Quest Diagnostics, LabCorp Defend Lab Fee Suit Against HHS

Healthcare diagnostic majors and arch-rivals Quest Diagnostics Incorporated (NYSE:DGX) and Laboratory Corporation of America Holdings (NYSE:LH) or LabCorp are on the same page regarding the much contentious topic of Protecting Access to Medicare Act (“PAMA”) on clinical lab fee schedule.

Recently, both the companies as members of the American Clinical Laboratory Association (“ACLA”) have come forward to support a lawsuit filed by ACLA against the Acting Secretary of the U.S. Department of Health and Human Services (“HHS”). The lawsuit charged that the Centers for Medicare & Medicaid Services (“CMS”), operating under the purview of HHS, have failed to follow a congressional directive to implement a market-based laboratory payment system.

Per the lawsuit claims, CMS ignored the Congress directives stated under PAMA and instituted a highly flawed data reporting process of setting market rates in advance.

This prohibited the overwhelming majority of laboratories from reporting the private payer data used to determine Medicare rates for lab tests. The move has instead resulted in new Medicare lab rates, which are not market-specific. Hence, the entire process clearly demonstrates CMS’ failure to protect access to laboratory services for Medicare beneficiaries.

Per the press release from LabCorp, if the new rates are allowed to come into effect, it will affect the Medicare beneficiaries as well as disrupt the healthcare system. Per Quest diagnostics, “this flawed process could cause serious financial harm to potentially thousands of hospitals, independent and physician office laboratories and make it harder for Medicare beneficiaries to get access to medical testing, particularly in remote rural areas and in nursing homes that depend on laboratory testing services”.

Earlier during the third quarter earnings release, both LabCorp and Quest Diagnostics had issued certain objections in response to the Sep 22 publication by CMS on the proposed 2018 Medicare reimbursement rates for clinical laboratory tests under the Clinical Lab Fee Schedule (CLFS) mandated by PAMA. Per the companies, only 1% of all laboratories submitted data and over 99% of hospitals and physician office laboratories were prevented from reporting their rates.

The above-mentioned 1% of laboratories majorly denoted independent labs. To convey the severity of the situation in clear terms, Quest Diagnostics stated that based on data submitted through CMS, the company alone represented nearly 40% of all the market data that CMS collected.

Among other possibly badly hit clinical laboratories, thanks to the latest CMS mandate on clinical lab fee schedule, two names emerge as DaVita Inc. (NYSE:DVA) and PerkinElmer, Inc. (NYSE:PKI) . While Quest Diagnostics, LabCorp and PerkinElmer carry a Zacks Rank #3 (Hold), DaVita has a Zacks Rank #5 (Strong Sell).

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