Labs Facing a Shock to Molecular Diagnostic Pricing

This year has ushered in for laboratories a shift of pricing foundations beneath their very feet—both in general and at the molecular level. The sector is already confronting a recent 2.95 percent cut in Medicare’s clinical laboratory fee schedule, along with a 52 percent reduction in the technical component of CPT code 88305, the most commonly ordered surgical pathology code. Then late last month, two Medicare administrative contractors (MACs) released initial gap-fill pricing for many of the 114 Tier 1 molecular tests, with pricing for many of the tests much lower than what labs had been receiving under the prior code stacking methodology. The rates were released by Palmetto GBA, which has jurisdiction over California, Nevada, and Hawaii, and Cahaba GBA, which oversees Tennessee, Alabama, and Georgia. Some tests have seen double-digit rate cuts compared to code-stacking prices. “If you have a lot of exposure to code stacking, it is not a positive,” said Amanda Murphy, an analyst with the William Blair investment banking firm in Chicago. However, Murphy noted that the national labs will likely escape any major hits to their bottom lines due to the diversity of their business segments. And there is also a wide variation in prices between the MACs. For example, Palmetto is permitting a payment of $605.24 for PTEN gene analysis (CPT code 81321), which tests a patient’s genetic proclivity for several medical conditions. By contrast, Cahaba is permitting $123—less than a quarter of Palmetto’s rate. Palmetto has released pricing for 78 tests to date.

CODE	TEST	PALMETTO	CAHABA
81200	Canavan	$93.90	$123.00
81215	BRCA1	$93.94	$50.00
81223	Full gene sequence	$1,554.56	$1,200.00
81243	Fragile X	$60.51	$123.00
81255	Hexa Gene	$93.90	$123.00
81263	LGH vari regional mutation	$259.93	$123.00
81270	Jak2 gene	$72.81	$90.00
81275	KRAS gene	$225.88	$235.00
81291	Mthfr gene	$92.92	$50.00
81321	PTEN gene analyis, full sequence	$605.24	$123.00
81324	PMP22 gene analysis, duplication/deletion	$486.16	$123.00
81325	Full sequence analysis	$297.24	$123.00
81332	Serpina1 gene	$70.20	$50.00
81342	Trg gene rearrangement analysis	$148.12	$205.00
81355	Vkorc1 gene	$83.19	$90.00
Source: Palmetto GBA, Cahaba GBA

  Although the deployment of these tests is not always commonplace, it has raised significant concerns among players in the western United States, where there is a large concentration of firms that focus on esoteric testing. Chilling Effect on Personalized Medicine The California Clinical Lab Association (CCLA)—one of the largest and most influential of the state-level trade groups—convened an emergency meeting of its trustees during the first week in February. It was decided at that meeting that its 58 member laboratories would lobby Congress for changes in the pricing process. “It appears that [the Centers for Medicare and Medicaid Services] has required Palmetto to come up with pricing before sufficient understanding of the industry and the testing was obtained,” said Michael Arnold, the CCLA’s executive director. “It is really going to stop personalized medicine in its tracks.” One specific example Arnold cited is the CYP2D6 test (CPT code 81226), which tests enzyme levels. Arnold noted that it has a variety of testing applications for both cancer and cardiac patients. As a result, such a complex test had been highly priced, with a median price charged by labs of $510 and a high of $819. Palmetto has priced it at $147.50; Cahaba at $50. “It does not take into consideration the different procedures involved,” Arnold said. Arnold added that the pricing recently released by Palmetto has led to layoffs within the laboratory industry. However, he declined to provide specifics. Under Palmetto’s molecular diagnostic services program (MolDx), launched in 2012, labs that bill for molecular tests in Medicare Jurisdiction 1 Part B region must register each assay, get a test code, and submit test information and supporting evidence in order to obtain coverage. Although Palmetto’s MAC contract for Jurisdiction 1 was not renewed, company officials have said publicly that they have national aspirations for the MolDx program. One particular lab that is affected by the Palmetto’s coverage decisions is Berkeley HeartLab—five of its tests have been denied coverage by Palmetto—15 percent of its total offerings. However, Berkeley is owned by Quest Diagnostics, the nation’s largest laboratory. As a result of its size, Quest officials do not appear too fazed by the current denials. “We estimate that molecular revenues are less than 5 percent of Quest Diagnostics’ diagnostic information service revenues, and the current rate setting activity pertains only to the Medicare portion of these revenues,” said Quest spokesperson Wendy Bost. She added that the company is in ongoing discussions with Palmetto regarding the rate setting. A Palmetto official did not respond to a request for an interview. Impact on National Labs Limited Bost also mentioned a recently released report by William Quirk, an analyst with Piper Jaffray, who concluded that the changes in rates would “create some noise for the clinical labs and diagnostic product companies [but] the real impact is limited.” Murphy, the William Blair analyst, concurred that the national labs would not feel a great impact from the pricing changes or denials. “Quest is a pretty advanced organization,” she said. “My guess is they have been working with all the local MACs regarding the tests.” In the meantime, Bost conceded that getting Palmetto to approve those five tests will take some time. However, she noted that several HIV and cancer tests now considered the standard of care “once encountered reimbursement and other market hurdles.” Agendia, an Amsterdam-based molecular diagnostics company that had its BluePrint cancer assay denied, was also undeterred. “Agendia will soon submit several manuscripts which we aim to see published and that we believe could provide the clinical utility information to satisfy the Palmetto requirements so that we can get reimbursed for BluePrint in the latter half of the year,” said company spokesperson Matthew Clawson. And not every molecular lab of significant size will be affected by the changes. Redwood City, Calif.-based Genomic Health, which offers Oncotype DX molecular assays for breast and colon cancer, obtained its own codes.