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Pathology Laboratory Testing at the Crossroads: Will Payers Deeply Discount Prices for Genetic Tests, or Will Value-Based Pricing Prevail?

Big changes in how these lab test claims are handled are just 11 weeks away, and most clinical laboratories are not up to speed on this issue

Note: Dark Daily offers this opinion and commentary by Editor Robert L. Michel

Big changes are coming in how payers handle code stacked claims for genetic tests and molecular diagnostic assays! However, few pathologists and clinical laboratory administrators understand why the collective efforts of payers to control utilization and reimbursement of these types of lab tests have the potential to undermine the financial stability of their medical laboratories and anatomic pathology groups.

The year 2012 is about to arrive and, when it does, it will bring the clinical laboratory testing industry to an important crossroads. Payers—both government and private—are ready to take decisive action to rein in an area of genetic and molecular testing that they consider to be on verge of spiraling out of their control.

It is inevitable that managed care plans will step up and change how they cover genetic and molecular tests and reimburse clinical labs for these procedures. The important question for the clinical laboratory testing industry is this: Can it speak with a unified voice and help payers establish coverage guidelines and reimbursement based on the true value of a molecular diagnostic test to the patient, to the physician, and to the payer?

Can Clinical Laboratory Industry Speak With a Unified Voice?

Or, will the clinical laboratory industry do what it consistently has done in recent decades and respond in a disjointed way, with different voices looking out for their best interests? In this scenario, it is easy to predict the following:

  • The public lab company sector of the industry may want to lead with offers of “lowest price” based on their high volume laboratory operations that produce substantial economies of scale. However, they will offer payers these lower prices for genetic and molecular tests along with the demand that payers exclude local laboratories from provider networks.
  • The surgical pathology profession will spend considerable resources to protect and enhance the level of compensation paid for physician professional services. However, when it comes to advocating for value-based coverage guidelines and reimbursement levels for the genetic tests and molecular diagnostic assays that originate in the ambulatory market and are typically covered under the Medicare Part B Laboratory Test Fee Schedule, the organizations representing pathologists are likely to be reluctant to advocate as aggressively as they might in favor of these issues, since it might water down their lobbying clout on professional compensation.
  • Hospitals and health systems, many with growing and successful laboratory outreach programs, will similarly want to protect their lobbying power to expend it on issues they consider more important to their overall interests. The powerful voice of the hospital industry is not likely to be a major influence in the events about to unfold over coverage and reimbursement for genetic and molecular tests originating in outpatient settings.

Unfortunately for the 3,300 private pathology group practices, the 4,800 hospital laboratories, and the several thousands of independent medical laboratories in this nation, the lack of a common voice that crosses all the subspecialties in laboratory medicine portends a disappointing outcome as the nation’s largest managed care companies, along with Medicare and state Medicaid programs, look to squeeze out short term savings at the expense of the entire laboratory medicine profession.

These comments are not meant to deprecate the collective efforts of the Clinical Laboratory Coalition and those dedicated laboratory professionals who currently devote untold hours to educating legislators, policymakers, and private payers about the upside potential for clinical value for clinical laboratory testing and anatomic pathology services. It is simply to point out that the laboratory medicine profession has failed to come together in a unified way at several key points in the past.

HMO Capitated Pricing Eroded Finances of All Clinical Labs in 1990s

For example, readers who lived through the 1990s will remember how one sector of the lab testing industry—the publicly-traded lab testing companies—eagerly offered full risk, capitated contracts to HMOs at prices that were less than the marginal cost of providing that testing! This pricing practice started around 1990 and dramatically lowered the level of reimbursement for lab testing that was paid to all laboratories in the nation.

Take this specific example of the clinical lab testing industry’s recent past and apply it to the genetic/molecular test payer crossroads that now confronts our industry. It would be déjà vu for the profession—as a whole—to stand back and let a handful of aggressive public lab companies negotiate highly-discounted prices with the nation’s largest health insurers on the genetic tests and molecular diagnostic assays that deliver substantial value to the entire healthcare system.

Don’t forget the other important element in this bargain with the devil. In exchange for the deeply-discounted lab test prices offered to payers, this same handful of public laboratory companies would insist that payers exclude community laboratories as providers. That adds insult to injury to the thousands of medical laboratory organizations across the nation. Not only would it be a struggle for them to negotiate contracts to be in the provider networks, but payers will tell these community labs that they have to accept the same low prices for lab tests that the larger laboratories offer the payers.

All of this background serves to bring us back to the advent of 2012. It is the crossroads over payers’ interest to change code stacking of claims and implement pre-authorization of expensive genetic and molecular tests. As a collective profession, pathologists and clinical laboratory managers have the opportunity to steer a different course and help the clinical laboratory testing industry educate payers, legislators, and policymakers about the added value of laboratory testing.

Advocating for Value-Based Reimbursement for Genetic Tests

The first challenge—and opportunity—to advocate for the value of genetic and molecular testing—is Palmetto GBA’s two proposed local coverage determinations (LCD) that would change the processes used by this Medicare carrier to process code stacked claims for molecular diagnostic tests (MDT) and laboratory-developed tests (LDT). Palmetto is also proposing a new “Molecular Diagnostic Services Program” (MolDx) that creates a molecular test registry and lays out a new process for making coverage determinations.

Every one of you can have a voice in educating Palmetto GBA and the Medicare officials involved in drafting these proposals about the positives and negatives of their ideas. To help inform you and your management team about why Palmetto is putting forth these changes in how it will handle code stacked claims for MDTs and LDTs, The Dark Report has arranged for two Palmetto GBA executives to participate in a special audio conference that happens on December 20, 2011 at 1:00 PM, EDT.

Presenting on this phone call will be Elaine K. Jeter, M.D., who is the Palmetto GBA J11 Medical Director; and Mike Barlow, who is Vice President of Jurisdiction 1 A/B MAC Operations. These two individuals have been Palmetto GBA’s public voices on the development and implementation of these first-ever proposals to address code stacking issues associated with claims for molecular diagnostic tests and laboratory-developed tests.

Public Discussion Open to All Pathology Groups and Medical Labs

Details on how your laboratory can participate can be found at “How Proposed Code-Stack Changes Will Impact Palmetto GBA’s Handling of Molecular Diagnostic Tests and LDTs.” This is an important event, for two reasons. First, it is open to everyone. Every laboratory organization can participate and hear, directly from the principal players at Palmetto GBA, about the specific ways that code stacks create problems for payers and how the proposed changes will be implemented. Essentially, this audio conference gives your management team and your billing/coding/collections staff a front row seat to hear, to learn, and to question the experts.

Second, your participation in this essential session gives you the insight and understanding you need to have similar discussions with the important managed care plans in your community. It is widely believed that, once Palmetto GBA implements these proposals, they will next be adopted by other Medicare carriers, followed by private health insurance plans.

These are the powerful reasons why you, your lab’s key managers, and your billing/collections team will want to be part of this audio conference on December 20. You will get, direct from the source, the detailed information you need to understand this trend.

Of equal importance, you will be prepared for the coming conversations your region’s payers will want to have with your laboratory as to how they want change coverage guidelines and reimbursement for molecular diagnostic tests and laboratory-developed tests. You will have that rare window of opportunity to emphasized the value of this molecular tests and work to establish fair coverage guidelines and reimbursement that are based on value to patient care and improved outcomes—and not simply based on lowest price.

There is a method in this madness. If Dark Daily and The Dark Report can do their part to provide an open forum for all laboratories—big and small, national and community—to hear and interact with key decision-makers at a time when this input can make positive changes to how a major payer will make coverage determinations and establish reimbursement, then it will be contributing to that united lab industry voice that has been missing in past years.

Opportunity is Now to Shape and Influence Payer Policies for Genetic Tests

Further, in their current roles, Palmetto’s Jeter and Barlow are establishing policy within the guidance extended to Palmetto GBA by Medicare officials. It is my view that community laboratories have an opportunity to put forward their views about these proposals at a time when it can positively influence the final policies that emerge from the public comment period.

But that can only happen if you, your management team, and your laboratory organization get involved while there is still time to speak out and provide evidence that supports the use of value when making coverage determinations and establishing fair reimbursement for molecular assays and laboratory-developed tests.

It is time for the entire clinical laboratory industry to recognize that—when it comes to genetic testing and molecular diagnostics—the payer community is now in the earliest stages of establishing philosophies and policies that will dominate for years to come. Palmetto GBA’s proposals may seem modest now and limited to a defined region of the United States. But these same proposals are equally likely to underpin all the policies yet to come as Medicare, Medicaid, and private health insurers take their own steps to “control” the skyrocketing cost of molecular diagnostic tests that deliver extraordinary value to patients.

My recommendation is that you get involved. Our industry is at a crossroads. Once it chooses a path and passes through this intersection, it will not be allowed to go back to where it is today. That is why you should seize this opportunity to ensure that your organization—whether it is an independent clinical lab, a hospital laboratory outreach program, or a pathology group practice—voices its concerns and suggestions at the very moment in time when policymakers and managed care executives are willing to listen.

It is for this specific reason that The Dark Report asked Jeter and Barlow of Palmetto GBA to participate in an open lab industry forum. I encourage your laboratory to be among those participating on December 20 and not be shy about asking questions and offering information about the consequences—positive and negative—of the MDT and LDT proposals now winding their way toward implementation on March 1, 2012.

Related Information:

Palmetto GBA Execs Explain MolDx, Its New “Molecular Diagnostic Services” Program for Clinical Pathology Laboratories

Palmetto, Medicare’s Biggest Carrier, Proposes to End Code Stacking for Molecular Clinical Laboratory Tests

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