Accurate Costing of New Pap Technology Proves Interesting

What are real-world costs?

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CEO SUMMARY: Various new technologies intended to supplant conventional Pap smear screening must deliver improved clinical performance in a cost-effective manner. Joseph Plandowski, our guest writer,concludes his three-part series on new Pap smear technologies by evaluating actual lab costs of the specific Pap smear technologies. His conclusion is that reimbursement drives the adoption rate of these products.

LAST OF A SERIES

BY JOSEPH PLANDOWSKI

EDITOR’S NOTE: In this final installment of our series on new Pap smear technologies. Joseph Plandowski provides some basic examples of the lab cost versus reimbursement for various Pap smear products. He believes the adoption rate by clinical laboratories will be directly tied to adequate reimbursement.

INTRODUCING NEW MEDICAL technology into the American healthcare system implies that each generation of enhanced Pap smear products must undergo a careful cost-benefit analysis.

Of equal importance is reimbursement. The most successful manufacturers of enhanced Pap smear technologies seem to spend as much effort on educating payers as they do introducing the products themselves to laboratories and physicians.

Individual laboratories face a complex decision when evaluating whether to incorporate specific new Pap smear technologies into the test mix. The economics of these new technologies are just as important as the clinical benefits they are expected to deliver.

In my experience, the introduction of new testing technology always generates greater costs than either what the vendor represented or what the lab estimated. That seems to be quite true when developing a cost picture of the new Pap smear technologies in actual, high volume, laboratory settings. There are often several cost items which are generally unmentioned by the vendor and often overlooked by the lab. For example, there is the additional cost of kits and labor used in retesting (at no charge) patients whose first Pap smear was labeled “unsatisfactory” or “not able to diagnose”

I would like begin by reviewing the liquid preparation Pap smear products. Two products have FDA clearance for use within the United States. One is Cytyc Corporation’s ThinPrep®, the other is TriPath Imaging, Inc.’s PREP®.

It is important to understand that costs are substantially increased in a laboratory that adds the thin layer preparation (TLP) Pap test to its test menu. Assume a laboratory has an annual volume of 50,000 Pap tests and operates 250 days per year with $10.00 per hour laboratory aide labor. The conventional Pap test in this laboratory may cost $13. This includes $1.00 for the Pap smear collection kit provided to the physician’s office; $2.00 for accessioning, staining, and cover-slipping; and, $10.00 for cytotech screening, diagnosis, and quality control of the Pap Smear slide.

With TLP Pap testing comes the cost of the TLP kit, depreciation of the processor, and labor to operate the processor and/or prepare specimens for the processor. Price of the processor is about $50,000. List price for Cytyc’s processor is $49,000. TriPath’s processor lists at $55,000, and includes automated staining.

At a five-year useful life, depreciation is $10,000 per year, or $0.20 per slide. Lab aide labor to operate the processor and/or prepare the specimen for processing is $80 per day for 200 slides per day, or $0.40 per slide. Obviously, the annual volume of Pap smear tests done in a particular laboratory has a big impact on the resulting average cost per slide.

List price of Cytyc’s ThinPrep is $10.75 per kit. Add to that amount depreciation at $0.20, labor at $0.40, accessioning, staining, and cover-slipping at $2.00, and screening, diagnosis, and quality control at $10.00. This yields a cost of $23.35 per Cytyc ThinPrep Pap test. It is about 80% greater than the 13.00 cost of the conventional Pap test used in this example.

TriPath’s PREP cost is similarly computed, except its TLP kit list price is $6.95 when the processor is purchased. When the processor is loaned, the list price per kit rises to $7.95. Its processor automatically stains the slides, but it does require additional lab aide work to centrifuge the specimens. Hence, the total cost of TriPath’s PREP Pap test is $19.57. That cost is about 50% greater than the cost of the conventional Pap test used in this example.

One important operating issue that a laboratory must consider is how many of its current clients will order the TLP Pap test. If a laboratory does 50,000 Pap tests per year but only 30% of those are specified as TLP Pap smear tests, the cost of those fewer TLP Pap tests increases. This is not a hypothetical issue. Transition costs must be considered because they will occur and they may be substantial.

In conventional Pap smear testing, for example, the laboratory provides Pap collection kits to its clients that cost $1.00 or less each. With the TLP Pap test, each kit is substantially more expensive. The laboratory will need to make a significant capital investment to place a sufficient inventory (with a limited shelf life) of TLP collection kits into all the offices of its physician clients.

Further, during transition to full conversion, two types of kits must be handled and inventoried. And, only trained cytotechnologists can read TLP Pap tests. If the TLP test volume is low, it is difficult to maintain cytotech proficiency at acceptable levels. Slides must also be carefully sorted so only TLP-trained cytotechnologists get TLP Pap tests for screening. The transition process from conventional Pap smears to TLP Paps requires careful management because it is unlikely that full conversion will occur in many laboratories in the foreseeable future.

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Area Of Concern To Labs

Reimbursement of the TLP Pap test has received much attention but is still an area that should be of concern to laboratories. Congress recently enacted a very significant increase in Medicare’s reimbursement for the conventional Pap test, raising it from $7.15 to $14.60.

At an assumed cost of $13.00 for the conventional Pap test, Medicare needs to reimburse Cytyc’s ThinPrep Pap test at $23.35 for break even to occur. The $10.35 differential is the added cost of performing a ThinPrep TLP Pap test from the example presented. TriPath’s PREP would need a reimbursement of $19.57 for break even to occur.

Current Medicare reimbursement for the TLP Pap test is regionally determined by “gap-filling.” It was $21.00 in California, $21.45 in New York, $14.50 in Texas, $17.00 in Florida, $16.50 in Illinois, $12.00 in Minnesota, and $7.15 in Virginia. Recently these fees have increased to as much as $28.50. A national fee is expected to be established by Medicare later this year.

Looking at automated Pap smear screening, currently only one product has FDA clearance for use in the United States. It is TriPath’s AutoPap® Primary Screening System.

“Fee Per Use” Contract

The cost for screening Pap tests on the AutoPap System must be calculated on a weighted basis. TriPath provides systems in the USA on a “fee per use (FPU)” basis with agreements generally four years in length.

The FPU rate may be as low as $3 per slide in the first year. However, over the four-year term TriPath averages at least $5 per slide. For example, if the client begins at $3 per slide in year one, they may move to $5 in year two and then $6 to $7 per slide in years three and four.

FDA requires 75% of the slides put through AutoPap, as a primary screener, be manually screened. The remaining 25% of the slides, diagnosed as WNL, will be assumed to cost an average of $5 each. Also assume for this exercise that the remaining 75% of the slides are screened by a cytotechnologist at a cost of $10 each.

On the surface it appears that AutoPap is a bargain. However, the economics are somewhat more complicated. Assume 100 “risk-free” slides are put through the AutoPap System. That costs $500 (100% x 100 x $5). The 75% portion screened by a cytotechnologist costs $750 (75% x 100 x $10). The total is $1,250 to process 100 slides. To screen all 100 slides manually costs $1,000 (100% x 100 x $10).

Rescreening Rates

That represents a 25% cost premium for using the AutoPap System. And, that’s without considering “high risk” slides in the 100 slides that must be screened manually, or without considering the 15% rescreen rate when using the AutoPap System versus a 10% rescreening rate for manual screening.

TriPath Imaging is currently working for FDA approval of a combined PREP and AutoPap system. This would marry the PREP automated liquid preparation instrument to the automated AutoPap Primary Screen system. Company officials believe that, as a combined instrument suite, they can offer laboratories a total list price of under $8.00 per Pap smear test.

Were this to prove true, it would definitely improve the economics of TriPath’s automated systems over conventional Pap smear screening methods. The arrival in the marketplace of an FDA-cleared automated liquid preparation/automated primary screening system would also change the existing competitive balance between Cytyc and TriPath Imaging.

Cytyc has yet to weigh in with some type of automated Pap smear screening system that can tie into its ThinPrep TLP system. Cytyc will certainly be aggressive at protecting its early lead in the cervical cancer screening marketplace. But the specific way in which Cytyc might respond to TriPath’s possible $8.00 automated liquid prep/automated screen product is unknown.

During the three installments in this series, I have tried to highlight two basic aspects of the various new Pap smear technologies. One aspect is
the clinical performance of these products, as demonstrated in clinical studies and from the anecdotal experience of laboratories which were early adapters. This was covered in installments one and two. (See TDR, June 19, 2000 and August 21, 2000.)

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Compelling Economics

The second aspect is the cost of these technologies as compared to the cost of conventional Pap smear methods. As this third installment demonstrates, the current generation of new Pap smear technologies does not offer compelling economic advantage over a conventional Pap smear.

This brings up an interesting question. If cost-benefit studies generate mixed results about the actual performance of certain of these various technologies against the conventional Pap smear; and if these products cost more than conventional Pap smears, then why has at least one of these products captured a significant share of the Pap smear market?

I believe the primary answer lies in reimbursement. In regional markets where payers have given generous reimbursement for the CPT codes associated with liquid preparation Pap smears, clinical laboratories have an economic incentive to offer this technology to clinicians.

Generous Reimbursement

Thus, in these areas of the country, the liquid preparation Pap smear has a higher ratio of utilization compared to conventional Pap smears. In regions where payers have been less generous with the reimbursement connected to these CPT codes, liquid prep Pap smears are not used as frequently.

If, in fact, it is generous reimbursement for these CPT codes that actually drives laboratory acceptance of TLP technology, there may be an interesting consequence. Remember what HCFA and private payers did to slash reimbursement (and utilization) for high-volume chemistry panels in recent years?

If the TLP Pap smear is seen to have no clearcut and indisputable economic benefit over conventional Pap smears, Medicare and private payers might decide to cut reimbursement for the CPT codes associated with TLP Pap smears as a way of discouraging a technology they consider to have marginal clinical benefit against increased costs of 50% to 80% per test.

Another Wild Card

There is another wild card in this equation. That is Digene, Inc.’s Hybrid Capture HPV® (human papilloma virus). Clinical evidence is accumulating that some combination of Pap smear screening and HPV testing may be more effective than just conventional Pap smears alone. This may create a new equation of clinical benefit versus cost which works for or against liquid preparation technologies and automated Pap smear screening.

I can, however, make one prediction with confidence. Within the field of women’s health, there will be ample and heated debate about the benefits and costs of these new cervical cancer screening technologies for some years to come. The final chapter is far from being written!

“Capacity Expansion” Pap Smear Model

LABORATORIES DOING HIGH VOLUMES of Pap smears face different management challenges. One of these is staffing enough cytotechnologists to handle increased volumes of Pap smears.

The economics of using automated screening is different for these laboratories. They use TriPath Imaging’s AutoPap system to expand the capacity of their laboratory, allowing it to accommodate additional specimen volumes.

In this case the 25% archive rate of the AutoPap (see page 12) translates into a 33% improvement in capacity. Large laboratories, such as Unilab, Inc. of Tarzana, California, consider expanded capacity to be one strategic benefit of using the AutoPap to perform primary screening of Pap smears. This is illustrated by the table below:

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