NOTE: For readers outside of the U.S., this content can be used as a case study resource.
In our previous blog posts, we’ve discussed the advantages and challenges associated with developing your own laboratory-developed tests (LDTs), things to know before establishing an LDT, as well as regulatory guidance for clinical laboratories. Here we introduce another important topic: how do labs get paid for testing services?
The key to understanding the reimbursement process for LDTs and in vitro diagnostic (IVD) tests begins with a basic knowledge of Medicare billing, coding, and pricing processes. In their educational paper, “Reimbursement for laboratory-developed and in vitro diagnostic tests”, ASU College of Health Solutions provides a much-needed summary of all the moving parts and essential background information – sprinkled with more than a few critical insights – to help you explore the various reimbursement strategies available to you.
Reimbursement in the U.S.
For IVDs and LDTs, reimbursement by Medicare is administered by the Centers for Medicare & Medicaid Services (CMS). CMS coverage and reimbursement decisions also serve as the baseline for private insurance companies, as their pricing is tethered to the Medicare system in many ways.
A Medicare administrative contractor (MAC) is a private regional health care insurer that has multistate jurisdiction to process Medicare Part A and B claims. 1 CMS relies on a network of MACs to serve as primary operational contacts for health care providers and the Medicare Fee for Service program.
CMS reimburses laboratory tests under the Clinical Laboratory Fee Schedule (CLFS), which defines specific dollar reimbursement rates for each type of test. 2 A CLFS Annual Public Meeting provides the public an opportunity to present comments, recommendations, and reconsideration requests. After CLFS review, CMS consults with an external expert advisory panel. The panel determines reimbursement rates for new and substantially revised tests using either crosswalk or gap-fill calculations:
- Crosswalk calculations are made for a new (or substantially revised) test which is comparable to an existing test. The existing test code is used to determine payment.
- Gap-fill calculations are made when no comparable existing test is identified. The MAC assembles data about the unique performance features of the test and establishes a new payment rate at the MAC level.
Current Procedural Terminology (CPT) codes are used in this process to ensure clinically valid codes are issued, updated, and maintained on a regular basis. CPT terminology is a widely accepted medical nomenclature, used to communicate across healthcare as a uniform language to accurately reflect current clinical practice. 3
A CPT code, defined by the American Medical Association (AMA), is a five-character numeric or alphanumeric code that indicates to physicians, accreditation originations, and health insurers what type of care has been provided. Both LDTs and IVD tests must have designated CPT codes for a laboratory to bill and receive payment.
The first step in assessing reimbursement for an LDT is to review the existing Category I CPT codes. If an existing CPT code adequately describes the test, the appropriate MAC and private payors should be notified and asked to provide reimbursement. Tests covered by existing codes provide the most direct path to reimbursement.
In response to the Protecting Access to Medicare Act (PAMA) enacted in 2014, Proprietary Laboratory Analyses (PLA) Codes were added to existing the CPT code set. 4 PLA codes are assigned to laboratory tests defined in the PAMA, including advanced diagnostic laboratory tests (ADLTs), clinical diagnostic laboratory tests (CDLTs), multianalyte assays with algorithmic analyses (MAAA), and genomic sequencing procedures (GSPs).
It should be noted here that the implementation and reception of PLA codes have been mixed. Industry leaders complain that while CMS may offer reimbursement of tests with PLA codes, many commercial payors see the new codes as a “red flag” and deny payment. This perception of bias is problematic, particularly when reporting with a PLA code takes precedence over using an existing CPT code. 5
If no existing CPT or PLA codes apply, the test may be launched with a general, “miscellaneous” code, although it can be difficult to obtain approval and maintain consistent payment for such tests. A test may also qualify for a Category III CPT code for emerging technologies, services, and procedures. However, these are intended to be used for data collection in clinical trials or to provide documentation for the FDA approval process, making reimbursement unlikely. When a test does not correlate to an existing code, laboratories typically choose to request a new CPT code.
New CPT Codes
When no existing CPT code applies, the laboratory can apply to the AMA directly for a new CPT code. To satisfy AMA requirements, the test must improve patient outcomes, and the data should be published in a peer-reviewed journal to drive favorable coverage and reimbursement by payors. Requirements for a code change include:
- proof that the test is truly new
- published, peer-reviewed data from a clinical trial
- strong clinical advocates, often medical societies
- widespread use of the test in the U.S.
The review of this application may take as long as two years. Although tests with new codes take longer to reach the market, the risks are minimal once coverage is in place.
In short, laboratories seeking reimbursement for LDTs and IVDs should first determine whether their test is covered, identify the payment system under which it will be reimbursed, identify the product’s code within that system (or apply for a new code), and determine the amount paid for that particular code. Although the systems governing this process may seem complex, having a basic understanding of these concepts will help you make informed and confident decisions when planning your coverage and reimbursement strategy.
Arizona State University College of Health Solutions is dedicated to translating scientific health research and discovery into practical interventions. Be sure to read ASU’s educational paper for more information on reimbursement for laboratory-developed and in vitro diagnostic tests.
In case you missed it, check out these related and informative resources:
- An introduction to diagnostic testing in laboratories
- Preparing for and implementing a laboratory-developed test
- 7 Things to Know Before Establishing an LDT
- Regulatory Guidance for Clinical Laboratories
- The Simple, Sensible, Salient & Still Spell-Binding Seven Questions About Laboratory Developed Tests
- Challenges of Establishing Laboratory-Developed Tests