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How Will OIG's Findings on Widely Divergent Gene Test Reimbursement Rates Influence CMS Payment?


A new report from the Office of the Inspector General that found wide variance in reimbursement rates for laboratory-developed genetic tests has industry players concerned that the Centers for Medicare and Medicaid Services may reduce payment levels for some of these diagnostics.

For the report, conducted at the request of CMS, OIG tracked reimbursement of 16 genetic tests across state Medicaid and federal employee health benefit programs. "During a meeting on June 29, 2011, CMS officials informed us that, in addition to high-volume and high-expenditure laboratory tests, a collection of pricing data for genetic tests from other health care insurers would assist CMS in establishing payment rates for genetic tests," the OIG report states.

The survey identified widely divergent reimbursement rates for the tests.

For example, OIG reported that testing for BRCA 2 gene mutations with Myriad Genetics' BRACAnalysis test garners $1,000 in reimbursement from Medicaid programs in Pennsylvania, but nearly $5,000 in Iowa. Meanwhile, Medicaid in Illinois reimburses around $2,000 for Genomic Health's Oncotype DX breast cancer recurrence test, while in Minnesota the payment for the same test is around $3,400. The list price for BRACAnalysis is more than $3,000 and for Oncotype DX is over $4,000.

OIG identified similar variations in payment for genetic tests in FEHB plans. For example, reimbursement rates for XDx's AlloMap test ranged from $2 to more than $3,600, while for low-volume tests such as Pathwork Diagnostics' Tissue of Origin test there was a smaller difference in reimbursement between plans, from $5 to $38.

Wall Street analysts followed the findings of the OIG report closely. In reaction to the report, analyst Dan Leonard of investment bank Leerink Swann wrote in a note that lab-developed genetic tests that are offered by many providers are more likely to face reimbursement cuts than are single-source tests, such as BRACAnalysis or Oncotype DX.

"While we believe most of [Myriad's] pricing will remain intact, other areas of testing where a large disparity exists in charges from different labs (e.g., [cystic fibrosis] testing) will likely see price compression, in our view," Leonard wrote. He added that "perhaps pricing for Myriad's Colaris test (around 9 percent of revenues) could be more pressured, since Myriad is not the sole-source provider for Lynch syndrome testing."

According to one reimbursement expert, who requested anonymity because he did not have permission to speak on the record, the fact that CMS commissioned the report signals that the agency may be getting ready to issue policy on this topic.

Indeed, the report comes a month ahead of CMS's July 16 meeting to assign payment rates for more than 100 genetic tests to which the AMA has assigned new CPT codes (PGx Reporter, 7/20/2011). OIG indicated in the report that since other payors closely follow Medicare rates as a benchmark for their own payment levels, the pricing information gathered by the agency may help bring more clarity to the rate-setting process for genetic tests.

"CMS will refer to the high variance [in reimbursement rates in the OIG report] as a concern that genetic tests are frequently overpaid and 'appropriate' payments should be enforced," the reimbursement expert told PGx Reporter via e-mail. To some industry observers, the term "appropriate payments" is an euphemism for "lower payments."

The most expensive genetic tests often are single-source, or boutique, tests such as Oncotype DX, which use a proprietary algorithm to analyse multiple molecular markers. In the AMA's process of establishing CPT codes for genetic tests, industry stakeholders have had the most difficulty establishing codes for such black-box diagnostics, which the association has dubbed multiple analyte algorithm assays, or MAAAs (PGx Reporter, 11/9/2011).

Following the release of OIG's report, Leerink Swann's Leonard attempted to assuage fears that CMS would slash reimbursement for single-source tests by pointing out certain weak points in OIG's survey methodology. He wrote that the wide-ranging state Medicaid reimbursement rates reported by OIG for Myriad's BRACAnalysis test are "deceptive" and he maintained that payment levels will remain around the average Medicare payment of $3,000.

For example, since Myriad is not a provider to Pennsylvania Medicaid, the $1,000 reported payment level for BRCA 1 and BRCA 2 testing "is merely [a] theoretical" rate "if its members were offered the test."

BRACAnalysis does not fall in the MAAA category, but Myriad is the only commercial provider of BRCA testing for hereditary breast and ovarian cancer due to its extensive IP suite protecting the test against competition.

Leonard further wrote that the $1,000 payment level for BRACAnalysis, as well as the $2,050 reimbursement from Illinois Medicaid for OncotypeDx test and reimbursement levels for many of the other tests covered in the report, serve as "an irrelevant anchor."

There is probably less immediate concern that CMS will lower reimbursement for single-source tests that fall into the MAAA category, since AMA's new MAAA codes will be effective Jan. 1, 2013.