Payers Move to Pre-Authorize Expensive Genetic Tests

Opportunity for labs to be paid on value and not as a commodity!

CEO Summary: Pre-authorization of expensive genetic and molecular tests is fast-becoming a priority for most of the nation’s health insurers. For clinical labs and pathology groups that don’t respond, this trend is a threat. On the other hand, because payers need all the skills and knowledge that labs possess to intelligently manage utilization of molecular testing, there is an opportunity for the lab industry to deliver a new value stream to payers that triggers value-based reimbursement for these new laboratory services.

Part One of Three Parts

PRE-AUTHORIZATION of expensive genetic and molecular tests is the big trend among the nation’s largest payers. For clinical labs and pathology groups, it is a trend which should not be ignored.

“Health insurers are reacting to the rising cost of genetic and molecular testing,” stated Matthew B. Zubiller, Vice President, Advanced Diagnostics Management, for McKesson Corporation, in San Francisco, California. “When faced with any new healthcare technology or prescription drug which quickly becomes a major cost, payers have a time-tested response—to help control appropriate use, they either deny coverage requests for these new procedures or require pre-authorization.”

As a trend, payer requirements for pre-authorization of genetic and molecular tests have the potential to stratify the nation’s clinical laboratories and pathology practices into one of two groups. One group will be those labs approved as in-network providers of genetic tests. The other group will be out-of-network labs which, lacking a contract, will not be among a health insurer’s preferred service providers.

“Before developing an appropriate strategy for their laboratory organization to respond to this new trend, pathologists and laboratory administrators will need to understand three aspects of the genetic test pre-authorization trend,” observed Zubiller. “First, health insurers will follow the same game plan they have used in past years to manage other expensive new technologies. So we know what to expect.

“Second, laboratories have an opportunity to step up and help health insurers manage utilization of expensive genetic and molecular tests, specifically to ensure that the doctor orders the right test at the right time,” he noted. “Such services have high value and contribute to improved patient outcomes.

“This opens the door for laboratories to be paid for value delivered,” said Zubiller. “This can move lab test reimbursement away from today’s commodity-priced fee-for-service mindset to a true relationship based on value.

“Third, labs will use sophisticated decision support and informatics solutions to provide these value-added services to payers and to physicians,” added Zubiller. “Smart use of informatics will allow the laboratory to offer precise, real-time solutions.”

Zubiller made these comments while presenting as part of THE DARK REPORT’S recent audio conference, “Why Health Insurers Want to Pre-authorize Expensive Genetic and Clinical Pathology Lab Tests.” He next explained how health insurers have handled pre-authorization in response to other new healthcare technologies.

“For decades, health plans have implemented pre-authorization whenever utilization—and thus costs—have increased,” Zubiller said. “Upon the introduction of new pharmaceuticals, radiological imaging, or surgical methods, the reaction from health plans is typical—they deny the coverage request or require pre-authorization.

“Labs increasingly face this same situation when they request payer approval for genetic and molecular testing,” he added. “Currently, it’s rare for a payer to simply approve any type of expensive diagnostic testing without at least collecting more information justifying its use.

“The current process of collecting that additional information generally requires some manual steps,” noted Zubiller. “That means it is both time-consuming and expensive for laboratories, their ordering providers, and the health plans reviewing the requests.”

Yet, this unmet need for accurate and timely information about a genetic test request is what provides laboratories with an opportunity to step up and fulfill the unmet need of the health insurers. “Going forward, the laboratory that is capable of providing this type of information will be delivering a value-added service to both payers and providers,” predicted Zubiller.

“Labs can add value in several important ways,” he noted. “A starting point is to work more closely with health plans to educate physicians about: 1) Which genetic tests are appropriate; 2) Which genetic tests are covered; 3) Which tests are not covered; and, 4) Which unique labs may perform these genetic tests.

Shift to Value-Based Fees

“As clinical labs and pathology groups work more closely with health plans on this issue, they will help to shift the model for reimbursement from one in which payment is fee-for-service or capitation—often based on a commodity mindset of cheapest price—to a model based on performance, on value, and on appropriate utilization,” commented Zubiller.

“If a clinical laboratory can move from the position of ‘I just do the test,’ to the position of, ‘I work with my health plan to provide a valued set of decision-support services to manage the appropriate utilization of these diagnostic tests,’ then that lab has shifted from just a provider of tests to a custom-care partner,” he said.

“However, under the existing fee-for-service system, laboratories are not reimbursed for spending the time necessary to offer advice about these new diagnostic tests,” observed Zubiller. “That’s a flaw that needs to be fixed.

Fair Lab Reimbursement

“Because of this existing situation, many laboratories do not provide clear clinical and financial decision-support information to help physicians select the right genetic or molecular test,” he said. “At the same time, most laboratories are also not assured of fair reimbursement.”

“The good news is that this can change in ways that are favorable to laboratories,” noted Zubiller. “With the rapid uptake of expensive genetic tests by many physicians, health insurers are now taking the first steps toward developing the tools needed to gather the information necessary to approve requests for molecular and genetic testing.

“However, until these tools and pre-authorization systems are in place, most health plans ‘fly blind’ in the face of orders and coverage decisions for expensive genetic tests,” he continued. “The reason is simple.

“Health plans lack appropriate data at the time a genetic test is ordered. This makes it difficult for them to respond appropriately and rapidly,” Zubiller noted. “Laboratories thus have the opportunity to fill that data gap for health plans. They can also educate physicians about which tests are most appropriate for each patient and where these genetic tests can be performed or sent out. But at the moment, most laboratories are ill prepared to take on that role.”

Lab as Custom-Care Partner

Pathologists and laboratory administrators are likely to recognize the typical models payers commonly use for managing utilization of radiology or specialty drugs. “We see health insurers use these same models today to manage utilization of advanced molecular diagnostics and genetic testing,” stated Zubiller. “It’s a fact that, in today’s healthcare marketplace, clinical laboratories and pathology groups are neither prepared nor equipped to work with health insurers and physicians in this way.

“In fact, it’s common for laboratories to try to avoid these types of requirements by negotiating them out of their managed care contracts,” remarked Zubiller. “This con- tracting strategy may be useful to a clinical laboratory or pathology group in the short term, but it’s not a sustainable strategy and may lead to further price compression.”

According to Zubiller, whenever health plans want to measure utilization, they have traditionally turned to claims data. However, when it comes to genetic testing, he says, claims data does not tell payers what they need to know. That causes payers to question whether a physician’s order for a molecular or genetic test is warranted for the patient.

“This situation exists because of the limited codes available to describe molecular and genetic tests,” observed Zubiller. “There are roughly two dozen codes to describe 2,000 tests. This problem continues to intensify because more genetic and molecular tests are introduced every week!

“This is one reason why laboratories ‘code stack’ their claims for many types of genetic and molecular tests,” he stated. “But the downside to code-stacking is that health plans then find it difficult to recognize precisely which specific lab tests were performed.

“Code-stacking also works against the laboratory performing the test because it means the health insurer is unable to distinguish a specific genetic or molecular test based on its clinical value,” he commented. “In this regard, code-stacking actually leads to further commoditization of laboratory test reimbursement.

“Further, code-stacked claims data have limited ability to describe the clinical context of the test,” stated Zubiller. “That makes it difficult for a health insurer to determine the clinical reasons why these lab tests were ordered for that patient.”

Three Challenges for Payers

The nation’s health insurers face a triple challenge in coping with the tidal wave of genetic and molecular testing that is swamping their claims and utilization departments. The three issues are: 1) The need to control the growing annual cost per beneficiary of molecular testing; 2) The need to manage an already huge number of molecular and genetic assays—to which new assays are being added weekly; and 3) The desire to significantly reduce the cost required to pre-authorize genetic and molecular tests, as well as the cost to process the resulting claims.

Zubiller believes clinical labs and pathology groups have the opportunity to make themselves valued contributors with payers by helping with all three challenges. “Let’s take each challenge in order,” he said. “First is the spiraling cost of this testing. Estimates are that the U.S. healthcare system currently spends more than $6 billion on molecular and genetic tests each year.

“Health plans now struggle to manage a marketplace where hundreds of clinical laboratories regularly submit claims for 2,000 different molecular assays.”

“For many health plans, this rate of utilization already represents spending of about $10 to $30 per member per year,” Zubliller added. “They recognize that the per-member spend on molecular testing will increase steadily. Payers are very interested to work with any clinical laboratory and pathology group which can help them more efficiently manage how genetic and molecular tests are utilized by clinicians.

“The second payer challenge is to manage the daunting number of genetic and molecular assays,” commented Zubiller. “A bell curve that shows the utilization of these 2,000 tests will have a ‘long-tail’ distribution. This means that the bulk of the volume is at the beginning of the curve to the right and then it elongates as it moves to the left.”

Managing the Long Tail

Pareto’s Law defines the long tail of a distribution as the 80% of the items that rep- resent only 20% of the transaction volume. “This makes network management of that long tail very difficult,” explained Zubiller. “For example, years back, when a handful of labs first started doing a limited menu of genetic and molecular tests, health plans could manage the first dozen laboratories that performed these tests.

“In each year since then, new tests have been introduced and a greater number of labs have begun performing these genetic and molecular tests,” Zubiller said. “Health plans now struggle to manage a marketplace where hundreds of clinical laboratories regularly submit claims for those 2,000 different molecular assays.

Labs that Step Up

“Payers want to understand what each lab does, which tests each lab offers, and how the genetic and molecular tests are used for particular disease states,” he observed. “Today, most health plans neither have this information nor the staff to manage it. A laboratory that can step up and help the payer with this challenge will be providing real value—and should be paid appropriately for that value.

“Managing pre-authorization and reimbursement is the third major challenge for health insurers,” said Zubiller. “I think ‘flying blind’ aptly describes how health insurers respond when a coverage request or a claim arrives for a genetic or molecular test,” Zubiller said. “Payers have three options.

Costly for Payers

“First, they can just approve the request, which they are unlikely to do without understanding the test. Second, they can just deny it, and they don’t want to do that either. Third, they can look at the code range for genetic tests and then require prior authorization. But pre-authorization is costly for health insurers—as it is also costly for laboratories and providers,” he explained.

“For example, one pre-authorization of a genetic or molecular test can cost the health insurer, the laboratory, and the provider each between $50 and $100,” noted Zubiller. “That covers clinical data collection, the telephone calls, and the faxing of documents back and forth. These activities are time consuming for everyone—payers, physicians, and labs.

“Currently, health plans have no systems approach to solve this problem,” he said. “As a result, payers are interested to see how labs can help them manage utilization. The starting point is to enable a health insurer to measure the rate at which genetic and molecular tests are utilized.

Tools to Manage Utilization

“If clinical labs and pathology groups gathered and provided this information, it would enable health insurers to apply utilization management tools more effectively, rather than shooting first and aiming later,” Zubiller explained.

Part Two of this Three-Part Series will provide detailed information about how several companies, including McKesson, are entering the marketplace with solutions designed to help health insurers, clinical laboratories, and physicians deal with payer requirements for pre-authorization, utilization management, and claims processing for genetic and molecular tests.

In Part Three, THE DARK REPORT will provide a case study of how MuirLab, in Walnut Creek, California, is responding to payer requirements for pre-authorization of expensive genetic and molecular testing.

Payers’ Problems

This first installment has provided lab administrators and pathologists with an insider’s understanding of the problems payers face in their efforts to bring the spiraling number of genetic and molecular tests under control. Laboratory leaders can use this understanding to craft an effective strategy for their lab organization.

THE DARK REPORT has been first in the lab industry to identify the trend of payer pre-authorization for genetic and molecular testing. “This can position clinical laboratories and pathology groups to make a major contribution,” observed Matthew B. Zubiller, McKesson’s Vice President of Advanced Diagnostics Management. “Labs can help support the rapid adoption and proper utilization of those genetic and molecular tests that have a significant impact on controlling medical costs.

Why Current Utilization Management Methods Are Inefficient and a Better Solution is Needed

Efforts by health insurers to implement pre-authorization requirements for expensive genetic and molecular tests are often inefficient. The reasons for this situation include manual procedures, the difficulty in accessing essential data in a timely fashion, and the lack of an integrated systems solution to pre-authorization, utilization management, and claims processing.

Existing Situation Shows Challenges for Efficient Pre-Authorization

High Growth Diagnostics

  • Molecular diagnostics rapid growth is increasing overall lab spend and utilization
  • CPT coding is insufficient to manage utilization
  • Compliance with medical policies is low
  • Data necessary to coordinate care is unavailable

Inefficient Management of Benefits

  • Existing processes are necessary to control medical spending, but costly themselves
  • Poor collaboration among payers and providers
  • Slow adoption and limited impact of payer-provider portals (poor utilization of single-payer portals)

McKesson Uses a Systems Approach to Evaluate Genetic and Molecular Test Claims

SEEKING A WAY TO MANAGE REQUESTS for reimbursement for molecular and genetic tests, McKesson asked experts in its InterQual division to develop criteria that health plans could use to understand the evidence and make decisions about the appropriate use of these tests.

“InterQual is our clinical decision-support division,” said Matthew B. Zubiller, McKesson’s Vice President of Advanced Diagnostics Management. “Working with them, we created a set of evidence-based criteria and assessments for the 430 tests that represent the bulk of today’s costs for the molecular and genetic tests.

“This study went beyond pharmacogenomic testing,” he explained. “Our study team looked at all the advanced genetic and molecular testing used across the entire clinical spectrum.

“The criteria and assessments developed for each molecular and genetic test gives some guidance to both health plans and providers about what they should do for their covered populations and patients,” stated Zubiller. “For those laboratories receiving specimens and responsible for sending out such tests, this same information lets them know if the test being ordered meets the payer’s criteria and where that specimen should be sent.

“The path to value-based reimbursement starts with clear and transparent coverage criteria, matched by measurable utilization,” continued Zubiller. “Once these criteria are established, health plans must continue to maintain a staff delegated to make effective decisions.

“This is where McKession’s vision of a systems-based approach can be an effective solution,” he commented. “Using an integrated informatics system to connect payers, providers, and labs reduces or eliminates manual procedures. It becomes simpler to collect the correct information at the point of care and it accelerates the coverage and reimbursement process.

“The beauty of this system is that it works with all participants in health care,” Zubiller noted. “That is true whether the payer is a health plan, such as UnitedHealth, or a genetic test manufacturer, such as Genzyme.

“Most tools currently used to manage genetic testing are payer-based solutions and not a systems-based solution,” observed Zubiller. “Payer-based systems vary significantly. Many plans have different processes that keep providers guessing about what meets the requirements for medical necessity.

Uneven Playing Field

“Similarly, take the example of when a payer offers capitation to a specific lab,” he noted. “That creates an uneven playing field because capitated reimbursement can often obscure the actual utilization that occurs. We prefer a market-driven model that encourages a payer to select a laboratory partner based on the cost and quality of the evidentiary results the lab provides.

“This vision requires a system that offers a consistent work flow for labs and providers— regardless of the payer,” continued Zubiller. “At the same time, this system must efficiently accommodate each payer’s different medical, network, and payment policies”

“Such an integrated systems solution creates an objective pre-authorization and reimbursement process,” summarized Zubiller. “That levels the playing field so labs can compete—not on the basis of price alone—but on a combination of price, quality, and levels of services. Not only does this benefit providers and patients, but it contributes to a more efficient healthcare system.”

Order the Right Test At the Right Time

HEALTH PLANS AND LABORATORIES have an opportunity to align their efforts to support physicians ordering “the right test on the right patient at the right time.”

“This can position clinical laboratories and pathology groups to make a major contribution,” observed Matthew B. Zubiller, McKesson’s Vice President of Advanced Diagnostics Management. “Labs can help support the rapid adoption and proper utilization of those genetic and molecular tests that have a significant impact on controlling medical costs.

“Diagnostic testing typically impacts 70% of healthcare decisions—including prescription of drugs, hospital inpatient admissions, and surgeries,” he continued. “If labs can demonstrate appropriate utilization and decision support associated with how physicians order and use these lab tests, then labs can, in fact, partner with health plans to reduce the total cost of care.”

Among the 2,000+ molecular tests now available, Zubiller estimates that most health plans can manage coverage requests and reimbursement for only a handful of them. Moreover, the genetic and molecular industry is growing at a rate of 15% to 20% annually. “To say that these tests are a growing problem for health plans is an understatement,” declared Zubiller.


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