific amounts on the CMS Web 
site.
    (iv) For 30 days after CMS posts final Medicare Administrative 
Contractor-specific payment amounts on the CMS Web site, CMS will 
receive reconsideration requests in written format regarding whether 
CMS should reconsider the final Medicare Administrative Contractor-
specific payment amount and median of the Medicare Administrative 
Contractor-specific payment amount for the CDLT.
    (v) Considering reconsideration requests received, CMS may 
reconsider its determination of the amount of payment. As the result of 
a reconsideration, CMS may revise the median of the Medicare 
Administrative Contractor-specific payment amount for the CDLT.
* * * * *

0
11. Section 414.522 is added to subpart G to read as follows:


Sec.  414.522  Payment for new advanced diagnostic laboratory tests.

    (a) The payment rate for a new ADLT--
    (1) During the new ADLT initial period, is equal to its actual list 
charge.
    (2) Prior to the new ADLT initial period, is determined by the 
Medicare Administrative Contractor based on information provided by the 
laboratory

[[Page 41101]]

seeking new ADLT status for its laboratory test.
    (b) After the new ADLT initial period, the payment rate for a new 
ADLT is equal to the weighted median established under the payment 
methodology described in Sec.  414.507(b).
    (c) If, after the new ADLT initial period, the actual list charge 
of a new ADLT is greater than 130 percent of the weighted median 
established under the payment methodology described in Sec.  414.507, 
CMS will recoup the difference between the ADLT actual list charge and 
130 percent of the weighted median.
    (d) If CMS does not receive any applicable information for a new 
ADLT by the last day of the second quarter of the new ADLT initial 
period, the payment rate for the test is determined either by the 
gapfilling or crosswalking method as described in Sec.  414.508(b)(1) 
and (2).

    Dated: May 26, 2016.
Andrew M. Slavitt,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Dated: June 14, 2016.
Sylvia M. Burwell,
Secretary, Department of Health and Human Services.
[FR Doc. 2016-14531 Filed 6-17-16; 4:15 pm]
 BILLING CODE 4120-01-P