Pharmacogenomic Testing Draws $26 Million Recoupment from Medicare Audit

Repayment demand to pharmacogenomic testing lab could be a sign that federal payers can't afford PGX

This is an excerpt from a 1,340-word article in the January 9 issue of THE DARK REPORT. The complete article is available for a limited time to all readers, and available at all times to paid members of the Dark Intelligence Group.

CEO SUMMARY: Pharmacogenomic testing is expected to be a linchpin to the practice of precision medicine. Yet few lab executives and pathologists know that a PGX testing lab company has been audited by Medicare and hit with a $26 million demand for repayment for its PGX test claims. This is an important development, and it may be an early sign of resistance by government and private payers to paying for PGX tests. 

PHARMACOGENOMIC TESTING MAY BE the wave of the future, but is it also too costly for the healthcare system to handle? That’s the question raised by an ominous development in Kentucky, where a lab company, hit with a $26 million bill from a Zone Program Integrity Contractor (ZPIC)—is in bankruptcy and fighting for its life.

The only details available about this case are contained in the documents filed on Nov. 8 by Pharmacogenetics Diagnostic Laboratory LLC (PGXL) to initiate a Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Western District of Kentucky. Officials at PGXL declined to discuss any aspect of this case.

The claims in question were for pharmacogenomic testing and the auditor ruled that 100% of the claims it inspected post-payment should be denied. THE DARK REPORT believes this is a significant development.

Is your lab engaged in pharmacogenomic testing, and have you encountered any resistance from federal payers? Please share your experiences with us in the comments below.

This audit fight might be an early sign that federal health programs consider pharmacogenomic tests—essential to the practice of precision medicine—to be a clinical service that would bust their budgets if tens of millions of Americans were candidates for this testing in coming years. Thus, could this audit be an early signal from federal health officials that they are not prepared to cover pharmacogenomic tests? (See related article.)

Independent of that conjecture, every laboratory in the United States has reason to be concerned if the private contractors Medicare retains to audit clinical labs have the power to make such sweeping assumptions during a random sample audit of lab test claims. This is true whether the audit is conducted under the Recovery Audit Contractor (RAC) program or the Zone Program Integrity Contractor (ZPIC) program.

Documents in the PGXL bankruptcy case explain in chilling detail how PGXL learned of the audit findings:By letter dated October 4, 2016, CGS Administrators, LLC (“CGS”), the Medicare contractor for region J15 (Medicare Part B) issued an overpayment demand to PGXL. The overpayment demand is the result of an audit conducted by AdvanceMed, the Zone Program Integrity Contractor (“ZPIC”) for Medicare Part B in Kentucky. AdvanceMed conducted a post-payment audit of thirty (30) patient records for claims with dates of service from January 1, 2012, through September 23, 2015. As a result of its review, AdvanceMed imposed a 100% denial rate for these claims, which it then extrapolated to the universe of claims submitted by PGXL during this same period. The extrapolation resulted in the $26,333,173.00 overpayment demand issued by CGS.

auditor’s Methods Disputed

After examining records from 30 patients, the auditor declared all 30 to be falsely billed and then extrapolated to include all claims over almost three years to arrive at a staggering demand for overpayment of $26.3 million, the documents show.

PGXL officials disagreed with AdvanceMed’s findings, its sampling methods, and extrapolation to reach the amount to be repaid. The lab company also began the administrative appeal process by filing a redetermination request with CGS on Nov. 3. CGS had until about Jan. 3 to issue a decision.

“Debtor believes that the ultimate liability, if any, will be significantly less than $26 million,” the filing said. In the documents, PGXL described itself as a commercial and research laboratory that is working to bring pharmacogenetic drug sensitivity testing into the mainstream. The lab offers molecular diagnostic testing and interpretive services to physicians, clinics, and hospitals; has 21 employees; and expected gross revenue in 2016 of about $8.8 million.

overpayment Demand

This ZPIC audit and outcome is significant. It means that the $26 million overpayment demand is an amount that equals a full three years of revenue for PGXL, a lab company that has been in business only 12 years! THE DARK REPORT is unaware of any precedent in the lab industry where a Medicare auditor has essentially declared such a high proportion of the lab’s Medicare claims to be overpayments and subject to recoupment by the Medicare Program.

Pharmacogenetics Diagnostic Laboratory LLC, has been a pioneer in the fields of exome sequencing and pharmacogenomic testing. It was founded in 2004 by Roland Valdes Jr., PhD, along with Mark W. Linder, PhD. Both are professors of pathology at the University of Louisville.

Valdes serves as president of PGXL and is a tenured professor of Pathology and Laboratory Medicine and of Biochemistry and Molecular Biology at the University of Louisville’s School of Medicine. Linder is PGXL’s executive vice president of operations and a professor in the Department of Pathology and Laboratory Medicine at the University of Louisville and assistant director of Clinical Chemistry and Toxicology at the University of Louisville Hospital.

In response to a request by THE DARK REPORT, Valdes said he could not comment for this article.

In an article describing Medicare’s ZPIC initiative, the American Health Care Association (AHCA) says: “The most serious audit or investigation that you can be involved with is with a ZPIC.”


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