CEO Summary: Pre-authorization of expensive genetic and molecular tests is a threat to local clinical laboratories and pathology groups if payers exclude them from provider networks in favor of labs which bid the lowest prices. But one major healthcare corporation believes there is now an opportunity for clinical labs and pathology groups to deliver added value to payers—and be paid appropriately for that value. It has built an integrated, system-based service that allows laboratories to provide real-time information to both payers and physicians.
Part Two of Three Parts
ACROSS THE NATION, health insurers are taking steps to control utilization of expensive genetic and molecular tests for pre-authorization. This is a clear threat to any clinical laboratory or pathology practice that fails to respond appropriately to the pre-authorization trend.
Pre-authorization is a natural response to the ever-increasing pressure on payers to rein in the year-over-year cost of healthcare. Better management of diagnostic utilization is becoming a high priority goal for payers.
In part one of this special three-part series, THE DARK REPORT discussed why and how managed-care companies were taking steps to implement pre-authorization requirements for a growing number of genetic and molecular assays. It is a trend which is still in its earliest stage.
Part two of this series looks at solutions that different companies are developing to help health insurers and clinical laboratories better manage the utilization of genetic and molecular tests. In some cases, these emerging pre-authorization products and services actually boost the ability of local clinical laboratories and pathology groups to help payers and physicians appropriately utilize genetic and molecular tests.
Part three will provide a case study of a laboratory already involved in pre-authorization requirements with the major health insurers in its regions. Collectively, these three installments provide lab administrators with the essential intelligence they need to develop an appropriate strategy to respond to the pre-authorization trend.
The increased demand for genetic testing has health insurers scrambling to manage this new source of increased costs. “Payers have a traditional response to help control appropriate use,” stated Matthew B. Zubiller, Vice President, Advanced Diagnostics Management, at San Francisco, California-based McKesson Corporation. “Payers will either deny coverage requests for these new procedures or require pre-authorization. This is how payers have reacted for decades, each time they were faced with a new, complex healthcare technology or a prescription drug that quickly became a major cost.”
In part one, Zubiller helped lab administrators and pathologists understand why payers are adopting pre-authorization requirements. More importantly, Zubiller identified opportunities for clinical labs and pathology groups to add value to payers.
Zubiller asserts that “those clinical labs and pathology groups who work more closely with health plans on this issue, can help shift the model for lab test reimbursement from one in which payment is based on fee-for-service or capitation—typically based on a commodity mind-set of cheapest price—to a model based on performance, on value, and on appropriate utilization.”
Payers Have Three Needs
As Zubiller explained in part one, payers have three needs that laboratories can step up and meet in an added-value manner. “The primary three issues facing health insurers are: 1) the need to control the growing annual cost-per-beneficiary of advanced 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.”
This second installment of the THE DARK REPORT’S three-part series will explain how different companies are targeting pre-authorization of genetic and molecular testing. Among other developments, it appears that laboratory test formularies—similar to prescription drug formularies—may become common.
“Formularies for prescription drugs have long been used by pharmacy benefit managers (PBMs) to manage the cost of these drugs,” stated Zubiller. “Prescription drug formularies are a vehicle to identify and encourage use of less-expensive drugs which are considered clinically equivalent.
“However, there are challenges to adopting the formulary model to diagnostic testing,” he continued. “That’s because diagnostic testing is a more complex and nuanced clinical activity.”
Lab Test Formulary
Zubiller says early efforts to move toward a diagnostic or lab test formulary can be seen in the healthcare marketplace. “Health insurers, for example, use contracting to manage their networks of par and non-par labs,” he explained. “Health insurers are in the earliest stages of employing medical necessity guidelines to control utilization of genetic tests.
“These efforts may incorporate products such as InterQual’s Molecular and Genetic Testing module or the services of Hayes, Inc., in their policy development and utilization management,” added Zubiller. “Further, the industry is beginning to see efforts to clarify the coding and identification of genetic tests through McKesson’s work, plus ongoing progress at the National Institute of Health’s (NIH) genetic testing registry (GTR) and with the American Medical Association’s (AMA) CPT panel.
As a market force, a new class of companies is emerging with a goal of interposing themselves between the provider ordering the test, the patient, the payer, and the laboratory which will perform the test. For example, in 2009, Humana, Inc., announced a pre-authorization and patient counseling program for genetic and molecular tests. It contracted with DNA Direct, Inc., of San Francisco to provide both the pre-authorization and genetic counseling services.
Then, earlier this year, DNA Direct was acquired by Medco Health Solutions, Inc., one of the nation’s largest pharmacy benefit managers (PBM). Officials at both companies stated that the merger of the two companies would strengthen Medco’s capabilities in pharmacogenomics and personalized medicine.
When Generation Health, Inc., of Upper Saddle River, New Jersey, announced its formation in November, 2008, it described itself as “a newly formed company focused on genetic testing benefit management.” Ex-Medco executives created the company.
Another participant in the field of pre-authorization and patient counseling for genetic and molecular testing is McKesson Corporation. Its strategy is to involve laboratory test providers in an integrated system that supports appropriate utilization of laboratory tests.
Starting in 2007, McKesson began building the infrastructure to support a new business model designed to enable labs, payers, providers, and patients to make better, more informed decisions regarding advanced testing. This work led to the formation, in early 2009, of a new business unit called “Advanced Diagnostics Management” (ADM).
What makes ADM of particular interest for pathologists and laboratory administrators is the fact that ADM was created based on McKesson’s assets and existing business relationships with pharmacies, health insurers, hospitals, clinical laboratories, and pathology group practices.
“Advanced Diagnostics Management was developed in direct response to McKesson’s existing everyday interaction with laboratories, payers, patients, phar- macies, hospitals, and other healthcare organizations,” noted Zubiller. “We spotted an opportunity to create a service that would advance clinical care and patient outcomes, while helping physicians and health insurers deliver the right laboratory test for the right patient at the right time.
“This is a system that gives a front-line role to local clinical labs and pathology groups, specifically to help them become even more of an added-value resource,” explained Zubiller. “ADM does this by providing laboratories with the capabilities they need to proactively manage utilization. It helps them partner with a health insurer’s genetic testing pre-authorization program in ways that deliver added value to that payer.”
Zubiller’s work with ADM gives him an insider’s view of how and why the nation’s health insurers want to require pre-authorization of expensive genetic and molecular tests—along with interesting perspectives on why laboratories should offer an automated, systems-based solution to health insurers.
“When it comes to the ever-growing menu of genetic tests and molecular assays, it is no longer enough for health plans to simply accept, deny, or pre-authorize,” said Zubiller. “In today’s modern medicine, a genetic test that costs, say $3,000, may be used to qualify a patient for a cancer drug or therapy regimen that often costs $50,000 to $100,000 per patient.
“Because physicians, labs, and health insurers want to improve patient outcomes and efficiencies, this becomes a place where all the stakeholders’ interests are aligned,” he continued. “It creates the need for a systems-based approach to pre-authorization and patient counseling.
“From the payers’ perspective, the first step to improving patient outcomes in this way is to measure and understand utilization,” stated Zubiller. “Today, that is nearly impossible because of the limited number of reimbursement codes available for genetic and molecular tests. There are just a few dozen codes compared to the 2,000+ genetic and molecular laboratory tests now available.
“Requiring time-intensive pre-authorizations for all genetic and molecular tests is not the right approach for payers,” said Zubiller. “Rather, a step-by-step program should start by instituting a targeted, less invasive ‘notification program.’ Initially, no medical review is required as payers measure actual lab test utilization and they decide how to manage that utilization.
“To achieve this and move toward full pre-authorization, health insurers can utilize new, more sophisticated tools that incorporate decision-support information within the clinical workflow,” continued Zubiller. “With this solution in place, a broad, real-time notification requirement remains. The more intrusive pre-authorizations are only required in selected situations.
“Once a health insurer has such a real- time notification process in place, it can better understand utilization,” he explained. “As the payer measures utilization, use of an automated decision-support tool can reduce hassle and administrative cost while guiding test selection.
“Now, not only can the payer identify unwarranted variation in care in collaboration with the laboratory and the provider, the payer can use the automated system to issue authorization requirements where truly necessary,” stated Zubiller. “The payer can also provide real-time authorization responses to the data that was submitted. Where connected to an EMR or provider workflow, this becomes a seamless process.
“At McKesson, our vision is to use a systems-based approach that enables health insurers to collaborate in ways that support a more effective and targeted interaction with labs and their providers who are ordering genetic or molecular tests,” commented Zubiller. “This systems-based approach requires automated tools and smart software that enable real-time, added-value decision support at the point of care, smart utilization management of genetic and molecular tests, and performance-based network management tools.
Lab Tests As A Commodity
“Such integrated, automated tools can allow a positive shift to occur in the working relationships between managed-care companies, clinical laboratories, and the referring clinicians,” he said. “As it works today, managed-care networks typically include those laboratories which agree to the most deeply-discounted lab testing fees. These payers tend to treat laboratory tests as a commodity.
“We believe that what is required is a systems-based approach to evaluating utilization, managing pre-authorization, and providing state-of-the-art decision support to the ordering physician,” declared Zubiller. “This must happen if clinical labs and pathology groups are to deliver increased value—and then be reimbursed appropriately for that value.
“Our goal is to provide laboratories with an integrated informatics solution that puts them in a position to: 1) educate and engage physicians about the appropriate use of genetic and molecular tests; and then, 2) based on their payers’ rules and coverage, help them make appropriate decisions regarding ‘when, where, and which’ lab tests to order for a patient,” he said.
“We see this arrangement as consistent with the ultimate goal of the healthcare system,” added Zubiller. “All parties want a payment model built on performance, value, and appropriate utilization.
But in today’s healthcare system, there is a fundamental disconnect between what laboratories currently do versus the coverage guidelines and reimbursement policies of most payers.
“This disconnect is a systemic problem common throughout all of healthcare,” commented Zubiller. “It exists between payers and all types of providers, so it is not unique to clinical laboratories and pathology groups.
“The problem exists because neither health plans nor laboratories have the systems in place to address the issue of how to mutually understand, cover, and pay for something as complex as a molecular or genetic test,” he observed. “Lacking these systems, payers find their only options are to deny, approve, or pre-authorize.
“Recognize, too, that healthcare reform is about to shift the types of organizations we define as payers,” said Zubiller. “We shall soon recognize that a payer is really any risk-bearing entity. That can be a health plan, a PBM [pharmacy benefit manager], a capitated laboratory, a hospital system responsible for a DRG [diagnostic-related group], an independent practice association (IPA), or an accountable-care organization (ACO).
“Even as the definition of a payer expands to include these other types of organizations, another market trend is unfolding,” he continued. “That trend is adoption and use of EMRs due to healthcare reform incentives in support of the goal of integrated access to an electronic health record (EHR).
Labs Perfectly Positioned
“This ongoing integration of healthcare informatics will make it possible for all these patient-care stakeholders to interact in real time,” predicted Zubiller. “We believe that clinical labs and pathology groups are perfectly positioned to add value in such an interconnected healthcare market.
“That is why—for genetic and molecular testing—we have developed a systems approach that will work with thousands of laboratories, hundreds of thousands of clinicians, and with all of the nation’s health plans,” he stated. “We’ve drawn upon our experience in helping physicians, pharmacies, and payers improve utilization of prescription drugs to develop this system to manage lab testing. (See sidebar on page 15.)
“Our challenge was to expand the traditional notion of who is a ‘payer’ for laboratory tests, since it is no longer just the health insurer,” Zubiller explained. “Any entity managing lab test utilization—and responsible for risk—needs to make sure that the right test is done. That is true whether the entity is a health plan, an IPA, a hospital, an accountable-care organization, or the lab itself.
“Our model is specifically designed to give clinical laboratories the capability to collaborate with health plans and other types of payers,” he noted. “Labs use this integrated system to give providers the information they need to make the right lab test selection.
“Further, our system can be connected to an EMR [electronic medical record system], an LIS [laboratory information system], an order-entry system, and to a case management or claims system,” he added. “To our knowledge, this is the first automated and integrated system that makes it possible for both the laboratory and the payer to measure utilization of laboratory testing in real time.
“In sites where our system is operational, we know the full details about which lab tests are ordered by which providers,” said Zubiller. “We also know the reason for each test request and which laboratories are performing those tests.
“Such real-time information gives us a systems’ view of utilization of the genetic tests and molecular assays as they are ordered by physicians,” Zubiller added. “In turn, access to that real-time information enables labs to more effectively negotiate reimbursement with health plans or other payers based on the value provided by the laboratory. That’s because, for the first time, health insurers and labs together can review and manage utilization proactively and collaboratively.”
Laboratory administrators and pathologists should recognize that payer pre-authorization of expensive genetic and molecular tests is already under way. Every clinical laboratory and pathology group should proactively develop a strategy in response to this trend.
One interesting dimension to this trend is how integrated health informatics—including real-time data from physicians’ EMR systems—creates an opportunity for innovative laboratories to leverage their knowledge and clinical expertise in diagnostic medicine in ways that make a clear contribution to improved patient outcomes. This is a service for which health insurers will reimburse labs more generously.
Monthly Cost of New Cancer Drugs Is Expensive
CERTAINLY THE HIGH COST OF GENETIC TESTS AND MOLECULAR ASSAYS is one reason why health insurers are instituting pre-authorization requirements. Equally important is the need for payers to manage utilization of the growing number of new prescription drugs for various types of cancers. A $3,000 genetic lab test may lead to a $50,000 cancer drug prescription.
The table below shows several of the most commonly prescribed cancer drugs, along with the monthly cost of each. These drugs are extending the life of cancer patients. Leonard Saltz, M.D., a colon cancer specialist at Memorial Sloan-Kettering Medical Center, has published data that indicate, for patients with advanced colorectal cancer, drugs available in 1996 had a total cost of about $500 and expected survival was 11 months. By 2006, drugs to treat advanced colorectal cancer cost $250,000 per patient and expected survival was 24 months.
McKesson Uses Similar Systems Approach As Was Developed for Pharmacy Utilization
EXISTING PROCESSES USED by health insurers and providers to manage pre-authorization and requests for reimbursement for molecular and genetic tests are flawed,” asserted Matthew Zubiller, who is Vice President, Advanced Diagnostics Management, at McKesson Corporation.
“That’s because the utilization management systems used by health insurers are antiquated and insufficient to the task,” he explained. “To manage utilization of genetic and molecular tests, payers need a systems approach that allows labs, providers, and health plans to collaborate to devise a solution.
“This is the opportunity that opens the door for us,” continued Zubiller. “We’ve been solving these kinds of problems for a very long time. To improve utilization of prescription drugs, we created a system that brought pharmacies, providers, and health plans together by providing each with the data needed to identify the most appropriate medications for each patient.”
“For medication reimbursement, health insurers have pharmacy and therapeutics (P&T) committees that make coverage decisions for each specific drug,” he noted. “P&T committees work reasonably well. However, few health insurers have corresponding committees to handle the long-tail requests (where many labs perform few tests) for molecular and genetic tests.
“Certainly there are differences in how physicians use laboratory tests and prescription drugs,” he said. “But for payers, the utilization problems are nearly identical. It is the same for doctors, who commonly don’t have adequate decision support at the point of care.
“Over recent years, the pharmacy has gained sophisticated tools that do several things: 1) analyze which prescription drugs are appropriate; 2) check for drug-drug interactions; and, 3) access formulary information,” noted Zubiller. “A pharmacist will not dispense a drug if the pharmacy won’t get paid for that prescription.
“We need to make similar information available for laboratory testing,” Zubiller commented. “That would be the foundation for helping payers understand utilization of genetic and molecular tests. It would provide the detailed and accurate information that enables a determination of the true value that genetic tests and molecular assays can bring to patients when physicians appropriately utilize such tests.”