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Seeking Reimbursement Transparency, Palmetto May Deny Coverage for 'Investigational' Molecular Tests

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By Turna Ray

Under draft policies recently issued by Medicare contractor Palmetto GBA, molecular diagnostics that are not already reimbursed through a local or national coverage decision by Medicare would be denied payment unless they meet a specific set of regulatory and coding criteria.

Noting that the Centers for Medicare & Medicaid Services only pays for interventions that it deems "reasonable" and "medically necessary," Palmetto's draft policy (DL32286) describes five situations in which it plans to reject coverage for molecular diagnostics: Laboratory-developed tests that lack approval from the US Food and Drug Administration; tests performed or marketed at a single source, lab, or hospital; tests without a specific AMA current procedural terminology code; tests that haven't obtained a national or local coverage determination from Palmetto; and tests that need multiple, or stacked, CPT codes.

Palmetto simultaneously released a second draft policy statement (DL32288) in which the contractor proposes to not only deny coverage of molecular diagnostics that don't meet CMS's "reasonable" and "necessary" requirements, but to seek back payment for tests that have already been reimbursed but don't meet CMS' coverage criteria.

"Tests submitted and paid that have not been reviewed and approved through the Palmetto GBA mandated process are considered investigational and will be denied," the contractor states in its policy. "Approved tests will be effective for dates of service on and after the approval date of a ‘coverage’ determination. Dates of service prior to the approval effective date will be subject to this non-coverage policy."

The two draft policies will be open for public comment from Oct. 14 to Dec. 5.

Palmetto oversees Medicare benefits for people in 45 US states, provides processing and payment services for health insurance claims, and ensures that Medicare is not paying for services that it shouldn't.

The draft proposals come a year after the launch of Palmetto's "Laboratory and Molecular Diagnostics Services Program," under which it began collecting submission data from test providers so that it could identify the specific services being performed and billed to Medicare, determine what new tests should be covered or denied, and whether currently reimbursed services fell within CMS' reimbursement guidelines.

Under this program, Palmetto required diagnostic service providers to cite the name of the test or assay being performed or billed in electronic submissions and began tracking diagnostic services that required more than one CPT code, used CPT code stacking, microarray CPT codes, cytogenetic codes, or a "not otherwise specified code." In implementing this policy, the contractor said it would reject claims submitted without the name of the test. Service providers cannot appeal claim rejections and must resubmit the information about the test to Palmetto.

Through the "Laboratory and Molecular Diagnostics Services Program," as well as the latest proposed policies, Palmetto aims to establish a system by which it can more accurately determine the coverage status for tests. Currently, diagnostic service providers bill for molecular tests they've performed through the widespread practice of stacked CPT coding, which makes it difficult for payors to discern exactly what they are paying for. Moreover, many existing CPT codes don't adequately describe the technologies and processes underlying complex molecular diagnostics.

"CMS requires that we know what we are paying for. There are tests using methodology-based coding to represent only steps of the test and not what the test is," a Palmetto spokesperson told PGx Reporter via e-mail. "The test may not have demonstrated clinical utility that meets CMS’s reasonable and necessary requirement for coverage."

An Industry in Flux

While Palmetto is changing its local coverage determination policies, the American Medical Association and CMS are simultaneously working to refine CPT coding and reimbursement policies for molecular diagnostics. CMS is currently gathering stakeholder input on whether genetic tests should fall into its physician fee schedule or clinical laboratory fee schedule.

Whether genetic tests are reimbursed under the CLFS or PFS may impact reimbursement levels for laboratory professionals analyzing test results and disincentivize adoption of molecular diagnostics to personalize healthcare among pathologists. At a meeting in July, CMS officials noted that the agency will not list any genetic tests under the 2012 CLFS, and such tests will likely not be listed in its lab-fee schedule until 2013, at the earliest (PGx Reporter 7/20/2011).

Even before specific fee schedules and payment levels for molecular tests can be determined, the AMA has to issue codes describing the technology and processes underlying many of these diagnostics so service providers can bill insurers for them. So far, the AMA has issued a set of codes for single-analyte, commonly performed tests, and another set of resource-level codes for less commonly performed tests. However, the AMA still needs to iron out how to code multi-analyte tests performed at single labs, a subset of tests that are of growing importance in the personalized medicine field (PGx Reporter 8/17/2011).

Bruce Quinn, senior health policy specialist at the law firm Foley Hoag, believes that if Palmetto's draft policies are adopted as proposed, they could have "significant" impact on the molecular diagnostics industry. For the time being, "at least in the case of stacked code tests, it is unlikely that routinely submitted genomic tests have been denied," Quinn reflected. However, he believes Palmetto's local coverage determination proposals "would put more teeth into the program for submitting dossiers, because there would be a public statement regarding the non-covered status of tests that do not comply."

Given that the regulatory, reimbursement, and coding situation for many molecular diagnostics is in flux, Palmetto's policy could mean that many tests that aren't already covered by an NCD or an LCD, or don't have FDA approval or unique CPT codes, may be denied coverage. This could pose a problem for personalized medicine, particularly in cases where the label of an FDA-approved drug recommends a certain kind of genetic testing but there are no FDA-approved tests for that particular indication.

For example, the labels for the colorectal cancer drugs Vectibix and Erbitux recommend KRAS testing to pick out best responders to the treatments, but the FDA is still in the process of reviewing tests that can gauge which patients have KRAS mutations and therefore shouldn't be prescribed these drugs. Similarly, although the agency has updated the labeling for Plavix to recommend genetic testing to identify patients at risk for serious adverse events, there is not yet an FDA-approved test on the market.

It is unclear how Palmetto would handle such scenarios. Based on the language in the draft policies, Quinn assessed that for a test like KRAS, since it is submitted with multiple stack CPT codes, Palmetto may require that the test have FDA approval or get a specific CPT code from AMA before covering it.

"Possibly, Palmetto would publish a list of such well-accepted tests," he added. "I think the example of KRAS would probably meet Palmetto’s standard because it is directly cited on the FDA label even though no particular KRAS in vitro diagnostic is FDA approved." It is also possible that Palmetto might revise its policy to accommodate such situations, since the goal of the latest draft policies "seems to be that tests have some reasonable or baseline level of medical approval," Quinn said.

While Palmetto wouldn't address questions regarding coverage determinations for specific scenarios, the contractor is betting that many molecular diagnostics that aren't FDA approved will likely receive a CPT code from the AMA by the start of next year, ensuring their coverage. "The policy is simply requiring that if a test described by the policy is being performed it has to meet CMS’ reasonable and necessary requirements before coverage can be applied," the spokesperson added.

However, even if AMA's new codes for molecular diagnostics are ready to be implemented by 2012, CMS is likely to maintain the practice of CPT code stacking for at least another year, according to industry observers (PGx Reporter 6/22/2011).

'Not Otherwise Classified'

In order to discourage the practice of code stacking, Palmetto's draft policies include specific instructions to ensure that tests that haven't been determined "reasonable and necessary" aren't slipping past Palmetto's radar and being erroneously reimbursed. Palmetto instructs providers to use a "not otherwise classified," or NOC code (ie. 84999, 85999, 86849, and 87999), when the procedure performed does not match the descriptions associated with published CPT codes.

"The available language in the CMS-developed and -maintained [Healthcare Common Procedure Coding System] manual and the AMA-developed and -maintained CPT manual to describe the pathology and laboratory categories (and the tests included in those categories) are not specific to molecular diagnostic tests," the draft policy states. Furthermore, Palmetto plans to review tests billed with an NOC code to make sure they meet Medicare's analytical validity, clinical validity, and clinical utility requirements for services that are "reasonable and necessary".

Meanwhile, there are situations where lab-developed tests that meet several of Palmetto's proposed criteria for non-coverage — in that they aren't FDA approved, are marketed by single labs, and don't have a unique CPT code — are being paid for under Medicare because they have already met Palmetto's evidentiary criteria for validity and utility. For example, although Genomic Health's Oncotype DX tests for breast and colon cancer recurrence aren't FDA approved, Palmetto issued a positive coverage decision for both assays and reimburses them under CPT code "84999" as "unlisted chemistry procedures."

However, there are plenty of labs using stacked CPT codes to bill for tests and services that haven't been green-lighted by the FDA. Makers of tests that fall into this category have complained that payors' evidentiary bar for gaining coverage with a unique code is too high and the payment levels under existing CPT codes is too low. Particularly for molecular diagnostics that are intended for rare disease populations or small patient subsets, labs and test makers say that the revenue potential doesn't stack up to the investment necessary to produce the level of clinical validity and utility data that will win coverage from payors.

Indeed, Genomic Health's road to profitability has taken significant time and hefty investments. Although the company has gained widespread reimbursement for its Oncotype DX LDT, these coverage decisions required an investment of hundreds of millions of dollars to establish the clinical utility of the test. Since launching Oncotype DX in 2004, the firm reported its first profitable year last year.

Industry experts feel that while Palmetto's policy won't impact those labs and test developers who can afford to spend the time and money to prove the clinical validity and utility of their diagnostics, the policy may hurt smaller test makers who lack the resources to meet Palmetto's evidentiary criteria. Additionally, Palmetto's draft proposal to recoup payments for erroneously covered tests may have a broader impact.

"If Palmetto GBA determines a test previously billed and paid under the methodology codes that do not meet CMS’s reasonable and necessary criteria, those claims are subject to overpayment determination and collection per program rules as any payment error would be," the Palmetto spokesperson explained. "Providers are expected to know program guidance and requirements for coverage."

Given the complex coding environment for molecular diagnostics and the widespread use of CPT code stacking in the absence of unique codes for such tests, the impact of this policy, if finalized, could have consequences for many test providers if CMS decides to place genetic tests under the clinical lab fee schedule. According to Foley Hoag's Quinn, Medicare contractors have the authority to go as far back as two or three years to recoup payments they deem improper.

"These recoupments can be channeled through the Medicare Administrative Contractor, or a Recovery Audit Contractor, or a Program Safeguard Contractor," he explained in an e-mail. "They also have the authority to impose 'extrapolated' recoupments by finding the error rate in a statistical sample of claims and extrapolating that error rate to all the claims of that type paid in a six- or twelve-month period."

According to Quinn, if Palmetto recoups payments for tests that do not meet its coverage criteria, this wouldn't impact patient beneficiaries since under Medicare there are no co-pays for lab tests.


Have topics you'd like to see covered in Pharmacogenomics Reporter? Contact the editor at tray [at] genomeweb [.] com.

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