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CMS Issues Pricing for MDx Codes; Labs, Test Developers Still Critical of Rates and Methodology

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Originally published May 20.

The Centers for Medicare & Medicaid Services earlier this month issued for public comment pricing on new CPT codes describing various molecular diagnostics, but lab groups and test developers are still dissatisfied with the agency's reimbursement determinations.

CMS has decided to use the controversial gapfill process to establish new pricing for more than 100 CPT codes for molecular diagnostics issued by the American Medical Association. Under the gapfill system, Medicare contractors set reimbursement for test codes based on a number of factors, such as local pricing patterns, the resources needed to perform the test, and how other payors price them. After one year, CMS uses the median rate from contractor-specific amounts to issue a national reimbursement rate for each code.

In documents released by CMS on May 9, it seems that some molecular diagnostic codes are still not priced by Medicare contractors. This, according to the agency, is because either the contractor didn’t receive any claims for that test or deemed it could not pay for the test. According to CMS, contractors who denied coverage for tests did so because they deemed those diagnostics "investigational" and "not medically necessary" for the Medicare population. They also denied coverage for screening tests and for "tests utilized to determine risk for developing a disease or condition in the absence of signs and symptoms of an illness or injury."

In a May 10 document, several associations that represent the interests of molecular diagnostics developers, pathologists, geneticists, and laboratories told CMS that they were troubled by the gapfill prices issued by CMS, as well as by the process used to set the rates and deny coverage. The appeal, signed by nine groups performing molecular pathology testing and representing more than 120,000 medical professionals, highlighted that "Medicare contractors are denying molecular pathology test claims or significantly reducing payment rates without public justification for these decisions; some contractors are mischaracterizing certain molecular pathology tests as investigational and denying payment; [and] few contractors have engaged the laboratory community to gather needed data or to discuss molecular pathology test pricing."

Contractor Palmetto GBA was the first to issue prices earlier this year for these new molecular diagnostics codes, which the AMA issued two years ago. Other contractors subsequently published pricing, but most followed Palmetto's lead and mirrored its reimbursement rates. Throughout this process, as Medicare contractors have issued their preliminary reimbursement determinations, many laboratories have complained that the test prices were too low and that the contractors should make public their methodology for setting rates. In some instances, the issued prices were so low that some labs said they wouldn't be able to cover the cost of performing the test.

"The rationale for these fee schedules remains elusive, and importantly these fee schedules have impacted revenue so severely that the continued existence of some laboratories is in jeopardy," the lab and diagnostics groups said in their submission to CMS. "We are concerned that these payment decisions may adversely affect clinical decisions, patient access to valuable health care services, and patient outcomes."

The American Clinical Laboratory Association, an interest group representing the clinical lab industry that signed this latest complaint to CMS, has previously expressed similar objections to the price-setting process and the initial reimbursement rates issued by Medicare contractors. The group noted that Medicare contractors have had difficulty pricing tests using the gapfill method, and have not been paying for tests that they have not priced (PGx Reporter 4/1/2013).

Rina Wolf, VP of commercialization strategies, consulting, and industry affairs at Xifin, told PGx Reporter that she has also heard from doctors who have complained that certain molecular tests, which were previously paid for, are no longer being reimbursed. "Even some physicians who had been utilizing these tests – especially some of the pharmacogenetics tests – that have been covered for their patients, are also very frustrated because suddenly they are seeing denials for some of these tests," Wolf said.

"Granted, part of the reason that they were probably paid for and covered prior to 2013 is because payors didn’t really have visibility on what they were being asked to pay for" through code stacking, she added. "Nevertheless, these are tests and services that patients and physicians have reason to think would be covered but now in some instances are not." Xifin helps diagnostic service providers manage their financial performance and efficiency.

Before AMA came up with new codes for molecular tests, healthcare providers used to bundle or stack codes to bill payors for tests. However, payors felt that the stacked codes didn't allow them to track which specific tests were being performed and ensure that they were paying only for "medically necessary" tests.

Specifically, with regard to pharmacogenetic tests – diagnostics that gauge whether a patient will respond to certain molecularly targeted drugs – most payors don't have broad prior authorization schemes in place to ensure that patients who are prescribed these personalized treatments are reimbursed for the test.

"Most payors at this point do not have the systems in place to do prior authorizations [for PGx drug/test combinations]," Wolf said. "If you don't have a plan that already has a prior authorization in place, it's impossible to get one, and if you do get one, they're not binding." Wolf explained that while there might be greater demands from patients to be on plans that offer prior authorizations for PGx drugs and tests, "it's just not there to the extent that it's perceived to be."

Meanwhile, test developers that have invested in launching FDA-approved companion diagnostics alongside PGx drugs are also disappointed with the Medicare prices for the new molecular diagnostic codes. Companies like Qiagen say they have had discussions with Palmetto that led them to believe that the contractor would price FDA-approved companion tests at a premium over other lab-developed tests that gauge the same mutations, which would provide an incentive for labs and hospitals to adopt the new test with the agency's stamp of approval.

Under current regulatory rules, since most lab-developed tests don't require FDA approval or clearance, test developers that take a companion diagnostic accompanying a PGx drug through the agency have to compete in the commercial market with LDTs that gauge the same marker but haven't had to make the same investments to garner the FDA's okay. Many test developers have complained that this creates an uneven playing field, and disincentivizes companies from taking the trouble to garner FDA approval for companion diagnostics.

"Rates posted [on] May 10 by CMS raise questions regarding the importance of differentiating between FDA-approved diagnostics and other lab tests," Qiagen Chief Medical Officer Tadd Lazarus told PGx Reporter. "Price differentials should recognize the significant resources invested in ensuring tests have been scientifically validated through rigorous clinical trials, as well as recognize the clinical value and utility they provide treating clinicians and their patients."

Ultimately, the controversy boils down to the fact that CMS has chosen to use the gapfill method to set rates, a process the agency has seldom utilized. Many stakeholders feel that CMS should price these new MDx codes through the more readily used crosswalk process – where a new code price is matched to an existing code. While AMA may have issued new codes for a number of molecular diagnostics, the tests described by the codes are not really new, these stakeholders argue. In fact, many of the newly coded tests have been performed for some time and reimbursed under older, stacked CPT codes.

But in using the gapfill process, Medicare contractors are treating some commonly performed tests as new or investigational tests, raising objections from industry players. "The whole purpose of this molecular pathology coding exercise was supposed to be to provide transparency for tests that were already being utilized, and it was not supposed to be a re-pricing or a re-coverage exercise," Xifin's Wolf said. "Unfortunately, that's exactly what it has become."

In issuing new codes for molecular diagnostics, the AMA divided the codes into two tiers. CPT codes in Tier 1 are analyte-specific (i.e. KRAS gene, BRAF gene, BRCA 1 full gene known familial variant) and describe some of the most commonly performed molecular diagnostics. Another set of codes, Tier 2, includes tests that are performed less often based on the resources required to perform them. Medicare contractors have issued prices for all Tier 1 codes, and some have issued prices for certain Tier 2 codes.

After lab groups raised concerns about Palmetto's initial prices for the Tier 1 codes, the contractor asked for input on some of the resources needed to perform these tests. Xifin acted as broker between Palmetto and the California Clinical Laboratory Association and any labs that wanted to participate to gather this information. The firm submitted cost information for tests from 15 labs that chose to participate, worked with a coding expert to show that under the old code stacks these tests were being reimbursed appropriately, and prioritized the most important tests.

After viewing this data, Palmetto raised the reimbursement rates for several of these diagnostics. For example, Palmetto raised the reimbursement for tests gauging mutations in the BRAF gene – which is commonly used to gauge best responders to Roche's melanoma drug Zelboraf – from $57.51 to $97.45, a 69 percent increase. Palmetto bumped up by 9 percent the reimbursement for tests gauging mutations in the KRAS gene – like the test Qiagen markets as a companion diagnostic for colorectal cancer drugs – from $225.88 to $246.40.

Xifin's Wolf and others in the lab industry, however, aren't satisfied with Palmetto's attempt at an olive branch. Wolf doesn't feel that Palmetto's price increases on a handful of tests gets close to addressing the concerns of test developers and labs at large.

ACLA, along with other lab and diagnostics groups, are of the opinion that CMS should have used the crosswalk process to price new codes. However, now that CMS has decided to use the gapfill process, ACLA has suggested that CMS crosswalk pricing for 2013 to give contractors more time to figure out how to price tests using gapfill or issue temporary "G-Codes" and price them at the same level as the old code stacks, so that labs can continue to get paid.

In their latest appeal to CMS, the nine lab and pathologists groups have asked the agency to figure out ways to minimize coverage restrictions for the tests described by the 100 or so codes. Additionally, they're asking CMS to pay for tests that have already been provided to patients since Jan. 1; instruct Medicare contractors to provide details on how they came up with the reimbursement rates and why they denied coverage for certain tests; and provide a transparent payment methodology.

Stakeholders have 60 days from when CMS issued the test prices on May 9 to comment on the reimbursement rates. At the end of September, CMS will post a final clinical lab fee schedule for these codes, and the prices in that schedule will be used to pay for these diagnostics in 2013 and through 2014. After this period, CMS will set a national reimbursement rate for each code. After the final prices are posted in September, however, CMS will provide additional information for stakeholders that want further reconsideration for certain test code prices.

The lab and pathology groups are requesting CMS extend the 30-day reconsideration period to the end of the year, to "allow fine-tuning of payment levels for individual codes." Finally, they are asking CMS to convene meetings with the lab community to facilitate open dialogue about the price-setting process and answer stakeholders' questions. Pricing of the molecular diagnostic codes will also be discussed at CMS's annual meeting of lab stakeholders in July.

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