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Palmetto Issuing 'Z-Codes' to Track Molecular Dx Utilization, Gather Data CPT Codes Can't Provide

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By Turna Ray

Under a program aimed at gaining more insight into molecular diagnostics reimbursed through Medicare, Palmetto GBA will require laboratories requesting a local coverage determination for tests to register them and submit evidence on their efficacy.

The Medicare contractor will also require labs to obtain a unique identifier, called a Z-Code, for each molecular assay that it will use to track the utilization of specific tests.

The so called MolDx Program, which Palmetto will administer for the Centers for Medicare & Medicaid Services, will use the McKesson Diagnostics Exchange module to collect evidentiary and utilization information about the molecular tests that labs submit for coverage. Based on this data, Palmetto will determine CMS's reimbursement policy and pricing for molecular diagnostics performed in six US states and territories.

"The [MolDx] program defines a clear, evidence-based process to ensure clinical quality, manage molecular diagnostic services, and measure the impact that they have on cost and care," Palmetto said on its website. "Using enhanced gap-filled, value-based, and market-based methodologies, Palmetto … will determine a specific [reimbursement] value for each test."

According to Matthew Zubiller, vice president of decision management for McKesson Health Solutions, by implementing the MolDx program Palmetto is trying to bring "transparency, clarity, and simplicity" to the process of Medicare reimbursement for molecular diagnostics.

"What does it take to get reimbursement? That hasn't been very transparent in the past," Zubiller told PGx Reporter last week. "There hasn't been a clearly articulated process that is open beyond the black box that exists for Palmetto. They understand that and they're being very clear about what's required for coverage determination."

Last year, Palmetto launched the “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 or national coverage decision under Medicare (PGx Reporter 10/5/2011).

Now, through the MolDx Program, Palmetto will be able to use McKesson's Z-Codes to more effectively track test utilization and determine reimbursement levels for molecular diagnostics. "Palmetto … will use the Z-Code to identify the billed test, determine reasonable and necessary services, and apply appropriate reimbursement without the burden of additional documentation requirements for each claim," the contractor said in a description of the MolDx program on its website.

The contractor also plans to develop a standardized technical assessment process and reimbursement methodology for tests. An evaluation committee of academic and industry experts will use the Grading of Recommendations, Assessment, Development, and Evaluation System, or GRADE, to assess the strength of evidence submitted by labs on their tests, and determine if the tests are improving patient outcomes and are cost effective compared to standard interventions.

Beginning this week labs will be able to download an application to receive a Z-Code through the Palmetto MolDx website. A registry module will be launched online in January, through which labs can view their code assignments or register new tests. Labs and test makers will be required to register and submit evidentiary requirements under the MolDx Program as of March 1, 2012.

The Z-Codes and the submission requirements under the MolDx Program will impact tests that are performed at labs located in Palmetto's Jurisdiction 1, which includes California, Nevada, Hawaii, and the US Pacific Territories of Guam, American Samoa, and the Northern Marianas. Palmetto will inform test developers whether their submissions for coverage determination are complete within 30 days of receiving them, and will issue a coverage decision within 90 days.

Palmetto and McKesson maintained that the addition of Z-Codes to the Medicare claims process for molecular diagnostics won't replace American Medical Association-issued Current Procedural Terminology codes, which are currently the most widely used codes for claims processing. Getting a CPT code for a new test can often take as long as two years, although the AMA at the moment is working on addressing some of the problems with the existing coding structure by developing a new CPT coding system for molecular diagnostics.

CPT codes will remain as the process codes for billing, while Z-Codes are meant to offer Palmetto a way to track test utilization with greater granularity than the current coding system allows, Zubiller explained.

Palmetto's effort to reimburse molecular diagnostics in a more consistent manner is a welcome development for some. The lack of consistency across payor groups with regard to the evidentiary requirements for reimbursement of molecular diagnostics has long been cited by test developers as a major barrier to securing the investment needed to launch innovative tests and startups.

"If you have invested in bringing a molecular diagnostic test to market, you're stapling dollar bills to your product and sending it out on the market, because you have no idea if that test is going to be reimbursed," Susan Siegel, general partner at the venture firm Mohr Davidow, said this week at an Institute of Medicine meeting on integrating genomic information into clinical practice.

According to Siegel, the reimbursement uncertainty for molecular diagnostics is one of the main reasons venture capital funding for new personalized medicine products is running dry. Noting that Mohr Davidow has limited its investments in the space, she suggested that increased clarity in the reimbursement process for molecular diagnostics through efforts like Palmetto's would help foster more confidence among the life sciences investment community.

"We're not saying, 'Make it hard,'" to get reimbursement, Siegel reflected. "We're saying, 'Make it clear.'"

Shedding Light on Test Utilization

Through the MolDx program and the use of Z-Codes, CMS is hoping to alleviate the difficulties associated with reimbursement evaluation and pricing that it currently faces when providers stack or bundle CPT codes to describe the procedures performed for a test.

"Because of the problems with the current CPT coding for molecular tests and not being able to identify the test being conducted, CMS added to Palmetto GBA’s Jurisdiction 1 contract the requirement to develop and deploy a registry that would allow identification of the molecular test being submitted on a claim," a Palmetto spokesperson told PGx Reporter in an e-mail. "The registry also serves to allow public information about the test(s) to be available to clinical resources unfamiliar with the test."

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Payors are under increasing pressure to cut costs in healthcare. As such, CMS and private payors are instating policies to ensure that they are paying for new interventions that truly improve outcomes and are cost-effective compared to standard practices.

Given the difficult reimbursement 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 payors reimburse. This lack of clarity in payment policy, from a payor perspective, contributes to unnecessary healthcare spending.

Meanwhile, test developers believe that old CPT codes don't describe the technologies on which their tests are based, and the reimbursement pricing attached to the codes isn't commensurate with the value that molecular diagnostics add to healthcare.

Stacked CPT coding for molecular diagnostics has been a point of concern for Palmetto, since a significant portion of the tests performed in the US are done at labs located in states where Palmetto has Medicare claims processing jurisdiction, such as California. Palmetto officials have estimated that the contractor processes over $20 million worth of codes per year through bundled CPT coding claims in California alone.

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 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 diagnostics services they've performed.

By comparison, through the MolDx program, labs and test providers will receive a Z-Code for free as part of registering a test. Palmetto stressed that the program isn't an attempt to retire CPT codes and that it has the authority to require special codes to gather usage data on claims.

"Palmetto … can require additional information be present on a claim in order to process the claim," a spokesperson explained. "We are not changing the CPT coding of the tests, just requiring the identifying information in the form of a Z-code."

Concern Over AMA's System

The MolDx Program comes as the AMA is implementing a new CPT coding structure for molecular diagnostics. CMS's decision to add McKesson's Z-Codes to its claims processing for molecular diagnostics is likely out of concern that the AMA's new coding system won't provide the level of test utilization granularity that the agency desires.

"Why was the MolDx program developed? It is reasonable to guess that Palmetto’s policy staff was concerned about the lack of AMA CPT coding tools to solve the current claims-processing problems of major payors," wrote Bruce Quinn, senior health policy specialist at law firm Foley Hoag, in a white paper discussing the significance of Palmetto's molecular diagnostics reimbursement program.

Although the AMA's Molecular Pathology Coding Workgroup aims to improve the reimbursement process through the development of new codes, some stakeholders argue that its efforts don't address the evolving needs of the molecular diagnostics industry.

The AMA workgroup has so far issued two types of codes for molecular diagnostic tests — Tier 1 codes for commonly performed analyte-specific tests and Tier 2 resource-level codes describing less common tests (PGx Reporter 3/16/2011).

Patrick Terry, who heads the pricing, reimbursement and market access practice at life sciences consulting firm Scientia Advisors, previously told PGx Reporter that AMA's two-tier coding structure presents "logistical and structural problems" that many diagnostic firms and other stakeholders will find restrictive. Terry reflected that many industry players find AMA's proposed coding regime to be "inadequate for current technology and … inadequate for innovative products to come."

More recently, the AMA proposed that multi-analyte, algorithm-based tests that it has reviewed and found to meet certain evidentiary criteria will receive a unique CPT code. However, multi-analyte tests that haven't been vetted or fail to meet AMA's evidentiary criteria will be given a different set of codes and be listed in a new appendix. Only tests listed in this appendix will be identified with their proprietary names (PGx Reporter 11/9/2011).

These multi-analyte, algorithm based tests are different from diagnostics described by the AMA's Tier 1 and Tier 2 codes in that individual procedures for multi-analyte tests are not reported separately, the tests are performed and available through a single laboratory; and they use algorithmic analysis to yield a single score or result. These types of "boutique tests" will likely comprise a significant portion of molecular diagnostics market as complex multi-marker-disease associations are validated.

The coding proposal for multi-analyte, algorithm-based tests was a particularly sticky point for AMA, since they are typically single-provider tests. According another paper written by Quinn, entitled "Tempest in the Melting Pot: Genomics Reimbursement in 2012," the AMA is reluctant to include proprietary names of such tests alongside CPT codes since such a move would be a way for payors to distinguish brand name tests available at a single source from generic laboratory procedures that are performed at multiple labs. The AMA may fear that such a distinction facilitated by coding could result in inflationary pricing for branded tests, Quinn wrote.

In contrast, most molecular diagnostics firms feel that payment for their products hasn't kept pace with inflation. At the IoM meeting in Washington, DC, this week, Russel Enns, chief regulatory officer at Cepheid, expressed this sentiment and further asserted that Congress should compel CMS to have a more transparent Medicare coverage process for molecular diagnostics.

Payors, meanwhile, are concerned about controlling costs through evidence-based use of medical services. With the $7 billion molecular diagnostic industry growing at 15 percent to 20 percent annually, payors want to keep a close watch on whether molecular tests are raising costs unnecessarily through inappropriate use.

"One thing we know from stacking codes is that, frankly, Medicare is paying a lot for a lot of genetic tests [and is] simply not doing it in an intentioned or well-reasoned manner," Louis Jacques, director of the coverage and analysis group at CMS, said at the IoM meeting.

By incorporating Z-Codes into Medicare reimbursement policies for molecular diagnostics, Palmetto is essentially attempting to provide the data on molecular diagnostic utilization that AMA's coding system would not provide. The AMA's new coding structure "may be helping to address some of the problems" with the stacked CPT coding, but it really does not get to this very simple concept of one code, one test," McKesson's Zubiller said.

"In order for the healthcare system, labs, providers, and payors to manage good, appropriate care, we have to be able to measure it," he added. "The Z-Code enables there to be one code for one test," and will enable payors to "track that test and its performance, and how it relates to the other parts of the care process."

Although Zubiller assured that the use of Z-Codes is not an attempt to sidestep the use of CPT codes, there is a chance that 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.

McKesson is currently working "with many payors, but Palmetto will be the first to implement Z-Codes as a requirement for coverage determination," Zubiller said.

At the IoM meeting, CMS's Jacques pointed out that if through the MolDx program Palmetto establishes the clinical utility for a test, and based on that data establishes a local coverage decision, it is then likely that other Medicare contractors will also adopt a similar coverage policy for that test. "Why on Earth would you reinvent the wheel if somebody has given you a pretty serviceable one?" he posited.


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

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