In June, Applied Policy’s diagnostic experts introduced a new series, “IVD Test Reimbursement: Coverage, Coding, and Payment.” For our fourth and final article in the series, we explore payment – including the Medicare payment systems under which IVD tests are reimbursed, separate vs. bundled payments as well as strategic considerations involving legislative and regulatory factors impacting IVD payment.
What is payment?
Payment is the amount of money Medicare and other payers will reimburse for a medically necessary, covered item or service. With respect to IVD tests, where the test is performed on a patient, or the site of service, determines the reimbursement amount. Each site of service (e.g., physician office, inpatient hospital, outpatient hospital) relies on a its own coding system for reporting the test and obtaining reimbursement.
How are IVD tests paid under Medicare?
As stated above, Medicare payment varies depending on the test performed and site of service. For example, most medically necessary outpatient tests performed in a physician office or independent lab are paid are under the Medicare Clinical Laboratory Fee Schedule (CLFS). Tests that require a physician interpretation such as some pathology tests will be paid under the Medicare Physician Fee Schedule (MPFS). Tests performed in an outpatient hospital setting are generally bundled into a lump sum payment made under the Medicare Hospital Outpatient Prospective Payment System (OPPS). Rates may vary based on geography and clinical severity (e.g., for hospital inpatient tests). Rates are updated annually and are publicly available before going into effect.
What is the Medicare CLFS?
The CLFS is the Medicare payment system utilized for medically reasonable and necessary laboratory services that are ordered by a physician or a qualified nonphysician practitioner and performed in a physician office or by an independent laboratory. Individual tests each have their own payment rate and Medicare beneficiaries do not have a co-payment for these services (i.e., Medicare payment is payment in full).
How are Medicare CLFS payment rates set?
Prior to 2018, Medicare set CLFS payment rates based on historical laboratory charge data that were capped and inflated over time. However, in response to evidence suggesting that Medicare’s CLFS payment rates exceeded the payments being made for the same tests by private payers[1], Section 216 of the Protecting Access to Medicare Act (PAMA) of 2014 required the Centers for Medicare & Medicaid Services (CMS) to base CLFS payment rates on private payer rates. Specifically, beginning in 2018, PAMA required CMS to calculate the weighted median of private payer rates for each test on the CLFS with data collected from “applicable labs” as defined by CMS. These labs were required to provide the rates they obtained for each test from private payers as well as volume data. The PAMA provided for a phased-in approach to what were mainly cuts to Medicare rates with no more than 10 percent in each of the first three years (i.e., 2018, 2019, 2020) and no more than 15 percent in each of the following three years. However, the scheduled cuts of up to 15 percent were delayed due to the COVID-19 pandemic (i.e., in 2021 and 2022). Currently, the resumption of the PAMA cuts of up to 15 percent will be on January 1, 2023. Unlike the pre-PAMA CLFS payment rates, all rates are now set nationally (i.e., the rates do not based on geography).
What are Advanced Diagnostic Laboratory Tests (ADLTS) and how are they reimbursed?
Under PAMA, a new subcategory of laboratory services was created for ADLTs which provides for special payment rules for tests meeting specific criteria. ADLTs must:
- Be offered by a single laboratory
- Provide an analysis of multiple biomarkers of DNA, RNA, or proteins
- Provide new clinical diagnostic information that cannot be obtained from any other test or combination of tests[2]
The CLFS payment rate for a new ADLT is equal to the product’s actual list charge for three calendar quarters, before the payment rate for an ADLT is set at the weighted median of private payer rates. ADLT rates are also different from other laboratory services, as CMS establishes new payment rates based on private payer data annually, rather than every three years. When a manufacturer has an ADLT, this is a favorable reimbursement option that should be utilized.
What about payment for new lab tests under the Medicare CLFS?
CMS prices new tests even if the expected utilization by Medicare beneficiaries is limited.
New tests that examine the same analyte as existing tests will use the same code and receive the same payment rate. However, if a new test is not described by an existing code, new codes are assigned payment rates using “crosswalking” or “gapfilling” methodologies.[3] Crosswalking involves the establishment of a payment rate for a laboratory service based on the rate of a similar service or combination of services. Gap-fill is used when no similar service exists. Gap-fill involves setting payment rates on information such as charges, discounts to charges, and resources required to perform the test as determined by Medicare Administrative Carriers (MACs).[4]
When are IVD tests separately payable?
Most laboratory services paid under the Medicare CLFS do not require a physician interpretation (i.e., the test provides a result that does not involve work of a physician). As discussed earlier in this article, tests that are paid separately under the CLFS include tests performed in an independent laboratory or in a physician office. Hospital outpatient laboratory tests can only be paid separately if one or more of the following conditions are met:
- It is a molecular pathology test; or
- It is the only hospital outpatient service provided; or
- It is unrelated to the other outpatient services provided and ordered by a different practitioner; or
- It is performed on a specimen from a patient who is not a patient of the hospital.
When is IVD test payment “bundled”?
Services that are paid separately in one system may be bundled or packaged into a lump-sum payment in another system. Payment for IVD tests performed in an inpatient hospital setting is always bundled under the in Medicare Inpatient Prospective Payment System (IPPS). In other words, there is no separate payment made for IVD tests in the inpatient setting. The IPPS covers all inpatient services, including diagnostic tests, in a single bundled payment under the Medicare Severity Diagnosis-Related Group (MS-DRG) system.[5] Payment is scaffolded to provide increased payment amounts for MS-DRGs with complications and comorbidities (CCs) or major CCs (MCCs), which are likely to require more intense levels of care and/or longer lengths of stay. All diagnostic lab tests provided during a hospital stay, as well as up to 3 days prior to admission are included in the payment bundle.[6]
Payment for IVD tests under the OPPS is bundled for emergency department visits and services associated with kidney dialysis. Although these services were previously paid separately under the OPPS, they are now bundled into the payment for associated services based on cost and clinical similarity in Ambulatory Payment Classifications (APCs).[7]
What are some strategic considerations for IVD test reimbursement?
In addition to being aware of the legislative and regulatory issues under Medicare (i.e., PAMA cuts), IVD test manufacturers are learning that payers will only reimburse for “need to know” results (as opposed to “nice to know” results). Healthcare has shifted to value-based, rather than volume-based, payment for IVD tests. All payers are looking to incentivize providers to consider added value of care, including the need for diagnostic tests – at Applied Policy, we refer to this as the “new normal.”
CMS and other payers have raised, and continue to raise, the bar on evidence requirements to support coverage and payment. And bundled payments are increasing across all Medicare fee schedules.
In this rapidly changing payment environment, it is necessary to look at all aspects of reimbursement – coding, coverage, and payment – very early in test development. It is critical to design and conduct studies that demonstrate the clinical utility of an IVD test: how does the test result change a provider’s handling of patient care and how does it improve patient outcomes?
It’s now a fact that payers are most interested in the value of the information provided by the test and how it affects treatment decisions, not just in the quantity of information provided.
Thank you, readers!
This article concludes our series on IVD test reimbursement. Coding, coverage and payment are critical individually, however, each component intersects on the pathway to reimbursement. We encourage you to reach out to our team of diagnostic experts at Applied Policy to assist in developing a tailored strategy to ensuring your IVD test will be reimbursed at launch.
[1] https://oig.hhs.gov/oei/reports/oei-07-11-00010.asp
[2] https://www.cms.gov/newsroom/fact-sheets/medicare-clinical-diagnostic-laboratory-tests-payment-system-proposed-rule
[3] https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ClinicalLabFeeSched/Laoratory_Public_Meetings
[4] https://www.medpac.gov/wp-content/uploads/2021/11/medpac_payment_basics_21_clinical_lab_final_sec.pdf
[5] https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software
[6] https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Three_Day_Payment_Window
[7] https://www.medpac.gov/wp-content/uploads/2021/11/medpac_payment_basics_21_opd_final_sec.pdf