As noted in this report, alternative payment systems are making inroads into the U.S. health care system, but the predominant payment model remains fee-for-service, which relies on diagnostic coding systems for coverage and payment of clinical laboratory tests (PMC, 2014). Coding systems (see Box B-1) facilitate the processing of health care claims and thus are key to coverage and payment policy as well as data tracking and outcomes/quality research (Radensky, 2015). Coding systems enable health insurers and other payers to determine whether a certain service, procedure, or supply is covered by the patient’s health plan and whether the claim should be paid. Though closely interdependent, assignment of a specific code to a procedure or service does not determine coverage, set reimbursement rates, nor guarantee payment by health insurers and other payers (SACGHS, 2006, 2008).
Coding for the large number of complex and rapidly evolving biomarker tests for targeted therapies has undergone significant changes over the past 3 years, and is a process that itself continues to evolve. Prior to 2013, molecular diagnostics were billed as separate items using a combination of Current Procedural Terminology (CPT®) codes that described each step of the procedure used to perform the test. This process, known as “code stacking,” reflecting the layering nature of the process, was a response to the fact that the coding system had not kept pace with new technologies, and specific codes for molecular diagnostics were not available.
Code stacking created great uncertainty and confusion, and was
unsatisfactory to payers who could not determine precisely what test was being performed, as different stacked codes could be used for the same diagnostic test or different tests would be billed using the same stacked codes (Deverka and Dreyfus, 2014; Faulkner et al., 2012). Calls for increased transparency and granularity by payers and test manufacturers resulted in the American Medical Association’s (AMA’s) CPT® Editorial Panel adopting a new subsection of the CPT Pathology Section
to describe molecular pathology procedures. The new codes replaced procedure-based code stacking with analyte-specific codes in the Tier 1 category of commonly performed tests. The requirement that laboratories report molecular pathology tests using the 116 new Molecular Pathology (MoPath) CPT codes took effect in January 2013.1
The development of new codes facilitates appropriate and consistent payment by ensuring greater accuracy and granularity, providing health plans and other payers with a clearer understanding of precisely which tests they are paying for, and may support payers’ efforts to assess clinical utility by enabling tracking of the test in claims databases. It is important to note, however, that while the new codes offer greater accuracy in terms of the specific biomarker tests used, observers note that outstanding issues remain—such as performance variability among different laboratories testing for the same analytes—that the new codes do not address (IOM, 2015). Moreover, the coding system will be further challenged to keep up with the rapid pace of innovative new technologies such as next-generation sequencing (NGS). AMA is currently working on developing NGS-specific CPT codes (Deverka and Dreyfus, 2014).
MEDICARE CODING AND PAYMENT FOR LABORATORY TESTS
The Medicare program is the largest single payer of laboratory tests in the United States, and as such influences Medicaid and private payer coverage and payment decisions (OIG, 2013). Medicare is required by law to pay only for items and services that are “reasonable and necessary,” which is interpreted generally as improving clinically meaningful health outcomes, although determining the precise definition of these terms has “proven to be an enduring challenge” (Neumann and Chambers, 2012, p. 1775). For example, in 1989, Medicare published a proposed regulation defining “reasonable and necessary” as safe, effective, non-investigational, appropriate, and cost-effective (Neumann and Chambers, 2012). The proposal was withdrawn after criticism from external stakeholders over the inclusion of the term “cost-effective.” Furthermore, the Centers for Medicare & Medicaid’s (CMS’s) use of a “least costly alternative” reimbursement policy was successfully challenged in the courts in 2008. Efforts to clarify the terms continue, with some calling for a legislative remedy to provide definitional clarity (Neumann and Chambers, 2012).
Though some Medicare coverage determinations are made at the national level (referred to as national coverage determinations, or NCDs), the large majority are local coverage determinations (LCDs) and are
1 See http://www.ama-assn.org/ama/pub/news/news/2012-09-17-cpt-code-changes-2013.page (accessed April 21, 2015).
decided upon by Medicare Administrative Contractors (MACs). The NCD process typically takes approximately 9 months, while the LCD process takes about 3 months. CMS is also authorized by statute to use a process for coverage decisions known as coverage with evidence development.
The implementation of the new set of MoPath CPT codes occurs under Medicare’s clinical laboratory fee schedule (CLFS). CMS has two methods at its disposal to set the Medicare payment rate for a new MoPath CPT code. First, for tests for which a comparable test or code exists, CMS uses the crosswalk approach to benchmark Medicare payment for the new code to the same rate for a comparable, existing test or code. Second, the gap-fill method is used in situations where a comparable code or test does not exist.
CMS’s 2014 Physician Fee Schedule Final Rule2 specified that the rates for the new molecular pathology CPT codes were to be set using the gap-fill process,3 which can take a year to complete, and requires MACs to set payment rates for new advanced tests based on a number of factors, such as local pricing patterns (what laboratories charge, including discounts), resources required to perform the test, and what other payers pay for the same test. CMS then determines a national payment rate for each new CPT code based on the contractor-specific median rate. The new gap-fill rates released by the MACs are significantly less than the previous code-stacked amounts. Moreover, professional associations raised their concerns with CMS about considerable reduction in payment or denial of test claims by MACs. The uncertainty surrounding the new gap-fill rates is viewed as having a potentially negative impact on investment in new test technologies, which generally requires “stability of payment over time” (Deverka and Dreyfus, 2014).
Protecting Access to Medicare Act of 2014
Further changes to Medicare’s coding and payment of clinical diagnostic laboratory tests resulted from the passage of the Protecting Access to Medicare Act (PAMA) in 2014.4 PAMA’s Section 216 titled Improving Medicare Policies for Clinical Diagnostic Laboratory Tests5 entails modern-
2 Revisions to Payment Policies under the Physician Fee Schedule, Clinical Laboratory Fee Schedule and Other Revisions to Part B for CY 2014 (CMS-1600-FC).
3 The criteria and process for gap-filling are specified in 42 CFR 414.508(b). A reconsideration process for tests that are gap-filled is specified in § 414.509.
4 The Protecting Access to Medicare Act, P.L. 113-93, was signed into law on April 1, 2014. https://www.congress.gov/bill/113th-congress/house-bill/4302 (accessed June 1, 2015).
5 Sec. 216 amends the Social Security Act’s Title XVIII to prescribe requirements for establishment of Medicare payment rates for clinical diagnostic laboratory tests and new advanced diagnostic laboratory tests. https://www.congress.gov/113/plaws/publ93/PLAW113publ93.pdf (accessed May 1, 2014).
ization of Medicare’s payment process for laboratory services. In fact, PAMA’s provisions represent the most significant changes to the CLFS in 30 years, and come after calls for reform by many stakeholders over the years. The Institute of Medicine’s comprehensive study Medicare Laboratory Payment Policy: Now and in the Future, conducted 15 years ago, for example, recommended far-reaching changes to improve the outdated CLFS to ensure it was prepared for the new era of advanced clinical laboratory tests (IOM, 2000).
PAMA established a new market-based payment approach to paying for laboratory services, using the weighted median of rates paid by private payers for tests (Carey, 2014). This change was driven by the recognition that Medicare was paying significantly more for certain tests than other payers (OIG, 2013). To implement the new payment approach, laboratories are required, beginning in 2016, to report test market data that CMS will use to determine CLFS prices. This reporting requirement is viewed by laboratories as potentially problematic because most clinical laboratories do not have adequate IT infrastructure, staff, and other mechanisms in place to report such information (Klein, 2015).
PAMA also requires coverage of clinical diagnostics to be established through LCDs. The legislation grants the Department of Health and Human Services (HHS) the authority to designate one or more MACs to establish coverage policies and/or process claims for payment for laboratory tests for the entire Medicare program.
Finally, PAMA also created a new type of diagnostic test referred to as an advanced diagnostic laboratory test (ADLT). An ADLT is a clinical diagnostic laboratory test offered and furnished only by a single laboratory and not sold for use by any laboratory other than the original developing laboratory. An ADLT must meet one of the following criteria:
- The test is analysis of multiple biomarkers of DNA, RNA, or proteins combined with a unique algorithm to yield a single patient-specific result; or
- The test is cleared or approved by the Food and Drug Administration (FDA); or
- The test meets other similar criteria established by HHS.
PAMA outlines a sophisticated coding structure for laboratory tests that could include existing Healthcare Common Procedure Coding System (HCPCS) codes with some modification. The law calls for (1) temporary (not to exceed 2 years) HCPCS codes to identify new ADLTs or new laboratory tests that are cleared or approved by FDA; (2) unique HCPCS codes to identify and publicly report the payment rate for existing tests for which Medicare payment is made and which are ADLTs or clinical
diagnostic laboratory tests that are cleared or approved by FDA; and (3) a unique identifier, such as a HCPCS code or modifier, for certain ADLTs or FDA-cleared or -approved laboratory tests as requested by a manufacturer or laboratory.6
The Congressional Budget Office estimates that PAMA’s clinical laboratory fee provisions will result in significant reductions in Medicare spending, with savings on the order of $2.5 billion over the 10-year period between 2014 and 2024 (CBO, 2014). CMS is in the process of developing the regulatory framework to implement the myriad legislative provisions of PAMA. Most recently, CMS released the CLFS for 2016, which shifted the pricing process for several Multianalyte Assays with Algorithmic Analyses to the gap-fill method, instead of the crosswalk method CMS had proposed in an earlier draft of the CLFS that would have likely resulted in cuts to the payment rates for those tests. Significant uncertainty as to the precise impact of PAMA’s provisions on molecular diagnostics will remain until the regulations are finalized and fully implemented.
Carey, B. 2014. Summary of CLFS reform provisions in the Protecting Access to Medicare Act of 2014. http://www.foleyhoag.com/publications/alerts-and-updates/2014/april/clinical-laboratory-fee-schedule-reform-provisions (accessed May 5, 2015).
CBO (Congressional Budget Office). 2014. Cost estimate for the Protecting Access to Medicare Act of 2014.
Deverka, P. A., and J. C. Dreyfus. 2014. Clinical integration of next generation sequencing: Coverage and reimbursement challenges. The Journal of Law, Medicine, & Ethics 42(Suppl 1):22-41.
Faulkner, E., L. Annemans, L. Garrison, M. Helfand, A. P. Holtorf, J. Hornberger, D. Hughes, T. Li, D. Malone, K. Payne, U. Siebert, A. Towse, D. Veenstra, J. Watkins, Personalized Medicine Development and Reimbursement Working Group. 2012. Challenges in the development and reimbursement of personalized medicine-payer and manufacturer perspectives and implications for health economics and outcomes research: A report of the ISPOR Personalized Medicine Special Interest Group. Value in Health 15(8):1162-1171.
IOM (Institute of Medicine). 2000. Medicare laboratory payment policy: Now and in the future. Washington, DC: National Academy Press.
IOM. 2015. Policy issues in the development and adoption of biomarkers for molecularly targeted cancer therapies: Workshop summary. Washington, DC: The National Academies Press.
Klein, R. D. 2015. Reimbursement in molecular pathology: Bringing genomic medicine to patients. Clinical Chemistry 61(1):136-138.
Neumann, P. J., and J. D. Chambers. 2012. Medicare’s enduring struggle to define “reasonable and necessary” care. New England Journal of Medicine 367(19):1775-1777.
OIG (Office of the Inspector General). 2013. Comparing lab test payment rates: Medicare could achieve substantial savings. Washington, DC: Office of the Inspector General.
6 PL-113-93. Op.cit.
PMC (Personalized Medicine Coalition). 2014. The future of coverage and payment for personalized medicine diagnostics. Washington, DC: Personalized Medicine Coalition.
Radensky, P. 2015. Policy issues in the clinical development and use of biomarkers for molecularly targeted therapies—reimbursement webinar. Presentation to the Committee on Policy Issues in the Clinical Development and Use of Biomarkers for Molecularly Targeted Therapies, May 4, 2015, Washington, DC.
SACGHS (Secretary’s Advisory Committee on Genetics, Health, and Society). 2006. Coverage and reimbursement of genetic tests report. Washington, DC: Department of Health and Human Services.
SACGHS. 2008. U.S. system of oversight of genetic testing: A response to the charge of the Secretary of Health and Human Services. Washington, DC: Department of Health and Human Services.
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