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gdpawel · 06-09-2013, 02:57 PM

Scott Gottlieb, MD

Medicare has sharply changed the way it pays for diagnostic tests, cutting payment rates and curtailing coverage for some new tests altogether.

The makeover in the way that Medicare reimburses molecular diagnostics has been foreshadowed for years, but was abruptly put into effect this summer.

Affected are the kinds of tests that probe for gene and protein markers found in our body’s tissues. These tests help doctors diagnose a multitude of diseases and monitor our response to drug treatments. They are used in a variety of medical settings. Some of their greatest promise has been in personalizing the treatment of cancer by tailoring drug therapies to a person’s unique tumor type.

The labs that perform the test are the same outfits that market them. The tests are typically sold as a laboratory service, rather than marketed as a medical device.

The new payment system has cut payment rates across the board, by an average of about 20% (and as high as 80% in some cases) from 2012 levels. Most of the new rates are being based on the work of one Medicare contractor, Palmetto GBA.

Hardest hit by the change, however, are many new diagnostic tests that aren’t yet a part of routine medical practice or may only benefit a small patient group, often with rare disease states. These diagnostics are being dubbed “tier 2” tests since they weren’t assigned discrete “codes” under the AMA’s new coding scheme.

In many cases, that also means that they haven’t been assigned a payment rate.

These tier 2 tests can try to file for Medicare payment under a so-called “miscellaneous” code for new tests. But that is often a dead end. In many cases, Medicare carriers have stopped paying for novel “tier 2” altogether, even tests that were previously reimbursed under the old scheme.

All of these tests typically probe for novel markers, or for a panel of (multiplexed) gene or protein markers whose combination of outputs are used to make predictions about things such as the potential for cancer to spread or respond to a medicine.

Previously, these tests were reimbursed under a “code stack” system that based payment rates on a sum of the cost of each of step used in conducting a particular test. Code stacking had a lot of problems. For one thing, the payment rates didn’t reflect the clinical value of a test, just the cost to perform it. The system also obscured from Medicare’s view what the agency was ultimately paying for.

When a bill arrived at Medicare, it merely listed the different markers that a particular test was probing for, and the laboratory steps being taken to identify these genes or proteins. Ultimately, the “code stack” didn’t reveal to Medicare what the test actually set out to do, and how doctors were using it.

So Medicare is replacing the ambiguous code stacks with a new set of discrete CPT codes that identify each common test by its own billing number. These codes are established by the American Medical Association at the behest of the Medicare agency. The AMA CPT Editorial Panel, which administers the development of new codes (but not reimbursement) for Medicare and all payers, made its first serious effort to come up with a new list of discrete codes back in 2010. After a long delay, the first tranche of 116 “tier 1” discrete codes finally went into effect January 1st.

As I wrote in an earlier article for Forbes, reimbursement for many of the tests were put on hold altogether while Medicare figured out what payment rates it wanted to assign to its new codes. Those rates are now starting to emerge, and the money is finally starting to flow again, although not all of the tests that fall under these “tier 1” codes are being reimbursed.

But the situation is even worse for tests that didn’t get one of the new codes. These novel tests don’t fit into one of Medicare’s new buckets. Many aren’t getting paid for.

This is having a profound impact on investment, and in turn, continued innovation and development. The policy change ends the established model for how novel tests got introduced into medical practice. With no suitable alternative, the new scheme will thwart the introduction of novel diagnostics and limit bets on new technology.

Labs traditionally don’t get paid for research and development. Nor are the sunk costs of R&D fully baked into the price of newly launched diagnostics. In this way, the pricing of diagnostic tests is very different than the pricing of drugs.

Except for a few exceptions, the intellectual property supporting a new diagnostic test is easy to engineer around. So it doesn’t support premium pricing for a new test.

As a result, most diagnostics get priced based on some measure of the cost of performing a test, not the cost it took to develop the novel diagnostic. So paying for diagnostic tests early in their product life cycle, before the clinical utility of a new test was fully demonstrated to Medicare’s approval, was a way of funding that R&D.

Early adoption of tests, often by clinical thought leaders at academic medical centers, wasn’t just a way to offset the cost of developing a new test. It also gave doctors a chance to start incorporating a new test as a part of medical practice. It enabled some doctors to practice medicine at its cutting edge. Typically academic doctors expert on a new marker were able to deploy a test and refine its role in medicine.

06-09-2013, 02:57 PM	#26
gdpawel Senior Member Join Date: Aug 2006 Location: Pennsylvania Posts: 1,080	Medicare Nixes Coverage For New Cancer Tests Scott Gottlieb, MD Medicare has sharply changed the way it pays for diagnostic tests, cutting payment rates and curtailing coverage for some new tests altogether. The makeover in the way that Medicare reimburses molecular diagnostics has been foreshadowed for years, but was abruptly put into effect this summer. Affected are the kinds of tests that probe for gene and protein markers found in our body’s tissues. These tests help doctors diagnose a multitude of diseases and monitor our response to drug treatments. They are used in a variety of medical settings. Some of their greatest promise has been in personalizing the treatment of cancer by tailoring drug therapies to a person’s unique tumor type. The labs that perform the test are the same outfits that market them. The tests are typically sold as a laboratory service, rather than marketed as a medical device. The new payment system has cut payment rates across the board, by an average of about 20% (and as high as 80% in some cases) from 2012 levels. Most of the new rates are being based on the work of one Medicare contractor, Palmetto GBA. Hardest hit by the change, however, are many new diagnostic tests that aren’t yet a part of routine medical practice or may only benefit a small patient group, often with rare disease states. These diagnostics are being dubbed “tier 2” tests since they weren’t assigned discrete “codes” under the AMA’s new coding scheme. In many cases, that also means that they haven’t been assigned a payment rate. These tier 2 tests can try to file for Medicare payment under a so-called “miscellaneous” code for new tests. But that is often a dead end. In many cases, Medicare carriers have stopped paying for novel “tier 2” altogether, even tests that were previously reimbursed under the old scheme. All of these tests typically probe for novel markers, or for a panel of (multiplexed) gene or protein markers whose combination of outputs are used to make predictions about things such as the potential for cancer to spread or respond to a medicine. Previously, these tests were reimbursed under a “code stack” system that based payment rates on a sum of the cost of each of step used in conducting a particular test. Code stacking had a lot of problems. For one thing, the payment rates didn’t reflect the clinical value of a test, just the cost to perform it. The system also obscured from Medicare’s view what the agency was ultimately paying for. When a bill arrived at Medicare, it merely listed the different markers that a particular test was probing for, and the laboratory steps being taken to identify these genes or proteins. Ultimately, the “code stack” didn’t reveal to Medicare what the test actually set out to do, and how doctors were using it. So Medicare is replacing the ambiguous code stacks with a new set of discrete CPT codes that identify each common test by its own billing number. These codes are established by the American Medical Association at the behest of the Medicare agency. The AMA CPT Editorial Panel, which administers the development of new codes (but not reimbursement) for Medicare and all payers, made its first serious effort to come up with a new list of discrete codes back in 2010. After a long delay, the first tranche of 116 “tier 1” discrete codes finally went into effect January 1st. As I wrote in an earlier article for Forbes, reimbursement for many of the tests were put on hold altogether while Medicare figured out what payment rates it wanted to assign to its new codes. Those rates are now starting to emerge, and the money is finally starting to flow again, although not all of the tests that fall under these “tier 1” codes are being reimbursed. But the situation is even worse for tests that didn’t get one of the new codes. These novel tests don’t fit into one of Medicare’s new buckets. Many aren’t getting paid for. This is having a profound impact on investment, and in turn, continued innovation and development. The policy change ends the established model for how novel tests got introduced into medical practice. With no suitable alternative, the new scheme will thwart the introduction of novel diagnostics and limit bets on new technology. Labs traditionally don’t get paid for research and development. Nor are the sunk costs of R&D fully baked into the price of newly launched diagnostics. In this way, the pricing of diagnostic tests is very different than the pricing of drugs. Except for a few exceptions, the intellectual property supporting a new diagnostic test is easy to engineer around. So it doesn’t support premium pricing for a new test. As a result, most diagnostics get priced based on some measure of the cost of performing a test, not the cost it took to develop the novel diagnostic. So paying for diagnostic tests early in their product life cycle, before the clinical utility of a new test was fully demonstrated to Medicare’s approval, was a way of funding that R&D. Early adoption of tests, often by clinical thought leaders at academic medical centers, wasn’t just a way to offset the cost of developing a new test. It also gave doctors a chance to start incorporating a new test as a part of medical practice. It enabled some doctors to practice medicine at its cutting edge. Typically academic doctors expert on a new marker were able to deploy a test and refine its role in medicine.