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AMA Threatens to File HIPAA Complaint Unless CMS Halts Program Requiring Z-Codes for MDx Tests


Originally published Dec. 22, 2011.

By Turna Ray

Concerned that a Medicare
pilot project intended to track utilization of molecular diagnostics may be an underhanded attempt to replace the widespread use of its current procedural terminology codes, the American Medical Association has demanded that the Centers for Medicare and Medicaid Services stop implementation of the program.

In particular, AMA has taken issue with the program's requirement that test providers submit a so-called Z-Code, developed and issued by healthcare technology firm McKesson, with every molecular diagnostic claim.

In a Dec. 19 letter to CMS Acting Administrator Marilyn Tavenner, AMA Executive VP James Madara charged that the Z-Code requirement is against regulations set forth under the Health Insurance Portability and Accountability Act.

The so-called MolDx Program, according to Madara, is causing "massive confusion among providers, laboratories, and health plans" trying to figure out when to stack CPT codes, when to use new CPT codes for molecular diagnostics developed by the AMA, and when to use Z-Codes.

The AMA threatened in the letter that it "will be compelled to file a HIPAA complaint with CMS if this program is not immediately suspended prior to January 1, 2012." The association "strongly urges" CMS to continue to work within the AMA's own processes for establishing CPT codes for molecular diagnostics.

Last month, Medicare contractor Palmetto announced it was implementing the MolDx Program for CMS, under which it plans to use the McKesson Diagnostics Exchange module to collect evidentiary and utilization information about molecular tests that labs submit for coverage. Each lab will also have to start submitting a unique Z-Code with every test claim to enable Palmetto to track its utilization. Based on the clinical evidentiary data submitted by labs on their tests and the utilization information gathered by Palmetto via Z-Codes, the contractor will determine CMS's reimbursement policy and pricing for molecular diagnostics performed in six US states and territories (PGx Reporter 11/16/2011).

Palmetto's plans appear to have rattled the AMA.

The AMA first developed and published CPT codes in 1966. The association owns the copyright for CPT and collects royalties from the codes' use. Other coding structures include the Systematized Nomenclature of Medicine, owned and maintained by the College of American Pathologists, as well as the International Classification of Diseases codes. However, CPT is the most common coding system that healthcare providers use to inform payors of the medical, surgical, and diagnostic services they've performed.

Responding to AMA's letter, Matthew Zubiller, vice president of McKesson's decision management business, said that the "the AMA may be confused regarding that terminology and the implications on standards" that the MolDx Program is likely to have. The AMA is "perhaps thinking incorrectly that it may impact its control of CPT codes," he told PGx Reporter.

According to Palmetto, the MolDx Program doesn't aim to replace CPT codes. While Palmetto will use the Z-Codes to establish a value-based reimbursement price for each molecular diagnostic based on the impact it has on healthcare costs and patient outcomes, test providers will continue to submit CPT codes for billing purposes.

McKesson has said it is working with many payors, although Palmetto is the first to implement Z-Codes for coverage determinations. If CMS expands the MolDx Program to other jurisdictions and private payors begin adopting Z-Codes for molecular diagnostics, then Z-Codes may overshadow the prominence of CPT codes in the reimbursement process.

In the current economic climate, payors are increasingly under pressure to reduce costs, and as a result insurers have ramped up efforts to gather more data to compare the effectiveness and costs of new and old medical interventions. In this environment, the push to improve the coding system for molecular diagnostics is coming from payors who want to do away with the practice of stacking multiple CPT codes to reimburse for molecular diagnostics based on advanced technologies.

Bundled CPT codes obscure which procedures are being performed by healthcare providers and, subsequently, the specific services that payors reimburse. This lack of clarity in payment policy, from a payor perspective, contributes to unnecessary healthcare spending.

"We serve many providers, labs, and payors today and we provide an objective view to each of our stakeholders," Zubiller said. In his view, the current reimbursement system, which is overwhelmingly dependent on CPT codes for processing claims, doesn't provide payors transparency with regard to what they're paying for.

"In our role, we believe that today’s system undervalues these tests and we support a movement to measure and reimburse based on their value," Zubiller said. "There is not a clear, transparent, and scalable approach to identifying which tests are being done, when, and why."

Regardless, the AMA believes that CMS's MolDx program lacks "legal legitimacy," and its implementation would make test providers non-compliant with federal coding regulations.

"The MolDx program establishes a new code set, the Z Codes. Thus, use of this second code set by HIPAA-covered entities will place these entities out of compliance with HIPAA and subject them to complaints and penalties for violating HIPAA since CMS requires physicians and other health care providers who are HIPAA-covered entities and their business associates to submit claims using a HIPAA standard code set," Madara states in the letter, adding that the Z-Codes "are not among the HIPAA named code sets."

Palmetto "is putting itself and the providers that submit claims to the contractor out of compliance with HIPAA given that submitting claims with a Z-code makes the claim non-compliant with HIPAA," he added.

HIPPA mandates that all healthcare transactions use uniform code sets. The AMA's CPT codes are specifically named in federal regulations (45 CFR 162.1002(a)(5)) as the codes that the agency will use to process claims for clinical laboratory tests, medical diagnostic procedures, and various physicians' services.

CMS believes that under current regulations it can ask for information in addition to standard billing codes, such as Z-Codes, if it is necessary to process the claim. However, the AMA is of the opinion that CMS did not comply with rule-making procedures and regulations requiring the agency to consult with a number of government entities before implementing a new coding standard.

Furthermore, the AMA charges that CMS' MolDx program isn’t being advanced in an open process with public input and accuses the agency of implementing overly complex and costly government regulation during lean budgetary times.

A year before the MolDx Program came to fruition, Palmetto launched its “Laboratory and Molecular Diagnostic Services Program," under which the contractor 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. More recently, Palmetto issued draft guidelines outlining the regulatory and coding criteria that molecular diagnostics would have to meet for reimbursement if they aren't already paid for through a local coverage decision under Medicare (PGx Reporter 10/5/2011).

Although stakeholders can submit public comments to Palmetto's draft guidelines, AMA took issue with the fact that the MolDx Program was set in motion in the midst of this comment period and that CMS didn't invite stakeholder input on the specific use of Z-Codes or on the program itself.

"Palmetto has outlined a process that lacks transparency, consistency, or justification for its determinations," Madara wrote in the letter. "Palmetto's patchwork of decision-making will interject a level of uncertainty into the coding and payment/reimbursement process that will add substantial time and cost into what had been uniform and seamless transactions."

In addition, he noted that the proposal is "extremely troubling and inexplicable as it comes at a time when the [Obama] Administration has called on all federal agencies to reduce regulatory complexity and burdens."

Section 1172 of the Social Security Act states that any standard adopted by HHS must be implemented with the objective of "reducing the administrative costs of providing and paying for health care."

The AMA, in its letter to CMS, doesn't provide an estimate of how much it will cost to implement the MolDx Program and add Z-Codes to claims. However, according to experts knowledgeable of AMA's position, the association believes that a coding system that assigns one code to each test would raise reimbursement levels for tests and keep them high over time. Comparatively, the AMA believes that its codes, tied to the analyte tested or the work performed for each test, would be more flexible and spur competition.

McKesson also didn't provide an estimate of how much it might cost to implement the MolDx Program. However, Zubiller said that "using an identifier would be easier, more consistent, more transparent, more scalable, and likely reduce costs to process."

Palmetto's program runs up against the AMA's efforts to develop new CPT codes for molecular diagnostics. The AMA has so far issued more than 100 codes for molecular diagnostic tests, split into two categories: Tier 1 codes for commonly performed analyte-specific tests and Tier 2 resource-level codes describing less common tests (PGx Reporter 3/16/2011).

In the AMA letter, Madara takes issue with the fact that CMS did not factor in reimbursement values that the AMA developed for the new molecular pathology codes with stakeholder input from CMS and Palmetto officials.

"At the specific urging of Medicare, the [AMA's Relative Value Update Committee] reviewed the physician time, work, and direct costs for all of the molecular pathology codes that were identified to have direct physician involvement," Madara wrote. "Throughout this process, CMS indicated that the data was needed for rule-making for the 2012 Medicare Physician Payment Schedule. We are, therefore, deeply disappointed that CMS did not consider this information in the Final Rule."

Outside the requirement that test providers submit Z-Codes alongside CPT codes in Palmetto territories, CMS has also asked labs to include the AMA's new molecular pathology codes in addition to standard stacked CPT codes when submitting claims for tests starting Jan. 1 (PGx Reporter 12/21/2011).

CMS is still figuring out where to list genetic tests that have received new codes from the AMA: in the clinical lab fee schedule or the physician fee schedule. The specific fee schedule in which a CPT code is listed has implications for how the services of pathologists and laboratory professionals are reimbursed (PGx Reporter 7/20/2011). CMS has indicated that it will not place the new test codes into the CLFS for payment purposes until at least 2013.

Some payors and molecular diagnostics firms doubt that the AMA's new molecular pathology CPT codes will provide the level of transparency that CMS is seeking when establishing reimbursement policy and pricing for molecular diagnostics.

"There are many thousands of unique tests and that number is growing rapidly. Trying to use billing codes – even 100 new ones – as identifiers just won’t work and it doesn’t scale for our healthcare system and it stymies investment and innovation in the right diagnostics which hurts providers and patients," Zubiller said.

Alongside AMA's objections to the MolDx Program, the American Clinical Laboratory Association has also expressed concern about the speed with which the pilot effort is being implemented and Palmetto's submission requirements. Labs and test makers will be required to register and submit evidentiary requirements under the MolDx Program as of March 1, 2012.

In Zubiller's view, CMS is implementing the MolDx Program openly and with stakeholder input. He said that McKesson has been meeting with labs to discuss the MolDx Program, and has invited ACLA to come talk through its concerns.

"We continue to ask for a dialogue to share concerns or issues directly with us," Zubiller said. "We’d be happy to talk through it and work on it together."

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