Outdated Payment Policies Hurt Diagnostics Innovation

Medical Device & Diagnostic Industry Magazine
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Originally Published MDDI October 2005

NEWSTRENDS

By Maria Fontanazza

Medicare payment policies for new diagnostics are "archaic" and "severely flawed," according to a report commissioned by AdvaMed. Proposed reforms could enable diagnostics manufacturers with promising new technologies to get their products adopted faster and used more often.

Most pressing is the need to update Medicare's clinical lab fee schedule (CLFS), states the report, written by The Lewin Group (Falls Church, VA). That suggestion was one of several to improve timely patient access to new diagnostics.

The CLFS lists fees used by Medicare to pay clinical labs. According to the report, it hasn't been adjusted for inflation in 13 of the past 15 years, and it's not slated to be modified until after 2008. In addition, each dollar paid in 2004 under the CLFS equaled $0.75 in 1984 dollars, after accounting for inflation and mandated payment reductions.

"The schedule looks back to 1983, and the pricing under it hasn't been updated very often," says Ted Mannen, managing director of Washington, DC–based ContentHealth LLC. "I can't think of another reimbursement system that relies on such a dated set of data. It's ironic that the form of technology that's designed to look forward is saddled with a reimbursement system that's designed to look backward."

The report urges the Centers for Medicare and Medicaid Services (CMS) to update the CLFS into a single national payment schedule to decrease pricing variations between carriers.

"If you were to poll all of the [major lab] groups, they'd likely agree that Medicare reimbursement is a huge problem for them," says Jeff Ezell, associate vice president of diagnostics at AdvaMed. "It affects their ability to invest in new technology, hire and retain qualified lab personnel, and serve certain patient populations."

Another problem reported is that diagnostics aren't used enough. Although diagnostics make up less than 5% of hospital and Medicare costs, diagnostics findings affect up to 70% of healthcare decisions. The report cites a study by RAND Corp. (Santa Monica, CA), which states that even though diagnostics are advised as standards of care, they're "grossly underused." Last year, the underuse of diagnostic results was linked to 34,000 avoidable deaths.

"In some cases, the factors affecting innovation are overshadowed by disparities in care, lack of access, and poor information," says Clifford Goodman, PhD, study director and vice president of The Lewin Group. He adds that racial and ethnic disparities are some of the broader factors beyond what's discussed in the report. These disparities also affect the inappropriate use of diagnostics.

Goodman's suggestions to solve the underuse issue include better patient and provider education. Access to electronic health records that inform clinicians of when to use or order tests is also important. Developing payment innovations, such as pay for performance, and wider use of evidence-based clinical practice guidelines should decrease the problem.

With baby boomers nearing Medicare age, there will be an even higher demand for the latest technology. Medicare must be able to accommodate the new flow of technology in the areas of coding, coverage, and payment decisions. Part of this means ensuring that FDA and CMS have the funding, expertise, data, and policy-making processes to make the best use of new technology, says Goodman.

One change the report recommends is transferring responsibility for coverage determinations for preventive services under Medicare from Congress to HHS. "The Medicare system is based on a 40-year-old model that doesn't pay for prevention screening unless authorized on a technology-by-technology basis by Congress," says Goodman. "Medicare beneficiaries shouldn't have to wait for an act of Congress to have access to certain proven diagnostics."

These days, input from agencies such as the National Institutes of Health, Centers for Disease Control and Prevention, and the U.S. Preventive Services Task Force puts Medicare in a strong position to make informed policy decisions, says Goodman.

"It's a promising recommendation," says Mannen. "When you look at the other things that HHS does now, such as its preventative services task force, you can see some real synergies between that and review of coverage for diagnostic tests." Although Mannen commends the suggestions in The Lewin Group report, he suspects that this type of significant change will take more than a year to implement.

"It's encouraging that evidence-based policy making is nearly the norm and no longer the exception," says Goodman. "Stakeholders are prepared to understand that it shouldn't be used unless it's proven. We're encouraged about trying to move toward a more value-based system."

Ezell says the AdvaMed diagnostic payment task force will discuss the report recommendations at its quarterly meeting. After evaluating the changes, the group will form an advocacy plan to push reforms forward in late 2005 and 2006.
The Lewin Group's report, The Value of Diagnostics: Innovation, Adoption, and Diffusion into Health Care, is available online at www.advamed.org/publicdocs/thevalueofdiagnostics.pdf.

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