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Payers Using Two Approaches To Price Molecular, Genetic Tests - The Dark Intelligence Group

Payers Using Two Approaches To Price Molecular, Genetic Tests

One is nuanced, sophisticated, the other is more about lower prices for genetic tests

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PRIVATE PAYERS AND MEDICARE contractors are taking divergent approaches to establishing coverage policies and setting prices for molecular and genetic tests. That’s what Kuo Bianchini Tong, MS, CEO of Quorum Consulting Inc., sees happening.

“One approach seeks to recognize the clinical utility and value of these tests with nuanced, more discreet coding and pricing,” he observed. “Other payers are less inclined to differentiate based on content, and are simply applying a one-size-fits-all price to these tests.

“Neither approach can be considered wrong or fundamentally better than the other,” noted Tong. “Rather, each approach is an effort to solve the challenges that the explosion in the number of molecular and genetic tests has presented to private payers and Medicare Administrative Contractors (MACs).

“If you look at what individual private payers and MACs do when coding and setting prices for all these tests, there are definite differences,” explained Tong. “For example, Palmetto GBA recently set new rules for hotspot tests versus more comprehensive panels. By doing this, Palmetto carved out hotspot tests using this new set of rules. By contrast, other MACs and private payers prefer not to make such distinctions for hotspot tests.

“What we may be seeing, then, is the first evidence that payers are aligning into different camps based on which approach they prefer when deciding how to cover and price molecular and genetic tests,” said Tong. “When it comes to coding and pricing, Medicare contractors and other payers know exactly what they’re doing. The net result is we can see these different philosophies in the marketplace.

“My view is that Palmetto is trying to take a subtle and nuanced approach by making interpretations based on the evolution of lab-developed tests and other assays,” he added. “Palmetto knows that FDA-approved panels will be coming into the clinical marketplace. Thus, its newest coding and pricing may be built to reflect that reality.

Cruder Methodology

“By contrast, there are other MACs, such as National Government Services (NGS), and some commercial health insurers that use what might be called a cruder methodology—one that is designed to force these tests to a lower price point,” explained Tong.

“It’s not that one method is right and one is wrong or that one approach is igno- rant and one is enlightened,” he said. “I’ve watched payers struggle with these coding and pricing issues. Each payer has to develop an approach to coding and pric- ing that works for them. It’s whether a payer wants to apply a fine surgical knife or a blunt machete to the field.

“Unfortunately, labs can find themselves caught in the middle of these different approaches to coverage and reimbursement,” added Tong. “That’s because price can vary based on the payer or geography. Thus, the price a lab gets for its molecular or genetic test can depend on the payer to which it submits its request and which approach that payer takes.

Comprehensive panels

“Look at how different health insurers and MACs view comprehensive panels, for example,” he noted. “Reading into what the payers and some of the contractors say, it appears that they don’t like comprehensive panels. They appear to be saying that there is much content in these panels that lacks clinical significance. Also, it appears that they don’t like the price point that the labs request for these panels.

“Every payer has a choice,” continued Tong. “Each payer can either fight the labs on every one of these panels or it can just slap a low price point on each panel and be done with it. In reality, that is a very pragmatic business decision.

“Labs could argue that the payers should not set prices that way,” observed Tong. “But once the CPT codes were written and the gapfill prices came out for 2016, the MACs had a tool that allowed them to address the 900-pound gorilla in the room.

“Look at it from point of view of payers and MACs,” he said. “Labs were complaining that they wanted the MACs to set prices for these tests. Some of the lab companies are publicly traded, which is why stock analysts also were complaining about the need for pricing decisions. (See TDRs, April 15 and May 28, 2013.)

potential Legal Liability

“In addition, health insurers and MACs faced a potential legal liability as a result of the backlog of tests they needed to review and approve,” continued Tong. “So, what could they do?

“By setting a price—even if it was low—they could solve their problem in one fell swoop,” he stated. “Given the position all the payers were in, that’s a very sophisticated decision, whether you agree with it or not. And, I’m not making a judgment about whether they were right or wrong. That’s just what they did.

“At the end of the day, it doesn’t matter much because the pace of the evolution of molecular and genetic tests is staggering,” declared Tong. “Today, a lab could have a hotspot panel with eight markers and tomorrow that lab could introduce one that has nine markers. When it does that, it has created a new test that needs to be evaluated for payment. How can the payers keep up that this rapid pace of new test creation?

Codes Based on old Tech

“Here’s how I explain the situation to labs, payers, and venture capitalists: The train has left the station,” he said. “There was a rush to create codes because many people in the lab industry mistakenly believed that setting codes was the answer. In fact, the rush to create what may be imperfect CPT codes is what has gotten us to this point.

“These new codes were not forward-looking enough,” continued Tong. “By that I mean, the new CPT codes were overly broad. They didn’t really address the question of whether we want future innovations and iterations to be captured all in single, broadly defined codes.

“When it came time to write codes for MolDx tests, payers wanted transparency in knowing what they were paying for compared with the old code-stacking approach,” he continued. “The AMA, specialty societies, payers, and other stakeholders worked with the labs to write codes that were transparent.

“But the labs should have been more aware that coding begets rate setting, and if you can’t control the rate-setting process, then codes may not serve your primary objective, which is obtaining a payment rate that you desire,” observed Tong.

“Thus, it could be argued that the lab industry hurt itself by thinking it was on the right path to work with the payers without negotiating the process in which the price would be set for these molecular and genetic tests,” he added.

“The classic example is one company that did not want a Tier 1 code because, by using an unlisted CPT code, it was getting paid $3,000 or more for its tests,” noted Tong. “But then as soon as payers set up a code that would cover that test, they started chipping away at the price. Now, that lab company gets paid a fraction for that same test!”

Contact Kuo Bianchini Tong at 415-835- 0190 or Kuo.Tong@quorumconsulting.com.

Consultant Warns That Setting Up New CPT Codes Inevitably Leads to Setting Prices for Lab Tests

WHEN CLINICAL LABORATORIES work with any entity to create new codes for clinical laboratory tests—whether it’s the AMA CPT committee, or individual payers and Medicare contractors—doing so inevitably leads to price-setting. Therefore, it might be best for labs not to rush into writing new codes, suggested Kuo Bianchini Tong, MS, CEO of Quorum Consulting Inc.

“When it comes to setting CPT codes, the problem is that people don’t read the tea leaves the right way,” he said. “The general rule about coding is that if you are a lab that supports the creation of new codes, you should do so only if you have input on the price point. If you lose control of the price point, why would you want a code? It’s like walking off a cliff.”

In Tong’s opinion, when labs got involved in establishing new CPT codes for multigene panels, there was not enough consideration given to how payers would establish payment amounts or what would happen if prices were too low.

“We created generic placeholder codes for multigene panels, then the payers set prices that were too low for these panels,” explained Tong. “The panels got lumped in with all other codes, and we ended up with broad buckets of codes. Such broad buckets do not allow for appropriate price setting.

“Now that the codes are written and the prices are mostly set, labs and lab consultants have talked with the AMA about withdrawing panel codes. But there is not much appetite for that,” Tong added. “So, unfortunately, this is one test-pricing factor that is already behind us.

“Labs may get a reprieve on prices when the federal Centers for Medicare & Medicaid Services issues rules under the Protecting Patient Access to Medicare Act,” added Tong. “Under PAMA, advanced diagnostic tests, multi-analyte tests with algorithms, and FDA-approved tests could be set at more appropriate rates.

“The end result is that, again, we have a two-class system,” he said. “There is one class for tests that don’t go through FDA approval or don’t have an algorithm. For oncology panels of fewer than 50 genes, those tests are starting to get priced around $600. And remember that price will only go down from here. It’s not going up.

“The other class is for MAAAs with algorithms and FDA-approved tests,” he observed. “These may offer some safe harbors under PAMA. But there will be no middle ground anymore. That’s what we are telling investors and the lab community.

“What this means is that the vast majority of hospital labs and labs offering LDTs are really in a bind because most of those tests are priced at $600,” he concluded. “For these reasons, labs must now hope that any new FDA-approved lab tests will qualify for the new PAMA codes. Ideally, in these cases, labs billed under those CPT codes will get a reset on price.”

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