Hurricane PAMA – Prepare or Fall Victim to Reimbursement Damages

By Michael Kachure
May 17, 2019

Hurricanes are massive storm systems that form over warm ocean waters and move toward land. Potential threats from hurricanes include powerful winds, heavy rainfall, storm surges, coastal and inland flooding, rip currents, tornadoes, and landslides.

In the Clinical Laboratory world, PAMA (Protecting Access to Medicare Act) can feel like a hurricane to some health systems. This pending storm impacts a health system’s ambulatory laboratory services, financial reimbursement and hospital outreach profitability. Although underway and into its second year, PAMA has resulted in a 10% decrease in the CMS Clinical Laboratory Fee Schedule with similar cuts projected over the next two years and potentially beyond 2020. By the time the first storm completes its destruction in 2020, health systems in the U.S. will have felt the storm’s impact through an estimated loss of Medicare laboratory reimbursement totaling $1.9 billion over 3 years1. How does this storm impact your organization? The impact to an average hospital with Medicare reimbursement for ambulatory outpatient/outreach laboratory services of $5 million annually is projected to lose up to $1.5 million annually in net revenue by 2020, which directly impacts your bottom line.

Much like preparing for a hurricane to hit land, health systems can prepare for the reimbursement decline by implementing strategies to offset the decline through optimization and cost savings efforts. The time and investment to prepare for these payment reductions can be the difference between experiencing a surging negative operating margin and optimal use of the lab as an asset.

Optimization and savings require discipline and focus to achieve desired outcomes. Much like preparing your home to weather the storm by making sure the roof, windows, doors and other structures are protected, the clinical laboratory must be proactive and disciplined in preparing. For the lab those areas are labor/productivity, supply chain and reference testing as well as blood & test utilization. These are all familiar to seasoned lab leaders. Yet, there is often little time, sometimes minimal real-time data or deep knowledge of performance-improvement strategies to realize these opportunities. Bringing all of these together gives a health system the ability to optimize and drive savings to offset and combat the threat of hurricane PAMA.

As in preparing for a hurricane, sometimes help is the key to being ready in time. Health systems are in the same boat. They can benefit from a partner to shine a light on opportunities for optimization and savings in the key areas across a laboratory’s operations. Accumen brings expertise in lean processes, lab supply chain and productivity, and clinical experts in blood utilization and test optimization, similar to carpenters, construction workers and engineers, who assist in preparing a home for a pending hurricane. More importantly, a partner must work side-by-side to achieve and maximize the opportunity and share risk to ensure sustainability long after the hurricane has passed. So, when is the last time that your contractor team shared the risk of ensuring that your home would survive the storm?

Accumen provides health systems solutions and strategies to prepare for impacts of PAMA. It starts with an assessment to identify optimization and savings opportunities across the health system’s lab network. Once complete Accumen’s people, process and technology support your team to drive clinical and financial outcomes.

Status quo is not an option. Yet, you can maintain a profitable outreach lab enterprise with focus and help. Time is of the essence. Accumen provides a survival guide to prepare health systems to absorb the payment reductions that PAMA is bringing.

Mike Kachure
Vice President, Strategic Partnerships
Accumen Inc.

1 Excludes payments under the Outpatient Prospective Payment System (OPPS) where lab services are included in the CMS OPPS rate.