The Deficit Reduction Act of 1984 has mandated the most significant change in Medicare payment for clinical laboratory testing services since the program's inception in 1965. The reasonable charge methodology previously used for determining payment for laboratory services under Medicare Part B has been replaced with a fee schedule applicable to laboratory services provided in physician's offices, independent laboratories, and hospital outpatient laboratories. Physicians are now prohibited from billing Medicare or Medicare patients for outside laboratory tests, including professional interpretation of these outside laboratory results. The new regulations appear to provide strong incentives for office-based laboratory testing, and the development of more sophisticated laboratory technology has allowed office labs to perform accurate and reliable analyses at realistic costs that are the equivalent of the services of independent laboratories. The exemption of physicians' office laboratories from licensure requirements has generated controversy among pathologists' groups and laboratory administrators.