03/18/2010 05:12 am ET Updated May 25, 2011

Medicare Cuts May Hit New York

When a nursing home patient becomes ill in the middle of the night, one of the first responders to the scene isn't a doctor, nurse, or paramedic. It's a lab worker like those from Modern Diagnostics Labs in Bay Ridge, Brooklyn.

At Modern Diagnostics, a small group of biologists, phlebotomists, and laboratory technicians works 24 hours a day, seven days a week to provide clinical testing services to nursing homes and senior citizens throughout New York City.

But small community-based labs like Modern Diagnostics, with a high percentage of Medicare patients, may be forced to cut services to seniors, especially those in nursing homes, due to the huge funding challenge they are facing with the passage of national health care reform legislation.

According to Treasurer Aron Tessler, Modern Diagnostics has a large senior citizen customer base, 80 percent of which is made up of Medicare patients.

Cuts to Medicare reimbursement in both the House and Senate bills could climb into the tens of billions of dollars over the next decade, the burden of which will fall the hardest on Tessler's lab and others that primarily treat Medicare enrollers.

"It's particularly devastating that the government is slashing reimbursement to us," Tessler said. "In essence, the burden is falling on the people who are serving the seniors. The larger labs saw where this was heading and cut services to this population because the profit margin just isn't there."

According to Dr. Mark Birenbaum, director of the American Association of Bioanalysts, the cuts are only going to be applied to reimbursements for Part B Medicare payments. Medicare Part B includes all care that is provided outside emergency rooms or hospitals' urgent care units, which is covered by Medicare Part A.

For the clinical lab industry as a whole, Medicare Part B payments total about $7 billion annually in a $60 billion per year industry.

"So the problem is how much Part B work do you do," Birenbaum said. "If you are a lab that does no Part B, those labs are unaffected. They are contributing virtually nothing to health care reform."

Birenbaum, whose organization represents labs serving a patient base of 25 to 50 percent Medicare enrollers, said labs doing a lot of Part B work would shoulder a disproportionate amount of the reimbursement cuts. If a lab's profit margin is less than its current part B work, then it would ultimately be forced into the red from the legislation.

"The best solution for a lab would be to just get rid of your Part B work," Birenbaum said. "It's bad news for patients that doing their work will become less desirable business-wise, and in some markets, it's already difficult to find labs who will do this kind of work. There needs to be some way to even it all out so that labs share the cost of health care reform across the board."

While discouraging Medicare patients seems discriminatory, the absence of a lab altogether in some communities could be more damaging.

"Some of our labs fill a niche where the big labs have written off providing service because it's not profitable," Birenbaum said. "[The legislation] could force us out of business. If we're the last lab standing in some communities, how are these patients going to get their testing done?"

Because small labs owned by physicians make up 7 percent of the total amount of clinical labs in the United States according to Clinical Lab Business Solutions, LLC, others in the clinical lab industry say the Medicare cuts will impact nearly all labs, regardless of size.

Alan Mertz, president of the American Clinical Laboratory Association, said most labs across the country will feel a heavy financial impact if reimbursement cuts aren't proportionate to size of clinical laboratory services' piece of the overall health care pie.

"Our goal is that any cuts in Medicare are proportionate to our size," Mertz said. "We're willing to make sacrifices for reimbursements, but we don't want to be cut disproportionately."

According to lobbying reports, Mertz's organization, which represents lab owners, spent more than $100,000 in the second half of this year to lobby Congress as it authored health care legislation to lower Medicare reimbursement cuts.

Dr. Vincent Stine, a lobbyist for the American Association of Clinical Chemistry, said his organization is worried about disproportionate cuts negatively affecting patients and the job market for professionals in the clinical laboratory field.

"All of our members want to make sure the cuts aren't too deep," Stine said. "It could affect access to care and the viability of some labs."

According to Stine, it just so happens that smaller community-based labs do more Medicare work because they have been edged out of the competitive testing market for privately insured patients by reputable hospitals or doctors affiliated with larger labs and testing companies.

After extensive negotiations, lobbying groups representing medical labs of all sizes reached a compromise, at least regarding the House bill.

The groups said they are willing to take a 6 percent cut to reimbursement from Medicare, or about $5 billion to $7 billion over the next ten years beginning in 2010.

"We aren't advocating for it, but we'll accept it," Stine said shortly after the House of Representatives released its health care bill outlining the reimbursement cuts for the next decade.

The legislation calls the cuts productivity adjustments, and takes the money from the clinical lab fee schedule's consumer price index for reimbursements. This is essentially the money that labs currently get each year from Congress for cost of living and other inflation increases. The percentage of Medicare reimbursements would hold steady at the 2009 level.

While the prognosis for some labs seems grim, there is more than just discontent from the medical laboratory industry with the emergence of the House and Senate bills.

Most professional associations representing clinical labs are strongly in favor of health care reform that would provide universal coverage to all Americans, though it contradicts their objections to Medicare reimbursement cuts.

"We do support the goal of expanding coverage to Americans who don't have health insurance," Mertz said. "Our goals are to promote the use of lab tests in the expansion of our health care system."

Stine agrees that the legislation is important for both the country and his industry.

"Everyone is going to be in favor of a minimum benefits package," he said, referring to his organization's members and their views on health care reform.

Additionally, many in the industry are pleased with the legislation's support for preventative testing, which will boost labs' business if either bill is passed.

"Both bills have funding and provisions that would encourage early prevention and early screenings in the public option," Mertz said, "and we support that."

"Any preventative issue that would boost the use of clinical labs is important," said Suzanne Leous, public affairs manager of the American Society for Microbiology. She added that many in the industry appreciate any support from Congress that would increase the number of clinical laboratory workers.

One way some labs are already seeing this support is with the recent women's health amendment to the Senate bill that mandates breast cancer and other screenings specific to women's health needs.

Still, Mertz worries that although the legislation may promote preventative screenings, the majority of Americans might not heed this advice, or they have already been paying for this testing out of their own pockets.

When Massachusetts passed its universal health care act in 2006, which provided health insurance to thousands of residents making less than 150 percent of the poverty level, Mertz's organization monitored the legislation's impact on clinical labs throughout the state.

"We looked at what happened in Massachusetts and the independent labs there didn't see any significant increase in business," Mertz said, adding that his group suspects the reason behind this is that people who weren't insured may have already been receiving health care elsewhere, like at a free clinic, so lab tests may have already been done. Also, those people who became insured aren't necessarily going to the doctor now that they have health care coverage.

"We are hoping it will be different with health reform nationally," he said, "but the evidence in Massachusetts is not encouraging."

To be sure, many believe that despite the legislation's encouragement of preventative testing, the cuts to Medicare reimbursements will outweigh the costs of running a smaller laboratory, forcing many to either turn Medicare patients away or risk cutting staff in many community-based labs.

This is a real possibility to many in the clinical lab industry, especially if the Senate bill passes.

The cuts to Medicare reimbursements coming out of that piece of legislation are about $10 billion over the next ten years beginning in 2011, or nearly 50 to 100 percent more than what the House bill proposes.

While this amount seems markedly higher than the cuts in the House bill, lobbyists believe it is a small victory for labs over previously proposed legislation.

Initially, clinical labs were facing an indefinite tax of $750 million per year on all tests. When the lab industry heard about this, it started the bargaining process, which ultimately lead it to accept an additional $5 billion in Medicare cuts over ten years instead of a lifelong tax that many felt would break some labs, especially those located in less populated communities.

"In small communities there are draw stations were blood is drawn and then sent to a lab, and there's a risk that these could be shut down," Stine said. "A cut like this is better absorbed by a big hospital or large lab."

The Senate is also considering a third cut as an amendment that targets reimbursement for esoteric genetic tests. These tests are done within 14 days of a patient leaving the hospital to ensure that his or her illness does not carry a genetic component.

According to Stine, the Senate Finance Committee wants to cut $100 million in 2015 from all labs affiliated with hospitals that order this type of testing. This is a relatively insignificant cut; esoteric genetic testing is a $34 billion per year industry.

But even if the amendment makes it into the Senate bill, larger testing institutions will still see little impact because they either do only Medicare Part A testing, or no Medicare testing at all.

Birenbaum sees the legislation as favoring big labs and hospitals that already have a competitive advantage in the industry.

"It's structured to favor the big corporate labs that do less Medicare work," he said, "and small labs are concerned about that."

Tessler certainly is. He sees his Brooklyn lab as a last resort for some Medicare patients.

"We have patients coming to us because they're having problems with big labs," Tessler said. "They're seeing restricted hours and no emergency results over the past year."

Emergency testing, or "stat" as it is called by those in the clinical lab industry, is a key service that Modern Diagnostics provides its patients, particularly those in nursing homes. It is also the most vulnerable service to health care reform.

According to Tessler, patients would be sent to emergency rooms for stat testing and would have to travel further to get certain tests. There would be less preventative screening and virtually no on-site testing in nursing homes.

"We may have to cut stat testing because we're not getting a final answer on what is going through Congress," Tessler said, "and this legislation is on the backs of seniors and providers that service seniors."

Stat testing is facing elimination at Modern Diagnostics because it is one of the most expensive services on offer. The lab gives nursing homes in all five boroughs, and parts of New Jersey and Connecticut, access to stat testing around the clock, every day of the week.

Often lab workers will go into a nursing home because one patient has fallen severely ill, and run a number of tests to figure out what is wrong.

The profit margin for this kind of testing is extremely low.

"With stat testing, we're coming into a place for one patient, and it's a loss as it is," Tessler said. "We're probably going to have to cut that first. It services the least amount of people, but it's the most critically needed service for those people."

Tessler worries that he will be forced to cut more than just stat testing at Modern Diagnostics with the passage of national health care reform. If lobbying efforts to reduce Medicare reimbursement cuts for clinical labs don't work, his lab's future is uncertain.

"It's scary," Tessler said. "I hope we'll still be here."