Senator Baucus' Healthcare Reform Provisions
Affecting Clinical Labs - 9/16/09

Annual Fee on Clinical Laboratories

Current Law

Under current law, clinical laboratories are subject to Federal income and employment taxes. Current law does not impose an annual sector fee on clinical laboratories operating in the United States.

Chairman’s Mark

The Chairman‘s Mark would impose a fee on any covered entity offering clinical laboratory services in the United States. The aggregate fee on the clinical laboratory sector would be $750 million annually, beginning in 2010. Under the Mark, the aggregate fee would be apportioned among the covered entities each year based on each entity‘s relative market share of covered domestic laboratory service revenue for the prior year. The Mark would require that the fee be paid on an annual basis.

A covered entity would be defined under the Chairman‘s Mark as any company that provides services for the biological, microbiological, serological, chemical, immuno-hematological, 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. For purposes of the Mark, the term covered entity would include a parent, its affiliates, and other related parties.

Under the Chairman‘s Mark, covered domestic laboratory service revenue would include revenue resulting from providing laboratory services in the United States. Covered domestic laboratory service revenue would not include revenue from laboratory services performed by a hospital for inpatients of the hospital.

The Chairman‘s Mark would provide that the Secretary of the Treasury require any covered entity to file an annual report of its covered domestic laboratory service revenue for the prior calendar year. The Secretary would establish individual assessments by determining the relative market share for each covered entity. A covered entity‘s relative market share would be the entity‘s covered domestic laboratory service revenue as a percentage of the total reported covered domestic laboratory service revenue for all covered entities. In determining each covered entity‘s relative market share, covered domestic laboratory service revenue will be taken into account as follows: zero percent of revenues up to $500,000 and 100 percent of revenues over $500,000. The fee assessed is determined by the covered entity‘s market share in the preceding calendar year.

The fees assessed under the Chairman‘s Mark would not be deductible for U.S. income tax purposes.  

Productivity

Current Law

Currently, most fee-for-service Medicare providers receive predetermined payment amounts established under different, unique prospective payment systems. Each year, the base payment amounts in the different Medicare payment systems are increased by an update factor to reflect the increase in the unit costs associated with providing health care services. Generally, Medicare‘s annual updates are linked to either: (1) projected changes in specific market basket (MB) indices which are designed to measure the change in the price of goods and services (such as labor and equipment) that are purchased by the provider and intended to reflect the effect of inflation on providers‘ costs per service; or (2) the Consumer Price Index (CPI).

Each year, these updates are implemented assuming that the quantity, quality, and mix of inputs remain constant over time. According to CBO, market basket updates overstate actual costs to providers because they do not assume increases in provider productivity that could reduce the actual cost of providing services (such as through new technology, fewer inputs, etc). Annual updates to the Medicare physician fee schedule are determined by a separate method that already incorporates adjustments for gains in physician productivity.

Chairman’s Mark

The provision would provide for updates based on the MB or CPI minus full productivity estimates for all Parts A and B providers who are subject to a MB or CPI update.

Specifically, this change would implement a full productivity adjustment for inpatient and outpatient hospital services, inpatient psychiatric facilities, inpatient rehabilitation, long term care hospital services and nursing homes beginning in 2012. It would implement a full productivity adjustment for hospice providers beginning in 2013. In addition, it would implement a full productivity adjustment for home health providers beginning in 2015. All other productivity adjustments for other Part B providers would begin in 2011.

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