Medicare to Cut Lab Payment Rates by Up to 23%, Saving $1B a Year — Labs Push Back

Medicare has been overpaying laboratories for years — and starting in 2027, that changes. The Centers for Medicare & Medicaid Services released preliminary payment rates recently showing that Medicare currently pays about 16 percent more for clinical lab services than private insurers do for the exact same tests. The agency projects aligning those rates with private-sector benchmarks will save taxpayers an estimated $1 billion annually.

Taxpayers and Medicare patients have been paying excessive rates to labs for years, but with some help from Congress, CMS is working to ensure that Medicare isn't paying more than private insurers for the exact same tests.— Dr. Mehmet Oz, CMS Administrator

The preliminary rates, released under the Medicare Clinical Laboratory Fee Schedule (CLFS), are the product of a data-collection process Congress created in 2014 through the Protecting Access to Medicare Act (PAMA), which requires CMS to periodically reset lab payment rates based on what private insurers actually pay. Due to repeated legislative delays, that process had been used only once before. The Consolidated Appropriations Act, 2026 cleared the way for a new reporting cycle, allowing CMS to collect updated private-payor data every three years going forward.

The proposed cuts are not uniform. According to CMS data reported by Newsweek, the steepest reductions fall on specialized testing: genomic sequencing faces an average cut of 23 percent, molecular pathology 22 percent, and both microbiology and immunology testing 19.3 percent. Chemistry testing — which covers many routine blood tests used by Medicare beneficiaries — faces an average reduction of 16 percent. Proprietary laboratory analysis tests see a much smaller average reduction of 2.4 percent.

Crucially, these reductions will not hit all at once. Federal law caps decreases for any individual clinical diagnostic laboratory test at no more than 15 percent per year through 2029, meaning larger cuts will be phased in gradually over several years. The final rates are expected to be published in November 2026 and take effect January 1, 2027. No rate reductions apply in 2026.

For most Medicare beneficiaries, the changes do not directly alter out-of-pocket costs for covered lab tests. The reductions affect how much Medicare reimburses laboratories — not the patient's share at the point of care. But the reimbursement levels carry real consequences for lab revenues, and that is where the industry is drawing a line.

The rates clearly reflect the underlying flaws in the Protecting Access to Medicare Act (PAMA) rate-setting process and the urgent need for Congress to enact sustainable, long-term reform through passage of the RESULTS Act.— Quest Diagnostics

Quest Diagnostics, one of the country's largest lab companies, argued in a statement to Newsweek that the current PAMA methodology fails to collect sufficiently representative private-payor data. The company is calling on Congress to replace the framework with the Reforming and Enhancing Sustainable Updates to Laboratory Testing Services (RESULTS) Act, which it says would establish a broader reporting structure. According to Newsweek, more than 130 members of Congress and 70 patient and provider organizations — including the American Medical Association, the American Cancer Society, and the American Hospital Association — support that legislation.

Lab groups have also raised access concerns, warning that significant reimbursement cuts could reduce the availability of testing, particularly in rural and underserved areas, according to Newsweek. A survey commissioned by Quest found that 96 percent of registered voters considered diagnostic laboratory testing important to their own or their family's care, and 74 percent said Congress should act to prevent further payment cuts before patients are affected.

Aligning the new payment schedule using private insurance data, which allows pricing to become more consistent across the industry, seems to be a good move.— Kevin Thompson, CEO of 9i Capital Group

CMS also noted that greater transparency in Medicare lab pricing could influence payment decisions beyond Medicare itself — including in Medicaid and on Affordable Care Act exchanges. For tests that generated no private-payor data, CMS held a public meeting on September 15 and 16 to determine pricing; those determinations will be published in early October with their own 30-day comment period.

The public has 30 days from the release date to submit comments on the preliminary rates. Final rates are expected in November, with the clock now running on both the regulatory process and a parallel push in Congress to rewrite the underlying law before the cuts take hold.

Why it matters — The rate changes will reshape how billions of Medicare dollars flow to laboratories starting in 2027, and the outcome of the parallel fight in Congress over the RESULTS Act could determine whether the cuts hold or are restructured before they fully phase in.

Sources differ on Whether PAMA private-payor data is sufficiently representative to set fair Medicare lab rates: CMS says the updated rates better reflect market realities and reduce excessive spending. (cms.gov) vs Quest Diagnostics says the rates reflect underlying flaws in PAMA's data-collection process and that Congress should replace the methodology. (newsweek.com)

Reported by cms.gov, newsweek.com