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California Lab Group Sues HHS Challenging Medicare Contractors' Authority on Local Coverage Policy

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Originally published May 6.

NEW YORK (GenomeWeb) – Certain members of the California Clinical Laboratory Association and an elderly woman who was denied coverage for pharmacogenetic testing are suing HHS alleging that the use of private contractors by the Centers for Medicare & Medicaid Services to establish local coverage decisions (LCDs) for lab tests is illegal and unconstitutional.

Law firm Hooper, Lundy & Bookman recently filed a lawsuit on behalf of CCLA members and an 82-year old retired nurse charging that Medicare Administrative Contractors’ (MACs’) unfavorable and inconsistent diagnostic coverage determinations is depriving beneficiaries of “critical clinical lab tests.” In late April, the district court in Washington, DC, accepted the complaint, which alleges that Congress’s delegation of regulatory powers to MACs is unlawful; that MACs have not followed federal rulemaking procedures when implementing Medicare coverage policies; that MACs are putting forth LCDs based on criteria that they’re not allowed to consider; and that HHS doesn’t have a pathway in place through which labs can appeal coverage decisions by MACs.

“These MACs have been granted unilateral authority by Medicare and HHS to use the LCD process to make coverage decisions, which deny access to vital laboratory testing needed by Medicare patients,” CCLA said in a statement discussing the lawsuit.

As an example, the CCLA complaint describes how the plaintiff and retired nurse — referred to in the suit as Jane Doe to protect her identity – has experienced allergic and serious adverse reactions to prescription drugs she takes for various chronic conditions. To gain a better understanding of her risk for drug-related adverse reactions or harmful drug-drug interactions, her doctor ordered pharmacogenomic testing from a clinical lab in Virginia. However, the Medicare contractor making coverage decisions in that state, Palmetto, issued a draft LCD to not cover such PGx testing for certain CYP450 and VKORC1 gene markers.

CCLA alleges that negative coverage decisions for these types of PGx tests by Palmetto and other MACs fail to account for available evidence showing that PGx testing can reduce adverse events and related costs. HHS or CMS has not yet filed a response with the district court. A CMS spokesperson told PGx Reporter that the agency will not comment on ongoing litigation.

However, in response to stakeholder comments to its LCD on CYP450 testing, Palmetto has defended its coverage decision for such tests, maintaining that PGx panel testing of this type has not been shown to improve patient outcomes broadly across clinical scenarios in the Medicare population. “There is clear evidence of the clinical validity of CYP450 genotyping. However, there is limited evidence that genotyping and subsequent alterations to patient management improve patient outcomes for many scenarios; the clinical utility of CYP450 genotyping is proven in limited scenarios only,” Palmetto stated in response to comments in March.

CMS uses eight MACs to make coverage decisions for lab services and products in 12 jurisdictions spanning the US. With regard to coverage policies for molecular tests, Palmetto launched the MolDx program a few years ago at the request of CMS in an effort to better track and more closely evaluate the utilization and evidence base underlying molecular diagnostics. In recent years, growth in the molecular diagnostics industry has spurred payors to want more insight into which tests they’re spending money on and determine if the tests are medically necessary.

Much of CCLA’s issues with Medicare coverage of molecular tests seem related to Palmetto’s MolDx program and its concern that other MACs are adopting similar MolDx-type policies. Palmetto used to be responsible for coverage policy for labs based in California and other western states, but in 2013 CMS awarded that contract to another MAC, called Noridian. Taking a page out of Palmetto’s policy book, Noridian adopted an LCD stating that unless it has specifically granted coverage for a molecular test, it is a non-covered service. Many lab industry groups complained when Palmetto had issued just such an LCD.

In the lawsuit, one of CCLA’s main points is that since certain molecular diagnostics are performed at a single lab or at a handful of labs in the country, a negative LCD in one jurisdiction essentially results in a national determination against coverage. “A particular clinical laboratory furnishing particular kinds of molecular diagnostic laboratory testing services for oncologists often receives orders from doctors at the leading cancer centers throughout the country,” the plaintiffs state in the suit. “Thus, in many cases, LCDs have a nationwide effect on laboratory services because a single MAC is responsible for the laboratory offering the services nationwide. In other situations, different MACs in different regions might treat the same type of laboratory test differently from a coverage standpoint.”

For many months before this lawsuit came about, there had been much consternation among labs about the inconsistency between MACs regarding coverage of certain molecular tests. They complained of the “blanket denials” issued by MACs and about how MAC officials seemed to make these negative decisions without offering labs much explanation for their reasoning. “This law suit is being filed as a last resort. The input provided by the clinical laboratory industry, speaking on behalf of the patients we serve, has been virtually ignored by the MACs,” Jean Amos Wilson, president of CCLA said in a statement.

In the past, a number of labs have contacted PGx Reporter to voice dissatisfaction with their MACs, but have chosen to remain anonymous for fear of inciting further negative coverage repercussions. Likely for this same reason, CCLA’s lawyers are keeping anonymous the identity of the labs that have signed onto its lawsuit.

Greenville, SC-based Pinpoint Molecular, a lab specializing CYP450 PGx testing, is not party to the lawsuit. However, in her effort to garner reimbursement for the firm’s tests, particularly PGx panels gauging markers that impact patients’ response to pain and psychiatric drugs, Chief Operating Officer Jennifer Ross has experienced Medicare coverage challenges similar to those described in CCLA’s lawsuit.

When setting up shop last year, Medicare coverage was foremost in the minds of Pinpoint’s leaders. They opened the lab in South Carolina after learning that Palmetto had adopted the new CPT codes for molecular diagnostics and had issued the best pricing among the labs. However, according to Ross, the strategy didn’t work for Pinpoint and Palmetto has denied most of the lab’s PGx testing claims. “Palmetto is only paying [for CYP2C19 testing] for Plavix, probably because of FDA’s black box warning on the drug label,” Ross told PGx Reporter. Except in this setting, “virtually every test that we run is not paid for now,” she said. “So, obviously, we’re in a panic.”

In January of this year, the Office of the Inspector General issued a report entitled, “Local Coverage Determinations Create Inconsistency in Medicare Coverage,” echoing concerns similar to those outlined in the CCLA’s lawsuit and by Pinpoint’s Ross. The OIG’s analysis of various Medicare claims and coverage databases revealed that LCDs issued by MACs were “unrelated to the cost and utilization of items and services” and that there was variability between how similar lab services were covered across states depending on the MAC jurisdiction.

In the report, OIG recommends that CMS continue efforts to bring consistency among LCDs, structure a plan for evaluating new LCDs, and consider requiring its MACs to jointly develop coverage policies. “CMS concurred with all of our recommendations,” OIG stated. However, it’s not yet clear what CMS has done or plans to do to improve the LCD process.

Ross spends a great deal of her time on Capitol Hill educating congressman and senators in Palmetto’s jurisdiction states about the negative impact that the MAC’s LCDs have had on Pinpoint and on the molecular testing industry. In Ross’ view there is sufficient evidence showing that PGx testing improves patients’ outcomes. As such, she is asking legislators to write a letter to Palmetto Medical Director Elaine Jeter, asking her to either reconsider the coverage decision about Pinpoint’s PGX tests or to pay for PGx testing for a period of time so the firm can collect the necessary clinical utility evidence for its tests.

“There’s no way this outcomes data will be compiled if they’re not paid for testing,” Ross said. “Nobody can afford to do that.” Now with the CCLA lawsuit, Ross is planning to reach out to legislators in all 50 states. “Our fear is that this [negative LCD policy] will spread” through all the MACs, Ross said. She also plans to discuss the lawsuit with the South Carolina chapter of the American Clinical Laboratory Association, the national interest group for US labs.

ACLA would not comment on the lawsuit. The group has issued a statement clarifying that ACLA is not party to the lawsuit and has deferred all questions about it to CCLA.

ACLA’s reluctance to comment on the case likely reflects the fact that the clinical lab and diagnostics industry is a disparate bunch, comprising sole-source lab test developers, diagnostic kit manufacturers, large reference labs, and hospital-based pathologists. Because these different segments of the industry have varying business models — with large reference labs depending on clinical chemistry tests for revenue, and other labs focused on molecular diagnostic tests with varying levels of complexity and market sizes — they are rarely on the same page when it comes to reimbursement and regulatory policies.

A rare moment of agreement within the testing industry resulted in the recent passage of the Protecting Access to Medicare Act of 2014, which repealed CMS' plan to review lab test technology and adjust payment starting next year – a prospect that unified most stakeholders in their common distaste for it. Also known as the SGR fix bill, the new law also lays out a path for CMS to establish market-based pricing for lab tests starting in 2017. Under this new system, CMS will update pricing annually for a new category of advanced diagnostic lab tests and every three years for all other tests.

In a post on his blog, Bruce Quinn, Medicare policy expert and healthcare strategist for law firm Foley Hoag, discussed the likelihood that CCLA’s case against HHS will succeed. In the post, Quinn explained that Congress likely believes that MACs can legally make LCDs. “[MACs] are mentioned at least twice in the statute that creates the Medicare program, most recently in a section of text created by the April 2014 Medicare SGR bill,” Quinn wrote. “So there is no question that Congress (and Congressional legal staff) has believed, and continues to believe, that LCDs made by local contractors are allowable.”

Citing a hypothetical instance where a MAC coverage determination might go against a doctor’s claim of a medically necessary intervention, Quinn explained why MACs are necessary. “For example, if an errant doctor ordered five MRI's a day on a patient, could a MAC deny those as unnecessary, or would that exceed its authority to implement CMS rules (there is no CMS rule about five MRI's a day),” he wrote. “As far as federal decision-making, it's hard to imagine the entire breadth of healthcare for all possible drugs, services, visits, procedures, circumstances, for tens of millions of patients being covered by one written federal rulebook – its pages would probably stretch from here to Jupiter and back.”

According to plaintiffs’ lawyer Hooper, however, the new SGR fix legislation doesn’t address the lab community’s complaints about how MACs are overstepping their authority in their local diagnostic coverage policies. “CCLA’s lawsuit does not challenge the ‘pricing’ of lab tests. Rather, it challenges the ‘coverage’ process, which is unaffected by the new legislation,” he said in an email. “As you know, if a test is not covered, Medicare does not have to pay for it. MACs are making arbitrary and unauthorized coverage denial policies, which prevent labs from even getting to the price issue. CCLA’s lawsuit remains very viable and quite important.”

Meanwhile, as a CCLA member, at least one large reference lab, Quest, is not supportive of the lawsuit. “[We] have not provided funding for it,” company spokesperson Wendy Bost told PGx Reporter. “We are encouraged by recent efforts, such as the [SGR] fix legislation, made by our colleagues in government to promote appropriate valuation of clinical testing, and believe continuing dialogue is a better option for all parties.”

Genomic Health, a Redwood City, Calif.-based developer of advanced, single-source lab tests, also isn’t backing the CCLA lawsuit. “We continue to support the LCD process by Medicare MACs as a more efficient means to evaluate coverage than a CMS National Coverage Decision process which can often take years to establish and update,” a company spokesperson said.

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