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November 2013 Clinical Laboratory News: Volume 39, Number 11


The New Battle for Reimbursement
What Does Medicare’s Summer of Doom Mean for 2014?

By Bill Malone

Over the summer, as Capitol Hill began its spiral toward a government shutdown, Medicare regulators starred in a drama of their own set in the lab community, stumbling through a protracted and messy transition to new codes and prices for molecular pathology tests. The Centers for Medicare and Medicaid Services (CMS) settled some questions in late September when it published the final prices for the new molecular codes that labs have used since January. The final prices look better than the agency’s first pricing attempt earlier this year, an average of 26% higher. But compared to the old stacked code system CMS retired in 2012, labs will still be taking a cut for many tests.

CMS has other plans for trimming lab reimbursement in 2014 as well. In July—at the same time that some Medicare contractors were giving up on figuring out molecular codes and paying nothing at all—CMS broke news that gave another shock to laboratorians: a new volley of cost-cutting plans that would impact all lab disciplines. These proposals re-price clinical pathology tests based on changes in technology, slash anatomic pathology in the physician office setting, and bundle lab services into hospital outpatient payments. CMS plans to publish final rules on these proposals November 1, giving laboratorians just weeks to read, understand, and prepare for what Medicare has in store for 2014.

If the final prices on molecular pathology offer any clues on the remaining trio of cuts, there may be just as many new questions as there are answers, according to Rina Wolf, vice president of commercialization strategies, consulting, and industry affairs at XIFIN, a revenue cycle management company. “Even though CMS and the contractors got their act together and started setting prices and paying for molecular tests, the problem is that what began as merely a coding exercise turned into a coverage and pricing exercise,” Wolf said. “Now Medicare contractors have deemed some molecular tests as non-covered services, and we’re hearing from physicians that suddenly their patients are being denied coverage for tests the physicians had been using for years.”

Blinded With Science

Even as molecular pathology has advanced rapidly over the past decade, as far as payers were concerned, most of these tests didn’t really exist. As long as labs billed using the old stacked codes, payers only saw line items of inputs and processes for each test that betrayed little about which analyte the test examined or how physicians used it. The new coding system CMS implemented this year introduced analyte-specific codes that identify individual tests. For payers, this meant untangling more than a decade of innovation and discovery in molecular biology all at once.

Moreover, molecular tests surfaced during an era in which CMS is moving aggressively to bend the cost curve of Medicare. With molecular tests suddenly visible this year, contractors balked at the prices they commanded, and CMS’s approach to pricing the codes quickly turned the 2013 rollout into a controversial and protracted misadventure. In a surprise move, CMS chose a gap-fill process to price the codes, asking contractors to start from scratch rather than transferring the prices of the original code stacks over to the new codes. Having never known which tests they paid for or why, Medicare’s local contractors stumbled through the spring and summer, with many simply not paying at all. CMS did little to help the controversy when it published interim prices in May, stunning labs with prices 20–30% lower compared to what they were paid before.

Finally, on September 30, 9 months after the new codes became mandatory, CMS released its final 2013–2014 molecular pricing decisions. On the one hand, these final prices represent an “incremental positive,” according to a report by PiperJaffray analysts. By their calculations, the mean prices increased by 15% compared to the old code stacks, due to a few outliers that rose sharply. However, the median price for the new codes turns that figure on its head, revealing a 15% drop (See Box, below).

Winners and Losers
New Pricing Hits Some Molecular Tests Harder Than Others

CMS recently set final prices for the new molecular pathology codes higher than their initial proposal over the summer. However, the median price dropped 15% compared to how CMS reimbursed molecular tests prior to the new codes, but many prices dropped by more than 50%. These cuts could have a big impact on companies that service niche markets and now bill for only a few codes. One the other hand, a select number of codes will see a significant boost in reimbursement compared to the past. Following are a few examples from the list of 65 codes for which CMS released final 2014 prices.

CPT Code
Description
Change
81206
BCR/ABL1
208%
81226
CYP2D6
154%
81310
NPM1 exon 12
261%
81207
JAK2
35%
81210
BRAF
-38%
81227
CYP2C9
-30%
81267
Chimerism analysis, post-transplant
-77%
81275
KRAS mutation analysis
-74%
Source: Piper Jaffray

CMS also raised a host of new questions. Although ostensibly a final set of codes and prices, the agency only set prices for 65 of the 116 total codes subject to the gap-fill process, leaving a swath of blank cells on its spreadsheet. Furthermore, contrary to normal policy, CMS appears to be allowing local Medicare contractors to issue lower prices if they so choose. Usually, final prices on the fee schedule must be followed by everyone.

A letter to CMS from the American Clinical Laboratory Association (ACLA) emphasized that labs are “greatly concerned about statements by CMS that carriers who priced a code below the national limitation amount (NLA) could continue to reimburse for the code at that lower rate after January 1, 2014 when the NLA is to take effect. This statement is inconsistent with the clear language of the gap-fill regulations, which states that after the first year payment for gap-filled tests is made at the NLA amount.”

Perhaps most concerning is that even where CMS has published a price, there is no guarantee of coverage, and in fact many contractors have decided now that they know what they’re paying for, they’ll pay no longer. Many of the new non-coverage decisions have hit pharmacogenetic tests, such as for genes related to cytochrome P450 enzymes that regulate drug metabolism. “The first tier of the molecular codes includes tests that have become standard of care and are very frequently ordered, yet somehow some of the payers are deeming them non-covered services,” Wolf said. “For physicians, these tests have already become an important part of practice protocols.”

To deal with payers’ skepticism of these tests, Wolf and other industry advocates want CMS to consider a new kind of coverage policy that would pay for promising molecular tests as evidence develops over time. To make this offer attractive to payers, financial risk would be shared among labs, payers, and patients.

In a white paper co-authored by Wolf and published by XIFIN, the authors suggest a model built upon the experience of Genomic Health when it launched its OncotypeDX test for recurrent invasive breast cancer. Genomic Health believed the test could reduce inappropriate use of chemotherapy, but had accumulated scant data on clinical utility. In response, health insurer UnitedHealthcare led an effort with Genomic Health to develop a risk sharing model, where UnitedHealthcare monitored use of the test, and if physicians ordered the test but did not take action based on results, the insurer could renegotiate reimbursement.

CMS struggles with how to pay for cutting-edge diagnostics because these tests are so different from other types of medical services the agency dealt with in the past, according to Bruce Quinn, MD, PhD, senior health policy specialist at Foley Hoag, LLP. Quinn believes that policymakers lack an “anchor” for pricing molecular diagnostics. “CMS is used to pricing things like office visits and durable medical equipment—things that don’t change very fast,” he said. “CMS is not really designed to price the truly complex, innovative product we see in molecular pathology.”

Increasingly, payers have become aware of their own shortcomings, and more of them now turn to health technology assessment firms for guidance. But even the experts at these firms don’t always offer the answers some labs would like to hear. “When we perform a health technology assessment, we look at the published evidence, and there are a lot of these tests on the market that have little or no published evidence associated with them,” said Diane Allingham-Hawkins, PhD, senior director of the genetic test evaluation program at Hayes, a health technology research and consulting firm. “We find that there are a handful that have really great evidence supporting them, there are quite a bit more that have zero evidence behind them, then a whole lot in the middle.”

Hayes considers information from a variety of sources, such as Food and Drug Administration submissions, conference proceedings, and information on company websites, but only published, peer-reviewed literature affects the final rating of a test Hayes examines, Allingham-Hawkins explained. “Some tests will have the potential to affect patient outcomes, but no evidence that they actually do. So we end up giving an equivocal reading,” she said. “The leap from clinical validity to clinical utility is often not taken before the tests are on the market. So it means that we simply don’t know if the test is going to make a difference or not.”

Allingham-Hawkins advised labs marketing new molecular tests to make sure they perform and publish robust studies in peer-reviewed literature. “That doesn’t mean we need randomized controlled trials for everything, which is actually very unrealistic for genetic tests,” she said. “The biggest problem that I find is that they simply don’t publish their results. Often a lab’s website will say, ‘internal data’—but that’s completely useless to us.”

Learn More About Reimbursement in 2014

Keep up-to-date on all the big policy changes that Medicare and private payers have in store for 2014. AACC will host a webinar, “Reimbursement 2014: Survival Strategies for Today’s Lab,” on Wednesday, December 4, 2–3 p.m.

Experts Charles Root, PhD, CEO at CodeMap and Peter Kazon, JD, Senior Counsel at Alston & Bird will cover the final decisions CMS makes in November on the physician fee schedule and the clinical lab fee schedule, as well as changes private insurers are making to reduce lab reimbursement.

Register for the webinar online. The AACC member price is $179. Non-members pay $299.

Interpreting the November Final Rules

If CMS has closed one chapter on molecular codes, it is ready to re-write the book about reimbursement for not only the rest of the clinical lab fee schedule, but also many other areas of the lab. This month CMS will issue final rules for its outpatient prospective payment system (OPPS) and the physician fee schedule that could have far-reaching implications for labs.

All three of the lab-related provisions in these rules demonstrate CMS’s continued drive not only to trim costs wherever possible, but also to push more and more services into bundled payments that shift financial risk away from Medicare and into the hands of providers.

One of the most unexpected proposals in the physician fee schedule could mean big changes to the lab fee schedule in 2014 and beyond. CMS wants to systematically reevaluate reimbursement for laboratory tests outside of its normal process of updating the lab fee schedule. The plan would create a new system for evaluating the cost of labor, reagents, instruments, and other variables, and scaling back payment when the agency determines that technological changes have made it cheaper to perform a test.

“Re-pricing the lab fee schedule based on technical costs has a veneer of feasibility to it, but in reality it’s a long, long way away from a reagent or some other supply to the finished product delivered to the physician. That’s such a long pathway that it’s pretty hard to know how CMS could accurately get from one to the other,” Quinn noted. “There are so many other things going on—IT systems, regulatory costs, staff, management, quality controls—it’s not going to be easy for CMS to implement this, at least not very quickly.”

In a letter to CMS, AACC noted that the proposal would put labs in double jeopardy, due to a provision of the Affordable Care Act that requires CMS to scale back any positive updates to the lab fee schedule to compensate for inflation with a so-called productivity adjustment. “The agency uses the Bureau of Labor Statistics (BLS) definition for multifactor productivity to make this yearly correction. The BLS description includes factors such as research and development, new technologies, economies of scale, managerial skill, and changes in the organization of production. Thus, laboratory reimbursement is already reduced annually for technological improvements,” wrote AACC President Robert Christenson, PhD, in the letter.

In most years, labs either have received no fee increase or suffered a decrease. As a result, a lab test reimbursed at $10 in 1984 was reimbursed at $8.71 in 2011, a 13% drop before including inflation, according to an analysis by ACLA. As recently as 2012, Congress cut the lab fee schedule by 2%, on top of a second 1.75% negative adjustment applied as part of the Affordable Care Act through 2015.

On the separate OPPS proposed rule, CMS also wants to bundle clinical lab services into hospital outpatient payments. According to AACC, ACLA, the College of American Pathologists (CAP), and other groups that have protested this provision in the proposed rule, the problem lies with Medicare’s complex ambulatory payment classification (APC) system for outpatient services, which works very differently than the physician fee schedule. APCs are small bundles of related services that group outpatient reimbursement based on the service provided to the patient. They package closely-related items such as venipuncture, medical/surgical supplies and equipment, introduction of needle catheters, common pharmaceuticals, and surgical dressings.

So far, CMS has allowed clinical laboratory tests, as well as radiography and some other services, to remain outside the APC system, paid on the basis of fee schedules. Now, CMS would like APCs to swallow up diagnostics as well, a move experts warn could amount to little more than large cuts to the lab. So far, CMS has failed to explain just how APCs might be adjusted to compensate for the addition of laboratory testing.

The change would not only affect labs, but patients as well, according to comments on the rule from AACC. “By placing laboratory tests within APCs, laboratory tests would be included as part of the APC deductibles and cost-sharing arrangements, increasing the financial burden on consumers, particularly the elderly and the young,” AACC President Christenson wrote. “If CMS decides to move forward with this proposal, we encourage the agency to include the full laboratory fee amount in the APCs…the cost of performing a test doesn’t go down just because it is paid differently.”

The bundling provision would have a big impact on independent labs, which would be reduced to negotiating payment with hospitals without the anchor of the clinical lab fee schedule. Independent labs would also have to take pains to avoid double-billing when they do not know a physician ordered the tests as part of an APC-packaged service.

In addition to finding new ways to cut the lab fee schedule, the proposed physician fee schedule also would make painful cuts to anatomic pathology, slashing up to 75% from codes for common services, such as flow cytometry, immunohistochemistry, and fluorescence in situ hybridization. CMS’s logic is that rates on the physician fee schedule should not be higher than those paid under the hospital OPPS. The proposal sets a cap on the technical component of pathology services based on the OPPS rate, resulting in a 25% cut to independent labs for these services.

CMS calls these prices on the physician fee schedule “misvalued codes,” but critics of the provision point out that CMS calculates reimbursement rates for APC codes and physician fee schedule codes in very different ways. For example, APC codes not only package related services, but also serve as generic categories of payment for different kinds of services. Prices for the many procedures included within an APC category are averaged together, explained Jonathan Myles, MD, a pathologist at the Cleveland Clinic and chair of the CAP Economic Affairs Committee.

“For each APC rate, there is an average of 13 individual pathology codes. And within a given APC rate, the costs for individual codes included in that APC can vary as much as 100 percent,” Myles noted. “By definition, within a given APC rate, since it represents an average, some codes are going to be overpriced compared to average, and some codes will be underpriced compared to average. Holding up the physician fee schedule rate to the APC rate is comparing apples and oranges. Congressional directives require that reimbursement rates for each code take into account differences in practice expense which occur in different practice settings.”

Quinn questioned whether CMS even has authority to circumvent the legal requirement that pathology code valuations be based only on physician practice expenses, which are surveyed by the American Medical Association. He emphasized that “you can’t come from the premise that the CMS APC prices are real prices. It isn’t even a comparison of what hospitals charge compared to what pathologists charge, because these numbers are filtered through all kinds of complicated and arcane accounting mechanisms at CMS.”

If these proposed anatomic pathology cuts make it into the final physician fee schedule, labs will need to assess the impact on their business strategy, according to Myles.

“Labs need to know what percent of their codes are billed on the physician fee schedule versus the APC or diagnostic related group (DRG) systems, and they also need to know what specific codes they bill and in what volume,” he said. “The overall effect of these cuts if they take effect would be about 5 percent if you bill all codes; however, if you bill solely on the physician fee schedule, as some independent laboratories do, then your code reduction would be 26 percent overall. And if you’re a specialty lab, there are some codes reduced up to 75 percent. So you really need to know what you’re billing on what fee schedule—not only for this November 1 final rule announcement, but going forward, as all healthcare costs are examined, laboratories need to know how they’re generating their revenue.”

Looking Ahead

As CMS seems to be trying to make fee schedules nearly unbearable for physicians and labs, moving away from fee-for-service has at least the potential for positive financial impact on advanced diagnostics, with healthcare systems and payers determining how much they’re willing to pay for tests based on outcomes, rather than the strange brew of economic inputs and formulas that CMS has so much trouble with.

Both CMS and providers need to think some new thoughts, according to Quinn. “If it’s a fee-for-service system, people will have to segregate out the things that take a lot of R&D innovation and not try to price them just based on the cost per test tube,” Quinn said. “In the future, if we move to more integrated systems that are like Kaiser or accountable care organizations, running within global budgets, then a test can live or die based on whether it’s effective and whether it’s cost-effective in that system. Congressmen are grandstanding saying that we have to kill the fee-for-service system. While that’s far from certain, if we do somehow eliminate fee-for-service, these tests will survive based on their own value as judged by real people.”

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