In a move aimed at aligning Medicare payments with those of private insurers, the Centers for Medicare and Medicaid Services released preliminary rates for clinical diagnostic laboratory tests on Monday, paving the way for Medicare payment rates in 2027. This development is part of the Clinical Laboratory Fee Schedule, which ties Medicare rates for lab services to those paid by private insurers. According to the CMS, Medicare has been paying roughly 16 percent more for lab services than private payers, leading to rate adjustments that are expected to yield annual savings of approximately $1 billion for the government.
Industry Reaction and Market Impact
The announcement of the preliminary rates sparked concern from the American Clinical Laboratory Association, which cautioned that the significant annual payment cuts could jeopardize patient access to essential lab testing services and hinder continued investment in diagnostic innovation. The news also had a pronounced effect on the stock prices of Quest Diagnostics and Labcorp, with Quest’s shares declining by nearly 5 percent and Labcorp’s shares falling by more than 3 percent in Tuesday morning trading.
According to the ACLA, the proposed rates would result in reduced payments for nearly 1,200 tests, with 775 tests facing the maximum 15 percent cut in 2027, followed by additional reductions in 2028 and 2029. The association noted that the new rates are based on data from only 2 percent of all labs paid under Medicare Part B in 2024, which it argued presents a skewed and incomplete picture of the market. This, in turn, could lead to payment cuts that disproportionately affect smaller diagnostic centers, potentially leaving patients in those areas with limited local testing options.
The ACLA’s concerns are rooted in the fact that the CMS is required by law to limit annual reductions in Medicare payments for clinical diagnostic tests to 15 percent through 2029. The CMS has indicated that it will phase in the reductions, which will be finalized in November.
The payment cuts are a result of the Protecting Access to Medicare Act, or PAMA, enacted by Congress in 2014, which mandates that the CMS periodically update payment rates for most lab services based on private insurer payments. PAMA has already led to three consecutive years of payment cuts of up to 10 percent, followed by six years of payment freezes, and labs are now facing three more years of cuts of up to 15 percent starting in 2027.
