CEO SUMMARY: In response to the steep ramp-up in the utilization of genetic and molecular testing, the nation’s largest health insurers are preparing to institute new guidelines for coverage and reimbursement. These will include pre-authorization by physicians, a more effective genetic test coding arrangement for claims submission by laboratories, and implementation of evidence-based medicine (EBM) guidelines. All of these developments create opportunities for clinical laboratories to step up and add value in new ways to payers.
DEMAND FOR MOLECULAR TESTING and the ample reimbursement for such tests is a bright spot for the clinical laboratory industry. But rapid growth in the utilization and expense of molecular tests has caught the attention of the managed care companies who pay the bills.
“Laboratories should prepare to address new coverage guidelines and strict requirements for pre-authorization of molecular tests that the nation’s largest health insurers are already implementing,” said Michael Snyder, President and Co-Founder of Laboratory Management Services, in Hauppauge, New York. “Health insurers are now instituting major policy changes designed to bring utilization of genetic and molecular tests under tighter control.
“This is a consequence of the rapid growth in the volume and related costs of genetic and molecular testing performed each year in this country,” he noted. “For 2008, about $5.5 billion was spent on molecular testing. Estimates are that the bill for molecular tests will top $8 billion for 2010 and some predictions are that, in coming years, molecular testing will represent about one-third of all diagnostic testing.
“It is only natural that payers are concerned by this sharp increase in spending for molecular testing,” explained Snyder. “Anytime health plans see the cost of certain clinical procedures spiraling upwards, they actively take steps to control this spending growth.
Consequences For Payers
“For payers, the rapid increase in molecular test volumes has two consequences,” he observed. “First is the greater cost of the molecular tests. Second, in the practice of personalized medicine, a single molecular test is often paired with a direct therapeutic response. This means the lab test leads directly to spending for treatment.
“This motivates the payer to ensure that expensive molecular tests are only ordered when appropriate, since the right test at the right time on the right patient is essential to determining if that patient qualifies for expensive therapy,” he said.
“Another issue of concern to payers is the ‘code stacking’ laboratories use when filing claims for molecular tests,” continued Snyder. “Code stacking may involve a group of 21 CPT codes combined on one bill and representing more than 1,500 tests. These codes describe the components of the test or the procedures involved, not an actual clinical objective or specific identification of a pathogen or disease state.
“Since the CPT code describes the processes performed by the laboratory, it’s very difficult for health plans to understand exactly which test was performed,” noted Snyder. “Thus, when health plans pay these bills, they do so without knowing the specific laboratory test performed and with no ability to manage clinical appropriateness.
“Health plans would prefer to apply evidence-based policies,” he continued, “This is one way they can ensure that the right patient got the right laboratory test. It also allows the payer to match the diagnostic results to the appropriate therapeutic response.
“To control costs and minimize code stacking, health plans are auditing testing practices and implementing new policies requiring pre-authorization and new coding standards,” said Snyder. “These steps will result in an increase in the denial rates for molecular lab test claims. In addition, health insurers are ready to apply evidenced-based policies before paying these molecular test claims.
“Of course, most pathologists and lab administrators know that evidence-based medicine (EBM) is not new,” he explained. “All clinical policies are based on medical evidence. The problem comes when health plans have no knowledge of the molecular lab test performed because it means they cannot apply the appropriate policy. In such cases, the health insurers’ recourse will be to deny payment of that laboratory test claim.
“And, in fact, payers will have good reasons for not paying for these tests,” he continued. “A well-known example involves the administration of Herceptin, a chemotherapy agent for the treatment of breast cancer. Herceptin is indicated only when there is a positive HER2/neu test. Therefore, it is absolutely imperative for a managed care company to know whenever a HER2/neu was performed.
“That’s because the results of the HER2/neu test generate successive steps that both the physician and the health plan must take,” added Snyder. “This example demonstrates the positive effect of appropriate laboratory test utilization in support of the medical policy that payers want physicians to follow. In fact, health plans want labs to perform the HER2/neu test for several important reasons.
Essential Uses of Lab Data
“First, health plans want the molecular lab test results to support the reporting of data for the Healthcare Effectiveness Data and Information Set (HEDIS) to the National Committee for Quality Assurance (NCQA) and others,” noted Snyder. “Second, this test data is essential for disease management. Third, these test results are necessary for the health plan to help patients manage their pharmacy benefits. Fourth, as managed care plans establish patient health record (PHR) repositories, they want the molecular test data to be part of the patient’s PHR.
“All of these elements bear directly on how a managed care plan directly covers the care of an individual patient,” he observed. “But health insurers have other extremely valuable ways to use molecular test results.
“Managed care plans need the molecular lab test data: 1) to identify the target populations; 2) to select outcomes measures; 3) to risk-stratify the target population; and, 4) to implement interventions,” stated Snyder. “Here is a place where clinical laboratories can step up and add value to the managed care plans.
“Payers’ need for full and complete sets of molecular test data is what opens the door for clinical labs to work more closely with health plans,” he advised. “It is possible for laboratories to develop partnerships with payers. In these partnerships, labs can work with health plans to give them the laboratory test data they need in the format that is most efficient for them.
“To manage molecular testing, health plans will introduce new policies regarding notification, prior authorization, and revised coding standards,” explained Snyder. “There are at least three ways that payers are about to change current coding and billing practices for genetic and molecular tests.
“First, laboratories will be required to notify the health plan when they perform molecular diagnostic testing,” he predicted. “The notification will help payers to identify the actual molecular test being performed and determine utilization patterns. It will also allow the payer to engage the medical management process.
“Second, pre-authorization guidelines will require a doctor to obtain permission for the genetic or molecular test prior to performance of that test,” he stated. “Currently, pre-authorization is commonly handled by telephone and fax. Until electronic or fully-digital ways of handling pre- authorization of molecular tests between physician and payer are in place, this will be a challenge for the laboratory which is to perform the molecular test.
“Third, managed care plans will manage utilization of genetic and molecular tests by the introduction of new coding requirements,” continued Snyder. “Molecular test codes are needed that can function as an adjunct to the current codes. As this happens, the claims systems used by payers can then precisely recognize which genetic and molecular tests are being performed.
“Pathologists and lab directors should expect payers to roll out all three of these changes during the next 24 to 36 months,” predicted Snyder. “It will be important for every lab team to keep tabs on this, because each of these coming changes will be incorporated into the managed care contracts the laboratory signs with payers.”
There may be additional surprises for laboratories as health insurers take deliberate actions to control utilization of genetic and molecular tests. “Conversations I am having with managed care plans indicate that they intend to issue standards of participation to clinical labs,” he commented. “One aspect will be standards of care based on scientific evidence. The second aspect will be credentials for each laboratory that go beyond CLIA and CAP certification.
“After managed care plans educate laboratories on how to meet these new guidelines, they will police these policies,” he added. “Their goal is to ensure that all genetic and molecular testing is appropriate and ties back to personalized medicine. As part of this effort, there will be automation and digital reporting tools, because these new systems need to work uniformly for everyone.”
Snyder believes all of this represents an excellent opportunity for laboratories which respond quickly and efficiently to the changing needs of their payers. “This evolutionary path gives the lab industry an opening to be a partner at the table with respect to the application of clinical evidence and its proper effect on utilization.
More Claim Denials Ahead
“However, it’s in the cards that laboratories will see more denials of claims for genetic and molecular tests,” predicted Snyder. “After all, it’s going to take time for health insurers to refine their policies and procedures for each type of molecular test. Labs must be prepared to obtain patient acknowledgement of financial responsibility. And that means getting patient waivers signed. For these reasons, labs need to be prepared to see an increase in bad debt that is associated with claims for genetic and molecular tests.”