Medicare Carrier Plans to Reject Molecular Claims

In February, Palmetto intends to cease accepting code-stacked molecular test claims

CEO SUMMARY: In September, Palmetto, a Medicare carrier serving California and seven other states, made public two draft local coverage determinations (LCDs) that revamp its coverage guidelines for molecular diagnostic tests (MDT) and laboratory-developed tests (LDT). All labs submitting claims to Palmetto would need to apply to Palmetto for each MDT or LDT it plans to submit for payment and await a decision. If Palmetto approves an application, the lab could resume filing MDT and LDT claims.

IT’S THE LATEST PAYER ATTEMPT to control the soaring cost of molecular and genetic testing. Recently, the nation’s largest Medicare carrier announced a draft proposal that would significantly restrict how clinical laboratories and pathology groups could file claims for many molecular diagnostic tests (MDT) and certain laboratory-developed tests (LDT).

On September 28, Palmetto GBA, of Columbia, South Carolina, published two draft Local Coverage Determinations (LCD). They are: DL 32288, Molecular Diagnostic Tests; and, DL 32286, Non- Standardized Organ or Disease-Oriented Panels.

If approved, both proposals would become effective on February 27, 2012. The comment period for each proposal opened on October 14 and closes on December 5, 2011. Pathologists and laboratory directors who wish to comment on these proposals can use the Palmetto address in the sidebar on page 6.

The draft language of Palmetto’s LCD says that no molecular diagnostic test would be considered for reimbursement if it is not explicitly covered by: 1) a national coverage determination (NCD); 2) a local coverage determination (LCD); or, 3) a Palmetto coverage article.

Instead, after the February 27 effective date, clinical labs and pathology groups would apply to Palmetto for coverage for each individual MDT and await approval before submitting any claims for MDTs.

The second LCD draft published by Palmetto states that it would not allow laboratories to submit claims for all non-standardized organ or disease-oriented laboratory developed test (LDT) panels unless certain criteria are met. Again, Palmetto said labs would need to apply for coverage for each individual LDT and await approval.

Plan Could Stifle Innovation

Medicare carriers use letters and coverage determinations to communicate changes in provider payment policies. Last year at this time, Palmetto required providers to submit additional data to be reimbursed for molecular tests. (See sidebar on page 5.)

The two proposed LCDs announced by Palmetto in September are much more significant. “This is an important development with significant implications for the entire laboratory testing industry,” observed Rina Wolf, Vice President of Commercialization Strategies, Consulting & Industry Affairs, for XIFIN, Inc., based in San Diego, California.

“These proposed LCDs have the potential to stifle innovation in healthcare,” explained Wolf. “They can limit the use of important and successful new diagnostic tools that physicians use to improve patient care and control the cost of care.”

Palmetto is the largest Medicare authorized contractor (MAC). It services Medicare providers in California, Hawaii, Nevada, North Carolina, Ohio, South Carolina, Virginia, and West Virginia. Therefore, any coverage decisions made by Palmettto apply only in those states.

However, MACs that serve other states—as well as commercial health insurers—are following the development of these two proposals. Palmetto’s final actions to implement these two rules could encourage other MACs and private payers to issue similar rules.

“In fact, Palmetto views itself as the ‘go-to’ Medicare carrier on issues related to molecular and genetic tests,” noted Wolf. “This is one reason why Palmetto is moving more quickly than the other MACs to contain the rising cost and proliferation of molecular and LDTs.

The proposals put at risk some of the latest developments in health care, meaning molecular and genetic tests,” she said. “In recent years, it is laboratory-developed tests that have been at the front edge of personalized medicine, companion diagnostics, and proactive healthcare.

“Physicians rely on molecular and genetic tests to help them diagnose patients and identify the best treatment options for patients with cancer and other debilitating diseases,” continued Wolf. “It would be a step backward in patient care in the areas served by Palmetto if these proposals are implemented.”

Wall Street is aware of the Palmetto proposals. “Venture capital investors have valid concerns about how these proposed LCDs will negatively impact the clinical and financial effectiveness of molecular and genetic companies operating in the Palmetto region,” Wolf said.

“This could make it more difficult for these companies to get the venture capital that they need to develop the next generation of innovations in laboratory medicine,” she added. “Many of these MDTs and LDTs have been in clinical use for years,” Wolf continued. “Some are the standard of care today. Palmetto’s draft proposals raise questions about whether this is the best way to proceed with any attempt to contain the growth of these tests.”

Four Primary Concerns

Pathologists and lab directors should be aware of four primary concerns associated with these draft proposals. First, Palmetto said, if the proposal is approved, it would consider these MDTs and LDTs to be “non-covered” as of February 27, meaning labs would be unable to submit claims for these tests.

This approach has a direct consequence for clinical labs and pathology groups. “If your laboratory cannot submit a claim to Palmetto, then it can’t get a denial,” Wolf said. “If your lab can’t get a denial, then it cannot move forward with the appeal process.

“Thus, having no appeal means there would be no opportunity for your lab— and other labs—to discuss with Palmetto officials the clinical value of these tests and their importance to patient care,” explained Wolf.

Second, labs could find themselves facing demands by Palmetto to recoup earlier payments. That is because Palmetto said it could seek to recover past payments for MDTs and LDTs that it decides are not covered and so should not have been covered in the past.

“Why this Medicare carrier would seek recoupment is a reasonable question,” stated Wolf. “The language of the draft LCD says that Palmetto would only consider tests covered from the point in time where its officials felt the evidence supported the test coverage. It appears that this means Palmetto could go back to any point in time in the history of coverage for a specific genetic or molecular assay.”

The third concern centers around an equally important issue to those labs that currently perform MDTs and LDTs. It is the need to apply for a coverage decision by Palmetto. Is Palmetto prepared to deal with the surge of requests labs would submit requesting that Palmetto review individual MDT and LDT assays?

“Palmetto said that laboratories could submit applications requesting a coverage review for each MDT and each LDT,” said Wolf. “But this aspect of the two draft proposals brings into question whether Palmetto has the capacity and the ability to manage the application process in a timely and fair manner.

“Given the large number of MDTs and LDTs currently in clinical use, it would be expected that Palmetto would be deluged with requests for coverage, accompanied by all the supporting documentation labs will submit with each request,” explained Wolf. “Each laboratory is going to want to open up the application process for each MDT and LDT it performs. Just this the potential to stop payment for these tests for many weeks or months.”

The fourth issue of concern is how Palmetto’s proposals challenge the concept of bundling—which labs call code stacking. “Palmetto believes there should be one code for one lab test that produces one result, but that’s not always the case,” stated Wolf.

“It is absolutely legitimate to use code stacking to bill for certain laboratory tests,” she continued. “That is when a lab submits claims in a stack and there is a dollar amount assigned on the clinical lab fee schedule for each CPT code in that stack. Medicare carriers pay the sum of that stack. That’s the procedure that labs follow nationwide.

Claims Set up for Repricing

“But by preventing labs from submitting claims in a stack, Palmetto is setting up these tests for a de facto repricing,” commented Wolf. “That would happen when Palmetto forced labs to submit these tests with an unlisted code.

“Then, instead of paying the sum of the stack, Palmetto officials can set a reimbursement price for that assay at any level they want,” noted Wolf. “In the instances where Medicare carriers tried this in the past, the new prices were substantially less than the sum of the code stacks.”

Wolf is sympathetic to the fundamental issues that motivated Palmetto to issue these two draft LCDs. “Consider how many laboratory-developed tests are in clinical use today, along with the rising number of molecular diagnostic tests reaching the clinical market,” she continued. “It is easy to see how costs for these tests have risen.

“Therefore, we all understand and appreciate the frustration that Medicare carriers face about rising costs,” she concluded. “But this approach to containing lab test costs is certainly problematic for clinical laboratories and pathology groups. Also, it may not be permissable under existing statutes.”

It is recommended that lab directors and pathologists write to Palmetto to express specific concerns they have about these two draft LCDs. With the comment period open until December 5, there is ample time for laboratory professionals to offer their thoughts about the consequences of Palmetto adopting these two proposed Local Coverage Determinations. Contact Rina Wolf at 858-793-5700, or email

At Heart of the Matter: Palmetto Issues Challenge to Practice of Code Stacking

IN ITS TWO PROPOSALS regarding molecular diagnostic tests (MDTs) and laboratory-developed tests (LDTs), Palmetto GBA is challenging the long-held practice of bundling claims or code stacking. That is the opinion of Rina Wolf, who is the Vice President of Commercialization Strategies, Consulting & Industry Affairs, for XIFIN, Inc., in San Diego, California.

“Palmetto’s challenge to the concept of bundling—also called code stacking—is problematic in one sense,” stated Wolf. “Credible efforts are already underway to revise the code-stacking method of billing.

“The American Medical Association (AMA) is addressing this issue,” she said. “The AMA committee submitted new molecular and genetic test codes for placement on the physician fee schedule for next year.

“That means the federal Centers for Medicare & Medicaid Services could accept the AMA committee’s pricing recommendations—which they usually do—and that would eliminate some of the stacked codes,” predicted Wolf. “But the specific details of this coding reform activity won’t become public until CMS publishes the proposed physician fee schedule for 2012, which it is scheduled to do this month.”

The AMA’s CPT Editorial Panel Molecular Pathology Coding Workgroup (MPCW) was formed in 2009 to recommend new CPT codes for molecular tests. One goal of the working group is to update the CPT codes to reflect new diagnostic technologies and lab tests and, at the same time, eliminate the need for labs to use code stacks when submitting claims.

The codes proposed by MPCW address more than 90% of medically useful MDTs. The AMA has said it will publish an initial set of codes in its CPT 2012 book.

In 2010, Palmetto Asked Labs for Info

IT WAS LATE SEPTEMBER 2010 when Palmetto GBA, the Medicare administrative contractor (MAC) in Columbia, South Carolina, said it would require lab providers to submit additional information for certain molecular diagnostic tests (MDTs).

MDTs have complicated the work that Palmetto must do when reviewing claims for these tests, in part because labs often use several current procedural terminology (CPT) codes for one MDT, a practice known as bundling or code stacking.

“The vast numbers of new diagnostic and molecular assays entering the market magnify these issues,” Palmetto said when it made the announcement on Sept. 29, 2010. To address the issue, Palmetto asked labs to submit the test or assay name in the description field by December 1, 2010. Claims that did not include this information by that date would be rejected, Palmetto said.

Send Comments to Palmetto:


Leave a Reply


You are reading premium content from The Dark Report, your primary resource for running an efficient and profitable laboratory.

Get Unlimited Access to The Dark Report absolutely FREE!

You have read 0 of 1 of your complimentary articles this month

Privacy Policy: We will never share your personal information.