Offering Molecular Tests Has Surprises & Pitfalls

Labs face financial risk if payers and clinicians are slow to accept new molecular-based tests

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CEO SUMMARY: Laboratories that offer some of the new assays based on molecular technologies often find themselves facing significant financial risk. That’s because payers are skeptical about new lab tests which come at a high price, but don’t offer substantial clinical benefit. One early-adopter laboratory shares advice about how to identify, in advance, some of the surprises and pitfalls that accompany these tests.

DIAGNOSTIC TEST KITS FOR ASSAYS based on molecular technologies are now pushing their way into the marketplace. However, most payers have yet to fully accept many of these tests and establish adequate reimbursement for them.

Additionally, lab directors at several early-adopter laboratories tell THE DARK REPORT that the introduction of new molecular-based assays triggers a variety of problems, each of which can generate significant financial risk if not handled promptly and effectively.

One Lab’s Experience

One laboratory which has plenty of experience in evaluating and introducing new molecular-based assays is NorDx Laboratories of Scarborough, Maine. Its President and CEO, Stan Schofield, has relevant insights into the management problems—and solutions—for handling the challenges of offering new molecular technologies to clinicians.

“Our laboratory is open to all new technologies,” stated Schofield. “We want to be proactive in helping bring new diagnostic assays to our clinicians. For that reason, we have seriously evaluated many of the new molecular-based kits as they enter the marketplace.

“One conclusion from our experience so far is that there is considerable financial risk in setting up a new test before there is wide acceptance of the test by both payers and clinicians, and before adequate reimbursement is established,” observed Schofield. “This makes it prudent for a laboratory to evaluate several factors before making the decision to offer a molecular- based test.”

“Further, cost pressures on the healthcare system mean that payers are exercising great caution and taking extra time when making decisions to cover new tests and setting reimbursement levels. This environment challenges diagnostic manufacturers, because widespread acceptance by payers and ample reimbursement sometimes takes years to achieve,” noted Schofield.

“This is why there is financial risk for laboratories which may be too quick to acquire and set up some of these new molecular test kits,” he continued. “Labs can lose a lot of money until such time as payers and clinicians know enough about these types of new assays to accept them and pay adequate amounts for them.”

Schofield has five relevant examples that illustrate the types of issues laboratory administrators and pathologists need to identify and track prior to making a decision to offer new molecular-based assays. Each is based on the experience of specific molecular assays which have reached the laboratory marketplace Each illustrates the confusion that results when tests are “approved” for clinical use, but payers establish different types of reimbursement criteria. Unsuspecting laboratories often learn about these problems only after payers return claims with a “denied” stamp on them.

Non-Coverage By Payers

Issue one is non-coverage by payers. “Labs need to be aware that payers may simply refuse to cover a new assay based on molecular technology,” observed Schofield. “A great illustration of this is the decision of Trail-blazer Health, which is a Medicare Part B carrier for Maryland, Delaware, Virginia, Washington, D.C., and Texas. It announced, about two years ago, that it would refuse to cover 34 tests which used amplified probes and similar technologies.

“Under pressure from a variety of laboratory professional organizations, Trailblazer Health has agreed to cover seven of these tests, effective October 1, 2003. But we’ve not seen that change yet. And we have a local payer in Maine which has used the decision of this particular Medicare carrier to refuse cover- age for some of these tests.”

Issue two currently challenges both molecular test kit vendors and their laboratory customers. It’s the payer’s often-lengthy process of updating existing diagnostic methodology. “The molecular version of the fecal occult blood test is a good example of this problem,” he explained. “Medicare’s existing reimbursement was $4.54. This was updated to $18.56 with the new CPT code.

Inadequate Reimbursement

“That seems like a generous reimbursement update,” said Schofield. “However, it proves to be less than half of the reimbursement level necessary for the molecular version of this test to be economically viable for both vendor and laboratory.

“Let me explain,” continued Schofield. “Enterix Corp., located here in Maine, offers its In-Sure™ test, which can be reimbursed by Medicare at the $18.54 rate. However, Enterix has said in a recent newspaper article that it must sell its test kit (to laboratories) at a minimum of $28.00 to generate enough revenue to stay in business. Next, the laboratory must add its direct costs and overhead to the kit price. This pushes the total reimbursement needed closer to $40.00 if both laboratory and diagnostic vendor are to recover their cost of offering this test.

Lab Can Lose Money

“NorDx has found a number of molecular tests where this type of reimbursement gap exists,” observed Schofield. “It puts the lab in the position of losing money each time it performs one of these tests and fails to generate enough reimbursement to recover the full cost of performing that test.”

Issue three arises when a payer takes the lab’s claim for a molecular test billed at its proper CPT code and cross-walks it to another CPT code used by the older, non-molecular methodology. “In these instances, the older methodology is reimbursed at, say, $3 or $4 dollars per test,” said Schofield. “When called, the payer says ‘why should we pay your lab up to ten times more for the same test result, just because you used a new technology?’ In such cases, a laboratory can be stuck paying $18 for a molecular test kit, with only a $4 reimbursement to offset its costs.”

“…labs should verify reimbursement policies independent of the representations of their diagnostic vendor,” he advised. “Sales reps have been known to stretch the facts if it helps them complete a sale.”

Issue four involves gaps between Medicare’s reimbursement policies for screening tests and how a physician orders certain tests. “Abbott’s UroVision™ bladder cancer marker illustrates this principle,” stated Schofield. “Just as was previously the case with PSA testing, Medicare will not pay for this bladder cancer test if it is a screening test. The laboratory must educate physicians about this type of molecular assay and use ABNs appropriately. Otherwise, claims for this test will be denied.

“Not only should laboratories be aware of this type of acceptance criteria, but labs should verify reimbursement policies independent of the representations of their diagnostic vendor,” he advised. “Sales reps have been known to stretch the facts if it helps them complete a sale. Once the contract is signed, however, it is the laboratory that must live with the downstream consequences.”

Issue five involves the lag in clinical practice acceptance after payers have established specific reimbursement criteria. “The changes in cervical cancer screening make a great illustration of this point,” observed Schofield. “Recent changes in clinical guidelines call for DNA-based HPV testing in patients meeting specific criteria. As well, a three-year cervical cancer screening cycle is now appropriate for some patients.

“The good news is that payers have accepted these guidelines. Aetna is reimbursing Digene’s DNA with Pap® test at $58. But Aetna is strict in vetting every claim to verify that the reimbursement criteria have been met,” stated Schofield.

“For laboratories, this creates pressure in several ways,” he explained. “First, the vendor can be aggressive in encouraging the laboratory to set up and offer the test, even though few clinicians are ready to accept and order the new test. Second, the laboratory must devote considerable resources to helping physicians shift their clinical practices to the new recommended guidelines.

Need To Educate Patients

“Third, patients need to be educated. In the case of cervical cancer screening, both HPV testing and a three-year interval (for women meeting specific clinical criteria) are new recommendations. Women need to learn why cervical cancer screening procedures are changing and accept these new guidelines. Fourth, as noted above, payers are reimbursing for these tests only if very specific criteria are met,” stated Schofield.

These examples demonstrate why labs need to consider a range of issues before deciding to purchase, set up, and offer new molecular-based assays. On the following pages, Schofield shares some advice on how laboratories should negotiate contracts with vendors for these types of tests.

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