Skip to main content
Premium Trial:

Request an Annual Quote

Palmetto Cease-and-Desist Letter to Reimbursement Expert Raises Questions About Pricing Transparency


NEW YORK – Medicare Administrative Contractor Palmetto GBA recently sent a cease-and-desist letter to Bruce Quinn, a well-known diagnostic reimbursement expert, asking him to delete from a public blog and his own files a document containing lab test pricing and coding information. Palmetto's lawyer asserted in the letter that the document, known as a master edit file (MEF), is the contractor's intellectual property.

However, according to Quinn and a market analyst's report, the file was obtained through a Freedom of Information Act (FOIA) request to the US Centers for Medicare & Medicaid Services, and as such, the agency has already deemed the release of the information to be in the public interest. Quinn asserts that the analysis he has done using the MEF data demonstrates its value to the public, as it reveals instances where the federal government may be overpaying for certain molecular tests. The information is also of competitive interest to labs who often face a difficult reimbursement environment and are under pressure to lower costs. As such, some labs may wish to hold the type of test coding and payment information in the MEF as business secrets.

However, FOIA grants the public the right to request records within federal agencies if the data doesn't fall under one of nine exemptions, for example, information that invades personal privacy or trade secrets obtained outside of the government. Quinn's experience with Palmetto, which CMS has said it is looking into, raises questions about whether a government contractor can legally restrict public access to information obtained under FOIA, particularly a document that contains information about how the government disburses taxpayer funds.

Quinn's exchange with the MAC comes at a time when rapid growth in the genetic testing industry is increasing Medicare spending on laboratory testing. The US Department of Health and Human Services' Office of Inspector General recently reported that Medicare spending on lab tests in 2018 was $7.6 billion, up 6 percent from $7.1 billion in 2017. The OIG noted that although payment rates decreased for 75 percent of lab tests, the savings were erased largely by greater spending on genetic tests, which was approximately $1 billion in 2018 compared to around $500 million in 2017. 

In step with increasing genetic testing expenditures, the OIG is also ramping up efforts to track fraudulent billing practices in the space. For example, OIG and its law enforcement partners last year brought charges against 35 individuals who had illegally billed Medicare more than $2.1 billion for genetic tests. 

Moreover, Palmetto's actions seem out of step with CMS's recognition that greater pricing transparency in the healthcare sector is in the public interest. In January 2014, CMS gave notice in the Federal Register of a new policy where it would determine on a case-by-case basis whether to grant FOIA requests seeking information on Medicare payments to physicians. In making such determinations, CMS said it would weigh whether the privacy interests of individual doctors outweighed the public's interest in having access to this information. 

After its FOIA policy took effect in March 2014, CMS received several requests for the release of physician payment data, at which point the agency decided it would benefit the public by regularly publishing Medicare payment for services — including lab tests — furnished by doctors and other healthcare professionals.

"Prior to deciding to release physician payment information … the Department weighed the privacy interests of physicians and the public's interest in shedding light on government activities and operations and has determined that the public's interest outweighs the privacy interests," CMS wrote in an April 2014 letter to American Medical Association CEO James Madara informing him of this change. "The Department concluded that the data to be released would assist the public's understanding of Medicare fraud, waste, and abuse, as well as shed light on payments to physicians for services furnished to Medicare beneficiaries, which are governed by statutory requirements that CMS must follow." 

CMS further explained that the information it would publish would identify service providers by their National Provider Identifier (NPI) and the services they billed Medicare for by Healthcare Common Procedure Coding System codes (i.e. CPT codes), and detail the average submitted charges, average allowed amount, the average Medicare payment, and the number of beneficiaries who received the service.

Quinn maintains that the activities for which he received a cease-and-desist letter from Palmetto are in line with CMS' policies aimed at price transparency and the agency's goals to shed light on Medicare waste and fraud. Furthermore, he noted that most of the information in the document in question is already publicly available, and the information that is not yet public will eventually become so when CMS publishes Medicare payment information for physician and lab services, as it has annually since 2015. (Each year, the released payment data is for two calendar years prior.)

"This makes it nonsensical to say that Palmetto's payment rates to labs are entirely a business secret of Palmetto," Quinn said.

'Case-by-case basis'

The MEF in question was created by Palmetto and contains the Medicare payment rates to labs (identifiable by NPI) for 22,000 lab tests (identifiable by CPT codes). Investment firm Nephron received the MEF from CMS, under FOIA, with the specific goal of pinpointing what the government was paying one lab, Myriad Genetics, for GeneSight, a multi-gene, combinatorial pharmacogenetic test that helps doctors understand how patients' genetic variations can impact their ability to respond to certain depression drugs. During an August earnings call, Myriad executives said that GeneSight was being reimbursed by Medicare at a new rate but declined to disclose the price.

In a September note, titled "FOIA Says: New GeneSight Price is $1,569," Nephron analyst Jack Meehan alerted investors of the new Medicare price. Although the new rate is a 28 percent cut to GeneSight's prior Medicare price of $2,184, it is still more than three times what another lab, AutoGenomics (acquired last year by Prescient Medicine), receives from CMS for its PGx test (around $450, CPT code 0078U), which identifies patients at risk for opioid dependency. Should that test be considered too dissimilar to Myriad's GeneSight, then Quinn would point to other panel tests, such as those covered by CPT code 81432 — describing a sequencing panel of 10 or more genes, including BRCA1/2, for assessing breast cancer risk — which carries a payment rate of $679.

The MEF confirmed that Myriad was using CPT code 81479, a nonspecific molecular pathology code that labs use for tests that don't have a proprietary code or aren't described by existing CPT codes, to bill for GeneSight. This bit of information was already known from publicly available CMS data, which showed that Assurex, the company that developed GeneSight and which Myriad acquired in 2016, used CPT code 81479 to bill for GeneSight. In fact, Meehan pointed out that based on CMS data from 2017, GeneSight received the biggest share of payments billed under CPT code 81479 ($31.5 million).

Meehan told investors that it is unusual for a test with GeneSight's level of utilization to not have a proprietary or unique claims code, which would allow Medicare to better track spending. He cited Exact Sciences' Cologuard and Genomic Health's Oncotype Dx as examples of tests with high Medicare utilization that also have their own CPT codes.

"Our FOIA response helps to shine better light on GeneSight pricing, which previously has been a mystery to the investment community," Meehan wrote.

Ultimately, there were two pieces of new information related to GeneSight that Meehan was able to glean from the MEF. One was the new GeneSight Medicare price, and the other was that the test now had a new Z-code, which are unique identifiers for molecular tests originally developed by McKesson to improve payors' ability to track utilization. Palmetto now owns Z-codes. 

In a statement, Chip Parkinson, Myriad's executive VP of payer markets and reimbursement, said that it is the company's understanding that certain aspects of CMS and contractors' test pricing and coding determinations, such as Z-codes, are proprietary information. As such, industry stakeholders may have to pay a subscription fee to access this information, Parkinson said, and there may be rules or procedures associated with the disclosure of this information.

Quinn, who is a consultant to several of Myriad's competitors in the PGx and hereditary cancer risk testing markets, discussed the new GeneSight pricing and Z-code in a post on his blog, and uploaded for reference the MEF document, which he obtained from Nephron. Shortly thereafter, Quinn received a cease-and-desist letter from Palmetto's law firm Barnwell Whaley Patterson & Helms, asserting that the entire MEF is the intellectual property of Palmetto, and that Quinn must delete the file from his blog and all copies in his possession. The law firm further demanded that Quinn provide the names and contact information of those who may have downloaded the MEF from his blog and anyone he distributed the file to.

Quinn has deleted the MEF file and redacted the GeneSight Z-code from his blog post, though the pricing analysis remains. However, he doubts Palmetto's claim that the entire MEF is proprietary, especially since much of the information in the file is already accessible on its Diagnostics Exchange (DEX) portal within MolDx, a claims processing and utilization tracking program Palmetto operates for molecular diagnostics. He acknowledged that without Nephron's access to the MEF under FOIA, the new GeneSight price would not have been known. But, this information would eventually have become public, he pointed out, with CMS's annual release of physician and lab payment data. 

While Palmetto may assert its right to control the use and dissemination of Z-codes, beyond that "it's not clear where [Palmetto's] intellectual property begins and ends," Quinn said.

Paul Levy, an attorney with Public Citizen Litigation Group, explained that if a company holds the copyright to specific content, for example, the New York Times holds a copyright to one of its published articles, then even if that article is released by the government as part of a FOIA request, that article can't be republished. That said, he also wondered what specifically Palmetto is claiming as its intellectual property. The cease-and-desist letter mentions that Palmetto "owns" Z-codes, and that these codes "are not for public distribution or publication," but it also appears to say all the contents of the MEF is Palmetto's intellectual property. "So, what is the claimed intellectual property?" questioned Levy.

He found particularly problematic the part in Palmetto's letter asking Quinn for the names of those who may have downloaded the MEF. "If I were Quinn, I would tell them to go jump in a lake about disclosing his users," Levy said. "If they want to pursue the identities of the downloaders, they can sue the downloaders as Doe defendants and serve a subpoena seeking the information. Then, a judge will decide if the claim has any merit."

Meanwhile, Quinn has reached out to CMS for more clarity. "[T]he FOIA process for detecting and reporting overpayments has worked well for many years, and I believe it is disruptive for MACs to take the legal position that federal funds overpayments are business secrets," he told the agency in an email. The agency replied that it was unaware that one of its contractors had sent a cease-and-desist letter revoking access to a document the agency had released under FOIA, and that it is looking into the questions this raises.

In response to emailed questions for this article, a CMS spokesperson confirmed that the agency is looking into the matter, but also noted that "on a case-by-case basis Medicare Administrative Contractors can claim information as proprietary."

A spokesperson for BlueCross BlueShield of South Carolina, which Palmetto operates under, declined to provide comments for this article.

Toward greater transparency

Historically, labs have not publicly commented on what commercial and government payors are paying for their tests, maintaining them as business secrets. Payors have also tended to hold this line. Several lawyers representing labs declined to comment for this article.

Charles Mathews, principal at consulting firm ClearView Healthcare Partners, noted that commercial and government payors may not like to make public their agreed upon payment rates with specific labs, because it limits their overall negotiating power. "Everybody wants to feel like they are getting a deal," Mathews said. "[Payors] are open to secrecy, so labs are willing to give them better discounts."

Quinn wrote in his blog post that his analysis based on the MEF data suggests that Medicare contractors in the MolDx program appear to be shielding some tests at some "lucky labs" from reduced prices stipulated under the Protecting Access to Medicare Act (PAMA) of 2014.

With the enactment of PAMA, a lot of pricing information is now public, since CMS must publish the private payor rates it uses as its base for Medicare payment of lab tests every three years. This has increased pricing transparency, but Mathews noted that there are segments of the industry, for example, tests that are exempt from reporting private payor rates based on volume, that will never be priced under the new law. Notably, the unspecified CPT code 81479 — that Myriad uses for GeneSight and many other labs are increasingly using — is not priced under PAMA.

Once pricing for specific test codes is established through PAMA on the clinical lab fee schedule then MACs must adhere to that pricing, Mathews recognized. But in his experience, contractors appear to have more leeway in setting rates for certain types of tests in those gap years before PAMA kicks in. "That's where the flexibility is," he said, acknowledging, however, that some of Quinn's analysis on his blog does appear to be highlighting instances where certain codes and associated rates have been established for tests, but contractors are not enforcing them.

Still, even if the price of a specific test, such as GeneSight, may eventually become public through CMS's transparency policies, payors and labs may be motivated to keep payment information under wraps, even if only for a time, Mathews recognized.

However, if after looking into Quinn's experience with Palmetto CMS ultimately decides that the contractor was right to block public access to test pricing information, it may raise even more questions as to how that squares with its own, as well as the Trump Administration's, push toward greater pricing transparency in healthcare.

For example, following an Executive Order from President Trump to increase pricing transparency last year, CMS published a final rule in November 2019 requiring hospitals to make public all "standard charges," including negotiated prices with commercial payors and discounted cash prices, for services provided in an in-patient or out-patient setting. The American Hospital Association sued CMS trying to stop implementation of the rule, but a federal judge in June dismissed the lawsuit. US Department of Health and Human Services Secretary Alex Azar called the judge's decision a "resounding victory for President Trump and HHS's agenda to lower Americans' healthcare costs."  

Specifically, in the lab testing space, despite increased pricing transparency with the development of tier 1 and tier 2 molecular pathology codes and PAMA, there are still blind spots that make it difficult for payors to pinpoint which specific tests are contributing to inappropriate and wasteful spending.  

Meanwhile, government spending on lab testing, particularly on genetic tests, is on the rise. CMS previously estimated that the implementation of PAMA would yield savings of $670 million in clinical lab test payments in 2018. The OIG's recent analysis of 2018 data, however, revealed that the savings didn't materialize partly because Medicare paid out $969 million on nearly 1.8 million genetic test claims compared to $496 million on 950,000 claims the prior year. 

Specifically, Medicare spending on proprietary tests, such as multi-analyte algorithm assays, shot up to $422 million in 2018, from $291 million in 2017, while spending on genomic sequencing procedures tripled year over year from $20 million to $59 million.

"Transparency is important when spending is increasing at a fast pace [in order] to understand the reasons for the increase," said Lee Bendekgey, chief policy officer at Invitae, a firm that aims to expand access to genomically informed care to more patients by lowering costs.

In the era of personalize medicine, as genetic testing utilization increases, payors are instituting prior authorization policies and engaging third-party entities, such as lab-benefit managers, to control costs. In this environment, Bendekgey believes even greater openness around pricing is needed in order to understand the cost-effectiveness of novel interventions.

"If more people are getting tested and better care is being delivered, that's not a bad thing," he said. "On the other hand, if expensive tests, particularly proprietary tests, are being ordered more frequently, and the result has not improved care, then that should be considered."

Competitive interests

Quinn, who is a consultant for Invitae (a company that competes with Myriad) and a former medical director for California's Medicare program, said his aim with the types of analysis he posts on his blog is to help Medicare identify irregularities in coding and pricing data that it may have missed but which point to wasteful spending or fraudulent billing practices.

Medicare contractors like Palmetto are required to adhere to CMS's policies, including the National Correct Coding Initiative (NCCI) manual. In the case of panel testing, for example, the coding manual stipulates that when there is a CPT code for a test gauging multiple analytes, a lab analyzing all the analytes for a patient should bill the panel code, instead of billing separately for each individual analyte, which can result in overpayment. This latter form of billing, called code stacking, is a practice payors have been trying to quash for years. Quinn said his analysis is essentially catching instances of code stacking not allowed according to the NCCI manual and other irregularities, such as potential overuse of the unspecified procedure CPT code 81479. "I have repeatedly informed Palmetto of some of the same errors from year to year," he said.

To do this analysis, he uses data that is either already publicly available or that he has obtained from CMS and contractors via FOIA. For example, he used publicly available data from CMS to identify that in 2015, the MolDx program was paying much more than the allowed clinical lab fee schedule rate for EGFR testing to some labs, particularly Genoptix, which NeoGenomics acquired in 2018.  After Quinn pointed this out, the overpayment was corrected, he said.

More recently, Quinn has alerted Palmetto that some labs may not be following the contractor's billing instructions for Lynch syndrome panel testing and stacking analyte-specific codes, resulting in payments of $3,000 instead of the $1,220 that is allowed. Additionally, he has alerted Palmetto that labs may be overusing the unspecified procedures CPT code 81479 and receiving higher payment for tests that they can otherwise bill using existing CPT codes for panel tests with lower pricing.

Quinn in his blog states there seem to be irregularities in coding and billing information in Palmetto's MEF for tests performed by Caris Life Sciences and Sonic Healthcare. Sonic did not reply to a request for comment, but a Caris spokesperson said, "that the Z-code Bruce Quinn attributed to the company does not, in fact, belong to Caris. Any attempts to connect that Z-code to Caris would be inaccurate." Quinn clarified that in his blog he is simply claiming that the "MEF has a cornucopia of errors in it" and he further noted that there is no way to tell from information in the file whether listed tests are still ordered. 

Quinn's analysis of how various labs are billing and what they're getting paid is of competitive interest to his clients like Invitae, which closely tracks what payors are spending on its tests compared to its competitors. In 2017, Quinn identified that certain labs in Utah and Southern California, may have been getting paid much more than what was seemingly allowed under PAMA for next-generation sequencing panel tests for hereditary cancer risk that gauge BRCA1/2 genes alongside other relevant genes. This struck Invitae as unfair, since according CMS's coding instructions, it had been billing for its hereditary breast and ovarian cancer risk test using a panel code and getting paid much less than its competitors.

Invitae first presented this information to its Medicare contractor Noridian, to Palmetto (since it runs the MolDx program), and to CMS. According to Bendekgey, the Medicare contractors maintained that no improper billing and payment had occurred. In order to uphold its responsibility to its investors, Bendekgey told Palmetto and Noridian that if they considered the billing practices of these other labs to be proper then it's only fair that Invitae should also be allowed to bill the same way.

"At that point, I received an email [from Noridian] telling me that if Invitae changed its billing practices that they would launch an investigation of our billing practices," he said. "We decided it wasn't worth it."

Invitae currently bills using codes specifically describing analysis of BRCA1 and BRAC2 genes when doctors order testing for only those two genes. However, for the most part, doctors now want to know whether patients have mutations in a range of hereditary breast and ovarian cancer risk genes, and in those cases, Invitae bills using the panel code. 

Sometime after Invitae's exchange with CMS and its contractors, Elaine Jeter, who was Palmetto's director at the time, filed a complaint against Myriad on behalf of the government, alleging that the Utah-based company was inappropriately billing for its multi-gene hereditary cancer risk panel, MyRisk, resulting in much higher payment than what it would receive if it billed using codes the contractor had instructed it to use. The OIG launched an investigation based on Jeter's complaint, though the Department of Justice decided not to intervene. Myriad ultimately decided to put the case to bed by paying $9.1 million. As part of the settlement, the company has denied any wrongdoing and asserted that the "key allegations made in the complaint were false."  

"Myriad Genetics seeks to follow Medicare guidelines, and 97 percent of private insurers have coverage for Myriad hereditary cancer tests," said Parkinson, noting that the company is transparent about test costs and provides payment plans and financial assistance to reduce out-of-pocket costs for eligible patients. "Through our Myriad Access Program, we offer personalized cost estimates so patients know the cost of their genetic screen or test up front," he said.

In the public interest

In a recent article in Health Management, Policy & Innovation, Robert Metcalf, CEO of health technology firm Concert Genetics, along with several economists, made a broad appeal for increasing pricing transparency in the US healthcare system to make care more affordable to patients. Metcalf and colleagues cited data estimating that 25 percent of healthcare spending in the US last year was wasteful, amounting to $935 billion. And the top two drivers of unnecessary spending were administrative complexity and pricing failure.  

In the lab testing space, complexity in billing and coding has increased in step with greater utilization of genetic tests. Concert Genetics analyzed millions of genetic testing claims and found little consistency in the way labs bill commercial payors for tests. For example, there were nearly 10,000 distinct code combinations for oncology tumor panels, around 4,300 code combinations for pharmacogenetic tests, around 2,200 code combinations for hereditary cancer test panels, and around 650 code combinations for non-invasive prenatal testing.   

Given this variability, payors may stipulate pricing for specific codes, but as long as labs can bundled codes together to bill for a test, payors don't have full view as to whether a lab is following coding requirements and billing the allowed amount for a particular test. In the absence of greater visibility into the sources of increasing test spending, commercial payors are turning to prior authorizations and laboratory benefit managers to enforce coverage policies and curtail inappropriate expenditures. But this adds another layer of administrative complexity.  

"We definitely need more price transparency in the healthcare system," Metcalf said. Concert, for its part, is using real-world data to figure out prices for genetic tests. The company has developed machine-learning applications to identify and correct coding errors on claims for genetic tests, as well as the Concert Coding Engine to guide consistent coding practices. Some labs won't like these tools aimed at greater transparency because it may lead to lower test prices, but commercial payors are certainly using insights from these tools, for example, when forming a network of preferred labs that will conduct high-quality genetic testing at lower average costs.   

While Concert is using automated tools to unravel genetic testing coding and pricing complexities in the commercial insurance setting, Quinn is arguably doing the same through his manual analysis of government payment data. Whether test pricing information comes from commercial or government payors, the public benefits from transparency, Metcalf said, particularly at a time when consumers are being asked to pay for a greater share of their healthcare costs.

"Whether commercial or government, consumers care about healthcare costs because we're paying for it out of our paychecks, either through higher private insurance costs or in the form of increased taxes," Metcalf said. "That's why it's in the public interest. As consumers, we want to know what's going on because it's our money."

For these same reasons, Invitae's Bendekgey finds Palmetto's attempts to block Quinn's efforts to pinpoint government "wastefulness" disturbing. "These are taxpayer dollars that are being spent. This is information that is subject to a FOIA request," he said. "These are contractors operating under a government mandate."