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In 2014 Final Rule, CMS Plans Annual Technology Reviews to Establish Payment Accuracy for Lab Tests

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Originally published Dec. 10.

In its final 2014 rule, the Centers for Medicare & Medicaid Services said it is moving ahead with plans to annually review how the technologies underlying certain clinical diagnostics have changed and adjust payment accordingly.

"Each year, we will conduct a data analysis of codes on the [clinical lab fee schedule] to determine which codes should be proposed during the rulemaking cycle for a payment adjustment due to technological changes," CMS said in the more than 1,000-page document. The agency defines "technological changes" as an alteration to the tools, machines, supplies, labor, instruments, skills, techniques, and devices that a laboratory test comprises.

Starting in the summer of 2014, CMS is planning to review CPT codes for tests by considering how long the code has been on the fee schedule, whether the test is performed in high volume, whether the test is expensive, or if the test is increasing in use. Through this process, CMS will identify the test codes, gauge how they are affected by technological changes, and propose an adjusted reimbursement level. CMS will then solicit comments on the proposed payments.

Changes to code pricing will take effect in 2015. CMS estimates it will take a minimum of five years to review more than 1,200 of the oldest codes on the clinical lab fee schedule (CLFS). Tests with codes less than five years old will not typically be reviewed. Once a code is reviewed it will not be re-assessed for the next five years.

Members of the public may also nominate test codes that CMS should assess, but they must also provide justification for their suggestion. The agency maintains the right to not accept the public's suggestion, but the CMS said it will provide its reasons for why a test code was or was not taken up for review.

The public can comment on CMS's 2014 final rule until Jan. 27, 2014.

As technology changes, so does price

This is a significant change for the lab industry, because although historically CMS has had the statutory authority to revalue reimbursement rates for codes in the CLFS, the agency hasn't exercised this authority. CMS for years has reviewed pricing for a test assigned a new CPT code a year after establishing an initial payment rate. "Once the reconsideration process is complete, payment is not further adjusted (except by a change in the Consumer Price Index for all Urban Consumers, the productivity adjustment, or any other adjustment required by statute), regardless of any shift in the actual costs incurred to perform the test,” CMS explained in the final rule.

Given how rapidly the technology has changed in the diagnostics market, this longstanding CMS policy has hindered its ability to determine accurate payment for clinical lab tests, the agency acknowledged. "There has been a significant amount of technological change in the clinical laboratory area since the implementation of the CLFS," CMS wrote. "This technological change has led to the increased use of point-of-care testing, brand new tests being developed, and the proliferation of laboratory-developed tests."

Additionally, CMS said that many molecular tests that are used in clinical care today didn't exist when the CLFS was established. The agency noted that since completion of the Human Genome Project, the cost of whole-genome sequencing has dropped from $95 million per genome to $5,700 earlier this year.

"Early tests in this area were less likely to be covered by Medicare because they were either screening tests or tests for conditions found largely in a pediatric population. As this area has expanded over the past several decades, Medicare has taken on a more prominent role in payment for these services," CMS said. "We expect the number of codes and tests in this area to continue to grow as the technology evolves and more tests become available in the areas of pharmacogenomics, personalized and predictive medicine, and companion diagnostics."

As the technologies underlying these tests continue to change, CMS also expects to change pricing accordingly and is putting in place the process within the CLFS to allow it to do just that. CMS noted that after reviewing technological changes to tests, prices can increase or decrease, but they will mostly decrease.

"We believe such adjustments could be made both to increase fee schedule amounts (for example, in situations where new high-cost technologies are employed), and to provide for reductions in existing amounts (for example in situations where technology reduces costs through increased efficiencies)," the agency explained. "We stated that we expect that most payment amounts would decrease due to the changes in technology that have occurred over the years since the payment amounts were established and the general downward trend of costs once a new technology has had an opportunity to diffuse."

With regard to CMS's plan to re-evaluate clinical lab tests, "it should be kept in mind that these have not been looked at for a very long time," said Lakshman Ramamurthy, director of FDA Regulatory & Policy at Avalere Health, a healthcare strategic advisory firm. "That's basically CMS cleaning house and re-pricing these tests in a new economic environment."

According to Ramamurthy, developers of newer multi-analyte panel tests (launched in the last five years) will likely come out on top under CMS's current payment policies. Developers of such tests can use AMA's new analyte-specific or gene-specific CPT codes for molecular tests and potentially bundle them as labs used to bundle or stack old CPT codes, he said. As such, the payment to a lab could increase based on the number of analytes or genes its panel test gauges. "These types of test providers will still benefit [under CMS current payment policy] until CMS says you can't do that and creates new next-generation sequencing codes, or panel codes which is imminent and expected in 2015," he noted.

CMS has decided to deal with pricing complex molecular diagnostics, so called multi-analyte algorithm assays (MAAAs) separately. The agency has proposed that they will use the MAAA CPT codes to pay only for the analytes gauged by such tests, and not use the codes to pay for their underlying algorithms. Many developers of MAAAs haven't applied for CPT codes, and are still using unlisted codes until they get more clarity on CMS's pricing plan. CMS is slated to issue its decision on MAAA pricing later this month.

The larger context

Still given that lab test pricing has been historically static, industry players are understandably concerned about CMS policy change.

Before CMS finalized its 2014 rules, the Association for Molecular Pathology wrote a letter to CMS in September advising the agency to proceed with caution in its bid to review the technology of tests so as not to make "unreasonable cuts" to lab payments. AMP suggested that CMS host meetings and technology reviews to gain feedback on this proposal.

"Since this is an enormous undertaking, AMP recommends that CMS start with a pilot project in which it reviews a limited number of test codes. It also should spread its review over a greater number of years than currently proposed, balance its review of high-volume and low-volume codes, and cap and phase in fee adjustments," AMP President Jennifer Hunt wrote in the letter to CMS.

CMS did not take AMP's advice and decided to move ahead with its proposal. The agency stated in response to this suggestion that while its technology review process should be a transparent one, CMS believes its annual rulemaking cycle which gives stakeholders a comment period will provide sufficient openness in this regard. However, as Medicare policy expert Bruce Quinn wrote in a recent white paper, a 60-day comment period may not be enough time for stakeholders to gather the complex data needed to convincingly show why a CMS-proposed price is inaccurate.

According to Quinn, a senior health policy advisor at Foley Hoag, CMS's latest proposal is part of a longstanding effort to have a better handle over the use of diagnostic tests. Indeed, CMS adopted more than 100 new CPT codes developed by the American Medical Association for molecular diagnostics, which were meant to provide payors with more transparency about the specific tests they were reimbursing. Under the old method of "stacking" or "bundling" CPT codes, payors complained they had no idea what they were paying for.

CMS also launched the MolDx program through contractor Palmetto GBA to perform reviews for the technologies described by the new codes and set rates based on certain criteria, such as if the test was approved by the FDA and had studies establishing its clinical validity and utility. Additionally, Palmetto also issued unique identifiers for tests it reviewed, providing even more granularity to CMS about the tests healthcare providers performed and submitted for reimbursement.

However, when Palmetto and other Medicare contractors priced these new molecular test codes, labs and diagnostics firms widely complained that the rates were below the cost of performing the diagnostics. The Coalition to Strengthen the Future of Molecular Diagnostics, an interest group representing labs and test developers, estimated that initial gapfill pricing issued by Medicare contractors represented cuts in payment rates of around 20 percent for many tests, and as much as an 80 percent reduction for some diagnostics, compared with 2012 levels. CMS's national payment limit for 2013 and 2014 for molecular diagnostic codes was a slight improvement over initial rates – a median uptick of 6 percent and an average increase of 26 percent compared to earlier proposals, according to one assessment – but still not high enough for many industry players.

In the white paper, Quinn, explained that policymakers want to control the use of lab tests because they perceive tests to be easily ordered by doctors compared to what's involved in performing surgery or prescribing a drug; they see test results as an abstract number (ie. your cholesterol is 150); and they find that tests are getting more expensive because they're using complex technology to assess patients at the molecular level. Lastly, there is no "anchor" for the "correct" cost of these more complex tests.

"For example, one might hear the cost of sequencing the human genome has dropped from some fanciful figure – say, $50 million dollars – to a few thousand dollars," Quinn wrote. "This conflates the cost of obtaining raw genetic information – bits and bytes – with the resources required to produce clinically validated and medically useable data. The apples and oranges comparison is lost on the listener."

While CMS's broad payment policy changes are disruptive initially and the agency hasn't elucidated in much detail the specific methodology it will use to establish new pricing for older codes, Quinn advises industry players to look at all this in a larger context. "The value and clinical impact of molecular tests is very high, will never go away, and will become higher. Molecular medicine is widely viewed as a transformational change of our times, such that we will look back in 20 or 30 years and realize that a fundamental revolution in healthcare has taken place," Quinn wrote in the white paper.

"We will need a regulatory science that can cope with the spectacular variety exhibited by human disease through molecular tests," he added. "And we will need a reimbursement system that can rapidly evaluate tests and promote their use in delivering better, more effective, more efficient healthcare."

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