Skip to main content
Premium Trial:

Request an Annual Quote

CMS National Payment Limit for Tier 1 Codes Not as Low as Before, but Challenges Remain


The Centers for Medicare & Medicaid Services this week issued the final national payment limits for 65 genetic tests described by Tier 1 codes.

Although these national reimbursement levels for genetic tests from CMS are an improvement over prices previously proposed by Medicare contractors, the payment limits for many diagnostics still fall at a significant discount to what labs were previously getting paid under old stacked current procedural terminology codes.

Historically, healthcare providers stacked or bundled so-called current procedural terminology codes to describe the tests they performed to payors and receive payment for those services. However, under code stacking payors couldn't discern which specific tests they were paying for, and they pushed for a coding system that provided more transparency.

In response to these demands, the American Medical Association created new CPT codes for around a hundred molecular diagnostics and placed them into two tiers. Tier 1 lists CPT codes for commonly performed tests described by the specific analytes they gauge, such as tests to gauge BRCA mutations associated with hereditary breast and ovarian cancer and KRAS mutations linked to patients' response to certain cancer drugs.

Tier 2 lists codes for less commonly performed tests and groups them based on their complexity. Some of the tests in the Tier 2 category include diagnostics for coagulation factor VIII for hemophilia and von Willebrand factor for inherited coagulation defects. CMS hasn't finalized reimbursement levels for any Tier 2 codes yet, which means Medicare contractors will continue to establish pricing for tests that fall in this coding category.

In establishing pricing for Tier 1 CPT codes, CMS decided to use the gapfill process. Through this price-setting pathway, Medicare contractors initially set reimbursement levels for the CPT codes based on a variety of factors, such as local pricing patterns, the resources needed to perform the test, and how other payors priced them. After one year, CMS uses the median rate from contractor-specific amounts to issue a national reimbursement limit for each code. The latest pricing release from CMS represents the national limit for a number of Tier 1 codes.

Initially proposed prices from contractors were criticized widely by the diagnostics industry as being too low. Labs and test developers formed an interest group, called the Coalition to Strengthen the Future of Molecular Diagnostics, in an effort to lobby for change in the reimbursement challenges impacting their businesses (PGx Reporter 7/31/2013). CSFMD 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.

At these payment rates, many test developers say they can't cover what it costs to perform the tests. And reimbursement woes, at least for one diagnostics company, Predictive Biosciences, played a large part in putting the firm out of business.

Wall Street analysts and investors, who have been closely tracking how the pricing changes might impact the molecular diagnostics space, issued notes this week recognizing that CMS's national payment limits are more generous, if only by a few percentage points in some cases, than contractors' initial prices.

In a note to investors, Piper Jaffray analyst William Quirk estimated that CMS's final reimbursement rates for 2013 and 2014 improved "modestly" by a median of 6 percent and an average of 26 percent compared to previously proposed payment levels. The final rates were also on average 15 percent more than the prices labs received from CMS under the old stacked CPT codes.

Quirk estimated in his note that Medicare contractors' final prices from Palmetto and Noridian have improved by 34 percent on average and a median of 7 percent compared to earlier proposed pricing.

For example, KRAS mutation testing to personalize cancer treatment, performed by companies like Qiagen and Roche, received an average final gapfill price of around $200 from CMS. According to an analysis by Piper Jaffray, the final price is a 2 percent increase from previously proposed pricing but a 74 percent decrease from what labs received from CMS with old stacked codes. Meanwhile, Medicare contractor final pricing for such testing was still 23 percent below previously proposed payment levels.

Qiagen, which markets an FDA-approved KRAS test as a companion diagnostic to pick out which colorectal cancer patients should receive the drug Erbitux, has negotiated a higher rate from its contractor for its test compared to other non-FDA cleared lab tests gauging KRAS mutations. Compared to a median payment level of around $200 for non-FDA approved KRAS tests, Qiagen previously said it has been able to negotiate a reimbursement rate of $385 per test for its FDA-approved kit. A Qiagen spokesperson said CMS's final reimbursement national limit will not change the negotiated rate with its contractor.

Other diagnostics fared better under gapfill pricing. For example, tests to detect major BCR-ABL breakpoints to diagnose chronic myelogenous leukemia, performed by Cepheid, received an average final reimbursement level of $225. Piper Jaffray analysts calculated that the national limit represents a 208 percent boost from what labs performing BCR-ABL testing, such as Cepheid, would have received under stacked codes, and an 87 percent increase from previously proposed payment levels.

Final reimbursement rates for BRCA mutation testing to gauge women's risk of hereditary breast and ovarian cancer, performed by Myriad Genetics, remained the same as previously proposed levels, at $2,795 for the BRACAnalysis test and $587 for large rearrangement testing. These prices represent a 15 percent reduction from what Myriad was receiving with stacked CPT codes.

In an 8-K filed with the US Securities and Exchange Commission this week, Myriad said that Medicare contractors Noridian and Palmetto made a clerical error when releasing the final price for CPT code 81211 describing their test for the full BRCA1 and BRCA2 gene sequence, and listed it as $1,449. Myriad informed its jurisdictional contractor Noridian about this mistake, and Noridian assured the company that the error will be corrected by CMS to reflect the correct price point.

Meanwhile, CMS cut 2014 pricing for Myriad's Colaris test by 46 percent down to $2,612. Credit Suisse analyst Vamil Divan wrote in a note to investors that this reduction in payment, if permanently implemented, could negatively impact Myriad's earnings by around $20 million.

Xifin, a company that helps diagnostics firms improve their revenue collection, medical claims filing, and billing processes, has been in dialogue with Medicare contractors alongside their clients to try to convince them to increase reimbursement rates for molecular tests. The company's efforts appear to have swayed at least some Medicare contractors to boost pricing for certain tests.

"For the most part, we did see some improvement and the national limit amounts are reflective of what we saw from [Medicare contractor] Palmetto two weeks ago, after much work with them," Rina Wolf, VP of commercialization strategies, consulting, and industry affairs at Xifin, told PGx Reporter. "However, some of the prices are still below where we believe they need to be to be truly reflective of the costs of performing these tests."

While most Medicare contractors peg their reimbursement levels for codes to CMS's final pricing, some contractors may choose to maintain their own payment levels, which may be well below the national limit. "A handful of contractors such as Cahaba, have not adjusted their prices to be in line with the national limits," Wolf noted. This is "putting the labs in their jurisdiction at a distinct disadvantage."

Cahaba manages reimbursement for labs in Alabama, Georgia, and Tennessee. Palmetto serves labs in Virginia, West Virginia, North Carolina, and South Carolina. Noridian serves labs in around a dozen states, including California, Nevada, and Utah.