Medicare lab payment analysis raises questions about pricing transparency

A Medicare administrative contractor has sent a cease-and-desist letter to a well-known diagnostic reimbursement expert containing lab test pricing and coding information that reveals instances where CMS may be overpaying for certain molecular tests.

Palmetto GBA sent the letter to Bruce Quinn, asking him to delete information from a public blog and his own files. Palmetto's lawyer asserts that the information was included in a document, known as a master edit file (MEF), that is the contractor's intellectual property.

However, according to Quinn and a market analyst's report, the file was obtained through a Freedom of Information Act (FOIA) request to CMS, meaning the agency has already deemed the release of the information to be in the public interest. Quinn asserts that the analysis he has done using the MEF data demonstrates its value to the public. The information is also of competitive interest to labs who often face a difficult reimbursement environment and are under pressure to lower costs.

However, FOIA grants the public the right to request records within federal agencies if the data doesn't fall under one of nine exemptions, for example, information that invades personal privacy or trade secrets obtained outside of the government. Quinn's experience with Palmetto, which CMS has said it is looking into, raises questions about whether a government contractor can legally restrict public access to information obtained under FOIA, particularly a document that contains information about how the government disburses taxpayer funds.

Quinn's exchange with the MAC comes at a time when rapid growth in the genetic testing industry is increasing Medicare spending on laboratory testing. HHS' Office of Inspector General recently reported that Medicare spending on lab tests in 2018 was $7.6 billion, up 6% from $7.1 billion in 2017. The OIG noted that although payment rates decreased for 75% of lab tests, the savings were erased largely by greater spending on genetic tests, which was approximately $1 billion in 2018 compared to around $500 million in 2017.

In step with increasing genetic testing expenditures, the OIG is also ramping up efforts to track fraudulent billing practices in the space. For example, OIG and its law enforcement partners last year brought charges against 35 individuals who had illegally billed Medicare more than $2.1 billion for genetic tests.

Moreover, Palmetto's actions seem out of step with CMS's recognition that greater pricing transparency in the healthcare sector is in the public interest. In January 2014, CMS instituted a new policy where it would determine on a case-by-case basis whether to grant FOIA requests seeking information on Medicare payments to physicians. In making such determinations, CMS said it would weigh whether the privacy interests of individual doctors outweighed the public's interest in having access to this information.

After its FOIA policy took effect in March 2014, CMS received several requests for the release of physician payment data, at which point the agency decided it would benefit the public by regularly publishing Medicare payment for services — including lab tests — furnished by doctors and other healthcare professionals.

"The Department concluded that the data to be released would assist the public's understanding of Medicare fraud, waste, and abuse, as well as shed light on payments to physicians for services furnished to Medicare beneficiaries, which are governed by statutory requirements that CMS must follow," CMS wrote in an April 2014 letter to American Medical Association CEO James Madara informing him of this change.

CMS further explained that the information it would publish would identify service providers by their National Provider Identifier (NPI) and the services they billed Medicare for by Healthcare Common Procedure Coding System codes (i.e. CPT codes), and detail the average submitted charges, average allowed amount, the average Medicare payment, and the number of beneficiaries who received the service.

Quinn maintains that the activities for which he received a cease-and-desist letter from Palmetto are in line with CMS' policies aimed at price transparency and the agency's goals to shed light on Medicare waste and fraud. Furthermore, he noted that most of the information in the document in question is already publicly available, and the information that is not yet public will eventually become so when CMS publishes Medicare payment information for physician and lab services, as it has annually since 2015. (Each year, the released payment data is for two calendar years prior.)

"This makes it nonsensical to say that Palmetto's payment rates to labs are entirely a business secret of Palmetto," Quinn said.

The MEF in question was created by Palmetto and contains the Medicare payment rates to labs (identifiable by NPI) for 22,000 lab tests (identifiable by CPT codes). Investment firm Nephron received the MEF from CMS, under FOIA, with the specific goal of pinpointing what the government was paying one lab, Myriad Genetics, for GeneSight, a multi-gene, combinatorial pharmacogenetic test that helps doctors understand how patients' genetic variations can impact their ability to respond to certain depression drugs. During an August earnings call, Myriad executives said that GeneSight was being reimbursed by Medicare at a new rate but declined to disclose the price.

In a September note, titled "FOIA Says: New GeneSight Price is $1,569," Nephron analyst Jack Meehan alerted investors of the new Medicare price. Although the new rate is a 28% cut to GeneSight's prior Medicare price of $2,184, it is still more than three times what another lab, AutoGenomics, receives from CMS (around $450), for a test which identifies patients at risk for opioid dependency.

The MEF confirmed that Myriad was using a nonspecific molecular pathology code that labs use for tests that don't have a proprietary code or aren't described by existing CPT codes, to bill for GeneSight. This bit of information was already known from publicly available CMS data, which showed that Assurex, the company that developed GeneSight and which Myriad acquired in 2016, used the code to bill for GeneSight. In fact, Meehan pointed out that based on CMS data from 2017, GeneSight received the biggest share of payments billed under that code ($31.5 million).

Meehan told investors that it is unusual for a test with GeneSight's level of utilization to not have a proprietary or unique claims code, which would allow Medicare to better track spending.

"Our FOIA response helps to shine better light on GeneSight pricing, which previously has been a mystery to the investment community," Meehan wrote.

Ultimately, there were two pieces of new information related to GeneSight that Meehan was able to glean from the MEF. One was the new GeneSight Medicare price, and the other was that the test now had a new Z-code, which are unique identifiers for molecular tests originally developed by McKesson to improve payors' ability to track utilization. Palmetto now owns Z-codes.

In a statement, Chip Parkinson, Myriad's executive vice president of payer markets and reimbursement, said that it is the company's understanding that certain aspects of CMS and contractors' test pricing and coding determinations, such as Z-codes, are proprietary information. As such, industry stakeholders may have to pay a subscription fee to access this information, Parkinson said, and there may be rules or procedures associated with the disclosure of this information.

Quinn, who is a consultant to several of Myriad's competitors in the PGx and hereditary cancer risk testing markets, discussed the new GeneSight pricing and Z-code in a post on his blog, and uploaded for reference the MEF document, which he obtained from Nephron. Shortly thereafter, Quinn received a cease-and-desist letter from Palmetto's law firm asserting that the entire MEF is the intellectual property of Palmetto, and that Quinn must delete the file from his blog and all copies in his possession. The law firm further demanded that Quinn provide the names and contact information of those who may have downloaded the MEF from his blog and anyone he distributed the file to.

Quinn has deleted the MEF file and redacted the GeneSight Z-code from his blog post, though the pricing analysis remains. However, he doubts Palmetto's claim that the entire MEF is proprietary, especially since much of the information in the file is already accessible on its Diagnostics Exchange (DEX) portal within MolDx, a claims processing and utilization tracking program Palmetto operates for molecular diagnostics.

While Palmetto may assert its right to control the use and dissemination of Z-codes, beyond that "it's not clear where [Palmetto's] intellectual property begins and ends," Quinn said.

Paul Levy, an attorney with Public Citizen Litigation Group, explained that if a company holds the copyright to specific content, for example, the New York Times holds a copyright to one of its published articles, then even if that article is released by the government as part of a FOIA request, that article can't be republished. That said, he also wondered what specifically Palmetto is claiming as its intellectual property. The cease-and-desist letter mentions that Palmetto "owns" Z-codes, and that these codes "are not for public distribution or publication," but it also appears to say all the contents of the MEF is Palmetto's intellectual property. "So, what is the claimed intellectual property?" questioned Levy.

He found particularly problematic the part in Palmetto's letter asking Quinn for the names of those who may have downloaded the MEF. "If I were Quinn, I would tell them to go jump in a lake about disclosing his users," Levy said. "If they want to pursue the identities of the downloaders, they can sue the downloaders as Doe defendants and serve a subpoena seeking the information. Then, a judge will decide if the claim has any merit."

In response to emailed questions for this article, a CMS spokesperson confirmed that the agency is looking into the matter, but also noted that "on a case-by-case basis Medicare Administrative Contractors can claim information as proprietary."

A spokesperson for BlueCross BlueShield of South Carolina, which Palmetto operates under, declined to provide comments for this article.

Historically, labs have not publicly commented on what commercial and government payors are paying for their tests, maintaining them as business secrets. Payors have also held this line. Several lawyers representing labs declined to comment for this article.

Charles Mathews, principal at consulting firm ClearView Healthcare Partners, noted that commercial and government revealing agreed upon payment rates with specific labs limits payors' negotiating power. "Everybody wants to feel like they are getting a deal," Mathews said. "[Payors] are open to secrecy, so labs are willing to give them better discounts."

Quinn wrote in his blog post that his analysis based on the MEF data suggests that Medicare contractors in the MolDx program appear to be shielding some tests at some "lucky labs" from reduced prices stipulated under the Protecting Access to Medicare Act (PAMA) of 2014.

With the enactment of PAMA, a lot of pricing information is now public, since CMS must publish the private payor rates it uses as its base for Medicare payment of lab tests every three years. This has increased pricing transparency, but Mathews noted that there are segments of the industry, for example, tests that are exempt from reporting private payor rates based on volume, that will never be priced under the new law. Notably, the unspecified CPT code 81479 — that Myriad uses for GeneSight and many other labs are increasingly using — is not priced under PAMA.

Once pricing for specific test codes is established through PAMA on the clinical lab fee schedule then MACs must adhere to that pricing, Mathews recognized. But in his experience, contractors appear to have more leeway in setting rates for certain types of tests in those gap years before PAMA kicks in. "That's where the flexibility is," he said, acknowledging, however, that some of Quinn's analysis on his blog does appear to be highlighting instances where certain codes and associated rates have been established for tests, but contractors are not enforcing them.

Still, even if the price of a specific test may eventually become public through CMS's transparency policies, payors and labs may be motivated to keep payment information under wraps, even if only for a time, Mathews recognized.

However, if after looking into Quinn's experience with Palmetto CMS ultimately decides that the contractor was right to block public access to test pricing information, it may raise even more questions as to how that squares with its own, as well as the Trump Administration's, push toward greater pricing transparency in healthcare.

For example, following an executive order from President Donald Trump to increase pricing transparency, CMS published a final rule in November 2019 requiring hospitals to make public all "standard charges," including negotiated prices with commercial payors and discounted cash prices, for services provided in an in-patient or out-patient setting. The American Hospital Association sued CMS trying to stop implementation of the rule, but a federal judge in June dismissed the lawsuit. HHS Secretary Alex Azar called the judge's decision a "resounding victory for President Trump and HHS's agenda to lower Americans' healthcare costs."

Specifically, in the lab testing space, despite increased pricing transparency with the development of tier 1 and tier 2 molecular pathology codes and PAMA, there are still blind spots that make it difficult for payors to pinpoint which specific tests are contributing to inappropriate and wasteful spending.

Meanwhile, government spending on lab testing, particularly on genetic tests, is on the rise. CMS previously estimated that the implementation of PAMA would yield savings of $670 million in clinical lab test payments in 2018. The OIG's recent analysis of 2018 data, however, revealed that the savings didn't materialize partly because Medicare paid out $969 million on nearly 1.8 million genetic test claims compared to $496 million on 950,000 claims the prior year.

"Transparency is important when spending is increasing at a fast pace [in order] to understand the reasons for the increase," said Lee Bendekgey, chief policy officer at Invitae, a firm that aims to expand access to genomically informed care to more patients by lowering costs.

In the era of personalized medicine, as genetic testing utilization increases, payors are instituting prior authorization policies and engaging third-party entities, such as lab-benefit managers, to control costs. In this environment, Bendekgey believes even greater openness around pricing is needed in order to understand the cost-effectiveness of novel interventions.

"If more people are getting tested and better care is being delivered, that's not a bad thing," he said. "On the other hand, if expensive tests, particularly proprietary tests, are being ordered more frequently, and the result has not improved care, then that should be considered."

Quinn, who is a consultant for Invitae (a company that competes with Myriad) and a former medical director for California's Medicare program, said his aim with the types of analysis he posts on his blog is to help Medicare identify irregularities in coding and pricing data that it may have missed but which point to wasteful spending or fraudulent billing practices.

Medicare contractors like Palmetto are required to adhere to CMS's policies, including the National Correct Coding Initiative (NCCI) manual. In the case of panel testing, for example, the coding manual stipulates that when there is a CPT code for a test gauging multiple analytes, a lab analyzing all the analytes for a patient should bill the panel code, instead of billing separately for each individual analyte, which can result in overpayment. This latter form of billing, called code stacking, is a practice payors have been trying to quash for years. Quinn said his analysis is essentially catching instances of code stacking not allowed according to the NCCI manual and other irregularities, such as potential overuse of the unspecified procedure CPT code 81479. "I have repeatedly informed Palmetto of some of the same errors from year to year," he said.

To do this analysis, he uses data that is either already publicly available or that he has obtained from CMS and contractors via FOIA. For example, he used publicly available data from CMS to identify that in 2015, the MolDx program was paying much more than the allowed clinical lab fee schedule rate for EGFR testing to some labs, particularly Genoptix, which NeoGenomics acquired in 2018. After Quinn pointed this out, the overpayment was corrected, he said.

More recently, Quinn has alerted Palmetto that some labs may not be following the contractor's billing instructions for Lynch syndrome panel testing and stacking analyte-specific codes, resulting in payments of $3,000 instead of the $1,220 that is allowed. Additionally, he has alerted Palmetto that labs may be overusing the unspecified procedures CPT code 81479 and receiving higher payment for tests that they can otherwise bill using existing CPT codes for panel tests with lower pricing.

Quinn in his blog states there seem to be irregularities in coding and billing information in Palmetto's MEF for tests performed by Caris Life Sciences and Sonic Healthcare. Sonic did not reply to a request for comment, but a Caris spokesperson said, "that the Z-code Bruce Quinn attributed to the company does not, in fact, belong to Caris. Any attempts to connect that Z-code to Caris would be inaccurate." Quinn clarified that in his blog he is simply claiming that the "MEF has a cornucopia of errors in it" and he further noted that there is no way to tell from information in the file whether listed tests are still ordered.

A version of this story first appeared in our sister publication, Genomeweb.